<PAGE>
As filed with the Securities and Exchange Commission on January 15, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4899 65-0723837
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
<CAPTION>
of incorporation or
organization) Classification Code Number) Identification No.)
</TABLE>
116 Huntington Avenue
Boston, Massachusetts 02116
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
STEVEN B. DODGE
American Tower Corporation
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 375-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
<TABLE>
<S> <C>
Copy to: Copy to:
NORMAN A. BIKALES, ESQ. MARY R. KORBY, ESQ.
Sullivan & Worcester LLP Weil, Gotshal & Manges LLP
One Post Office Square 100 Crescent Court, Suite 1300
Boston, Massachusetts 02109 Dallas, Texas 75201
(617) 338-2800 (214) 746-7700
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is a 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>
Proposed Maximum Proposed Maximum
Proposed Maximum Offering Price Aggregate Amount of
Title of Each Class of Amount to be Per Offering Registration
Securities to be Registered Registered(1) Security(2) Price(2) Fee(2)(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par
value .................. 17,737,500 (2) $521,127,750 $144,874
- --------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Securities registered hereby will be offered pursuant to the Agreement
and Plan of Merger, dated as of November 16, 1998, as may be amended from
time to time, by and among the Registrant, American Towers, Inc. and
OmniAmerica, Inc. The amount to be registered is based upon an estimated
16,125,000 shares of common stock (on a fully diluted basis) of
OmniAmerica, Inc. issued and outstanding at the time of the merger. Upon
completion of the merger, each issued and outstanding share of common
stock of OmniAmerica, Inc. will be converted into 1.1 shares of the Class
A Common Stock of the Registrant.
(2) Estimated solely for the purpose of determining the registration fee.
Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended,
the proposed maximum offering price per security, the proposed maximum
aggregate offering price and the registration fee have been determined by
the value of the shares of OmniAmerica, Inc. (based on the average bid and
asked price on the Nasdaq National Market on January 12, 1998).
(3) The amount of the registration fee has been offset by $84,331, which was
previously paid in connection with the confidential filing of a
preliminary information statement of OmniAmerica, Inc. with the Commission
on December 28, 1998 as permitted by Rule 457(b). The balance of $60,543
has been transferred by wire to the SEC's lock box account.
---------------
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, as amended, or until this
Registration Statement will become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
OMNIAMERICA, INC.
12001 State Highway 14 North
Cedar Crest, New Mexico 87008
(505) 281-2197
To all Stockholders of OMNIAMERICA, INC.:
The accompanying Information Statement/Prospectus relates to the proposed
merger of OmniAmerica, Inc. with a subsidiary of American Tower Corporation.
Upon the completion of the merger, stockholders of OmniAmerica will receive 1.1
shares of Class A Common Stock of American Tower for each share of OmniAmerica
common stock they own. The Information Statement/Prospectus contains detailed
information about the merger and we encourage you to read it carefully.
The merger will be effected pursuant to the Agreement and Plan of Merger, dated
November 16, 1998, among OmniAmerica, American Tower and American Towers, Inc.,
a subsidiary of American Tower. A copy of the merger agreement is attached as
Appendix I to the Information Statement/Prospectus.
The Board of Directors of OmniAmerica has unanimously approved the merger and
the merger agreement. In addition, stockholders of OmniAmerica owning a
majority of the outstanding shares of OmniAmerica's common stock approved the
merger and the merger agreement by written consents on November 16, 1998. Under
Delaware law, such approval is sufficient to approve the merger and the merger
agreement. For this reason, OmniAmerica will not call a meeting of its
stockholders to vote on the merger, nor will OmniAmerica ask its stockholders
for a proxy relating thereto.
The Information Statement/Prospectus also contains information about the
proposed merger of a subsidiary of American Towers, Inc. with TeleCom Towers,
L.L.C. That merger is separate and independent from the merger involving
OmniAmerica. American Tower expects to complete the TeleCom merger at or about
the same time as the OmniAmerica merger.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Sincerely,
OMNIAMERICA, INC.
January 15, 1999
<PAGE>
INFORMATION STATEMENT FOR
[LOGO OF OMNIAMERICA APPEARS HERE]
The Boards of Directors of American Tower Corporation ("American Tower" or
"ATC") and OmniAmerica Inc. ("OmniAmerica") have agreed to merge OmniAmerica
with a subsidiary of American Tower. The merger will combine the strengths and
assets of two of the leading independent owners and operators of communications
towers in the United States.
If we complete the merger, OmniAmerica stockholders will receive 1.1 shares of
ATC Class A Common Stock for each share of OmniAmerica Common Stock they own.
Stockholders of OmniAmerica owning a majority of the outstanding shares of
OmniAmerica common stock have approved the merger. OmniAmerica is delivering
this document to provide you with important information about the merger and
how it will affect your shares of OmniAmerica Common Stock. Because certain
governmental and other approvals are required, OmniAmerica and American Tower
expect to consummate the merger during the spring of this year.
PROSPECTUS OF
[LOGO OF AMERICAN TOWER CORPORATION APPEARS HERE]
This document is also a Prospectus of American Tower. It provides information
about the offering of ATC Class A Common Stock that is occuring as part of the
merger. The ATC Class A Common Stock is listed on the New York Stock Exchange.
The New York Stock Exchange has approved the listing of the shares of ATC Class
A Common Stock to be issued in the merger. The trading symbol for such stock is
"AMT". On January 11, 1999, the last reported sale price per share of ATC Class
A Common Stock on the New York Stock Exchange was $27.68.
Please read this document carefully for more detailed information about
OmniAmerica, American Tower and the merger. Also, please see "Where You Can
Find More Information" on page 121 for additional information about OmniAmerica
and American Tower on file with the Securities and Exchange Commission.
This document also contains information about the proposed merger of a
subsidiary of American Towers, Inc. with TeleCom Towers, L.L.C. That merger is
independent from the OmniAmerica merger, although American Tower expects to
complete both mergers about the same time. Certain portions of this document
will be included in an Information Statement/Prospectus to be delivered to
TeleCom's members. For that reason, portions of this document are addressed to
both OmniAmerica stockholders and members of TeleCom.
YOU SHOULD CONSIDER CERTAIN IMPORTANT FACTORS REGARDING THE MERGER AND THE ATC
CLASS A COMMON STOCK. WE HAVE DESCRIBED THESE UNDER "RISK FACTORS" ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE ATC CLASS A COMMON STOCK TO BE ISSUED
UNDER THIS INFORMATION STATEMENT/PROSPECTUS OR DETERMINED IF THIS INFORMATION
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Information Statement/Prospectus is dated January 15, 1999 and is being
mailed to stockholders of OmniAmerica beginning about January 20, 1999.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Note to Reader............................................................ (i)
Forward-Looking Statements................................................ (i)
Questions and Answers About the OmniAmerica Merger........................ 1
Summary................................................................... 3
Risk Factors.............................................................. 12
Risk Factors Relating to the OmniAmerica Merger and the TeleCom Merger... 12
Risk Factors Relating to American Tower.................................. 13
American Tower Capitalization............................................. 18
Market Prices and Dividend Policy......................................... 20
Comparative Market Price Data............................................ 20
Dividend Policy.......................................................... 21
Selected Financial Data................................................... 22
American Tower Selected Financial Data................................... 23
OmniAmerica Selected Financial Data...................................... 26
TeleCom Selected Financial Data.......................................... 27
Unaudited Pro Forma Condensed Consolidated Financial Statements of
OmniAmerica.............................................................. 30
Unaudited Pro Forma Condensed Consolidated Financial Statements of
American Tower........................................................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower............................................. 45
Industry Overview......................................................... 54
Business of American Tower................................................ 58
General................................................................. 58
Growth Strategy......................................................... 60
Products and Services................................................... 62
Customers............................................................... 64
Management Organization................................................. 65
History................................................................. 65
Recent Transactions..................................................... 65
Sales and Marketing..................................................... 70
Regulatory Matters...................................................... 70
Environmental Matters................................................... 71
Competition............................................................. 72
Properties.............................................................. 72
Legal Proceedings....................................................... 72
Employees............................................................... 72
Management of American Tower.............................................. 73
Executive Officers and Directors........................................ 73
Executive Compensation.................................................. 76
Director Compensation................................................... 77
Stock Option Information................................................ 77
Certain Transactions.................................................... 79
Principal Stockholders of American Tower.................................. 80
The OmniAmerica Merger.................................................... 84
General................................................................. 84
Background of the Merger................................................ 84
Opinion of Financial Advisor to OmniAmerica............................. 86
The Merger Agreement.................................................... 91
Interests of Certain Persons in the Merger.............................. 92
</TABLE>
<TABLE>
<S> <C>
Certain Federal Income Tax Consequences of the Merger................... 92
Stockholder Approval.................................................... 96
Exchange Procedures..................................................... 96
Appraisal Rights of Stockholders........................................ 97
The TeleCom Merger........................................................ 98
General................................................................. 98
Background of the Merger:............................................... 99
TeleCom Reasons for Merger.............................................. 99
The Merger Agreement ................................................... 101
Interests of Certain Persons in the
Merger ................................................................ 102
Certain Federal Income Tax Consequences of the Merger................... 103
Stockholder and Member Approval......................................... 106
Exchange Procedures..................................................... 106
Appraisal Rights of Members............................................. 106
Indebtedness of American Tower............................................ 107
Description of American Tower Capital Stock............................... 109
General................................................................. 109
Preferred Stock......................................................... 109
Common Stock............................................................ 109
Dividend Restrictions................................................... 110
Delaware Business Combination Provisions................................ 111
Listing of ATC Class A Common Stock..................................... 111
Transfer Agent and Registrar............................................ 111
Comparison of Rights of Stockholders of ATC and OmniAmerica and TeleCom
Members.................................................................. 112
Shares Eligible for Future Sale........................................... 118
Validity of the Shares.................................................... 119
Experts................................................................... 119
Where You Can Find More Information....................................... 121
Definition Cross Reference Sheet.......................................... 122
Index to Financial Statements............................................. F-1
</TABLE>
Appendix I:
OmniAmerica Agreement and Plan of Merger
Appendix II:
TeleCom Amended and Restated Agreement and Plan of Merger
Appendix IIA:
Amendment to TeleCom Amended and Restated Agreement and Plan of Merger
Appendix III:
Opinion of BT Wolfensohn
Appendix IV:
Description of OmniAmerica, Inc.
Appendix V:
Description of TeleCom Towers, L.L.C.
Appendix VI:
American Tower Form 10-Q for Quarter Ended September 30, 1998
<PAGE>
NOTE TO READER
Basis of Presentation
The information in this document generally gives effect to all acquisitions
that American Tower has consummated since January 1, 1998 or which are subject
to a binding agreement, including the OmniAmerica Merger and the TeleCom
Merger. However, in certain instances the information refers only to American
Tower as it presently exists. We have attempted to make the distinction clear
in those cases. Moreover, certain pro forma financial information gives effect
only to the "ATC Pro Forma Transactions". These include the OmniAmerica Merger,
the TeleCom Merger, the CBS Merger, and certain major acquisitions completed by
American Tower; they do not include all acquisitions of communications sites
and related transactions or pending construction. They do, however, include,
American Tower's 1998 Common Stock financings which included the following:
. a private placement of 8.0 million shares of ATC Common Stock in January
1998 for an aggregate purchase price of $80.0 million (we refer to this
transaction as the "ATC Private Placement"); and
. the initial underwritten public offering of the Class A Common Stock,
$.01 par value per share of ATC (we refer to it as the "ATC Class A
Common Stock") in July 1998 (we refer to this transaction as the "ATC
IPO"). The ATC IPO resulted in net proceeds to American Tower of
approximately $625.1 million.
The "CBS Merger" refers to the merger of a subsidiary of CBS Corporation (we
refer to it as "CBS") into American Radio Systems Corporation (we refer to it
as "American Radio" or "ARS"). As a result of the CBS Merger, American Tower
became an independent publicly traded company; prior to that time it was a
subsidiary of American Radio.
Defined Terms
Certain terms in this document are used repeatedly and have a very specific
meaning that would be cumbersome to explain each time the term is used, or such
term lends itself to abbreviation due to its frequent use. For example, it
would be cumbersome to list all the transactions that comprise the "ATC Pro
Forma Transactions" each time we use that term. Accordingly, we have given such
term a defined meaning, as indicated by the initial capitalized letters of the
term. A list of such defined terms is set forth on page 122. It contains the
page reference where such terms are defined in this document, which is usually
the first place they are used.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of American Tower,
OmniAmerica or TeleCom. They also include statements concerning (a) growth
strategy, (b) liquidity and capital expenditures, (c) construction and
acquisition activities, (d) debt levels and the ability to obtain financing and
service debt, (e) competitive conditions in the communications site and
wireless carrier industries, (f) regulatory matters affecting the
communications site and wireless carrier industries, (g) projected growth of
the wireless communications and wireless carrier industries and (h) general
economic conditions. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect our companies in the future and could cause our
results to differ materially from those expressed in our forward-looking
statements contained in this document. For a discussion of some of these
factors that may cause actual results to differ materially from those suggested
by the forward-looking statements, please read carefully the information under
"Risk Factors".
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE OMNIAMERICA MERGER
Q: Why are the two companies proposing to merge? How will I benefit?
A: We are proposing to merge our companies because we believe the combined
company will provide our stockholders with increased value and will enable
us to better serve our customers. We believe the merger will create a more
diversified and broader-based tower company with the ability to provide a
complete range of services to our customers. To review the background and
reasons for the merger in greater detail, see pages 84 through 86. Also, the
merger involves certain risks. These risks are discussed on pages 12 through
17.
Q: What do I need to do now?
A: Nothing. Certain OmniAmerica stockholders owning more than a majority of the
OmniAmerica Common Stock have approved the merger. Therefore, OmniAmerica
will not hold a stockholder meeting and OmniAmerica will not solicit
proxies.
Q: Should I send in my stock certificates now?
A: No. After we complete the merger, we will send you written instructions for
exchanging your stock certificates.
Q: What will I receive in the merger?
A: Upon completion of the merger, which is subject to certain conditions, you
will receive 1.1 shares of ATC Class A Common Stock in exchange for each
share of OmniAmerica Common Stock you own.
American Tower will not issue fractional shares. Instead, you will receive
cash for any fractional share of ATC Class A Common Stock you would
otherwise receive.
Example:
. If you currently own 100 shares of OmniAmerica Common Stock, you will
receive 110 shares of ATC Class A Common Stock.
. If you currently own 1 share of OmniAmerica Common Stock, you will receive 1
share of ATC Class A Common Stock and a check for the fair market value of
the .10 fractional share.
Q: Has someone determined that the merger is fair to the OmniAmerica
stockholders?
A: Yes. The Board of Directors of OmniAmerica determined that the merger is
fair to the OmniAmerica stockholders and in their best interest. The Board
has also unanimously approved the merger and the merger agreement.
As part of its consideration of the merger, the OmniAmerica Board retained
BT Wolfensohn, an independent financial advisor. That firm rendered an
opinion that, based on and subject to matters stated in the opinion, the
exchange ratio in the merger was fair to the OmniAmerica stockholders from
a financial point of view. We have attached a copy of the fairness opinion
as Appendix III to this document. We encourage you to read the opinion
carefully.
Q: Do I have appraisal rights if I don't like the merger?
A: No. OmniAmerica is a Delaware corporation. Under Delaware corporate law, you
do not have appraisal rights because your OmniAmerica Common Stock and the
ATC Class A Common Stock are both publicly traded and you will receive only
ATC Class A Common Stock (and cash in lieu of fractional shares) in the
merger.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. The
principal closing condition that could affect our timing is the need to
obtain regulatory approvals. We hope to complete the merger during the
spring of this year.
1
<PAGE>
Q: What are the tax consequences of the merger to me?
A: The exchange of shares by you generally will be tax-free for federal income
tax purposes. However, you will have to pay taxes on cash received for
fractional shares. This tax treatment may not apply to every OmniAmerica
stockholder. The actual tax consequences to you may be very complicated and
will depend on your specific tax situation. You should consult with your own
tax advisor for a full understanding of the tax consequences of the merger
to you. To review the tax consequences to you in greater detail, see pages
92 through 96.
Q: I understand American Tower is proposing to merge with TeleCom Towers,
L.L.C. Are the OmniAmerica and TeleCom mergers dependent on one another?
A: No. Each of the mergers is independent of the other. They are not
conditioned on one another. We have presented information about TeleCom
Towers, L.L.C. (we sometimes refer to it as "TeleCom") and the TeleCom
merger in this document so you can better evaluate American Tower and what
it will look like following both mergers.
Who Can Help Answer Your Questions
If you would like additional copies of this Information Statement/Prospectus,
or if you have questions about the merger, you should contact:
OmniAmerica, Inc.
2 Summit Park Drive, Suite 650
Independence, Ohio 44131
Attention: F. Howard Mandel
Phone Number: (216) 447-4440
2
<PAGE>
SUMMARY
This Summary highlights selected information about American Tower, OmniAmerica,
TeleCom and the OmniAmerica and TeleCom mergers and does not contain all of the
information that is important to you. To understand the two mergers fully and
for a more complete description of the legal terms of each merger, you should
carefully read this entire document and the documents to which we have referred
you. See "Where You May Find More Information" on page 121. We have included
page references parenthetically to direct you to a more complete description of
the topics presented in this Summary.
The Companies
American Tower Corporation (page 58)
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 375-7500
American Tower is a leading independent owner and operator of wireless
communications and broadcast towers in the United States. ATC's strategy is to
use that position to take advantage of the growth opportunities inherent in the
rapidly expanding and highly fragmented communications site industry. ATC has
grown in less than four years to a company which will operate more than 3,000
towers in 44 states and the District of Columbia, giving effect to all pending
mergers and acquisitions. Currently, ATC operates approximately 2,300 towers
(of which 1,845 are owned and 455 are managed for third-parties), OmniAmerica
operates 223 towers (of which 211 are owned and 12 are managed for third-
parties), and TeleCom operates 392 towers (of which 271 are owned and 121 are
managed for third-parties).
American Tower achieved its initial growth predominantly through acquisitions.
ATC will continue to pursue strategic acquisitions, including possible
transactions with large wireless service providers seeking to sell
their towers.
More recently, ATC has embarked on a major construction program. In 1998,
American Tower (exclusive of acquired or to-be-acquired companies) constructed
or had under construction more than 500 towers at an aggregate cost of
approximately $108.0 million. During 1999, American Tower (exclusive of
companies to be acquired) plans to build between approximately 750 and 1,000
towers at an estimated aggregate cost of between approximately $120.0 million
and $200.0 million.
ATC estimates that the combined companies will build or commence construction
of between approximately 1,450 to 1,900 towers at an estimated aggregate cost
of between approximately $230.0 million and $340.0 million. The estimated
aggregate number of towers to be built in 1999 by American Tower, OmniAmerica
and TeleCom will probably decrease as a consequence of the mergers because of,
among other things, financial and managerial resource limitations and
construction of certain planned towers may result in overbuilding in some
markets.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
to a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, procurement
of zoning and other regulatory approvals, tower construction and antennae
installation. ATC also operates a video, voice, data and Internet transmission
business in the New York City to Washington, D.C. corridor and in Texas.
ATC is geographically diversified with significant communications tower
networks throughout the United States. Its largest networks are in California,
Florida and Texas. It owns and operates or is constructing tower networks in
cities such as Albuquerque, Atlanta, Austin, Baltimore, Boston, Charlotte,
Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft. Lauderdale,
Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San Francisco,
Tucson, Washington, D.C. and West Palm Beach.
For the year ended December 31, 1997, giving effect to the ATC Pro Forma
Transactions, ATC had net revenues of $177.3 million and EBITDA of
$57.7 million. For the nine months ended September 30, 1998, giving effect to
the ATC Pro Forma Transactions, ATC had net revenues of $166.1 million and
EBITDA of $47.3 million.
3
<PAGE>
OmniAmerica, Inc. (Appendix IV)
12001 State Highway 14 North
Cedar Crest, New Mexico 87008
(505) 281-2197
OmniAmerica is a national independent owner and operator of wireless
communications and broadcast towers with 223 towers in 24 states, including 12
towers on 10 sites managed for third party owners. OmniAmerica has entered into
definitive acquisition agreements to acquire up to an additional 27 towers.
OmniAmerica's principal tower networks are located in Florida, Illinois,
Kentucky, New Mexico, Ohio, Oklahoma, Tennessee and Texas.
OmniAmerica is also a leading builder of wireless communications and broadcast
towers, providing a complete package of design, construction and installation
services. OmniAmerica also manufactures and sells wireless infrastructure
components used in the construction and maintenance of wireless communication
transmitting and receiving facilities.
In 1998, OmniAmerica acquired 168 towers (including rooftop sites) at an
aggregate cost of approximately $117.0 million and, as of early December 1998,
constructed or had under construction approximately 173 telecommunications
towers at an aggregate cost of approximately $12.0 million and three broadcast
towers at an aggregate cost of $11.3 million. Approximately 120 of these
telecommunications towers and two of these broadcast towers will require
additional capital to be expended in 1999. OmniAmerica has approximately 650
additional sites under development. While not all of these sites will result in
towers being constructed, OmniAmerica anticipates adding other sites during
1999.
For the fiscal year ended June 30, 1998 OmniAmerica had net revenues of $62.8
million and EBITDA of $5.0 million. For the three months ended September 30,
1998 OmniAmerica had net revenues of $24.4 million and EBITDA of $3.0 million.
TeleCom Towers, L.L.C. (Appendix V)
1525 Wilson Blvd., Suite 500
Arlington, Virginia 22209
(703) 243-1257
TeleCom is a national owner and operator of communications sites, primarily
serving wireless providers. TeleCom owns 271 towers and manages an additional
121 revenue-generating sites in 27 states. Its principal tower networks are
located in Texas, Illinois, Ohio and Virginia.
In 1998, TeleCom acquired 27 towers at an aggregate cost of approximately $15.6
million and constructed or had under construction 43 towers at an aggregate
cost of approximately $8.1 million, including capital to be expended in 1999 to
complete these projects.
For the year ended December 31, 1997, TeleCom had pro forma net revenues of
$7.9 million and pro forma EBITDA of $2.5 million. For the nine months ended
September 30, 1998, TeleCom had pro forma net revenue of $8.6 million and pro
forma EBITDA of $0.3 million.
Our Reasons for the Mergers
By combining the complementary strengths and resources of American Tower,
OmniAmerica and TeleCom, we believe we will be able to create a company that
can offer a more diversified and broader base of services than any of the
companies, individually, is able to offer at the present time. We believe that
the availability of a complete range of services on a national basis is
important to our existing and potential customers, most of whom are large
national companies. The communications tower industry is undergoing a dramatic
change because of rapid consolidation. As a consequence, it is likely to become
increasingly competitive. We hope that the greater strength of the combined
company will enable us to better serve our customers and to provide our equity
owners with increased value.
To review the background and reasons for each of the mergers in greater detail,
see pages 84 through 86, in the case of the OmniAmerica Merger, and pages 99
through 101, in the case of the TeleCom Merger. To review the risks of the
mergers, see pages 12 through 17.
Each merger is independent of the other and one may be consummated even if the
other is not. We
4
<PAGE>
have summarized certain information with respect to the TeleCom merger under
the caption "The TeleCom Merger" on pages 8 and 98 through 106.
The OmniAmerica Merger (page 84)
If we complete the merger, OmniAmerica will merge with a subsidiary of American
Tower and will cease to exist as a separate entity. The merger is subject to
certain conditions and rights of termination described in this document and in
the merger agreement. We have attached the merger agreement as Appendix I to
this document. It is the legal document governing the merger. We encourage you
to read the merger agreement.
What Stockholders Will Receive in the Merger (page 84)
If we complete the merger, you will receive 1.1 shares of ATC Class A Common
Stock for each share of OmniAmerica Common Stock you own (we sometimes refer to
that exchange ratio as the "Exchange Ratio").
American Tower will not issue fractional shares. Instead, you will receive cash
for any fractional shares of ATC Class A Common Stock owed to you.
American Tower. The merger will not result in any change to the shares of ATC
Common Stock now outstanding. After the merger, each share of ATC Common Stock
will continue to represent one share of ATC Common Stock of the same class as
it represented prior to the merger.
Determinations of Boards of Directors (pages 85 and 86)
American Tower. The American Tower Board of Directors has unanimously approved
the merger and the merger agreement.
OmniAmerica. The OmniAmerica Board of Directors has determined that the merger
is fair to the OmniAmerica stockholders and in their best interest and has
unanimously approved the merger and the merger agreement.
OmniAmerica's Board of Directors based this determination and approval on a
number of factors, including:
. a review of the business, operations, financial condition, earnings and
prospects of ATC;
. analysis of potential alternative transactions between OmniAmerica and
other possible strategic partners;
. the anticipated enhanced liquidity of ATC Class A Common Stock for
OmniAmerica stockholders;
. the structure, terms and conditions of the merger; and
. the analysis, presentations and opinion of BT Wolfensohn, an independent
financial advisor.
Fairness Opinion of Financial Advisor (page 86)
In deciding to approve the merger, the OmniAmerica Board of Directors
considered the opinion of BT Wolfensohn, OmniAmerica's financial advisor. The
financial advisor's opinion states that, as of November 16, 1998, the exchange
ratio of 1.1 shares of ATC Class A Common Stock for every one share of
OmniAmerica Common Stock was fair, from a financial point of view, to holders
of OmniAmerica Common Stock. This opinion is based upon and subject to certain
assumptions, the matters considered in the opinion and the limits of the review
undertaken by BT Wolfensohn. We have attached a copy of the opinion as Appendix
III to this document. We encourage you to read that opinion carefully.
OmniAmerica's financial advisor performed several analyses in connection with
delivering its opinion. These analyses included comparing ATC's and
OmniAmerica's historical and prospective financial performance and historical
stock prices, comparing other acquisitions and mergers involving tower
companies, comparing American Tower and OmniAmerica to other publicly traded
companies and estimating the relative values and contributions of American
Tower and OmniAmerica based on past and estimated future performances.
Stockholder Votes Required (page 96)
American Tower. The OmniAmerica Merger does not require the approval of the
American Tower stockholders. American Tower, as the sole stockholder of the
subsidiary into which OmniAmerica will be merged (we sometimes refer to it as
"ATI"), has approved the merger.
5
<PAGE>
OmniAmerica. Holders of a majority of the outstanding shares of OmniAmerica
Common Stock have executed a written consent approving the merger. No further
vote of the OmniAmerica stockholders is required. Therefore, OmniAmerica will
not hold a stockholder meeting and will not solicit any proxies.
Federal Income Tax Considerations (page 92)
A condition of the merger is that OmniAmerica must receive an opinion from its
outside counsel regarding the federal income tax consequences of the merger.
Such opinion must state that, as a general matter, the exchange of OmniAmerica
Common Stock for ATC Class A Common Stock in the merger will not be taxable to
OmniAmerica stockholders, except to the extent they receive cash for fractional
shares.
A condition of the merger is that American Tower must receive an opinion from
its outside counsel regarding the federal income tax consequences of the
merger. Such opinion must state that American Tower, ATI and OmniAmerica will
not incur any federal income tax as a consequence of the merger.
Tax matters are very complicated and the tax consequences of the merger
applicable to you will depend on the facts of your own situation. You should
consult your tax advisor for a full understanding of the tax consequences of
the merger applicable to you.
Accounting Treatment (page 92)
American Tower intends to treat the merger as a purchase for financial
reporting purposes. This means that the assets, liabilities, and results of
operations of OmniAmerica will be included with those of American Tower only
after the merger is completed. It also means we will value the assets acquired
and liabilities assumed of OmniAmerica at their relative fair values based upon
the average market value of the ATC Class A Common Stock to be received by the
OmniAmerica stockholders in the merger.
Regulatory Approvals
We are prohibited by certain U.S. antitrust laws (we refer to this as the "HSR
Act") from completing the merger until after we have furnished certain
information and materials to the Antitrust Division of the Department of
Justice and a required waiting period has ended. OmniAmerica and American Tower
each filed the required notification and report forms. The waiting period for
the merger will end on February 4, 1999, unless extended by a request for
additional information. However, even after such period the regulatory agencies
will continue to have the authority to challenge the merger on antitrust
grounds before or after it is completed.
We cannot predict whether we will obtain all required regulatory approvals
before we complete the merger, or whether any approvals will include conditions
that would be detrimental to American Tower. However, we are not required, in
order to complete the merger, to obtain all required regulatory approvals, only
those that are material.
Conditions to the Merger (page 91)
We will complete the merger only if OmniAmerica and American Tower satisfy or
(in some cases) waive several conditions, including the following:
. no temporary restraining order, preliminary or permanent injunction or
other legal restraint exists that prevents the consummation of the
merger;
. there is no material adverse effect on the business or financial
condition of the other company;
. our counsel deliver opinions in respect of certain federal income tax
consequences of the merger; and
. the waiting period applicable to the consummation of the merger under
the HSR Act shall have expired or been terminated.
Termination of the Merger Agreement (page 91)
The Boards of Directors of both companies can agree to terminate the merger
agreement at any time. Either company can terminate the merger agreement if:
. we do not complete the merger by April 30, 1999. However, American Tower
6
<PAGE>
may extend this deadline to September 30, 1999 if (i) all of the
conditions to closing other than those relating to the HSR Act have been
obtained, and (ii) ATC waives continued compliance with certain
conditions, including those referring to the absence of a material
adverse effect on the business or financial condition of either company;
. a governmental authority permanently prohibits the merger; or
. the terminating party is not in material breach and either (i) the
merger has not been consummated by April 30, 1999 (or September 30,
1999, if applicable), or (ii) the other party is in material breach of
the merger agreement or materially breaches its representations or
warranties resulting in its inability to satisfy a condition to the
completion of merger.
OmniAmerica also has the right to terminate if it approves a Superior Proposal
(as defined on page I-46 of Appendix I). OmniAmerica must pay American Tower a
fee of $12.0 million if it terminates because of a Superior Proposal.
Listing of ATC Class A Common Stock
The ATC Class A Common Stock is listed on the New York Stock Exchange (we
sometimes refer to it as the "NYSE"). The NYSE has approved the listing of the
shares to be issued in connection with the merger. Following the merger,
OmniAmerica will cease to exist and its common stock will no longer be publicly
traded on the Nasdaq National Market. The trading symbol for the ATC Class A
Common Stock is "AMT".
Appraisal Rights (page 97)
OmniAmerica is a Delaware corporation. Under Delaware corporate law (we refer
to this as the "DGCL"), you have no appraisal rights.
Comparative Rights of Holders of OmniAmerica Common Stock and ATC Class A
Common Stock (page 112)
Holders of OmniAmerica Common Stock and holders of ATC Class A Common Stock
have generally the same rights with respect to dividends and preemptive rights
and on liquidation. However, American Tower has two classes of voting stock.
The ATC Class A Common Stock and the ATC Class B Common Stock generally vote as
a single class, with each share of ATC Class A Common Stock entitled to one
vote and each share of ATC Class B Common Stock entitled to ten votes. The
holders of the ATC Class A Common Stock, voting as a separate class, are
entitled to elect two independent directors. The DGCL and ATC's Restated
Certificate of Incorporation, as amended (we sometimes refer to this as the
"ATC Restated Certificate") require certain class votes. Other rights of the
holders of OmniAmerica Common Stock and holders of ATC Class A Common Stock are
substantially similar.
Ownership of ATC Following the Mergers
We anticipate that OmniAmerica stockholders will receive approximately 17.7
million shares (assuming all options are exercised) and TeleCom members will
receive approximately 4.2 million shares of ATC Class A Common Stock in the
applicable merger. Based on those numbers, following the mergers, existing
American Tower stockholders will own approximately 83.0%, former OmniAmerica
stockholders will own approximately 13.7%, and former TeleCom members will own
approximately 3.3% of the ATC Common Stock after the mergers. Because of the
different voting rights of the three classes of ATC Common Stock, existing
American Tower stockholders will own approximately 89.4% of the voting power of
all classes of ATC Common Stock to be outstanding after the mergers.
Interests of Certain Persons in the Merger (page 92)
OmniAmerica stockholders should note that certain members of senior management
or directors who are also stockholders of OmniAmerica have interests in the
merger that are different from, or in addition to, yours as an OmniAmerica
stockholder. Those interests include becoming officers or a director of
American Tower and being entitled to the continuation of certain
indemnification provisions.
7
<PAGE>
Share Ownership of Management and Certain Stockholders
American Tower (page 80). On December 31, 1998, directors and executive
officers of American Tower and their affiliates owned approximately 29.0% of
the shares (and 52.3% of the voting power) of the aggregate ATC Common Stock
outstanding on that date.
OmniAmerica (page IV-8 of Appendix IV).
On December 1, 1998, directors and executive officers of OmniAmerica and their
affiliates owned shares of OmniAmerica Common Stock representing approximately
15.7% of the shares outstanding on that date.
Comparative Market Prices (page 20)
November 13, 1998 was the last trading day prior to the announcement of the
merger. On that date, the last reported sale price per share of ATC Class A
Common Stock on the NYSE, the last reported sale price per share of OmniAmerica
Common Stock on the Nasdaq National Market, and the equivalent per share price
of the OmniAmerica Common Stock (based on the Exchange Ratio) were as follows:
<TABLE>
<S> <C>
ATC Class A Common Stock.. $19.00
OmniAmerica Common Stock
(historical)............. $17.50
OmniAmerica Common Stock
(equivalent)............. $20.90
</TABLE>
On January 11, 1999, the last reported sale price per share of ATC Class A
Common Stock on the NYSE was $27.68, and the last reported sale price per share
of OmniAmerica Common Stock on the Nasdaq National Market was $29.75.
Stock prices can fluctuate dramatically and we urge you to check for recent
prices of ATC Class A Common Stock and OmniAmerica Common Stock.
The TeleCom Merger (page 98)
The aggregate purchase price to be paid by ATC in the TeleCom Merger is
$148.75 million less the amount by which TeleCom's debt at the time of the
TeleCom Merger is more than $30.0 million. The aggregate purchase price will be
increased by the aggregate costs incurred by TeleCom after November 16, 1998
for acquisitions, new tower construction and other capital expenditures. The
purchase price is payable 60% ($89.25 million, assuming no adjustment) in
shares of ATC Class A Common Stock and 40% ($59.50 million, assuming no such
adjustment) in cash. The cash portion will also be increased or decreased based
on the working capital of TeleCom at the time of the TeleCom Merger. The number
of shares of ATC Class A Common Stock to be delivered is based on a per share
price of $21.25 for the ATC Class A Common Stock. This number is subject to
adjustment depending on such stock's trading levels prior to the TeleCom Merger
and the achievement of certain revenue growth targets for TeleCom. Assuming no
such adjustment, ATC will issue approximately 4.2 million shares upon
completion of the TeleCom Merger.
The provisions of the TeleCom Merger Agreement are substantially similar to
those contained in the OmniAmerica Merger Agreement. We have attached the
TeleCom Merger Agreement as Appendices II and IIA to this document. It is the
legal document governing the TeleCom Merger. We encourage you to read the
TeleCom Merger Agreement.
Each merger is independent of the other and one may be consummated even if the
other is not.
Forward-Looking Statements
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of ATC, OmniAmerica
or TeleCom. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect our companies in the future and could cause our
results to differ materially from those expressed in our forward-looking
statements contained in this document. For a discussion of some of those
factors that may cause actual results to differ materially from those suggested
by the forward-looking
8
<PAGE>
statements, please read carefully the section entitled "Risk Factors"
immediately following and the more detailed and complete information under
"Risk Factors" on pages 12 through 17.
Risk Factors (page 12)
You should be aware that certain risks are inherent in the types of business
that American Tower, OmniAmerica and TeleCom operate. These risks include the
following:
. those associated with substantial debt and inability to meet debt
service requirements;
. those inherent in an aggressive tower construction program;
. those involved in an active acquisition program, including the ability
to integrate acquisitions, including the mergers;
. those associated with the wireless provider industries and their rapid
growth and deployment;
. operating, environmental and regulatory risks, including those affecting
the wireless provider industries;
. economic, political and competitive forces affecting the tower business
and the wireless provider industries; and
. that our analyses of these risks and factors could be incorrect and that
the strategies we develop to meet them could be unsuccessful.
We explain additional risks associated with both mergers, as well as those
listed above, in more detail on pages 12 through 17.
9
<PAGE>
Summary Unaudited Pro Forma Financial Information
We have presented below summary unaudited pro forma financial information to
give you a better picture of what the results of operations and financial
position of the combined businesses of American Tower, OmniAmerica and TeleCom
might have been at December 31, 1997 and September 30, 1998 if the mergers and
certain other transactions (which we refer to as the "ATC Pro Forma
Transactions") had occurred at the beginning of those fiscal periods. We
prepared the unaudited pro forma statement of operations and balance sheet
information by adding or combining the historical pro forma results of each
company with certain adjustments. The companies may have performed differently
if they were combined. You should not rely on the unaudited pro forma
information as being indicative of the historical results that we would have
had or the future results we will experience after the mergers. See "Unaudited
Pro Forma Condensed Consolidated Financial Statements of American Tower" on
page 34.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
December 31, 1997 1998
----------------- -----------------
(in thousands)
<S> <C> <C>
Statement of Operations Data:
Net operating revenue...................... $177,267 $166,071
Operating expenses:
Operating expenses excluding
depreciation, amortization and corporate
general and administrative.............. 116,078 115,537
Depreciation and amortization............ 108,864 90,521
Tower separation costs................... -- 12,616
Corporate general and administrative..... 3,536 3,186
-------- --------
Total operating expenses............... 228,478 221,860
-------- --------
Operating (loss)........................... (51,211) (55,789)
Interest expense........................... -- 16,764
Loss before extraordinary items............ $(40,190) $(50,574)
Other Operating Data:
Tower Cash Flow............................ $ 61,189 $ 50,534
EBITDA..................................... 57,653 47,348
EBITDA (margin)............................ 32.5% 28.5%
After-Tax Cash Flow........................ 68,674 39,947
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Balance Sheet Data:
Working capital, excluding current portion of long-term
debt...................................................... $ 273,569
Total assets............................................... 2,262,792
Long-term debt, including current portion.................. 474,740
Total shareholders' equity................................. 1,539,662
</TABLE>
We use the term "Tower Cash Flow" to mean operating income (loss) before
depreciation and amortization, tower separation costs, and corporate general
and administrative expenses. By "EBITDA" we mean operating income (loss) before
depreciation and amortization and tower separation costs. By "After-tax cash
flow" we mean income (loss) before extraordinary items, plus depreciation and
amortization, less preferred stock dividends. All of such terms include
deferred revenue attributable to certain leases. We do not consider Tower Cash
Flow, EBITDA and after-tax cash flow as a substitute for alternative measures
of operating results or cash flow from operating activities or as a measure of
ATC's profitability or liquidity. Although these measures of performance are
not calculated in accordance with generally accepted accounting principles
("GAAP"), we have included them because they are generally
10
<PAGE>
used in the communications site industry as a measure of a company's operating
performance. More specifically, we believe they can assist in comparing company
performances on a consistent basis without regard to depreciation and
amortization. The concern is that depreciation and amortization can vary
significantly among companies depending on accounting methods, particularly
where acquisitions are involved, or non-operating factors such as historical
cost bases. We believe Tower Cash Flow is useful because it enables you to
compare tower performances before the effect of expenses (corporate general and
administrative) that do not relate directly to such performance.
Comparative Per Share Information
We have set forth below certain selected (i) historical per share (and, in case
of TeleCom, per Unit) data of American Tower, OmniAmerica and TeleCom, (ii) pro
forma per share data from continuing operations of those companies, giving
effect, in the case of American Tower, to the ATC Pro Forma Transactions, and
(iii) pro forma equivalent per share amounts giving effect to the ATC Pro Forma
Transactions, including the OmniAmerica Merger and the TeleCom Merger. The pro
forma equivalent information of OmniAmerica represents American Tower's pro
forma per share information multiplied by 1.1, the exchange ratio called for by
the OmniAmerica merger agreement. You should read the information set forth
below in conjunction with the audited and unaudited consolidated financial
statements of American Tower, OmniAmerica and TeleCom and the Unaudited Pro
Forma Condensed Consolidated Financial Statements of American Tower on page 34.
<TABLE>
<CAPTION>
Nine Months Ended (or as
Year Ended (or as of) of)
December 31, 1997 September 30, 1998
------------------------ -------------------------
American Omni- American Omni-
Tower America TeleCom Tower America TeleCom
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Historical:
Income (loss) per diluted
share..................... $(0.05) $0.63 $(0.26) $(0.37) $(0.09) $(0.36)
Book value per share....... 4.30 $2.70 $ 2.17 $ 9.93 $ 9.15 $ 4.61
Pro Forma:
Income (loss) per diluted
share..................... $(0.31) $0.23 $(0.15) $(0.39) $(0.09) $(0.42)
Book value per share....... N/A $9.13 $ 1.90 $11.92 $ 9.14 $ 4.34
Pro Forma Equivalent:
Income (loss) per diluted
share..................... N/A $0.21 N/A N/A $(0.09) N/A
Book value per share....... N/A $8.30 N/A N/A $ 8.31 N/A
</TABLE>
Assuming there are no adjustments to the merger consideration in the TeleCom
Merger, holders of TeleCom Units will also receive $4.05 in cash for each
TeleCom Unit they hold, subject to adjustment as set forth in the TeleCom
Merger Agreement.
11
<PAGE>
RISK FACTORS
You should consider carefully the following factors, in addition to the other
information contained in this document, regarding American Tower, the
OmniAmerica Merger and the TeleCom Merger.
Risk Factors Relating to the OmniAmerica Merger and the TeleCom Merger
Difficulties in Integrating Companies
Management believes that the integration of OmniAmerica with American Tower may
present more difficult challenges than those of its prior acquisitions and
mergers. For example, OmniAmerica is engaged in several lines of business in
which American Tower is not. Also, OmniAmerica has recently experienced
dramatic changes with the merger of OmniAmerica and Specialty Teleconstructors,
Inc. ("Specialty") in April 1998 (the "April Merger") and the acquisition of
Arch Communications Group, Inc. ("Arch") towers during June and September of
1998. Many of the integration problems inherent in those changes are still in
the process of being resolved. To a significantly lesser extent, similar
integration problems may be faced with TeleCom since it too has undergone
significant changes in the past year. Efforts to solve such problems may result
in the loss of one or more key employees of OmniAmerica or TeleCom, or American
Tower, and may adversely affect American Tower in other ways. For example,
American Tower may incur significant unforeseen costs in integrating the
operations of OmniAmerica and, to a lesser extent, TeleCom. Integration
problems may also require considerable time and effort of senior management of
American Tower. To the extent they do, senior management might not be able to
concentrate on American Tower's growth activities, including the pursuit of
build to suit construction opportunities and other acquisitions.
Failure to Recognize Synergies of the Mergers; Future Restraints
Management of American Tower, OmniAmerica and TeleCom believes the mergers will
provide certain savings in administrative and other costs and certain growth
and expansion opportunities. However, the combined company may not be able to
realize all or some of such savings or growth. Moreover, American Tower may
incur additional costs as a consequence of combining the operations of the
three companies. In addition, the combined company's increased size and
financial resources may, because of antitrust restraints, preclude it from
pursing certain acquisition opportunities in the future.
Risk of Mergers Not Being Consummated
You should realize that a failure to consummate the merger of your company
could adversely affect your company. For example, the number of acquisition and
build to suit opportunities available may diminish because of the prospective
merger with American Tower. In addition, the applicable merger agreement
restricts the ability of your company to issue equity securities and incur
certain debt, and such restrictions could prevent it from pursuing certain
acquisition opportunities.
Potential Loss of Key Personnel
The pendency of the mergers may increase the risk that certain key employees of
OmniAmerica and TeleCom could decide to seek employment elsewhere. The
departure of key employees of OmniAmerica or TeleCom would harm ATC should the
mergers be consummated or OmniAmerica or TeleCom should its merger not be
consummated.
Interests of Certain Persons in the Mergers
In reviewing the terms of the mergers, you should be aware that certain members
of management of each company may have interests in the applicable merger that
may present them with actual or potential conflicts of interest. See "The
OmniAmerica Merger--Interests of Certain Persons in the Merger" and "The
TeleCom Merger--Interests of Certain Persons in the Merger".
12
<PAGE>
Changes in ATC Class A Common Stock Trading Levels
OmniAmerica stockholders should be aware that their exchange ratio is fixed.
Therefore, the number of shares of ATC Class A Common Stock they will receive
will not be adjusted if the market price of such stock declines. TeleCom
members should be aware that the share adjustment provisions in the TeleCom
Merger Agreement are limited. Moreover, if the "Closing Date Share Price"
(i.e., an average of then recent prices ) of the ATC Class A Common Stock
exceeds $24.75 at the time of the TeleCom Merger, TeleCom members will receive
fewer shares.
Risk Factors Relating to American Tower
Substantial Capital Requirements and High Debt Levels
ATC's acquisition and construction activities require substantial capital
resources. During 1998, ATC made capital investments aggregating approximately
$108.0 million for construction, predominantly for new towers. In addition, ATC
made acquisitions in the aggregate of approximately $877.0 million, of which
approximately $491.0 million was financed with cash and the balance through the
issue of ATC Class A Common Stock. ATC's business plan for 1999 is to construct
between approximately 750 and 1,000 towers at an estimated aggregate cost of
between approximately $120.0 and $200.0 million. In addition, ATC is actively
seeking several major build to suit projects and acquisitions that could
involve substantial capital expenditures. Giving effect to the OmniAmerica
Merger and the TeleCom Merger, the amount projected to be spent for tower
construction would be substantially greater. On a combined basis, the three
companies spent more than $130.0 million for construction of new towers and
other capital expenditures during 1998. The 1999 combined business plans of the
three companies call for construction of between approximately 1,450 and 1,900
towers at an estimated aggregate cost of between approximately $230.0 and
$340.0 million, although the actual number to be built will probably decrease
because of, among other things, financial and managerial resource limitations
and construction of certain planned towers may result in overbuilding in some
markets.
ATC has financed its capital requirements principally through bank borrowings
and sales of its common stock. As of December 31, 1998, on a pro forma basis,
giving effect to the OmniAmerica Merger and the TeleCom Merger, as well as all
of the other Recent Transactions (but not planned construction), ATC would have
had (i) aggregate borrowings of approximately $345.0 million, and (ii)
aggregate unused borrowing capacity of approximately $371.0 million. You should
be aware that ATC may not be able to implement its growth strategy as rapidly
as it hopes because of the limits on its borrowing capacity, unless it were
willing to sell equity securities. Moreover, American Tower may not be able to
sell its equity securities on favorable terms because such sales are subject,
among other things, to market conditions outside of ATC's control.
ATC expects that it will continue to borrow funds to finance construction and
acquisitions and to operate with substantial leverage. If ATC's revenues and
cash flow do not meet expectations, ATC may have reduced borrowing capacity.
More importantly, you should be aware that if cash flow is not sufficient to
meet debt service requirements, ATC might not be able to sell equity or debt
securities, refinance its obligations or dispose of operating assets on
favorable terms or at all.
ATI and ATLP (the "Borrower Subsidiaries") have a maximum borrowing capacity,
subject to compliance with certain financial ratios, of $900.0 million under
ATC's credit facilities with its senior lenders (we refer to such arrangements
as the "ATC Credit Facilities"). As of December 31, 1998, $125.0 million was
outstanding under a term loan. In addition, ATC (the parent holding company)
has a term loan of $150.0 million. The ATC Credit Facilities require ATC to
satisfy certain financial and operational covenants. Such provisions include
the maintenance of financial ratios and restrictions on additional
indebtedness, capital expenditures, use of borrowed funds, permitted
investments and cash distributions. The lenders under the ATC Credit Facilities
have a first priority security interest in substantially all of the operating
assets and property other than many of the towers of ATC and its subsidiaries.
Management believes that ATC will have sufficient available funds to finance
current construction plans and consummate pending acquisitions, including both
mergers. Such available funds may not be sufficient,
13
<PAGE>
however, to finance other material construction or acquisition opportunities.
Such opportunities might require a substantial increase in the maximum
borrowing levels under the ATC Credit Facilities. That, however, would be
dependent on ATC's ability to meet various financial leverage ratios.
Alternatively, ATC might issue other debt securities (which would require the
consent of ATC's senior lenders), senior equity securities (which would
increase leverage) or, most likely, particularly in the case of a major
acquisition or reconstruction opportunity with a wireless carrier seeking to
divest, ATC Class A Common Stock, convertible securities or warrants (which
would dilute the proportionate ownership of ATC by its then existing common
stockholders). ATC may not be able to secure any such financing on favorable
terms or at all.
Dependence on Demand for Tower Space
A substantial portion of ATC's revenues are, and following the mergers will be,
dependent on the demand for rental space on its towers. Many factors affect the
demand for tower space rental, most of which are beyond the control of American
Tower. The demand for tower space may be affected by, among other things:
.consumer demand for wireless services;
.the financial condition of wireless service providers and their preference
for owning or leasing antennae sites;
.governmental licensing of broadcast rights, zoning, environmental and
other governmental regulations;
. national and regional economic conditions, including a slowdown in the
growth of wireless communications, a downturn in a particular wireless
segment, or a decrease in the number of carriers, nationally or locally,
in a particular segment; and
.technological changes.
Demand could also be adversely affected by "roaming" and "resale" arrangements.
These arrangements enable a provider to serve customers outside its license
area, to give licensed providers the right to enter into arrangements to serve
overlapping license areas and to permit nonlicensed providers to enter the
wireless marketplace. Wireless providers might consider such roaming and resale
arrangements as superior to constructing their own facilities or leasing
antennae space from ATC. Any material decrease in demand or proliferation of
"roaming" and "resale" arrangements could have a material adverse effect on
ATC.
The demand for antenna space is dependent, to a significantly lesser extent, on
the needs of television and radio broadcasters. Among other things, certain
technological advances, including the development of satellite-delivered radio,
may reduce the need for tower-based broadcast transmission. ATC could also be
affected adversely should the development of digital television be delayed or
impaired, or if demand for it were to be less than anticipated because of
delays, disappointing technical performance or cost to the consumer.
Construction of New Towers; Competition
ATC's growth strategy is highly dependent on its ability to complete tower
construction in a timely and cost effective manner. ATC cannot control the
principal factors that can prevent, delay and increase the cost of such
construction. Such factors include zoning and local permitting requirements,
environmental group opposition, availability of skilled construction personnel
and construction equipment, adverse weather conditions and federal regulations.
As the pace of tower construction has increased in recent years, the required
manpower and equipment have been in increasing demand. The anticipated increase
in construction activity, for both ATC and the industry, could significantly
increase costs and delay time schedules associated with tower construction,
either of which could have a material adverse effect on ATC. The construction
of towers to accommodate the introduction of digital television service could
be particularly affected by a potential shortage of construction capability.
The scope of ATC's forecasted construction program is substantially greater
than the combined past construction programs of ATC and the various companies
it has acquired. As a consequence, ATC may not
14
<PAGE>
have sufficient experienced and qualified personnel resources to ensure the
timely and efficient implementation of its construction program in a cost
effective manner. Personnel shortages may also affect ATC's ability to manage
effectively the substantially increased number of towers it is constructing and
acquiring.
ATC competes for new tower construction sites with wireless service providers,
site developers and other independent communications site operating companies.
ATC believes that competition for tower construction sites will increase and
that additional competitors will enter the communications site market, certain
of which may have greater financial and other resources than ATC. Such
increased competition will probably result in increased acquisition or leasing
costs to ATC.
In addition to competing for new tower construction sites, ATC faces strong
competition for build to suit opportunities, principally from other independent
communications site operators and site developers. Certain of those competitors
(such as OmniAmerica) have more extensive experience and offer a broader range
of services, principally in constructing towers rather than managing the
construction of others. ATC has not, to date, itself constructed towers, but
rather managed the construction activities of independent third parties. The
absence of an in-house construction capability may create problems, if the
OmniAmerica merger is not consummated, in times of industry shortages.
American Tower, and others in the industry, are increasingly devoting their
construction activities to "build to suit" projects. Under these arrangements
ATC, and others, agree with a major wireless provider to build a network of a
significant number of towers to the provider's specification. Build to suit
activities involve certain additional risks. Although such projects involve an
"anchor" tenant, ATC may not be able to secure a sufficient number of
additional tenants to ensure adequate investment returns. This may be
particularly true for the larger build to suit projects that ATC is seeking. In
fact, one of the reasons providers may be entering into build to suit
arrangements (rather than, as in the past, undertaking their own construction)
is that many of the proposed sites may be expensive or difficult to build on or
in undesirable locations for many other wireless service providers. Such
projects also entail the additional risk of a greater dependence on a single
customer with, in many instances, more favorable lease and control provisions
than those made available generally by ATC to its tenants. In addition, as
explained above, ATC's experience has been limited principally to projects of
considerably smaller scope than those it is now undertaking and others on which
it will be bidding.
See "--Risk Factors Relating to American Tower--Substantial Capital
Requirements and High Debt Levels" for additional risks associated with
financing major construction projects.
As a consequence of all of the foregoing factors, ATC's construction program,
including one or more of its build to suit projects, might have a material
adverse effect on ATC.
Acquisition Strategy
The success of ATC's growth continues to be dependent, although to a lesser
extent than in the past, on its ability to implement its acquisition strategy.
Such strategy involves substantial risks, including increasing leverage and
debt service requirements, combining disparate company cultures and facilities,
and operating towers on a national and possibly international basis in many
diverse markets. For information concerning potential integration problems
involving OmniAmerica, see "Risk Factors Relating to the OmniAmerica Merger and
the TeleCom Merger--Difficulties in Integrating Companies" above. Certain of
these risks may be increased with larger acquisitions, particularly those
involving divestitures by wireless service providers. Such transactions will
entail the additional risk of dependence on a single customer with, most
likely, more favorable lease and control provisions than those made available
generally by ATC to its tenants. In addition, management will be responsible
for an increasingly larger pool of assets and may not be able to recruit and
retain a sufficient number of experienced and qualified senior and regional
managers.
ATC competes for tower and site acquisitions principally with other independent
tower owners and operators. Increased competition, which ATC has experienced
and believes may intensify, has resulted in substantially higher prices,
particularly for towers being divested by wireless service providers. ATC may
not, therefore, be able to complete acquisitions on as favorable terms as in
the past, and may, under certain circumstances, be required to pay higher
prices or agree to less favorable terms than it would otherwise have desired.
You should
15
<PAGE>
also be aware that, assuming consummation of the two mergers, American Tower
may be impeded in its future acquisition activities by antitrust constraints,
either in local markets or on a regional or national basis.
See "--Risk Factors Relating to American Tower--Substantial Capital
Requirements and High Debt Levels" for additional risks associated with
financing major acquisitions.
For all of the reasons discussed above, ATC's past or future acquisitions,
individually or in combination, may have a material adverse effect on it.
Dependence on Key Personnel
ATC's growth strategy is dependent on the efforts of ATC's Chief Executive
Officer, Steven B. Dodge, and its other executive officers. ATC has not entered
into employment agreements with any of its executive officers, other than J.
Michael Gearon, Jr., the former principal stockholder and chief executive
officer of Gearon & Co., Inc., and Douglas Wiest, the Chief Operating Officer.
Many of the executive, regional and other officers have options to purchase
shares of ATC Common Stock, subject generally to five-year vesting provisions.
ATC may not, however, be able to retain such officers, the loss of whom could
have a material adverse effect upon it, or to prevent them from competing in
the event of their departure. ATC does not maintain key man life insurance of
any significance on the lives of any of such officers.
Environmental Matters
Under various federal, state and local environmental laws, an owner, lessee or
operator of real estate may be liable for the costs of investigation, removal
or remediation of soil and groundwater contaminated by certain hazardous
substances or wastes. Certain of such laws impose responsibility and liability
even if the owner, lessee or operator was unaware of or not responsible for the
contamination. Such liability often continues even if the property has been
sold. The owner, lessee or operator of contaminated real estate may also be
subject to common law claims by third parties based on damages resulting from
off-site migration of the contamination. ATC may be potentially liable for such
environmental expenses which in light of the number of properties owned or
leased by it could be substantial.
Control by the Principal Stockholders; Restrictions on Change of Control
On December 31, 1998, giving pro forma effect to the consummation of the two
mergers, the directors and executive officers of ATC, together with their
affiliates, owned "beneficially" approximately 47.3% of the combined voting
power of the ATC Common Stock. Mr. Dodge, together with his affiliates, owned
"beneficially" approximately 30.1% of the combined voting power. See "Principal
Stockholders of American Tower". Accordingly, Mr. Dodge, together with a
limited number of other directors, may be able to control the vote on all
matters submitted to a vote of the holders of the ATC Common Stock, except with
respect to (i) the election of two independent directors, and (ii) those
matters that the ATC Restated Certificate or the DGCL requires a 66 2/3% vote
or a class vote. Control by Mr. Dodge and others may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of ATC.
The ATC Restated Certificate also contains provisions limiting the aggregate
voting ownership of Mr. Dodge (and his Controlled Entities as defined therein)
and provides for the automatic conversion of all of his (and their) Class B
Common Stock to Class A Common Stock should his voting percentage fall below
certain specified amounts.
The ATC Credit Facilities provide that a "Change of Control" (as defined
therein) of ATC constitutes an "Event of Default". In addition, the
Communications Act of 1934, as amended, and the rules of the Federal
Communications Commission ("FCC") require the prior consent of the FCC for any
change of control of ATC. Finally, certain provisions of the DGCL may have the
effect of discouraging a third party from making an acquisition proposal for
ATC and may thereby inhibit a change of control.
Risk Associated with New Technologies
The emergence of new technologies could reduce the need for tower-based
transmission and reception and may, thereby, have a negative impact on ATC's
operations. For example, the FCC has granted license applications for
16
<PAGE>
several low-earth orbiting satellite systems that are intended to provide
mobile voice and/or data services. In November 1998, a company became the first
to offer commercially a service intended to provide global satellite phone
coverage. Although such systems are highly capital-intensive and do not yet
have an extensive commercial record, mobile satellite systems could compete
with land-based wireless communications systems, thereby reducing the demand
for the infrastructure services provided by ATC. Additionally, the growth in
delivery of video services by direct broadcast satellites and the development
and implementation of signal combining technologies (which permit one antenna
to service two different frequencies of transmission and, thereby, two
customers) and satellite-delivery systems may reduce the need for tower-based
broadcast transmission. The occurrence of any of these factors could have a
material adverse effect on ATC.
Year 2000 Related Risks
ATC, like all companies, faces certain risks associated with the fact that many
computers and computer software programs were not designed to recognize the
change from 1999 to 2000 or are otherwise unable to process dates related to
the turn of the millennium. These computers (and the systems they control)
might malfunction or cease to work unless they are reprogrammed or replaced by
the end of 1999. Y2K-related problems could cause ATC's tower structures light
systems to fail which would create a hazard to air navigation. Computer-
controlled devices, such as those found in automatic monitoring and control
systems used for antenna structure lighting, are vulnerable to Y2K-related
malfunctions and may fail. Commercial electric power sources may also fail
leaving antenna structures vulnerable to blackouts. Tower owners, such as ATC,
are responsible for tower lighting in compliance with FCC and Federal Aviation
Administration ("FAA") requirements. While ATC intends to take the necessary
steps to address the Y2K problems, it may not be successful in its efforts and
any massive power failures, occasioned by Y2K problems, could pose a serious
threat to the safe maintenance and operation of ATC's tower structures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Appendix IV and "TeleCom
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Appendix V.
Certain Perceived Health Risks
ATC and the lessees of antennae sites on its towers are subject to government
regulations relating to radio frequency (we sometimes refer to it as "RF")
emissions. In recent years, there have been several substantial studies by the
scientific community investigating the potential connection between RF
emissions and possible negative health effects, including cancer. The results
of these studies have, to date, been inconclusive. ATC has not been subject to
any claims relating to RF emissions, although it is possible that such claims
may arise in the future. Because ATC does not maintain any significant
insurance with respect to such matters, such claims, if substantiated, could
have a material adverse effect on ATC.
Lack of Dividends; Restrictions on Payment of Dividends and Repurchase of
Common Stock
ATC does not expect to pay cash dividends for the foreseeable future. Rather,
ATC intends to retain any available earnings for the growth of its business. In
addition, the ATC Credit Facilities restrict the payment of cash dividends or
other distributions and the repurchase, redemption or other acquisition of
equity securities of ATC.
17
<PAGE>
AMERICAN TOWER CAPITALIZATION
The following table sets forth the capitalization of ATC as of September 30,
1998, and as adjusted to give effect to the ATC Pro Forma Transactions,
including the OmniAmerica Merger, the TeleCom Merger and the Wauka Transaction
as if American Tower had consummated all of the foregoing on September 30,
1998. For information with respect to the capitalization of ATC assuming
consummation of the merger of your company with American Tower but not the
other merger, please see Note (a) of Notes to the "Unaudited Pro Forma
Condensed Consolidated Balance Sheet of American Tower".
Management believes that the assumptions used provide a reasonable basis on
which to present such pro forma capitalization. You should read the
capitalization table below in conjunction with the historical financial
statements of ATC included elsewhere in this document, "Management's Discussion
and Analysis of Financial Condition and Results of Operations of American
Tower" and "Unaudited Pro Forma Condensed Consolidated Financial Statements of
American Tower". We have provided the capitalization table below for
informational purposes only and (i) it is not necessarily indicative of ATC's
capitalization or financial condition had we consummated the transactions and
events referred to above on the date assumed, and (ii) it is not necessarily
indicative of ATC's future capitalization or financial condition.
<TABLE>
<CAPTION>
September 30, 1998
----------------------
Historical Pro Forma
---------- ----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................... $ 313,454 $ 314,517
========== ==========
Long term debt, including current portion(1)(2):
Borrowings under the ATC Credit Facilities............ $ 275,000 $ 467,586
Other long-term debt.................................. 6,605 7,154
---------- ----------
Total long-term debt................................ 281,605 474,740
---------- ----------
Redeemable Class A Common Stock......................... 8,574 8,574
---------- ----------
Stockholders' equity(3):
Common Stock(4)
Class A Common Stock................................ 944 1,168
Class B Common Stock................................ 91 91
Class C Common Stock................................ 33 33
Additional paid-in capital.......................... 1,097,359 1,576,024
Accumulated deficit................................. (37,654) (37,654)
---------- ----------
Total stockholders' equity.......................... 1,060,773 1,539,662
---------- ----------
Total capitalization ............................... $1,350,952 $2,022,976
========== ==========
</TABLE>
- --------
(1) For additional information, see "Unaudited Pro Forma Condensed Consolidated
Financial Statements of American Tower" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of American
Tower--Liquidity and Capital Resources".
(2) See Notes to Consolidated Financial Statements and "Indebtedness of
American Tower" for additional information regarding the components and
terms of ATC's long-term debt. Approximately $21.2 million is expected to
be required (on a net basis) to finance the balance of the purchase price
of the OPM Transaction. We have discussed the OPM Transaction, as well as
certain other transactions, in the Notes to the Consolidated Financial
Statements of American Tower.
(3) Consists of (a) Preferred Stock, par value $.01 per share, 20,000,000
authorized shares, none issued or outstanding; (b) ATC Class A Common
Stock, par value $.01 per share, 300,000,000 authorized shares; shares
issued and outstanding: 94,396,556 (historical), 116,754,366 (pro forma);
(c) ATC Class B Common Stock, par value $.01 per share, 50,000,000
authorized shares; shares issued and outstanding:
18
<PAGE>
9,107,962 (historical and pro forma); and (d) ATC Class C Common Stock, par
value $.01 per share, 10,000,000 authorized shares; shares issued and
outstanding: 3,295,518 (historical and pro forma). Outstanding share numbers
do not give effect to subsequent conversions of shares of ATC Class B Common
Stock or ATC Class C Common Stock to ATC Class A Common Stock. The
outstanding share information gives effect to all consummated Recent
Transactions.
(4) The number of outstanding shares does not include, except as otherwise
indicated: (a) shares of ATC Class A Common Stock issuable upon conversion
of ATC Class B Common Stock or ATC Class C Common Stock, (b) shares
issuable upon exercise of options currently outstanding to purchase an
aggregate of 11,206,261 shares of Common Stock, or (c) shares issuable
pursuant to certain pending Recent Transactions. See the Notes to
Consolidated Financial Statements of American Tower and "Business of
American Tower--Recent Transactions--Pending Acquisitions".
19
<PAGE>
MARKET PRICES AND DIVIDEND POLICY
Comparative Market Price Data
On February 27, 1998, the ATC Class A Common Stock commenced trading on a
"when-issued" basis on the inter-dealer bulletin board of the over-the-counter
market. During the period from February 27, 1998 through June 4, 1998, the
range of the high and low per share bid prices in such "when-issued" market was
$26.125 and $15.50. The ATC Class A Common Stock commenced trading on the New
York Stock Exchange on June 5, 1998 (the day following consummation of the CBS
Merger). The Common Stock, $.01 par value per share of OmniAmerica (the
"OmniAmerica Common Stock") is traded on the Nasdaq National Market. The
following table presents trading information for the ATC Class A Common Stock
and OmniAmerica Common Stock for the periods indicated, on the NYSE Composite
Transaction Tape and the Nasdaq National Market, respectively. TeleCom is a
privately owned company and its equity interests are not traded or quoted on
any exchange or market.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
ATC Class A Common Stock
Fiscal Year Ended
December 31, 1998
Fiscal Quarter Ended
March 31 (commencing
February 27, 1998)..... $20.25 $15.50
Fiscal Quarter Ended
June 30................ 26.125 18.75
Fiscal Quarter Ended
September 30........... 28.63 14.375
Fiscal Quarter Ended
December 31............ 29.625 13.25
Fiscal Year Ending
December 31, 1999
For the period from
January 1 to January
11, 1999 .............. $29.50 $27.50
OmniAmerica Common Stock
Fiscal Year Ended June
30, 1997
Fiscal Quarter Ended
December 31............ $10.063 $ 6.75
Fiscal Quarter Ended
March 31............... 16.25 8.125
Fiscal Quarter Ended
June 30................ 15.563 8.75
Fiscal Year Ended June
30, 1998:
Fiscal Quarter Ended
September 30........... $19.875 $13.375
Fiscal Quarter Ended
December 31............ 17.375 11.25
Fiscal Quarter Ended
March 31............... 36.50 12.75
Fiscal Quarter Ended
June 30................ 48.50 33.375
Fiscal Year Ending June
30, 1999:
Fiscal Quarter Ended
September 30........... $43.00 $17.375
Fiscal Quarter Ended
December 31............ 32.25 11.563
For the period from
January 1 to January
11, 1999............... 32.00 29.25
</TABLE>
As of January 1, 1999, there were 96,620,615 shares of ATC Class A Common Stock
and 15,106,360 shares of OmniAmerica Common Stock outstanding. On November 13,
1998, the last trading day prior to the announcement of the OmniAmerica Merger
and the TeleCom Merger, the last reported sale price per share of
20
<PAGE>
ATC Class A Common Stock on the NYSE Composite Transaction Tape was $19.00 and
the last reported sale price per share of OmniAmerica Common Stock on the
Nasdaq National Market was $17.50. On January 11, 1999, the last reported sale
price per share of ATC Class A Common Stock on the NYSE Composite Transaction
Tape was $27.68, and the last reported sale price per share of OmniAmerica
Common Stock on the Nasdaq National Market was $29.75.
The market prices of shares of ATC Class A Common Stock and OmniAmerica Common
Stock fluctuate. As a result, we urge you to obtain current market quotations.
Dividend Policy
ATC has not paid a dividend on any class of its Common Stock and anticipates
that it will retain future earnings, if any, to fund the development and growth
of its business and will not pay cash dividends on the ATC Class A Common Stock
in the foreseeable future. In addition, the ATC Credit Facilities restrict the
ability of ATC to pay cash dividends on any class of its capital stock. See
"Description of American Tower Capital Stock--Dividend Restrictions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower--Liquidity and Capital Resources".
21
<PAGE>
SELECTED FINANCIAL DATA
We have presented on the following pages selected financial data of each of
American Tower, OmniAmerica and TeleCom. In the case of the American Tower
data, we have also presented certain pro forma financial data giving effect to,
among other things, each of the mergers. We expect that both of the mergers
will be accounted for as purchases. This means that for accounting and
financial reporting purposes, the results of OmniAmerica and TeleCom will be
included with those of American Tower only from and after the applicable
merger. It also means that the assets and liabilities of OmniAmerica and of
TeleCom will be valued at fair value with the purchase costs determined based
on the average market value of the ATC Class A Common Stock at the time of the
execution of its merger agreement, and, in the case of the TeleCom Merger, the
amount of cash, to be delivered in the applicable merger plus the amount of
liabilities of OmniAmerica and of TeleCom, at the time of the applicable
merger.
We have presented below unaudited pro forma condensed combined financial
information that reflects the purchase method of accounting. We have included
this information to give you a better picture of what the results of operations
and financial position of the combined businesses of American Tower and
OmniAmerica and/or TeleCom might have been had the mergers occurred on an
earlier date. The unaudited pro forma condensed combined statement of
operations data combines information from the historical consolidated
statements of operations of American Tower and OmniAmerica and/or TeleCom
giving effect to each of the mergers as of the beginning of the respective
periods. The unaudited pro forma condensed combined statement of financial
condition data combines information from the historical consolidated balance
sheet of American Tower and the historical consolidated balance sheet of
OmniAmerica and/or TeleCom giving effect to each of the mergers as if we had
completed them on September 30, 1998.
We are providing the pro forma information for illustrative purposes only. It
does not necessarily reflect what the results of operations or financial
position of the combined company would have been if the mergers had actually
occurred at the beginning of the earliest period presented. This information
also does not necessarily indicate what the combined company's future operating
results or consolidated financial position will be. This information does not
reflect, for example, (a) the effect of any potential changes in revenues or
any operating synergies which we may achieve by combining the resources of our
companies, (b) investment banking, legal and miscellaneous transaction costs
related to the mergers, which we will reflect as an expense in the period we
complete the mergers, and (c) costs associated with the combining of our
companies which we cannot presently estimate.
22
<PAGE>
AMERICAN TOWER SELECTED FINANCIAL DATA
The financial data set forth below has been derived from the consolidated
financial statements of American Tower included elsewhere in this document. The
data as of and for the nine months ended September 30, 1998 is unaudited.
However, management believes it contains all adjustments, consisting only of
normal recurring accruals, necessary to present such information fairly. The
data should be read in conjunction with American Tower's audited and unaudited
financial statements and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of American Tower". The pro forma
financial data with respect to the year ended December 31, 1997 and the nine
months ended September 30, 1998 reflects certain adjustments, as explained
elsewhere in this document. Therefore any comparison of such pro forma
financial data with the financial data for periods prior to 1997 is
inappropriate. Such pro forma financial data gives effect to the ATC Pro Forma
Transactions (which includes the OmniAmerica Merger, the TeleCom Merger, the
CBS Merger, the Diablo Transaction, the Meridian Transaction, the Gearon
Transaction, the OPM Transaction, the Micronet Transaction, the Old ATC Merger,
the Wauka Transaction, the ATC Private Placement, and the ATC IPO). However,
the data does not reflect all of the consummated or pending acquisitions or
pending construction. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements of American Tower".
You should also realize that prior to June 4, 1998, American Tower operated as
a subsidiary of American Radio and not as an independent company. Therefore,
the results of operations and the financial condition shown below for such
period may be different from what they might have been had ATC operated as a
separate, independent company. The information is also not necessarily
indicative of ATC's future results of operations or financial condition.
23
<PAGE>
AMERICAN TOWER CORPORATION
Selected Financial Data(/1/)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Nine Months Ended
December 31, 1997 September 30, September 30, 1998
------------------------ ------------------- ------------------
Historical
-------------------
July 17, 1995 Year Ended
through December 31,
December 31, 1995 1996 Historical Pro Forma(2) 1997 1998 Pro Forma(2)
----------------- ------------ ---------- ------------ -------- --------- ------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net operating reve-
nues.................. $ 163 $2,897 $ 17,508 $177,267 $ 7,902 $ 71,485 $166,071
----- ------ --------- -------- -------- --------- --------
Operating expenses:
Operating expenses ex-
cluding
depreciation, amorti-
zation and corporate
general and
administrative....... 60 1,362 8,713 116,078 3,589 42,526 115,537
Depreciation and
amortization......... 57 990 6,326 108,864 2,706 32,998 90,521
Tower separation
costs................ 12,616 12,616
Corporate general and
administrative....... 230 830 1,536 3,536 919 3,186 3,186
----- ------ --------- -------- -------- --------- --------
Total operating ex-
penses............... 347 3,182 16,575 228,478 7,214 91,326 221,860
----- ------ --------- -------- -------- --------- --------
Operating income
(loss)................ (184) (285) 933 (51,211) 688 (19,841) (55,789)
Interest (income) ex-
pense, net............ -- (36) 2,789 1,318 17,023 16,764
Other expense (in-
come)................. -- -- 15 15 (94) (6,283)
Minority interest in
net earnings (losses)
of subsidiaries(3).... -- 185 178 (257) 221 255 (273)
----- ------ --------- -------- -------- --------- --------
Loss before income
taxes and
extraordinary items... (184) (434) (2,049) (50,969) (757) (30,836) (72,280)
Benefit (provision) for
income
taxes................. 74 (46) 473 10,779 49 4,934 21,706
----- ------ --------- -------- -------- --------- --------
Loss before extraordi-
nary item............. $(110) $ (480) $ (1,576) $(40,190) $ (708) $ (25,902) $(50,574)
===== ====== ========= ======== ======== ========= ========
Basic and diluted pro
forma loss per common
share before
extraordinary
item(4)............... $ (0.03) $ (0.31) $ (0.01) $ (0.37) $ (0.39)
========= ======== ======== ========= ========
Basic and diluted pro
forma common shares
outstanding........... 48,732 129,494 48,732 70,103 129,494
========= ======== ======== ========= ========
Other Operating Data:
Tower cash flow(5)..... $ 103 $1,535 $ 8,795 $61,189 $ 4,313 $ 28,959 $ 50,534
EBITDA(5).............. (127) 705 7,259 57,653 3,394 25,773 47,348
EBITDA margin(5)....... (N/A) 24.3% 41.5% 32.5% 43.0% 36.1% 28.5%
After-tax cash
flow(5)............... (53) 510 4,750 68,674 1,998 7,096 39,947
Cash provided by (used
for)
operating activities.. (51) 2,229 9,913 -- 3,118 2,878 --
Cash (used for) invest-
ing activities........ -- -- (216,783) -- (74,318) (227,915) --
Cash provided by fi-
nancing
activities............ 63 132 209,092 -- 71,122 533,895 --
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Tower Data(6):
Towers operated at beginning of period................. -- 3 269 682
Towers acquired(7).................................... 3 265 310 1,969
Towers constructed.................................... -- 1 81 272
--- --- --- -----
Towers operated at end of period....................... 3 269 682 2,923
=== === === =====
Aggregate towers constructed(8)........................ 3 31 240 718
=== === === =====
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1998
------------------------ -----------------------
HISTORICAL HISTORICAL PRO FORMA(2)
------------------------ ---------- ------------
1995 1996 1997
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 1 $ 2,373 $ 4,596 $ 313,454 $ 314,517
Working capital (deficiency),
excluding current portion of
long-term debt.............. (40) 663 (2,209) 252,442 273,569
Property and equipment, net.. 3,759 19,710 117,618 388,315 560,815
Total assets................. 3,863 37,118 255,356 1,435,754 2,262,792
Long-term debt, including
current portion............. -- 4,535 90,177 281,605 474,740
Total stockholders' equity... 3,769 29,728 153,207 1,060,773 1,539,662
</TABLE>
- --------
(1) ATI was organized on July 17, 1995 and American Radio contributed all of
the issued and outstanding capital stock of ATI to ATC on September 24,
1996. Year-to-year comparisons are significantly affected by the timing of
acquisitions of communications sites and related businesses and
construction of towers, both of which have been numerous during the period.
The principal acquisitions made in 1996, 1997 and 1998 are described in
"Business of American Tower--Recent Transactions" and the Consolidated
Financial Statements of American Tower.
(2) The December 31, 1997 and September 30, 1998 pro forma information gives
effect to "ATC Pro Forma Transactions" as if they had occurred on January
1, 1997 and January 1, 1998, respectively. "ATC Pro Forma Transactions"
means collectively, the OmniAmerica Merger, the TeleCom Merger, the CBS
Merger, the Diablo Transaction, the Gearon Transaction, the Meridian
Transaction, the MicroNet Transaction, the Old ATC Merger, the OPM
Transaction, the Wauka Transaction, the ATC Private Placement and the ATC
IPO, as if each of the foregoing had occurred on January 1, 1997 and
January 1, 1998, respectively. The unaudited pro forma Balance Sheet Data
as of September 30, 1998 gives effect to the OmniAmerica Merger, the
TeleCom Merger and the Wauka Transaction (the only ATC Pro Forma
Transactions not then consummated), as if each of the foregoing had
occurred on September 30, 1998. ATC Pro Forma Transactions do not include
all of the consummated or pending acquisitions or pending construction. See
"Business of American Tower--Recent Transactions" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements of American Tower". For pro
forma information with respect to American Tower, assuming consummation of
one but not both of the mergers, see the Unaudited Pro Forma Condensed
Consolidated Balance Sheet, and Note (d) of Notes to Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December
31, 1997 and the nine months ended September 30, 1998.
(3) Represents the elimination of the 49.9% member's earnings of ATS Needham,
LLC, in which American Tower, L.P., an indirect wholly-owned subsidiary of
ATC ("ATLP") held a 50.1% interest at September 30, 1998 (80% interest in
October 1998), and the elimination of the 30% member's loss of ATS/PCS
(formerly Communications Systems Development LLC), in which ATLP holds a
70% interest.
(4) Pro forma basic and diluted loss per share has been computed using (a) in
the case of historical information, the number of shares outstanding
following the CBS Merger and (b) in the case of pro forma information, the
number of shares expected to be outstanding following the CBS Merger and
the transactions discussed in Note (2) above and the Notes to the Unaudited
Pro Forma Condensed Consolidated Statement of Operations.
(5) We use the term "Tower Cash Flow" to mean operating income (loss) before
depreciation and amortization, corporate general and administrative
expenses and tower separation costs. "EBITDA" is used by us to mean
operating income (loss) before depreciation and amortization and tower
separation costs. "After-tax cash flow" means income (loss) before
extraordinary items, plus depreciation and amortization, less preferred
stock dividends. All of such terms include deferred revenue attributable
to certain leases. We do not consider Tower Cash Flow, EBITDA and after-
tax cash flow as a substitute for alternative measures of operating
results or cash flow from operating activities or as a measure of ATC's
profitability or liquidity. Although these measures of performance are not
calculated in accordance with "GAAP", we have included them because they
are generally used in the communications site industry as a measure of a
company's operating performance. More specifically, we believe they can
assist in comparing company performances on a consistent basis without
regard to depreciation and amortization. The concern is that depreciation
and amortization can vary significantly among companies depending on
accounting methods, particularly where acquisitions are involved, or non-
operating factors such as historical cost bases. We believe Tower Cash
Flow is useful because it enables you to compare tower performances before
the effect of expenses (corporate general and administrative) that do not
relate directly to such performance.
(6) Includes information with respect to ATC only and is for the year shown,
except 1998, which is as of September 30, and assumes consummation of all
Recent Transactions then pending, but does not include towers then under
construction by ATC. See Note (8) below. Excludes approximately 1,700
managed sites (primarily rooftops) of TeleCom that are non-revenue
generating.
(7) Includes towers managed for others as follows; 1996--251; 1997--86; and
1998--598. Excludes TeleCom's non-revenue generating sites described in
Note (6) above.
(8) Includes towers constructed in each period by ATC and all acquired (or to
be acquired) companies, including, in certain cases, towers constructed for
and owned by third parties.
25
<PAGE>
OMNIAMERICA SELECTED FINANCIAL DATA
The following Selected Financial Data of OmniAmerica for the fiscal years ended
June 30, 1996, 1997 and 1998 have been derived from the consolidated financial
statements of OmniAmerica included elsewhere in this document. The Selected
Financial Data for the fiscal years ended June 30, 1994 and 1995 is unaudited.
The Selected Financial Data should be read in conjunction with OmniAmerica's
audited and unaudited financial statements and the notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"of OmniAmerica in Appendix IV. The Selected Financial Data as of
September 30, 1998 and for the three months ended September 30, 1998 and 1997
are unaudited but, in the opinion of management of OmniAmerica, contain all
adjustments, consisting of normal and recurring adjustments, necessary for a
fair presentation in conformity with generally accepted accounting principles.
The results of operations for the three months ended September 30, 1998 are not
necessarily indicative of the results that should be expected for the full 1999
fiscal year.
<TABLE>
<CAPTION>
Three months ended
Year ended June 30, September 30,
--------------------------------------------------------------- ------------------------
1994 1995 1997 1998
(unaudited) (unaudited) 1996 1997 1998 (unaudited) (unaudited)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net operating
revenues(1)............ $14,536,043 $20,993,439 $32,585,986 $65,626,800 $62,799,071 $12,799,956 $24,437,551
Operating expenses:
Operating expenses
excluding
depreciation,
amortization and
corporate general and
administrative........ 12,257,379 18,875,596 27,536,178 56,307,957 54,425,756 10,594,134 18,964,740
Depreciation and
amortization.......... 244,598 328,491 634,501 1,631,015 3,081,951 464,787 1,957,369
Corporate general and
administrative........ 732,290 950,666 842,338 1,388,386 3,378,547 434,158 2,506,794
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 13,234,267 20,154,753 29,013,017 59,327,358 60,886,254 11,493,079 23,428,903
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income........ 1,301,776 838,686 3,572,969 6,299,442 1,912,817 1,306,877 1,008,648
Interest expense, net... (11,751) (22,283) (82,027) (429,615) (623,723) (78,695) (626,123)
Other income, net....... 79,168 226,136 269,434 161,415 300,449 68,815 24,774
Minority interest in net
earnings of
unconsolidated
subsidiary(2).......... -- -- -- -- 219,569 -- 157,361
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before income
taxes.................. 1,369,193 1,042,539 3,760,376 6,031,242 1,809,112 1,296,997 564,660
Provision for income
taxes.................. 408,554 313,512 564,800 343,500 832,000 508,900 310,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings............ $ 960,639 $ 729,027 $ 3,195,576 $ 5,687,742 $ 977,112 $ 788,097 $ 254,660
=========== =========== =========== =========== =========== =========== ===========
Basic earnings per
common share(3)........ $ 0.11 $ 0.46 $ 0.80 $ 0.11 $ 0.10 $ 0.02
=========== =========== =========== =========== =========== ===========
Diluted earnings per
common share(3)........ $ 0.11 $ 0.46 $ 0.76 $ 0.10 $ 0.10 $ 0.02
=========== =========== =========== =========== =========== ===========
Basic common shares
outstanding(3)......... 6,521,623 6,872,308 7,110,282 9,274,676 7,891,486 15,065,328
=========== =========== =========== =========== =========== ===========
Diluted common shares
outstanding(3)......... 6,529,937 6,881,173 7,467,990 9,562,121 8,164,386 15,362,774
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
Year ended June 30, September 30,
------------------------------------------------------------ ------------------------
1994 1995 1997 1998
(unaudited) (unaudited) 1996 1997 1998 (unaudited) (unaudited)
Balance Sheet Data: ----------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 199,839 $ 4,420,295 $ 3,412,618 $ 989,720 $ 4,349,324 $ 472,455 $ 786,073
Working capital,
excluding current
portion of long-term
debt................... 2,119,160 6,307,413 7,509,428 10,905,696 18,243,618 11,728,167 18,737,332
Property and equipment,
net.................... 1,008,065 1,439,376 4,164,548 8,429,906 50,847,107 8,168,037 80,524,265
Total assets............ 4,761,968 11,469,448 19,589,099 32,363,264 179,323,425 30,500,719 217,223,678
Long-term debt,
including current
portion................ 143,648 263,626 1,039,476 2,585,879 32,106,155 2,306,572 63,513,521
Total stockholder's
equity................. 3,470,480 8,102,840 10,445,838 18,504,267 135,190,797 19,382,043 138,246,799
</TABLE>
- --------
(1) Net operating revenues consist of installation service revenue, component
sales, and tower leasing revenues. The tower leasing revenues did not begin
until April 1998 when the April Merger (described on page IV-1 of Appendix
IV) was consummated.
(2) Represents OmniAmerica's one-third interest in the earnings of Kline Iron &
Steel Co., Inc. since its acquisition in April 1998.
(3) OmniAmerica was not publicly traded until November 4, 1994.
26
<PAGE>
TELECOM SELECTED FINANCIAL DATA
TeleCom was formed in September 1997 as a joint venture between TeleCom Towers,
Inc., a Texas corporation ("TTI"), and Cox Telecom Towers, Inc., a Delaware
corporation ("CTT"), and a subsidiary of Cox Enterprises, Inc., pursuant to
which TTI contributed to TeleCom the general partnership interests in TTI's
three operating partnerships: Telecom Southwest Towers Limited Partnership, a
Texas limited partnership ("TSTLP"), Telecom Towers Mid-Atlantic Limited
Partnership, a South Carolina limited partnership ("TTMLP"), and Telecom Towers
of the West, L.P., a Delaware limited partnership ("TTWLP" and collectively,
with TSTLP and TTMLP, the "Partnerships"), as well as other assets, and CTT
committed to contribute cash to TeleCom for purposes of financing transaction
costs, acquisitions, capital expenditures and other business needs. On August
3, 1998, TeleCom consummated the roll-up of the limited partnership interests
in the Partnerships by merging the Partnerships into TeleCom (the "TeleCom
Roll-up"). The following financial information presents the summary combined
operating results of the Partnerships for periods prior to the date of the
TeleCom Roll-up, and the actual historical operating results of TeleCom from
August 1, 1998 through September 30, 1998. Summary operating results for each
of TSTLP, TTMLP, and TTWLP are also provided. None of the foregoing summary
financial information reflects the results of RCC Consultants, Inc. ("RCC") and
Prime-Telecom Communications Co. ("Prime") because both entities will be
distributed to the TeleCom members in a pro rata distribution prior to the
consummation of the TeleCom Merger.
The financial data set forth below has been derived from the financial
statements of TeleCom and the Partnerships included elsewhere in this document.
The data as of and for the nine months ended September 30, 1998 is unaudited.
However, management of TeleCom believes it contains all adjustments, consisting
only of normal recurring accruals, necessary to present such information
fairly. The data should be read in conjunction with TeleCom's and the
Partnerships's audited and unaudited financial statements and with "TeleCom
Management's Discussion and Analysis of Financial Condition and Results of
Operations" which appears in Appendix V. The pro forma financial data with
respect to the year ended December 31, 1997 and the nine months ended September
30, 1998 reflects certain adjustments, as explained elsewhere in this document.
Therefore any comparison of such pro forma financial data with the financial
data for periods prior to 1997 is inappropriate.
TeleCom Towers, L.L.C.
<TABLE>
<CAPTION>
Combined Predecessor Entities(1) TeleCom
------------------------------------------------------------ ------------------
Year ended December 31,
-------------------------------------
August 1, 1998
through
Nine Months Ended September 30, 1998
1995 1996 1997 September 30, 1998(1) (Actual)
----------- ----------- ----------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 1,296,606 $ 3,518,033 $ 7,886,832 $ 8,643,057 $ 4,747,831
Direct costs............ 247,511 1,092,062 2,055,354 3,668,203 2,604,674
General and
administrative costs... 753,648 1,200,615 3,291,364 4,707,224 2,232,622
----------- ----------- ----------- ------------ ------------
295,447 1,225,356 2,540,114 267,630 (89,465)
Depreciation and
amortization........... 457,969 945,382 2,825,736 3,876,897 1,091,301
Interest expense........ 320,140 908,031 1,809,350 2,213,316 717,751
Other expense (income).. (19,308) (71,985) 49,014 280,644 52,421
----------- ----------- ----------- ------------ ------------
Net loss before
extraordinary items.... $ (463,354) $ (556,072) $(2,143,986) $(6,103,227) $(1,950,938)
=========== =========== =========== ============ ============
<CAPTION>
As of December 31, As of September 30, As of
------------------------------------- --------------------- September 30,
1995 1996(1) 1997(1) 1998(1) 1998 (Actual)
----------- ----------- ----------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,012,126 $ 2,144,685 $ 3,366,495 $ 12,160,658 $ 12,238,658
Working capital,
excluding current
portion of long-term
debt................... 1,181,661 (3,797,494) 2,204,822 9,617,034 12,443,034
Property and equipment
(net).................. 4,025,877 8,132,158 18,240,177 19,866,568 20,594,568
Total assets............ 9,095,193 19,169,352 58,434,159 95,783,706 102,893,781
Long-term debt,
including current
portion................ 5,650,000 10,126,875 28,621,948 28,486,114 29,622,114
Total partners'
capital................ 3,077,780 3,776,165 29,426,325 65,231,195 67,748,195
</TABLE>
- -------
(1) Pro forma financial information of combined TeleCom and the Partnerships.
27
<PAGE>
The following table sets forth summary financial data of each of the
Partnerships for the number of years ended from the date of inception to the
year ended December 31, 1997, and the seven months ended July 31, 1997 and
1998. The Selected Financial Data should be read in conjunction with the
audited and unaudited financial statements of the respective Partnerships and
the notes thereto appearing elsewhere in this document and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"of
TeleCom in Appendix V. The Selected Financial Data as of July 31, 1997 and
1998, are unaudited but, in the opinion of management of TeleCom, contain all
adjustments necessary for a fair presentation in conformity with generally
accepted accounting principles.
Telecom Southwest Towers, LP:
<TABLE>
<CAPTION>
January 5, 1995 Seven Months Ended
through Year Ended Year Ended July 31,
December 31, December 31, December 31, ----------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct costs............ 221,783 306,553 374,535 195,220 264,606
General and
administrative costs... 729,009 781,877 463,176 277,704 302,304
---------- ---------- ---------- ---------- ----------
233,815 517,548 1,224,300 679,458 723,408
Depreciation and
amortization........... 396,568 531,804 839,791 459,022 480,919
Interest expense........ 246,770 424,237 640,741 272,714 396,865
Other expense (income).. (19,308) 3,144 9,009 (2,935) (99)
---------- ---------- ---------- ---------- ----------
Net Loss before
extraordinary items.... $ (390,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, July 31,
-------------------------------- ----------
1995 1996 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 762,013 $ 208,486 $ 20,821 $ 350,305
Working capital, excluding current
portion of long-term debt........ 1,109,595 159,875 17,602 31,233
Property and equipment (net)...... 3,231,011 3,455,005 4,131,451 3,954,305
Total assets...................... 7,250,578 6,453,566 8,670,056 8,583,944
Long-term debt, including current
portion.......................... 4,900,000 4,795,625 7,455,637 7,206,834
Total partners' capital........... 2,231,558 1,549,921 1,100,438 946,161
</TABLE>
28
<PAGE>
Telecom Towers Mid-Atlantic, LP:
<TABLE>
<CAPTION>
June 23, 1995 Seven Months Ended
through Year Ended Year Ended July 31,
December 31, December 31, December 31, ------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $111,999 $13,505,597 $18,318,579 $10,750,784 $11,580,009
Direct costs............ 25,728 10,081,551 13,474,106 7,434,719 7,561,750
General and
administrative costs... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
-------- ----------- ----------- ----------- -----------
61,632 562,322 221,666 527,427 822,997
Depreciation and
amortization........... 61,401 386,394 726,558 383,665 532,226
Interest expense........ 73,370 328,878 518,892 206,655 403,308
Other expense........... -- (182,129) 125,984 (20,346) 49,712
-------- ----------- ----------- ----------- -----------
Net Income (Loss) before
extraordinary items.... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ 162,249)
======== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
---------------------------------- July 31,
1995 1996 1997 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 250,113 $ 1,894,748 $ 379,373 $ 275,661
Working capital, excluding
current portion of long-term
debt.......................... 72,066 2,460,155 2,588,909 2,107,725
Property and equipment (net)... 794,866 4,511,998 4,932,525 5,149,490
Total assets................... 1,844,615 14,401,318 13,939,875 13,881,034
Long-term debt, including
current portion............... 750,000 4,031,250 7,223,035 7,038,754
Total partners' capital........ 846,222 5,203,290 3,693,457 3,531,208
</TABLE>
Telecom Towers of the West, LP:
<TABLE>
<CAPTION>
August 1, 1996 Seven Months Ended
through Year Ended July 31,
December 31, December 31, ---------------------
1996 1997 1997 1998
-------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct costs.............. 24,958 372,964 85,223 364,032
General and administrative
costs.................... 21,014 561,233 272,949 495,936
--------- ----------- --------- ----------
95,486 1,234,496 423,018 1,101,714
Depreciation and
amortization............. 65,184 1,214,165 323,021 1,074,300
Interest expense.......... 154,916 693,161 226,031 611,244
Other expense............. -- 476,460 (167,413) 307,911
--------- ----------- --------- ----------
Net Loss before
extraordinary items...... $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of July 31,
--- ------------------------ --------------
1996 1997 1998
--- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 202,451 $ 425,791 $ 605,040
Working capital, excluding current
portion of long-term debt........ (3,139,524) 4,108 23,269
Property and equipment (net)...... 545,155 4,700,217 4,670,462
Total assets...................... 4,399,468 25,281,187 24,851,318
Long-term debt, including current
portion.......................... 1,300,000 11,155,276 11,506,526
Total partners' capital........... (260,046) 13,415,180 12,523,439
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS OF OMNIAMERICA
The following unaudited pro forma condensed consolidated statements of
operations of OmniAmerica for the year ended December 31, 1997 and the nine
months ended September 30, 1998 present the historical operations for the
respective period adjusted for the results of operations of OmniAmerica's
various acquisitions as if such acquisitions had been consummated on the first
day of the respective period. You should read the unaudited pro forma condensed
consolidated statements of operations in conjunction with OmniAmerica's
historical consolidated financial statements and notes thereto, as well as the
financial statements and notes thereto of certain businesses that have been
acquired, which are included elsewhere in this document. The unaudited pro
forma condensed consolidated statements of operations are not necessarily
indicative of the results of operations that would have been reported had such
events actually occurred on the date specified nor are they indicative of
OmniAmerica's future results of operations. No unaudited pro forma condensed
consolidated balance sheet is presented as of September 30, 1998 since all
acquisitions had been consummated prior to September 30, 1998 and therefore are
included in the unaudited historical condensed consolidated balance sheet at
September 30, 1998 included elsewhere in this document.
30
<PAGE>
OMNIAMERICA, INC.
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Acquisitions Pro Forma
Historical (a) Historical (b) Adjustments (c) Pro Forma
-------------- -------------- --------------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $62,039 $10,315 $ 627 (/5/) $72,981
Operating expenses
excluding depreciation
and amortization and
corporate general and
administrative......... 52,590 6,029 270 (/2/)(/5/) 58,889
Depreciation and
amortization........... 1,988 544 3,260 (/1/) 5,792
Corporate general and
administrative......... 1,042 936 131 (/2/) 2,109
------- ------- ------- -------
Operating income
(loss)................. 6,419 2,806 (3,034) 6,191
Other expense (income):
Interest expense, net.. 451 987 (881)(/2/) 557
Other expense
(income).............. (210) (60) 55 (/2/) (215)
Minority interest in
net earnings of
subsidiary............ -- (435) -- (435)
------- ------- ------- -------
Total other expense
(income)............ 241 492 (826) (93)
------- ------- ------- -------
Earnings (loss) before
income taxes........... 6,178 2,314 (2,208) 6,284
Income tax benefit
(provision)........... (1,228) (10) (1,551)(/4/) (2,789)
------- ------- ------- -------
Net earnings (loss)..... $ 4,950 $ 2,304 $(3,759) $ 3,495
======= ======= ======= =======
Pro forma basic earnings
per common share $ 0.24
=======
Pro forma diluted
earnings per common
share $ 0.23
=======
Pro forma basic common
shares outstanding 14,648
=======
Pro forma diluted common
shares outstanding 14,885
=======
</TABLE>
31
<PAGE>
OMNIAMERICA, INC.
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
Acquisitions Pro Forma
Historical (a) Historical (b) Adjustments (c) Pro Forma
-------------- -------------- --------------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $57,661 $4,123 $ (135)(/3/) $61,649
Operating expenses
excluding depreciation
and amortization and
corporate general and
administrative......... 49,744 1,765 90 (/2/) 51,599
Depreciation and
amortization........... 4,026 646 968 (/1/) 5,640
Corporate general and
administrative......... 4,858 780 17 (/2/) 5,655
Total operating
expenses...............
------- ------ ------- -------
Operating income
(loss)................. (967) 932 (1,210) (1,245)
Other expense (income):
Interest expense,
net.................. 1,099 17 24 (/2/) 1,140
Other expense
(income)............. (201) (7) -- (208)
Minority interest in
net earnings
of subsidiary........ (377) (151) -- (528)
------- ------ ------- -------
Total other expense
(income)........... 521 (141) 24 404
------- ------ ------- -------
(Loss) earnings before
income taxes........... (1,488) 1,073 (1,234) (1,649)
Income tax benefit
(provision)............ 351 -- (1)(/4/) 350
------- ------ ------- -------
Net (loss) earnings..... $(1,137) $1,073 $(1,235) $(1,299)
======= ====== ======= =======
Pro forma basic and
diluted loss per common
share.................. $ (0.09)
=======
Pro forma basic and
diluted common shares
outstanding............ 14,974
=======
</TABLE>
32
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations of
OmniAmerica Inc.
(a) Presents the unaudited historical results of operations of OmniAmerica
recast from OmniAmerica's June 30 fiscal year end to the periods presented.
(b) Presents for OmniAmerica's 1997 and 1998 acquisitions, their unaudited
combined historical results of operations from the beginning of the period
through the date of acquisition. For a description of those acquisitions
see "Business of OmniAmerica -- History" in Appendix IV. The unaudited
historical results by acquired company is as follows:
For the period from January 1, 1997 through date of acquisition
<TABLE>
<CAPTION>
OmniAmerica
Holdings Paramount Coatings Ellis Teleforce Total
----------- --------- -------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $5,274 $1,007 $238 $2,607 $1,189 $10,315
Operating expenses...... 1,820 737 55 2,494 923 6,029
Depreciation and
amortization........... 525 15 4 -- -- 544
Corporate general and
administrative......... 839 79 18 -- -- 936
------ ------ ---- ------ ------ -------
Operating income........ 2,090 176 161 113 266 2,806
Other expense (income):
Interest expense,
net.................. 963 24 -- -- -- 987
Other expense
(income)............. (13) -- (6) (41) -- (60)
Minority interest in
net earnings of
subsidiary........... (435) -- -- -- -- (435)
------ ------ ---- ------ ------ -------
Total other expense
(income)........... 515 24 (6) (41) -- 492
------ ------ ---- ------ ------ -------
Earnings before income
taxes.................. 1,575 152 167 154 266 2,314
Income tax benefit
(provision).......... -- (10) -- -- -- (10)
------ ------ ---- ------ ------ -------
Net earnings............ $1,575 $ 142 $167 $ 154 $ 266 $ 2,304
====== ====== ==== ====== ====== =======
</TABLE>
For the period from January 1, 1998 through date of acquisition
<TABLE>
<CAPTION>
OmniAmerica
Holdings Teleforce Total
----------- --------- ------
<S> <C> <C> <C>
Net revenues................................. $1,989 $2,134 $4,123
Operating expenses........................... 361 1,404 1,765
Depreciation and amortization................ 643 3 646
Corporate general and administrative......... 770 10 780
------ ------ ------
Operating income............................. 215 717 932
Other expense (income):
Interest expense, net...................... 17 -- 17
Other expense (income)..................... (6) (1) (7)
Minority interest in net earnings of
subsidiary................................ (151) -- (151)
------ ------ ------
Total other expense (income)............. (140) (1) (141)
------ ------ ------
Earnings before income taxes................. 355 718 1,073
Income tax benefit (provision)............. -- -- --
------ ------ ------
Net earnings................................. $ 355 $ 718 $1,073
====== ====== ======
</TABLE>
(c) Pro Forma adjustments:
(1) To reflect increases in depreciation expense and amortization of
goodwill related to purchase accounting
(2) To reflect net increases in officers' compensation and oversight fees
related to the April 1998 Merger, and interest expense on debt incurred
or curtailed as part of each related acquisition
(3) To eliminate non-recurring consulting fees received by OmniAmerica
prior to the April 1998 Merger
(4) To present the income tax provision on a pro-forma basis
(5) To reflect revenues and operating expenses as if OmniAmerica Holdings
was in existence on January 1, 1997.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF AMERICAN TOWER
The following unaudited pro forma condensed consolidated financial statements
of American Tower consist of an unaudited pro forma condensed consolidated
balance sheet as of September 30, 1998 and unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
for the nine months ended September 30, 1998, adjusted for the ATC Pro Forma
Transactions, as if such transactions had been consummated on the first day of
the period (in the case of the unaudited pro forma condensed consolidated
statements of operations) and the date of the unaudited pro forma condensed
consolidated balance sheet (to the extent not theretofore consummated). With
respect to acquisitions, the pro forma statements give effect only to the ATC
Pro Forma Transactions based on their significance in relation to all of ATC's
acquisitions. You should read the unaudited pro forma condensed consolidated
balance sheet and the unaudited pro forma condensed consolidated statements of
operations in conjunction with American Tower's consolidated financial
statements and notes thereto, as well as the financial statements and notes
thereto of certain businesses that have been or may be acquired, which are
included elsewhere in this document. The unaudited pro forma condensed
consolidated balance sheet and the unaudited pro forma condensed consolidated
statements of operations are not necessarily indicative of the financial
condition or the results of operations that we would have reported had such
events actually occurred on the date specified, nor are they indicative of the
financial condition or the results of operations we would have had if ATC had
operated as a separate, independent company during such periods. Finally, they
are not necessarily indicative of ATC's future financial condition or results
of operations.
In reviewing the unaudited pro forma condensed consolidated financial
statements set forth below, in addition to the assumptions and other matters
noted in the above paragraph and in the notes to the unaudited pro forma
condensed consolidated financial statements, you should note that we have
estimated the incremental costs that we will incur because ATC is an
independent company and we have reflected those in the pro forma adjustments.
However, the actual incremental costs for such independent operations may
exceed such estimated amounts.
We have also presented two supplemental pro forma balance sheets which reflect
the consummation of one, but not both mergers. A similar presentation with
respect to the pro forma statement of operations is located in footnote (d) to
the Notes to Unaudited Condensed Consolidated Statement of Operations.
34
<PAGE>
AMERICAN TOWER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
Supplemental
-----------------------
Pro Forma Pro Forma
for the for the
Pro Forma OmniAmerica TeleCom
Historical Adjustments(a) Pro Forma Merger Only Merger Only
---------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 313,454 $ 1,063 $ 314,517 $ 314,356 $ 313,731
Accounts receivable,
net.................... 14,455 29,933 44,388 37,082 21,776
Other current assets.... 7,573 10,962 18,535 18,296 7,947
Notes receivable........ 6,100 6,100 6,100 6,100
Property and equipment,
net.................... 388,315 172,500 560,815 508,315 460,815
Intangible assets, net.. 677,317 637,015 1,314,332 1,146,607 904,196
Deferred tax asset...... 24,435 (24,435) --
Deposits and other
assets................. 4,105 4,105 4,105 4,105
---------- -------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $2,034,861 $1,718,670
========== ======== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities,
excluding current
portion of long-term
debt................... $ 83,040 $ 20,831 $ 103,871 $ 98,536 $ 88,622
Deferred income taxes... 134,183 134,183 90,587 30,525
Other long-term
liabilities............ 1,195 1,195 1,195 1,195
Long-term debt,
including current
portion................ 281,605 193,135 474,740 384,960 410,576
Minority interest....... 567 567 567 567
Redeemable common
stock.................. 8,574 8,574 8,574 8,574
Stockholders' equity.... 1,060,773 478,889 1,539,662 1,450,442 1,178,611
---------- -------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $2,034,861 $1,718,670
========== ======== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet of
American Tower.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
We have prepared the unaudited pro forma condensed consolidated balance sheet
as of September 30, 1998 to give effect, as of such date, to the OmniAmerica
Merger, the TeleCom Merger and the Wauka Transaction. See Notes to the
Consolidated Financial Statements of American Tower for a description of the
transactions included in the ATC Pro Forma Transactions.
(a) The following table sets forth the pro forma balance sheet adjustments as
of September 30, 1998. (In thousands).
<TABLE>
<CAPTION>
Wauka OmniAmerica TeleCom Pro Forma
Transaction Merger Merger Adjustments
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ 116 $ 786 $ 161 $ 1,063
Accounts receivable, net........ 15 22,612 7,306 29,933
Other current assets............ 135 10,588 239 10,962
Property and equipment, net..... 20,000 100,000 52,500 172,500
Intangible assets, net.......... 59,154 410,136 167,725 637,015
Deferred tax asset.............. (24,435) (24,435)
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities, excluding
current portion of long-term
debt........................... $ 247 $ 15,249 $ 5,335 $ 20,831
Deferred income taxes........... 11,364 103,658 19,161 134,183
Long-term debt, including
current portion................ 39,191 64,164 89,780 193,135
Stockholders' equity............ 28,618 361,051 89,220 478,889
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
</TABLE>
The OmniAmerica Merger, the TeleCom Merger and the Wauka Transaction will be
accounted for under the purchase method of accounting.
Borrowings to finance the TeleCom Merger include assumed debt and borrowings to
be incurred to pay the cash portion of the TeleCom Merger Consideration.
TeleCom cash has been reduced as an offset to the TeleCom Merger Consideration
increase attributable to the working capital adjustment.
The following table sets forth the purchase prices and related pro forma
financing of the transactions described above.
<TABLE>
<CAPTION>
Common Stock
Issued or to
Purchase be Issued
Price Borrowings by ATC
-------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
Wauka Transaction.............................. $79,154 $38,642 $28,618
OmniAmerica Merger............................. 510,136 64,164 352,409
TeleCom Merger................................. 220,224 89,780 89,220
</TABLE>
ATC has or expects to issue a total of approximately 23.3 million shares of ATC
Class A Common Stock to effect all of the transactions described above, as
follows: the OmniAmerica Merger--17.7 million shares; the TeleCom Merger--4.2
million shares; and the Wauka Transaction--1.4 million shares.
36
<PAGE>
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Adjustments Pro Forma for Adjustments Adjustments
for ATC Pro ATC Pro for for
Forma Forma OmniAmerica TeleCom
Historical Transactions(a) Transactions Merger(b) Merger(c) Pro Forma(d)
---------- --------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $17,508 $ 78,813 $ 96,321 $ 72,981 $ 7,965 $177,267
Operating expenses...... 8,713 45,152 53,865 60,158 2,055 116,078
Depreciation and
amortization........... 6,326 53,847 60,173 34,009 14,682 108,864
Corporate general and
administrative
expenses............... 1,536 2,000 3,536 3,536
------- -------- -------- -------- ------- --------
Operating income
(loss)................. 933 (22,186) (21,253) (21,186) (8,772) (51,211)
------- -------- -------- -------- ------- --------
Other expense (income):
Interest expense,
net.................. 2,789 (2,789)
Other expense......... 15 15 15
Minority interest in
net earnings (losses)
of subsidiaries...... 178 178 (435) (257)
------- -------- -------- -------- ------- --------
Total other expense
(income)........... 2,982 (2,789) 193 (435) 242
------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... (2,049) (19,397) (21,446) (20,751) (8,772) (50,969)
Income tax benefit
(provision)(e)......... 473 2,449 2,922 5,519 2,338 10,779
------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item..... $(1,576) $(16,948) $(18,524) $(15,232) $(6,434) $(40,190)
======= ======== ======== ======== ======= ========
Pro forma basic and
diluted loss per common
share before
extraordinary item..... $ (0.17) $ (0.31)
======== ========
Pro forma basic and
diluted common shares
outstanding(f)......... 108,567 16,727 4,200 129,494
======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1997 gives effect to the ATC Pro Forma Transactions, as
if each of the foregoing had occurred on January 1, 1997.
(a) To record the results of operations for the ATC Pro Forma Transactions,
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$7.0 million; (ii) record a reduction to net interest expense of $2.8 million
for the year ended December 31, 1997, as a result of the reduction of debt with
the proceeds of the ATC IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $9.3 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $53.8
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed financial statements as these
costs represent duplicative facilities and compensation to owners and/or
executives not retained by ATC. Because ATC already maintains its own separate
corporate headquarters which provides services substantially similar to those
represented by these costs, they are not expected to recur following the
acquisition. After giving effect to an estimated $2.0 million of incremental
costs, ATC believes that it has existing management capacity sufficient to
provide such services without incurring additional incremental costs.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the year ended December 31, 1997 (in thousands).
<TABLE>
<CAPTION>
Meridian Diablo MicroNet Gearon OPM Wauka
Transaction Transaction Transaction Transaction Transaction Transaction
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $2,385 $6,957 $15,103 $29,930 $ 863 $3,569
Operating expenses...... 1,730 4,876 8,695 19,688 1,146 1,696
Depreciation and
amortization........... 211 393 2,626 186 428 571
Corporate general and
administrative......... 500 488 1,209
------ ------ ------- ------- ------- ------
Operating income
(loss)................. 444 1,188 3,782 10,056 (1,199) 93
Other (income) expense:
Interest expense, net.. 80 110 636 742
Other expense
(income).............. (133) (34) (95) (16)
------ ------ ------- ------- ------- ------
Income (loss) from
operations before
income taxes........... $ 364 $1,211 $ 3,816 $10,151 $(1,819) $ (649)
====== ====== ======= ======= ======= ======
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
ATC
Old ATC Private CBS Pro Forma
Merger Placement Merger ATC IPO Adjustments Total
------- --------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $20,006 $ 78,813
Operating expenses...... 7,321 45,152
Depreciation and
amortization........... 4,903 $ 44,529 53,847
Corporate general and
administrative......... (197) 2,000
------- -------- --------
Operating income
(loss)................. 7,782 (44,332) (22,186)
Other (income) expense:
Interest expense
(income), net......... 5,439 $(6,352) $20,960(i) $(24,404) (2,789)
Other expense
(income).............. 514 (236)
------- ------- --------- -------- -------- --------
Income (loss) from
operations before
income taxes........... $ 1,829 $ 6,352 $ (20,960) $ 24,404 $(44,096) $(19,397)
======= ======= ========= ======== ======== ========
</TABLE>
- --------
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to reverse historical interest expense of $0.6
million. No additional debt would be incurred for the year ended December 31,
1997, as a result of $625.1 million of net proceeds raised pursuant to the ATC
IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $33.2
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $0.9 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed financial
statements as these costs represent duplicative facilities and compensation to
owners and/or executives not retained by ATC. Because ATC already maintains its
own separate corporate headquarters which provides services substantially
similar to those represented by these costs, they are not expected to recur
following the acquisition. The balance of the costs were reclassed to operating
expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to reverse historical interest expense of $1.9
million. No additional debt would be incurred for the year ended December 31,
1997, as a result of $625.1 million of net proceeds raised pursuant to the ATC
IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $2.9 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $14.7
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $6.9 million of corporate general and administrative expenses of
TeleCom, including expenses associated with RCC which will be distributed to
some or all of the TeleCom members prior to consummation of the TeleCom Merger,
has not been carried forward into the pro forma condensed financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition.
39
<PAGE>
(d) The following table sets forth the results of the consummation of one, but
not both, of the mergers.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
for the for the
OmniAmerica TeleCom
Merger Only Merger Only
----------- -----------
<S> <C> <C>
Net revenues.......................................... $169,302 $104,286
Operating expenses.................................... 114,023 55,920
Depreciation and amortization......................... 94,182 74,855
Corporate general and administrative expenses......... 3,536 3,536
-------- --------
Operating income (loss)............................... (42,439) (30,025)
-------- --------
Other expense (income):
Interest expense (income), net......................
Other expense....................................... 15 15
Minority interest in net earnings (losses) of
subsidiaries....................................... (257) 178
-------- --------
Total other expense (income)...................... (242) 193
-------- --------
Income (loss) before income taxes..................... (42,197) (30,218)
Income tax benefit (provision)........................ 8,441 5,260
-------- --------
Income (loss) before extraordinary item............... $(33,756) $(24,958)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary item............................ $ (0.27) $ (0.22)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 125,294 112,767
======== ========
</TABLE>
(e) To record the tax effect of the pro forma adjustments and impact on ATC's
estimated effective tax rate. The actual effective tax rate may be different
once the final allocation of purchase price is determined.
(f) Includes shares issued or expected to be issued pursuant to (i) the Wauka
Transaction (1.4 million), (ii) the OmniAmerica Transaction (17.7 million) and
(iii) the TeleCom Merger (4.2 million).
40
<PAGE>
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Adjustments Pro Forma for Adjustments Adjustments
for ATC Pro ATC Pro for for
Forma Forma OmniAmerica TeleCom
Historical Transactions(a) Transactions Merger(b) Merger(c) Pro Forma(d)
---------- --------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 71,485 $ 16,509 $ 87,994 $ 61,649 $16,428 $166,071
Operating expenses...... 42,526 6,893 49,419 56,479 9,639 115,537
Depreciation and
amortization........... 32,998 21,005 54,003 25,507 11,011 90,521
Tower separation costs.. 12,616 12,616 12,616
Corporate general and
administrative
expenses............... 3,186 3,186 3,186
-------- -------- -------- -------- ------- --------
Operating income
(loss)................. (19,841) (11,389) (31,230) (20,337) (4,222) (55,789)
-------- -------- -------- -------- ------- --------
Other expense:
Interest expense,
net.................. 10,740 (3,187) 7,553 3,839 5,372 16,764
Minority interest in
net earnings (losses)
of subsidiaries...... 255 255 (528) (273)
-------- -------- -------- -------- ------- --------
Total other expense
(income)........... 10,995 (3,187) 7,808 3,311 5,372 16,491
-------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... (30,836) (8,202) (39,038) (23,648) (9,594) (72,280)
Income tax benefit
(provision)(e)......... 4,934 6,439 11,373 7,373 2,960 21,706
-------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item..... $(25,902) $ (1,763) $(27,665) $(16,275) $(6,634) $(50,574)
======== ======== ======== ======== ======= ========
Pro forma basic and
diluted loss per common
share before
extraordinary item..... $ (0.25) $ (0.39)
======== ========
Pro forma basic and
diluted common shares
outstanding(f)......... 108,567 16,727 4,200 129,494
======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1998, gives effect to the ATC Pro Forma
Transactions, the OmniAmerica Merger and the TeleCom Merger, as if each of the
foregoing had occurred on January 1, 1998.
(a) To record the results of operations for the ATC Pro Forma Transactions,
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical net interest expense
of $4.2 million; and (ii) record a reduction to net interest expense of $3.2
million for the nine months ended September 30, 1998, as a result of the
reduction of debt to be incurred in connection with the ATC Pro Forma
Transactions acquisitions, other than the OmniAmerica Merger and the TeleCom
Merger with the proceeds from the ATC IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $4.0 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $21.0
million for nine months ended September 30, 1998 based on estimated allocations
of purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed financial statements as these
costs represent duplicative facilities and compensation to owners and/or
executives not retained by ATC. Because ATC already maintains its own separate
corporate headquarters which provides services substantially similar to those
represented by these costs, they are not expected to recur following the
acquisition.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the nine months ended September 30, 1998 (in thousands).
<TABLE>
<CAPTION>
Gearon Old ATC CBS Wauka Pro Forma
Transaction Merger Merger Transaction ATC IPO Adjustments Total
----------- ------- ------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 904 $11,337 $4,268 $16,509
Operating expenses...... 1,087 3,936 1,870 6,893
Depreciation and
amortization........... 19 3,125 860 $ 17,001 21,005
Corporate general and
administrative......... 1,170 (1,170)
------ ------- ------ -------- -------
Operating income
(loss)................. (202) 4,276 368 (15,831) (11,389)
Other (income) expense:
Interest expense
(income), net........ (17) 3,333 $ 8,901 898 $(18,662) 2,360 (3,187)
Other expense
(income)............. 574 5,144 (14) (5,704)
------ ------- ------- ------ -------- -------- -------
Income (loss) from
operations before
income taxes........... $ (759) $(4,201) $(8,901) $ (516) $ 18,662 $(12,487) $(8,202)
====== ======= ======= ====== ======== ======== =======
</TABLE>
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to: (i) reverse historical interest expense of
$1.1 million; and (ii) record interest expense of $3.8 million for the nine
months ended September 30, 1998, as a result of approximately $64.2 million of
additional net debt to be incurred in connection with the OmniAmerica Merger.
42
<PAGE>
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.6 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $25.5
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $0.8 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed financial
statements as these costs represent duplicative facilities and compensation to
owners and/or executives not retained by ATC. Because ATC already maintains its
own separate corporate headquarters which provides services substantially
similar to those represented by these costs, they are not expected to recur
following the acquisition. The balance of the costs were reclassed to operating
expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$3.6 million; and (ii) record interest expense of $5.3 million for the nine
months ended September 30, 1998, as a result of approximately $89.8 million of
additional net debt to be incurred in connection with the TeleCom Merger.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $11.0
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $6.9 million of corporate general and administrative expenses of
TeleCom, including expenses associated with RCC which will be distributed to
some or all of the TeleCom members prior to consummation of the TeleCom Merger,
has not been carried forward into the pro forma condensed financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition.
43
<PAGE>
(d) The following table sets forth the results of the consummation of one, but
not both, of the mergers.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
for the for the
OmniAmerica TeleCom
Merger Only Merger Only
----------- -----------
<S> <C> <C>
Net revenues.......................................... $149,643 $104,422
Operating expenses.................................... 105,898 59,058
Depreciation and amortization......................... 79,510 65,014
Tower separation cost................................. 12,616 12,616
Corporate general and administrative expenses......... 3,186 3,186
-------- --------
Operating income (loss)............................... (51,567) (35,452)
-------- --------
Other expense (income):
Interest expense, net............................... 11,392 12,925
Minority interest in net earnings (losses) of
subsidiaries....................................... (273) 255
-------- --------
Total other expense (income)...................... 11,119 13,180
-------- --------
Income (loss) before income taxes..................... (62,686) (48,632)
Income tax benefit (provision)........................ 18,746 14,333
-------- --------
Income (loss) before extraordinary item............... $(43,940) $(34,299)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary item............................ $ (0.35) $ (0.30)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 125,294 112,767
======== ========
</TABLE>
(e) To record the tax effect of the pro forma adjustments and the impact on
ATC's estimated effective tax rate. The actual effective tax rate may be
different once the final allocation of purchase price is determined.
(f) Includes shares issued or expected to be issued pursuant to (i) the Wauka
Transaction (1.4 million), (ii) the OmniAmerica Merger (17.7 million), and
(iii) the TeleCom Merger (4.2 million).
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMERICAN TOWER
General
This discussion contains "forward-looking statements" including statements
concerning projections, plans, objectives, future events or performance and
underlying assumptions and other statements which are other than statements of
historical fact. Various factors affect and in the future will affect ATC's
results and could in the future cause ATC's actual results to differ materially
from those expressed in any forward-looking statement. Such factors include:
. substantial capital requirements and leverage principally as a
consequence of its ongoing acquisition and construction activities;
. dependence on demand for wireless communications and implementation of
digital television;
. the success of ATC's tower construction program; and
. the successful operational integration of American Tower's acquisitions.
As ATC was a wholly-owned subsidiary of American Radio during the periods
presented through June 4, 1998, the consolidated financial statements may not
reflect the results of operations or financial position of ATC had it been an
independent, public company during those periods. Because of ATC's relatively
brief operating history and the large number of recent acquisitions, the
following discussion will not necessarily reveal all significant developing or
continuing trends.
ATC was formed in July 1995 to capitalize on the opportunity in the
communications site industry. ATC is a leading independent owner and operator
of wireless communications towers in the United States. During 1997, its
acquisition and construction activity accelerated and ATC acquired or
constructed approximately 400 sites (and related site management businesses)
and its initial site acquisition and voice, video, data and Internet
transmission businesses. Since January 1, 1998, ATC has acquired various
communication sites and a major site acquisition business for an aggregate
estimated purchase price of approximately $877.0 million, including the
issuance of approximately 36.3 million shares of Class A Common Stock valued
(at the time of the relevant agreement) at approximately $382.6 million.
On June 4, 1998, American Radio consummated the CBS Merger. As a consequence,
all of the shares of American Tower owned by American Radio were or will be
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock or upon conversion of shares of ARS 7% Convertible Exchangeable
Preferred Stock ("ARS Convertible Preferred"). As a consequence of the CBS
Merger, American Tower ceased to be a subsidiary of, or otherwise affiliated
with, American Radio and commenced operations as an independent publicly traded
company. Pursuant to the provisions of the CBS Merger Agreement, ATC entered
into an agreement (the "Separation Agreement") with CBS and ARS providing for,
among other things, the allocation of certain tax liabilities to American
Tower, certain closing date adjustments relating to American Radio, the lease
to American Radio by American Tower of space on certain towers previously owned
by ARS and transferred to ATC, and the orderly separation of ARS and ATC. See
Notes to the Consolidated Financial Statements of American Tower.
On July 8, 1998, American Tower completed the initial underwritten public
offering of 27,861,987 shares of ATC Class A Common Stock (including 2,361,987
shares sold by American Tower pursuant to the exercise in full of the
underwriters' over-allotment option) at $23.50 per share. Certain selling
stockholders sold an additional 3,874,911 shares in the offering. American
Tower's net proceeds of the offering (after deduction of the underwriting
discount and estimated offering expenses) were approximately $625.1 million. On
July 9, 1998, American Tower used approximately $306.1 million of the net
proceeds from the offering to redeem all of the outstanding shares of preferred
stock that had been issued to fund, in part, ATC's tax reimbursement to
45
<PAGE>
ARS (the "Interim Preferred Stock") at a price of 101% of the stock's
liquidation preference plus accrued and unpaid dividends. The balance was
invested in short-term investment grade securities. ATC will continue to use
such funds together with borrowings under the ATC Credit Facilities to fund
acquisitions and construction activities.
Management expects that acquisitions consummated to date will have a material
impact on future revenues, expenses and income from continuing operations. In
addition, the historical financial information does not reflect the impact of
the construction program of ATC to any significant extent because most of that
activity is of more recent origin and is expected to accelerate substantially
during 1999.
RESULTS OF OPERATIONS
As of September 30, 1998, ATC operated approximately 1,900 communications
sites, principally in the Northeast and Mid-Atlantic regions, Florida,
California and Texas. As of September 30, 1997, ATC operated approximately 370
communications sites, principally in the Northeast and Mid-Atlantic regions and
Florida. The acquisitions reflected in such growth have significantly affected
operations for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
---------------- AMOUNT OF PERCENTAGE
1997 1998 INCREASE INCREASE
------ -------- --------- ----------
<S> <C> <C> <C> <C>
Tower rental and management revenues.... $6,478 $ 39,305 $32,827 506.7%
Site acquisition service revenues....... 1,424 18,848 17,424 1,223.6%
Video, voice, data and Internet
transmission revenues.................. -- 13,332 13,332
------ -------- -------
Total operating revenues................ 7,902 71,485 63,583 804.6%
------ -------- -------
Tower rental and management expenses.... 2,753 18,417 15,664 569.0%
Site acquisition service expenses....... 836 15,412 14,576 1,743.5%
Video, voice and data transmission
expenses............................... -- 8,697 8,697
------ -------- -------
Total operating expenses excluding
depreciation and amortization, tower
separation and corporate general and
administrative expenses................ 3,589 42,526 38,937 1,084.9%
------ -------- -------
Depreciation and amortization........... 2,706 32,998 30,292 1,119.4%
Tower separation expenses............... 12,616 12,616
Corporate general and administrative
expenses............................... 919 3,186 2,267 246.7%
Interest expense........................ 1,318 17,023 15,705 1,191.6%
Interest income and other, net.......... 94 6,283 6,189 6,584.0%
Minority interest in net earnings of
subsidiaries........................... 221 255 34 15.4%
Income tax benefit...................... 49 4,934 4,885 9,969.4%
Extraordinary loss on extinguishment of
debt, net.............................. -- 1,382 1,382
Extraordinary loss on redemption of
Interim Preferred Stock, net........... -- 7,510 7,510
------ -------- -------
Net loss................................ $ (708) $(34,794) $34,086 4,814.4%
====== ======== =======
Tower cash flow......................... $4,313 $ 28,959 $24,646 5,714.4%
====== ======== =======
EBITDA.................................. $3,394 $ 25,773 $22,379 6,593.7%
====== ======== =======
</TABLE>
Except as explained below, the communications sites and related business
acquisitions, principally those that occurred in 1997 and 1998, accounted for
substantially all of the increases indicated in the above table.
Site acquisition service revenues and expenses for the nine months ended
September 30, 1998 include the operating results of the Gearon site acquisition
business (January 1998) and, to a lesser extent, the operating results of two
similar businesses (May 1997). For the nine months ended September 30, 1997,
site acquisition service revenues and expenses included the operating results
from the May 1997 related acquisitions.
46
<PAGE>
Video, voice and data transmission revenues and expenses for the nine months
ended September 30, 1998 include the operating results of American Tower's
first video, voice and data transmission business acquired in October 1997 and
a Washington D.C. area teleport business acquired in May 1998.
The increase in depreciation and amortization is primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1997 and 1998
acquisitions, and, to a lesser extent, completed construction projects.
Tower separation expenses relate to financial advisory, legal, accounting and
consent solicitation fees and other expenses incurred in connection with the
consummation of the CBS Merger and the separation of ATC from its former parent
on June 4, 1998.
The increase in corporate general and administrative expenses is primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy.
The increase in interest expense relates to higher borrowing levels that were
used to finance 1997 and 1998 acquisitions, and $3.1 million of dividends
associated with the Interim Preferred Stock financing that occurred in June
1998.
The increase in interest income is related to interest earned on invested cash
proceeds from the ATC IPO in July 1998.
The minority interest in net earnings of subsidiaries represents the
elimination of the minority stockholders' earnings of consolidated
subsidiaries.
The extraordinary loss on the redemption of the Interim Preferred Stock was
incurred, net of an income tax benefit of $5.0 million, as a result of the
write-off of certain commitment, deferred financing and redemption fees
associated with the Interim Preferred Stock that was redeemed in July 1998.
The extraordinary loss on the extinguishment of debt was incurred, net of an
income tax benefit of $0.9 million, as a result of the write-off of deferred
financing costs associated with American Tower's previous credit agreements
which were refinanced in June 1998.
The effective tax rate benefit for the nine months ended September 30, 1998 was
approximately 16% as compared to 6% for the nine months ended September 30,
1997. The effective rate differs from the statutory rate due to the effect of
non-deductible items, principally amortization of goodwill, on certain stock
acquisitions for which we recorded no tax benefit.
47
<PAGE>
Year Ended December 31, 1997 and 1996 (Dollars in Thousands)
As of December 31, 1997, ATC operated approximately 670 communications sites
principally in the Northeast and Mid-Atlantic regions, Florida and California.
As of December 31, 1996, ATC operated approximately 270 communications sites,
principally in the Northeast and Mid-Atlantic regions and Florida. See the
Notes to Consolidated Financial Statements for a description of the
acquisitions consummated in 1997 and 1996. These transactions have
significantly affected operations for the year ended December 31, 1997 as
compared to the year ended December 31, 1996.
<TABLE>
<CAPTION>
Amount of Percentage
Increase Increase
1996 1997 (Decrease) (Decrease)
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Tower rental and management revenues... $2,817 $13,025 $10,208 362.4%
Site acquisition service revenues...... -- 2,123 2,123
Video, voice and data transmission
revenues.............................. -- 2,084 2,084
Other.................................. 80 276 196 245.0%
------ ------- -------
Total operating revenues............... 2,897 17,508 14,611 504.3%
------ ------- -------
Tower rental and management expenses... 1,362 6,080 4,718 346.4%
Site acquisition service expenses...... -- 1,360 1,369
Video, voice, data and Internet
transmission expenses................. -- 1,273 1,273
------ ------- -------
Operating expenses excluding
depreciation and amortization and
corporate general and administrative
expenses.............................. 1,362 8,713 7,351 539.7%
------ ------- -------
Depreciation and amortization.......... 990 6,326 5,336 539.0%
Corporate general and administrative
expenses.............................. 830 1,536 706 85.1%
Interest expense (income), net......... (36) 2,804 2,840 N/A
Minority interest in net earnings of
subsidiaries.......................... 185 178 (7) (3.8%)
Income tax benefit (provision)......... (46) 473 519 N/A
Extraordinary loss..................... -- 694 694
------ ------- -------
Net loss............................... $ (480) $(2,270) $ 1,790 372.9%
====== ======= =======
Tower cash flow........................ $1,535 $ 8,795 $ 7,260 473.0%
====== ======= =======
EBITDA................................. $ 705 $ 7,259 $ 6,554 930.0%
====== ======= =======
</TABLE>
As noted above, ATC consummated numerous acquisitions in 1997 and 1996, many of
which were of a material size. Except as explained below, substantially all of
the increases indicated in the above table were attributable to the impact of
these communications sites and related business acquisitions, principally those
that occurred in 1997.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996 and 1997
acquisitions and, to a substantially lesser extent, completed construction
projects.
The increase in corporate general and administrative expenses was primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy.
The increase in interest expense related to higher borrowing levels which were
used to finance 1997 and, to a substantially lesser extent, the 1996
acquisitions.
The minority interest in net earnings of subsidiaries represents the
elimination of the minority stockholder's earnings of consolidated
subsidiaries. The increase is related to increased overall earnings of ATS
Needham, in which ATC held a 50.1% interest.
48
<PAGE>
The effective tax rate for the year December 31, 1997 was approximately 23%.
The effective tax rate in 1997 is due to the effect of non-deductible items,
principally amortization of goodwill, on certain stock acquisitions. In 1996,
ATC recorded a tax provision of approximately $46,000 despite a loss before
taxes of approximately $434,000. This primarily resulted from non-deductible
items, principally amortization of goodwill for which no tax benefit was
recorded.
The extraordinary loss in 1997, of approximately $0.7 million net of tax,
represents the write-off of deferred financing fees associated with ATC's loan
agreement.
Year Ended December 31, 1996 and Period ended December 31, 1995 (Dollars in
Thousands)
As of December 31, 1996, ATC operated approximately 270 communications sites
principally in the Northeast and Mid-Atlantic regions and Florida. As of
December 31, 1995, ATC operated three wireless communications sites in Florida.
See the Notes to Consolidated Financial Statements for a description of the
acquisitions consummated in 1996. These transactions have significantly
affected operations for the year ended December 31, 1996 as compared to the
period from July 17, 1995 (date of incorporation) to December 31, 1995.
<TABLE>
<CAPTION>
Amount of Percentage
Increase Increase
1995 1996 (Decrease) (Decrease)
----- ------ ---------- ----------
<S> <C> <C> <C> <C>
Total operating revenues.................. $ 163 $2,897 $2,734 1,677.3%
Operating expenses excluding depreciation
and amortization and corporate general
and administrative expenses.............. 60 1,362 1,302 2,170.0%
Depreciation and amortization............. 57 990 933 1,636.8%
Corporate general and administrative
expenses................................. 230 830 600 260.9%
Interest expense (income), net............ -- (36) (36)
Minority interest in net earnings of
subsidiary............................... -- 185 185
Income tax benefit (provision)............ 74 (46) (120) N/A
----- ------ ------
Net loss.................................. $(110) $ (480) $ 370 336.4%
===== ====== ======
Tower cash flow........................... $ 103 $1,535 $1,432 1,390.3%
===== ====== ======
EBITDA.................................... $(127) $ 705 $ 832 N/A
===== ====== ======
</TABLE>
As noted above, ATC consummated several acquisitions in 1996, two of which were
of a material size. Except as explained below, substantially all of the
increases indicated in the above table were attributable to the impact of these
communications sites and related business acquisitions that occurred in 1996.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996
acquisitions.
The increase in corporate general and administrative expense was primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties.
The increase in interest income was attributable to higher investable cash
balances.
The minority interest in net earnings of subsidiary represents the elimination
of the minority stockholder's earnings of consolidated subsidiaries. ATC
purchased its 50.1% interest in ATS Needham in July 1996.
In 1996, ATC recorded a tax provision of approximately $46,000 despite a loss
before taxes of approximately $434,000. This primarily resulted from non-
deductible items, principally amortization of goodwill for which no tax benefit
was recorded. The effective tax rate in 1995 was consistent with the statutory
rate.
49
<PAGE>
Liquidity and Capital Resources
ATC's liquidity needs arise from its acquisition-related activities, debt
service, working capital and capital expenditures associated principally with
its construction program. Historically, ATC has met its operational liquidity
needs with internally generated funds and has financed the acquisition of tower
related properties and its construction program, including related working
capital needs, with a combination of contributions from sales of its equity
securities (including prior to the CBS Merger to American Radio) and bank
borrowings. For the nine months ended September 30, 1998, cash flows from
operating activities were $2.9 million, as compared to $3.1 million of cash
flows from operating activities in 1997. The change is primarily attributable
to working capital investments related to communications site acquisitions and
growth.
Cash flows used for investing activities were $227.9 million for the nine
months ended September 30, 1998 as compared to $74.3 million for the nine
months ended September 30, 1997. The increase in 1998 is due to the acquisition
and construction activity in 1998 as compared to 1997.
Cash flows provided by financing activities were $533.9 million for the nine
months ended September 30, 1998 as compared to $71.1 million in 1997. The
increase in 1998 is due principally to the impact of borrowings under the
credit facilities, the Interim Preferred Stock financing activities, and the
sale of common stock pursuant to the ATC Stock Purchase Agreement and the ATC
IPO, somewhat offset by the tax payments to CBS, all as discussed below.
CBS Merger: The Separation Agreement requires ATC to reimburse CBS on a "make-
whole" (after tax) basis for the tax liabilities incurred by American Radio
attributable to the distribution of the ATC Common Stock owned by ARS to its
security holders and certain related transactions, to the extent that the
aggregate amount of taxes required to be paid by American Radio exceeded $20.0
million. The amount of that tax liability was dependent on the "fair market
value" of the ATC Common Stock at the time of the consummation of the CBS
Merger. ATC received an appraisal from an independent appraisal firm that the
"fair market value" of American Radio's stock interest in ATC was equal to
$17.25 per share. Based on such appraisal, ARS paid estimated taxes of
approximately $212.0 million, for which ATC reimbursed CBS. As required by the
Separation Agreement, ATC provided CBS with security of $9.8 million in cash
(which may be replaced at ATC's option with a letter of credit reasonably
satisfactory to CBS) in connection with the filing of estimated tax returns
based on such appraisal. Such appraisal is not, of course, binding on the
Internal Revenue Service or other taxing authorities. American Tower financed
its tax reimbursement obligations to CBS with the Interim Preferred Stock
proceeds discussed below. The $212.0 million payment also included estimated
payments for the "make-whole" provisions of the liability associated with the
conversion of the ARS Convertible Preferred and the working capital adjustment
described below. Such taxes gave effect to estimated deductions of
approximately $85.1 million available to ARS as a consequence of the
cancellation or exercise of American Radio stock options pursuant to the CBS
Merger. ATC's reimbursement obligation with respect to such taxes would change
by approximately $21.0 million for each $1.00 change in the "fair market value"
of the Class A Common Stock under the tax reporting method followed. The
average of the high and low trading prices of the ATC Class A Common Stock in
the when-issued over-the-counter market on June 4, 1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with respect
to the shares of ATC Class A Common Stock deliverable upon conversion of the
ARS Convertible Preferred; such taxes will be based on the "fair market value"
of the ATC Class A Common Stock at the time of conversion. As of September 30,
1998, holders of Depositary Shares representing approximately 43% of the ARS
Convertible Preferred have converted or have presented for conversion and ATC
has recorded a liability of approximately $4.7 million due to CBS associated
with these conversions. On September 30, 1998, CBS issued 7% Convertible
Preferred Debentures Due 2011 (the "ARS Convertible Debentures") in exchange
for the then outstanding shares of ARS Convertible Preferred. Holders of the
ARS Convertible Debentures are entitled to the same conversion rights as the
ARS Convertible Preferred. ATC estimates that its remaining reimbursement
obligation with respect to the taxes on the conversion of ARS Convertible
Debentures could be approximately $11.3 million under the tax reporting method
followed. ATC based such estimate on an estimated fair market value of the ATC
Class A
50
<PAGE>
Common Stock of $21.375 per share. ATC's obligation for such conversions would
change by approximately $1.2 million for each $1.00 change in the fair market
value.
American Radio has agreed that it will pursue, for the benefit of and at the
cost of ATC, a refund claim, attributable to the "make-whole" provision,
estimated at between $40.0 million to $45.0 million, based on the appraised
"fair market value" and the estimated taxes attributable to conversions of the
ARS Convertible Debentures set forth above. ATC will base any such refund claim
on the actual amount of taxes paid. In light of existing tax law, any such
refund claim may not be successful.
The Separation Agreement provides for closing balance sheet adjustments based
on the working capital, as defined, and debt levels of American Radio as of
June 4, 1998. ATC will benefit from or bear the cost of such adjustments. As of
June 1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. ATC based such preliminary estimate on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses; the final payment is contingent
upon a series of events set forth in the Separation Agreement. As a result, ATC
recorded a $50.0 million payable to CBS and a corresponding reduction in equity
to reflect management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered a working capital and net debt closing statement to ATC setting
forth a proposed purchase price adjustment payment to CBS of approximately
$82.2 million, excluding accrued interest. In October 1998, ATC provided CBS
with a Notice of Disagreement to the proposed purchase price adjustment
indicating that ATC's estimate of the final adjustment payment aggregated $11.1
million and reserved its rights to make further adjustments upon the receipt of
additional information requested of CBS. In addition, as noted above, ATC must
reimburse CBS for the tax consequences of such payment (approximately 66 2/3%)
and has paid CBS approximately $33.0 million based on the $50.0 million
estimate. CBS has offered to resolve the disagreement for a payment of less
than $82.2 million, together with certain ATC tax indemnifications. ATC has not
responded to this offer which expires on January 15, 1999. If CBS and ATC are
unable to resolve their differences, they are obligated to engage a third party
to arbitrate the dispute. Under the circumstances, ATC continues to believe
that the amounts previously recorded represent a reasonable estimate of the
amounts that will be paid to CBS and will adjust the amount as information
becomes known to American Tower.
ATC Preferred Stock Financing: On June 4, 1998, ATC issued $300.0 million of
Interim Preferred Stock and used the proceeds to fund its tax reimbursement
obligation to CBS, to pay the commitment and other fees and expenses of the
issue and sale of such stock and to reduce bank borrowings. As discussed below,
ATC redeemed the Interim Preferred Stock on July 9, 1998. As a result, American
Tower incurred an extraordinary loss of approximately $7.5 million, net of a
tax benefit of $5.0 million, during the third quarter of 1998 representing the
write-off of certain commitment, deferred financing and redemption fees.
ATC IPO: On July 8, 1998, American Tower completed a public offering of
27,861,987 shares of ATC Class A Common Stock, $.01 par value per share
(including 2,361,987 shares sold by American Tower pursuant to the exercise in
full of the underwriters' over-allotment option) at $23.50 per share. Certain
selling stockholders sold an additional 3,874,911 shares in the offering.
American Tower's net proceeds of the offering (after deduction of the
underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, American Tower used approximately
$306.1 million of the net proceeds from the offering to redeem all of the
outstanding shares of the Interim Preferred Stock at a price of 101% of the
stock's liquidation preference plus accrued and unpaid dividends. ATC invested
the balance in short-term investment grade securities. ATC will continue to use
such investments together with borrowings under the ATC Credit Facilities to
fund acquisitions and construction activities.
ATC Credit Facilities: In June 1998, ATC and its Borrower Subsidiaries entered
into definitive agreements with respect to the ATC Credit Facilities. In
connection with repayment of borrowings under the prior credit
51
<PAGE>
agreement out of proceeds of borrowings under the ATC Credit Facilities, ATC
recognized an extraordinary loss of approximately $1.4 million, net of a tax
benefit of $0.9 million, during the second quarter of 1998. As of September 30,
1998, ATC had approximately $281.6 million of long-term debt, of which
approximately $150.0 million was outstanding under the ATC credit facility and
$125.0 million was outstanding under the Borrower Subsidiaries credit facility.
We have provided more information about the ATC Credit Facilities under the
section entitled "Indebtedness of American Tower" and in Note 7 of the Notes to
the Consolidated Financial Statements of American Tower.
Debt service requires a substantial portion of ATC's cash flow from operations.
Accordingly, ATC's leverage could make it vulnerable to a downturn in the
operating performance of its tower properties or in economic conditions. ATC
believes that its cash flows from operations will be sufficient to meet its
debt service requirements for interest and scheduled payments of principal
under the ATC Credit Facilities. If such cash flow were not sufficient to meet
such debt service requirements, ATC might sell equity securities, refinance its
obligations or dispose of one or more of its properties in order to make such
scheduled payments. ATC may not be able to effect any of such transactions on
favorable terms.
ATC believes that it has sufficient financial resources available to it,
including borrowings under the ATC Credit Facilities, to finance operations for
the foreseeable future. ATC intends to finance its non-stock obligations under
pending acquisitions with cash, and, to the extent required, borrowings under
the ATC Credit Facilities and funds raised through the offering of equity
securities.
During the nine months ended September 30, 1998, ATC had capital expenditures
of approximately $77.0 million primarily related to construction activities and
has completed construction on approximately 270 towers during this period.
During the balance of 1998, ATC built or commenced construction of
approximately 230 additional towers (most of which are on a build to suit
basis) at an estimated aggregate remaining cost of approximately $50.0 million.
ATC (exclusive of companies to be acquired) plans to expand its construction
activities and build a substantial number of towers in 1999, which may
aggregate between 750 and 1,000 towers. If additional substantial acquisition
or construction opportunities become available, ATC may require additional
financing. Any such financing could take the form of an increase in the maximum
borrowing levels under the ATC Credit Facilities which would be dependent on
the ability to meet certain leverage ratios. Alternatively, ATC could issue
debt or senior nonconvertible equity securities which could have the effect of
increasing its consolidated leverage ratios. Finally, and most likely,
particularly in the case of a major acquisition or construction opportunity
with a wireless carrier seeking to divest, ATC could sell ATC Common Stock or
securities convertible into or exercisable for ATC Common Stock, which would
have a dilutive effect on the proportionate ownership of ATC by its then
existing stockholders. None of such financing may be available on favorable
terms.
Management expects that the consummated acquisitions and current and future
construction activities will have a material impact on liquidity. Management
believes that the acquisition activities, once integrated, will have a
favorable impact on liquidity and will offset the initial effects of the
funding requirements. Management also believes that the construction activities
may initially have an adverse effect on the future liquidity of ATC as newly
constructed towers will initially decrease overall liquidity, although, as such
sites become fully operational and achieve higher utilization, they should
generate cash flow, and in the long-term, increase liquidity.
52
<PAGE>
Year 2000
American Tower is aware of the issues associated with the Year 2000 as it
relates to information systems and is working to resolve the potential impact.
In December 1998, ATC formally engaged an outside consultant to help it conduct
an extensive review and implement a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 issues. Although
American Tower has not developed a formal plan to date, management believes
that, with the assistance of an outside consultant, ATC will be able to
resolve, in a timely manner, any material Year 2000 problems.
The components of American Tower's comprehensive plan will include the
following:
. assessment of internal systems for modification and/or replacement;
. communication with external vendors to determine their state of
readiness to maintain an uninterrupted supply of goods and services to
American Tower;
. communication with customers to ensure that their state of readiness
will not result in any operational issues;
. evaluation of American Tower's equipment and assets with respect to
their ability to function properly after the turn of the century;
. evaluation of facility related issues; and
. the development of a contingency plan to address its most likely worst
case Year 2000 scenarios.
Management expects American Tower's comprehensive plan to reduce significantly
its level of uncertainty about the Year 2000 problem and, in particular, about
the Year 2000 readiness of its material external customers and suppliers.
Based on the efforts to date, American Tower believes that the Year 2000 issue
will not have a material adverse effect on its results of operations, liquidity
or financial condition or operational activities. With respect to its internal
information systems, management believes that the Year 2000 compliance issue
will not have a material impact on its internal information systems as ATC's
hardware and software is either Year 2000 compliant or required changes will
not generate material costs. The costs incurred to date in this area have been
immaterial. American Tower anticipates that the estimated future costs of the
year 2000 issue will not be material to American Tower.
Inflation
The impact of inflation on ATC's operations has not been significant to date.
However, a high rate of inflation in the future could have material adverse
effect on ATC's operating results.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all fiscal
quarters of years beginning after June 1999. ATC has not completed its
evaluations of FAS No. 133.
In June 1997, the FASB released FAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 established standards
for reporting information about the operating segments in its annual report and
interim reports. ATC will provide the required disclosure in its full year 1998
financial information and will provide required interim disclosure commencing
with its first fiscal quarter of 1999.
53
<PAGE>
INDUSTRY OVERVIEW
Communications site owners and operators have benefited in recent years from a
substantial increase in demand for wireless communications services. The
Cellular Telecommunications Industry Association estimates that the number of
subscribers to wireless telephone services was approximately five million in
1990. According to The Strategis Group, a telecommunications marketing research
firm, the number of subscribers to cellular and personal communication services
("PCS") was over 50 million in 1998 and is projected to increase to over 100
million by the year 2001. This demand has prompted the issuance of new wireless
communication licenses and construction of new wireless networks. ATC believes
that the increase in demand for wireless communications is attributable to a
number of factors, including:
.the increasing mobility of the U.S. population,
.the growing awareness of the benefits of mobile communications,
.technological advances in communications equipment,
.decreasing costs of wireless services,
.favorable changes in telecommunications regulations, and
.business and consumer preferences for higher quality voice and data
transmission.
Contributing significantly to the anticipated requirements is the nature of PCS
and enhanced specialized mobile radio ("ESMR"). These higher frequency
technologies have a reduced cell range and thus require a higher density of
towers in the network. Consequently, the anticipated increase in the demand for
these technologies will require more towers to be built. The Personal
Communications Industry Association (of which James S. Eisenstein, an executive
officer of ATC, is a director) estimates that cellular and PCS needs will
require the construction of over 100,000 additional antennae sites over the
next ten years.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by (i) focusing on activities that
contribute directly to subscriber growth, (ii) outsourcing infrastructure
requirements such as owning, constructing and maintaining towers and/or (iii)
by co-locating transmission facilities. Previously, carriers typically sourced
many of such services in-house, while local non-integrated service contractors
focused on specific segments such as radio frequency engineering, site
acquisition and tower construction. To meet these carrier needs, independent
operators have expanded into a number of associated network and communications
site services, such as the selection and acquisition of communications sites
(including the resolution of zoning and permitting issues), the design of
wireless and broadcast sites and networks, and the construction or supervision
of construction of towers. Also, in order to accelerate network deployment or
expansion and to generate efficiencies, carriers are increasingly co-locating
transmission infrastructure with that of other network operators. Regulatory
restrictions and the growing interest of local municipalities in slowing the
proliferation of towers in their communities by requiring that towers
accommodate multiple tenants has also contributed to co-location.
While the wireless communications industry is experiencing rapid growth, the
television broadcasting industry, with strong encouragement from both Congress
and the FCC, is actively planning its strategy for the transition from analog
to digital technology. Local broadcasters will be initiating digital television
("DTV") service at different times. A station may begin DTV service as soon as
it has received its FCC permit and is ready with equipment and other necessary
preparations. The FCC has established a schedule by which broadcasters must
begin DTV service (absent extenuating circumstances that may affect individual
stations). This schedule requires that stations affiliated with the top four
networks (ABC, CBS, FOX and NBC) in the ten largest markets begin service by
May 1, 1999. Stations affiliated with these networks in markets 11-30 must
begin service by November 1, 1999. All commercial stations must begin DTV
service by May 1, 2002, and all noncommercial educational stations must start
by May 1, 2003. At least 25 stations started DTV service in
54
<PAGE>
November 1998. ATC believes that this transition will require a substantial
investment in enhanced broadcast infrastructure, including the construction or
reengineering of broadcast towers. While ATC expects much of the associated
capital requirements will be borne by the broadcasters, management believes
that a significant opportunity exists to invest profitably in the creation of
tower capacity designed to accommodate digital antennas for television
broadcasters. Management believes that, as with the deployment of towers for
the wireless carriers, speed to market and limited capital resources will cause
certain broadcasters to outsource the construction or reengineering of their
towers in order to accommodate digital technology.
A communications tower's location, height and the loaded capacity at certain
wind speeds determine its desirability to wireless carriers and the number of
antennae that the tower can support. An antenna's height on a tower and such
tower's location determine the line-of-sight of such antenna with the horizon
and, consequently, the distance a signal can be transmitted. Some users, such
as paging companies and specialized mobile radio ("SMR") providers in rural
areas, need higher elevations for broader coverage. Other carriers such as PCS,
ESMR and cellular companies in metropolitan areas usually do not need to place
their equipment at the highest tower point to maximize transmission distance
and quality.
A tower can be either self-supporting or supported by guy wires. There are two
types of self-supporting towers: the lattice and the monopole. A lattice tower
is usually tapered from the bottom up and can have three or four legs. A
monopole is a tubular structure that is typically used as a single purpose
tower or in places where there are space constraints or a need to address
aesthetic concerns. Self-supporting towers typically range in height from 50-
200 feet for monopoles and up to 1,000 feet for lattices, while guyed towers
can reach 2,000 feet or more. A typical communications site consists of a
compound enclosing the tower or towers and an equipment shelter (which houses a
variety of transmitting, receiving and switching equipment).
Rooftop or other building top sites are more common in urban downtown areas
where tall buildings are generally available and high traffic density requires
multiple communications sites. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such
population density, neither height nor extended radius of coverage is as
important. Moreover, the installation of a free-standing tower structure in
urban areas will often prove to be impossible due to zoning restrictions and
land availability and cost.
The cost of construction of a tower varies both by site location (which will
determine, among other things, the required height of the tower) and type of
tower. Non-broadcast towers (whether on a rooftop or the ground) generally cost
between approximately $150,000 and $200,000. Broadcasting towers (which
generally are built to bear a greater load) generally cost between
approximately $300,000 and $1.0 million if on an elevated location and between
approximately $1.0 million and $3.5 million if on flat terrain.
The number of tenants that a tower can accommodate varies depending on the
nature of the services provided by such tenants and the height of the tower.
Non-broadcast towers of 200-300 feet that are designed to maximize capacity
generally are capable of housing between five and ten tenants using an
aggregate of between 25 and 50 antennae. Broadcasting towers generally are
capable of housing between ten and forty tenants using an aggregate of between
50 and 100 antennae.
Annual rental payments vary considerably depending upon several factors,
including: (i) the type of service being provided; (ii) the size of the
transmission line and the number and weight of the antennae on the tower; (iii)
the existing capacity of the tower; (iv) the antenna's placement on, and the
location and height of, the tower; and (v) the competitive environment.
55
<PAGE>
[GRAPHIC APPEARS HERE]
Lease terms vary depending upon the industry user, with television and radio
broadcasters tending to prefer longer term leases (15 to 20 years) than
wireless communications service providers (five to ten years). In either case,
most of such leases contain provisions for multiple renewals at the option of
the tenant. Governmental agencies, because of budgetary restrictions, generally
have one-year leases that tend to renew automatically. Tenants tend to renew
their leases because of the complications associated with moving antennae. For
example, a move by a television or radio broadcaster would necessitate FCC
approval and could entail major dislocations and the uncertainty associated
with building antennae in new coverage areas. In the case of cellular, PCS and
other wireless users, moving one antenna might necessitate moving several
others because of the interlocking grid-like nature of their wireless systems.
In addition, the increasing difficulty of obtaining local zoning approvals, the
increasing environmental concerns of communities and the restrictions imposed
upon owners and operators by the FAA and upon tenants by the FCC tend to reduce
the number of alternatives available to a tower user. Leases generally provide
for annual automatic price increases (escalator provisions) based on specified
estimated cost measures or on increases in the consumer price index. Owners and
operators generally also receive fees for installing customers' equipment and
antennae on the communications site.
Wireless communications towers are owned by a wide range of companies,
including wireless service providers, regional Bell operating companies, long
distance telephone companies, television and radio broadcasting companies,
independent tower operators, utilities and railroads. Despite the increasing
demand for communications sites, the industry remains highly fragmented, with
few independent operators owning a
56
<PAGE>
significant percentage of towers. ATC estimates that no one independent tower
owner and operator (one which owns and operates communications sites
principally for other entities) owns more than 5% of the towers in the United
States. The pace of consolidation has begun to accelerate, however, as the
larger independent operators continue to acquire small local or regional
operators and purchase communications sites and related assets from wireless
communications carriers. Management believes that a major factor contributing
to such consolidation is the emergence of many major companies seeking to
provide increasingly sophisticated wireless services on a national basis. This,
in turn, creates a need for substantial companies capable of developing and
constructing networks of communications sites and maintaining and servicing the
sophisticated support facilities associated with ongoing operations. ATC
believes that the national and other large wireless service providers will
prefer to deal with a company that can meet the majority of such providers'
needs within a particular market or region, rather than, as in the past, a
large number of individual tower owners, construction companies and other
service providers. See "Risk Factors--Risk Factors Relating to American Tower--
Construction of New Towers; Competition".
Unlike the fragmented nature of the communications site business, customers in
all segments of the wireless communications industry and the broadcast industry
tend to be large, well-capitalized national companies.
As a consequence of the foregoing factors, as well as the lack of seasonality
of the industry, the communications site industry is characterized by a
predictable and recurring stream of income.
57
<PAGE>
BUSINESS OF AMERICAN TOWER
General
American Tower is a leading independent owner and operator of wireless
communications towers in the United States. ATC's strategy is to use that
position to take advantage of the growth opportunities inherent in a rapidly
expanding and highly fragmented communications site industry. ATC has grown in
less than four years to a company that will operate more than 3,000 towers in
44 states and the District of Columbia, giving effect to all pending
acquisitions, including the mergers. Currently, ATC operates 2,300 towers (of
which 1,845 are owned and 455 are managed for third parties), OmniAmerica
operates 223 towers (of which 211 are owned and 12 are managed for third-
parties), and TeleCom operates 392 towers (of which 271 are owned and 121 are
managed for third parties and are revenue producing).
American Tower achieved its initial growth predominantly through acquisitions.
ATC intends to continue to pursue its strategic acquisitions, including
possible transactions with large wireless service providers seeking to divest
their ownership of towers. More recently, however, ATC has been engaged in a
major construction program. In 1998, American Tower (exclusive of construction
activities of acquired or to be acquired companies prior to acquisition)
constructed or had under construction at year end more than 500 towers at an
aggregate cost of approximately $108.0 million. In 1998, OmniAmerica
constructed or had under construction as of early December, 1998 more than 173
towers at an aggregate cost of approximately $12.0 million and three broadcast
towers at an aggregate cost of approximately $11.3 million. Approximately 120
of these telecommunications towers and two of these broadcast towers will
require additional capital to be expended in 1999. In 1998, TeleCom constructed
or had under construction approximately 43 towers at an aggregate cost of
approximately $8.1 million, including capital to be expensed in 1999 to
complete these projects.
During 1999, ATC (exclusive of construction activities of OmniAmerica and
TeleCom or other to be acquired companies) currently plans to build or commence
construction of between approximately 750 and 1,000 towers at an estimated
aggregate cost of between approximately $120.0 million and $200.0 million.
OmniAmerica has approximately 650 additional sites under development. While not
all of these sites will result in towers being constructed, other sites will
likely be added during 1999. ATC estimates that the combined companies will
build or commence construction of between approximately 1,450 to 1,900 towers
at an estimated aggregate cost of between approximately $230.0 million and
$340.0 million. The estimated aggregate number of towers to be built in 1999 by
American Tower, OmniAmerica and TeleCom will probably decrease as a consequence
of the mergers because of, among other things, financial and managerial
resource limitations and construction of certain planned towers may result in
overbuilding in some markets.
For the year ended December 31, 1997, giving effect to the ATC Pro Forma
Transactions, ATC had net revenues of $177.3 million and EBITDA of $57.7
million. For the nine months ended September 30, 1998, giving effect to the ATC
Pro Forma Transactions, ATC had net revenues of $166.1 million and EBITDA of
$47.3 million.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, zoning and
other regulatory approvals, tower construction and antennae installation. ATC
intends to expand these services and to capitalize on its relationships with
its wireless customers through construction for them of major tower networks
that ATC will own and operate. ATC is also engaged in the video, voice, data
and Internet transmission business, which it currently conducts in the New York
City to Washington, D.C. corridor and Texas.
ATC is geographically diversified with significant networks of communications
towers throughout the United States. Its largest networks are in California,
Florida and Texas, and it owns and operates or is constructing tower networks
in numerous cities, including Albuquerque, Atlanta, Austin, Baltimore, Boston,
Charlotte, Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft.
Lauderdale, Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San
Francisco, Tucson, Washington, D.C. and West Palm Beach.
ATC has a diversified base of approximately 2,500 customers, no one of which
accounted for more than 10% of its 1997 net pro forma revenues from site
leasing activities and the five largest of which accounted for
58
<PAGE>
less than 30% of such net revenues. ATC's wide range of customers includes most
of the major wireless service providers in that industry, including Airtouch,
Alltell, AT&T Wireless PCS, Bell Atlantic Mobile, BellSouth, GTE Mobilnet,
Houston Cellular, Metrocall, Mobile Comm, Nextel, Omnipoint, PacBell, PageNet,
PowerTel, PrimeCo, PCS, SkyTel, Southwestern Bell, Sprint PCS and Western
Wireless. In addition, most of the major companies in the radio and television
broadcasting industry are ATC's customers, including ABC, CBS, Chancellor
Media, Clear Channel, CNN, Fox and NBC. ATC provides site acquisition services
to most of such wireless service providers, and ATC has constructed or is
constructing towers on a build to suit basis for companies such as Bell South,
Nextel, Omnipoint, PrimeCo, PCS and Southwestern Bell. The principal users of
ATC's video, voice and data transmission services are television broadcasters
and other video suppliers such as CBS, CNN, Fox and HBO.
Management estimates that its site leasing activities, which it believes
generate the highest profit margin of its businesses, account for approximately
56% of its ongoing pro forma net revenues; site acquisition activities
(including construction for others) account for 24%; and the video, voice and
data transmission business accounts for 20%. However, in light of management's
intention to focus on construction activities, which will increase the number
of antennae sites available for leasing, ATC believes that leasing activities
are likely to grow at a more rapid rate than other aspects of its business.
ATC derives its revenue from various industry segments. ATC estimates that PCS
accounts for the largest portion (somewhat less than one-quarter) of its net
revenues, before giving effect to the ATC Pro Forma Transactions, derived from
the various industry segments (including from its site acquisition activities),
with paging, EMSR, cellular and federal and other governmental agencies
contributing, in the aggregate approximately 45% in the aggregate; no other
segment accounts for more than 5% of such revenues. Approximately 20% of such
revenues are derived from ATC's video, voice, data and Internet transmission
customers which are primarily the major television networks, CNN and HBO.
Management believes that the foregoing percentages are not necessarily
indicative of future contributions likely to be made by the various aspects of
its business or of the several different types of wireless providers,
particularly in light of the anticipated growth of PCS, cellular and ESMR
compared to other wireless providers, management's intended focus on build to
suit and other tower construction activities, and the consequences of the
OmniAmerica Merger.
ATC designed its growth strategy to enhance its position as a leading U.S.
provider of communications sites and network development services to the
wireless communications and broadcasting industries. The principal elements of
this strategy are: (i) to maximize utilization of antennae sites through
targeted sales and marketing techniques; (ii) to expand its tower construction
activities, principally through build to suit projects; and (iii) to pursue
strategic acquisitions, designed principally to facilitate entry into new
geographic markets and to complement the construction program.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by focusing on activities that
contribute directly to subscriber growth and by outsourcing infrastructure
requirements such as owning, constructing and maintaining towers. ATC also
believes that many carriers are, for similar reasons, increasingly co-locating
transmission facilities with those of others, a trend likely to be accelerated
because of regulatory restrictions and the growing tendency of local
municipalities to require that towers accommodate multiple tenants. Management
also believes that national and other large wireless service providers will
prefer to deal with a company, such as ATC, that can meet the majority of such
providers' needs within a particular market or region, rather than, as in the
past, with a large number of individual tower owners, construction companies
and other service providers. See "Risk Factors--Risk Factors Relating to
American Tower".
Management believes that, in addition to such favorable growth and outsourcing
trends, the communications site industry and ATC will benefit from several
favorable characteristics, including the following:
. a recurring and growing revenue stream based to a significant extent on
long-term leases;
. low tenant "churn" due to the costs and disruption associated with
reconfiguring a wireless network or broadcasting location;
59
<PAGE>
. a customer base which is diversified by industry, among customers within
each industry and geographical area, and which consists principally of
large, financially responsible national companies;
. favorable absolute and incremental tower cash flow margins due to low
variable operating costs;
. low on-going maintenance capital requirements;
. local government and environmental initiatives to reduce the numbers of
towers thereby requiring carriers to co-locate antennae; and
. opportunity to consolidate in a highly fragmented industry, thereby
creating the potential for enhanced levels of customer service and
operating efficiency.
Growth Strategy
ATC's objective is to enhance its position as a leading U.S. provider of
communications sites and network development services to the wireless
communications and broadcasting industries. ATC's growth strategy consists of
the following principal elements:
Internal Growth through Sales, Service and Capacity Utilization. Management
believes that a substantial opportunity for profitable growth exists by
maximizing the utilization of existing and future towers. Because the costs of
operating a site are largely fixed, increasing tower utilization significantly
improves site operating margins. Moreover, when a specific tower reaches full
antennae attachment capacity, ATC is often able to construct an additional
tower at the same location, thereby further leveraging its investment in land,
related equipment and certain operating costs, such as taxes, utilities and
telephone service.
ATC intends to use targeted sales and marketing techniques to increase
utilization of both existing and newly constructed towers and to maximize
investment returns on acquired towers with underutilized capacity. Management
believes that the key to the success of this strategy lies in its ability to
develop and consistently deliver a high level of customer service, and to be
widely recognized as a company that makes realistic commitments and then
delivers on them. Since speed to market and reliable network performance are
critical components to the success of wireless service providers, ATC's ability
to assist its customers in meeting these criteria will ultimately define its
marketing success and capacity utilization. ATC targets wireless providers that
are expanding or improving their existing network infrastructure as well as
those deploying new technologies.
Growth by Construction. ATC believes it can achieve attractive investment
returns by constructing new tower networks in and around markets in which it
already has a presence, along major highways, and in targeted new markets,
particularly markets that have not been significantly built out by carriers or
other communications site companies. By working with one or more "anchor"
tenants, ATC will seek to develop an overall master plan for a particular
network by locating new sites in areas identified by its customers as optimal
for their network expansion requirements. ATC generally secures commitments for
leasing prior to commencing construction, thereby minimizing, to some extent,
the risks associated with the investment. See "Risk Factors--Relating to
American Tower--Construction of New Towers". In certain cases, ATC may identify
and secure all zoning and other regulatory permits for a site in anticipation
of customer demand, with actual construction generally being delayed until an
anchor tenant is secured on reasonable terms. ATC will also pursue strategic
acquisitions as a means of filling out or, in certain cases, initiating, a
tower network.
Management intends to place a strong emphasis on new tower development for the
foreseeable future because it believes that new tower construction can produce
relatively attractive initial returns. In addition, ATC can design and build
towers to specifications that assure ample future capacity and minimize the
need for future capital expenditures. Management also intends to pursue new
tower construction to service the demand for digital television and for tower
space for radio antennae displaced by digital television requirements. Over
time, management believes that more than half of its towers will result from
construction, with the vast majority of these designed to serve the wireless
communications industry.
During 1997 and 1998, ATC (excluding acquired companies) constructed or had
under construction approximately 240 and 500 towers, respectively, including
those constructed for and owned by third parties.
60
<PAGE>
During 1999, ATC (exclusive of OmniAmerica and TeleCom) plans to construct or
have under construction between approximately 750 and 1,000 towers (most of
which will be on a build to suit basis) at an estimated aggregate cost of
between approximately $120.0 and $200.0 million. In addition, ATC is seeking
several major build to suit projects, including as part of major acquisitions
with wireless providers seeking to divest their towers, although no definitive
agreements may result. The estimated aggregate number of towers to be built in
1999 by American Tower, OmniAmerica and TeleCom (between approximately 1,450
and 1,900 towers at an estimated aggregate cost of between approximately $230.0
and $340.0 million) will probably decrease as a consequence of the mergers
because of, among other things, financial and managerial resource limitations
and construction of certain planned towers may result in overbuilding in some
markets.
The ability to obtain, and commit to, large new construction projects will
require significant financial resources. Management believes that its cost of
capital, relative to the cost of capital of its competitors, will be an
important factor in determining the success of its growth by construction
strategy. Based on its previous capital market transactions, management
believes that it has a good reputation in the financial community, including
among banks, investment banking firms, institutional investors and public
investors, and that such reputation will help it attract capital on the
favorable terms necessary to finance its growth. However, funds may not be
available to ATC on such terms.
Growth by Acquisition. ATC has achieved a leading industry position primarily
through acquisitions. While management expects to shift ATC's emphasis more
towards build to suit and new tower construction, where it believes investment
returns are more attractive, ATC intends to continue to target strategic
acquisitions in markets or regions where it already owns towers as well as new
markets, possibly including non-U.S. markets.
Among the potential acquisitions are tower networks owned by major wireless
service providers, including many of the regional Bell operating companies and
their affiliates, that may seek to divest their ownership of such networks for
reasons similar to those motivating them to outsource their new construction
requirements. These transactions often involve construction commitments for the
seller's tower requirements for a period of time. The transactions are
substantial, generally involving several thousand towers and purchase prices in
the hundreds of millions of dollars. Construction commitments often entail
hundreds of millions of dollars. ATC has submitted proposals to several
wireless providers in the past (none of which were successful) and intends to
continue to pursue such opportunities. ATC may not, necessarily, enter into any
such major transaction, or, if it does, the terms may not, necessarily, be
favorable to it.
ATC's current activities with respect to possible significant acquisitions
range from the evaluation of properties, to submissions of indications of
interests and first-round bids, to extended negotiations. These opportunities
range in size from several hundred towers to a few with more than a thousand
towers and from purchase prices of tens of millions of dollars to several
hundreds of millions of dollars. Such purchase prices could take the form of
cash, ATC stock or other securities, or a combination thereof. No material
acquisition has reached the legally binding agreement stage other than those
described in this document. See "--Recent Transactions" below. Of course, ATC
cannot predict whether it will enter into any binding agreements with respect
to such acquisitions or, if it does, the terms or timing of any such material
acquisitions. Any such transaction with a wireless provider seeking to divest
ownership of its towers would probably require ATC to raise substantial capital
in the form of ATC Class A Common Stock or other equity securities,
particularly since it would likely include a major build-to-suit construction
commitment. See "Risk Factors--Risk Factors Relating to American Tower--
Acquisition Strategy" and "--Substantial Capital Requirements and High Debt
Levels".
ATC will attempt to increase revenues and operating margins at acquired
communications sites through expanded sales and marketing efforts, improved
customer service, the elimination of redundant overhead and, in certain
instances, increasing tower capacity. Acquisitions of communications towers and
sites are evaluated using numerous criteria, including potential demand, tower
location, tower height, existing capacity utilization, local competition, and
local government restrictions on new tower development.
61
<PAGE>
ATC also intends to pursue, on a selective basis, the acquisition of site
acquisition companies and providers of video, voice and data transmission
services, and may pursue acquisitions related to the communications site
industry, including companies engaged in the tower fabrication business.
Products and Services
. Leasing of Antennae Sites. ATC's primary business is the leasing of antennae
sites on multi-tenanted communications towers to companies in all segments of
the wireless communications and broadcasting industries. Giving effect to
pending acquisitions, ATC will have more than 3,000 towers in 44 states and the
District of Columbia, approximately 600 of which are managed for others,
including approximately 400 rooftop antennae. Currently, ATC operates 2,300
towers (of which 1,845 are owned and 455 are managed for third-parties),
OmniAmerica operates 223 towers (of which 211 are owned and 12 are managed for
third-parties), and TeleCom operates 392 towers (of which 271 are owned and 121
are managed for third-parties and are revenue-producing). The foregoing numbers
do not include (i) approximately 1,700 sites managed by TeleCom that are not
currently generating revenues, or (ii) 86 additional towers and sites
associated with TeleCom's joint venture with Prime. See "TeleCom Merger--The
Merger Agreement".
ATC rents tower space and provides related services for a diverse range of
wireless communications industries, including PCS, cellular, ESMR, SMR, paging,
fixed microwave, as well as radio and television broadcasters. ATC is
geographically diversified with significant tower networks throughout the
United States with its largest networks in California, Florida and Texas, and
owns and operates communications sites or is constructing tower networks in
cities such as Albuquerque, Atlanta, Austin, Baltimore, Boston, Charlotte,
Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft. Lauderdale,
Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San Francisco,
Tucson, Washington, D.C. and West Palm Beach.
ATC's leases, like most of those in the industry, generally vary depending upon
the industry user, with television and radio broadcasters preferring long term
leases (generally from 15 to 20 years), and wireless communications providers
favoring somewhat shorter lease terms (generally from five to ten years), with
multiple renewals at the option of the tenant. However, the leases acquired as
a consequence of the merger with Old ATC (which is described on page 66) tend
to be of shorter duration, generally two years, and permit earlier termination
if ATC were to attempt to impose price increases relating to escalator
provisions. Leases of all lengths tend to be renewed due to the costs and
disruption associated with reconfiguring a wireless network or broadcast
location.
Most of ATC's leases have escalator provisions (annual automatic increases
based on specified estimated cost measures or on increases in the consumer
price index) that permit ATC to keep pace with inflation. While these
provisions are not by themselves intended to be a primary source of growth,
they provide a stable and predictable growth component that is then enhanced by
increased tower utilization.
The number of antennae that ATC's towers can accommodate varies depending on
the type of tower (broadcast or non-broadcast), the height of the tower, and
the nature of the services provided by such antennae, although broadcasting
towers generally are capable of holding more and larger antennae and serving
more tenants than non-broadcasting towers. Annual rental payments vary
considerably depending upon (i) the type of service being provided; (ii) the
size of the transmission line and the number and weight of the antennae on the
tower; (iii) the existing capacity of the tower; (iv) the antenna's placement
on, and the location and height of, the tower; and (v) the competitive
environment. Management believes that it is not possible to state with any
degree of precision the vacancy or unused capacity of a "typical" tower, group
of related towers or all of its towers for a variety of reasons, including,
among others, the variations that occur depending on the types of antennae
placed on the tower, the types of service being provided by the tower users,
the type and location of the tower or towers, the ability to build other towers
so as to configure a network of related towers, whether any of the users have
imposed restrictions on competitive users, and whether there are any
environmental, zoning or other restrictions on the number or type of users.
62
<PAGE>
Build to Suit Business. Historically, cellular and other wireless service
providers have constructed a majority of their towers for their own use, while
usually outsourcing certain services such as site acquisition and construction
management. More recently, however, service providers have expressed a growing
interest in having independent companies own the towers on which they will
secure space under long-term leases. Management believes this trend is the
result of a need among such providers to preserve capital and to speed access
to their markets by focusing on activities that contribute to subscriber growth
and by outsourcing infrastructure requirements such as owning, constructing and
maintaining towers or by co-locating their transmission infrastructure. ATC has
positioned itself as an attractive choice for this build to suit opportunity.
It has done so by acquiring and developing reputable site acquisition companies
with established client relationships in both site acquisition and construction
management, and by securing the financial resources necessary to participate in
the build to suit arena on a substantial scale. Management believes companies
that are able to demonstrate the ability to successfully locate, acquire and
permit sites and finance and construct towers in a timely manner will be used
by a significant number of wireless service providers on an expanded basis. ATC
is currently engaged in build to suit efforts for a range of clients including
BellSouth, Nextel, Omnipoint, PrimeCo, PCS, and Southwestern Bell and is
seeking several major build to suit projects, although no such definitive
agreements may result.
In most cases, well engineered and well located towers built to serve the
specifications of an initial anchor tenant in the wireless communications
sector will attract three or more additional wireless tenants over time,
thereby increasing revenue and enhancing margins. ATC (exclusive of
OmniAmerica) has had only limited experience, to date, with major build to suit
projects and those that it has completed and that are operational have been on
a much smaller scale than those that it is currently building or negotiating or
will seek in the future. Management believes that ATC's favorable results
(occupancy and financial) achieved on completed projects are not representative
of the results likely to be achieved from the larger projects ATC is currently
contemplating and, therefore, has not included information with respect to the
typical vacancy rates or financial results that can be expected to be generated
by such build to suit projects. See "Risk Factors--Relating to American Tower--
Construction of New Towers; Competition" for a description of certain risks
involved in tower construction, particularly those involving large build to
suit projects.
Communications Site Management Business. ATC is a leading manager of
communications sites, principally rooftop sites but also ground towers, for
other owners. A principal aspect of this business is the development of new
sources of revenue for building owners by effectively managing all aspects of
rooftop telecommunications, including two-way radio systems, microwave, fiber
optics, wireless cable and paging, and rooftop infrastructure construction
services. ATC will manage approximately 600 towers (of which approximately 400
will be rooftop towers), giving effect to all pending acquisitions, including
the mergers. Currently, ATC manages approximately 455 of such towers,
OmniAmerica manages 12 and TeleCom manages 121. The foregoing numbers do not
include approximately 1,700 roof top sites managed by TeleCom that are not
currently generating revenues. Management contracts are generally for a period
of five years and contain automatic five-year renewal periods unless terminated
by either party on notice prior to such renewal term or upon an uncured
default. Pursuant to these contracts, ATC is responsible for marketing antennae
sites on the tower, reviewing existing and negotiating future license
agreements with tenant users, managing and enforcing those agreements,
supervising installation of equipment by tenants to ensure, among other things,
non-interference with other users, supervising repairs and maintenance to the
towers, as well as site billing, collections and contract administration. In
addition, ATC handles all calls as well as questions regarding the site so that
the building management team or owner is relieved of this responsibility. For
such services, ATC is entitled to a percentage of lease payments, which is
higher for new tenants than for existing tenants. Upon any termination of a
contract, unless because of its default, ATC is generally entitled to its
percentage with respect to then existing tenants so long as they remain
tenants.
. Site Acquisition Business. ATC's site acquisition division has developed more
than 8,000 sites in 48 states and currently has field offices in 13 major
cities including Atlanta, Chicago, Charlotte, Cleveland, Jacksonville, New
Orleans and Seattle. The site selection and acquisition process begins with the
network design. Highway corridors, population centers and topographical
features are identified within the carrier's existing or proposed
63
<PAGE>
network, and drive tests are performed to monitor all PCS, cellular and ESMR
frequencies to locate the systems then operating in that geographic area and
identify where any holes in coverage may exist. Based on this data, the carrier
and ATC develop a "search ring", generally of one-mile radius, within which the
site acquisition department identifies land available either for purchase or
lease. ATC personnel select the most suitable sites, based on demographics,
traffic patterns and signal characteristics. The site is then submitted to the
local zoning/planning board for approval. If the site is approved, in certain
instances ATC will supervise construction of the towers and other improvements
on the communications site. ATC's site acquisition services are provided on a
fixed fee or time and materials basis. Existing users of ATC's site acquisition
business include Airtouch, Alltel, AT&T Wireless PCS, Ameritech, Bell Atlantic
Mobile, BellSouth, GTE Mobilnet, MobileComm, PageNet, Power Tel, SkyTel,
Southwestern Bell, Sprint PCS and Western Wireless. While ATC will continue to
provide site acquisition services to those customers desiring them, it also
intends to actively market its construction and leasing services as an
extension of these services.
. Voice, Video Data and Internet Transmission Business. ATC's voice, video,
data and Internet transmission business is called ATC Teleports. It is operated
in and between New York City and Washington, D.C. and throughout Texas. A
teleport is a hub for transmissions to and from ground based sources and
satellites. A typical teleport facility consists of satellite antennas
(dishes), a 24-hour, 365-day operations center, terrestrial links and other
support facilities. ATC owns a teleport outside of New York City and one
outside of Washington, D.C. It also has a terrestrial system connecting
Washington, D.C., Baltimore, Philadelphia and New York City. The New York
teleport system is located on a 70-acre owned site which is zoned for 29
satellite dishes of which 22 are existing, thereby providing significant
expansion capacity. The Washington teleport is located in northern Virginia,
inside of the Washington Beltway, on 16 acres and has 40 dishes with the
capacity for an additional 20. The terrestrial system between the teleports
consists of fiber and microwave channels. The entire system is used by
television networks, broadcasters, cable programmers, and many of the leading
voice, data and Internet providers. The teleports can access all of the
domestic and major international satellites in their operating regions. The
Texas system consists of a teleport outside of Dallas and a terrestrial system
connecting Dallas, Austin, San Antonio, Houston and Corpus Christi. The system
connects to all major sports and convention venues, broadcasters and other
significant video users in Texas.
Customers
ATC's customers aggregate approximately 2,500 and include many of the major
companies in the wireless communications industry. While none of ATC's
customers accounted for as much as 10% of its 1998 pro forma net revenues from
site leasing activities for the nine months ended September 30, 1998, most of
the customers named below account for more than 1% of such revenues, and each
is considered by ATC to be an important customer:
. Cellular and PCS: Airtouch, Alltell, AT&T Wireless PCS, Bell Atlantic
Mobile, BellSouth, GTE Mobilnet, Houston Cellular, Mobile Comm,
Omnipoint, PacBell, PrimeCo, PCS, Southwestern Bell Mobile Systems
(operating as Cellular One), and Sprint PCS;
.Paging: Arch, Metrocall, PageMart, PageNet and Pittencrief;
.ESMR: Nextel; and
. Television and Radio Broadcasting: ABC, CBS, Chancellor Media, Clear
Channel, CNN, Fox and NBC.
ATC's site acquisition activities, which afford ATC the opportunity to furnish
additional services such as the construction and leasing of communications
sites, are provided to most of the cellular, PCS and ESMR customers listed
above. ATC has constructed or is constructing towers on a build to suit basis
for companies such as BellSouth, Nextel, Omnipoint, PrimeCo, PCS and
Southwestern Bell and is seeking several major build to suit projects, although
no such definitive agreements may result.
64
<PAGE>
The principal users of ATC's video, voice, data and Internet transmission
services are television broadcasters and other video suppliers such as CBS,
CNN, Fox and HBO. Revenues are derived from two sources of approximately equal
significance: (i) contracted, long-term services of a regular, recurring nature
and (ii) nonrecurring services relating to special news or events. Monthly
transmissions average approximately 3,500 at ATC's teleports.
Management Organization
ATC is headquartered in Boston and is organized on a regional basis with each
region being headed by a vice president who reports to the Chief Operating
Officer. Its current regional operations are based in Boston, Atlanta, Chicago,
Houston and the San Francisco Bay area, although additional regional centers
may develop over time. Management believes that its regional operations centers
which are in varying stages of development should ultimately be capable of
responding effectively to the opportunities and customer needs of their
respective defined geographic areas and that these operations centers should
have skilled engineering, construction management and marketing personnel.
Management also believes that over time enhanced customer service and greater
operating efficiencies can be achieved by centralizing certain operating
functions, including accounting and lease administration. Such centralization,
when achieved, will enable key information about each site, tower lease and
customer to become part of a centralized database, with communications links to
regional operations centers.
In conjunction with its acquisition of various companies, management believes
it has obtained the services of key personnel with skills in areas such as site
acquisition, construction management, tower operations, engineering, marketing,
lease administration and finance. As ATC seeks to expand its size and improve
on the quality and consistency of service delivery, it believes it needs to
complete the staffing of its existing regions and may, in the longer term, need
to supplement its current workforce in certain critical areas, develop new
regional centers and intensify its dedication to customer service. Accordingly,
management is actively recruiting key personnel to complete the staffing of its
regional operations centers and to strengthen and deepen its corporate group.
ATC focuses its efforts on recruiting people from the industry sectors it
serves and in some instances recruiting skilled engineering, marketing and
other personnel from outside the communications site, wireless communications
and broadcasting industries.
History
In early 1995, Steven B. Dodge, Chairman of the Board, President and Chief
Executive Officer of American Radio, and other members of American Radio's
management, recognized the opportunity in the communications site industry as a
consequence of American Radio's ownership and operation of broadcast towers.
ATC was formed in July 1995 to capitalize on this opportunity. During 1996,
ATC's acquisition program was modest, entailing the acquisition of companies
owning an aggregate of 15 communications sites and managing approximately 250
sites for others, for an aggregate purchase price of approximately
$21.0 million. During that year, however, ATC entered into several more
significant acquisition agreements that were consummated in 1997. During 1997,
ATC's acquisition program accelerated dramatically, and it consummated
acquisitions (including those agreed to in 1996) involving more than 390 sites
(including sites on which towers were subsequently built) and its initial site
acquisition and voice, video, data and Internet transmission businesses.
Recent Transactions
Consummated Acquisitions. Since January 1, 1998, ATC has acquired various
communications sites and a major site acquisition business for an aggregate
estimated purchase price of approximately $882.0 million, including the
issuance of approximately 36.3 million shares of ATC Class A Common Stock
valued (at the time of the relevant agreement) at approximately $382.6 million.
The most significant of those acquisitions are described below.
65
<PAGE>
In January 1998, ATC consummated the acquisition of OPM-USA-INC. ("OPM"), a
company that owned and developed communications towers and that owned
approximately 90 towers at the time of acquisition (the "OPM Transaction"). The
purchase price was variable based on the number of towers developed for
American Tower and the forward cash flow of such towers. In December 1998, it
was fixed at an aggregate of $70.0 million for a total of more than 150 towers
and a right of first refusal granted to American Tower with respect to any
towers OPM develops.
In January 1998, ATC consummated the merger (the"Gearon Transaction") of ATI
with a company ("Gearon") engaged primarily in the site acquisition business
for unaffiliated third parties that also owned or had under construction 40
tower sites. The merger price of approximately $80.0 million was paid by
delivery of 5,333,333 shares of Class A Common Stock, payment of approximately
$32.0 million in cash and assumption of liabilities.
In May 1998, ATC acquired the assets relating to a teleport serving the
Washington, D.C. area for a purchase price of approximately $30.5 million. The
facility is located in northern Virginia, inside of the Washington Beltway, on
ten acres.
Old ATC Merger. On June 8, 1998, ATC (which was then known as American Tower
Systems Corporation) merged with American Tower Corporation ("Old ATC") with
ATC being the surviving corporation. Pursuant to that merger, ATC issued an
aggregate of 28,782,386 shares of ATC Class A Common Stock (including shares
issuable upon exercise of options to acquire ATC Common Stock). The 28.8
million shares represented 35% of the aggregate number of shares of ATC Common
Stock which were outstanding immediately after consummation of the merger on a
pro forma basis, assuming the exercise of all stock options of the two
companies outstanding immediately prior to the merger, but before giving effect
to certain acquisitions.
As a condition to consummation of the merger, Messrs. Dodge and Stoner entered
into a voting agreement with ATC and certain of the Old ATC common
stockholders, pursuant to which Messrs. Dodge and Stoner agreed to vote in
favor of the election of each of Messrs. Lummis and Mays (or any other nominee
of Mr. Lummis and Clear Channel reasonably acceptable to the ATC Board of
Directors) so long as Mr. Lummis and Clear Channel (or their respective
affiliates) hold at least 50% of the shares of ATC Class A Common Stock
received by him or it in the merger. Messrs. Lummis and Mays were elected to
the Board of Directors immediately following the merger.
Chase Manhattan Capital L.P. ("Chase Capital"), which is an affiliate of CEA, a
stockholder of ATC, and Mr. Chavkin, a director of ATC, owned approximately
18.1% of the Old ATC Common Stock as of April 6, 1998 and had a representative
on the Old ATC Board of Directors. See "Principal Stockholders of American
Tower". Summit Capital of Houston ("Summit Capital") received a $2.25 million
broker's fee from Old ATC upon consummation of the merger. Fred Lummis, the
former President and Chief Executive Officer of Old ATC, and a director of ATC,
is an affiliate of Summit Capital.
Old ATC was a leading independent owner and operator of wireless communications
towers and operated approximately 915 towers in 32 states, including
approximately 125 towers managed for a third party owner and had agreed to
acquire approximately 35 additional towers in 1998 at an aggregate estimated
cost of approximately $17.4 million. For the year ended December 31, 1997, Old
ATC had net revenues of $20.0 million and EBITDA of $12.7 million. For the
three months ended March 31, 1998, Old ATC had net revenues of $6.3 million and
EBITDA of $4.1 million.
In October 1998, American Tower acquired approximately 300 towers and certain
tower related assets in six transactions for an aggregate purchase price of
approximately $100.2 million. The most significant transactions were the
acquisition of 166 towers in the Atlanta, Georgia area through the merger of
Wauka Communications, Inc. into ATI and the acquisition by ATI of the assets of
Grid Site Services, Inc. The consideration in those related transactions
(collectively, the "Wauka Transaction") included the issuance of 1,430,881
shares of Class A Common Stock.
66
<PAGE>
Pending Acquisitions. In June 1998, ATC entered into an agreement to acquire a
company which is in the process of constructing approximately 40 towers in the
Tampa, Florida area, of which 20 are presently operational. The purchase price
will be equal to an excess of (i) ten times the "Current Run Rate Cash Flow" at
the time of closing, over (ii) the principal amount of the secured note
referred to below. The purchase price will be payable in shares of Class A
Common Stock (valued at market prices shortly prior to closing) and, at the
election of the seller, cash in an amount not to exceed 49% of the purchase
price. "Current Run Rate Cash Flow" means twelve (12) times the excess of net
revenues over direct operating expenses for the month preceding closing. ATC is
obligated to advance construction funds to the seller in an aggregate amount
not to exceed $12.0 million in the form of a secured note (guaranteed by the
stockholders on a nonrecourse basis and secured by the stock of the seller), of
which approximately $7.1 million had been advanced as of December 31, 1998. The
secured note is payable if the acquisition is not consummated. Subject to the
satisfaction of certain conditions, including, depending on the circumstances,
the expiration or earlier termination of the HSR Act waiting period, the
acquisition is expected to be consummated in the spring of 1999.
ATC is negotiating certain changes in the ATC/PCS arrangements, including the
acquisition by ATC of the 58 communications sites in northern California
presently owned by ATC/PCS in exchange for shares of ATC Class A Common Stock,
arrangements with respect to the development of communications sites in other
locations, a priority return of ATC's construction advances, an increase in the
percentage interest of the other member in ATC/PCS, and a management fee to
ATC. Such negotiations may not, however, result in a definitive agreement.
Other Transactions. ATC is negotiating and intends to pursue the acquisition of
other communications sites and management and related businesses, including
major transactions with regional Bell operating companies and other wireless
carriers, although there are no definitive binding agreements with respect to
any material transaction except as referred to in this document.
ATC Private Placement. In January 1998, ATC consummated the transactions
contemplated by the Stock Purchase Agreement, dated as of January 8, 1998 (the
"ATC Stock Purchase Agreement"), with certain officers and directors of
American Radio and ATC (or their affiliates or members of their family or
family trusts), pursuant to which those persons purchased shares of Common
Stock at $10.00 per share, as follows: Mr. Dodge: 4,000,000 (Class B);
Mr. Box: 450,000 (Class A); Mr. Charlton H. Buckley: 300,000 (Class A); each of
Messrs. Eisenstein and Steven J. Moskowitz: 25,000 (Class A); Mr. Arthur
Kellar: 400,000 (Class A); Mr. Stoner, his wife and certain family trusts:
649,950 (Class B); other Stoner family and trust purchasers: 150,050 (Class A);
and Chase Equity Associates: 2,000,000 (Class C). Messrs. Buckley (one of the
selling stockholders) and Kellar were directors of American Radio, and Mr.
Chavkin, a director of ATC and a former director of American Radio, is an
affiliate of Chase Equity Associates. Mr. Moskowitz serves as a Vice President
of ATC and the General Manager of the Northeast Region.
Payment of the purchase price was in the form of cash in the case of CEA, all
members of Mr. Stoner's family and the family trusts (but not Mr. Stoner and
his wife) and Messrs. Buckley, Eisenstein, Kellar and Moskowitz, and, in the
case of Messrs. Dodge, Box and Stoner (and his wife), in the form of a note
that was paid in full upon consummation of the CBS Merger. The notes bore
interest at the six-month London Interbank Offered Rate, from time to time,
plus 1.5% per annum, and were secured by shares of American Radio Common Stock
having a fair market value of not less than 175% of the principal amount of and
accrued and unpaid interest on the note. The notes were prepayable at any time
at the option of the obligor and were due and payable, at the option of ATC, in
the event of certain defaults set forth therein.
The American Radio Board of Directors appointed a special committee (the
"Special Committee") consisting of three directors (who were not directors of
ATC and who were not a party to the ATC Stock Purchase Agreement) to determine
the fairness to American Radio from a financial point of view of the terms and
conditions of the ATC Stock Purchase Agreement. None of the members of the
Special Committee was a party to the ATC Stock Purchase Agreement. No
limitations were imposed on the activities of the Special Committee by the
American Radio Board. The Special Committee retained Merrill Lynch, Pierce,
Fenner & Smith
67
<PAGE>
Incorporated ("Merrill Lynch") to act as its exclusive financial advisor in
connection with the transactions contemplated by the ATC Stock Purchase
Agreement. No limitations were placed on the activities of Merrill Lynch.
Merrill Lynch delivered its written opinion, dated January 8, 1998, to the
Special Committee that, as of such date and based upon and subject to the
matters set forth therein, the purchase price of $10.00 per share to be
received by ATC pursuant to the ATC Stock Purchase Agreement was fair from a
financial point of view to American Radio. Based upon such opinion, and its own
evaluation of the terms and conditions of the ATC Stock Purchase Agreement, the
Special Committee approved the ATC Stock Purchase Agreement as fair to and in
the best interests of American Radio.
Pursuant to an Engagement Letter, dated November 20, 1997, American Radio
agreed to pay Merrill Lynch a fee of $500,000 in consideration for its
services. American Radio has also agreed to reimburse Merrill Lynch for its
expenses, including reasonable fees and expenses of its counsel, and to
indemnify Merrill Lynch for liabilities and expenses arising out of its
engagement and the transactions in connection therewith, including liabilities
under the federal securities laws. ATC is obligated under the Separation
Agreement to reimburse American Radio for all such fees and expenses which
American Radio has incurred to Merrill Lynch and to assume such indemnification
obligation.
CBS Merger
On June 4, 1998, American Radio consummated the CBS Merger. As a consequence,
all of the shares of American Tower owned by American Radio were or will be
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock or upon conversion of shares of ARS Convertible Preferred or ARS
Convertible Debentures. As a consequence of the CBS Merger, American Tower
ceased to be a subsidiary of, or otherwise affiliated with, American Radio and
commenced operations as an independent publicly traded company. Pursuant to the
provisions of the CBS Merger Agreement, ATC entered into the Separation
Agreement with CBS and ARS providing for, among other things, the allocation of
certain tax liabilities to American Tower, certain closing date adjustments
relating to American Radio, the lease to American Radio by American Tower of
space on certain towers previously owned by ARS and transferred to ATC, and the
orderly separation of ARS and ATC.
The Separation Agreement required ATC to reimburse CBS on a "make-whole" (after
tax) basis for the tax liabilities incurred by ARS attributable to the
distribution of the ATC Common Stock owned by ARS to its security holders and
certain related transactions, to the extent that the aggregate amount of taxes
required to be paid by ARS exceeded $20.0 million. The amount of that tax
liability was dependent on the "fair market value" of the ATC Common Stock at
the time of the consummation of the CBS Merger. ATC received an appraisal from
an independent appraisal firm that the "fair market value" of ARS's stock
interest in ATC was equal to $17.25 per share. Based on such appraisal, ARS
paid estimated taxes of approximately $212.0 million, for which ATC reimbursed
CBS. Such appraisal is not, of course, binding on the Internal Revenue Service
or other taxing authorities. American Tower financed its tax reimbursement
obligations to CBS with the proceeds of the Interim Preferred Stock. The $212.0
million payment also included estimated payments for the "make-whole"
provisions of the liability associated with the conversion of the ARS
Convertible Preferred and the working capital adjustment described below. Such
taxes gave effect to estimated deductions of approximately $85.1 million
available to ARS as a consequence of the cancellation or exercise of ARS stock
options pursuant to the CBS Merger. ATC's reimbursement obligation with respect
to such taxes would change by approximately $21.0 million for each $1.00 change
in the "fair market value" of the ATC Class A Common Stock under the tax
reporting method followed. The average of the high and low trading prices of
the ATC Class A Common Stock in the when-issued over-the-counter market on June
4, 1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with respect
to the shares of ATC Class A Common Stock deliverable upon conversion of the
ARS Convertible Preferred; such taxes will be based on the "fair market value"
of the ATC Class A Common Stock at the time of conversion. Conversions have
occurred at various times since June 4, 1998. As of September 30, 1998, holders
of Depositary Shares representing approximately 43% of the ARS Convertible
Preferred had converted or presented for conversion and ATC
68
<PAGE>
recorded a liability of approximately $4.7 million due to CBS associated with
these conversions. On September 30, 1998, CBS issued the ARS Convertible
Debentures in exchange for the then outstanding shares of ARS Convertible
Preferred. Holders of the ARS Convertible Debentures are entitled to the same
conversion rights as the ARS Convertible Preferred. ATC estimates that its
remaining reimbursement obligation with respect to the taxes on the conversion
of ARS Convertible Debentures could be approximately $11.3 million under the
tax reporting method followed. Such estimate is based on an estimated fair
market value of the ATC Class A Common Stock of $21.375 per share. ATC's
obligation for such conversions would change by approximately $1.2 million for
each $1.00 change in the fair market value.
ARS has agreed that it will pursue, for the benefit of and at the cost of ATC,
a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the ARS
Convertible Debentures set forth above. Any such refund claim will, in fact, be
based on the actual amount of taxes paid. In light of existing tax law, any
such refund claim may not be successful.
The Separation Agreement provides for closing balance sheet adjustments based
on the working capital, as defined, and debt levels of ARS as of June 4, 1998.
ATC will benefit from or bear the cost of such adjustments. As of June 1998,
ATC's preliminary estimate of such adjustments was not expected to exceed $50.0
million, excluding the reimbursement to CBS for the tax consequences of any
such payment estimated at approximately $33.0 million. The estimated taxes and
refund amount stated above include such estimated tax reimbursement amount.
Such preliminary estimate was based on estimated working capital and debt
amounts that were dependent upon operating results, cash capital contributions
and CBS Merger expenses; the final payment is contingent upon a series of
events set forth in the Separation Agreement. As a result, ATC recorded a
$50.0 million payable to CBS and a corresponding reduction in equity to reflect
management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement setting
forth a proposed purchase price adjustment payment to CBS of approximately
$82.2 million, excluding accrued interest. In October 1998, ATC provided CBS
with a Notice of Disagreement to the proposed purchase price adjustment
indicating that ATC's estimate of the final adjustment payment aggregated $11.1
million and reserved its rights to make further adjustments upon the receipt of
additional information requested of CBS. In addition, as noted above, ATC is
obligated to reimburse CBS for the tax consequences of such payment
(approximately 66 2/3%) and has paid CBS approximately $33.0 million based on
the $50.0 million estimate. CBS has offered to resolve the disagreement for a
payment of less than $82.2 million, together with certain ATC tax
indemnifications. ATC has not responded to this offer which expires on January
15, 1999. If CBS and ATC are unable to resolve their differences, they are
obligated to engage a third party to arbitrate the dispute. Under the
circumstances, ATC continues to believe that the amounts previously recorded
represent a reasonable estimate of the amounts that will be paid to CBS and
will adjust the amount as information becomes known to the Company.
ATC Preferred Stock Financing: On June 4, 1998, ATC issued $300.0 million of
Interim Preferred Stock and used the proceeds to fund its tax reimbursement
obligation to CBS, pay the commitment and other fees and expenses of the issue
and sale of such stock and to reduce bank borrowings. As discussed below, the
Interim Preferred Stock was redeemed on July 9, 1998 and as a result, American
Tower incurred an extraordinary loss of approximately $7.5 million, net of a
tax benefit of $5.0 million, during the third quarter of 1998, representing the
write-off of certain commitment, deferred financing and redemption fees.
ATC IPO: On July 8, 1998, American Tower completed a public offering of
27,861,987 shares of ATC Class A Common Stock (including 2,361,987 shares sold
by American Tower pursuant to the exercise in full of the underwriters' over-
allotment option) at $23.50 per share. Certain selling stockholders sold an
additional 3,874,911 shares in the offering. American Tower's net proceeds of
the offering (after deduction of the underwriting discount and estimated
offering expenses) were approximately $625.1 million. On July 9, 1998, American
Tower used approximately $306.1 million of the net proceeds from the offering
to redeem all of the outstanding shares of the Interim Preferred Stock at a
price of 101% of the stock's liquidation preference plus
69
<PAGE>
accrued and unpaid dividends. The balance was invested in short-term investment
grade securities. ATC will continue to use such funds together with borrowings
under the ATC Credit Facilities to fund acquisitions and construction
activities.
ATC Credit Facilities. In order to facilitate future growth and, in particular,
to finance its construction program, in June 1998, ATC and the Borrower
Subsidiaries entered into the ATC Credit Facilities with its senior lenders,
pursuant to which the then existing maximum borrowing of the Borrower
Subsidiaries was increased from $400.0 million to $900.0 million, subject to
compliance with certain financial ratios. As of December 31, 1998, $125.0
million was outstanding in the form of a term loan. In addition, ATC (the
parent company) had borrowed an additional $150.0 million in the form of a term
loan. See "Indebtedness of American Tower".
Sales and Marketing
ATC's sales and marketing personnel target wireless carriers expanding their
network capabilities as well as carriers entering new markets. ATC attempts to
minimize hurdles to purchasing decisions by offering master license agreements
which correspond to the internal requirements of wireless operators. ATC also
offers standardized system pricing in areas in which it operates tower networks
enabling potential customers to obtain pricing information for an entire
service area rather than on a tower-by-tower basis. ATC believes customer
satisfaction is the key to successful marketing and that referrals from its
current customers are and will continue to be a primary source of new
customers.
Regulatory Matters
Federal Regulations. Both the FCC and the FAA regulate towers used for wireless
communications and radio and television antennae. Such regulations control the
siting, lighting, marking and maintenance of towers and may, depending on the
characteristics of the tower, require registration of tower facilities and
issuance of determinations of no hazard. Wireless communications devices
operating on towers are separately regulated and independently licensed by the
FCC based upon the regulation of the particular frequency used. In addition,
the FCC also separately licenses and regulates television and radio stations
broadcasting from towers. Depending on the height and location, proposals to
construct new antenna structures or to modify existing antenna structures are
reviewed by the FAA to ensure that the structure will not present a hazard to
aircraft, and such review is a prerequisite to FCC authorization of
communications devices placed on the tower. Tower owners also bear the
responsibility for notifying the FAA of any tower lighting failures. ATC
generally indemnifies its customers against any failure to comply with
applicable standards. Failure to comply with applicable requirements may lead
to civil penalties.
The year 2000 ("Y2K") computer issues could create potential problems for tower
owners such as ATC. Many computers and computer software programs were not
designed to recognize the change from 1999 to 2000 or are otherwise unable to
process dates related to the turn of the millennium. These computers (and the
systems they control) might malfunction or cease to work unless they are
reprogrammed or replayed by the end of 1999, Y2K-related problems could cause
ATC's tower structures' light systems to fail which would create a hazard to
air navigation. Computer-controlled devices, such as those found in automatic
monitoring and control systems used for antenna structure lighting, are
vulnerable to Y2K-related malfunctions and may fail. Commercial electric power
sources may also fail leaving antenna structures vulnerable to blackouts. Tower
owners, such as ATC, are responsible for tower lighting in compliance with FCC
and FAA requirements and ATC intends to take the necessary steps to address the
Y2K problems. However, ATC may not be entirely successful, and any massive
power failures, occasioned by Y2K problems, could pose a serious threat to the
safe maintenance and operation of ATC's tower structures.
The introduction and development of digital television also may affect ATC and
some of its largest customers. In addition, the need to install additional
antennae required to deliver digital television service may necessitate the
relocation of many currently co-located FM antennae. The need to secure state
and local regulatory
70
<PAGE>
approvals for the construction and reconstruction of this substantial number of
antennae and the structures on which they are mounted presents a potentially
significant regulatory obstacle to the communications site industry. As a
result, the FCC has solicited comments on whether, and in what circumstances,
the FCC should preempt state and local zoning and land use laws and ordinances
regulating the placement and construction of communications sites. There can be
no assurance as to whether or when any such federal preemptive regulations may
be promulgated or, if adopted, what form they might take, whether they would be
more or less restrictive than existing state and local regulations, or whether
the constitutionality of such regulation, if challenged on constitutional
grounds, would be upheld.
Local Regulations. Local regulations include city and other local ordinances,
zoning restrictions and restrictive covenants imposed by local authorities.
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 ATC's ability to
respond to customer demand. In addition, such regulations increase costs
associated with new tower construction. Existing regulatory policies may
adversely affect the timing or cost of new tower construction and additional
regulations may be adopted which increase such delays or result in additional
costs to ATC. Such factors could have a material adverse effect on ATC's
financial condition or results of operations.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real estate or a lessee conducting operations thereon
may become liable for the costs of investigation, removal or remediation of
soil and groundwater contaminated by certain hazardous substances or wastes.
Certain of such laws impose cleanup responsibility and liability without regard
to whether the owner or operator of the real estate or operations thereon knew
of or was responsible for the contamination, and whether or not operations at
the property have been discontinued or title to the property has been
transferred. The owner or operator of contaminated real estate also may be
subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination. In connection with its
former and current ownership or operation of its properties, ATC may be
potentially liable for environmental costs such as those discussed above.
ATC believes it is in compliance in all material respects with all applicable
material environmental laws. ATC has not received any written notice from any
governmental authority or third party asserting, and is not otherwise aware of,
any material environmental non-compliance, liability or claim relating to
hazardous substances or wastes or material environmental laws. However, (i)
there may be undetected environmental conditions for which ATC might be liable
in the future, and (ii) future regulatory action, as well as compliance with
future environmental laws, may require ATC to incur costs that could have a
material adverse effect on ATC's financial condition and results of operations.
Competition
ATC competes for antennae site customers with wireless carriers that own and
operate their own tower networks and lease tower space to other carriers, site
development companies that acquire space on existing towers for wireless
providers and manage new tower construction, other national independent tower
companies and traditional local independent tower operators. Wireless service
providers that own and operate their own tower networks generally are
substantially larger and have greater financial and other resources than ATC.
ATC 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 owners, operators and
managers of communications sites.
ATC competes for acquisitions and new tower construction sites with wireless
service providers, site developers and other independent tower operating
companies. ATC believes that competition for acquisitions
71
<PAGE>
and tower construction sites will increase, causing price increases, and that
additional competitors may enter the tower market, certain of which may have
greater financial and other resources than ATC.
ATC also faces strong competition for build to suit opportunities, principally
from other independent communications sites operators and site developers,
certain of which (including OmniAmerica) have more extensive experience and
offer a broader range of services (principally in constructing for themselves
rather than managing the construction of others) than ATC can presently offer.
Properties
ATC's interests in its communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements, and easements, licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a three
to five acre tract which supports towers, equipment shelters and guy wires to
stabilize the structure. Less than 2,500 square feet are required for a self-
supporting tower structure of the kind typically used in metropolitan areas.
Land leases generally have twenty (20) to twenty-five (25) year terms, with
three five-year renewals, or are for five-year terms with automatic renewals
unless ATC otherwise specifies. Some land leases provide "trade-out"
arrangements whereby ATC allows the landlord to use tower space in lieu of
paying all or part of the land rent. ATC will have more than 2,000 land leases,
giving effect to all pending acquisitions including the mergers. Pursuant to
the ATC Credit Facilities, the senior lenders have liens on, among other
things, all leases of tower space, contracts relating to the management of
towers for others, cash, accounts receivable, the stock and inter-company debt
of all Restricted Subsidiaries (as defined in the ATC Credit Facilities),
inventory and other personal property, fixtures, intellectual property, as well
as certain fee and leasehold interests, and the proceeds thereof of ATC and its
Restricted Subsidiaries.
Legal Proceedings
ATC is occasionally involved in legal proceedings that arise in the ordinary
course of business. While the outcome of these proceedings cannot be predicted
with certainty, management does not expect any pending matters to have a
material adverse effect on ATC's financial condition or results of operations.
Employees
As of December 31, 1998, ATC employed approximately 450 full time individuals
and considers its employee relations to be satisfactory. Giving effect to the
OmniAmerica Merger and the TeleCom Merger, ATC will employ approximately 1,050
full time individuals.
72
<PAGE>
MANAGEMENT OF AMERICAN TOWER
Executive Officers and Directors
The following table sets forth certain information concerning the executive
officers and directors of ATC:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Steven B. Dodge(1).......... 53 Chairman of the Board, President and Chief
Executive Officer
Alan L. Box................. 47 Executive Vice President and Director
Douglas Wiest............... 46 Chief Operating Officer
Arnold L. Chavkin(1)(2)(3).. 47 Director
James S. Eisenstein......... 40 Executive Vice President--Corporate
Development
J. Michael Gearon, Jr....... 33 Executive Vice President and Director
Fred R. Lummis(2)........... 44 Director
Randall Mays(2)............. 32 Director
Thomas H. Stoner(1)(3)...... 64 Director
Maggie Wilderotter(3)....... 43 Director
Joseph L. Winn.............. 47 Treasurer and Chief Financial Officer
Jack D. Furst............... 39 Director Nominee
Dean H. Eisner.............. 40 Director Nominee
</TABLE>
- --------
(1) Member of the Executive Committee; Mr. Stoner is the Chairman of the
Executive Committee.
(2) Member of the Audit Committee; Mr. Mays is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Stoner is the Chairman of the
Compensation Committee.
Two independent directors will be elected annually, commencing in 1999, by the
holders of ATC Class A Common Stock, voting as a separate class. All directors
hold office until the annual meeting of the stockholders of ATC next following
their election or until their successors are elected and qualified. Each
executive officer is appointed annually and serves at the discretion of the ATC
Board of Directors (the "ATC Board").
As a condition to the consummation of the OmniAmerica Merger, a nominee of the
principal stockholder of OmniAmerica, Jack D. Furst, Chairman of OmniAmerica
and a Managing Director and Principal of Hicks, Muse, Tate & Furst,
Incorporated, an affiliate of OmniAmerica's principal stockholder ("Hicks,
Muse"), will be elected as a director of ATC. See "Certain Directors and
Executive Officers " in Appendix IV. As a condition to the consummation of the
TeleCom Merger, a nominee of the principal member of TeleCom, Dean H. Eisner,
will be elected as a director of ATC. Mr. Eisner is Vice President, Business
Development and Planning of Cox Enterprises, Inc., an affiliate of Cox Telecom
Towers, Inc., the principal member of TeleCom.
Steven B. Dodge is the Chairman, President and Chief Executive Officer of ATC.
Mr. Dodge was also the Chairman of the Board, President and Chief Executive
Officer of American Radio, a position he occupied since its founding on
November 1, 1993 until consummation of the CBS Merger. Mr. Dodge was the
founder in 1988 of Atlantic Radio, L.P. which was one of the predecessor
entities of American Radio. Prior to forming Atlantic, Mr. Dodge served as
Chairman and Chief Executive Officer of American Cablesystems Corporation, a
cable television company he founded in 1978 and operated as a privately-held
company until 1986 when it completed a public offering in which its stock was
priced at $14.50 per share. American Cablesystems was merged into Continental
Cablevision, Inc. in 1988 in a transaction valued at more than $750.0 million,
or $46.50 per share. The initial public offering of American Radio Class A
Common Stock occurred in June 1995 at a price of $16.50 per share. Upon
consummation of the CBS Merger, each share of American Radio Class A Common
Stock was exchanged into $44.00 and one share of ATC Class A Common Stock. Mr.
Dodge also serves as a director of PageMart Wireless, Inc., American Media,
Inc. and the National Association of Broadcasters.
73
<PAGE>
Alan L. Box is an Executive Vice President and a director of ATC. Mr. Box
served as Chief Operating Officer of ATC from June 1997 to March 1998 at which
time he assumed his present role as the Executive Vice President responsible
for the video, voice and data transmission business of ATC. Mr. Box also was an
Executive Vice President and a director of American Radio from April, 1997 when
EZ Communications, Inc. ("EZ") merged into American Radio (the "EZ Merger")
until consummation of the CBS Merger. Prior to the EZ Merger, Mr. Box was
employed by EZ, starting in 1974 as the General Manager of EZ's Washington,
D.C. area radio station. He became Executive Vice President and General Manager
and a director of EZ in 1979, President of EZ in 1985 and Chief Executive
Officer of EZ in 1995. He serves as a director of George Mason Bankshares, Inc.
and George Mason Bank.
Arnold L. Chavkin is a member of the Executive Committee and the Audit
Committee of the ATC Board.Mr. Chavkin was the Chairman of the Audit Committee
of the Board of American Radio from its founding until consummation of the CBS
Merger and of the Audit Committee of ATC from its organization until November
1998. Mr. Chavkin is a general partner of Chase Capital Partners ("CCP"),
previously known as Chemical Venture Partners ("CVP"), which is a general
partner of Chase Equity Associates, L.P. ("CEA"), a stockholder of ATC, and
previously a principal stockholder of American Radio and of Multi Market
Communications, Inc., one of the predecessors of American Radio. Mr. Chavkin
has been a General Partner of CCP and CVP since January 1992 and has served as
the President of Chemical Investments, Inc. since March 1991. Chase Capital,
which is an affiliate of CEA, owned approximately 18.1% of Old ATC; Chase,
which is also an affiliate of Chase Capital is a lender under the ATC Credit
Facilities for the Borrower Subsidiaries with a 5.2% participation. Mr. Chavkin
is also a director of R&B Falcon Drilling Company, Bell Sports Corporation,
Wireless One, Inc. and Patina Oil & Gas Corporation. Prior to joining Chemical
Investments, Inc., Mr. Chavkin was a specialist in investment and merchant
banking at Chemical Bank for six years. For the information with respect to the
interests of an affiliate of Mr. Chavkin, CCP and CEA in ATC, see "Business of
American Tower--Recent Transactions--Old ATC Merger".
James S. Eisenstein is the Executive Vice President--Corporate Development of
ATC. Mr. Eisenstein has overall responsibility for seeking out acquisition and
development opportunities for ATC. Mr. Eisenstein helped form ATC in the summer
of 1995. From 1990 to 1995, he was Chief Operating Officer for Amaturo Group
Ltd., a broadcast company operating eleven radio stations and four broadcasting
towers, several of which were purchased by American Radio. Mr. Eisenstein
serves on the Board of Directors of the Personal Communications Industry
Association, the leading international trade association representing the
wireless communications industry. He has extensive experience in structuring
acquisitions and the operation and management of broadcasting and tower
businesses.
J. Michael Gearon, Jr. was the principal stockholder and Chief Executive
Officer of Gearon, a position he has held since September 1991. As a condition
to consummation of the Gearon Transaction, Mr. Gearon was elected a director of
ATC and President of Gearon Communications, the division of ATC which operates
its site acquisition business. See "Business of American Tower--Recent
Transactions".
Fred R. Lummis, a member of the Audit Committee of the ATC Board, has served as
Chairman, President and Chief Executive Officer of Advantage Outdoor Company,
L.P. since June 1998 and served as Chairman, Chief Executive Officer and
President of Old ATC since its organization in October 1994. Mr. Lummis has
been President of Summit Capital, a private investment firm, since 1990. Mr.
Lummis currently serves on the board of several private companies and is a
trustee of the Baylor College of Medicine. See "Business of American Tower--
Recent Transactions--Old ATC Merger".
Randall Mays, Chairman of the Audit Committee of the ATC Board, has served as
Chief Financial Officer and Executive Vice President of Clear Channel since
February 1997, prior to which he had served as a Vice President and Treasurer
since joining Clear Channel in 1993. Prior to joining Clear Channel, he was an
associate at Goldman, Sachs & Co. Clear Channel was a principal stockholder of
Old ATC with a 31.3% interest. See "Business of American Tower--Recent
Transactions--Old ATC Merger".
74
<PAGE>
Thomas H. Stoner is the Chairman of the Executive Committee and the
Compensation Committee of the ATC Board. Mr. Stoner was the Chairman of the
Executive Committee and the Compensation Committee of the Board of American
Radio since its founding until consummation of the CBS Merger. Mr. Stoner
founded Stoner Broadcasting Systems, Inc. ("Stoner") in 1965. Stoner, which was
one of the predecessors of American Radio, operated radio stations for over 25
years in large, medium and small markets. Mr. Stoner is a director of Gaylord
Container Corporation and a trustee of the Chesapeake Bay Foundation.
Maggie Wilderotter is a member of the Compensation Committee of the ATC Board.
Ms. Wilderotter is the President and Chief Executive Officer of Wink
Communications, a California company that develops technology for adding simple
interactivity and graphics to mass-market consumer electronic products. Before
joining Wink, Ms. Wilderotter was the Executive Vice President of National
Operations for AT&T Wireless Services, Inc., and Chief Executive Officer of
AT&T's Aviation Communications Division. Ms. Wilderotter has also served as
Senior Vice President of McCaw Cellular Communications, Inc. and Regional
President of its California, Nevada and Hawaii Region. Prior to her work in the
wireless industry, Ms. Wilderotter spent 12 years with U.S. Computer Services,
Inc./Cable Data, as Senior Vice President and General Manager. In 1989 she was
the recipient of the National Cable Television Association's Vanguard Award and
the Top Women in Cable & Telecommunications award. Ms. Wilderotter serves on
the boards of Airborne Express, Electric Lightwave, Inc., Gaylord
Entertainment, Jacor Communications and the California Cable Television
Association.
Douglas Wiest is the Chief Operating Officer of ATC. Mr. Wiest joined ATC in
February 1998, initially as the Chief Operating Officer of Gearon
Communications, and assumed his current position in March 1998. Prior to
joining ATC, Mr. Wiest was Regional Vice President of Engineering and
Operations for Nextel's southern region. Prior to joining Nextel in 1993, Mr.
Wiest was employed by McCaw Communications where he was engaged in network
systems development for approximately three years and by Pacific Telesis where
he was engaged in strategic planning and operations for approximately eight
years.
Joseph L. Winn is the Chief Financial Officer and Treasurer of ATC. Mr. Winn
was also Treasurer, Chief Financial Officer and a director of American Radio
since its founding until consummation of the CBS Merger. In addition to serving
as Chief Financial Officer of American Radio, Mr. Winn was Co-Chief Operating
Officer responsible for Boston operations until May 1994. Mr. Winn served as
Chief Financial Officer and a director of the general partner of Atlantic after
its organization. He also served as Executive Vice President of the general
partner of Atlantic from its organization until June 1992, and as its President
from June 1992 until the organization of American Radio. Prior to joining
Atlantic, Mr. Winn served as Senior Vice President and Corporate Controller of
American Cablesystems after joining that company in 1983.
75
<PAGE>
Executive Compensation
All of the executive officers of ATC listed below (other than Mr. Eisenstein)
were employees of American Radio (or, in the case of Mr. Box, of EZ prior to
the EZ Merger) since the organization of ATC in 1995 until consummation of the
CBS Merger. During that period the highest paid executive officers, other than
Mr. Dodge, who are employees of ATC, were Messrs. Box, Winn and Eisenstein. The
compensation of each of those individuals (other than Mr. Eisenstein) was
principally for acting as an executive officer of American Radio (or, in the
case of Mr. Box, EZ prior to the EZ Merger) and, accordingly, information
provided with respect to their executive compensation represents compensation
paid by American Radio (with the exception of Mr. Eisenstein).
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------- -----------------------------------------
Shares
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options(7) Compensation
------------------ ---- --------- ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Dodge(1)(2)... 1996 $ 297,250(/3/) 50,000 -- 40,000 $ 4,910(/9/)
Chairman of the Board,
President 1997 $ 502,338(/3/) -- -- 100,000 $ 1,716(/9/)
and Chief Executive
Officer 1998 $ 370,348(/4/) -- -- 3,300,000 $ 5,946(/9/)
Douglas Wiest(2)........ 1998 $ 210,840(/5/) -- -- 365,001 $ 4,576(/10/)
Chief Operating Officer
J. Michael Gearon,
Jr.(2)................. 1998 $ 176,136(/5/) -- -- 334,451 $ 346(/11/)
Executive Vice
President
Joseph L. Winn(1)(2).... 1996 $ 257,250(/3/) 42,500 -- 20,000 $11,456(/9/)
Treasurer and Chief
Financial Officer 1997 $ 352,329(/3/) 40,000 -- 35,000 $12,876(/9/)
1998 $ 298,781(/4/) -- 610,000 $13,210(/9/)
James S. Eisenstein(2).. 1996 $ 169,250(/5/) 19,000 -- 273,119(/8/) $ 8,669(/9/)
Executive Vice
President-- 1997 $ 212,367(/5/) -- -- 27,310(/8/) $12,656(/9/)
Corporate Development 1998 $ 207,843(/5/) 50,000 -- 150,000 $13,295(/9/)
Alan L. Box(1)(2)....... 1997 $ 264,400(/6/) -- -- 100,000 $ 1,216(/12/)
Executive Vice
President 1998 $ 105,417(/5/) -- -- 225,000 $ 174(/11/)
</TABLE>
- --------
(1) Represents both annual and long-term compensation paid by American Radio
and American Tower.
(2) The Compensation Committee of ATC approved annual base salaries for 1998
for Mr. Dodge, and each of its other five executive officers, at the
following rates: Mr. Dodge: $250,000; Mr. Box: $50,000; Mr. Eisenstein
$200,000; Mr. Gearon: $200,000; Mr. Wiest: $225,000; and Mr. Winn:
$225,000. Such salaries commenced (in the case of Messrs. Dodge, Winn and
Eisenstein) with the consummation of the CBS Merger on June 4, 1998, prior
to which time such individuals (other than Mr. Eisenstein) were paid by
American Radio at their then present compensation rates.
(3) Includes American Radio's matching 401(k) plan contributions.
(4) Includes American Radio and American Tower matching 401(k) plan
contributions.
(5) Includes American Tower matching 401(k) plan contributions.
(6) Includes $87,500 paid by ATC commencing October 1, 1997.
(7) Except in the case of Mr. Eisenstein, represents for the years 1996 and
1997 options to purchase American Radio Common Stock granted by American
Radio; such options, to the extent they were unexercised at the time of
the CBS Merger, were exchanged for options to purchase shares of ATC
Common Stock on the basis and for the numbers shown below under "--Stock
Option Information".
76
<PAGE>
(8) Represents options to purchase shares of ATI granted pursuant to the ATI
plan that were exchanged as part of the CBS Merger for options to purchase
shares of ATC Class A Common Stock.
(9) Includes group term life insurance, automobile lease and parking expenses
paid by American Radio and American Tower.
(10) Includes group term insurance and automobile expense paid by American
Tower.
(11) Includes group term life insurance paid by American Tower.
(12) Includes group term life insurance paid by American Radio.
Director Compensation
The independent directors of ATC have received options to purchase 50,000
shares of Class A Common Stock, which are exercisable in 20% cumulative annual
increments commencing one year from the date of grant and expire at the end of
ten years. The outside directors also receive $2,500 for attending each board
meeting, $1,000 for each committee on which he or she serves, and $3,000 for
each committee on which he or she serves as chairperson.
Stock Option Information
Effective November 5, 1997, ATC instituted the 1997 Stock Option Plan, as
amended and restated (the "Plan"), which is administered by the Compensation
Committee of the ATC Board. The Plan was designed to encourage directors,
consultants and key employees of American Tower and its subsidiaries to
continue their association with ATC by providing opportunities for such persons
to participate in the ownership of ATC and in its future growth through the
granting of stock options, which may be options designed to qualify as
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options not intended
to qualify for any special tax treatment under the Code ("NQOs"). The Plan
provides that ATC may not grant options to purchase more than 5,000,000 shares
per year per participant.
The duration of the ISOs and NQOs granted under the Plan may be specified by
the Compensation Committee pursuant to each respective option agreement, but in
no event shall any such option be exercisable after the expiration of ten (10)
years after the date of grant. In the case of any employee who owns (or is
considered under Section 424(d) of the Code as owning) stock possessing more
than ten percent of the total combined voting power of all classes of stock of
ATC, no ISO shall be exercisable after the expiration of five (5) years from
the date such option is granted. The option pool under the Plan consists of an
aggregate of 15,000,000 shares of Common Stock that may consist of shares of
Class A Common Stock, shares of Class B Common Stock or some combination
thereof. The Plan was amended in June 1998 to provide that all future grants of
options under the Plan must be to purchase shares of Class A Common Stock. The
Plan includes options that were converted from the stock option plan of ATI. In
July 1996, ATI adopted a stock option plan and, pursuant thereto, options were
granted to various officers of ATI. In connection with the CBS Merger, those
options to purchase the common stock of ATI were converted into options to
acquire shares of Class A Common Stock under the Plan.
In addition to the 15,000,000 shares authorized under the Plan, options to
purchase an aggregate of 922,344 shares of Class A Common Stock and 1,251,760
shares of Class B Common Stock were outstanding as of December 31, 1998 outside
of the Plan. These options are the result of the exchange of certain American
Radio options that occurred pursuant to the CBS Merger and the assumption of
certain options that occurred pursuant to the merger with Old ATC. Each
unexercised option to purchase shares of ARS common stock held by persons who
became directors or employees of ATC were exchanged for ATC options. The
American Radio options were exchanged in a manner that preserved the spread in
such ARS options between the option exercise price and the fair market value of
ARS common stock and the ratio of the spread to the exercise price prior to
such conversion and, to the extent applicable, otherwise in conformity with the
rules under Section 424(a) of the Code and the regulations promulgated
thereunder.
77
<PAGE>
During the year ended December 31, 1998 the only options granted pursuant to
the Plan to the individuals referred to in "--Executive Compensation" above
were as shown below. All such options (other than that for 1,700,000 shares of
Class B Common Stock granted to Mr. Dodge) are to purchase shares of Class A
Common Stock.
Option Grants in 1998 Individual Grants
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option
Terms(a)
---------------------------
Number of
Shares of
Underlying Exercise
Options Price Expiration
Name Granted per Share Date 5% 10%
---- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Steven B. Dodge......... 1,700,000 10.00 1/8/08 $10,691,209 $27,093,622
1,300,000 21.125 6/22/08 17,275,107 43,778,512
300,000 23.75 12/01/08 4,480,874 11,355,415
Douglas Wiest........... 240,001 13.00 1/22/08 1,962,159 4,972,497
125,000 23.75 12/01/08 1,867,031 4,731,423
J. Michael Gearon,
Jr. ................... 234,451 13.00 1/22/08 1,916,785 4,857,509
100,000 23.75 12/01/08 1,493,625 3,785,138
Joseph L. Winn.......... 275,000 10.00 1/8/08 1,729,460 4,382,792
210,000 21.125 6/22/08 2,790,594 7,071,913
125,000 23.75 12/01/08 1,867,031 4,731,423
Alan L. Box............. 120,000 10.00 1/8/08 754,674 1,912,490
80,000 21.125 6/22/08 1,063,083 2,694,062
25,000 23.75 12/01/08 373,406 946,285
James S. Eisenstein..... 28,000 10.00 1/8/08 176,091 446,248
22,000 21.125 6/22/08 292,348 740,867
100,000 23.75 12/01/08 1,493,625 3,785,138
</TABLE>
- --------
(a) The potential realizable value at assumed annual rates of stock price
appreciation for the option term of 5% and 10% would be $16.29 and $25.94
respectively, with respect to the $10.00 per share options, $34.42 and
$54.81, respectively, with respect to the $21.125 per share options,
$21.18 and $33.72 respectively, with respect to the $13.00 per share
options and $38.69 and $61.60, respectively, with respect to the $23.75
per share options.. A 5% and 10% per year appreciation in stock price from
$10.00 per share yields appreciation of $6.29 per share and $15.94 per
share, respectively. A 5% and 10% per year appreciation in stock price
from $21.125 per share yields appreciation of $13.29 per share and $33.68
per share, respectively. A 5% and 10% per year appreciation in stock price
from $13.00 per share yields appreciation of $8.18 per share and $20.72
per share, respectively. A 5% and 10% per year appreciation in stock price
from $23.75 per share yields appreciation of $14.94 per share and $37.85
per share, respectively. The actual value realized, if any, will depend on
the excess of the stock price over the exercise price on the date the
option is exercised, so that there is no assurance the value realized by
an executive will be at or near the amounts reflected in this table.
The unexercised options granted pursuant to the Plan (or outstanding with
respect to options granted under the American Radio plan or the ATI plan) to
the individuals referred to in "--Executive Compensation" above were as
follows:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998(a)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven B. Dodge............ 484,816 3,716,441 $12,248,812 $55,097,654
Douglas Wiest.............. 0 365,001 0 4,700,667
J. Michael Gearon, Jr. .... 0 334,451 0 4,463,509
Joseph L. Winn............. 95,883 740,526 2,371,611 10,613,051
Alan L. Box................ 62,156 473,622 1,292,223 8,335,701
James S. Eisenstein........ 243,922 330,819 6,010,720 5,759,475
</TABLE>
- --------
(a) Based on the closing price of the ATC Class A Common Stock on the NYSE on
December 31, 1998 of $29.56 per share.
78
<PAGE>
All employees of American Radio who became employees of ATC (which includes,
among others, Messrs. Box, Dodge, Eisenstein and Winn) who held options to
purchase ARS common stock (including Mr. Box: 100,000 shares; Mr. Dodge:
290,000 shares; Mr. Eisenstein: 40,000 shares; and Mr. Winn: 280,000 shares)
were given the opportunity to convert their American Radio options into ATC
options. Such conversion was effectuated upon consummation of the CBS Merger in
a manner designed to preserve the spread in such ARS options between the option
exercise price and the fair market value of ARS common stock and the ratio of
the spread to the exercise price prior to such conversion and, to the extent
applicable, otherwise in conformity with the rules under Section 424(a) of the
Code and the regulations promulgated thereunder. Messrs. Box, Dodge, Eisenstein
and Winn exercised their respective rights to exchange American Radio options
for ATC options such that such individuals hold ATC options as follows (based
on a $64 7/8 and $20 7/8 per share value for the ARS common stock and ATC
Common Stock, respectively): Mr. Box: 310,778 shares of Class A Common Stock at
$8.77 per share; Mr. Dodge: an aggregate of 901,257 shares of Class B Common
Stock at prices ranging between $3.19 and $10.00 per share; Mr. Eisenstein:
124,311 shares of Class B Common Stock at $7.64 per share; and Mr. Winn: an
aggregate of 405,037 shares of Class B Common Stock and 25,080 shares of Class
A Common Stock at prices ranging between $2.05 and $9.09 per share. See
"Principal Stockholders of American Tower".
In 1996 Mr. Eisenstein was granted options pursuant to the ATI plan for an
aggregate of 200,000 shares at $5.00 per share. Such options became exercisable
to the extent of 80,000 shares on July 1, 1997 and became exercisable in 20%
cumulative annual increments commencing on July 1, 1998, and expires September
9, 2006. As part of the CBS Merger, the ATI options were exchanged for ATC
options, and Mr. Eisenstein received options to purchase 273,117 shares of
Class A Common Stock at $3.66 per share, of which 163,871 shares are presently
purchasable. An additional ten-year option to purchase 20,000 shares of common
stock of ATI at $7.50 per share was granted to Mr. Eisenstein on January 2,
1997. Pursuant to the CBS Merger, that option was exchanged for an ATC options
to purchase 27,311 of shares of Class A Common Stock at $5.49 per share, of
which 5,462 shares are presently purchasable.
Certain Transactions
Chase was a lender with a 6.75% participation under the loan agreement entered
into by ATI and has a 5.2% participation under the ATC Credit Facilities for
the Borrower Subsidiaries. Chase is an affiliate of CVP, the general partner of
CEA; Mr. Chavkin, a director of ATC and formerly a director of American Radio,
is a general partner of CVP. At December 31, 1998, the aggregate principal
amount outstanding under the ATC Credit Facilities of the Borrower Subsidiaries
was approximately $275.0 million. Chase's share of interest and fees paid
by ATC pursuant to its various credit arrangements was $0.2 million and $0.8
million in 1997 and 1998, respectively. For information with respect to the
interests of Chase Capital, an affiliate of Mr. Chavkin, in ATC and the Old ATC
merger, see "Business of American Tower--Recent Transactions--Old ATC Merger".
For information with respect to the sale of shares of ATC Common Stock to Mr.
Dodge and certain other officers and directors (and their affiliates, family
members and family trusts) of American Radio and ATC, see "Business of American
Tower--Recent Transactions--ATC Private Placement".
Management believes that the above transactions, to the extent they were with
affiliated parties, were on terms, and ATC intends to continue its policy that
all future transactions between it and its officers, directors, principal
stockholders and affiliates will be on terms, not less favorable to ATC than
those which could be obtained from unaffiliated parties.
79
<PAGE>
PRINCIPAL STOCKHOLDERS OF AMERICAN TOWER
The following information sets forth certain information known to ATC as of
December 31, 1998 with respect to the shares of ATC Common Stock that are
beneficially owned as of such date by (i) each person known by ATC to own more
than 5% of the outstanding ATC Common Stock, (ii) each director of ATC, (iii)
each executive officer of ATC, and (iv) all directors and executive officers of
ATC as a group. The table also sets forth information of a comparable nature
giving effect, in addition to the foregoing, to the consummation of the
OmniAmerica Merger and the TeleCom Merger. The number of shares beneficially
owned by each director or executive officer is determined according to the
rules of the Securities and Exchange Commission (the "Commission"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power
and also any shares which the individual or entity has the right to acquire
within sixty days of December 31, 1998 through the exercise of an option,
conversion feature or similar right. Except as noted below, each holder has
sole voting and investment power with respect to all shares of ATC Common Stock
listed as owned by such person or entity. The failure of the TeleCom Merger to
be consummated would increase, although not materially, the percentages shown
under the "Pro Forma for the Mergers" heading.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned Pro Forma
Prior to the Mergers for the Mergers**
------------------------------------------------ ---------------------
Percent of Percent of
Percent Percent Percent of Total Percent of Total
of of Common Voting Common Voting
Number Class A Class B Stock Power Stock Power
---------- ------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers
Steven B. Dodge(1)...... 6,614,460 * 65.65 6.04 33.30 5.07 30.08
Thomas H. Stoner(2)..... 1,398,487 * 15.16 1.29 7.33 1.08 6.60
Alan L. Box(3).......... 937,084 * -- * * * *
Arnold L. Chavkin
(CEA)(4)............... 7,780,708 4.95 -- 7.17 2.57 6.01 2.30
James S. Eisenstein(5).. 279,984 * * * * * *
J. Michael Gearon,
Jr.(6)................. 4,021,328 4.16 -- 3.70 2.15 3.10 1.94
Fred R. Lummis(7)....... 1,496,748 1.54 -- 1.37 * 1.15 *
Randall Mays (Clear
Channel)(8)............ 9,019,717 9.34 -- 8.30 4.83 6.96 4.35
Douglas Wiest(9)........ 83,557 * -- * * * *
Maggie Wilderotter
(10)................... -- -- -- -- -- -- --
Joseph L. Winn(11)...... 417,826 * 3.85 * 1.90 * 1.71
All executive officers
and directors as a
group (eleven
persons)(12)........... 32,049,899 21.27 82.09 28.96 52.22 24.35 47.24
Director Nominees
Jack D. Furst (13)...... -- -- -- -- -- + +
Dean H. Eisner(14)...... -- -- -- -- -- + +
Five Percent
Stockholders:
Thomas O. Hicks(15)..... -- -- -- -- -- 5.67 3.54
HMTF/Omni Partners, L.P.
(16)................... -- -- -- -- -- 5.65 3.52
</TABLE>
- --------
* Less than 1%.
** Assumes that an aggregate of 4.2 million shares are issued pursuant to the
TeleCom Merger and no adjustment occurs as a consequence of the closing date
price adjustments. (See "The TeleCom Merger--General" for information with
respect to such adjustment.)
+ For information regarding the pro forma beneficial ownership of Messrs.
Furst and Eisner, see Notes 13 and 14.
(1) Mr. Dodge is Chairman of the Board, President and Chief Executive Officer
of ATC. His address is 116 Huntington Avenue, Boston, Massachusetts 02116.
Includes 10,030 shares of ATC Class A Common Stock and 3,567,761 shares of
ATC Class B Common Stock owned by Mr. Dodge, an aggregate of 25,050 shares
of ATC Class A Common Stock and 28,065 shares of ATC Class B Common Stock
owned by three trusts for the benefit of Mr. Dodge's children, 66,720
shares of ATC Class A Common Stock
80
<PAGE>
and 2,000,000 shares of ATC Class B Common Stock owned by a limited
liability company, of which Mr. Dodge is the sole member and 5,000 shares
of ATC Class A Common Stock owned by Mr. Dodge's wife. Mr. Dodge disclaims
beneficial ownership in all shares owned by such trusts and his wife. Does
not include an aggregate of 329,423 shares of ATC Class B Common Stock
purchasable under ATC options received in exchange for American Radio
options upon consummation of the CBS Merger; includes an aggregate of
571,834 shares of ATC Class B Common Stock as to which such exchanged
options are exercisable. Does not include 1,360,000 shares of ATC Class B
Common Stock purchasable under an option granted on January 8, 1998 under
the Plan, 1,300,000 shares of ATC Class A Common Stock purchasable under an
option granted on June 22, 1998 under the Plan and 300,000 shares of ATC
Class A Common Stock purchasable under an option granted on December 1,
1998 under the Plan; includes 340,000 shares as to which the January option
is exercisable. Does not include 170 shares of ATC Class A Common Stock
held by Thomas S. Dodge, an adult child of Mr. Dodge, with respect to which
Mr. Dodge disclaims beneficial ownership.
(2) Mr. Stoner is Chairman of the Executive Committee of the ATC Board of
Directors. His address is 116 Huntington Avenue, Boston, Massachusetts
02116. Includes 915,000 shares of ATC Class B Common Stock owned by Mr.
Stoner, 46,311 shares of ATC Class B Common Stock owned by his wife, an
aggregate of 403,460 shares of ATC Class B Common Stock and 22,500 shares
of ATC Class A Common Stock owned by trusts of which he and/or certain
other persons are trustees. Mr. Stoner disclaims beneficial ownership of
221,140 shares of ATC Class B Common Stock and 22,500 shares of ATC Class
A Common Stock owned by such trusts. Does not include 98,975 shares of ATC
Class A Common Stock and 61,454 shares of ATC Class B Common Stock owned
by Mr. Stoner's adult children. Does not include 9,323 shares of ATC
Class A Common Stock purchasable under an ATC Option received in exchange
for an American Radio option upon consummation of the CBS Merger; includes
6,216 shares of ATC Class A Common Stock as to which such exchanged option
is exercisable. Does not include 20,000 shares of ATC Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan and
25,000 shares of ATC Class A Common Stock purchasable under an option
granted on December 1, 1998 under the Plan; includes 5,000 shares as to
which the January option is exercisable.
(3) Mr. Box is a director and an Executive Vice President of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 2,070
shares of ATC Class A Common Stock owned by two trusts for the benefit of
Mr. Box's children and 62,156 shares of ATC Class A Common Stock
purchasable under ATC options received in exchange for American Radio
options upon consummation of the CBS Merger; does not include 248,622
shares of ATC Class A Common Stock purchasable under such exchanged
options. Does not include 96,000 shares of ATC Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan and
80,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 25,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan; includes 24,000 shares as to which the January option is
exercisable.
(4) Mr. Chavkin is a director of ATC. His address is 116 Huntington Avenue,
Boston, Massachusetts 02116. Mr. Chavkin, as a general partner of CCP,
which is the general partner of CEA may be deemed to own beneficially
shares held by CEA and Chase Capital, an affiliate of Mr. Chavkin.
Includes 26,911 shares of ATC Class A Common Stock and 3,002,008 shares of
ATC Class C Common Stock owned by CEA and 4,740,573 shares of ATC Class A
Common Stock owned by Chase Capital. Mr. Chavkin disclaims such beneficial
ownership of such shares. The address of CCP and CEA is 380 Madison
Avenue, 12th Floor, New York, New York 10017. Does not include 9,323
shares of ATC Class A Common Stock purchasable under an ATC Option
received in exchange for an American Radio option upon consummation of the
CBS Merger; includes 6,216 shares of ATC Class A Common Stock as to which
such exchanged option is exercisable. Does not include 20,000 shares of
ATC Class A Common Stock purchasable under an option granted on January 8,
1998 under the Plan and 25,000 shares of ATC Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan;
includes 5,000 shares as to which the January option is exercisable.
81
<PAGE>
(5) Mr. Eisenstein is Executive Vice President--Corporate Development of ATC.
His address is 116 Huntington Avenue, Boston, Massachusetts 02116. Does
not include 49,722 shares of ATC Class B Common Stock purchasable under
ATC options received in exchange for American Radio options upon
consummation of the CBS Merger; includes 74,589 shares of ATC Class B
Common Stock as to which such options will be exercisable. Does not
include an aggregate of 125,635 shares of ATC Class A Common Stock
purchasable under options that were issued in exchange for ATI options;
includes an aggregate of 174,795 shares of ATC Class A Common Stock as to
which such options are exercisable. Does not include 22,400 shares of ATC
Class A Common Stock purchasable under an option granted on January 8,
1998 under the Plan, 22,000 shares of ATC Class A Common Stock purchasable
under an option granted on June 22, 1998 under the Plan and 100,000 shares
of ATC Class A Common Stock purchasable under an option granted on
December 1, 1998 under the Plan; includes 5,600 shares as to which the
January option is exercisable.
(6) Mr. Gearon is an Executive Vice President and director of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 3,974,437
shares of ATC Class A Common Stock currently owned by Mr. Gearon. Does not
include 400,000 shares of ATC Class A Common Stock held by a trust for the
benefit of Mr. Gearon's children of which J. Michael Gearon, Sr. is the
trustee. Mr. Gearon disclaims beneficial ownership in all shares owned by
such trust. Does not include 187,560 shares of ATC Class A Common Stock
purchasable under an option granted on January 22, 1998 under the Plan and
100,000 shares of ATC Class A Common Stock purchasable under an option
granted on December 1, 1998 under the Plan; includes 46,891 shares as to
which the January option is exercisable.
(7) Mr. Lummis was the Chairman, Chief Executive Officer and President of ATC
and is a director of ATC. His address is 3411 Richmond Avenue, Suite 400,
Houston, Texas 77046. Includes 69,105 shares of ATC Class A Common Stock
owned by Mr. Lummis, an aggregate of 256,252 shares of ATC Class A Common
Stock owned by trusts of which he is trustee, 674,349 shares of ATC Class
A Common Stock owned by Summit Capital, an affiliate of Mr. Lummis by
reason of Mr. Lummis's 50% ownership of the common stock of Summit
Capital, and 497,042 shares of ATC Class A Common Stock purchasable under
an option originally granted by Old ATC which became an option to purchase
ATC Class A Common Stock pursuant to the merger of Old ATC with ATC. Mr.
Lummis disclaims beneficial ownership in all shares owned by the trusts
and disclaims beneficial ownership of all shares owned by Summit Capital,
except to the extent of his pecuniary interest therein. Does not include
25,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 25,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan.
(8) Mr. Mays, the Chief Financial Officer and an Executive Vice President of
Clear Channel, is a director of ATC. His address is P.O. Box 659512, San
Antonio, Texas 78265-9512. Clear Channel owns all of the shares of ATC
Class A Common Stock shown in the table. Mr. Mays disclaims beneficial
ownership of Clear Channel's ownership of such shares. Does not include
25,000 shares of Class A Common Stock purchasable under an option granted
on June 22, 1998 under the Plan and 25,000 shares of ATC Class A Common
Stock purchasable under an option granted on December 1, 1998 under the
Plan.
(9) Mr. Wiest is the Chief Operating Officer of ATC. His address is 116
Huntington Avenue, Boston, Massachusetts 02116. Includes 35,556 shares of
ATC Class A Common Stock owned by Mr. Wiest. Does not include 192,000
shares of Class A Common Stock purchasable under an option granted on
January 22, 1998 under the Plan and 125,000 shares of ATC Class A Common
Stock purchasable under an option granted on December 1, 1998 under the
Plan; includes 48,001 shares as to which the January option is
exercisable.
(10) Ms. Wilderotter is a director of ATC. Her address is 116 Huntington
Avenue, Boston, Massachusetts 02116. Does not include 25,000 shares of ATC
Class A Common Stock purchasable under an option granted on June 22, 1998
under the Plan and 25,000 shares of ATC Class A Common Stock purchasable
under an option granted on December 1, 1998 under the Plan.
82
<PAGE>
(11) Mr. Winn is the Treasurer and Chief Financial Officer of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 2,000
shares of ATC Class A Common Stock and 230,657 shares of ATC Class B
Common Stock owned individually by Mr. Winn and 100 shares of ATC Class A
Common Stock held for the benefit of his children. Does not include an
aggregate of 81,292 shares of ATC Class B Common Stock and 15,048 shares
of ATC Class A Common Stock purchasable under ATC options received in
exchange for American Radio options upon consummation of the CBS Merger;
includes an aggregate of 120,037 shares of ATC Class B Common Stock and
10,032 shares of ATC Class A Common Stock as to which such options are
exercisable. Does not include 220,000 shares of ATC Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan,
210,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 125,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan; includes 55,000 shares as to which the January option is
exercisable.
(12) Includes all shares stated to be owned in the preceding notes.
(13) Mr. Furst is the Chairman of the Board of OmniAmerica. If the OmniAmerica
Merger is consummated, Mr. Furst will join the Board of Directors of ATC.
Mr. Furst beneficially owns 17,604 shares of OmniAmerica Common Stock.
Giving effect to the OmniAmerica Merger, Mr. Furst would own 19,364 shares
of ATC Class A Common Stock. His address is 200 Crescent Court,
Suite 1600, Dallas, Texas 75201-6950. For information with respect to his
ownership of OmniAmerica Common Stock, see "Security Ownership of Certain
Beneficial Owners and Management" in Appendix IV.
(14) Mr. Eisner is Vice President, Business Development and Planning of Cox
Enterprises, Inc. an affiliate of the principal TeleCom member. If the
TeleCom Merger is consummated, Mr. Eisner will join the Board of Directors
of American Tower. Giving effect to the TeleCom Merger, Cox Enterprises,
Inc. would "beneficially" own 2,092,440 shares of ATC Class A Common
Stock, representing 1.62% of the ATC Common Stock and 1.01% of the total
voting power of the ATC Common Stock. His address is 1400 Lake Hearn
Drive, N.E., Atlanta, GA 30319. Mr. Eisner does not directly own any
TeleCom Units. For information with respect to the ownership of TeleCom
Units by Cox Enterprises, Inc. and Cox Telecom Towers, Inc., an affiliate
of Cox Enterprises, Inc., see "Security Ownership of Certain Beneficial
Owners and Management" in Appendix V.
(15) Assuming the OmniAmerica merger is completed, includes (i) 26,853 shares
owned of record by Mr. Hicks, (ii) 3,163 shares owned of record by six
trusts of which Mr. Hicks serves as trustee, and (iii) 7,313,692 shares
owned of record by HMTF/Omni Partners, L.P., a limited partnership of
which the sole general partner is HM3/OmniAmerica Partners, LLC, a limited
liability company of which the sole member is HM3 Coinvestors, L.P., a
limited partner of which the sole general partner is Hicks, Muse G.P.
Partners III, L.P., a limited partnership of which the sole general
partner is Hicks, Muse Fund III Incorporated, a corporation of which Mr.
Hicks is the sole director, Chairman of the Board, Chief Executive
Officer, Secretary and sole stockholder. Mr. Hicks expressly disclaims (i)
the existence of any group and (ii) beneficial ownership with respect to
any shares not owned of record by him. Mr. Hicks's address is 200 Crescent
Court, Suite 1600, Dallas, Texas 75201-6950.
(16) The address of HMTF/Omni Partners, L.P. is 200 Crescent Court, Suite 1600,
Dallas, Texas 75201-6950. See footnote 15 above for description of
beneficial ownership.
83
<PAGE>
THE OMNIAMERICA MERGER
General
On November 16, 1998, ATC, ATI and OmniAmerica entered into an Agreement and
Plan of Merger (the "OmniAmerica Merger Agreement") pursuant to which
OmniAmerica will merge with and into ATI (a wholly-owned subsidiary of ATC),
with ATI being the surviving corporation. Pursuant to the OmniAmerica Merger
Agreement, each holder of OmniAmerica common stock at the effective time of the
OmniAmerica Merger will receive 1.1 shares of ATC Class A Common Stock for each
share of OmniAmerica Common Stock held by such holder, and such holder will
receive cash in lieu of fractional shares. ATC will issue an aggregate of
approximately 17.7 million shares of ATC Class A Common Stock (including shares
issuable upon exercise of options to acquire OmniAmerica common stock which, to
the extent they are outstanding as of the effectiveness of the OmniAmerica
Merger, will become options to acquire ATC Class A Common Stock).
Background of the Merger
Set forth below is a description of the background of the OmniAmerica Merger,
including a brief description of the material contacts between American Tower
and OmniAmerica leading to the OmniAmerica Merger.
In April 1998, OmniAmerica's Board of Directors (the "OmniAmerica Board") began
considering possible strategic transactions involving OmniAmerica, including
mergers, business combinations, acquisitions of other companies and the
possibility of acquisition by a larger company.
On April 21, 1998, Carl E. Hirsch, the President and Chief Executive Officer of
OmniAmerica, met with James S. Eisenstein, Executive Vice President--Corporate
Development of American Tower in Boca Raton, Florida to discuss the possibility
of a transaction between the two companies.
OmniAmerica also initiated discussions to consider potential transactions with
several other industry participants. During the course of the next several
months, representatives of OmniAmerica met with the management of several
industry participants, but, in the opinion of OmniAmerica management, none of
the other participants was able to provide a proposal comparable to that of
American Tower.
On September 29, 1998, the OmniAmerica Board met to discuss the strategic
options available to OmniAmerica and the results of the various discussions
between management and potential strategic partners. The Board considered the
benefits of a transaction with American Tower as compared to the benefits of
other potential transactions investigated by management.
On October 23, 1998, Carl E. Hirsch and Steven B. Dodge, Chief Executive
Officer of American Tower, participated in a telephone conference to discuss
the proposed structure and terms of a combination of OmniAmerica and American
Tower and agreed to discuss the proposed transaction in further detail at an
industry trade show on October 26, 1998.
On October 26, 1998, Messrs. Hirsch and Dodge met to negotiate the terms of a
combination of the companies. Messrs. Hirsch and Dodge then met with Jack D.
Furst, Chairman of the Board of OmniAmerica, in Dallas, Texas on October 28,
1998 to continue these discussions.
On October 29, 1998, OmniAmerica and American Tower entered into
Confidentiality Agreements for the purpose of investigating and further
discussing a possible business combination.
In November 1998, OmniAmerica and American Tower provided each other with due
diligence materials.
On November 9, 1998 and November 10, 1998, Messrs. Furst, Hirsch and Dodge,
together with other representatives of OmniAmerica and American Tower met again
to discuss the structure and terms of the
84
<PAGE>
transaction. At that time, ATC proposed an exchange ratio of one share of ATC
Class A Common Stock for every one share of OmniAmerica Common Stock. After
negotiation, ATC and OmniAmerica agreed on an exchange ratio of 1.1 shares of
ATC Class A Common Stock for every one share of OmniAmerica common stock.
On November 10, 1998 and November 11, 1998, representatives of OmniAmerica met
with representatives of BT Wolfensohn regarding the fairness opinion.
On November 12, 1998, the Board of Directors met to consider and review the
terms of several proposed transactions, including the OmniAmerica Merger
Agreement.
On November 15, 1998, the Board of Directors met again to consider and review
the terms of the proposed OmniAmerica Merger Agreement. At the meeting, BT
Wolfensohn made a presentation to the Board of Directors and delivered its oral
opinion, subsequently confirmed in writing on November 16, 1998 (the
"BT Wolfensohn Opinion"), that as of the date of the BT Wolfensohn Opinion,
based upon and subject to the assumptions made, matters considered and limits
of the review undertaken by BT Wolfensohn, the Exchange Ratio was fair, from a
financial point of view, to holders of OmniAmerica Common Stock. The BT
Wolfensohn Opinion is discussed below under "Opinion of Financial Advisor to
OmniAmerica". The full text of the BT Wolfensohn Opinion is attached as
Appendix III to this Information Statement/Prospectus. Stockholders are urged
to read such opinion in its entirety. After lengthy discussion, the Board of
Directors unanimously approved the OmniAmerica Merger Agreement and the
transactions contemplated thereby and unanimously recommended that stockholders
of OmniAmerica approve the OmniAmerica Merger Agreement.
In arriving at its decision to unanimously recommend to OmniAmerica
stockholders the approval of the OmniAmerica Merger Agreement, the Board of
Directors considered (among other things) the following:
. The BT Wolfensohn Opinion to the effect that, as of the date of the BT
Wolfensohn Opinion, based upon and subject to the assumptions made,
matters considered, and limits of the review undertaken by BT
Wolfensohn, the Exchange Ratio was fair, from a financial point of view,
to holders of OmniAmerica Common Stock.
. The fact that OmniAmerica conducted a thorough analysis of potential
alternative transactions between OmniAmerica and other possible
strategic partners and such analysis did not reveal other transactions
which would provide comparable benefits to OmniAmerica stockholders.
. The potential for increasing and accelerating OmniAmerica's long-term
objective of establishing a national tower network by (i) combining two
companies with different regional strengths and (ii) creating a
financially stronger company that will be more capable of competing for
acquisitions and build-to-suit opportunities in the future.
. The determination that the OmniAmerica Merger would enhance the
liquidity of the stock held by OmniAmerica stockholders by converting
their common stock into a security with a significantly larger publicly
traded "float" and a more active trading market with a more diverse
stockholder base.
. The determination that OmniAmerica's operations would benefit from
greater access to capital after OmniAmerica combined with ATC, a company
with a strong balance sheet, greater debt capacity and stronger capital
equity currency.
. The consolidation benefits that would be available to the combined
entity after the OmniAmerica Merger, including (i) cost savings that
will arise from the combination of the two companies' administrative
functions, including finance and accounting, insurance and information
technology, (ii) a mitigated risk of industry overbuild, and (iii)
complementary management teams.
. The potential to maximize opportunities available to OmniAmerica's
construction division and to provide long-term employment opportunities
to its labor force.
85
<PAGE>
The foregoing discussion of factors considered by the Board of Directors is not
intended to be exhaustive. It summarizes all material factors considered. The
Board of Directors did not assign any relative or specific weights to the
foregoing factors, nor did it specifically characterize any factor as positive
or negative (except as described above), and individual directors may have
given differing weights to differing factors and may have viewed certain
factors more positively or negatively than others. Throughout its
deliberations, the Board of Directors received the advice of its financial and
legal advisors. The Board of Directors viewed its recommendation as being based
upon the totality of the information presented and considered by them.
On November 15, 1998 the ATC Board unanimously approved the Merger and the
Merger Agreement. Effective November 16, 1998, OmniAmerica, ATC and ATI
executed and delivered the OmniAmerica Merger Agreement in the form attached
hereto as Appendix I. On November 16, 1998, two stockholders of OmniAmerica
owning of record shares representing in the aggregate more than 50% of the
voting power of the OmniAmerica Common Stock outstanding as of that date voted
by written consent to approve the OmniAmerica Merger. Such written consents
were solicited by ATC and were delivered to the custodian of record of
OmniAmerica on November 16, 1998. On that date, OmniAmerica and ATC issued a
press release announcing the execution of the OmniAmerica Merger Agreement.
Opinion of Financial Advisor to OmniAmerica
BT Wolfensohn has acted as financial advisor to OmniAmerica in connection with
the OmniAmerica Merger. At the November 15, 1998 meeting of the OmniAmerica
Board, BT Wolfensohn delivered its oral opinion, subsequently confirmed in
writing as of November 16, 1998, to the OmniAmerica Board to the effect that,
as of the date of such opinion, based upon and subject to the assumptions made,
matters considered and limits of the review undertaken by BT Wolfensohn, the
Exchange Ratio was fair, from a financial point of view, to holders of
OmniAmerica Common Stock.
The full text of the BT Wolfensohn Opinion which sets forth, among other
things, the assumptions made, matters considered and limits on the review
undertaken by BT Wolfensohn in connection with the BT Wolfensohn Opinion, is
attached as Appendix III to this Information Statement/Prospectus and is
incorporated herein by reference. OmniAmerica stockholders are urged to read
the BT Wolfensohn Opinion in its entirety. The summary of the BT Wolfensohn
Opinion set forth in this Information Statement/Prospectus is qualified in its
entirety by reference to the full text of the BT Wolfensohn Opinion.
In connection with BT Wolfensohn's role as financial advisor to OmniAmerica,
and in arriving at its opinion, BT Wolfensohn has, among other things, reviewed
certain publicly available financial information and other information
concerning OmniAmerica and ATC and certain internal analyses and other
information furnished to it by OmniAmerica and ATC. BT Wolfensohn also held
discussions with the members of the senior managements of OmniAmerica and ATC
regarding the businesses and prospects of their respective companies and the
joint prospects of a combined company. In addition, BT Wolfensohn (i) reviewed
the reported prices and trading activity for the common stock of both
OmniAmerica and ATC, (ii) compared certain financial and stock market
information for OmniAmerica and ATC with similar information for selected
companies whose securities are publicly traded, (iii) reviewed the financial
terms of selected recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the terms of the OmniAmerica Merger Agreement,
and (v) performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In preparing its opinion, BT Wolfensohn did not assume responsibility for the
independent verification of, and did not independently verify, any information,
whether publicly available or furnished to it, concerning OmniAmerica or ATC,
including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Wolfensohn assumed and relied upon
the accuracy and completeness of all such information and BT Wolfensohn did not
conduct a physical inspection of any of the properties or assets, and did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of OmniAmerica or ATC. BT Wolfensohn did not solicit, and was
not authorized to solicit, third party acquisition interest in
86
<PAGE>
OmniAmerica. With respect to the financial forecasts and projections made
available to BT Wolfensohn and used in its analysis, including analyses and
forecasts of certain cost savings, operating efficiencies, revenue effects and
financial synergies (collectively, the "Synergies") expected by OmniAmerica and
ATC to be achieved as a result of the OmniAmerica Merger, BT Wolfensohn has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of OmniAmerica or
ATC, as the case may be, as to the matters covered thereby. In rendering its
opinion, BT Wolfensohn expressed no view as to the reasonableness of such
forecasts and projections, including the Synergies, or the assumptions on which
they are based. In addition, BT Wolfensohn did not express any opinion as to
the price or range of prices at which the ATC Class A Common Stock may trade
subsequent to the OmniAmerica Merger. The BT Wolfensohn Opinion was necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to BT Wolfensohn as of, the date of such opinion.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in all
respects material to its analysis, the representations and warranties of
OmniAmerica, ATI and ATC contained in the OmniAmerica Merger Agreement are true
and correct, that OmniAmerica, ATI and ATC will each perform all of the
covenants and agreements to be performed by it under the OmniAmerica Merger
Agreement and all conditions to the obligation of each of OmniAmerica, ATI and
ATC to consummate the OmniAmerica Merger will be satisfied without any waiver
thereof. BT Wolfensohn has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the transactions contemplated by the OmniAmerica Merger
Agreement will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either OmniAmerica or ATC is a party or subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on
OmniAmerica or ATC or materially reduce the contemplated benefits of the
OmniAmerica Merger to OmniAmerica or its stockholders. In addition, BT
Wolfensohn has been informed by OmniAmerica, and accordingly has assumed for
purposes of its opinion, that the OmniAmerica Merger will be tax-free to
OmniAmerica and its stockholders and that the OmniAmerica Merger will be
accounted for as a purchase.
Set forth below is a brief summary of certain financial analyses performed by
BT Wolfensohn in connection with its opinion and reviewed with the OmniAmerica
Board at its meeting on November 15, 1998.
Analysis of Stock Trading History. BT Wolfensohn reviewed the stock price
performance and trading volume of ATC. Such review indicated that the price for
ATC Class A Common Stock ranged from a 52-week low of $13.25 to a 52-week high
of $28.63, compared to indicated OmniAmerica Merger consideration of $20.90, as
implied by the ATC Class A Common Stock closing price on November 13, 1998 (the
last business day prior to announcement of the OmniAmerica Merger). Such review
also indicated that the average trading volume for ATC Class A Common Stock
between July 2, 1998 (the commencement of the ATC IPO) and November 13, 1998
was 423,479.
Analysis of Selected Publicly Traded Comparable Companies. BT Wolfensohn
compared certain financial information and commonly used valuation measurements
relating to OmniAmerica with a group of companies involved in the tower
industry consisting of Crown Castle International Corp., LCC International,
Inc., Westower Corp. and ATC (collectively, the "Selected Companies"). Such
financial information and valuation measurements included, among other things,
(i) common equity market capitalization as of November 13, 1998; (ii) pro forma
estimated 1999 net debt; (iii) operating performance; (iv) ratios of common
equity value as adjusted for debt and cash ("Enterprise Value") to estimated
1998, 1999, and 2000 EBITDA; and (v) ratios of common equity market prices per
share ("Equity Value") to estimated 1999 after-tax cash flow. To estimate the
trading multiples for Crown Castle International Corp., LCC International, Inc.
and Westower Corp., BT Wolfensohn used BT Alex. Brown's financial estimates. To
calculate the trading multiples for
87
<PAGE>
OmniAmerica and ATC, BT Wolfensohn used OmniAmerica's and ATC's management
projections. BT Wolfensohn calculated that the multiple of pro forma 1998
Enterprise Value to estimated 1998 EBITDA was 32.7x for OmniAmerica, compared
to a range of 5.2x to 46.0x, with a median of 20.5x, for the Selected
Companies; the multiple of pro forma 1999 Enterprise Value to estimated 1999
EBITDA was 22.4x for OmniAmerica, compared to a range of 4.2x to 31.6x, with a
median of 17.8x, for the Selected Companies; and the multiple of pro forma 2000
Enterprise Value to estimated 2000 EBITDA was 16.2x for OmniAmerica, compared
to a range of 12.4x to 20.8x, with a median of 14.9x, for the Selected
Companies. BT Wolfensohn further calculated that the multiple of Equity Value
to estimated 1999 after-tax cash flow was 36.9x for OmniAmerica, compared to a
range of 15.6x to 45.0x, with a median of 28.1x, for the Selected Companies.
None of the companies utilized as a comparison is identical to OmniAmerica or
ATC. Accordingly, BT Wolfensohn believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in the BT Wolfensohn
Opinion, concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions. BT Wolfensohn reviewed the
available financial terms, based on BT Alex. Brown research estimates, of
several proposed, pending, or completed mergers and acquisition transactions
since January 1995, involving companies in the communications tower industry
(the "Selected Tower Transactions"). The transactions reviewed were
(Acquiror/Target (Date Announced)): Crown Castle International Corp./Millennium
Communications Ltd. (October 1998), ATC/Wauka Communications, Inc. (October,
1998), ATC/KN Telecommunications Inc. (October 1998), ATC/NPI Wireless (October
1998), ATC/Grid Site Services Inc. (October 1998), Pinnacle Towers
Inc./MobileMedia Corp. (July 1998), OmniAmerica/RF Communications (June 1998),
OmniAmerica/Arch Communications Group Inc. (April 1998), Pinnacle Towers
Inc./Southern Co. (March, 1998), SBA Communications Corp./PA Towers (January
1998), American Tower Systems ("ATS")/ATC (December 1997), TeleCom Towers
LLC/Arch Communications Group Inc. (December 1997), ATS/Diablo (October 1997),
ATS/Southeast Communications (September 1997), Pinnacle Towers Inc./Tidewater
Communications (August, 1997), ATS/Meridian (July, 1997), ATS/Towers LLC
International, Inc. (June, 1997), SBA Communications/multiple transactions
(June, 1997), ATS/CSD JV (May, 1997), Castle Tower Corp./Motorola Puerto Rico
(June, 1996), ATS/BDS, Bridan Communications (April, 1996), Castle Tower
Corp./Pittencrieff Communications (November, 1995), TeleCom Towers LLC./TX
Towers (January, 1995). BT Wolfensohn calculated that the multiple range of
Enterprise Value to Forward Tower Cash Flow for the Selected Tower Transactions
was 8.5x to 27.7x, with a median of 13.0x. BT Wolfensohn noted that due to the
nascent stage of the communications tower industry, few of these transactions
involved pure communications tower companies of significant size. Consequently,
the multiple range on the Selected Tower Transactions was considerably wide,
with no target company reflecting OmniAmerica's current business mix. Because
the reasons for, and circumstances surrounding, each of the precedent
transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of ATC and OmniAmerica and the
companies involved in the Selected Tower Transactions, BT Wolfensohn believes
that a comparable transaction analysis is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in the BT
Wolfensohn Opinion, concerning differences between the characteristics of these
transactions and the OmniAmerica Merger that could affect the value of the
subject companies and businesses and ATC and OmniAmerica.
Premium Paid Analysis. BT Wolfensohn also reviewed 16 selected stock for stock
transactions with transaction value greater than $100 million in the
telecommunications and media industries since February 1996 (the "Selected
Transactions") to conduct a premium paid analysis. The transactions reviewed
were (Acquiror/Target; (Date Announced)): Clear Channel Communications,
Inc./Jacor Communications Inc. (October 1998), AT&T Corp./Vanguard Cellular
Systems Inc. (October 1998), Chancellor Media Corp./Capstar Broadcasting Corp.
(August 1998), AT&T Corp./Teleport Communications Group (January 1998), IXC
Communications Inc./Eclipse Telecommunications Inc. (December 1997), Tel-Save
Holdings Inc./ACC Corp. (October 1997), Loral Space & Communications/Orion
Network Systems Inc. (October 1997), Metrocall
88
<PAGE>
Inc./ProNet Inc. (August 1997), Excel Communications Inc./Telco Communications
Group Inc. (June 1997), Jacor Communications Inc./Premiere Radio Networks Inc.
(April 1997), Nextel Communications Inc./Pittencrieff Communications (October
1996), American Radio Systems Corp./EZ Communications Inc. (August 1996),
Westinghouse Electric Corp./Infinity Broadcasting Corp. (June 1996), Metrocall
Inc./A+ Network Inc. (May 1996), SFX Broadcasting Inc./Multi-Market Radio Inc.
(April 1996), Jacor Communications Inc./Citicasters (American Financial Group)
(February 1996). Selected Transactions were effected at a premium/discount to
the acquired companies' per share market prices prior to the announcement of
the transaction. According to publicly available information used by BT
Wolfensohn, including information reported by Securities Data Corporation, the
Selected Transactions' premium/discount to the acquired companies' per share
market price one day prior to the announcement ranged from (10.0%) to 84.3%,
with a median of 17.5% and a mean of 20.4%, one week prior to the announcement
ranged from (0.7%) to 60.6%, with a median of 19.6% and a mean of 21.8% and
four weeks prior to the announcement ranged from (12.6%) to 89.2%, with a
median of 24.3% and a mean of 27.7%. This compared to the premiums/discount of
19.4%, 12.2%, and (0.3%) for the OmniAmerica Merger (based, respectively, on
the per share market price one day, one week and four weeks prior to the
November 16, 1998 announcement of the proposed OmniAmerica Merger). All
premiums for the Selected Transactions were based on public information
available at the time of announcement of each such transaction, without taking
into account differing market and other conditions during the two and a half-
year period during which the Selected Transactions occurred.
Because the reasons for, and circumstances surrounding, each of the precedent
transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of ATC and OmniAmerica and the
companies involved in the Selected Transactions, BT Wolfensohn believes that a
comparable transaction analysis is not simply mathematical. Rather, it involves
complex considerations and qualitative judgments, reflected in the BT
Wolfensohn Opinion, concerning differences between the characteristics of these
transactions and the OmniAmerica Merger that could affect the value of the
subject companies and businesses and ATC and OmniAmerica.
Historical Exchange Ratio Analysis. BT Wolfensohn reviewed the historical ratio
of the daily per share market closing prices of OmniAmerica Common Stock
divided by the corresponding prices of ATC Class A Common Stock since July 2,
1998, one month after July 2, 1998, thirty days prior to November 13, 1998,
seven days prior to November 13, 1998, and as of November 13, 1998. The average
exchange ratios for these time periods and as of such date were 1.199, 1.108,
0.973, 0.946, and 0.950, respectively. BT Wolfensohn then calculated the
respective premiums over such average daily exchange ratios represented by the
Exchange Ratio, which for the same time periods and as of such date were
(8.3%), (0.7%), 13.0%, 16.2%, and 15.8%, respectively.
Contribution Analysis. BT Wolfensohn analyzed the relative contributions of
OmniAmerica and ATC to the pro forma income statement of the combined company,
based on OmniAmerica's and ATC's management projections. This analysis showed
that on a pro forma combined basis (excluding (i) the effect of any synergies
that may be realized as a result of the OmniAmerica Merger, and (ii) non-
recurring expenses relating to the OmniAmerica Merger), OmniAmerica and ATC
would account for 21.9% and 78.1%, 23.8% and 76.2%, and 25.0% and 75.0%,
respectively, of the combined company's pro forma estimated 1999, 2000 and 2001
EBITDA, respectively. Additionally, OmniAmerica and ATC would account for 12.6%
and 87.4%, 12.9% and 87.1%, and 14.4% and 85.6%, respectively, of the combined
company's pro forma estimated 1999, 2000 and 2001 after-tax cash flow,
respectively.
Discounted Cash Flow Analysis. BT Wolfensohn performed a discounted cash flow
analysis for OmniAmerica. BT Wolfensohn calculated the discounted cash flow
values for OmniAmerica as the sum of the net present values of (i) the
estimated future cash flow that OmniAmerica will generate for the years 1999
through 2003, plus (ii) the value of OmniAmerica at the end of such period. The
estimated future cash flows were based on OmniAmerica's management projections
for the years 1999 through 2003. The terminal value of OmniAmerica was
calculated based on estimated 2003 EBITDA and a range of multiples from 9.0x to
11.0x.
89
<PAGE>
BT Wolfensohn used discount rates ranging from 12.0% to 14.0%. BT Wolfensohn
used such discount rates based on its judgment of the estimated weighted
average cost of capital of selected communication tower companies. This
analysis indicated a range of values of $7.62 to $18.92 per share of
OmniAmerica Common Stock.
Pro Forma Financial Effects. BT Wolfensohn analyzed the pro forma effects of
the OmniAmerica Merger. Based on such analysis, BT Wolfensohn computed the
resulting dilution/accretion to ATC's estimated 1999 and 2000 After-tax cash
flow, before taking into account any potential cost savings and other synergies
identified by management that OmniAmerica and ATC could achieve if the
OmniAmerica Merger were consummated. Such analysis was based on OmniAmerica
management projections and ATC management projections. Based on this analysis,
BT Wolfensohn indicated that the OmniAmerica Merger would be dilutive to ATC's
estimated 1999 and 2000 After-tax cash flow by approximately $0.01 per share in
each year. BT Wolfensohn also calculated that the multiple of estimated 1999,
2000 and 2001 EBITDA to interest expense was 1.0x, 1.1x and 1.2x for
OmniAmerica standalone compared to 2.0x, 2.1x and 2.5x for combined ATC and
OmniAmerica. Finally, BT Wolfensohn calculated that the multiple of estimated
1999, 2000 and 2001 net debt to EBITDA was 10.6x, 9.5x and 8.4x for OmniAmerica
standalone, compared to 6.2x, 5.2x and 4.3x for combined ATC and OmniAmerica.
The foregoing summary describes all analyses and factors that BT Wolfensohn
deemed material in its presentation to OmniAmerica Board, but is not a
comprehensive description of all analyses performed and factors considered by
BT Wolfensohn in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary
description. BT Wolfensohn believes that its analyses must be considered as a
whole and that considering any portion of such analyses and of the factors
considered without considering all analyses and factors could create a
misleading view of the process underlying the opinion. In arriving at its
fairness determination, BT Wolfensohn did not assign specific weights to any
particular analyses.
In conducting its analyses and arriving at its opinions, BT Wolfensohn utilized
a variety of generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling BT Wolfensohn to provide its opinion to the
OmniAmerica Board as to the fairness to OmniAmerica of the Exchange Ratio and
does not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, BT Wolfensohn made, and was
provided by OmniAmerica management with, numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond OmniAmerica's or ATC's control. Analyses
based on estimates or forecasts of future results are not necessarily
indicative of actual past or future values or results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of OmniAmerica, ATC or their respective
advisors, neither OmniAmerica nor BT Wolfensohn nor any other person assumes
responsibility if future results or actual values are materially different from
these forecasts or assumptions.
The terms of the OmniAmerica Merger were determined through negotiations
between OmniAmerica and ATC and were approved by the OmniAmerica Board. The
decision to enter into the OmniAmerica Merger was solely that of the
OmniAmerica Board. As described above, the opinion and presentation of BT
Wolfensohn to the OmniAmerica Board were only one of a number of factors taken
into consideration by the OmniAmerica Board in making its determination to
approve the OmniAmerica Merger. The BT Wolfensohn Opinion was provided to the
OmniAmerica Board to assist it in connection with its consideration of the
OmniAmerica Merger and does not constitute a recommendation to any holder of
OmniAmerica Common Stock as to how to vote with respect to the OmniAmerica
Merger.
90
<PAGE>
OmniAmerica selected BT Wolfensohn as financial advisor in connection with the
OmniAmerica Merger based on BT Wolfensohn's qualifications, expertise,
reputation and experience in mergers and acquisitions. BT Wolfensohn is engaged
in the merger and acquisition and client advisory business of Bankers Trust
Company (together with its affiliates, the "BT Group") and, for legal and
regulatory purposes, is a division of BT Alex. Brown Incorporated, a registered
broker dealer and member of the NYSE. OmniAmerica retained BT Wolfensohn
pursuant to a letter agreement dated as of November 10, 1998 (the "Engagement
Letter"). As compensation for BT Wolfensohn's services in connection with the
OmniAmerica Merger, OmniAmerica has agreed to pay BT Wolfensohn a cash fee of
$750,000, payable upon delivery of the BT Wolfensohn Opinion. Regardless of
whether the OmniAmerica Merger is consummated, OmniAmerica has agreed to
reimburse BT Wolfensohn for reasonable fees and disbursements of BT
Wolfensohn's counsel and all of BT Wolfensohn's reasonable travel and other
out-of-pocket expenses incurred in connection with the OmniAmerica Merger or
otherwise arising out of the retention of BT Wolfensohn under the Engagement
Letter. OmniAmerica has also agreed to indemnify BT Wolfensohn and certain
related persons to the full extent lawful against certain liabilities,
including certain liabilities under the federal securities laws arising out of
its engagement or the OmniAmerica Merger.
One or more members of the BT Group have, from time to time, provided
investment banking and other financial services to OmniAmerica, OmniAmerica's
largest stockholder and ATC or their respective affiliates, for which they have
received compensation. In the ordinary course of business, the members of the
BT Group may actively trade in the securities and other instruments and
obligations of OmniAmerica or ATC for their own account or the account of their
customers. Accordingly, one or more members of the BT Group may from time to
time hold a long or short position in such securities, instruments and
obligations.
The Merger Agreement
The provisions of the OmniAmerica Merger Agreement are comparable to those
customary in similar transactions, including without limitation (a) detailed,
substantially identical representations and warranties of ATC and OmniAmerica
that do not survive the closing; (b) covenants as to the interim conduct of the
business of OmniAmerica (including the necessity of approval of ATC for
acquisitions or construction commitments not previously disclosed and over
certain specified amounts); (c) agreements of ATC to indemnify the officers and
directors of OmniAmerica and to maintain officer and director insurance for
their benefit; (d) closing conditions, including (i) receipt of opinions of
counsel as to the federal income tax consequences of the OmniAmerica Merger to
the parties and, in the case of OmniAmerica, its stockholders, and (ii) the
election of Mr. Furst as a director of ATC; (e) the nonsolicitation of
employees in the event of termination of the OmniAmerica Merger Agreement; and
(f) a termination fee of $12.0 million payable to ATC if (i) the OmniAmerica
stockholders do not approve the OmniAmerica Merger by April 30, 1999 (or
September 30, 1999, if extended by American Tower) or (ii) OmniAmerica
terminates the Merger Agreement because of a Superior Proposal as defined in
Section 6.5 of the OmniAmerica Merger Agreement. Capitalized terms used herein
but not otherwise defined shall have the meaning set forth in the OmniAmerica
Merger Agreement.
It is a condition of OmniAmerica's obligation to consummate the OmniAmerica
Merger that Messrs. Dodge and Stoner shall have entered into a voting agreement
with OmniAmerica and certain of the OmniAmerica stockholders, pursuant to which
Messrs. Dodge and Stoner will have agreed to vote in favor of the election of
Mr. Furst (or any other nominee of Hicks, Muse reasonably acceptable to the ATC
Board) so long as Hicks, Muse (or its affiliates) hold at least 50% of the
shares of ATC Class A Common Stock to be received by an affiliate of Hicks,
Muse in the OmniAmerica Merger.
The Boards of Directors of both companies can agree to terminate the merger
agreement at any time. Either company can terminate the merger agreement if:
. we do not complete the merger by April 30, 1999. However, American Tower
may extend this deadline to September 30, 1999 if (i) all of the
conditions to closing other than those relating to the HSR Act and FCC
approvals have been obtained, and (ii) ATC waives continued compliance
with certain conditions, including those referring to the absence of a
material adverse effect on the business or financial condition of either
company;
91
<PAGE>
. a governmental authority permanently prohibits the merger; or
. the terminating party is not in material breach and either (i) the
merger has not been consummated by April 30, 1999 (or September 30,
1999, if applicable), or (ii) the other party is in material breach of
the merger agreement or materially breaches its representations or
warranties resulting in its inability to satisfy a condition to the
completion of merger.
OmniAmerica also has the right to terminate the merger agreement if it approves
a Superior Proposal (as defined on page I-46 of Appendix I). OmniAmerica must
pay American Tower a fee of $12.0 million in the event OmniAmerica terminates
because it has accepted a Superior Proposal.
The OmniAmerica Merger will be accounted for as a "purchase," as such term is
used under generally accepted accounting principles. Accordingly, from and
after the effectiveness of the OmniAmerica Merger, OmniAmerica's consolidated
results of operations will be included in ATC's consolidated results of
operations. For purposes of preparing consolidated financial statements, ATC
will establish a new accounting basis for OmniAmerica's assets and liabilities
based upon the fair market values thereof and ATC's purchase price, including
the amount of liabilities and obligations of OmniAmerica at the time of the
OmniAmerica Merger. Accordingly, the purchase accounting adjustments made in
connection with the development of the pro forma condensed financial
information appearing elsewhere in this document are preliminary and have been
made solely for purposes of developing such pro forma consolidated financial
information to comply with disclosure requirements of the Commission. Although
the final allocation will differ, the pro forma consolidated financial
information reflects management's best estimate based upon currently available
information. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements of American Tower".
A copy of the OmniAmerica Merger Agreement is attached herewith as Appendix I.
Interests of Certain Persons in the Merger
As noted above, it is a condition of OmniAmerica's obligation to consummate the
OmniAmerica Merger that Messrs. Dodge and Stoner shall have entered into a
voting agreement with OmniAmerica and certain of the OmniAmerica stockholders,
pursuant to which Messrs. Dodge and Stoner will have agreed to vote in favor of
the election of Mr. Furst (or any other nominee of Hick, Muse reasonably
acceptable to the ATC Board) so long as Hicks, Muse (or its affiliates) hold at
least 50% of the shares of ATC Class A Common Stock to be received by an
affiliate of Hicks, Muse in the OmniAmerica Merger.
American Tower anticipates that certain executives of OmniAmerica will serve as
either employees or consultants of American Tower.
Certain Federal Income Tax Consequences of the Merger
The following discussion summarizes the federal income tax considerations
anticipated to be material to a OmniAmerica stockholder in connection with the
OmniAmerica Merger. The discussion does not intend to be exhaustive of all
possible tax considerations; for example, the discussion does not contain a
description of any state, local, or foreign tax considerations. In addition,
the summary discussion is intended to address only those federal income tax
considerations that are generally applicable to an OmniAmerica stockholder who
holds OmniAmerica Common Stock as a capital asset, and it does not discuss all
aspects of federal income taxation that might be relevant to a specific
OmniAmerica stockholder in light of its particular investment or tax
circumstances. In particular, the discussion does not purport to deal with all
aspects of taxation that may be relevant to OmniAmerica stockholders subject to
special treatment under the federal income tax laws, including, without
limitation: individual retirement and other tax-deferred accounts; banks;
insurance companies; tax-exempt organizations; dealers or brokers in securities
or currencies; persons subject to the alternative minimum tax; persons who hold
their OmniAmerica Common Stock as part of a straddle, hedging, or conversion
transaction; persons whose functional currency is other than the U.S. dollar;
persons who received their OmniAmerica Common Stock as compensation in
connection with the performance of services or upon exercise of options
received as compensation in connection with the performance of services;
persons eligible for tax treaty benefits; and, except as specifically discussed
below, foreign corporations, foreign partnerships, other foreign entities, and
individuals who are not citizens or residents of the United States.
92
<PAGE>
It is the policy of the Internal Revenue Service (the "IRS") not to rule
directly on the tax status of transactions such as the OmniAmerica Merger, and
no such ruling will be sought. The obligations of ATC and OmniAmerica to effect
the OmniAmerica Merger are each conditioned upon receipt by each from its
counsel of an opinion dated as of the effective time of the OmniAmerica Merger,
in form and substance reasonably satisfactory to it, regarding certain federal
income tax consequences of the OmniAmerica Merger. Such opinions are required
to be collectively substantially to the effect that for federal income tax
purposes the OmniAmerica Merger constitutes a reorganization within the meaning
of section 368 of the Code, that no gain or loss will be recognized by ATC,
ATI, or OmniAmerica as a result of the OmniAmerica Merger and that no gain or
loss will be recognized by United States holders of OmniAmerica Common Stock as
a result of the OmniAmerica Merger, except that gain or loss will be recognized
in respect of cash received in lieu of a fractional share of ATC Class A Common
Stock. In rendering their opinions, counsel will rely upon, and assume the
factual accuracy of, certain customary representations of ATC, ATI, and
OmniAmerica. Such opinions are not binding on the IRS and would not, in any
event, prevent the IRS from challenging the tax-free nature of the OmniAmerica
Merger under the Code.
The information in the following summary discussion is based on (i) the Code,
(ii) current, temporary and proposed Treasury regulations promulgated under the
Code, (iii) the legislative history of the Code, (iv) current administrative
interpretations and practices of the IRS (including its practices and policies
as expressed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer that receives such a ruling), and (v) court
decisions, all as of the date of this document (collectively, the "Federal
Income Tax Laws"). No assurance can be given that future legislation, Treasury
regulations, administrative interpretations and court decisions will not
significantly change the current law or adversely affect existing
interpretations of the Federal Income Tax Laws. Any such change could apply
retroactively to transactions preceding the date of the change, and neither ATC
nor OmniAmerica will undertake to inform the OmniAmerica stockholders of any
such change. No assurance can be provided that the statements set forth in the
following summary discussion (which do not bind the IRS or the courts) would
not be challenged by the IRS or would be sustained by a court if so challenged.
The following discussion is a general summary of the material United States
federal income tax consequences of the OmniAmerica Merger and assumes that the
OmniAmerica Merger will qualify as a tax-free reorganization within the meaning
of section 368 of the Code. Sullivan & Worcester LLP, tax counsel to ATC, has
rendered its opinion (a copy of which has been filed as an exhibit to the
Registration Statement of which this document is a part) that the discussion
contained in this section describes the material federal income tax
consequences of the OmniAmerica Merger. The discussion is based upon the
Federal Income Tax Laws, all of which are subject to change at any time,
possibly with retroactive effect. The following discussion is not intended to
be, and should not be construed by the OmniAmerica stockholders as, tax advice.
OmniAmerica stockholders are urged to consult with their own tax advisors to
determine the federal, state, local, and foreign tax consequences of the
OmniAmerica Merger.
Tax Consequences to ATC, ATI, and OmniAmerica. No gain or loss will be
recognized for federal income tax purposes by ATC, ATI, or OmniAmerica as a
consequence of the OmniAmerica Merger.
Tax Consequences to Holders of OmniAmerica Common Stock. OmniAmerica's
obligation to effect the OmniAmerica Merger is conditioned upon delivery of an
opinion from Weil, Gotshal & Manges LLP, its counsel, dated as of the effective
time of the OmniAmerica Merger and based upon certain customary
representations, substantially to the effect that for federal income tax
purposes the OmniAmerica Merger constitutes a reorganization within the meaning
of section 368(a) of the Code and that no gain or loss will be recognized by
United States holders of OmniAmerica Common Stock as a result of the
OmniAmerica Merger except to the extent of cash or property other than ATC
Class A Common Stock received. Assuming such treatment, the material federal
income tax consequences to a holder of OmniAmerica Common Stock would be as
follows.
93
<PAGE>
Except to the extent of cash received in lieu of fractional shares (discussed
in the next paragraph) and subject to the discussion below with respect to
certain foreigners, no gain or loss will be recognized by a holder of
OmniAmerica Common Stock who receives ATC Class A Common Stock pursuant to the
OmniAmerica Merger. Except to the extent of tax basis allocable to cash
received in lieu of fractional shares (discussed in the next paragraph), the
tax basis of the ATC Class A Common Stock received by a holder of OmniAmerica
Common Stock will be the same as the aggregate tax basis of the OmniAmerica
Common Stock surrendered therefor. The holding period of the ATC Class A Common
Stock received will include the holding period of the OmniAmerica Common Stock
surrendered therefor.
Cash received by a holder of OmniAmerica Common Stock in lieu of a fractional
share interest in ATC Class A Common Stock will be treated as received in
exchange for such fractional share interest, and gain or loss will be
recognized for federal income tax purposes, measured by the difference between
the amount of cash received and the portion of the basis of the OmniAmerica
Common Stock allocable to such fractional share interest (measured as though
such fractional share interest were actually issued and as though tax basis
were allocated to such fractional share interest pursuant to the above
allocation). Such gain or loss would be capital gain or loss, and will be long-
term if the surrendered OmniAmerica Common Stock had been held for more than
one year at the effective time of the OmniAmerica Merger. In the case of
certain noncorporate taxpayers, amounts treated as long-term capital gain are
generally subject to taxation at preferential rates.
Notwithstanding the preceding three paragraphs, because OmniAmerica may be a
"United States real property holding corporation" as defined in section 897 of
the Code, certain U.S. flow-through entities such as partnerships, trusts, and
estates may have a tax withholding liability under sections 1445 or 1446 of the
Code in respect of any gain realized on their OmniAmerica Common Stock in the
OmniAmerica Merger that is allocable to such flow-through entity's foreign
partners or foreign beneficiaries. Provided that the OmniAmerica Common Stock
continues to be traded on the Nasdaq National Market and provided further that
the OmniAmerica Common Stock continues to be regularly quoted by brokers or
dealers making a market in such stock, tax withholding liability under sections
1445 and 1446 of the Code can apply only to a flow-through entity that, at any
time during the five-year period ending with the effective time of the
OmniAmerica Merger, owned (either directly or by attribution under the
constructive attribution rules in sections 318 and 897 of the Code) more than
five percent (5%) of the then outstanding OmniAmerica Common Stock (for this
purpose, substituting the then outstanding common stock of OmniAmerica's
predecessor Specialty Teleconstructors, Inc. for applicable portions of such
five-year period). Although there can be no guarantee, OmniAmerica anticipates
that the OmniAmerica Common Stock will continue to be traded on the Nasdaq
National Market through the effective date of the OmniAmerica Merger, and that
such stock will continue to be regularly quoted by brokers or dealers making a
market in such stock through such date. However, if the OmniAmerica Common
Stock should cease to be quoted on the Nasdaq National Market or should cease
to be regularly quoted by brokers or dealers making a market in such stock,
then the tax withholding liability under sections 1445 and 1446 of the Code may
apply to any flow-through entity with foreign partners or beneficiaries that
disposes of OmniAmerica Common Stock in the OmniAmerica Merger, regardless of
its percentage ownership of such stock.
Similarly, and again because OmniAmerica may be a "United States real property
holding corporation" as defined in section 897 of the Code, certain foreign
corporations, foreign partnerships, other foreign entities, and individuals who
are not citizens or residents of the United States may recognize gain or loss
on the exchange of their OmniAmerica Common Stock in the OmniAmerica Merger,
and may as a result be required to file United States federal income tax
returns. In computing the amount of any such recognized gain or loss, the
amount realized attributable to the ATC Class A Common Stock received by an
OmniAmerica shareholder is the fair market value of such stock, which may be
computed as the average of the high and low sales prices of ATC Class A Common
Stock on the NYSE for the date on which the OmniAmerica Merger occurs (though
other valuation methodologies may also be possible). Provided that the
OmniAmerica Common Stock continues to be traded on the Nasdaq National Market,
and provided further that the OmniAmerica Common Stock continues to be
regularly quoted by brokers or dealers making a market in such stock, gain or
loss recognition under section 897 of the Code can apply only to a foreigner
that, at any time during the five-year period ending with the
94
<PAGE>
effective time of the OmniAmerica Merger, owned (either directly or by
attribution under the constructive attribution rules in sections 318 and 897 of
the Code) more than five percent (5%) of the then outstanding OmniAmerica
Common Stock (for this purpose, substituting the then outstanding common stock
of OmniAmerica's predecessor Specialty Teleconstructors, Inc. for applicable
portions of such five-year period). Although there can be no guarantee,
OmniAmerica anticipates that the OmniAmerica Common Stock will continue to be
traded on the Nasdaq National Market through the effective date of the
OmniAmerica Merger, and that such stock will continue to be regularly quoted by
brokers or dealers making a market in such stock through such date. However, if
the OmniAmerica Common Stock should cease to be quoted on the Nasdaq National
Market or should cease to be regularly quoted by brokers or dealers making a
market in such stock, then gain or loss recognition under section 897 of the
Code may apply to any foreigner who disposes of OmniAmerica Common Stock in the
OmniAmerica Merger, regardless of its percentage ownership of such stock.
Backup and FIRPTA Withholding. Under the Code, a holder of OmniAmerica Common
Stock may be subject, under certain circumstances, to back-up withholding at a
31% rate with respect to the amount of cash received pursuant to the
OmniAmerica Merger unless such holder provides to the exchange agent proof of
an applicable exemption or a correct taxpayer identification number, and
otherwise complies with applicable requirements of the back-up withholding
rules to be described in more detail in the exchange transmittal documents. In
addition, because OmniAmerica may be a "United States real property holding
corporation" as defined in section 897 of the Code, the total consideration
otherwise issuable to a holder of OmniAmerica Common Stock pursuant to the
OmniAmerica Merger may be subject to withholding of 10% of such total amount,
unless either (i) the OmniAmerica Common Stock continues to be traded on the
Nasdaq National Market until the consummation of the OmniAmerica Merger, and in
the calendar quarter in which the OmniAmerica Merger is consummated or in the
immediately preceding calendar quarter, the OmniAmerica Common Stock continues
to be regularly quoted by brokers or dealers making a market in such stock, or
(ii) pursuant to instructions to be mailed to holders of OmniAmerica Common
Stock, such holder certifies to ATC under penalties of perjury that the holder
is a citizen or resident of the United States, a domestic corporation, a
domestic partnership, or other United States person as defined in Code section
7701(a)(30), and provides such other customary information as may be required
in connection with such certification. Although there can be no guarantee,
OmniAmerica anticipates that the OmniAmerica Common Stock will continue to be
traded on the Nasdaq National Market through the effective date of the
OmniAmerica Merger, and that such stock will continue to be regularly quoted by
brokers or dealers making a market in such stock through such date, and
accordingly certification of nonforeign status is not expected to be required.
Any amounts withheld under the foregoing withholding rules are not an
additional tax and may be refunded or credited against the holder's federal
income tax liability, provided that the required information is furnished to
the IRS. In addition, the absence or existence of applicable withholding does
not necessarily excuse an OmniAmerica stockholder (whether domestic or foreign)
from filing applicable United States federal income tax returns.
HOLDERS OF OMNIAMERICA COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE OMNIAMERICA MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
THE FOREGOING SECTION IS A SUMMARY DESCRIPTION OF MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE OMNIAMERICA MERGER AND RELATED TRANSACTIONS, WITHOUT
CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER OF
OMNIAMERICA COMMON STOCK. IN ADDITION, IT DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE OMNIAMERICA MERGER AND RELATED TRANSACTIONS. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT
95
<PAGE>
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE , INCLUDING POSSIBLY WITH
RETROACTIVE EFFECT, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THE DISCUSSION.
Stockholder Approval
The ATC Board, the OmniAmerica Board and American Tower as the holder of all of
the outstanding capital stock of ATI have each approved the OmniAmerica Merger
and the OmniAmerica Merger Agreement. Holders of a majority of the outstanding
OmniAmerica Common Stock have executed a written consent approving the
OmniAmerica Merger and approving and adopting the OmniAmerica Merger Agreement.
No further vote of the OmniAmerica stockholders is required. OmniAmerica will
not hold a stockholder meeting and OmniAmerica will not solicit any proxies.
See "Security Ownership of Certain Beneficial Owners and Management" in
Appendix IV.
Exchange Procedures
As soon as reasonably practicable after the effective time of the OmniAmerica
Merger, and in any event within five (5) business days thereof, an Exchange
Agent (the "Exchange Agent"), selected by ATC and reasonably satisfactory to
OmniAmerica, will mail to each holder of record of a certificate or
certificates of OmniAmerica which immediately prior to the effectiveness of the
OmniAmerica Merger evidenced outstanding shares of OmniAmerica Common Stock
(the "OmniAmerica Certificates") (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the OmniAmerica Certificates
in exchange for the OmniAmerica Merger Consideration.
Upon surrender of an OmniAmerica Certificate for cancellation to the Exchange
Agent, together with the letter of transmittal, duly executed, and such other
documents as ATC or the Exchange Agent may reasonably request, the holder of
such OmniAmerica Certificate will be entitled to receive promptly in exchange
therefor the certificates representing that number of shares of ATC Class A
Common Stock (together with any cash in lieu of fractional shares) that such
holder has the right to receive (in each case less the amount of any required
withholding taxes, if any), and the OmniAmerica Certificate so surrendered
shall forthwith be canceled. Until surrendered, each OmniAmerica Certificate
will, at any time after the effectiveness of the OmniAmerica Merger, represent
only the right to receive the OmniAmerica Merger Consideration with respect to
the shares of OmniAmerica Common Stock formerly represented thereby.
HOLDERS OF OMNIAMERICA COMMON STOCK SHOULD SEND OMNIAMERICA CERTIFICATES TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE INSTRUCTIONS
ACCOMPANYING, THE LETTER OF TRANSMITTAL.
No fractional shares of ATC Class A Common Stock will be issued upon the
surrender for exchange of OmniAmerica Certificates. In lieu of any such
fractional shares, the holders thereof will be entitled to receive from the
Exchange Agent a cash payment equal to such fraction multiplied by the average
of the high and low sales prices per share of ATC Class A Common Stock on the
NYSE, or, if not then traded on the NYSE, on the principal stock exchange or
other trading market on which the ATC Class A Common Stock is admitted to
trading, as reported by The Wall Street Journal, for the day on which the
OmniAmerica Merger becomes effective.
No dividends or other distributions declared after the effectiveness of the
OmniAmerica Merger on ATC Class A Common Stock will be paid with respect to any
shares of ATC Class A Common Stock represented by a OmniAmerica Certificate
until such OmniAmerica Certificate is surrendered for exchange in accordance
with the procedures described above.
96
<PAGE>
Appraisal Rights of Stockholders
Under Delaware law, no right of dissent exists with respect to a plan of merger
in favor of stockholders of any class or series that is listed on a national
securities exchange, included in the national market system by the National
Association of Security Dealers, Inc. or held of record by at least 2,000
stockholders, if the consideration to be received in such merger is (i) cash in
lieu of fractional shares, (ii) shares of capital stock of the surviving
corporation, or (iii) shares of capital stock of another entity that are listed
on a national securities exchange, included in the national market system by
the National Association of Securities Dealers, Inc. or held of record by at
least 2,000 stockholders. OmniAmerica's stockholders have no right of dissent
in connection with the OmniAmerica Merger because the OmniAmerica Common Stock
is listed on the Nasdaq National Market and all stockholders of OmniAmerica
will receive ATC Class A Common Stock and/or cash in lieu of fractional shares.
At the effective time of the OmniAmerica Merger, the shares of ATC Class A
Common Stock issued in the OmniAmerica Merger will be listed on the NYSE.
97
<PAGE>
THE TELECOM MERGER
General
On November 16, 1998, ATC, ATI and TeleCom entered into an Agreement and Plan
of Merger (the "Original TeleCom Merger Agreement") providing for the merger of
Telecom and a subsidiary of ATC. An Amended and Restated Agreement and Plan of
Merger was entered into on December 18, 1998 (the "TeleCom Restated Merger
Agreement"), and further amended on December 23, 1998 (the TeleCom Restated
Merger Agreement, as so amended, the "TeleCom Merger Agreement"). Pursuant to
the TeleCom Merger, each holder of TeleCom Units at the effective time of the
TeleCom Merger will receive his proportionate share of the TeleCom Merger
Consideration. The TeleCom Merger Consideration is $148.75 million less the
amount, if any, by which TeleCom's debt at the time of the TeleCom Merger is
more than $30.0 million. The TeleCom Merger Consideration will be increased by
the aggregate amount incurred by TeleCom after November 16, 1998 for approved
acquisitions and new tower construction and other capital expenditures. The
TeleCom Merger Consideration is payable 60% ($89.25 million, assuming no debt
adjustment) in shares of ATC Class A Common Stock and 40% ($59.50 million,
assuming no such adjustment) in cash. The cash portion shall be increased or
deceased based on the working capital of TeleCom at the time of the TeleCom
Merger.
The number of shares of ATC Class A Common Stock to be delivered is based on
the average of the high and low sales prices of the ATC Class A Common Stock
for the ten (10) trading days before and after the execution of the Original
TeleCom Merger Agreement, but in no event less than $19.20 or more than $21.25
per share. During this 20-day period, the average closing price for the ATC
Class A Common Stock was $21.55. The TeleCom Merger Agreement provides that
such $21.25 per share is subject to adjustment depending on its trading levels
ten (10) trading days prior to the closing date of the TeleCom Merger and the
achievement of certain revenue growth targets for the TeleCom Merger. In the
event the Closing Date Share Price (defined below) is less than $17.75 ($21.25
minus $3.50 per share) (the "Floor Share Price"), the number of shares of ATC
Class A Common Stock to be delivered (the "ATC Stock Consideration") will be
increased by a number of shares of ATC Class A Common Stock determined as
follows:
(i) Divide the ATC Stock Consideration by the Floor Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (i) from the amount
determined under paragraph (ii).
In the event the Closing Date Share Price exceeds $24.75 ($21.25 plus $3.50 per
share) (the "Ceiling Share Price") the ATC Stock Consideration will be
decreased by a number of shares of ATC Class A Common Stock determined as
follows:
(i) Divide the ATC Stock Consideration by the Ceiling Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (ii) from the amount
determined under paragraph (i).
The term "Closing Date Share Price" means, in effect, the average of the high
and low sales prices for the ATC Class A Common Stock on each of the ten (10)
trading days prior to the closing date of the TeleCom Merger.
The TeleCom Merger Agreement also provides for a reduction in the aggregate
number of shares of ATC Class A Common Stock deliverable as part of the ATC
Stock Consideration to the extent that TeleCom fails to achieve certain growth
in its Monthly Tower Revenue Run Rate (as defined in the TeleCom Merger
Agreement). In the event the actual Monthly Tower Revenue Run Rate of TeleCom
for the month ended immediately prior to the Closing Date is less than the TCT
Target Monthly Tower Revenue Run Rate, the ATC Stock Consideration shall be
reduced by a number of shares of ATC Common Stock determined as follows:
(i) the difference between the actual Monthly Tower Revenue Run Rate of
TeleCom and the TCT Target Monthly Tower Revenue Run Rate shall be
determined (the "Revenue Shortfall");
98
<PAGE>
(ii) the Revenue Shortfall shall be multiplied by twelve (12), and the
result shall be multiplied by fourteen and eight-tenths (14.8) (the
"Enterprise Value Shortfall"); and
(iii) the Enterprise Value Shortfall shall be divided by the Closing Date
Share Price; provided, however, that in no event shall the number of shares
of ATC Common Stock to be delivered as part of the ATC Stock Consideration
be reduced by more than 600,000 shares of ATC Common Stock.
The term "TCT Target Monthly Tower Revenue Run Rate" shall mean the amount set
forth opposite the month in which the Closing shall occur:
<TABLE>
<CAPTION>
MONTH IN WHICH CLOSING
OCCURS TCT TARGET MONTHLY REVENUE RUN RATE
---------------------- -----------------------------------
<S> <C>
January $1,008,179
February $1,022,862
March $1,037,544
April $1,052,226
May $1,067,132
June $1,079,143
July and thereafter $1,091,378
</TABLE>
In the event that the Closing shall occur after June 1999, the Monthly Tower
Revenue Run Rate of TeleCom shall be determined exclusively on the basis of its
Monthly Tower Revenue Run Rate as of June 30, 1999, and no adjustment to the
ATC Stock Consideration shall be made under Section 3.1 of the TeleCom Merger
Agreement on account of the amount of TeleCom's Monthly Tower Revenue Run Rate
as of a date later than June 30, 1999.
Assuming that there is no adjustment as a consequence of the Closing Date Share
Price provisions, ATC will issue an aggregate of approximately 4.2 million
shares of ATC Class A Common Stock to the TeleCom members. Accordingly, the
holder (the "TeleCom Unitholders") of each unit of TeleCom (the "TeleCom
Units") will be entitled to receive $4.05 in cash (assuming there is no working
capital adjustment) and .2858 shares of ATC Class A Common Stock.
The Original TeleCom Merger Agreement was amended and restated by the TeleCom
Merger Agreement to (i) reduce the aggregate consideration of $155.0 million to
$148.75 million, (ii) provide, among other things, for the distribution to the
TeleCom members of all issued and outstanding limited liability company equity
interests in a new subsidiary, TeleCom Towers-Pacific, L.L.C. ("TTP"), into
which TeleCom contributed its partnership interest in Prime-Telecom
Communications Co., a California general partnership ("Prime"), and (iii)
provide for the merger of a newly-organized subsidiary of ATI with and into
TeleCom which will be the surviving entity. See "--The Merger Agreement--
TeleCom Merger Agreement" below for information with respect to the receipt by
the TeleCom members of an estimated $6.25 million relating to such new
subsidiary.
BACKGROUND OF THE MERGER
The ATC Board and the Management Committee of TeleCom (the "TeleCom Management
Committee") each believe that the TeleCom Merger Agreement and the transactions
contemplated thereby (including the cash and number of shares of ATC Class A
Common Stock to be received by the TeleCom Unitholders) are in the best
interests of its stockholders and members, respectively. ATI, as the sole
stockholder of the newly-organized merger subsidiary, has approved the TeleCom
Merger Agreement and the transactions contemplated thereby. The holders of all
of the Class B TeleCom Units, which represents a majority of the TeleCom Units,
have approved and adopted the TeleCom Merger Agreement and approved the TeleCom
Merger by written consent. Accordingly, since approval of the ATC stockholders
is not required, no further action by the stockholders or members, as the case
may be, of any of the parties is required.
TELECOM REASONS FOR MERGER
The TeleCom Management Committee believes that the terms of the TeleCom Merger
are fair to and in the best interests of TeleCom and its members. In approving
the TeleCom Merger Agreement and the transactions
99
<PAGE>
contemplated thereby, the TeleCom Management Committee consulted with TeleCom's
management and considered a number of factors, including without limitation:
(i) the potential for accelerating TeleCom's long-term objective of
establishing a more geographically diversified and larger tower network; (ii)
the structure and terms of the transaction, including the form and amount of
consideration to be received by TeleCom's members, which were the result of
arm's length negotiations between ATC and TeleCom, the fact that holders of
Class B Units will receive for their Units the same consideration offered the
holders of Class A Units, and the fact that ATC Class A Common Stock they will
receive in the TeleCom Merger will be listed on the NYSE; (iii) the fact that
the TeleCom Merger would enhance the liquidity of the investment of all holders
of TeleCom Units by converting their equity interests in TeleCom into a
publicly traded security with a significant publicly traded "float" and active
trading market; (iv) the potential for synergies from the companies'
complementary assets and businesses, (v) the consolidation benefits that would
be available to the combined entity after the TeleCom Merger; (vi) the benefits
of being stockholders in a substantially larger and geographically diversified
company with ATC's management and financial resources, and (vii) alternatives
to the TeleCom Merger, including, among other things, remaining an independent
entity and eventually pursuing an initial public offering, the fact that
TeleCom management had solicited interest from, and had preliminary discussions
with, several potential strategic partners prior to signing the Original
TeleCom Merger Agreement, and that ultimately, ATC made a final, substantive
proposal to consummate a transaction with TeleCom offering less risk and more
value to the TeleCom members, as well as the risks associated and likelihood of
any such alternative transactions becoming available and being completed.
Increased Scope of the Surviving Corporation. The TeleCom Management Committee
considered the increased size and scope of the surviving corporation of the
TeleCom Merger as a significant advantage of the TeleCom Merger. In the view of
the TeleCom Management Committee, ATC, as a leading independent owner and
operator of communications sites, with its national network, will be well
positioned to compete for national accounts in the communications site
industry. In addition to providing TeleCom Members with a national company, the
TeleCom Merger would, in the judgement of the TeleCom Management Committee,
create a financially stronger company that will be well-positioned to compete
for acquisitions and build to suit opportunities in the future.
Consideration to be Received by TeleCom Unitholders. The TeleCom Management
Committee considered favorably the proportion of cash and shares of ATC Class A
Common Stock to be received by the holders of TeleCom Units in light of the
relative historical and projected financial performance of TeleCom and ATC.
The TeleCom Management Committee evaluated certain financial projections for
TeleCom and ATC. These projections were prepared using somewhat differing
assumptions regarding the growth rate of new wireless systems, the construction
costs of new towers, the acquisition of existing towers from independent owners
and the expenses related to managing these operations, but ones which the
TeleCom Management Committee considered reasonable in light of the history and
current status of the two companies.
Liquidity. The TeleCom Management Committee considered favorably the fact that
the TeleCom Merger would result in the holders of TeleCom Units receiving
shares in a publicly traded company with a substantial public "float" and an
active trading market.
Consolidation Benefits. The TeleCom Management Committee viewed favorably the
benefit to ATC of combining certain of the companies' administrative functions
including finance and accounting, insurance and information technology and that
such combination could result in annual cost savings for the combined company.
The TeleCom Management Committee also considered the fact that the combined
company would have certain cost advantages over TeleCom as a stand-alone
company, because of its scope, including in terms of a nationwide network of
towers, sales and marketing and financial resources. In this regard, the
TeleCom Management Committee considered the fact that the TeleCom Unitholders
were to receive stock in the combined entity and thus stood to share in the
benefits of such savings with the current holders of ATC Common Stock, although
the TeleCom Management Committee realized that no assurances could be given
that any particular level of cost synergies will be achieved.
100
<PAGE>
Absence of Financial Advisor. The TeleCom Management Committee has not sought a
fairness opinion from an independent financial advisor in connection with its
consideration of the TeleCom Merger.
Other Terms of the TeleCom Merger Agreement. The TeleCom Management Committee
also considered the other terms of the TeleCom Merger Agreement, including (a)
that the beneficial interests in RCC were to be distributed to TeleCom members
without any change in the TeleCom Merger Consideration, (b) the fact that a
principal TeleCom member would have a representative on the ATC Board, (c) the
limited indemnification provisions, (d) the termination provisions, (e) the
registration rights granted to certain holders of TeleCom Units, and (f) the
other customary terms and conditions thereof.
In determining that the TeleCom Merger was in the best interests of the TeleCom
Unitholders, the TeleCom Management Committee considered the factors above as a
whole and did not assign specific or relative weights to such factors. The
TeleCom Management Committee believes that the TeleCom Merger is an opportunity
for TeleCom's members to participate in a combined enterprise that has
substantially greater business and financial resources than TeleCom would have
absent the TeleCom Merger.
THE MERGER AGREEMENT
The provisions of the TeleCom Merger Agreement are comparable to those
customary in similar transactions, including without limitation (a) detailed
representations and warranties of ATC and TeleCom that will survive the closing
for, in the case of TeleCom, a limited period of time; (b) covenants as to the
interim conduct of the business of TeleCom (including the necessity of approval
of ATC for acquisitions or construction commitments not previously disclosed to
ATC and over certain specified amounts); (c) agreements of ATC to indemnify,
among others, the officers and Management Committee members of TeleCom and to
maintain officer and director insurance for their benefit; (d) closing
conditions, including (i) receipt of customary closing opinions of counsel, and
(ii) the election of Mr. Eisner as a director of ATC; (e) the nonsolicitation
of employees in the event of termination of the TeleCom Merger Agreement; and
(f) the indemnity escrow provisions which limit the exposure of the TeleCom
members to an aggregate of $5.0 million, decreasing over time and terminating
after two years from closing. The TeleCom Merger Agreement provides, among
other conditions of consummation, that there shall not have been any event that
shall cause a material adverse change regarding ATC or TeleCom. Consummation of
the TeleCom Merger is also conditioned on the expiration or earlier termination
of the HSR Act waiting period. The TeleCom Merger Agreement also permits the
distribution by TeleCom to its members of the beneficial interests in
RCC without any change in the TeleCom Merger Consideration.
It is a condition of TeleCom's obligation to consummate the TeleCom Merger that
Messrs. Dodge and Stoner shall have entered into a voting agreement with
TeleCom and certain of the TeleCom members, pursuant to which Messrs. Dodge and
Stoner will have agreed to vote in favor of the election of Mr. Eisner (or any
other nominee of Cox Telecom Towers, Inc. ("CTT") reasonably acceptable to the
ATC Board) so long as CTT (and its affiliates) hold at least 50% of the shares
of ATC Class A Common Stock to be received by them in the TeleCom Merger.
The TeleCom Merger Agreement provides for a termination date of September 30,
1999 and that in the event either party terminates because of the intentional
or wilful breach of any covenant or agreement by the other, the terminating
party shall be entitled to a termination fee of $10.0 million.
The TeleCom Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles. Accordingly, from and after the
effectiveness of the TeleCom Merger, TeleCom's consolidated results of
operations will be included in ATC's consolidated results of operations. For
purposes of preparing consolidated financial statements, ATC will establish a
new accounting basis for TeleCom's assets acquired and liabilities assumed
based upon the fair market values thereof and ATC's purchase price.
Accordingly, the purchase accounting adjustments made in connection with the
development of the pro forma condensed financial information appearing
elsewhere in this document are preliminary and have been made
101
<PAGE>
solely for purposes of developing such pro forma consolidated financial
information to comply with disclosure requirements of the Commission. Although
the final allocation will differ, the pro forma consolidated financial
information reflects management's best estimate based upon currently available
information. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements of American Tower".
TeleCom Merger Agreement Amendment. As a result of certain uncertainties that
had arisen in the relationship between TeleCom and its joint venture partner in
Prime, TeleCom decided to distribute its interest in Prime to TTP, owned by
TeleCom's members. As part of that decision, TeleCom, ATC and ATI agreed to
enter into the TeleCom Restated Merger Agreement which provides, among other
things, for (a) a reduction of the TeleCom Merger Consideration from $155.0
million to $148.75 million, and (b) the contribution of TeleCom's 50% interest
in Prime to TTP and the declaration of a one-time dividend distribution to all
TeleCom members of all issued and outstanding units of interest in TTP.
Simultaneously with such execution, ATC and TTP entered into put-call
arrangements pursuant to which ATI would acquire TTP for $12.5 million in the
event TTP were to acquire the other 50% interest in Prime. Under the
arrangement between TeleCom (which has been assigned to TTP) and the owner of
the other 50% interest in Prime, TTP has provided notice of termination of the
management agreement with such other owner and invoked the buy-sell provisions
of the Prime partnership agreement. Under those provisions, TTP offered to
purchase the remaining interest or to sell its interest for $6.25 million. The
other party has until February 21, 1999 to determine whether it wants to buy or
sell. In either event, the closing would be within 150 days after delivery of
the required notice under the partnership agreement. In the event the other
party elects to, and does, purchase, TTP will distribute the net proceeds
(estimated at $6.25 million) to its members who will therefore receive
approximately $.43 per unit. If TTP is a purchaser, it will be acquired by ATI
and TTP members will receive essentially the same amount as they would have had
TTP sold its 50% interest to the other owner of Prime. In either event, TeleCom
members should receive substantially the same amount as they would have had the
Original TeleCom Merger Agreement not been amended and the distribution of
TeleCom's 50% interest in Prime never been made.
The form of the merger was also changed as part of the TeleCom Restated Merger
Agreement for certain tax purposes. As a result, rather than the merger of
TeleCom into ATI as originally contemplated, a newly organized Delaware
corporate subsidiary of ATI will merge into TeleCom, which will be the
surviving entity. The TeleCom Management Committee and the holders of all of
the Class B TeleCom Units, representing more than a majority of all TeleCom
Units, approved the TeleCom Merger and the TeleCom Merger Agreement on December
18, 1998.
The TeleCom Restated Merger Agreement was amended on December 23, 1998 (the
"TeleCom Amendment") to add the provisions described above on page 99 dealing
with an adjustment in the number of shares of ATC Class A Common Stock
deliverable as part of the ATC Stock Consideration to the extent TeleCom fails
to achieve certain growth in its Monthly Tower Revenue Run Rate.
A copy of the TeleCom Merger Agreement is attached herewith as Appendix II.
A copy of the TeleCom Amendment is attached herewith as Appendix IIA.
Interests of Certain Persons in the Merger
As noted above, it is a condition of TeleCom's obligation to consummate the
TeleCom Merger that Messrs. Dodge and Stoner shall have entered into a voting
agreement with TeleCom and certain of the TeleCom members, pursuant to which
Messrs. Dodge and Stoner will have agreed to vote in favor of the election of
Mr. Eisner (or any other nominee of CTT reasonably acceptable to the ATC Board)
so long as CTT (and its affiliates) hold at least 50% of the shares of ATC
Class A Common Stock to be received by them in the TeleCom Merger.
It is a condition of American Tower's obligation to consummate the TeleCom
Merger that the employment agreements or other arrangements between TeleCom and
any of Messrs. Madigan, Sivertsen, D. Smith, R. Smith and M. Williams will be
terminated at no cost to American Tower.
102
<PAGE>
Certain Federal Income Tax Consequences of the Merger
The following discussion summarizes the federal income tax considerations
anticipated to be material to a TeleCom member in connection with the TeleCom
Merger. The discussion does not intend to be exhaustive of all possible tax
considerations; for example, the discussion does not contain a description of
any state, local, or foreign tax considerations. In addition, the summary
discussion is intended to address only those federal income tax considerations
that are generally applicable to a TeleCom member who holds Units as a capital
asset, and it does not discuss all aspects of federal income taxation that
might be relevant to a specific TeleCom member in light of its particular
investment or tax circumstances. In particular, the discussion does not purport
to deal with all aspects of taxation that may be relevant to TeleCom members
subject to special treatment under the federal income tax laws, including,
without limitation: individual retirement and other tax-deferred accounts;
banks; insurance companies; tax-exempt organizations; dealers or brokers in
securities or currencies; persons subject to the alternative minimum tax;
persons who hold their Units as part of a straddle, hedging, or conversion
transaction; persons whose functional currency is other than the U.S. dollar;
persons who received their Units as compensation in connection with the
performance of services or upon exercise of options received as compensation in
connection with the performance of services; persons eligible for tax treaty
benefits; and, except as specifically discussed below, foreign corporations,
foreign partnerships, other foreign entities, and individuals who are not
citizens or residents of the United States.
The information in the following summary discussion is based on the Federal
Income Tax Laws (which means, collectively, (i) the Code, (ii) current,
temporary and proposed Treasury regulations promulgated under the Code, (iii)
the legislative history of the Code, (iv) current administrative
interpretations and practices of the IRS (including its practices and policies
as expressed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer that receives such a ruling), and (v) court
decisions, all as of the date of this document). No assurance can be given that
future legislation, Treasury regulations, administrative interpretations and
court decisions will not significantly change the current law or adversely
affect existing interpretations of the Federal Income Tax Laws. Any such change
could apply retroactively to transactions preceding the date of the change, and
neither ATC nor TeleCom will undertake to inform the TeleCom members of any
such change. No assurance can be provided that the statements set forth in the
following summary discussion (which do not bind the IRS or the courts) would
not be challenged by the IRS or would be sustained by a court if so challenged.
The following discussion is a general summary of the material United States
federal income tax consequences of the TeleCom Merger. Sullivan & Worcester
LLP, tax counsel to ATC, has rendered its opinion (a copy of which has been
filed as an exhibit to the Registration Statement of which this document is a
part) that the discussion contained in this section describes the material
federal income tax consequences of the TeleCom Merger. The discussion is based
on the Federal Income Tax Laws, all of which are subject to change at any time,
possibly with retroactive effect. The discussion is not intended to be, and
should not be construed by the TeleCom members as, tax advice. The TeleCom
members are urged to consult with their own tax advisors to determine the
federal, state, local, and foreign tax consequences of the TeleCom Merger.
Tax Treatment of the TeleCom Merger--General. For federal income tax purposes,
the TeleCom Merger will be a taxable transaction and will result in the
recognition of taxable income by the TeleCom members. Although it is possible
that the IRS might view the TeleCom Merger, for federal income tax purposes, as
a taxable sale of assets by TeleCom followed by a deemed distribution of the
TeleCom Merger Consideration to the TeleCom members in liquidation of their
interests, tax counsel has advised that it is more likely that the TeleCom
Merger will be treated as (i) a sale by the TeleCom members of their membership
interests in TeleCom to ATI (as the owner of all of the stock of the subsidiary
that will merge into TeleCom) in exchange for the TeleCom Merger Consideration,
followed by (ii) a deemed distribution by TeleCom of its assets to ATI in
liquidation of TeleCom. Assuming such treatment, the TeleCom Merger will be
treated as a fully taxable disposition by the TeleCom members of their TeleCom
Units on which gain or loss would be recognized. Such gain or loss would equal
the difference between the amount realized from such disposition and the
TeleCom member's adjusted tax basis in the TeleCom Units disposed of. A TeleCom
member's amount realized equals the sum of (i) the amount of cash received by
such member in the TeleCom Merger, (ii) such member's share of TeleCom's
liabilities, and (iii) the fair market value of the ATC Class A Common Stock
received by such
103
<PAGE>
member in the TeleCom Merger. The Federal Income Tax Laws do not provide
definitive guidance regarding the determination of the fair market value of
publicly traded securities, but in computing the amount realized by a TeleCom
member, ATI and TeleCom intend to compute the fair market value of the ATC
Class A Common Stock as the average of the high and low sales prices of ATC
Class A Common Stock on the NYSE for the date on which the TeleCom Merger
occurs. There can be no assurance, however, that the IRS will not seek to
establish a different fair market value for the ATC Class A Common Stock
comprising the TeleCom Merger Consideration (e.g., by using the closing sales
price of ATC Class A Common Stock on the NYSE on such date).
In general, a TeleCom member that acquired his TeleCom Units in the TeleCom
Roll-Up had an initial tax basis in his TeleCom Units equal to (i) his adjusted
tax basis in his interest in the Partnership that was merged into TeleCom in
the TeleCom Roll-Up, minus (ii) the portion of such Partnership's liabilities
that were allocable to his interest in such Partnership at the time of the
TeleCom Roll-Up, plus (iii) the portion of TeleCom's liabilities that were
allocable to his TeleCom Units at the time of such acquisition. The initial tax
basis of a TeleCom member in his TeleCom Units generally will have been
increased by (i) the amount of any cash and the adjusted tax basis of any
property contributed to TeleCom by such member, (ii) such member's allocable
share of TeleCom's income (whether or not taxable), and (iii) such member's
share of any increase in TeleCom's liabilities, and will have been decreased by
(w) cash distributed to such member by TeleCom, (x) such member's share of any
decrease in TeleCom's liabilities, (y) such member's allocable share of
TeleCom's losses, and (z) such member's allocable share of nondeductible
expenditures of TeleCom that were not capitalizable. Such member's adjusted
basis in his TeleCom Units is also reduced by the basis to such member of
property other than cash distributed by TeleCom to such member (including
without limitation any interest in TTP or RCC distributed prior to the TeleCom
Merger). In general, a member's basis in property distributed to such member
(other than in liquidation of TeleCom) is equal to the lesser of (a) the
adjusted basis of such property to TeleCom immediately prior to such
distribution, or (b) the distributee member's adjusted basis in his TeleCom
Units immediately prior to such distribution reduced by any money distributed
in the same transaction.
Except to the extent provided in section 751 of the Code (discussed below), a
TeleCom member who holds TeleCom Units as capital assets within the meaning of
section 1221 of the Code will recognize capital gain or loss on the disposition
of such TeleCom Units. If such TeleCom Units have been held by the member for
more than one year, such gain or loss generally will be taxable as long-term
capital gain or loss. In the case of noncorporate taxpayers such as
individuals, trusts or estates, long-term capital gain generally is subject to
a maximum federal income tax rate of 20%. However, in the case of capital gain
realized on the sale of partnership interests such as the TeleCom Units, the
maximum applicable rate generally will be 25% to the extent that such gain is
attributable to the selling member's share of real estate depreciation
deductions previously taken by TeleCom. If such TeleCom Units have been held
for one year or less, such gain or loss generally will be taxable as short-term
capital gain or loss. The TeleCom members should note that if they acquired
their TeleCom Units in the TeleCom Roll-Up, their holding period for some or
all of their TeleCom Units may include the holding period that any Partnership
of which they were a partner had for some or all of the assets such Partnership
transferred to TeleCom in the TeleCom Roll-Up. TeleCom members are urged to
consult their own tax advisors with respect to determining their holding period
for their TeleCom Units.
A TeleCom member will have a basis in the ATC Class A Common Stock received in
the TeleCom Merger equal to the value of such stock used in computing the
TeleCom member's amount realized.
Under section 751 of the Code, the amount of money and the fair market value of
the ATC Class A Common Stock received by a TeleCom member in exchange for his
TeleCom Units which is attributable to TeleCom's "unrealized receivables" or
"inventory items" is required to be treated as an amount realized from the sale
or exchange of property which is not a capital asset. In general, TeleCom's
"unrealized receivables" include, without limitation, amounts not previously
includible in income attributable to rights to payment for the sale of non-
capital assets or for services rendered or to be rendered, and certain real and
personal property to the extent that gain on the sale of such property would be
taxed as ordinary income if such property were sold or exchanged. Under certain
circumstances, the rules of section 751 of the Code could require a TeleCom
member
104
<PAGE>
to report ordinary income on the sale of TeleCom Units even if the overall sale
was at a loss. TeleCom members are urged to consult their tax advisors as to
the possible effect of section 751 on their disposition of TeleCom Units.
Passive Activity Losses. Any gain recognized on the disposition of TeleCom
Units by TeleCom members who are subject to the "passive activity loss"
limitation rules under section 469 of the Code will generally constitute income
from a "passive activity" for purposes of these "passive activity loss"
limitation rules. Accordingly, subject to certain ordering rules, such gain
generally may be offset by losses from all sources, including passive activity
losses with respect to TeleCom (if any) that were "suspended" in prior taxable
years, as well as passive or active losses from other activities. Passive
activity losses incurred by a TeleCom member subject to the "passive activity
loss" limitation rules with respect to his or her TeleCom Units during taxable
years prior to the taxable year of the TeleCom Merger could be used to offset
only passive activity income from TeleCom and passive activity income from
other activities (except that in the case of certain corporations, such losses
might also have offset certain active income). As a consequence of the TeleCom
Merger, any such TeleCom member generally will be able to treat any suspended
passive activity losses with respect to the activities of TeleCom, to the
extent that such losses exceed such TeleCom member's passive activity income
for the year of the TeleCom Merger, as losses which are not from a passive
activity and, therefore, not subject to the passive activity loss limitation
rules. Any such losses (assuming they were properly accounted for and have not
been used to offset income from other activities in prior years) may be used to
offset income from all sources, including ordinary income that is not from a
passive activity. Each TeleCom member should consult with his own tax advisor
concerning (i) whether, and the extent to which, he has available suspended
passive activity losses from TeleCom, and (ii) whether, and the extent to
which, he has available suspended passive activity losses from other
investments that may be used to offset his gain from the disposition of TeleCom
Units in the TeleCom Merger.
Should the TeleCom Merger be characterized by the IRS as a taxable sale of
assets by TeleCom followed by a deemed distribution of the TeleCom Merger
Consideration to the TeleCom members in liquidation of their interests, the net
amount of gain or loss taxable to the TeleCom Members would likely be the same,
in the aggregate, as indicated in the above discussion, although the character
of such gain or loss as ordinary or capital might differ.
Withholding on Foreign TeleCom Members/Certification of Nonforeign
Status. Section 1445 of the Code provides that ATC and ATI may have to withhold
a portion of any of the TeleCom Merger Consideration paid to a TeleCom member
that is a foreign person as defined under the Code. Also, section 1446 of the
Code provides that TeleCom must pay a withholding tax to the IRS with respect
to a TeleCom member's allocable share of TeleCom's taxable income, if the
TeleCom member is a foreign person as defined under the Code. As defined under
the Code, a foreign person is an individual or entity that does not fall within
any of the following four categories: (i) a citizen or resident of the United
States, (ii) a corporation or partnership (or other entity treated as a
corporation or partnership for federal income tax purposes) created or
organized in or under the laws of the United States, any State of the United
States or the District of Columbia (unless otherwise provided by Treasury
regulations), (iii) an estate the income of which is subject to federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust (or certain electing trusts in existence on
August 20, 1996 to the extent provided in Treasury regulations).
To the best knowledge of TeleCom, very few (if any) TeleCom members are or may
be a foreign person as defined under the Code, and accordingly it is expected
that little or no withholding will be required under sections 1445 or 1446 of
the Code in connection with the TeleCom Merger. Any TeleCom member that
believes that he, she or it may be a foreign person under the Code is
encouraged to contact TeleCom immediately, so that such member's status as
foreign or domestic may be properly determined and appropriate provision made
for compliance with sections 1445 and 1446 of the Code.
105
<PAGE>
The transmittal letter to be used by the Exchange Agent in delivering the cash
and ATC Class A Common Stock to the TeleCom members will contain a certificate
of nonforeign status that must be executed by a TeleCom member in order to
receive his share of the TeleCom Merger Consideration without deduction for
withholding under sections 1445 and 1446 of the Code. The certificate of
nonforeign status asks the TeleCom member to supply, under penalties of
perjury, such member's name, address, taxpayer identification number (which,
for an individual, is one's social security number), and a declaration that
such member is not a foreign person as defined under the Code.
Stockholder and Member Approval
The TeleCom Merger has been approved by the ATC Board and the TeleCom
Management Committee and by ATI as the holder of all of the outstanding capital
stock of its newly-organized subsidiary that will be merged with and into
TeleCom. The TeleCom Merger has been approved by the unanimous written consent
of the holders of all of the Class B TeleCom Units, which represent more than a
majority of the outstanding TeleCom Units. Accordingly, no meeting of TeleCom
members is required or will be held.
Exchange Procedures
As soon as reasonably practicable after the effective time of the TeleCom
Merger, the Exchange Agent will mail to each TeleCom member (i) a letter of
transmittal and (ii) instructions for use in order to receive the TeleCom
Merger Consideration, including the furnishing of a certification (which will
be contained in the letter of transmittal) with respect, among other things, to
ownership of TeleCom Units by, and U.S. citizenship or organization of, each
TeleCom Member (the "TeleCom Certificate").
Upon delivery by a TeleCom member of the letter of transmittal, duly executed,
and such other documents as ATC or the Exchange Agent may reasonably request,
the holder of TeleCom Units will be entitled to receive promptly in exchange
therefor the cash and certificates representing that number of shares of ATC
Class A Common Stock (together with any cash in lieu of fractional shares) that
such holder has the right to receive (in each case less the amount of any
required withholding taxes, if any), and the TeleCom Units so surrendered shall
forthwith be canceled. Until surrendered, each TeleCom Unit will, at any time
after the effectiveness of the TeleCom Merger, represent only the right to
receive the TeleCom Merger Consideration with respect to the TeleCom Units
formerly represented thereby.
No fractional shares of ATC Class A Common Stock will be issued. In lieu of any
such fractional shares, the holders thereof will be entitled to receive from
the Exchange Agent a cash payment equal to such fraction multiplied by the
average of the high and low sales prices per share of ATC Class A Common Stock
on the NYSE, or, if not then traded on the NYSE, on the principal stock
exchange or other trading market on which the ATC Class A Common Stock is
admitted to trading, as reported by The Wall Street Journal, for the day the
TeleCom Merger becomes effective.
No dividends or other distributions declared after the effectiveness of the
TeleCom Merger on ATC Class A Common Stock will be paid with respect to any
shares of ATC Class A Common Stock represented by a TeleCom Unit until the
applicable TeleCom Certificate is delivered in accordance with the procedures
described above.
Appraisal Rights of Members
Holders of TeleCom Units will not have the right to dissent from the TeleCom
Merger and demand and perfect appraisal rights. Section 18-210 of the Delaware
Limited Liability Company Act (the "Delaware LLCA") provides that a limited
liability company agreement or a merger agreement may provide for appraisal
rights of members. Neither the TeleCom Operating Agreement nor the TeleCom
Merger Agreement so provides for appraisal rights for the TeleCom members.
106
<PAGE>
INDEBTEDNESS OF AMERICAN TOWER
The summary contained herein of the material provisions of the ATC Credit
Facilities does not purport to be complete and is qualified in its entirety by
reference to the ATC Credit Facilities, which are filed as an exhibit to the
Registration Statement of which this document is a part and to which exhibit
reference is made hereby. Capitalized terms used in this Section which are not
otherwise defined in this document shall have the meaning ascribed thereto in
the ATC Credit Facilities.
In order to finance acquisitions of communications sites and other related
businesses and the construction of towers and for general corporate purposes,
ATC and the Borrower Subsidiaries have borrowed and expect to continue to
borrow under the ATC Credit Facilities. The ATC Credit Facilities with the
Borrower Subsidiaries provide for $900.0 million credit facilities maturing at
the earlier of (a) eight years or (b) June 30, 2006 consisting of the
following: (i) a $250.0 million multiple-draw term loan, (ii) a $400.0 million
reducing revolving credit facility and (iii) a $250.0 million 364-day revolving
credit facility that converts to a term loan facility thereafter. The revolving
credit commitments are required to be reduced and the terms loans are required
to be amortized, in both cases, quarterly, in increasing amounts designed to
amortize the loans by maturity, commencing June 30, 2001. In addition, the
loans are required to be repaid (and the revolving credit commitments reduced)
out of the proceeds of asset sales and sales of equity securities and out of
cash flow, all to the extent set forth in the ATC Credit Facilities. The loans
can be voluntarily prepaid at any time, without penalty, by the Borrower
Subsidiaries and, thereafter by ATC (the parent). The ATC Credit Facility with
ATC provides for a $150.0 million term loan maturing at the earlier of (i)
eight and one-half years or (ii) December 31, 2006, amortizing quarterly in an
amount equal to 2.5% of the principal amount outstanding at June 30, 2001 at
the end of each quarter between such date and June 30, 2006, both inclusive,
and the balance in two equal installments on September 30 and December 31,
2006. The ATC Credit Facility with ATC was fully drawn at closing, and a term
loan of $125.0 million is outstanding under ATC Credit Facilities of the
Borrower Subsidiaries'.
Until interest rates are fixed or capped at ATC's request, all outstanding
amounts under the ATC Credit Facilities of the Borrower Subsidiaries bear
interest at a variable base rate plus a variable margin based on certain of
ATC's financial ratios. Interest rates under the ATC Credit Facilities of the
Borrower Subsidiaries are determined, at the option of ATC, at either the LIBOR
Rate plus 0.75% to 2.25% or the Base Rate plus 0.00% to 1.25%. The spread over
the LIBOR Rate and the Base Rate varies from time to time, depending upon ATC's
financial leverage. The Borrower Subsidiaries pay quarterly commitment fees
equal to (i) 0.250% or 0.375% per annum, in each case depending on their
financial leverage, on the aggregate unused portion of the aggregate $650.0
million commitment, and (ii) 0.125% on the additional $250.0 million commitment
(until such time as ATC elects to make it part of the permanent commitment).
Borrowings may be made under the ATC Credit Facilities by the Borrower
Subsidiaries only so long as they remain in compliance with certain financial
ratios and meet certain other conditions. The ATC Credit Facility of ATC
provides for interest rates determined, at the option of ATC, of either the
LIBOR Rate (as to be defined) plus 3.50% or the Base Rate (as to be defined)
plus 2.5%.
Indebtedness may be incurred under the ATC Credit Facilities for acquisitions,
construction and other capital expenditures, working capital and general
corporate purposes. The ATC Credit Facilities of the Borrower Subsidiaries
require the maintenance of the following ratios: (i) Senior Debt to Annualized
Operating Cash Flow of not more than 6.50:1 declining in stages to 3.00:1 by
September 30, 2003 and thereafter; (ii) Total Debt (which includes debt of ATC)
to Annualized Operating Cash Flow of not more than 8.00:1 declining in stages
to 4.00:1 by September 30, 2003 and thereafter; (iii) Annualized Operating Cash
Flow to Fixed Charges ratio of not less than 1.05:1; (iv) Annualized Operating
Cash Flow to Interest Expense of not less than 1.50:1 increasing to 2.50:1 at
December 31, 2003 and thereafter; and (v) Annualized Operating Cash Flow to Pro
Forma Debt Service ratio of not less than 1.10:1 increasing to 1.150:1 at
December 31, 2002 and thereafter. The Total Debt to Annualized Operating Cash
Flow ratio is also contained in the ATC Credit Facility of ATC.
107
<PAGE>
The ATC Credit Facilities contain certain financial and operational covenants
and other restrictions with which ATC and the Restricted Subsidiaries (which
includes the Borrower Subsidiaries) must comply, whether or not there are any
borrowings outstanding, including, among other things, restrictions on
acquisitions (of communications site management businesses), additional
indebtedness, capital expenditures and investments in Unrestricted
Subsidiaries, and restrict the ability of ATC and the Restricted Subsidiaries
(which includes the Borrower Subsidiaries) to pay dividends or make other
distributions, and to redeem, purchase or otherwise acquire shares of its
capital stock or other equity interests and prohibit any such dividend,
distribution, redemption, purchase or other acquisition during the existence of
a Default or Event of Default thereunder. See "'Description of Capital Stock--
Dividend Restrictions". The ATC Credit Facility of ATC prohibits the repayment
of the indebtedness outstanding thereunder without the consent of the lenders
under the ATC Credit Facilities of the Borrower Subsidiaries.
The loans to ATC and the Borrower Subsidiaries are cross-guaranteed and cross-
collateralized by liens on, among other things, all leases of tower space,
contracts relating to the management of towers for others, cash, accounts
receivable, capital stock (or other equity interests) and inter-company debt of
all Restricted Subsidiaries, inventory and other personal property, fixtures,
intellectual property, as well as certain fee and leasehold interests, and the
proceeds thereof of ATC and its Restricted Subsidiaries. Borrowings under the
ATC Credit Facility of ATC are subordinated to the guaranty by ATC of
indebtedness under the ATC Credit Facilities of the Borrower Subsidiaries.
108
<PAGE>
DESCRIPTION OF AMERICAN TOWER CAPITAL STOCK
The following summary description of the terms of the capital stock of ATC is
qualified in its entirety by reference to the ATC Restated Certificate, a copy
of which has been filed with the Commission and is part of the Registration
Statement of which this document is a part and the summary herein of certain
provisions thereof does not purport to be complete and is subject to, and is
qualified in its entirety by, reference thereto. Certain terms used in this
summary without definition are defined in the ATC Restated Certificate, and,
unless otherwise noted, have the same meaning as given such terms therein.
General
The authorized capital stock of American Tower consists of 20,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock") 300,000,000
shares of Class A Common Stock, $.01 par value per share, 50,000,000 shares of
Class B Common Stock, $.01 par value per share, and 10,000,000 shares of
Class C Common Stock, $.01 par value per share. The outstanding shares of ATC
Common Stock as of December 31, 1998 were as follows: Class A Common Stock--
96,620,615; Class B Common Stock--9,001,060; and Class C Common Stock--
3,002,008.
Preferred Stock
The 20,000,000 authorized and unissued shares of Preferred Stock may be issued
with such designations, preferences, limitations and relative rights as the ATC
Board may authorize, including, but not limited to: (i) the distinctive
designation of each series and the number of shares that will constitute such
series; (ii) the voting rights, if any, of shares of such series; (iii) the
dividend rate on the shares of such series, any restriction, limitation or
condition upon the payment of such dividends, whether dividends shall be
cumulative, and the dates on which dividends are payable; (iv) the prices at
which, and the terms and conditions on which, the shares of such series may be
redeemed, if such shares are redeemable; (v) the purchase or sinking fund
provisions, if any, for the purchase or redemption of shares of such series;
(vi) any preferential amount payable upon shares of such series in the event of
the liquidation, dissolution or winding-up of ATC or the distribution of its
assets; and (vii) the price or rates of conversion at which, and the terms and
conditions on which the shares of such series may be converted into other
securities, if such shares are convertible. The issuance of Preferred Stock, or
the issuance of rights to purchase such shares, could discourage an unsolicited
acquisition proposal.
Common Stock
Dividends. Holders of record of shares of ATC Common Stock on the record date
fixed by the ATC Board are entitled to receive such dividends as may be
declared by the ATC Board out of funds legally available for such purpose. No
dividends may be declared or paid in cash or property on any share of any class
of ATC Common Stock, however, unless simultaneously the same dividend is
declared or paid on each share of the other classes of ATC Common Stock, except
that in the event of any such dividend in which shares of stock of any company
(including American Tower or any of its Subsidiaries) are distributed, such
shares may differ as to voting rights to the extent that voting rights now
differ among the different classes of ATC Common Stock. In the case of any
dividend payable in shares of ATC Common Stock, holders of each class of ATC
Common Stock are entitled to receive the same percentage dividend (payable in
shares of that class) as the holders of each other class. See "--Dividend
Restrictions" below.
Voting Rights. Except as otherwise required by law and in the election of
directors, holders of shares of Class A Common Stock and Class B Common Stock
have the exclusive voting rights and will vote as a single class on all matters
submitted to a vote of the stockholders, with each share of Class A Common
Stock entitled to one vote and each share of Class B Common Stock entitled to
ten votes. The holders of the Class A Common Stock, voting as a separate class,
have the right to elect two independent directors. The Class C Common Stock is
nonvoting except as otherwise required by the DGCL.
109
<PAGE>
Under the DGCL, the affirmative vote of the holders of a majority of the
outstanding shares of any class of ATC Common Stock is required to approve,
among other things, a change in the designations, preferences and limitations
of the shares of such class of ATC Common Stock. Under the ATC Restated
Certificate, the affirmative vote of the holders of not less than 66 2/3% of
the Class A Common Stock and Class B Common Stock, voting as a single class, is
required in order to amend most of the provisions of the ATC Restated
Certificate, including those relating to the provisions of the various classes
of ATC Common Stock, indemnification of directors, exoneration of directors for
certain acts, and such super-majority provision.
The ATC Restated Certificate (i) limits the aggregate voting power of Steven B.
Dodge (and his Controlled Entities as defined therein) to 49.99% of the
aggregate voting power of all shares of capital stock entitled to vote
generally for the election of directors (less the voting power represented by
the shares of Class B Common Stock acquired by the Stoner Purchasers (as
defined therein) pursuant to the ATC Stock Purchase Agreement and owned by them
or any of their Controlled Entities or Family Members (as defined therein) at
such time), (ii) prohibits future issuances of Class B Common Stock (except
upon exercise of then outstanding options and pursuant to stock dividends or
stock splits), (iii) limits transfers of Class B Common Stock to Permitted
Transferees (as defined therein), (iv) provides for automatic conversion of the
Class B Common Stock to Class A Common Stock at such time as the aggregate
voting power of Mr. Dodge (and his Controlled Entities) falls below either (x)
50% of their initial aggregate voting power on June 8, 1998 or (y) 20% of the
aggregate voting power of all shares of ATC Common Stock at the time
outstanding, and (v) requires consent of the holders of a majority of Class A
Common Stock for amendments adversely affecting the Class A Common Stock.
Conversion Provisions. Shares of Class B Common Stock and, except as
hereinafter noted, Class C Common Stock are convertible, at any time at the
option of the holder, on a share for share basis into shares of Class A Common
Stock. The present owner of Class C Common Stock can convert such stock only in
the event of a Conversion Event (as defined in the ATC Restated Certificate) or
with the consent of the ATC Board. Shares of Class B Common Stock automatically
convert into shares of Class A Common Stock upon any sale, transfer, assignment
or other disposition other than to Permitted Transferees which term includes
certain family members, trusts and other family entities and charitable
organizations and other holders of Class B Common Stock and upon pledges but
not to the pledgee upon foreclosure.
Liquidation Rights. Upon liquidation, dissolution or winding-up of ATC, the
holders of each class of ATC Common Stock are entitled to share ratably (based
on the number of shares held) in all assets available for distribution after
payment in full of creditors and payment in full to any holders of the
Preferred Stock then outstanding of any amount required to be paid under the
terms of the Preferred Stock.
Other Provisions. The holders of ATC Common Stock are not entitled to
preemptive or subscription rights. The shares of ATC Common Stock presently
outstanding are validly issued, fully paid and nonassessable. In any merger,
consolidation or business combination, the consideration to be received per
share by holders of each class of ATC Common Stock must be identical to that
received by holders of the other class of ATC Common Stock, except that in any
such transaction in which shares of ATC Common Stock (or any other company) are
distributed, such shares may differ as to voting rights to the extent that
voting rights now differ among the different classes of ATC Common Stock. No
class of ATC Common Stock may be subdivided, consolidated, reclassified or
otherwise changed unless, concurrently, the other classes of ATC Common Stock
are subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner.
Dividend Restrictions
ATI is prohibited under the terms of its ATC Credit Facilities from paying cash
dividends or making other distributions on, or making redemptions, purchases or
other acquisitions of, its capital stock (including Preferred Stock) except
that, beginning on April 15, 2002, ATI may, if no Default exists or would be
created thereby under the ATC Credit Facilities, pay cash dividends to the
extent that Restricted Payments do not exceed (i) 50% of Excess Cash Flow for
the preceding calendar year, or (ii) 50% of the net proceeds of any
110
<PAGE>
debt or equity offering after June 16, 1998. Comparable restrictions are
imposed on the ability of ATLP to make distributions to its partners. Since ATC
has no other significant assets other than its ownership of all of the capital
stock of ATI and the owner of ATLP, its ability to pay dividends to its
stockholders in the foreseeable future is restricted. The ATC Credit Facility
of ATC also restricts cash dividends and other distributions on, and
redemptions, purchases or other acquisitions of, ATC capital stock, except in
an amount not in excess the net proceeds of any equity offering not used to
satisfy its obligations to CBS under the Separation Agreement with respect to
the tax consequences of the ATC Common Stock distribution or for other
permitted purposes (such as investments in Unrestricted Subsidiaries).
Delaware Business Combination Provisions
Under the DGCL, certain "business combinations" (including the issuance of
equity securities) between a Delaware corporation and any person who owns,
directly or indirectly, 15% or more of the voting power of the corporation's
shares of capital stock (an "Interested Stockholder") must be approved by the
holders of at least 66 2/3% of the voting stock not owned by the Interested
Stockholder if it occurs within three years of the date such person became an
Interested Stockholder, unless prior to such date the ATC Board approved either
the business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder. The ATC Board approved the transaction (the
ATC Private Placement) pursuant to which Mr. Dodge became an Interested
Stockholder.
Listing of Class A Common Stock
The Class A Common Stock is traded on the NYSE under the symbol "AMT".
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank, 311 West Monroe Street, Chicago, Illinois 60606 (telephone number
(312) 461-4600).
111
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ATC
AND OMNIAMERICA AND TELECOM MEMBERS
Upon consummation of the OmniAmerica Merger, the OmniAmerica stockholders and
the TeleCom members will become common stockholders of ATC. Set forth below is
a comparison of the terms of the ATC Class A Common Stock and the terms of the
OmniAmerica common stock and the TeleCom Units, as well as a summary of other
material differences between the rights of holders of ATC Class A Common Stock
and the rights of holders of OmniAmerica Common Stock and TeleCom Units. This
summary does not purport to be complete and is qualified in its entirety by
reference to the ATC Restated Certificate, ATC's Bylaws (the "ATC Bylaws"), the
OmniAmerica Certificate of Incorporation, as amended (the "OmniAmerica
Charter"), the OmniAmerica Bylaws (the "OmniAmerica Bylaws"), and the Amended
and Restated Operating Agreement of TeleCom as currently in effect (the
"TeleCom Operating Agreement"), and the more detailed description of the ATC
Common Stock contained herein. See "Description of Capital Stock--Common
Stock".
Terms of Common Stock and TeleCom Units
<TABLE>
<CAPTION>
ATC Common Stock OmniAmerica Common Stock TeleCom Units
---------------- ------------------------ -------------
Business:
<S> <C> <C>
All business of ATC. All business of All business of TeleCom.
OmniAmerica.
<CAPTION>
Listing:
<S> <C> <C>
New York Stock Exchange. Nasdaq National Market. None.
<CAPTION>
Preemptive Rights:
<S> <C> <C>
The holders of ATC Common The holders of OmniAmerica The holders of Class B
Stock do not have any common stock do not have TeleCom Units have
preemptive rights. any preemptive rights. preemptive rights to
acquire new units from TCT
for the same price and on
the same terms as such
units (or other equity
interests) are proposed to
be offered in any non-
public offering, subject to
certain exceptions. The
holders of Class A TeleCom
Units do not have any
preemptive rights.
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
ATC Common Stock OmniAmerica Common Stock TeleCom Units
---------------- ------------------------ -------------
Dividends:
<S> <C> <C>
ATC currently does not pay OmniAmerica currently does TeleCom has not made cash
dividends on the ATC Common not pay dividends on the distributions to date
Stock. Dividends on the ATC OmniAmerica Common Stock. because it has not had
Common Stock may be paid in Dividends on the taxable income.
the discretion of the ATC OmniAmerica Common Stock Distributions are at the
Board, based primarily upon may be paid in the discretion of the TeleCom
the financial condition, discretion of the Management Committee, but
results of operations and OmniAmerica Board. the Management Committee
business requirements of Dividends, if any, are will use reasonable efforts
ATC. Dividends, if any, are payable out of the funds of to authorize certain
payable out of the funds of OmniAmerica legally distributions to TeleCom
ATC legally available for available for the payment members as necessary to
the payment of dividends, of dividends, subject to enable them to pay income
subject to restrictions restrictions contained in taxes on TeleCom income
contained in the ATC Credit OmniAmerica's credit allocated to them so long
Facilities. arrangements. as the distribution is
permitted by financing
documents and other
agreements by which TeleCom
is bound, and TeleCom has
cash to distribute.
<CAPTION>
Voting Rights:
<S> <C> <C>
Except as otherwise Holders of OmniAmerica Except as otherwise
required by the DGCL, and common stock have the sole required by the Delaware
the ATC Restated voting rights and are LLCA, and except for: (i)
Certificate, holders of the entitled to one vote per approving the sale of all
ATC Class A Common Stock share of OmniAmerica common or substantially all of the
and ATC Class B Common stock held. assets or business of
Stock vote together as a TeleCom (mergers and
single class. Holders of certain other actions are
ATC Class A Common Stock not subject to a Class A
and ATC Class B Common member vote under the
Stock have one vote and ten TeleCom Operating
votes, respectively, per Agreement); (ii) its
share. The ATC Class C liquidation, dissolution
Common Stock is nonvoting, and winding up (on the
except as otherwise matters in clauses (i) and
required by the DGCL. The (ii) above, the holders of
holders of ATC Class A Class A and Class B TeleCom
Common Stock have the right Units vote together as a
to elect two independent single class, with holders
directors and to vote as a of Class A TeleCom Units
class on amendments to the having one vote per Class A
ATC Restated Certificate Unit and holders of Class B
adversely affecting them. TeleCom Units having ten
votes per Class B Unit); or
of certain amendments to
the TeleCom Operating
Agreement adversely
affecting them with respect
to sharing of profit and
loss and the elimination of
voting rights, the holders
of Class A TeleCom Units do
not have any voting rights,
the sole voting rights
being those of the holders
of Class B TeleCom Units.
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
ATC Common Stock OmniAmerica Common Stock TeleCom Units
---------------- ------------------------ -------------
Conversion:
<S> <C> <C>
Shares of ATC Class B None. None.
Common Stock will
automatically convert into
shares of ATC Class A
Common Stock upon any
transfer of such shares of
ATC Class B Common Stock,
unless the transferee is a
Permitted Transferee or is
a holder of ATC Class B
Common Stock.
A holder of shares of ATC
Class B Common Stock or,
subject to certain
conditions, ATC Class C
Common Stock may at any
time, at such holder's
election, convert such
shares into shares of ATC
Class A Common Stock. All
of the Class B Common Stock
will automatically convert
into ATC Class A Common
Stock should Mr. Dodge's
(including his Controlled
Entities) aggregate voting
power fall below either (i)
50% of his initial
aggregate voting power as
of June 8, 1998 or (ii) 20%
of the aggregate voting
power of all shares of ATC
Common Stock at the time
outstanding.
<CAPTION>
Liquidation:
<S> <C> <C>
In the event of a In the event of a In the event of a
liquidation of ATC, holders liquidation of OmniAmerica, liquidation of TeleCom,
of ATC Common Stock will be holders of OmniAmerica holders of TeleCom Units
entitled to receive the net Common Stock will be will be entitled to receive
assets of ATC, if any, entitled to receive the net the net assets of TeleCom,
remaining for distribution assets of OmniAmerica, if if any, remaining for
to holders of ATC Common any, remaining for distribution to holders of
Stock. distribution to holders of TeleCom Units.
OmniAmerica Commons Stock.
</TABLE>
Other Stockholder or Member Rights
Amendments to the Certificate of Incorporation or TeleCom Operating Agreement
Amendments to the ATC Restated Certificate must be adopted by the holders of a
majority of the voting power of the ATC Common Stock, except that amendments to
the provisions relating to (i) the number, rights and powers of any class of
stock; (ii) the composition and powers of the ATC Board; (iii) release of
directors' liability; (iv) indemnification of directors as a result of a breach
of fiduciary duties, officers, employees and
114
<PAGE>
agents; (v) amendments to the ATC Bylaws; and (vi) amendments to foregoing
provisions, require adoption by the holders of 66 2/3% of the total number of
the voting power of the outstanding shares of ATC Common Stock.
Amendments to the OmniAmerica Charter must be adopted by a majority of the
votes cast on such amendment by the holders of OmniAmerica Common Stock.
Amendments to the TeleCom Operating Agreement must be adopted by unanimous vote
of the holders of Class B TeleCom Units, except for certain amendments
adversely affecting the rights of the Class A TeleCom Units with respect to the
sharing of profit and loss and the elimination of voting rights of the Class A
TeleCom Units which require the written consent of the Class A Units of those
Class A members adversely affected by any such amendment.
Amendments to Bylaws
The ATC Restated Certificate and the ATC Bylaws provide that bylaws may be
adopted, amended, altered, changed or repealed by either the affirmative vote
of the holders of 66 2/3% of the outstanding shares of ATC Common Stock or by
the affirmative vote of a majority of the entire ATC Board.
The OmniAmerica Bylaws may be amended or repealed by the affirmative vote of a
majority of the members of the OmniAmerica Board or by a majority of the
OmniAmerica stockholders.
Directors and TeleCom Management Committee
Under the ATC Bylaws, the number of directors is determined by the ATC Board
from time to time, but must be three or more. The ATC Bylaws do not provide for
a classified board. The ATC Restated Certificate provides that the holders of
the ATC Class A Common Stock shall be entitled to vote as a class to elect two
directors; all other directors are elected by the holders of the ATC Class A
Common Stock and the ATC Class B Common Stock, voting together as a single
class, with each share of ATC Class A Common Stock entitled to one vote and
each share of the ATC Class B Common Stock entitled to ten votes. In connection
with the Old ATC Merger, Messrs. Dodge and Stoner entered into a voting
agreement relating to the election of two nominees of two of the former
principal stockholders of Old ATC. See "Business of American Tower--Recent
Transactions--The Old ATC Merger". See "The OmniAmerica Merger--The OmniAmerica
Merger Agreement" for information with respect to the voting agreement to be
executed by Messrs. Dodge and Stoner relating to the election of one nominee of
the principal OmniAmerica stockholder. See "The TeleCom Merger--The TeleCom
Merger Agreement" for information with respect to the voting agreement to be
executed by Messrs. Dodge and Stoner relating to the election of one nominee of
the principal equity owner of TeleCom.
Under the OmniAmerica Bylaws, the number of directors is determined by the
OmniAmerica Board of Directors from time to time, but must be one or more. The
OmniAmerica Charter provides for three classes of directors, designated as
Class I, Class II and Class III directors. Each class shall consist as nearly
as possible of one-third of the total number of directors. The term of office
of the initial Class I directors expires at the 1998 annual meeting of
stockholders. The term of office of the initial Class II directors expires at
the 1999 annual meeting of stockholders. The term of the initial Class III
directors expires at the 2000 annual meeting of stockholders. Pursuant to the
OmniAmerica Stockholders Agreement, each of Hicks, Muse and the Stockholder
Group (consisting of HMTF/Omni Partners, L.P., Michael R. Budagher, the
Budagher Family LLC, of which Mr. Budagher is the general manager, and Tommie
R. Carpenter) is entitled to designate up to four directors of the OmniAmerica
Board of Directors, dependent upon the percentage of the OmniAmerica Common
Stock owned by HMTF/Omni Partners, L.P. and its affiliates or the Stockholder
Group, as applicable. See "--Existing OmniAmerica Stockholders Agreement"
below.
Under the TeleCom Operating Agreement, on or after December 31, 1998, Cox
TeleCom Towers, Inc. has the right to require that the members of the
Management Committee consist of five representatives designated by Cox Telecom
Towers, Inc. and four representatives designated by TeleCom Towers, Inc.,
subject to adjustment.
115
<PAGE>
Removal of Directors and TeleCom Management Committee Members
Under the ATC Restated Certificate and Bylaws, (a) directors elected by the ATC
common stockholders may be removed, with or without cause, by vote of the
holders of a majority of the voting power of the ATC Common Stock; and (b) any
directors elected by the holders of ATC Class A Common Stock may be removed,
with or without cause, by a vote of the holders of the ATC Class A Common Stock
holding not less than a majority of the issued and outstanding shares of ATC
Class A Common Stock. Under the OmniAmerica Bylaws, directors may be removed,
with or without cause, by a vote of the holders of OmniAmerica common stock
holding not less than a majority of the issued and outstanding shares of
OmniAmerica Common Stock. Such removal is subject to certain restrictions set
forth in the OmniAmerica Stockholders Agreement. Under the TeleCom Operating
Agreement, the representatives on the Management Committee may be removed by
the Manager which designated such representatives. A Manager is defined in the
TeleCom Operating Agreement as a Class B member whose Class B percentage
interest is greater than 7.5%. Currently, both Cox Telecom Towers, Inc. and
TeleCom Towers, Inc. are Managers.
Newly Created Directorships and Vacancies and Management Committee Members
Under the ATC Restated Certificate and the ATC Bylaws, vacancies in the ATC
Board and newly created directorships may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If there are no directors in office, the DGCL provides that any
officer or stockholder may call a special meeting of stockholders in accordance
with the ATC Restated Certificate and ATC Bylaws, at which meeting such
vacancies shall be filled.
Under the OmniAmerica Charter and the OmniAmerica Bylaws, vacancies in the
OmniAmerica Board of Directors and newly created directorships may be filled by
a majority of the directors then in office, even if less than a quorum, or by
the sole remaining director. If there are no directors in office, any officer
or stockholder may call a special meeting of stockholders in accordance with
the OmniAmerica Charter and OmniAmerica Bylaws, at which meeting such vacancies
shall be filled. Pursuant to the OmniAmerica Stockholders Agreement, the person
who designated such director shall select a replacement to serve on the Board
of Directors.
Under the TeleCom Operating Agreement, upon the death, disability, resignation
or removal of a Management Committee representative, the Manager that
designated such representative shall designate a replacement representative to
fill the vacancy.
Special Meetings of Stockholders and Members; Action by Written Consent
Under the ATC Bylaws, special meetings of the stockholders may be called for
any purpose or purposes by the Chairman of the ATC Board or, if there be none,
the President, or by the ATC Board, and shall be called by the President or
Secretary of ATC at the request in writing of the stockholders holding of
record a majority in interest of the voting power of the shares of stock of ATC
issued and outstanding and entitled to vote. Under the DGCL, any action
required or permitted by law or the ATC Restated Certificate to be taken at any
meeting of stockholders may be taken without a meeting, without prior notice,
and without a vote, if a written consent, setting forth the action so taken, is
signed by holders of the number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present or present by proxy and voted.
Under the OmniAmerica Bylaws, the Chairman of the Board, the President or a
majority of the OmniAmerica Board may call special meetings of stockholders for
any purpose or purposes at any time. Further, the Chief Executive Officer or
the Secretary of OmniAmerica may call a special meeting of stockholders if a
majority of the stockholders make a written request to hold such a meeting.
Under the DGCL, any action required or permitted by law or the OmniAmerica
Charter to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice, and without a vote, if a written consent,
setting forth the action so taken, is signed by holders of the number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present or present by proxy and voted.
116
<PAGE>
Under the TeleCom Operating Agreement, meetings of members may be called for
any purpose or purposes any time by the Management Committee. The Management
Committee is required to give at least ten (10) days but not more than ninety
(90) days notice before each meeting of members at which approval of the sale
of all or substantially all of the assets or business of TeleCom (mergers and
certain other actions are not subject to a Class A member vote under the
TeleCom Operating Agreement) or TeleCom's liquidation, dissolution and winding
up is being sought.
Under the Delaware LLCA and the TeleCom Operating Agreement, any action
required or permitted by law or the TeleCom Operating Agreement to be taken at
any meeting of members may be taken without a meeting, without prior notice,
and without a vote, if a written consent, setting forth the action so taken, is
signed by holders of the number of votes that would be necessary to authorize
or take such action at a meeting at which all TeleCom Units entitled to vote
thereon were present or present by proxy and voted.
Stockholder and Member Proposals and Nominations
The ATC Bylaws do not contain specific requirements which must be met in order
for a stockholder to present a proposal for action at an annual meeting of
stockholders or to nominate an individual for election to the ATC Board.
The OmniAmerica Bylaws do not contain specific requirements which must be met
in order for a stockholder to present a proposal for action at an annual
meeting of stockholders or to nominate an individual for election to the
OmniAmerica Board of Directors.
The TeleCom Operating Agreement does not contain any provision for a member to
present a proposal for action at an annual meeting of members. Only Managers
may nominate representatives to the TeleCom Management Committee by providing
written notice to TeleCom and the other Class B members of the names of their
designated representatives.
Business Combinations Following a Change in Control
Each of ATC and OmniAmerica is a Delaware corporation and is subject to Section
203 of the DGCL, which governs business combinations with interested
stockholders. See "Description of Capital Stock--Delaware Business Combination
Provisions". The Delaware LLCA does not contain a provision comparable to
Section 203 of the DGCL.
Existing OmniAmerica Stockholders Agreement
OmniAmerica and certain of its stockholders are parties to a Stockholders
Agreement dated April 23, 1998 (the "OmniAmerica Stockholders Agreement"). The
agreement provides that, without the affirmative vote of a majority of the
directors elected by Hicks, Muse and a majority of the directors elected by the
Stockholder Group, OmniAmerica cannot enter into certain transactions,
including without limitation, acquisitions involving an aggregate purchase
price in excess of $5,000,000, the disposition of substantially all of the
assets of OmniAmerica and its subsidiaries, debt financing involving more than
$10,000,000 or any merger, consolidation or business combination between
OmniAmerica or a subsidiary of OmniAmerica and any other entity.
The OmniAmerica Stockholders Agreement will be terminated upon consummation of
the OmniAmerica Merger.
117
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Assuming consummation of the OmniAmerica Merger and the TeleCom Merger, there
will be an aggregate of approximately 129.5 million shares of ATC Common Stock
outstanding. All of such shares, other than an aggregate of approximately 6.9
million shares issued in connection with the Gearon Transaction and certain
other acquisitions and the 8.0 million shares issued pursuant to the ATC
Private Placement, will be freely transferable without restriction or future
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless held by an "affiliate" (as that term is defined under the
Securities Act) of ATC. Persons who may be deemed to be affiliates of ATC
generally include individuals or entities that directly, or indirectly through
one or more intermediaries, control, are controlled by, or are under common
control with, ATC. Persons who are affiliates of ATC will be permitted to sell
their ATC Common Stock only pursuant to an effective registration statement
under the Securities Act or pursuant to an exemption from registration under
the Securities Act, such as the exemption afforded by Rule 144 thereunder.
Stockholders who received unregistered shares of ATC Common Stock, including
pursuant to the ATC Stock Purchase Agreement and the Gearon Transaction, as
well as certain "affiliates" of ATC, have certain demand and "piggy-back"
registration rights with respect to their shares of ATC Common Stock.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of ATC
Common Stock for at least one year is entitled to sell, within any three-month
period, a number of such shares which does not exceed the greater of 1% of the
then outstanding shares of ATC Class A Common Stock (approximately 1.1 million
shares) or the average weekly public trading volume of the ATC Class A Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about ATC. Any person (or persons whose shares are
aggregated) who has not been an affiliate of ATC at any time during the three
months preceding a sale and who has owned shares of ATC Common Stock for at
least two years is entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
or notice requirements of Rule 144. In February 1997, the Commission solicited
comments regarding certain proposed amendments to Rule 144, including reducing
the aforementioned one and two year holding periods.
In addition, persons who received shares of ATC Class A Common Stock pursuant
to a Rule 145 transaction (including the OmniAmerica Merger, the TeleCom
Merger, the CBS Merger and the Old ATC Merger) and who were affiliates of the
company that merged with American Tower (or of American Radio in the case of
the CBS Merger) will be free to sell shares of ATC Class A Common Stock
pursuant to the provisions of Rule 144 without regard to the holding period
requirement.
Options to purchase an aggregate of approximately 11.2 million shares of ATC
Common Stock will be outstanding immediately following consummation of the
OmniAmerica Merger and the TeleCom Merger. Shares of ATC Common Stock issued
upon exercise of such options are registered on Form S-8 under the Securities
Act and, therefore, freely transferable under the securities laws.
ATC cannot make any predictions as to the effect, if any, sales of shares of
ATC Common Stock, or the availability of shares for future sale, will have on
the market price of the ATC Class A Common Stock prevailing from time to time.
118
<PAGE>
VALIDITY OF THE SHARES
The validity of the shares of ATC Class A Common Stock to be issued in each of
the mergers will be passed upon by Sullivan & Worcester LLP, Boston,
Massachusetts. Norman A. Bikales, a member of the firm of Sullivan & Worcester
LLP, is the owner of 9,000 shares of ATC Class A Common Stock and 41,490
shares of ATC Class B Common Stock and has an option to purchase 20,000 shares
of ATC Class A Common Stock at $10.00 per share. Two associates of Sullivan &
Worcester LLP have options to purchase 12,000 and 8,000 shares, respectively,
of ATC Class A Common Stock at $18.75 per share. Mr. Bikales and/or associates
of that firm serve as secretary or assistant secretaries of American Tower and
certain of its subsidiaries.
EXPERTS
The following financial statements included in this Information
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing:
(1) The consolidated financial statements and related financial statement
schedules of American Tower Systems Corporation as of December 31, 1997 and
1996 for the years ended December 31, 1997 and 1996 and for the period July
17, 1995 (Incorporation) to December 31, 1995;
(2) The combined financial statements of Meridian Communications as of
December 31, 1995 and 1996 and for each of the years then ended;
(3) The financial statements of Diablo Communications, Inc. as of
December 31, 1995 and 1996 and for each of the years then ended;
(4) The financial statements of Gearon & Co., Inc. as of December 31,
1997 and 1996 and for each of the years then ended; and
(5) The financial statements of OPM-USA-INC. as of December 31, 1997 and
1996 and for each of the years then ended.
The combined financial statements of net assets of MicroNet, Inc. and
Affiliates to be sold to ATC as of December 31, 1996 and October 31, 1997 and
for the year ended December 31, 1996, and the ten months ended October 31,
1997, have been audited by Pressman Ciocca Smith LLP, independent certified
public accountants, as stated in their report appearing in this Information
Statement/Prospectus and have been so included in reliance upon the report of
such firm as experts in accounting and auditing.
The financial statements of Diablo Communications of Southern California, Inc.
for the year ended December 31, 1996 have been audited by Rooney, Ida, Nolt &
Ahern, independent auditors, as stated in their report appearing in this
Information Statement/Prospectus and have been so included in reliance upon
the report of such firm as experts.
The consolidated financial statements of American Tower Corporation and
subsidiaries as of December 31, 1997 and 1996, and for each of the years in
the three year period ended December 31, 1997, have been included elsewhere in
this Registration Statement in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere in this Registration Statement, and
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of OmniAmerica and subsidiaries as of
June 30, 1997 and for each of the years in the two-year period ended June 30,
1997 have been included elsewhere in this registration statement in reliance
upon the reports of KPMG LLP and Bill Mitts, Inc., independent auditors,
appearing elsewhere in this Registration Statement and upon the authority of
such firms as experts in accounting and auditing.
119
<PAGE>
The financial statements of Telecom Towers, L.L.C. at December 31, 1997 and for
the three months then ended, and the financial statements of Telecom Southwest
Towers Limited Partnership, Telecom Towers Mid-Atlantic Limited Partnership,
and Telecom Towers of the West, L.P., at December 31, 1997 and for the year
then ended appearing in this Prospectus and Information Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and as to the year ended 1997 as
related to Telecom Towers Mid-Atlantic Limited Partnership, is based in part on
the report of KPMG LLP, independent auditors, as set forth in their report,
appearing elsewhere herein, on the financial statements of RCC Consultants,
Inc., (not separately presented in this Information Statement/Prospectus). The
financial statements referred to above are included in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
The financial statements of Telecom Southwest Towers Limited Partnership,
Telecom Towers Mid-Atlantic Limited Partnership, and Telecom Towers of the
West, L.P., at December 31, 1996, and for each of the two years in the period
ended December 31, 1996 appearing in this Prospectus and Information Statement
have been audited by Gollob, Morgan, Peddy & Co., P.C., independent auditors,
as set forth in their reports thereon appearing elsewhere herein, and as to the
year ended 1996 as related to Telecom Towers Mid-Atlantic Limited Partnership,
is based in part on the report of KPMG LLP, independent auditors, as set forth
in their report, appearing elsewhere herein, on the financial statements of RCC
Consultants, Inc., (not separately presented in this Information
Statement/Prospectus). The financial statements referred to above are included
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
The financial statements of Wauka Communications, Inc. as of December 31, 1997
and for year then ended included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report 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 TowerCom, Limited as of December 31, 1997 and for
the two years then ended have been included elsewhere in this Registration
Statement in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere in this Registration Statement, and upon the authority of
such firm as experts in accounting and auditing.
The financial statements of Miller Transmission Tower Company, Ltd. as of
December 31, 1997 and for the two years then ended have been audited by
Mendlowitz Weitsen LLP, independent auditors, as stated in their report thereon
appearing elsewhere in this Registration Statement are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Kline Iron & Steel Co. Inc. as of September 30,
1997 and for the two years then ended have been audited by Derrick, Stubbs &
Stith, LLP, independent auditors, as stated in their report thereon appearing
elsewhere in this Registration Statement are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the following financial
statements, as set forth in their reports, which are included in the
Registration Statements of American Tower Corporation relating to the merger
transactions with OmniAmerica, Inc. and TeleCom Towers, L.L.C. These financial
statements are included in reliance on their reports, given on their authority
as experts in accounting and auditing.
<TABLE>
<CAPTION>
WITH RESPECT TO REPORT DATE
- ------------------------------------------------------------------------------
<S> <C>
the consolidated financial statements of OmniAmerica, Inc. September 16, 1998
(formerly Specialty Teleconstructors, Inc.) for the year
ended
June 30, 1998
the consolidated financial statements of OmniAmerica February 20, 1998
Holdings
Corporation for the period from inception (October 15,
1997)
through December 31, 1997
the statement of assets sold by HSW Associates, Inc. at March 31, 1998
December 31, 1997 and related statements of revenue and
direct
operating expenses of assets sold by HSW Associates, Inc.
for
each of the two years in the period then ended
</TABLE>
120
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
American Tower has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
ATC Class A Common Stock to be offered pursuant to each of the OmniAmerica
Merger and the TeleCom Merger. This Information Statement/Prospectus does not
contain all of the information set forth in the applicable Registration
Statement and the exhibits and schedules thereto. For further information with
respect to American Tower and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Information Statement/Prospectus as to the
contents of any contract or any other document to which reference is made are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement can be inspected without charge and
copied at the prescribed rates at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a web site; and the address of
such site is http://www.sec.gov.
American Tower and OmniAmerica file annual, quarterly and special reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by American Tower and by OmniAmerica can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. The ATC Class A Common
Stock is listed on the NYSE, and such reports, proxy statements and certain
other information can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
121
<PAGE>
DEFINITION CROSS REFERENCE SHEET
Set forth below is a list of certain defined terms used in this Information
Statement/Prospectus and the page on which such terms are defined. Terms
designated with IV and V are found on the pages indicated in Appendix IV and
Appendix V, respectively. Certain definitions appear on different pages,
depending on which merger this document relates to.
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
Acquisition............................................................... IV-3
Affiliate................................................................. 118
After-tax cash flow....................................................... 25
American Cablesystems..................................................... 73
American Radio............................................................ i
American Tower............................................................ Cover
April Merger.............................................................. 12
Arch...................................................................... 12
ARS....................................................................... i
ARS Convertible Debentures................................................ 50
ARS Convertible Preferred................................................. 45
ARS Tower Transfer........................................................ 59
ATC....................................................................... Cover
ATC Board................................................................. 73
ATC Bylaws................................................................ 112
ATC Class A Common Stock.................................................. i
ATC Credit Facilities..................................................... 13
ATC IPO................................................................... i
ATS Needham............................................................... 67
ATC Preferred Stock Financing............................................. i
ATC Private Placement..................................................... i
ATC Pro Forma Transactions................................................ i
ATC Restated Certificate.................................................. 7
ATC Stock Consideration................................................... 98
ATC Stock Purchase Agreement.............................................. 67
ATCF...................................................................... 80
ATI....................................................................... 5
Atlantic.................................................................. 66
ATLP...................................................................... 25
ATS....................................................................... 88
Borrower Subsidiaries..................................................... 44
BT Group.................................................................. 91
BT Wolfensohn Opinion..................................................... 85
Build to suit............................................................. 15
CBS....................................................................... i
CBS Merger................................................................ i
CCP....................................................................... 74
CEA....................................................................... 74
CEI....................................................................... V-1
Ceiling Share Price....................................................... 98
Change of Control......................................................... 16
Chase Capital............................................................. 66
Closing Date Share Price.................................................. 98
</TABLE>
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
Code...................................................................... 77
Commission................................................................ 80
Controlled Entities....................................................... 16
Cox....................................................................... 94
CTT....................................................................... 101
Current Run Rate Cash Flow................................................ 60
CVP....................................................................... 74
Delaware LLCA............................................................. 106
DGCL...................................................................... 7
Diablo Transaction........................................................ 25
DTV....................................................................... 54
EBITDA.................................................................... 10
Engagement Letter......................................................... 91
Enterprise Value.......................................................... 87
ESMR...................................................................... 54
Equity Value.............................................................. 87
Event of Default.......................................................... 16
Exchange Agent............................................................ 89
Exchange Ratio............................................................ 4
EZ........................................................................ 74
EZ Merger................................................................. 74
FAA....................................................................... 17
FAS 131................................................................... 46
FCC....................................................................... 17
Federal Income Tax Laws................................................... 86
Floor Share Price......................................................... 98
Founders.................................................................. V-5
GAAP...................................................................... 10
Gearon.................................................................... 66
Gearon Transaction........................................................ 66
HDTV...................................................................... IV-1
Hicks, Muse............................................................... 66
Holdings.................................................................. IV-10
HSR Act................................................................... 6
Interested Stockholder.................................................... 104
Interim Preferred Stock................................................... 46
IRS....................................................................... 86
ISOs...................................................................... 77
Kline..................................................................... IV-4
Meridian Transaction...................................................... 25
Merrill Lynch............................................................. 68
MicroNet Transaction...................................................... 25
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
MTS....................................................................... IV-4
N&L....................................................................... IV-4
NQOs...................................................................... 77
NYSE...................................................................... 7
Old ATC................................................................... 66
OmniAmerica............................................................... Cover
OmniAmerica Board......................................................... 84
OmniAmerica Bylaws........................................................ 105
OmniAmerica Certificates.................................................. 89
OmniAmerica Charter....................................................... 112
OmniAmerica Common Stock.................................................. 20
OmniAmerica Credit Agreement.............................................. IV-7
OmniAmerica Holdings...................................................... IV-1
OmniAmerica Merger Agreement.............................................. 84
OmniAmerica Merger Consideration.......................................... 90
OmniAmerica Stockholders Agreement........................................ 110
Omni/HSW.................................................................. IV-3
OmniPartners.............................................................. IV-3
OPM....................................................................... 66
OPM Transaction........................................................... 66
Original TeleCom Merger Agreement......................................... 98
Partnerships.............................................................. 21
PCS....................................................................... 54
Plan...................................................................... 70
Preferred Stock........................................................... 109
Prime..................................................................... 27
RAM....................................................................... V-7
RCC....................................................................... 27
RF........................................................................ 17
Recent Transactions....................................................... 58
Restricted Subsidiaries................................................... 65
Securities Act............................................................ 118
Selected Companies........................................................ 87
Selected Transactions..................................................... 88
Selected Tower Transactions............................................... 88
Separation Agreement...................................................... 45
SMR....................................................................... 55
Special Committee......................................................... 68
Specialty................................................................. 12
Stoner.................................................................... 75
Summit Capital............................................................ 66
Superior Proposal......................................................... 92
Synergies................................................................. 87
TeleCom................................................................... Cover
TeleCom Amendment......................................................... 102
TeleCom Certificate....................................................... 105
TeleCom Credit Facility................................................... V-2
TeleCom Management Committee.............................................. 99
TeleCom Merger Agreement.................................................. 98
TeleCom Merger Consideration.............................................. 96
TeleCom Operating Agreement............................................... 112
TeleCom Restated Merger Agreement......................................... 98
TeleCom Roll-Up........................................................... 96
TeleCom Unitholders....................................................... 99
</TABLE>
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
TeleCom Units.............................................................. 99
Tower Cash Flow............................................................ 10
Tower Separation........................................................... i
TSTLP...................................................................... 21
TTI........................................................................ 21
TTMLP...................................................................... 21
TTP........................................................................ 98
TTWLP...................................................................... 21
Tucson Transaction......................................................... 34
Wauka Transaction.......................................................... 66
wireless communications facilities......................................... IV-2
wireless infrastructure building and implementation services............... IV-2
wireless infrastructure components......................................... IV-2
Y2K........................................................................ 70
</TABLE>
123
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The information included in Note 1 --"Business and Corporate Structure" and
Note 5 -- "Commitments" as it relates to the CBS Merger and the separation of
American Tower from American Radio of the Notes to the Consolidated Financial
Statements to the audited consolidated financial statements of American Tower
Corporation for the year ended December 31, 1997 included herein is
supplemented with the disclosures contained in Note 2--"Business and Corporate
Structure" of the American Tower Corporation Form 10-Q for the quarterly period
September 30, 1998 included as Appendix VI.
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report...................................... F-6
Consolidated Balance Sheets as of December 31, 1997 and 1996 ..... F-7
Consolidated Statements of Operations for the years ended December
31, 1997 and 1996 and the period from July 17, 1995
("Incorporation") to December 31, 1995 .......................... F-8
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 and the period from July 17,
1995 ("Incorporation") to December 31, 1995 ..................... F-9
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1996 and the period from July 17, 1995
("Incorporation") to December 31, 1995 .......................... F-10
Notes to Consolidated Financial Statements........................ F-11
The Condensed Consolidated Balance Sheet as of September 30, 1998
(unaudited), the Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1998 and 1997
(unaudited), the Condensed Consolidated Statements of
Stockholder's Equity for the nine months ended September 30, 1998
(unaudited), the Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997
(unaudited), and the Notes to Condensed Consolidated Financial
Statements are included in the Form 10-Q of American Tower filed
with the SEC on November 16, 1998................................ Appendix VI
OMNIAMERICA, INC. AND SUBSIDIARIES
Reports of Independent Auditors................................... F-26
Consolidated Balance Sheets as of June 30, 1997 and 1998 and Sep-
tember 30, 1998 (unaudited)...................................... F-29
Consolidated Statements of Earnings for the years ended June 30,
1996, 1997 and 1998 and three months ended September 30, 1997 and
1998 (unaudited)................................................. F-30
Consolidated Statement of Stockholders' Equity for the years ended
June 30, 1996, 1997 and 1998 and three months ended September 30,
1998 (unaudited)................................................. F-31
Consolidated Statements of Cash Flows for the years ended June 30,
1996, 1997 and 1998 and three months ended September 30, 1997 and
1998 (unaudited)................................................. F-32
Notes to Consolidated Financial Statements........................ F-34
TELECOM TOWERS, L.L.C.
Report of Independent Auditors.................................... F-53
Balance Sheets as of December 31, 1997 and September 30, 1998 (un-
audited)......................................................... F-54
Statements of Operations for the period from September 30, 1997
(inception) to December 31, 1997 and nine months ended September
30, 1998 (unaudited)............................................. F-55
Statements of Members' Equity for the period from September 30,
1997 (inception) to December 31, 1997 and nine months ended Sep-
tember 30, 1998 (unaudited)...................................... F-56
Statements of Cash Flows for the period from September 30, 1997
(inception) to December 31, 1997 and nine months ended September
30, 1998 (unaudited)............................................. F-57
Notes to Financial Statements..................................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
TELECOM SOUTHWEST TOWERS LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-65
Balance Sheets as of December 31, 1996 and 1997 and July 31, 1998 (unau-
dited)................................................................. F-67
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-68
Statements of Partner's Capital for the years ended December 31, 1995,
1996 and 1997 and seven months ended July 31, 1998 (unaudited)......... F-69
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-70
Notes to Financial Statements........................................... F-71
TELECOM TOWERS MID-ATLANTIC LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-78
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-82
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-83
Consolidated Statements of Partner's Capital for the years ended Decem-
ber 31, 1995, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-84
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-85
Notes to Consolidated Financial Statements.............................. F-86
TELECOM TOWERS OF THE WEST, L.P.
Reports of Independent Auditors......................................... F-95
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-97
Consolidated Statements of Operations for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-98
Consolidated Statements of Partner's Capital for the years ended Decem-
ber 31, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-99
Consolidated Statements of Cash Flows for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-100
Notes to Consolidated Financial Statements.............................. F-101
MICRONET, INC. AND AFFILIATES
Report of Independent Certified Public Accountants...................... F-109
Combined Statements of Net Assets Sold as of December 31, 1996 and
October 31, 1997....................................................... F-110
Combined Statements of Income Derived From Net Assets Sold for the year
ended December 31, 1996 and ten months ended October 31, 1997.......... F-111
Combined Statements of Cash Flows Derived from Net Assets Sold for the
year ended December 31, 1996 and ten months ended October 31, 1997..... F-112
Notes to Combined Financial Statements.................................. F-113
DIABLO COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-119
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)............................................................ F-120
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Income for the years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-121
Statements of Stockholders' Equity for the years ended December 31,
1995 and 1996 and nine months ended September 30, 1997 (unaudited).... F-122
Statements of Cash Flows for years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-123
Notes to Financial Statements.......................................... F-124
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
Independent Auditors' Report........................................... F-128
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................... F-129
Statements of Operations for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996, and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-130
Statements of Stockholders' Equity for the period from September 1,
1995 (inception) to December 31, 1995, year ended December 31, 1996
and nine months ended September 30, 1997 (unaudited).................. F-131
Statements of Cash Flows for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-132
Notes to Financial Statements.......................................... F-133
MERIDIAN COMMUNICATIONS
Independent Auditors' Report........................................... F-138
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited)....................................................... F-139
Combined Statements of Income for the years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-140
Combined Statements of Partners' Capital and Stockholder's Equity for
the years ended December 31, 1995 and 1996 and six months ended June
30, 1997 (unaudited)................................................. F-141
Combined Statements of Cash Flows for years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-142
Notes to Combined Financial Statements................................. F-143
GEARON & CO., INC.
Independent Auditors' Report........................................... F-148
Balance Sheets as of December 31, 1997 and 1996........................ F-149
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-150
Statements of Changes in Stockholders' Equity for the years ended De-
cember 31, 1997 and 1996............................................... F-151
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-152
Notes to Financial Statements.......................................... F-153
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
Independent Auditors' Report........................................... F-157
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................................... F-158
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-159
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and three months ended March 31,
1998 (unaudited)..................................................... F-160
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-161
Notes to Consolidated Financial Statements............................. F-162
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
OPM-USA-INC.
Independent Auditors' Report............................................ F-172
Balance Sheets as of December 31, 1997 and 1996......................... F-173
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-174
Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1997 and 1996............................................. F-175
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-176
Notes to Financial Statements........................................... F-177
WAUKA COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-180
Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)............................................................ F-179
Statements of Operations for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-182
Statements of Shareholder's Equity for the year ended December 31, 1997
and nine months ended September 30, 1998 (unaudited)................... F-183
Statements of Cash Flows for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-184
Notes to Financial Statements........................................... F-185
OMNIAMERICA HOLDINGS CORPORATION
Report of Independent Auditors.......................................... F-191
Consolidated Balance Sheet as of December 31, 1997...................... F-192
Consolidated Statement of Operations for the period from inception
(October 15, 1997) through December 31, 1997........................... F-193
Consolidated Statement of Stockholders' Equity for the period from
inception (October 15, 1997) through December 31, 1997................. F-194
Consolidated Statement of Cash Flows for the period from inception
(October 15, 1997) through December 31, 1997........................... F-195
Notes to Consolidated Financial Statements.............................. F-196
HSW ASSOCIATES, INC.
Report of Independent Auditors.......................................... F-201
Statement of Assets Sold as of December 31, 1997........................ F-202
Statement of Revenues and Direct Operating Expenses of Assets Sold for
the years ended December 31, 1997 and 1996............................. F-203
Notes to Financial Statements........................................... F-204
TOWERCOM, LIMITED
Independent Auditors' Report............................................ F-205
Balance Sheets as of December 31, 1997 and 1996......................... F-206
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-207
Statements of Partners' Capital for the years ended December 31, 1997
and 1996............................................................... F-208
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-209
Notes to Financial Statements........................................... F-210
MILLER TRANSMISSION TOWER COMPANY, LTD.
Independent Auditor's Report............................................ F-214
Balance Sheets as of December 31, 1997 and 1996......................... F-215
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-216
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Statements of Changes in Partners' Deficiency for the years ended
December 31, 1997 and 1996............................................. F-217
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-218
Notes to Financial Statements........................................... F-219
KLINE IRON & STEEL CO., INC.
Independent Auditor's Report............................................ F-222
Balance Sheets as of September 30, 1997 and 1996........................ F-223
Statements of Income for the years ended September 30, 1997 and 1996.... F-224
Statements of Retained Earnings for the years ended September 30, 1997
and 1996............................................................... F-227
Statements of Cash Flows for the years ended September 30, 1997 and
1996................................................................... F-228
Notes to Financial Statements........................................... F-229
</TABLE>
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
American Tower Systems Corporation:
We have audited the accompanying consolidated balance sheets of American Tower
Systems Corporation and subsidiaries (the "Company"), a wholly owned subsidiary
of American Radio Systems Corporation, as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1997 and 1996 and the period from July
17, 1995 (Incorporation) to December 31, 1995. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the companies as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years ended December 31, 1997 and 1996 and the period from
Incorporation to December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 6, 1998 (except for Note 4,
as to which the date is March 27, 1998)
F-6
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,595,500 $ 2,373,360
Accounts receivable, net of allowance for doubtful
accounts of $125,000 and $47,000 in 1997 and
1996, respectively .............................. 3,238,877 236,990
Prepaid and other current assets.................. 789,677 79,657
Deferred income taxes............................. 62,560
------------ -----------
Total current assets............................ 8,686,614 2,690,007
------------ -----------
PROPERTY AND EQUIPMENT, net......................... 117,617,776 19,709,523
UNALLOCATED PURCHASE PRICE, net..................... 108,192,255 12,954,959
OTHER INTANGIBLE ASSETS, net........................ 8,424,406 1,336,361
INVESTMENT IN AFFILIATE............................. 310,305 325,000
NOTES RECEIVABLE.................................... 10,700,000
DEPOSITS AND OTHER LONG-TERM ASSETS................. 1,424,540 101,803
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 110,391 $ 117,362
Accounts payable.................................. 3,738,230 1,058,822
Accrued expenses.................................. 4,492,064 715,322
Accrued interest.................................. 913,624
Unearned income................................... 1,752,248 252,789
------------ -----------
Total current liabilities....................... 11,006,557 2,144,295
------------ -----------
LONG-TERM DEBT...................................... 90,066,269 4,417,896
DEFERRED INCOME TAXES............................... 417,628 279,218
OTHER LONG-TERM LIABILITIES......................... 32,750 18,950
------------ -----------
Total long-term liabilities..................... 90,516,647 4,716,064
------------ -----------
MINORITY INTEREST IN SUBSIDIARIES................... 625,652 528,928
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Common Stock; $.01 par value; 10,000,000 shares
authorized, 3,000 shares issued and outstanding
in 1996.......................................... 30
Class A Common Stock; $.01 par value; 200,000,000
shares authorized; 29,667,883 shares issued and
outstanding...................................... 296,679
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 shares issued and
outstanding...................................... 46,706
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 shares issued and
outstanding...................................... 12,955
Additional paid-in capital........................ 155,710,741 30,318,420
Accumulated deficit............................... (2,860,041) (590,084)
------------ -----------
Total stockholder's equity...................... 153,207,040 29,728,366
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996 and Period from July 17, 1995
(Incorporation) to December 31, 1995
<TABLE>
<CAPTION>
Period Ended December 31,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Tower (includes revenue from related
parties of $389,000 and $70,000 in 1997
and 1996, respectively)................ $13,025,257 $2,816,633 $ 162,933
Site acquisition services............... 2,122,547
Video, voice and data transmission...... 2,083,756
Other................................... 276,907 80,245 186
----------- ---------- ----------
Total operating revenues.............. 17,508,467 2,896,878 163,119
----------- ---------- ----------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization and
corporate general and administrative
expenses:
Tower.................................. 6,080,273 1,362,284 59,417
Site acquisition services.............. 1,360,217
Video, voice and data transmission..... 1,272,682
Depreciation and amortization........... 6,326,323 989,936 57,428
Corporate general and administrative
expense................................ 1,536,263 830,248 230,109
----------- ---------- ----------
Total operating expenses.............. 16,575,758 3,182,468 346,954
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............. 932,709 (285,590) (183,835)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (3,039,235)
Interest income and other, net.......... 235,023 36,204
Minority interest in net earnings of
subsidiaries........................... (177,313) (184,897)
----------- ---------- ----------
TOTAL OTHER EXPENSE....................... (2,981,525) (148,693)
----------- ---------- ----------
LOSS BEFORE BENEFIT (PROVISION) FOR INCOME
TAXES AND EXTRAORDINARY LOSS............. (2,048,816) (434,283) (183,835)
BENEFIT (PROVISION) FOR INCOME TAXES...... 472,671 (45,390) 73,424
----------- ---------- ----------
LOSS BEFORE EXTRAORDINARY LOSS............ (1,576,145) (479,673) (110,411)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFIT OF
$462,500................................. (693,812)
----------- ---------- ----------
NET LOSS.................................. $(2,269,957) $ (479,673) $ (110,411)
=========== ========== ==========
BASIC AND DILUTED PRO FORMA PER COMMON
SHARE AMOUNTS:
Loss before extraordinary loss.......... $ (0.03)
Extraordinary loss...................... (0.01)
-----------
Net loss................................ $ (0.05)
===========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................ 48,691,790
===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 1997 and 1996 and Period from July 17, 1995
(Incorporation) to December 31, 1995
<TABLE>
<CAPTION>
Common Stock Common Stock Common Stock Common Stock
------------------ -------------------- -------------------- --------------------
Class A Class B Class C
-------------------- -------------------- -------------------- Additional
Outstanding Outstanding Outstanding Outstanding Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit
----------- ------ ----------- -------- ----------- -------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
parent.......... 10
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... $ (110,411)
------ ------------ -----------
BALANCE, DECEMBER
31, 1995........ 10 3,879,234 (110,411)
Issuance of
common stock to
parent.......... 2,990 $30 (30)
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
------ --- ------------ -----------
BALANCE, DECEMBER
31, 1996........ 3,000 30 30,318,420 (590,084)
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........ (3,000) (30) 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 (356,310)
Net loss......... (2,269,957)
------ --- ---------- -------- --------- -------- --------- -------- ------------ -----------
BALANCE, DECEMBER
31, 1997........ -- $-- 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 $155,710,741 $(2,860,041)
====== === ========== ======== ========= ======== ========= ======== ============ ===========
<CAPTION>
Total
-------------
<S> <C>
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... (110,411)
-------------
BALANCE, DECEMBER
31, 1995........ 3,768,823
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
-------------
BALANCE, DECEMBER
31, 1996........ 29,728,366
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........
Net loss......... (2,269,957)
-------------
BALANCE, DECEMBER
31, 1997........ $153,207,040
=============
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996 and Period from July 17, 1995
(Incorporation) to December 31, 1995
<TABLE>
<CAPTION>
Period Ended December 31,
---------------------------------------
1997 1996 1995
------------- ------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $ (2,269,957) $ (479,673) $(110,411)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization....... 6,326,323 989,936 57,428
Minority interest in net earnings of
subsidiary......................... 177,313 184,897
Amortization of deferred financing
costs.............................. 187,910
Provision for losses on accounts
receivable......................... 124,350 47,044
Extraordinary loss, net............. 693,812
Deferred income taxes............... 146,529 108,715
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable............... (3,155,831) (246,867) (37,167)
Prepaid and other current assets.. 158,897 (226,814) (54,499)
Accounts payable and accrued
expenses......................... 5,096,378 1,580,284 93,860
Accrued interest.................. 913,624
Unearned income................... 1,499,459 252,789
Other long-term liabilities....... 13,800 18,950
------------- ------------- ---------
Cash provided by (used in) operating
activities........................... 9,912,607 2,229,261 (50,789)
------------- ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property
and equipment and construction..... (20,614,412)
Payments for tower related
acquisitions....................... (184,075,851)
Advances of notes receivable........ (10,961,416)
Deposits and other long-term
assets............................. (1,131,247)
-------------
Cash used for investing activities.. (216,782,926)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility.... 151,000,000 2,500,000
Repayment of credit facility........ (65,000,000)
Borrowings under other notes
payable............................ 231,115
Repayments of other notes payable... (358,598) (106,697)
Contributions from parent........... 143,073,631 2,548,557 242,215
Cash transfers to parent............ (16,650,000) (4,866,226) (179,426)
Distributions to minority interest.. (419,160) (174,650)
Additions to deferred financing
costs.............................. (2,553,414)
------------- ------------- ---------
Cash provided by financing
activities........................... 209,092,459 132,099 62,789
------------- ------------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 2,222,140 2,361,360 12,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................ 2,373,360 12,000
------------- ------------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... 4,595,500 $ 2,373,360 $ 12,000
============= ============= =========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--American Tower Systems Corporation and
subsidiaries (collectively, ATS or the Company) is a wholly-owned subsidiary of
American Radio Systems Corporation (ARS or the Parent). American Tower Systems
(Delaware), Inc. (ATSI) is a wholly-owned subsidiary of the Company which holds
substantially all the operating assets and liabilities of the business.
The Company was incorporated on July 17, 1995 (Incorporation) for the purpose
of acquiring, developing, marketing, managing and operating wireless
communications tower sites throughout the United States, for use by wireless
communications providers and television and radio broadcasters.
In January 1998, ATS completed a corporate restructuring pursuant to which ATS
and ATSI contributed their assets and liabilities to a newly formed operating
subsidiary, American Tower Systems, L.P., (ATSLP). In connection therewith,
ATSI and ATSLP became co-borrowers under the Loan Agreement described in Note
4. The tax sharing agreement between ARS and ATS described in Note 7 was
terminated in connection with the corporate restructuring.
ATS's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including personal
communications services (PCS), cellular, paging, specialized mobile radio,
enhanced specialized mobile radio (ESMR) and fixed microwave, as well as radio
and television broadcasters. ATS also offers its customers a broad range of
network development services, including network design, site acquisition,
zoning and other regulatory approvals, site construction and antennae
installation. ATS intends to expand these services and to capitalize on its
relationships with its wireless customers through major built to suit
construction projects. ATS is also engaged in the video, voice and data
transmission business, which it currently conducts in the New York City to
Washington, D.C. corridor and in Texas.
As of December 31, 1997, the Company owned and/or operated approximately 670
wireless communication sites, principally in the Northeast and Mid-Atlantic
regions, Florida and California.
In September 1997, ARS entered into a merger agreement (as amended and restated
in December 1997, the CBS Merger Agreement) with a subsidiary of CBS
Corporation (CBS), pursuant to which a subsidiary of CBS will merge with and
into ARS and ARS will become a subsidiary of CBS (the CBS Merger). Following
consummation of the CBS Merger, ATS will operate as an independent, publicly
owned corporation (the Tower Separation). Each holder of record, at the
effective time of the CBS Merger, of shares of ARS common stock will receive:
(i) $44.00 per share in cash; and (ii) one share of ATS common stock of the
same class as the class of ARS Common Stock to be surrendered. ARS and ATS will
enter into certain agreements pursuant to the CBS Merger Agreement providing
for, among other things, the orderly separation of ARS and ATS, the transfer of
lease obligations to ATS of leased space on certain towers owned or leased by
ARS to ATS, and the allocation of certain tax liabilities between ARS and ATS.
ATS is obligated to reimburse ARS for the tax liabilities attributable to the
distribution of ATS common stock pursuant to the CBS Merger and the earlier
deconsolidation (for federal and state income tax purposes) of ATS from ARS
(the CBS Merger Tax Liability). Based on an estimate of "fair market value"
using available information as of March 27, 1998 of $16.00 per share of ATS
common stock, the estimated CBS Merger Tax Liability is approximately $173.0
million of which approximately $20.0 million will be borne by ARS and the
remaining obligation (of approximately $153.0 million) will be paid by ATS. The
estimated federal income tax liability will increase or decrease by
approximately $14.8 million for each $1.00 increase or decrease in the "fair
market value" per share of the ATS common stock. ATS expects to use the
proceeds of an equity offering or external financing to reimburse ARS for such
tax liability if due in 1998 or to use borrowings under the Loan Agreement if
due in 1999; the timing of such payment depends on when the CBS Merger is
consummated. (See Note 5).
F-11
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, following the CBS Merger, ATS will assume ARS' lease obligations
with respect to ARS' corporate headquarters in Boston, Massachusetts and
certain senior executives of ARS will become employees of ATS. Future lease
payments required under the lease agreements assumed aggregate approximately
$1.6 million through July 2006.
The CBS Merger has been approved by the stockholders of ARS who hold sufficient
voting power to approve such action. Consummation of the Merger is subject to,
among other things, the expiration or earlier termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
(HSR Act) and the approval by the Federal Communications Commission (FCC) of
the transfer of control of ARS' FCC licenses with respect to its radio stations
to CBS. Subject to the satisfaction of such conditions, the CBS Merger is
expected to be consummated in the Spring of 1998.
Principles of Consolidation and Basis of Presentation--The accompanying
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in affiliates, where ATS owns more than 20 percent of
the voting power of the affiliate but not in excess of 50 percent, are
accounted for using the equity method. Separate financial information regarding
equity method investees is not significant. The Company also consolidates its
50.1% interest and its 70.0% interest in two other tower communications limited
liability companies, with the other members' investments reflected as minority
interest in subsidiaries in the accompanying consolidated financial statements.
Through December 31, 1997, ATS effectively operated as a stand-alone entity,
with its own corporate staff and headquarters, and received minimal assistance
from personnel of the Parent. Accordingly, the accompanying consolidated
financial statements do not include any cost allocations from the Parent.
However, the consolidated financial statements may not reflect the results of
operations or financial position of ATS had it been an independent public
company during the periods presented.
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 amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates, and
such differences could be material to the consolidated financial statements.
Revenue Recognition--Tower revenues are recognized when earned. Escalation
clauses and other incentives present in tower lease agreements with the
Company's customers are recognized on a straight-line basis over the term of
the leases. Site acquisition and video voice and data transmission revenues are
recognized as such services are provided. Amounts billed or received prior to
services being performed are deferred until such time as the revenue is earned.
Corporate General and Administrative Expense--Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to any of the Company's individual business properties.
Concentration of Credit Risk--The Company extends credit to customers on an
unsecured basis in the normal course of business. The Company has policies
governing the extension of credit and collection of amounts due from customers.
Derivative Financial Instruments--The Company uses derivative financial
instruments as a means of managing interest-rate risk associated with current
debt or anticipated debt transactions that have a high probability of being
executed. The Company's interest rate protection agreements generally consist
of interest rate swap agreements and interest rate cap agreements. These
instruments are matched with either fixed or variable rate debt, and payments
thereon are recorded on a settlement basis as an adjustment to interest
expense. Premiums paid to purchase interest rate cap agreements are amortized
as an adjustment of interest expense over the life of the contract. Derivative
financial instruments are not held for trading purposes. (See Note 4).
F-12
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposits and short-term investments with remaining maturities when
purchased of three months or less.
Property and Equipment and Unallocated Purchase Price--Property and equipment
are recorded at cost, or at estimated fair value in the case of acquired
properties. Cost includes expenditures for communications sites and related
assets and the net amount of interest cost associated with significant capital
additions. Approximately $458,000 and $120,000 of interest was capitalized for
the years ended December 31, 1997 and 1996, respectively. Depreciation is
provided using the straight-line method over estimated useful lives ranging
from three to fifteen years.
The excess of purchase price over the estimated fair value of net assets
acquired has been preliminarily recorded as unallocated purchase price and is
being amortized over an estimated aggregate useful life of fifteen years using
the straight-line method. Accumulated amortization aggregated approximately
$3,726,000 and $356,000 at December 31, 1997 and 1996, respectively. The
consolidated financial statements reflect the preliminary allocation of certain
purchase prices as the appraisals for some acquisitions have not yet been
finalized. The Company is currently conducting studies to determine the
purchase price allocations and expects that upon final allocation the average
estimated useful life will approximate fifteen years. The final allocation of
purchase price is not expected to have a material effect on the Company's
consolidated results of operations, liquidity or financial position.
Intangible Assets--Intangible assets are being amortized on a straight-line
basis over their estimated useful lives, ranging from five to eight years.
Other intangible assets consist principally of a noncompetition agreement,
deferred financing costs and deferred acquisition costs. Deferred private
placement fees and Tower Separation fees will be reclassified to additional
paid-in capital upon consummation of the related transactions. (See Note 3).
Notes Receivable--In connection with the acquisition of OPM-USA-INC. (OPM) and
the acquisition of Gearon & Co. Inc. (Gearon) described in Note 11, the Company
entered into certain note agreements prior to consummation of these
acquisitions. The Company agreed to advance OPM an amount not to exceed
$37.0 million, of which approximately $5.7 million (excluding accrued interest)
was advanced as of December 31, 1997. The note bore interest at prime rate plus
3%, was unsecured and was settled upon closing of the OPM acquisition.
The Company agreed to advance Gearon an amount not to exceed $10.0 million
prior to closing, of which approximately $5.0 million was advanced as of
December 31, 1997. The note bore interest at approximately 7.25%, was unsecured
and was paid upon closing of the Gearon acquisition.
Income Taxes--Deferred taxes are provided to reflect temporary differences in
basis between book and tax assets and liabilities, and net operating loss
carryforwards. Deferred tax assets and liabilities are measured using currently
enacted tax rates. Through December 31, 1997, ATS filed as part of a
consolidated filing group with ARS; there are no significant differences
between the tax provision or benefit recorded and the amounts measured on a
separate return basis. (See Note 7).
Pro Forma Loss Per Common Share--Pro forma loss per common share is computed
using the number of shares of common stock expected to be outstanding upon
consummation of the CBS Merger. These shares include shares issued pursuant to
the stock purchase agreement described in Note 8 and the Gearon acquisition
described in Note 11 and also includes shares of ATS common stock issuable upon
exercise of ARS options (each ARS option in effect represents the right to
receive $44 in cash and one ATS share; such exercise is expected to occur upon
closing). Shares issuable upon exercise of ATS and ATSI options have been
excluded from the computation as the effect is anti-dilutive. Had ATS and ATSI
options been included in the computation, shares for diluted computation would
have been increased by 5,268,255.
F-13
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of Long-Lived Assets--Recoverability of long-lived assets is
determined by periodically comparing the forecasted undiscounted net cash flows
of the operations to which the assets relate to the carrying amount, including
associated intangible assets of such operations. Through December 31, 1997, no
impairments requiring adjustment have occurred.
Stock-Based Compensation--Compensation related to equity grants or awards to
employees is measured using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. (See Note 8).
Fair Value of Financial Instruments--The Company believes that the carrying
value of all financial instruments, excluding the interest rate protection
agreements, is a reasonable estimate of fair value as of December 31, 1997 and
1996. The fair value of the interest rate protection agreements are obtained
from independent market quotes. These values represent the amount the Company
would receive or pay to terminate the agreements taking into consideration
current market interest rates. The Company would expect to pay approximately
$97,000 to settle these agreements at December 31, 1997. There were no interest
rate protection agreements at December 31, 1996. (See Note 4).
Retirement Plan--Employees of the Company are eligible for participation in a
401(k) plan sponsored by ARS, subject to certain minimum age and length-of-
employment requirements. Administrative expenses of the plan are borne by ARS
and are not significant to ATS. Under the plan, the Company matches 30% of the
participants' contributions up to 5% of compensation. The Company contributed
approximately $16,800 and $6,000 for the years ended December 31, 1997 and
1996, respectively. The Company's contributions for the period from
Incorporation to December 31, 1995 were not material.
Recent Accounting Pronouncements--In June 1997, the FASB released FAS No. 130
"Reporting Comprehensive Income" (FAS 130), and FAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131). Those
pronouncements will be effective in 1998. FAS 130 establishes standards for
reporting comprehensive income items and will require the Company to provide a
separate statement of comprehensive income; reported financial statement
amounts will be affected by this adoption. FAS 131 establishes standards for
reporting information about the Company's operating segments in its annual
report and interim reports and will require the Company to adopt this standard
in 1998.
In February 1998, the FASB released FAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" (FAS 132), which the Company will
be required to adopt in 1998. FAS 132 will require additional disclosure
concerning changes in the Company's pension obligations and assets and
eliminates certain other disclosures no longer considered useful. Adoption will
not have any effect on reported consolidated results of operations or
consolidated financial position.
Reclassifications--Certain reclassifications have been made to the 1995 and
1996 financial statements to conform with the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Land and improvements........................... $ 17,955,568 $ 4,081,011
Buildings and improvements...................... 17,731,874
Towers.......................................... 48,315,930 11,473,259
Technical equipment............................. 3,624,239 53,124
Transmitter equipment........................... 18,211,996 13,550
Office equipment, furniture, fixtures and other
equipment...................................... 4,076,212 317,025
Construction in progress........................ 10,641,639 4,276,410
------------ -----------
Total....................................... 120,557,458 20,214,379
Less accumulated depreciation and amortization.. (2,939,682) (504,856)
------------ -----------
Property and equipment, net..................... $117,617,776 $19,709,523
============ ===========
</TABLE>
F-14
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Non-compete agreement................................ $5,530,000
Deferred financing costs............................. 2,519,312 $1,255,474
Deferred acquisition costs........................... 438,238 93,965
Deferred private placement fees...................... 546,023
Other................................................ 100,923
---------- ----------
Total............................................. 9,134,496 1,349,439
Less accumulated amortization........................ (710,090) (13,078)
---------- ----------
Other intangible assets, net......................... $8,424,406 $1,336,361
========== ==========
</TABLE>
4. FINANCING ARRANGEMENTS
Outstanding amounts under the Company's long-term financing arrangements
consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loan Agreement...................................... $88,500,000 $2,500,000
Note payable--other................................. 1,466,854 1,557,701
Other obligations................................... 209,806 477,557
----------- ----------
Total............................................... 90,176,660 4,535,258
Less current portion................................ (110,391) (117,362)
----------- ----------
Long-term debt...................................... $90,066,269 $4,417,896
=========== ==========
</TABLE>
Loan Agreements--In October 1997, ATSI entered into a new loan agreement with a
syndicate of banks (the Loan Agreement), which replaced the previously existing
credit agreement. All amounts outstanding under the previous agreement were
repaid with proceeds from the Loan Agreement. The following discussion, with
the exception of the information regarding interest rates and availability
under the agreements, is based on the terms and conditions of the Loan
Agreement. Collectively, the previous loan agreement and the 1997 Loan
Agreement (as amended and restated on December 31, 1997 and March 27, 1998) are
referred to as the Loan Agreements.
The Loan Agreement provides ATSI with a $250.0 million loan commitment based on
ATSI maintaining certain operational ratios, and an additional $150.0 million
loan at the discretion of ATSI. The Loan Agreement may be borrowed, repaid and
reborrowed without reducing the availability until June 2005 except as
specified in the Loan Agreement; thereafter, availability decreases in an
amount equal to 50% of excess cash flow, as defined in the Loan Agreement, for
the fiscal year immediately preceding the calculation date. In addition, the
Loan Agreement requires commitment reductions in the event of sale of ATSI's
common stock or debt instruments, and/or permitted asset sales, as defined in
the Loan Agreement.
Outstanding amounts under the Loan Agreements bear interest at either LIBOR
(5.90% as of December 31, 1997 and 5.78% as of December 31, 1996) plus 1.0% to
2.25% or Base Rate, as defined in the Loan Agreements, plus 0.00% to 1.00%. The
spread over LIBOR and the Base Rate varies from time to time, depending upon
ATSI's financial leverage. Under certain circumstances, ATSI may request that
rates be fixed or capped. For the years ended December 31, 1997 and 1996, the
weighted average interest rate of the Loan Agreements was 7.4% and 8.75%,
respectively.
There was $32.7 million and $67.5 million available under the Loan Agreements
at December 31, 1997 and 1996, respectively. ATSI pays quarterly commitment
fees ranging from .375% to .50%, based on ATSI's financial leverage and the
unused portion of the aggregated commitment. Commitment fees paid related to
the Loan Agreements aggregated approximately $416,000 and $24,000 for the years
ended December 31, 1997 and 1996, respectively.
F-15
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Loan Agreement contains certain financial and operational covenants and
other restrictions with which ATSI must comply, whether or not any borrowings
are outstanding, including among others, maintenance of certain financial
ratios, limitations on acquisitions, additional indebtedness and capital
expenditures, as well as restrictions on cash distributions unless certain
financial tests are met, and the use of borrowings. The obligations of ATSI
under the Loan Agreement are collateralized by a first priority security
interest in substantially all of the assets of ATSI. ATS has pledged all of its
stock to the banks as security for ATSI's obligations under the Loan Agreement.
ATS is in the process of negotiating an amended and restated loan agreement
with its senior lenders, pursuant to which the Company expects that the
existing maximum borrowing will be increased from $400.0 million to $900.0
million, subject to compliance with certain financial ratios, and ATS will be
able to borrow an additional $150.0 million, subject to compliance with certain
less restrictive ratios. Borrowings under an amended loan agreement will also
be available to finance acquisitions. In connection with the refinancing, the
Company expects to recognize an extraordinary loss of approximately $1.4
million, net of a tax benefit of $0.9 million, during the second quarter of
1998.
Following the closing of the Loan Agreement in October 1997, ATSI incurred an
extraordinary loss of approximately $1,156,000 (approximately $694,000 net of
the applicable income tax benefit) representing the write-off of deferred
financing fees associated with the previous agreement.
Derivative Positions--Under the terms of the Loan Agreement, ATSI is required,
under certain conditions, to enter into interest rate protection agreements.
There were no such agreements outstanding at December 31, 1996. As of December
31, 1997, ATSI maintained a swap agreement, expiring in January 2001, under
which the interest rate is fixed with respect to $7.3 million of notional
principal amount at approximately 6.4%. ATSI also maintained two cap
agreements; one expiring in July 2000, under which the interest rate is fixed
with respect to $21.6 million of notional principal amount at approximately
9.5%, and one expiring in November 1999, under which the interest rate is fixed
with respect to $7.0 million of notional principal amount at approximately
8.5%. ATSI's exposure under these agreements is limited to the impact of
variable interest rate fluctuations and the periodic settlement of amounts due
under these agreements if the other parties fail to perform.
Note Payable--Other--A limited liability company, which is under majority
control of the Company, has a note secured by the minority shareholder's
interest in the limited liability company. Interest rates under this note are
determined, at the option of the limited liability company, at either the
Floating Rate (as defined in the note agreement) or the Federal Home Loan
BankBoston rate plus 2.25%. As of December 31, 1997 and 1996, the effective
interest rate on borrowings under this note was 8.02%. The note is payable in
equal monthly principal payments with interest through 2006.
Other Obligations--In connection with various acquisitions, the Company assumed
certain long-term obligations of the acquired entities. Substantially all of
these obligations were repaid during 1997, with the remaining unpaid obligation
payable in monthly installments through 2014.
Future principal payments required under the Company's financing arrangements
at December 31, 1997 are approximately:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $ 110,000
1999............................................................. 119,000
2000............................................................. 128,000
2001............................................................. 137,000
2002............................................................. 148,000
Thereafter....................................................... 89,535,000
-----------
Total.......................................................... $90,177,000
===========
</TABLE>
F-16
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases space for its existing offices in
Florida, California, Pennsylvania and Virginia, space on various communications
towers and land under operating leases that expire over various terms. The
Company also subleases space on communications towers under substantially the
same terms and conditions, including cancellation rights, as those found in its
own lease contracts. Most leases allow cancellation at will or under certain
technical circumstances. Many of the leases also contain renewal options with
specified increases in lease payments upon exercise of the renewal option.
Future minimum rental payments under noncancelable leases in effect at December
31, 1997, excluding assumption of the ARS lease obligations described in Note
1, are approximately as follows:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $ 3,996,000
1999............................................................. 3,508,000
2000............................................................. 3,213,000
2001............................................................. 2,706,000
2002............................................................. 1,992,000
Thereafter....................................................... 10,373,000
-----------
Total.......................................................... $25,788,000
===========
</TABLE>
Aggregate rent expense under operating leases for the years ended December 31,
1997, 1996 and period ended December 31, 1995 approximated $2,110,000,
$420,000, and $5,000, respectively.
Customer Leases--The Company leases space on its various tower properties (both
owned and managed) to customers which typically are for set periods of time,
although some leases are cancellable at the customers' option and others are
automatically renewed and have no fixed term. Long-term leases typically
contain provisions for renewals and specified rent increases over the lease
term.
Future minimum rental receipts expected to be received from customers under
noncancelable lease agreements in effect at December 31, 1997 are approximately
as follows:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $21,017,000
1999............................................................. 16,899,000
2000............................................................. 14,691,000
2001............................................................. 12,369,000
2002............................................................. 8,128,000
Thereafter....................................................... 26,892,000
-----------
Total.......................................................... $99,996,000
===========
</TABLE>
Tower rental revenues under the Company's sub-leases approximated $978,000 and
$468,000 for the years ended December 31, 1997 and 1996, respectively.
Acquisition Commitments--See Notes 9 and 11 for information with respect to
acquisitions and related commitments.
CBS Merger--The CBS Merger Tax Liability has been estimated based on an assumed
fair market value of the ATS Common Stock of $16.00 per share price, resulting
in a tax liability of approximately $173.0 million, of which $20.0 million will
be borne by ARS and the remaining obligation will be required to be paid by ATS
pursuant to provisions of the CBS Merger Agreement. The Company's portion of
the CBS Merger Tax Liability
F-17
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
is expected to be paid with the proceeds of an equity offering or external
financing if due in 1998, or borrowings under ATS's Loan Agreement if due in
1999; the timing of such payment is dependent upon the timing of the
consummation of the CBS Merger. Such estimated tax liability would increase or
decrease by approximately $14.8 million for each $1.00 per share increase or
decrease in the fair market value of the ATS Common Stock.
The CBS Merger Agreement also provides for closing date balance sheet
adjustments based upon the working capital and specified debt levels (including
the liquidation preference of the ARS Cumulative Preferred Stock) of ARS at the
effective time of the CBS Merger which may result in payments to be made by
either ARS or ATS to the other party following the closing date of the CBS
Merger. ATS will benefit from or bear the cost of such adjustments. Since the
amounts of working capital and debt are dependent upon future operations and
events, including without limitation cash flow from operations, capital
expenditures, and expenses of the CBS Merger, neither ARS nor ATS is able to
state with any degree of certainty what payments, if any, will be owed
following the closing date by either ARS or ATS to the other party.
Litigation--The Company periodically becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of management,
there are no matters currently pending which would, in the event of adverse
outcome, have a material impact on the Company's consolidated financial
position, the results of operations or liquidity.
6. RELATED PARTY TRANSACTIONS
The Company received revenues of approximately $389,000 and $70,000 from ARS
for tower rentals at Company-owned sites for the years ended December 31, 1997
and 1996, respectively.
ARS has contributed substantially all of the Company's capitalization and had
funded substantially all of the 1996 acquisitions and certain 1997 acquisitions
described in Note 9.
In January 1998, ARS contributed certain tower sites to the Company (See Note
11).
In January 1998, the Company consummated the transactions contemplated by a
stock purchase agreement with certain related parties. (See Note 8).
In December 1997, ARS contributed a tower site and related assets in West Palm
Beach, Florida to the Company at ARS' book value, which approximated $50,000.
During January 1996, ARS contributed a tract of undeveloped land of
approximately two acres to the Company. The transfer was recorded at ARS' book
value of approximately $425,000.
In March 1996, ARS contributed approximately 200 acres of undeveloped land to
the Company. The transfer was recorded at ARS' book value of approximately $2.3
million.
In November 1996, the Company transferred a tract of land to ARS. The transfer
was recorded at ATS' book value of approximately $1.1 million.
In December 1996, ARS contributed a tower site and related assets in Peabody,
Massachusetts to the Company at ARS' book value, which aggregated approximately
$1.1 million.
In December 1996, ARS contributed a tower site and related assets located in
Philadelphia, Pennsylvania, to the Company. These assets were contributed at
their initial estimated fair value of approximately $1.5 million, based on a
preliminary appraisal. In June 1997, the fair value of the tower site and
related assets was determined to be approximately $775,000 based on a final
independent appraisal. The net book value carried by ATS was adjusted by
approximately $725,000 to reflect the change in estimate. This change in
estimate did not have a material effect on the consolidated financial position
or the results of operations of ATS.
F-18
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. INCOME TAXES
Effective October 15, 1996, the Company entered into a tax sharing agreement
with ARS. In accordance with this agreement, the Company's share of the
consolidated federal income tax benefit (liability) is calculated as a portion
of ARS' consolidated income tax benefit (liability). Any income tax benefit
(provision) attributable to the Company is payable to (due from) ARS. The
Company's reported provision or benefit is not significantly different from
what would have been recorded on a separate return basis. The tax sharing
agreement was terminated in connection with the corporate restructuring
described in Note 1, pursuant to which the Company will now prepare and file
income tax returns on a separate company basis.
The income tax benefit (provision) was comprised of the following:
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ 444,236 $ 53,907 $62,503
State........................................ 174,964 9,418 10,921
Deferred:
Federal...................................... (125,545) (92,547)
State........................................ (20,984) (16,168)
--------- -------- -------
Income tax benefit (provision)................. $ 472,671 $(45,390) $73,424
========= ======== =======
</TABLE>
A reconciliation between the U.S. statutory rate and the effective rate was as
follows for the periods presented:
<TABLE>
<CAPTION>
Period Ended
December 31,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate...................................... (34)% (34)% (34)%
State taxes, net of federal benefit..................... (6) (6) (6)
Nondeductible intangible amortization................... 17 49
Other................................................... 1
--- --- ---
Effective tax rate...................................... (23)% 10 % (40)%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were composed of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Assets:
Allowances for financial reporting purposes which
are currently nondeductible--current............... $ 62,560
Net operating loss carryforwards.................... $ 2,071
Valuation allowances................................ (2,071)
Liabilities:
Property and equipment and intangible assets........ (417,628) (168,125)
Partnership investments............................. (77,648)
Long-term rental agreements......................... (33,445)
--------- ---------
Net deferred tax liabilities......................... $(355,068) $(279,218)
========= =========
</TABLE>
F-19
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDER'S EQUITY
Recapitalization--In November 1997, the Company restated its certificate of
incorporation to increase the aggregate number of shares of all classes of
stock which it is authorized to issue to 280,000,000 shares as follows:
20,000,000 shares of preferred stock $.01 par value per share, 260,000,000
shares of common stock $.01 par value per share, of which 200,000,000 is Class
A, 50,000,000 is Class B and 10,000,000 is Class C. The Class A and B entitles
the holder to one and ten votes, respectively, per share. The Class C is non-
voting.
In addition, at that time, the Company effected a recapitalization, pursuant to
which each share of the Company's existing common stock was cancelled and the
Company was recapitalized with 29,667,883 shares of Class A common stock,
4,670,626 shares of Class B common stock and 1,295,518 shares of Class C common
stock.
ATS Stock Purchase Agreement--On January 22, 1998, the Company consummated the
transactions contemplated by the stock purchase agreement (the ATS Stock
Purchase Agreement), dated as of January 8, 1998, with Steven B. Dodge,
Chairman of the Board, President and Chief Executive Officer of ARS and ATS,
and certain other officers and directors of ARS (or their affiliates or family
members or family trusts), pursuant to which those persons purchased
8.0 million shares of ATS Common Stock at a purchase price of $10.00 per share
for an aggregate purchase price of $80.0 million, including 4.0 million shares
by Mr. Dodge for $40.0 million. Payment of the purchase price was in the form
of cash aggregating approximately $30.6 million and in the form of notes
aggregating approximately $49.4 million due on the earlier of the consummation
of the CBS Merger or, in the event the CBS Merger Agreement is terminated,
December 31, 2000. The notes bear interest at the six-month London Interbank
Rate, as measured from time to time, plus 1.5% per annum, and are secured by
shares of ARS Common Stock having a fair market value of not less than 175% of
the principal amount of and accrued and unpaid interest on the note. The notes
are prepayable at any time at the option of the debtor and will be due and
payable, at the option of the Company, in the event of certain defaults as
described in the ATS Stock Purchase Agreement.
Stock Option Plans--In November 1997, the Company instituted the 1997 Stock
Option Plan (the Plan) which provides for the granting of options to employees
and directors to acquire up to 10,000,000 shares of ATS Class A and Class B
Common Stock. The Plan is expected to be amended in connection with the ATC
Merger, described in Note 11, to limit future grants to Class A Common Stock.
No options were granted under the Plan during 1997. In January 1998, the
Company granted 2,911,300 options at an exercise price of $10 per share to
employees and directors of ATS and subsequently granted 1,400,000 options at an
exercise price of $13 per share to employees of an acquired company. (See Note
11).
ATSI also has a stock option plan which provides for the granting of options to
employees to acquire up to 1,000,000 shares of the common stock of ATSI, of
which options to purchase an aggregate of 682,000 shares have been issued. In
addition, approximately 599,000 options to purchase shares of ARS Common Stock
held by current and future employees of ATS may be exchanged for ATS options.
The ATSI options will be exchanged for ATS options and the ARS options may be
exchanged in a manner that will preserve the spread in such options between the
option exercise price and the fair market value of the stock subject thereto
and the ratio of the spread to the exercise price prior to such conversion.
These ARS options are expected to be exchanged, at least in part, into options
to acquire, stock of ATS, as part of the CBS Merger.
Exercise prices in the case of incentive stock options are not less than the
fair value of the underlying common stock on the date of grant. Exercise prices
in the case of non-qualified stock options are set at the discretion of the
Board of Directors. Options vest ratably over various periods, generally five
years, commencing one year from the date of grant. There have been no option
grants at exercise prices less than fair value.
F-20
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the ATSI option activity for the periods
presented:
<TABLE>
<CAPTION>
Weighted
Exercise Number Average
Price Currently Remaining
Options Per Share Exercisable Life (Years)
------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Granted during 1996 and
outstanding at December 31,
1996........................... 550,000 $5.00 160,000 8.71
Granted......................... 172,000 $7.50-$8.00 9.24
Cancelled....................... (40,000) $5.00
------- ----------- ------- ----
Outstanding as of December 31,
1997........................... 682,000 160,000 8.89
======= ======= ====
</TABLE>
As described in Note 1, the intrinsic value method is used to determine
compensation associated with stock option grants. No compensation cost has been
recognized to date for grants under the Plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant date for awards in 1996 and 1997 consistent with the provisions of SFAS
123, the Company's net loss would have been approximately $2,492,000 and
approximately $568,000 for the years ended December 31, 1997 and 1996,
respectively. Pro forma basic and diluted net loss per common share would have
been approximately $(0.05) for the year ended December 31, 1997.
The "fair value" of each option grant is estimated on the date of grant using
the minimum value method based on the following key assumptions: risk-free
interest rate of 6.3% and expected lives of 5 years. In accordance with the
provisions of SFAS 123, since the Company's stock is not publicly traded,
expected volatility in stock price has been omitted in determining the fair
value for options granted.
9. ACQUISITIONS
1997 Acquisitions--
In December 1997, the Company consummated the acquisition of a tower site in
Northern California for approximately $2.0 million.
In October 1997, the Company acquired two affiliated entities operating
approximately 110 tower sites and a tower site management business located
principally in northern California for approximately $45.0 million. In
connection therewith, the Company had also agreed to loan up to $1.4 million to
the sellers on an unsecured basis, of which approximately $0.26 million had
been advanced and was repaid at closing.
In October 1997, the Company acquired tower sites and certain video, voice and
data transport operations for approximately $70.25 million. The acquired
business owned or leased approximately 128 tower sites, principally in the Mid-
Atlantic region, with the remainder in California and Texas.
In September 1997, the Company acquired nine tower sites in Massachusetts and
Rhode Island for approximately $7.2 million and land in Oklahoma for
approximately $0.6 million.
In August 1997, the Company acquired six tower sites in Connecticut and Rhode
Island for approximately $1.5 million.
F-21
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1997, the Company, in individual transactions, acquired the following:
(i) the assets of three affiliated entities which owned and operated
approximately fifty towers and a tower site management business in
southern California for an aggregate purchase price of
approximately $33.5 million;
(ii) the assets of one tower site in Washington, D.C. for
approximately $0.9 million;
(iii) the assets of six tower sites in Pennsylvania for approximately
$0.3 million and
(iv) the rights to build five tower sites in Maryland for
approximately $0.5 million.
In May 1997, the Company acquired 21 tower sites and a tower site management
business in Georgia, North Carolina and South Carolina for approximately $5.4
million. The agreement also provides for additional payments by the Company if
the seller is able to arrange for the purchase or management of tower sites
presently owned by an unaffiliated public utility in South Carolina, which
payments could aggregate up to approximately $1.2 million; management believes
that it is unlikely that any such arrangement will be entered into.
In May 1997, the Company acquired the assets of two affiliated companies
engaged in the site acquisition business in various locations in the United
States for approximately $13.0 million.
In May 1997, the Company and an unaffiliated party formed a limited liability
company to own and operate communication towers which will be constructed on
over 50 tower sites in northern California. The Company advanced approximately
$0.8 million to this entity and currently owns a 70% interest in the entity,
with the remaining 30% owned by an unaffiliated party. The Company is obligated
to provide additional financing for the construction of these and any
additional towers it may approve; the obligation for such 50 tower sites is
estimated to be approximately $5.3 million. The accounts of the limited
liability company are included in the consolidated financial statements with
the other party's investment reflected as minority interest in subsidiary.
In May 1997, the Company acquired three tower sites in Massachusetts for
approximately $0.26 million.
1996 Acquisitions--
In February 1996, the Company acquired Skyline Communications and Skyline
Antenna Management in exchange for an aggregate of 26,989 shares of ARS Class A
Common Stock, having a fair value of approximately $774,000, $2.2 million in
cash, and the assumption of approximately $300,000 of long-term debt which was
paid at closing. Skyline Communications owned eight towers, six of which are in
West Virginia and the remaining two in northern Virginia. Skyline Antenna
Management managed more than 200 antenna sites, primarily in the northeast
region of the United States.
In April 1996, the Company acquired BDS Communications, Inc. and BRIDAN
Communications Corporation for 257,495 shares of ARS Class A common stock
having a fair value of approximately $7.4 million and $1.9 million in cash of
which approximately $1.5 million was paid at closing. BDS Communications owned
three towers in Pennsylvania and BRIDAN Communications managed or had sublease
agreements on approximately forty tower sites located throughout the mid-
Atlantic region.
In July 1996, the Company entered into a limited liability company agreement
with an unaffiliated party relating to the ownership and operation of a tower
site in Needham, Massachusetts, whereby the Company acquired a 50.1% interest
in the corporation for approximately $3.8 million in cash. The accounts of the
limited liability company are included in the consolidated financial statements
with the other party's investment reflected as minority interest in subsidiary.
In October 1996, the Company acquired the assets of tower sites in Hampton,
Virginia and North Stonington, Connecticut for approximately $1.4 million and
$1.0 million in cash, respectively.
F-22
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Substantially all of the 1996 acquisitions were consummated by ARS and the net
assets were subsequently contributed to the Company.
The acquisitions consummated during 1997 and 1996 have been accounted for by
the purchase method of accounting. The purchase price has been preliminarily
allocated to the assets acquired, principally intangible and tangible assets,
and the liabilities assumed based on their estimated fair values at the date of
acquisition. The excess of purchase price over the estimated fair value of the
net assets acquired has been recorded as unallocated purchase price. The
financial statements reflect the preliminary allocation of certain purchase
prices as the appraisals of the assets acquired have not been finalized. The
Company does not expect any changes in depreciation and amortization as a
result of such appraisals to be material to the consolidated results of
operations.
Unaudited Pro Forma Operating Results--The operating results of these
acquisitions have been included in the Company's consolidated results of
operations from the date of acquisition. The following unaudited pro forma
summary presents the consolidated results of operations as if the acquisitions
had occurred as of January 1, 1996 after giving effect to certain adjustments,
including depreciation and amortization of assets and interest expense on debt
incurred to fund the acquisitions. These unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made as of January 1, 1996
or results which may occur in the future.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Net revenues.................................... $44,933,000 $35,601,000
Loss before extraordinary loss.................. (8,998,000) (21,716,000)
Net loss........................................ (9,692,000) (21,716,000)
Basic and diluted pro forma loss per common
share.......................................... (0.20)
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the period for interest (including
amounts capitalized).............................. $2,398,201 $ 90,539
Cash paid during the period for income taxes....... 124,988
Noncash investing and financing activities:
Property and equipment transferred from Parent..... 50,000 11,103,352
Property and equipment transferred to Parent....... (725,000)
Land transferred to Parent......................... (1,100,000)
Deferred financing costs paid by Parent............ 1,255,474
Investment in affiliate paid by Parent............. 325,000
Details of acquisitions financed by Parent:
Purchase price of net assets acquired.............. 20,954,401
Liabilities assumed................................ (2,219,637)
Stock issued by Parent............................. (8,153,312)
-----------
Cash paid by Parent................................ 10,581,452
Less: cash acquired................................ (1,600,000)
-----------
Net cash paid by Parent for acquisitions........... $ 8,981,452
===========
</TABLE>
F-23
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. OTHER TRANSACTIONS
Consummated Transactions:
In January 1998, the Company consummated an agreement to acquire all of the
outstanding stock of Gearon, a company based in Atlanta, Georgia, for an
aggregate purchase price of approximately $80.0 million. The purchase price
consisted of approximately $32.0 million in cash and assumed liabilities and
the issuance of approximately 5.3 million shares of ATS Class A Common Stock.
Gearon is engaged in site acquisition, development, construction and facility
management of wireless network communication facilities on behalf of its
customers and owns or has under construction approximately 40 tower sites.
Following consummation, the Company granted options to acquire up to 1,400,000
shares of Class A Common Stock at an exercise price of $13.00 to employees of
Gearon. (See Notes 1 and 8).
In January 1998, the Company consummated the acquisition of OPM, a company
which owned approximately 90 towers at the time of acquisition. In addition,
OPM is in the process of developing an additional 160 towers that are expected
to be constructed during the next 12 to 18 months. The purchase price, which is
variable and based on the number of towers completed and the forward cash flow
of the completed OPM towers, could aggregate up to $105.0 million, of which
approximately $21.3 million was paid at the closing. The Company had also
agreed to provide the financing to OPM to enable it to construct the 160 towers
in an aggregate amount not to exceed $37.0 million (less advances as of
consummation aggregating approximately $5.7 million, excluding accrued
interest). (See Note 1).
In January 1998, the Company consummated the acquisition of a communications
site with six towers in Tucson, Arizona for approximately $12.0 million.
In January 1998, the Company consummated the acquisition of a tower near Palm
Springs, California for approximately $0.75 million.
In January 1998, ARS transferred to ATS 14 communications sites currently used
by ARS and various third parties (with an ARS net book value of approximately
$4.2 million), and ARS and ATS entered into leases or subleases of space on the
transferred towers. Two additional communications sites will be transferred and
leases entered into following acquisition by ARS of the sites from third
parties.
In February 1998, the Company acquired 11 communications tower sites in
northern California for approximately $11.8 million.
Pending Transactions:
In December 1997, the Company entered into a merger agreement with American
Tower Corporation (ATC) pursuant to which ATC will merge with and into ATS,
which will be the surviving corporation. Pursuant to the merger, ATS expects to
issue an aggregate of approximately 30.0 million shares of ATS Class A Common
Stock (including shares issuable upon exercise of options to acquire ATC Common
Stock which will become options to acquire ATS Class A Common Stock). ATC is
engaged in the business of acquiring, developing, and leasing wireless
communications sites to companies using or providing cellular telephone,
paging, microwave and specialized mobile radio services. At December 31, 1997,
ATC owned and operated approximately 775 communications towers located in 31
states primarily in the western, eastern and southern United States.
Consummation of the transaction is subject to, among other things, the
expiration or earlier termination of the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (HSR Act) waiting period, and is expected
to occur in the Spring of 1998.
F-24
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
In January 1998, the Company entered into an agreement to purchase the assets
relating to a teleport business serving the Washington, D.C. area for a
purchase price of approximately $30.5 million. The facility is located in
northern Virginia, inside of the Washington Beltway, on ten acres.
In February 1998, the Company entered into an agreement to acquire a tower in
Sacramento, California for approximately $1.2 million.
Consummation of the pending transactions, which are subject to certain
conditions, including in certain cases, receipt of FCC approvals and the
expiration or earlier termination of the HSR Act waiting period, are expected
to occur in the second quarter of 1998.
* * * * * *
F-25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.)
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1998, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of OmniAmerica, Inc. and subsidiaries (formerly Specialty Teleconstructors,
Inc.) at June 30, 1998, and the consolidated results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG, LLP
Dallas, Texas
September 16, 1998
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.):
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1997, and the related consolidated statements of earnings, stockholders
equity, and cash flows for each of the years in the two year period ended June
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Novak & Lackey Construction Co., Inc. (N&L), a wholly
owned subsidiary for the year ended June 30, 1996. Those financial statements
of N&L reflect total revenues constituting 19.24 percent of consolidated total
revenues in 1996. Those financial statements of N&L were audited by other
auditors whose report was furnished to us, and our opinion, insofar as it
relates to the amounts included for N&L, is based solely on the report of the
other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of OmniAmerica Inc. and subsidiaries
(formerly Specialty Teleconstructors, Inc.) as of June 30, 1997, and the
results of their operations and their cash flows for each of the years in the
two year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
August 29, 1997
F-27
<PAGE>
BILL MITTS, INC.
CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Novak & Lackey Construction Co., Inc.
I have audited the accompanying statements of earnings, changes in
stockholders' equity and cash flows for NOVAK & LACKEY CONSTRUCTION CO., INC.
for the year ended June 30, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Such standards require that I 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. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above, present fairly, in
all material respects, the results of operations and cash flows of NOVAK &
LACKEY CONSTRUCTION CO., INC. for the year ended June 30, 1996 in conformity
with generally accepted accounting principles.
/s/ Bill Mitts, Inc.
Oklahoma City, Oklahoma
May 8, 1997
F-28
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------- Sept. 30, 1998
1998 1997 (Unaudited)
------------ ----------- --------------
<S> <C> <C> <C>
ASSETS (Substantially Pledged)
Current assets:
Cash and cash equivalents................................................. $ 4,349,324 $ 989,720 $ 786,073
Available for sale securities............................................. -- 769,850 --
Contracts receivable, less allowance for doubtful accounts of
$390,230, $355,000 and $390,230 in 1998, 1997 and September 30, 1998,
respectively............................................................. 17,349,853 14,740,479 22,611,877
Costs and estimated earnings in excess of billings on uncompleted
contracts (note 3)....................................................... 3,747,671 2,233,289 5,800,903
Components inventory...................................................... 3,430,868 2,664,239 3,572,624
Prepaid income taxes...................................................... 287,849 407,477 --
Other current assets...................................................... 891,148 283,760 1,214,547
------------ ----------- ------------
Total current assets...................................................... 30,056,713 22,088,814 33,986,024
Property and equipment, net (note 4)....................................... 50,847,107 8,429,906 80,524,265
Goodwill, net of amortization of $808,250, $43,383 and $1,927,686 in 1998,
1997 and September 30, 1998, respectively................................. 87,993,151 1,512,555 92,333,055
Investment in unconsolidated subsidiary (note 5)........................... 7,889,650 -- 8,047,011
Other assets, net.......................................................... 2,536,804 331,989 2,333,323
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................... $ 8,802,734 $ 4,021,694 $ 12,555,104
Lines of credit (note 8).................................................. -- 3,387,910 --
Notes payable to stockholder (note 14).................................... 80,000 2,000,000 --
Billings in excess of costs and estimated earnings on uncompleted
contracts (note 3)....................................................... 758,932 597,939 362,408
Accrued expenses.......................................................... 2,171,429 790,975 2,331,180
Current installments of notes and capital leases payable (note 8)......... 474,696 573,798 600,696
Deferred income taxes (note 11)........................................... -- 384,600 --
------------ ----------- ------------
Total current liabilities................................................. 12,287,791 11,756,916 15,849,388
Deferred income taxes (note 11)............................................ 213,378 90,000 214,666
Notes and capital leases payable, excluding current installments (note 8).. 31,631,459 2,012,081 62,912,825
------------ ----------- ------------
Total liabilities......................................................... 44,132,628 13,858,997 78,976,879
------------ ----------- ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued 15,070,294, 7,876,554 and 15,206,299 shares in 1998, 1997 and at
September 30, 1998, respectively (notes 9, 10 and 15).................... 150,703 78,765 152,063
Additional paid-in capital................................................ 129,131,297 12,015,667 131,931,279
Treasury stock, at cost, 100,000 shares................................... (1,387,500) -- (1,387,500)
Note receivable from officer and director (note 14)....................... (600,000) -- (600,000)
Retained earnings......................................................... 7,896,297 6,409,835 8,150,957
------------ ----------- ------------
Total stockholders' equity................................................ 135,190,797 18,504,267 138,246,799
Commitments and contingencies (notes 6, 13, 15 and 17).....................
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
Years Ended June 30, September 30,
------------------------------------- ------------------------
1998 1997
1998 1997 1996 (Unaudited) (Unaudited)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues earned:
Installation services.. $53,038,988 $57,250,485 $28,567,033 $18,561,266 $11,466,225
Component sales........ 8,501,147 8,376,315 4,018,953 3,747,498 1,333,731
Tower leasing.......... 1,258,936 -- -- 2,128,787 --
----------- ----------- ----------- ----------- -----------
Total revenues earned.. 62,799,071 65,626,800 32,585,986 24,437,551 12,799,956
----------- ----------- ----------- ----------- -----------
Cost of revenues earned:
Cost of installation
services.............. 45,684,581 48,298,454 22,571,215 15,492,601 9,309,024
Cost of component
sales................. 5,589,902 5,113,096 3,031,256 3,075,112 973,679
Cost of tower leasing.. 659,281 -- -- 1,463,707 --
----------- ----------- ----------- ----------- -----------
Total cost of revenues
earned................ 51,933,764 53,411,550 25,602,471 20,031,420 10,282,703
----------- ----------- ----------- ----------- -----------
Gross profit on revenues
earned................. 10,865,307 12,215,250 6,983,515 4,406,131 2,517,253
Compensation expense for
cashless option
exercises (note 10).... 719,000 -- -- -- --
Selling, general and
administrative
expenses............... 8,233,490 5,915,808 3,410,546 3,397,483 1,210,376
----------- ----------- ----------- ----------- -----------
Earnings from
operations............ 1,912,817 6,299,442 3,572,969 1,008,648 1,306,877
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Interest income........ 157,015 181,516 275,397 11,560 17,344
Interest expense....... (623,723) (429,615) (82,027) (626,123) (78,695)
Equity in earnings of
unconsolidated
subsidiary............ 219,569 -- -- 157,361 --
Other, net............. 143,434 (20,101) (5,963) 13,214 51,471
----------- ----------- ----------- ----------- -----------
(103,705) (268,200) 187,407 (443,988) (9,880)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes................. 1,809,112 6,031,242 3,760,376 564,660 1,296,997
Income taxes............ 832,000 343,500 564,800 310,000 508,900
----------- ----------- ----------- ----------- -----------
Net earnings........... $ 977,112 $ 5,687,742 $ 3,195,576 $ 254,660 $ 788,097
=========== =========== =========== =========== ===========
Shares of common stock
used in computing
earnings per share:
Basic.................. 9,274,676 7,110,282 6,872,308 15,065,328 7,891,486
Diluted................ 9,562,121 7,467,990 6,881,173 15,362,774 8,164,386
Net earnings per common
share:
Basic.................. $ .11 $ .80 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Diluted................ $ .10 $ .76 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Pro forma information
(note 12):
Net earnings........... $ 5,687,742 $ 3,195,576
Pro forma adjustment
for 1997 and 1996
income taxes of
acquired entity
previously filing as
an S Corporation...... 2,140,500 891,300
----------- -----------
Pro forma net earnings
after adjustment for
income taxes of
acquired entity........ $ 3,547,242 $ 2,304,276
=========== ===========
Pro forma net earnings
per common share:
Basic.................. $ .50 $ .34
=========== ===========
Diluted................ $ .47 $ .33
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998, 1997 and 1996
and Three Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Note
receivable
from
Common stock Additional officer
------------------- paid-in Treasury and Retained
Shares Amount capital stock director earnings Total
---------- -------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 6,872,308 $ 68,723 $ 5,344,298 $ -- $ -- $ 2,687,991 $ 8,101,012
Distributions of prior S
Corporation earnings... -- -- -- -- -- (850,750) (850,750)
Net earnings............ -- -- -- -- -- 3,195,576 3,195,576
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1996................... 6,872,308 68,723 5,344,298 -- -- 5,032,817 10,445,838
Issuance of common stock
and warrants to acquire
common stock, net...... 668,985 6,690 3,686,003 -- -- -- 3,692,693
Acquisitions (note 15):
Data Cell Systems,
Inc................... 93,400 934 664,576 -- -- -- 665,510
Paramount Communication
Systems, Inc.......... 186,047 1,860 1,728,324 -- -- -- 1,730,184
Specialty Constructors
Coatings, Inc......... 55,814 558 592,466 -- -- -- 593,024
Distributions of prior S
Corporation earnings... -- -- -- -- -- (4,310,724) (4,310,724)
Net earnings............ -- -- -- -- -- 5,687,742 5,687,742
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1997................... 7,876,554 78,765 12,015,667 -- -- 6,409,835 18,504,267
Issuance of common
stock, net............. 322,892 3,229 2,886,720 -- -- -- 2,889,949
Acquisitions (note 15):
Ellis Tower............ 120,848 1,209 1,796,410 -- -- -- 1,797,619
OmniAmerica............ 6,750,000 67,500 112,432,500 -- -- -- 112,500,000
Purchase of treasury
stock.................. -- -- -- (1,387,500) -- -- (1,387,500)
Return of prior S
Corporation earnings
distribution........... -- -- -- -- -- 509,350 509,350
Note receivable from
officer and director
(note 14).............. -- -- -- -- (600,000) -- (600,000)
Net earnings............ -- -- -- -- -- 977,112 977,112
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1998................... 15,070,294 150,703 129,131,297 (1,387,500) (600,000) 7,896,297 135,190,797
Exercise of stock
options (unaudited).... 54,735 547 313,933 -- -- -- 314,480
Issuance of common
shares to acquire
Teleforce
Communications, LLC
(unaudited)............ 81,270 813 2,486,049 -- -- -- 2,486,862
Net earnings
(unaudited)............ -- -- -- -- -- 254,660 254,660
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at September 30,
1998 (unaudited)....... 15,206,299 $152,063 $131,931,279 $(1,387,500) $(600,000) $ 8,150,957 $138,246,799
========== ======== ============ =========== ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30, Three Months Ended September 30,
----------------------------------- ---------------------------------
1998 1997 1996 1998 (Unaudited) 1997 (Unaudited)
----------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings.......... $ 977,112 $5,687,742 $3,195,576 $ 254,660 $ 788,097
Adjustments to
reconcile net
earnings to net cash
provided by (used in)
operating activities:
Provision for
uncollectible
receivables.......... 225,000 355,000 -- -- --
Depreciation of
property and
equipment............ 2,282,084 1,496,830 540,083 837,933 415,864
Amortization.......... 799,867 134,185 94,418 1,119,436 48,923
Compensation expense
for cashless option
exercises............ 719,000 -- -- -- --
Equity in earnings of
unconsolidated
subsidiary........... (219,569) -- -- (157,361) --
Gain on sale of
equipment............ -- (10,489) 5,112 -- --
Changes in certain
assets and
liabilities, net of
acquisitions:
Contracts
receivable.......... (1,869,714) (4,636,796) (5,108,595) (4,887,024) 2,806,729
Prepaid income
taxes............... 119,628 (344,726) 290,631 287,849 193,109
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (1,514,382) (945,959) (703,645) (2,053,232) (1,719,735)
Components
inventory........... (680,417) (1,769,594) (433,727) (141,756) (172,564)
Other current
assets.............. (292,647) (172,919) (44,167) (119,918) (140,108)
Trade accounts
payable............. 4,109,132 808,416 2,033,040 3,752,370 (203,840)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... (335,738) 355,359 (61,740) (396,524) (60,786)
Accrued expenses..... 473,530 (444,544) 693,592 159,751 (86,926)
Current income
taxes............... -- (578,200) 577,187 -- 305,076
Deferred income
taxes............... (261,222) (210,300) (286,737) 1,288 (50,786)
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) operating
activities......... 4,531,664 (275,995) 791,028 (1,342,528) 2,123,053
----------- ---------- ---------- ----------- -----------
Cash flows from
investing activities:
Purchases of property
and equipment, net... (22,182,316) (3,609,094) (3,252,856) (32,120,235) (153,995)
Acquisition costs
recorded as
goodwill............. (3,499,319) -- -- -- --
Acquisitions, net of
cash acquired........ 1,665,555 (80,263) -- -- --
Cash expended in
acquisitions of
Teleforce
Communications,
LLC.................. -- -- -- (640,000) --
Purchases of other
assets............... (382,450) -- -- -- --
Proceeds from sale of
available for sale
securities........... 769,850 -- -- -- 67,057
Purchases of available
for sale securities,
net.................. -- (473,815) (4,082) -- --
----------- ---------- ---------- ----------- -----------
Net cash used in
investing
activities......... (23,628,680) (4,163,172) (3,256,938) (32,760,235) (86,938)
----------- ---------- ---------- ----------- -----------
Cash flows from
financing activities:
Lines of credit, net.. (3,387,910) 1,255,910 1,362,000 -- (1,957,752)
Borrowings from notes
payable.............. 29,162,211 661,500 888,979 30,496,087 --
Payment of deferred
financing fees....... (1,340,000) -- -- -- --
Principal payments on
notes payable........ (750,480) (783,110) (125,686) (191,055) (279,307)
Borrowings from notes
payable to
stockholder.......... -- 2,000,000 500,000 -- --
Principal payments on
notes payable to
stockholder.......... (1,410,650) (500,000) -- (80,000) (406,000)
Proceeds from sale of
common stock and
warrants to acquire
common stock, net.... 1,570,949 3,692,693 -- 314,480 89,679
Acquisition of treasury
stock................. (1,387,500) -- -- -- --
Distributions of prior
S Corporation
earnings.............. -- (4,310,724) (850,750) -- --
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 22,456,620 2,016,269 1,774,543 30,539,512 (2,553,380)
----------- ---------- ---------- ----------- -----------
Net increase
(decrease) in cash
and cash
equivalents........ 3,359,604 (2,422,898) (691,367) (3,563,251) (517,265)
Cash and cash
equivalents at
beginning of year..... 989,720 3,412,618 4,103,985 4,349,324 989,720
----------- ---------- ---------- ----------- -----------
Cash and cash
equivalents at end of
year.................. $ 4,349,324 $ 989,720 $3,412,618 $ 786,073 $ 472,455
=========== ========== ========== =========== ===========
</TABLE>
F-32
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Interest paid................................ $ 623,723 $ 478,177 $ 108,707
========== ========== ==========
Income taxes paid............................ $1,220,587 $1,318,977 $1,142,009
========== ========== ==========
Acquisition of vehicles in exchange for notes
payable..................................... $1,108,545 $1,208,056 --
========== ========== ==========
Note receivable from stockholder in exchange
for common stock............................ $ 600,000 -- --
========== ========== ==========
Return of prior S Corporation earnings
distribution................................ $ 509,350 -- --
========== ========== ==========
</TABLE>
Acquisitions of net assets of Ellis Tower and OmniAmerica Holdings in exchange
for cash and common stock of the Company in the year ended June 30, 1998 and
Paramount, Data Cell, and Coatings in exchange for cash and common stock of the
Company in the year ended June 30, 1997 and the related fair value of assets
acquired and liabilities assumed at the date of the acquisition were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Contracts receivable................................ $ 1,175,989 $1,348,404
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... -- (169,674)
Components inventory................................ 86,212 204,888
Other current assets................................ 314,741 --
Property and equipment.............................. 21,408,424 934,550
Goodwill............................................ 87,069,134 1,593,397
Investment in unconsolidated subsidiary............. 7,670,081 --
Other assets........................................ 482,365 100,066
Trade accounts payable.............................. (671,908) (475,809)
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... (496,731) --
Accrued expenses.................................... (906,924) (6,883)
Notes and capital leases payable.................... -- (459,957)
Common stock issued................................. (114,297,619) (2,988,719)
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
and Three Months Ended September 30, 1998 and 1997 (Unaudited)
(1) Organization, Description of Business and Basis of Presentation
On September 14, 1998, Specialty Teleconstructors, Inc. ("STI"), through a
merger with a wholly-owned subsidiary of STI, changed its name from STI to
OmniAmerica, Inc. ("OmniAmerica" or the "Company") and changed its state of
incorporation from Nevada to Delaware.
The Company is headquartered in Cedar Crest, New Mexico and was formed as a
holding company to combine the operations of its principal operating
subsidiaries, OmniAmerica Towers, Inc., OmniAmerica Development Corporation,
OmniAmerica Holdings Corporation, South Atlantic Tower Corporation, Specialty
Constructors, Inc., Specialty Constructors Coatings, Inc., Specialty
Management, Inc., OmniTower, Ltd., Microwave Tower Service, Inc., Novak &
Lackey Construction Company, Inc., and Specialty Combined Resources, Inc. The
Company is a leading provider of wireless communications and broadcast tower
services to the United States communications industry. The Company's tower
services include owning, leasing, managing and developing multi-use
telecommunications sites for radio and television broadcasting, paging,
cellular, personal communications services and other wireless technologies;
providing wireless infrastructure building and implementation services
primarily for providers of wireless communication services in the United
States; and manufacturing and selling wireless infrastructure components used
in the construction and maintenance of wireless communication transmitting and
receiving facilities. The Company's customers are located throughout the
country.
Effective March 31, 1997, a subsidiary of the Company merged with Novak &
Lackey Construction Co., Inc. ("N&L") and on June 30, 1997, a subsidiary of the
Company merged with Microwave Tower Service, Inc. ("MTS"). Both transactions
were accounted for as pooling of interests business combinations. Accordingly,
the Company's consolidated financial statements prior to these transactions
have been restated to reflect the combined operations (see note 15) for all
periods presented.
The unaudited consolidated interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and accordingly, they do not include all of the information and
disclosures normally required by generally accepted accounting principles for
complete financial statements. The interim financial information reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of results for interim
periods. Results for the three month period ended September 30, 1998 are not
necessarily indicative of the results to be expected for a full year.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Investment in a 33 1/3% owned affiliated company is accounted for on the equity
basis of accounting and accordingly, the respective statements of earnings
includes the Company's proportionate share of the affiliate's income since its
date of acquisition during fiscal 1998.
(b) Revenue Recognition
Revenues from installation services are recognized on the percentage-of-
completion method. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance. 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.
F-34
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues recognized.
Revenues from the sale of components are recognized upon shipment to the
customer.
Revenues from tower leasing are recognized ratably as earned over the
respective tower lease terms.
(c) Statements of Cash Flows
For purposes of statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Available for Sale Securities
Investment securities consist of stocks, municipal bonds and mutual funds. In
accordance with Statement of Financial Accounting Standard (SFAS) No. 115, the
Company's investments are classified as available for sale. Available for sale
securities are recorded at fair value based on the market value as provided by
brokers/dealers. Unrealized holding gains and losses, net of the related tax
effect, are reported as a separate component of stockholders' equity. Realized
gains and losses from the sale of available for sale securities are determined
on a specific identification basis.
A decline in the market value of any available for sale security below cost
that is deemed to be other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Dividend and interest income are recognized when
earned.
As of June 30, 1997, the cost of the Company's available for sale securities
approximated market value. Such securities were liquidated during 1998.
(e) Components Inventory
Components inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the asset.
(g) Business and Credit Concentrations
Customers comprising 10 percent or greater of the Company's revenues earned are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sprint....................................................... 15% -- --
Western Wireless............................................. -- 20% 12%
AT&T......................................................... -- 12% --
</TABLE>
The Company generally does not require collateral from its customers and has
provided adequate provisions for possible credit losses for 1998, 1997 and
1996.
F-35
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Distributions
Distributions to the previous subchapter S Corporation stockholder in 1997 were
made at the discretion of the Board of Directors for payment of income taxes.
In 1998, the excess amount of this distribution over actual income taxes was
returned to the Company.
(i) Goodwill
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over the estimated benefit period of
approximately 30 years.
(j) Deferred Financing Costs
Deferred financing costs incurred in connection with the Company's senior
secured revolving credit facility and variable term note is being amortized
over the term of the related debt on a straight-line basis.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
July 1, 1996. This statement requires that long-lived assets and certain
identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(l) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Advertising Costs
Advertising costs, all of which are non-direct response advertising, are
expensed as incurred. Advertising expense was approximately $153,000, $133,000
and $39,000 during the years ended June 30, 1998, 1997 and 1996, respectively.
(n) Stock Option Plan
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS
F-36
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in fiscal 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(o) Uses 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 those estimates.
(p) Earnings Per Share
In 1998, the Company adopted SFAS No. 128, Earnings per Share. In accordance
with this SFAS, basic earnings per common share is computed by dividing net
income applicable to common stock by the weighted average number of common
shares outstanding. Dilutive earnings per share is computed by dividing net
income applicable to common stock by the total of the weighted average number
of common shares outstanding and the additional dilutive effect of stock
options and warrants during the period. The dilutive effect of outstanding
stock options and warrants is computed using the average market price of the
Company's common stock for the period. The earnings per share for 1997 and 1996
have been restated to conform to this change.
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net income and other
related disclosures required by SFAS No. 128:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Year ended June 30, 1998:
Basic earnings per share:
Income available to common
stockholders....................... $ 977,112 9,274,676 $.11
Effect of dilutive shares:
Options............................. -- 287,445
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 977,112 9,562,121 $.10
========== ========= ====
Year ended June 30, 1997:
Basic earnings per share:
Income available to common
stockholders....................... $5,687,742 7,110,282 $.80
Effect of dilutive shares:
Options and warrants................ -- 357,708
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $5,687,742 7,467,990 $.76
========== ========= ====
</TABLE>
F-37
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $3,547,242 7,110,282 $.50
========== ========== ====
Diluted............................. $3,547,242 7,467,990 $.47
========== ========== ====
Year ended June 30, 1996:
Basic earnings per share:
Income available to common
stockholders....................... $3,195,576 6,872,308 $.46
====
Effect of dilutive shares:
Options............................. -- 8,865
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $3,195,576 6,881,173 $.46
========== ========== ====
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $2,304,276 6,872,308 $.34
========== ========== ====
Diluted............................. $2,304,276 6,881,173 $.33
========== ========== ====
Quarter ended September 30, 1998
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 254,660 15,065,328 $.02
====
Effect of dilutive shares:
Options............................. -- 297,446
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 254,660 15,362,774 $.02
========== ========== ====
Quarter ended September 30, 1997
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 788,097 7,891,486 $.10
Effect of dilutive shares:
Options............................. -- 272,900
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 788,097 8,164,386 $.10
========== ========== ====
</TABLE>
(q) Financial Instruments
SFAS No. 107, Disclosures About Fair Values of Financial Instruments, requires
the fair value of financial instruments be disclosed. In addition to available
for sale securities carried at fair value, the Company's financial instruments
are contracts receivable, accounts payable, lines of credit and notes payable.
The carrying amounts of these items, because of their nature, approximate fair
value.
F-38
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(r) New Accounting Standards
Effective July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Financial Reporting for Segments of a
Business Enterprise. Under the provisions of SFAS No. 130, there are currently
no items other than net income which would be classified as part of
comprehensive income. Under the provisions of SFAS No. 131, there are no
requirements for interim financial statements in the initial year of
application.
(s) Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
(3) Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>
Sept. 30, 1998
1998 1997 (Unaudited)
------------ ------------ --------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts....................... $ 23,877,446 $ 16,682,266 $ 19,648,486
Estimated earnings............... 10,033,415 6,321,822 8,934,426
Less billings to date............ (30,922,122) (21,368,738) (23,144,417)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
Included in the accompanying bal-
ance sheets:
Costs and estimated earnings in
excess of billings on uncom-
pleted contracts.............. $ 3,747,671 $ 2,233,289 $ 5,800,903
Billings in excess of costs and
estimated earnings on uncom-
pleted contracts.............. (758,932) (597,939) (362,408)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
</TABLE>
(4) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
useful Sept. 30, 1998
lives (years) 1998 1997 (Unaudited)
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Tower assets............ 30 $34,918,139 $ -- $63,536,131
Land.................... 3,528,681 398,204 3,528,681
Buildings............... 15-40 4,932,786 1,812,275 5,104,439
Vehicles................ 3-7 6,406,562 5,103,442 7,225,203
Furniture and fixtures.. 3-10 1,794,439 1,468,646 2,331,084
Equipment............... 3-10 4,556,502 2,774,246 4,741,286
Leasehold improvements.. 5 156,053 58,827 180,324
----------- ----------- -----------
56,293,162 11,615,640 86,647,148
Less accumulated depre-
ciation................ (5,446,055) (3,185,734) (6,122,883)
----------- ----------- -----------
$50,847,107 $ 8,429,906 $80,524,265
=========== =========== ===========
</TABLE>
F-39
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Investment in Unconsolidated Subsidiary (unaudited)
As a result of the Company's merger with OmniAmerica Holdings in April 1998
described in note 15 below, the Company holds a 33 1/3% interest in Kline Iron
and Steel Co., Inc. ("Kline"), a company which fabricates structural and tower
steel products, domestically and internationally, and is accounted for under
the equity method. Summarized historical financial information of Kline as of
and for the year ended June 30, 1998 and the three months ended September 30,
1998 (unaudited):
<TABLE>
<CAPTION>
September 30,
1998
1998 (Unaudited)
----------- -------------
<S> <C> <C>
Current Assets..................................... $29,595,156 $24,588,787
Total Assets....................................... 33,448,072 28,609,187
Stockholders' Equity............................... 5,625,935 6,098,005
Revenues........................................... 65,345,299 21,890,000
Net Earnings....................................... 2,389,023 472,000
</TABLE>
(6) Leases
The Company leases its main office building from an executive officer and
leases office space for several regional offices and various equipment and
vehicles from unrelated parties. These leases are operating leases that expire
over the next four years. The main office building lease contains a renewal
option for five years and requires the Company to pay all executory costs such
as maintenance and insurance. Rental expense for operating leases was
approximately $490,000, $365,000 and $218,000 for the years ending June 30,
1998, 1997 and 1996, respectively.
Future minimum lease payments under non-cancelable operating leases at June 30,
1998 are:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 464,857
2000............................................................. 247,931
2001............................................................. 151,263
2002............................................................. 103,482
2003............................................................. 112,816
Thereafter....................................................... 2,554,075
----------
Total minimum lease payments................................. $3,634,424
==========
</TABLE>
(7) Tower Leasing Revenue
The Company receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower leasing revenues under tower leases in effect at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 4,341,131
2000............................................................. 3,731,309
2001............................................................. 2,953,908
2002............................................................. 2,356,235
2003............................................................. 1,802,980
Thereafter....................................................... 4,409,387
-----------
$19,594,950
===========
</TABLE>
F-40
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Notes and Capital Leases Payable
Notes and capital leases payable consist of the following:
<TABLE>
<CAPTION>
Sept. 30, 1998
1998 1997 (Unaudited)
----------- ---------- --------------
<S> <C> <C> <C>
Variable rate term note payable to
Chase Manhattan Bank, interest at
LIBOR plus 2% (7.50% and 7.675% at
September 30, 1998 (unaudited) and
June 30, 1998, respectively) payable
monthly, matures June 30, 2001;
secured by substantially all assets
of the Company...................... $30,000,000 $ -- $60,496,087
Note payable in monthly installments
of $6,675, including interest at
U.S. Treasury Index plus 3.5%
(9.125% at September 30, 1998 and
June 30, 1998) with the balance due
March 2005; secured by a building
and guaranteed by a principal
stockholder of the Company.......... 776,410 784,436 774,035
7.3% capital lease payable in monthly
installments of $56,297 with the
balance due September 2001, secured
by vehicles......................... 697,937 -- 1,786,968
8.5% note payable in monthly
installments of $12,068, including
interest, with the balance due July
1999; secured by vehicles........... 350,177 492,893 322,046
11% note payable in monthly
installments of approximately
$29,795, including interest, with
the balance due at various dates in
2000; secured by vehicles........... -- 835,968 --
Other................................ 281,631 472,582 134,385
----------- ---------- -----------
Total notes and capital leases
payable......................... 32,106,155 2,585,879 63,513,521
Less current installments............ 474,696 573,798 600,696
----------- ---------- -----------
Notes and capital leases payable,
excluding current installments.. $31,631,459 $2,012,081 $62,912,825
=========== ========== ===========
</TABLE>
The aggregate maturities of notes and capital leases payable are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 474,696
2000............................................................. 467,374
2001............................................................. 30,343,948
2002............................................................. 77,377
2003............................................................. 9,100
Thereafter....................................................... 733,660
-----------
$32,106,155
===========
</TABLE>
F-41
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company entered into a bank senior secured revolving credit facility of
$45,000,000 with Chase Manhattan Bank on June 30, 1998. There were no draws
from this credit facility as of June 30, 1998. The credit facility is to be
secured by substantially all the Company's assets, and borrowings are limited
to certain EBITDA ratios along with specific capitalization and interest
ratios. Interest is based on Company directed Eurodollar or ABR variable rate
of interest. The line of credit balance as of June 30, 1997 was repaid in 1998.
(9) Warrants
In connection with its initial public offering in November 1994, the Company
issued 1,000,000 shares of common stock and warrants to acquire 500,000 shares
of common stock. Warrants issued with the Company's common stock were
exercisable for $6.00 per share. Additionally, in connection with the public
offering, the Company issued warrants to the underwriters to purchase 50,000
units, each consisting of two shares of common stock and one warrant to acquire
a share of common stock. The exercise price was 120 percent of the initial
public offering price of $10.125 per unit, or $12.15 per unit. Pursuant to the
warrant agreements, the Company was entitled to redeem all outstanding
warrants, or repurchase those not redeemed at $.05 per share, upon the
Company's common stock market closing price reaching specified levels. These
levels were attained and, on February 20, 1997, the Company filed a
registration statement which included a notice to the warrant holders of record
that the Company intended to redeem all unexercised warrants on March 26, 1997
(the "Redemption Date"). All but 330 of the outstanding warrants, including all
of the underwriter units, were exercised prior to the Redemption Date,
resulting in the issuance of 649,670 shares of the Company's common stock.
Proceeds to the Company, net of issuance costs of approximately $289,000, were
$3,607,000. Following the Redemption Date, the Company redeemed the 330 then
outstanding warrants at $.05 each.
(10) Stock Option Plans
In November 1997, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1997 Plan) pursuant
to which the Company may grant stock options to officers and key employees. The
1997 Plan may be terminated at any time by the Board of Directors, subject to
shareholder approval. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant. All stock options have 10-
year terms and generally vest and become fully exercisable after 3 years from
the date of grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Incentive Stock Option Plan (the 1995 Plan) pursuant to which the
Company may grant stock options to officers and key employees. The 1995 Plan
may be terminated at any time by the Board of Directors, subject to shareholder
approval. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. All stock options have 10-year terms
and generally vest and become fully exercisable after 3 years from the date of
grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Outside Directors' Stock Option Plan (Directors Plan) pursuant to
which the Company may grant stock options to non-employee directors of the
Company. The Directors Plan will terminate in May 2004. The Directors Plan
authorizes grants of options to purchase up to 50,000 shares of authorized but
unissued common stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. All stock options have
10-year terms and vest and become fully exercisable after 3 years from the date
of grant.
At June 30, 1998, there were 15,000 additional shares available for grant under
the 1997 Plan, 163 additional shares available for grant under the 1995 Plan
and 2,000 additional shares available under the Directors Plan. The per share
weighted-average fair value of stock options granted during 1998, 1997 and 1996
was $12.58,
F-42
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$6.98 and $4.05 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1998--expected
volatility of 63 percent, expected dividend yield 0 percent, risk-free interest
rate of 5.22 percent, and an expected life of 3 years; 1997--expected
volatility of 82 percent, expected dividend yield 0 percent, risk-free interest
rate of 6.82 percent, and an expected life of 3 years; 1996--expected
volatility of 200 percent, expected dividend yield 0 percent, risk-free
interest rate of 6.14 percent, and an expected life of 3 years.
On July 24, 1998, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1998 Plan) pursuant
to which the Company may grant stock options to key employees. The effective
date of the 1998 Plan was September 14, 1998 and shall terminate ten years
later. A maximum of 675,000 shares were designated.
The Company applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C> <C>
Net income....................... As reported $977,112 $5,687,742 $3,195,576
Pro forma $ 95,427 $4,212,742 $3,195,576
Earnings per common share:
Basic.......................... As reported $ .11 $ .80 $ .46
Pro forma $ .01 $ .59 $ .46
Diluted........................ As reported $ .10 $ .76 $ .46
Pro forma $ .01 $ .56 $ .46
</TABLE>
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to July 1, 1995
is not considered.
Stock option activity for all plans during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of average
Shares exercise price
--------- --------------
<S> <C> <C>
Balance at June 30, 1995......................... 62,120 $ 3.06
Granted........................................ 261,525 4.39
Exercised...................................... --
Forfeited...................................... --
Expired........................................ --
--------
Balance at June 30, 1996......................... 323,645 4.14
Granted........................................ 337,500 12.96
Exercised...................................... (23,125) 3.71
Forfeited...................................... (4,175) 4.52
Expired........................................ --
--------
Balance at June 30, 1997......................... 633,845 8.85
Granted........................................ 321,700 12.58
Exercised...................................... (239,836) 5.10
Forfeited...................................... (47,933) 6.98
Expired........................................ --
--------
Balance at June 30, 1998......................... 667,776 $12.13
========
</TABLE>
F-43
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information about fixed stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------
Weighted-average Weighted-
Number remaining average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- --------------
<S> <C> <C> <C>
$3.0625 to $4.5625............. 54,925 1.00 $ 4.13
$6 to $9....................... 48,000 1.38 7.13
$10 to $12.50.................. 295,851 2.50 12.07
$13.00 to $15.50............... 269,000 1.77 14.72
-------
667,776 12.13
=======
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
--------------------------
Weighted-
Number average
Range of exercise prices outstanding exercise price
------------------------ ----------- --------------
<S> <C> <C>
$3.0625 to $4.5625.............................. 54,925 $ 4.13
$6 to $9........................................ 39,000 6.69
$10 to $12.50................................... 101,001 11.88
$13.00 to $15.50................................ 168,332 14.74
-------
363,258 11.47
=======
</TABLE>
In 1998, approximately 23,500 options were exercised by employees and an
outside director on the cashless method, which resulted in the Company
recognizing a one-time non-cash compensation expense of $719,000.
(11) Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- --------- --------
<S> <C> <C> <C>
Year ended June 30, 1998:
U.S. federal................................ $ 973,000 $(249,000) $724,000
State and local............................. 143,000 (35,000) 108,000
---------- --------- --------
Total..................................... $1,116,000 $(284,000) $832,000
========== ========= ========
Year ended June 30, 1997:
U.S. federal................................ $ 411,500 $(201,800) $209,700
State and local............................. 98,700 35,100 133,800
---------- --------- --------
Total..................................... $ 510,200 $(166,700) $343,500
========== ========= ========
Year ended June 30, 1996:
U.S. federal................................ $ 782,700 $(263,600) $519,100
State and local............................. 68,900 (23,200) 45,700
---------- --------- --------
Total..................................... $ 851,600 $(286,800) $564,800
========== ========= ========
</TABLE>
F-44
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to earnings before income taxes as a
result of the following factors:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax.................. $615,000 $ 2,050,600 $1,278,500
Reduction for income taxable to
Subchapter S shareholder (MTS).......... -- (1,895,900) (757,600)
Deferred taxes established in connection
with acquisition of prior Subchapter S
Corporation (MTS)....................... -- 90,000 --
Non-deductible goodwill expense.......... 58,100 -- --
Non-deductible compensation expense for
cashless option exercises............... 38,900 -- --
Non-deductible meals and entertainment... 32,300 -- --
State income taxes, net of federal tax
benefit................................. 90,400 63,100 38,800
Other.................................... (2,700) 35,700 5,100
-------- ----------- ----------
Total.................................... $832,000 $ 343,500 $ 564,800
======== =========== ==========
</TABLE>
The change in the effective tax rate for the three months ended September 30,
1998 results primarily from additional non-deductible goodwill expense.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred Tax Liabilities:
Adjustment for conversion from cash basis to accrual
basis tax reporting................................. $(213,200) $(385,700)
Investment in unconsolidated subsidiary.............. (167,600) --
Amortization of goodwill and depreciation for
financial reporting purposes in excess of tax
amounts............................................. (270,300) 21,400
Deferred taxes established in connection with
acquisition of prior Subchapter S Corporation
(MTS)............................................... (90,000) (90,000)
Other................................................ -- (20,300)
--------- ---------
Total deferred tax liability......................... (741,100) (474,600)
--------- ---------
Deferred Tax Assets:
Allowance for doubtful accounts...................... 152,200 --
Start up costs....................................... 244,000 --
Accrued expenses..................................... 65,300 --
Net operating loss................................... 336,800 --
Other................................................ 29,522 --
Less valuation allowance............................. (300,100) --
--------- ---------
Total deferred tax asset............................. 527,722 --
--------- ---------
Net deferred tax liability........................... $(213,378) $(474,600)
========= =========
</TABLE>
A subsidiary of the Company has a net operating loss of $893,000 as of its
acquisition date. This net operating loss is subject to limitation by Internal
Revenue Code Section 382 and the separate return limitation year rules. The net
operating loss will begin to expire in the year 2012. A valuation allowance has
been established against the net deferred tax asset resulting from the net
operating loss due to the limitations imposed on the utilization of the loss.
All of the valuation allowance for deferred tax assets will reduce goodwill
when the tax benefit is recognized in the future.
F-45
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Pro Forma Income Taxes
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings to present taxes on
the results of operations of MTS for the year ended June 30, 1997 and 1996 on
the basis that is required upon their change in tax status from an S
Corporation to a C Corporation. This amount, $2,140,500 and $891,300 in 1997
and 1996, respectively, are equal to the required Federal and state income tax
provisions that would have been recorded if MTS had not elected S Corporation
status and was subject to and liable for Federal and state income taxes as a C
Corporation prior to its termination of S Corporation status. MTS terminated
its S Corporation status upon merging with a wholly-owned subsidiary of the
Company on June 30, 1997.
(13) Profit-sharing Plans
In November 1996, the Company established a profit sharing plan pursuant to
Section 401(k) of the Internal Revenue Code, whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the code. The plan provides for a matching contribution by the
Company, which amounted to approximately $50,800, $9,000 and $-0- for the years
ended June 30, 1998, 1997 and 1996, respectively.
In 1989, MTS, a wholly-owned subsidiary, established a discretionary profit
sharing and money purchase pension plan. The plans cover all non-union
employees who have met certain service requirements. Contributions to the
profit sharing plan are discretionary and determined based on operating results
of MTS. For the money purchase pension plan, MTS was required to contribute 8%
of eligible compensation annually. Effective, October 31, 1997, the plans were
terminated in accordance with the provisions of Employee Retirement Income
Security Act of 1974, and all participants became immediately vested in their
accounts. Contributions were approximately $-0-, $173,000 and $91,000 in 1998,
1997 and 1996, respectively.
(14) Related Party Transactions
(a) Leases
The Company leases its main office building from Michael R. Budagher (a
principal stockholder, an officer and director of the Company).
(b) Budagher's Tower Co. ("BTC")
The Company uses contract labor provided by BTC, a corporation which is wholly-
owned by Michael R. Budagher's brother. The Company incurred $252,933,
$452,338, $92,931, $47,869 and $68,508 for contract labor services provided by
BTC during the years ended June 30, 1998, 1997 and 1996 and the three months
ended September 30, 1998 and 1997, respectively.
(c) Specialty Constructors Coatings, Inc. ("SCC")
The Company uses contract labor services provided by SCC. SCC is a corporation
which was 50 percent owned by Michael R. Budagher until March 31, 1997, when
Mr. Budagher sold his interest in SCC. On June 1, 1997, the Company acquired
SCC (note 15). The Company incurred $606,304 and $401,587 for contract labor
services provided by SCC during the year ended June 30, 1997 and 1996,
respectively.
F-46
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Specialty Manufacturing, Inc. ("SMI")
Prior to August 1997, the Company purchased ground kits from SMI used in
certain construction projects. SMI is owned 50 percent by Michael R. Budagher's
spouse (a stockholder) and 50 percent by Michael R. Budagher's brother (a
stockholder and employee of the Company). The Company purchases from SMI
totaled $3,768, $29,852, $13,285, $-0- and $2,578 during the years ended June
30, 1998, 1997 and 1996 and the three months ended September 30, 1998 and 1997,
respectively. In August 1997, MTS acquired substantially all of the inventory
and manufacturing equipment of SMI for $134,882 in cash and the right to
receive a royalty of $2 for each ground kit sold by MTS through July 31, 2000.
The Company paid royalties to SMI in the amount of $42,348 in 1998.
(e) Change Corporation ("Change")
The Company occasionally purchases computer equipment and software from Change,
which is used for office purposes. Change is owned by Michael R. Budagher's
sister. The Company incurred $36,575, $-0-, $-0-, $3,174 and $-0- in 1998, 1997
and 1996 and the three months ended September 30, 1998 and 1997, respectively,
for such purchases.
(f) Note Receivable from Officer and Director
A 7% recourse note receivable of $600,000 due December 29, 2002 is due from an
officer and director of the Company. Such note was originated for the purchase
of 50,000 shares of the Company's common stock, the source being from unissued
shares of the Company. Such balance is classified in the stockholders' equity
section of the balance sheet.
(g) Notes Payable to Stockholder
The Company had notes payable to stockholder for $80,000 and $2,000,000 as of
June 30, 1998 and 1997, respectively. Such notes payable originated as a
distribution to the previous Subchapter S Corporation stockholder in 1997 for
estimated payment of income taxes. $1,410,650 was paid to this stockholder
during 1998, $509,350 of this balance was returned to the Company for the
difference between the actual income tax liability and the original $2,000,000
distribution, and $80,000 remains for anticipated remaining liability for such
income taxes. The remaining payable is secured by components inventory.
(h) Principal Stockholder Advisory and Financial Services Commitment
The Company has retained Hicks, Muse & Co. Partners ("HMCo") (owner of
approximately 45% of the Company's outstanding common stock) in 1998 to perform
certain advisory, oversight, monitoring and financial services as requested by
the Board of Directors for a period to be the lesser of April 23, 2008 or upon
HMCo owning less than 33 1/3% of the outstanding common stock of the Company.
Such annual fees shall be the greater of $180,000 or .2% of annual consolidated
net sales of the Company for oversight and monitoring services and a 1 1/2% fee
for all future acquisitions, sales, mergers, recapitalization, restructurings
or other similar transactions for which HMCo provides services. During 1998,
approximately $269,000 was paid to HMCo. Such services did not exist in 1997 or
1996.
(i) Kline Tower and Steel ("Kline")
The Company purchases certain structural and tower steel products from Kline.
The Company owns 33 1/3% of the outstanding equity of Kline (note 5). During
the year ended June 30, 1998, approximately $2,569,000 of such products were
purchased from Kline and approximately $100,000 in consulting fees were paid to
Kline.
F-47
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is obligated to pay Kline this $100,000 consulting fee each year
for the next four fiscal years. Approximately $294,000 included in trade
accounts payable was owed to Kline as of June 30, 1998. The Company did not
hold an ownership interest in Kline during 1997 and 1996.
(j) Wireless Components, Inc.
During the year ended June 30, 1996, the Company purchased $325,000 of
components from Wireless Components, Inc., an entity owned by Thomas Carpenter,
a principal stockholder of the Company.
(15) Acquisitions
On August 26, 1998, the Company acquired three towers for approximately
$2,400,000.
On July 9, 1998, the Company paid $640,000 and issued 81,270 shares of
restricted common stock of the Company at a price of $30.60 per share,
determined by the closing price on or about July 9, 1998, in exchange for
substantially all of the assets and liabilities of Teleforce Communications,
LLC. ("Teleforce"). Teleforce provides site acquisition services for the
wireless communications industry. The transaction was accounted for as a
purchase. Goodwill of approximately $2,750,000 recorded in connection with the
purchase is being amortized over a period of 30 years.
On April 23, 1998, the Company issued 6,750,000 shares of restricted common
stock of the Company at a price of $16.67 per share, determined by the average
closing price on or about February 16, 1998, in connection with the merger of
OmniAmerica Holdings ("OmniAmerica Holdings"). OmniAmerica Holdings owns assets
consisting of real estate, equipment and other physical property used in the
operation of the wireless communications and broadcast transmission tower
leasing business. The source of the shares for the transaction were unissued
shares of the Company. The transaction was accounted for as a purchase.
Accordingly, the results of OmniAmerica Holdings have been included in those of
the Company since the date of the merger. Goodwill of approximately $85,000,000
recorded in connection with the acquisition is being amortized over a period of
30 years. The Company is currently completing the allocation of its purchase
price, including the valuation of identifiable intangible assets. The
refinement of the purchase price allocation within the next year is not
expected to have a material impact on the Company's financial position or
results of operations.
On October 7, 1997, a wholly-owned subsidiary of the Company purchased
substantially all the assets of Ellis Tower Co., Inc. ("Ellis Tower"), in
exchange for $449,405 in cash and 120,848 shares of the Company's common stock
at a price of $14.87 determined by the closing price on or about October 7,
1997. Ellis Tower, located in Ft. Lauderdale, Florida, provides wireless
infrastructure building services. The source of the shares for the transaction
were unissued shares of the Company. The transaction was accounted for as a
purchase. Accordingly, the results of Ellis Tower have been combined with those
of the Company since the date of the purchase. Goodwill of approximately
$1,700,000 recorded in connection with the purchase is being amortized over a
period of 15 years.
On June 30, 1997, the Company issued 2,380,000 shares of restricted common
stock of the Company at a price of $11.625 per share, determined by the closing
price on or about June 8, 1997, pursuant to the merger of MTS with a wholly-
owned subsidiary of the Company. The source of the shares for the transaction
were unissued shares of the Company. MTS, located in Salem, Oregon; Salt Lake
City, Utah; Phoenix, Arizona; Denver, Colorado; and Sacramento, California,
provides wireless infrastructure building services and manufacturing,
distribution and sales of components for wireless infrastructure. The
transaction was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements have been restated to include the
operations of MTS prior to the acquisition for all periods presented.
F-48
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 1, 1997, the Company issued 55,814 shares of restricted common stock of
the Company at a price of $10.625 per share, determined by the closing price on
or about June 1, 1997, in exchange for substantially all the assets and
liabilities of Specialty Constructors Coatings, Inc. ("Coatings"). Coatings was
originally 50 percent owned by Michael R. Budagher, but Mr. Budagher's interest
was sold to the other shareholders on March 1, 1997. The source of the shares
for the transaction were unissued shares of the Company. Coatings, located in
Cedar Crest, New Mexico, provides wireless infrastructure building services,
primarily on water tank facilities. The transaction was accounted for as a
purchase. Accordingly, the results of Coatings' operations have been combined
with those of the Company since the date of acquisition. No goodwill was
recorded in connection with the purchase.
On May 28, 1997, the Company issued 186,047 shares of restricted common stock
of the Company at a price of $9.30 per share, determined by the closing price
on or about March 31, 1997, in exchange for substantially all the assets and
liabilities of Paramount Communication Systems, Inc. ("Paramount"). The source
of the shares for the transaction were unissued shares of the Company.
Paramount, located in Somerdale, New Jersey, provides wireless infrastructure
building services. The transaction was accounted for as a purchase.
Accordingly, the results of Paramount's operations have been combined with
those of the Company since the date of acquisition. Goodwill of approximately
$1,300,000 recorded in connection with the purchase is being amortized over a
period of fifteen years. In connection with the purchase, the Company entered
into a note receivable with the principal stockholder of Paramount. The note,
in the amount of $250,000, is due in three semi-annual installments beginning
May 2000 and one final installment in November 2001. Interest, at 9 percent, is
payable quarterly. Under the terms of the acquisition agreement, the Company is
obligated to loan an additional $250,000 to the stockholder of Paramount. Such
additional loan was not requested by the stockholder in 1998. The note is
secured by 93,024 shares of the Company's common stock.
On May 14, 1997, the Company issued 400,000 shares of restricted common stock
of the Company at a price of $9.25 per share, determined by the closing price
on or about March 31, 1997, pursuant to the merger of N&L with a wholly-owned
subsidiary of the Company. The source of the shares for the transaction were
unissued shares of the Company. N&L, located in Oklahoma City, OK and southern
California, provides general contract services for wireless telecommunications
companies, health care and other commercial customers. The transaction was
accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements have been restated to include the operations
of N&L prior to the acquisition for all periods presented.
On October 31, 1996, the Company paid $160,000 and issued 93,400 shares of
restricted common stock of the Company at a price of $7.125 per share,
determined by the closing price on or about October 31, 1996, in exchange for
substantially all the assets and liabilities of Data Cell Systems, Inc. ("Data
Cell"). Data Cell provides wireless infrastructure building services. The
source of the shares for the transaction were unissued shares of the Company.
The transaction was accounted for as a purchase. Accordingly, the results of
Data Cell's operations have been combined with those of the Company since the
date of acquisition. Goodwill of approximately $380,000 recorded in connection
with the purchase is being amortized over a period of five years. Additionally,
pursuant to the purchase agreement, the Company may be required to pay
additional consideration, not to exceed $200,000, based upon the Data Cell
subsidiary achieving specified levels of pre-tax earnings during the three
years immediately following the date of acquisition. Such levels were not
attained in the years ended June 30, 1998 and 1997.
On July 1, 1995, the Company issued 92,308 shares of its restricted common
stock at a price of $2.75 per share, determined by the closing price on or
about July 1, 1995, in exchange for all of the outstanding shares of Specialty
Combined Resources, Inc. (Specialty Combined). The source of the shares for the
transaction are
F-49
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
unissued shares of the Company. Specialty Combined, located in Laguna Hills,
California, provides engineering, design and coordination services of power,
lighting and control systems for communications, health care, petrochem,
institutional and commercial customers. The Company also entered into a
consulting and noncompete agreement with the former principal of Specialty
Combined for a period of thirty-six (36) months from the date of the
acquisition for $75,000. Additionally, the Company entered into an employment
agreement with the former principle of Specialty Combined to provide services
to the Company for a period of thirty-six (36) months from the date of
acquisition. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements were restated to
include the operations of Specialty Combined for all periods prior to the
acquisition.
Fiscal years 1998, 1997 and 1996 also include other acquisitions which are
immaterial to the consolidated financial statements of the Company.
Separate results of the combining entities, giving effect to the N&L and MTS
poolings of interests for periods prior to such transactions are as follows for
the years ending June 30:
<TABLE>
<CAPTION>
1997(1) 1996
As restated As restated
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues earned:
OmniAmerica...................................... $32,303,360 $16,758,629
Novak & Lackey................................... 10,303,550 6,270,979
Microwave Tower Service.......................... 23,019,890 9,556,378
----------- -----------
$65,626,800 $32,585,986
=========== ===========
Net earnings (loss):
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 5,576,114 2,228,205
----------- -----------
$ 5,687,742 $ 3,195,576
=========== ===========
Pro forma net earnings (loss) (see note 12)
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 3,435,614 1,336,905
----------- -----------
$ 3,547,242 $ 2,304,276
=========== ===========
</TABLE>
- --------
(1) The Company's results for the twelve months ended June 30, 1997 include
the results of N&L for the period following the consummation of the
merger.
F-50
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma financial information presents the combined
results of operations of the Company and OmniAmerica Holdings as if the
acquisitions had occurred as of the beginning of 1998 and 1997, after giving
effect to certain adjustments, including amortization of goodwill, additional
depreciation expense and related income tax effects. The pro forma financial
information does not necessarily reflect the operations that would have
occurred had the Company and the acquired entities constituted a single entity
during such periods nor is it an indication of future performance:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues earned....................................... $67,437,136 $71,332,114
=========== ===========
Net earnings.......................................... $ 1,163,107 $ 6,424,651
=========== ===========
Earnings per common share:
Basic............................................... $ .08 $ .46
=========== ===========
Diluted............................................. $ .08 $ .45
=========== ===========
Pro forma net earnings(2)............................. $ 4,284,151
===========
Pro forma earnings per common and common equivalent
share(2)
Basic............................................... $ .31
===========
Diluted............................................. $ .30
===========
</TABLE>
- --------
(2) Pro forma net earnings and earnings per common and common equivalent share
are based on pooled results of the Company, giving effect to pro forma
income taxes for pooling with Subchapter S Corporation for the years ended
June 30, 1998 and 1997.
The effects of the Company's acquisition of Teleforce, Ellis Tower and Coatings
prior to the respective date of acquisition are not material to the combined
results of operations of the Company for the years ended June 30, 1998 and 1997
and the three months ended September 30, 1998 and 1997 (unaudited).
F-51
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) CONTINGENCIES
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the Company's business,
results of operations or financial condition, based on the Company's current
understanding of the relevant facts and law. The Company maintains general
liability insurance against risks arising out of the normal course of business.
(17) EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S REPORT (UNAUDITED)
On September 29, 1998, pursuant to an asset purchase and sale agreement with
certain wholly-owned subsidiaries of Arch Communications Group, the Company
acquired 70 towers on 68 sites for approximately $20,400,000 financed primarily
with proceeds from the Chase Manhattan senior secured revolving credit
facility.
On November 15, 1998, the Stock Option Sub-Committee of the Board of Directors
approved the grant of 397,400 stock options under the 1998 Plan to certain
outside directors, officers and employees of the Company at the then current
market price of $17.50. The options are to be granted in connection with the
merger with ATI mentioned below.
On November 16, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger with American Tower Company and American Tower,
Inc. ("ATI") pursuant to which the Company will, subject to the receipt of
necessary governmental consents and other customary closing conditions, be
merged with and into ATI. In the event OmniAmerica terminates the merger
agreement because of a Superior Proposal, a termination fee of $12.0 million
must be paid to ATC.
Effective November 18, 1998, the Company amended its senior secured credit
facility with Chase Manhattan Bank to increase the amount of available credit
to $150,000,000 from $75,000,000. All other provisions remain consistent
including mandatory prepayment provisions upon consummation of the merger with
ATI.
F-52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Members
TeleCom Towers, LLC
We have audited the accompanying balance sheet of TeleCom Towers, LLC as of
December 31, 1997, and the related statements of operations, members' equity,
and cash flows for the period from September 30, 1997 (date of inception) to
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 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 TeleCom Towers, LLC at
December 31, 1997, and the results of its operations and its cash flows for the
period from September 30, 1997, to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-53
<PAGE>
TELECOM TOWERS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash.............................................. $ 2,722,510 $ 12,238,658
Accounts receivable, net of allowance of $280,049
and $0 in 1998 and 1997, respectively............ 36,680 5,235,912
Prepaid expenses.................................. 20,279 491,936
----------- -------------
Total current assets............................ 2,779,469 17,966,506
Property and equipment, net of accumulated
depreciation of $4,057,566 and $39,869 in 1998 and
1997, respectively................................. 4,953,984 20,594,568
Intangibles, net of accumulated amortization of
$4,825,940 and $119,353 in 1998 and 1997,
respectively....................................... 8,300,815 53,986,909
Escrow deposits, net................................ 1,259,800 430,000
Deferred rent receivable............................ 18,223 418,829
Advance to affiliated entity........................ 350,000 365,559
Notes receivable affiliate.......................... -- 6,250,000
Investment in joint ventures........................ -- 2,811,427
Other assets........................................ 84,225 69,983
----------- -------------
Total assets.................................... $17,746,516 $ 102,893,781
=========== =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 172,205 $ 4,649,837
Current portion of long-term debt................. -- 1,675,900
Security deposits................................. 25,020 35,177
Prepaid rents..................................... 29,041 838,458
----------- -------------
Total current liabilities....................... 226,266 7,199,372
Long-term debt, net of current portion.............. 3,900,000 27,946,214
Members' Equity..................................... 13,620,250 67,748,195
----------- -------------
Total liabilities and members' equity........... $17,746,516 $ 102,893,781
=========== =============
</TABLE>
See accompanying notes.
F-54
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
September 30, 1997 to Nine months ended
December 31, 1997 September 30, 1998
--------------------- ------------------
(unaudited)
<S> <C> <C>
Tower revenue.......................... $ 327,549 $ 5,825,048
Direct tower costs..................... 131,749 4,435,815
----------- ------------
Gross profit........................... 195,800 1,389,233
General and administrative............. 1,279,148 3,349,722
Depreciation........................... 39,869 551,774
Amortization........................... 119,353 1,378,678
----------- ------------
Operating loss......................... (1,242,570) (3,890,941)
Interest income........................ 914 --
Interest expense....................... (83,556) (910,899)
Other expense.......................... -- (432,120)
----------- ------------
Net loss............................... $(1,325,212) $ (5,233,960)
=========== ============
</TABLE>
See accompanying notes.
F-55
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF MEMBERS' EQUITY
Period from September 30, 1997 to December 31, 1997
and for the period ended September 30, 1998
<TABLE>
<CAPTION>
Total
Accumulated Members'
Units Amount Deficit Equity
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial capitalization......... 100,000 $ 6,500,000 -- $ 6,500,000
Financing and offering costs... -- (1,378,538) -- (1,378,538)
Member contributions........... -- 9,824,000 -- 9,824,000
Net loss....................... -- -- (1,325,212) (1,325,212)
------- ----------- ----------- -----------
Balance at December 31, 1997... 100,000 14,945,462 (1,325,212) 13,620,250
Member contributions........... -- 53,434,972 -- 53,434,972
Member distributions........... -- (6,788,445) -- (6,788,445)
Limited Partnership
acquisition................... -- 12,715,378 -- 12,715,378
Net loss....................... -- -- (5,233,960) (5,233,960)
------- ----------- ----------- -----------
Balance at September 30, 1998
(unaudited)................... 100,000 $74,307,367 $(6,559,172) $67,748,195
======= =========== =========== ===========
</TABLE>
See accompanying notes.
F-56
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
September 30, 1997 to Nine months ended
December 31, 1997 September 30, 1998
--------------------- ------------------
(unaudited)
<S> <C> <C>
Operating expenses
Net loss............................. $(1,325,212) $ (5,233,960)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... 39,869 551,774
Amortization....................... 119,353 1,378,678
Changes in operating assets and
liabilities:
Accounts receivable.............. (36,680) (5,199,232)
Prepaid expenses................. (20,279) (471,657)
Escrow deposits.................. (1,259,800) 829,800
Due from affiliate............... (350,000) (6,250,000)
Deferred rent receivable......... (18,223) (400,606)
Other assets..................... (84,225) (1,317)
Accounts payable and accrued
expenses........................ 172,205 4,477,632
Security deposits................ 25,020 10,157
Deferred revenue................. 29,041 809,417
----------- ------------
Net cash used in operating
activities.................... (2,708,931) (9,499,314)
Investing activities
Asset acquisitions, net of cash
received............................ (9,083,440) (46,085,073)
Investment in partnerships........... -- (2,811,427)
Rollup of partnerships............... -- (21,631,736)
Purchases of towers, buildings and
equipment........................... (430,581) --
----------- ------------
Net cash used in investing
activities.................... (9,514,021) (70,528,236)
Financing activities
Member contributions................. 16,324,000 53,434,972
Proceeds from notes payable.......... -- 25,722,114
Distributions........................ -- (6,788,445)
Roll-up equity....................... -- 17,172,057
Syndication offering costs
reduction........................... -- 3,000
Financing and offering costs......... (1,378,538) --
----------- ------------
Net cash provided by financing
activities.................... 14,945,462 89,543,698
Net increase in cash................. 2,722,510 9,516,148
Cash at beginning of period.......... -- 2,722,510
----------- ------------
Cash at end of period................ $ 2,722,510 $ 12,238,658
=========== ============
Supplemental cash flow information
Cash paid for interest............... $ 55,704 $ 139,563
=========== ============
Noncash transactions
Seller financed notes................ $ 3,900,000 $ --
=========== ============
</TABLE>
See accompanying notes.
F-57
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and September 30, 1998
(Information as of and for the period ended September 30, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
TeleCom Towers, L.L.C. (LLC or the Company) was organized as a limited
liability company in September 1997 under the laws of the State of Delaware to
acquire, operate, manage, and develop a national network of wireless
communications sites, including towers and roof-top units. Sites are located
throughout specific clusters in the United States. Pursuant to the original
Limited Liability Company Operating Agreement (the Agreement), the Company
issued a total of 100,000 units of equity interests to effect the formation of
the Company. TeleCom Towers, Inc. (Inc.) was granted a total of 50,100 units
(50.1% contribution percentage) in exchange for the contribution of its general
partnership interests in the following entities, with such contributions given
no value for financial reporting purposes:
<TABLE>
<CAPTION>
General
Partner
Entity Interest
------ --------
<S> <C>
Telecom Towers Mid-Atlantic, LP..................................... 1%
RFM Facilities Management, LP...................................... .01%
RCC Holdings, LP................................................... .01%
Telecom Towers Southwest, LP........................................ 1%
Telecom Towers of the West, LP...................................... 1%
</TABLE>
A total of 49,900 units (49.9% contribution percentage) was issued to Cox
Enterprises, Inc. (Cox) in exchange for a commitment to contribute $43,000,000
in cash. As of December 31, 1997, Cox had made cash contributions of
$16,324,000.
Distributions to members are made in accordance with the members' capital
contribution percentage interest as defined in the Agreement. Profits and
losses are allocated to the members based on the members' contribution
percentage. The liability of each member shall be limited to the amount of
contributions made by such member in accordance with the provisions of the
Agreement.
According to the Agreement, both parties retain the following rights and
obligations: 1) Right of first offer if the other party plans to dispose of any
or all of its equity interest, this right expires five years from the date of
formation; 2) a tag-along right to participate in a sale of the other party's
equity interest to an outside party which represents a majority of the units,
this right expires ten years from the date of formation; 3) in the event of a
sale of shares by a particular member, a drag-along right to require the non-
selling member to sell a proportionate amount of its units, which expires ten
years from the date of formation; 4) certain registration rights; 5) to the
extent that the Company does not meet certain financial goals for 1999, 2000
and 2001, Cox is entitled to receive additional units in each of the years that
the financial goals are not reached by selected limited partnerships, not to
exceed 66% of total ownership; 6) preemptive rights to purchase additional
shares to maintain the respective members' proportionate ownership in the case
of any non-public offering of new units; and 7) subject to certain other
events, put-rights to require the other member to purchase the respective
members' interest at fair market value.
The Company has an 83% interest in AlphaCom Communications, LLC which is
inactive and, accordingly, no profit, loss, or investment has been recorded for
this entity as of December 31, 1997. The Company also invested $54,400 for a
non-controlling interest in Haysville Tower, LLC, a single tower company
located in Kansas, whose operations to date are insignificant. Such investment
is included in other assets.
F-58
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Acquisitions
The Company has acquired, through various transactions, the following tangible
and intangible assets. Intangible assets include non-compete agreements,
management agreements, tenant licenses, and goodwill. The purchase method was
used to account for the acquisitions. The purchase prices were allocated, in
total, as follows:
<TABLE>
<CAPTION>
December 31, September
1997 30, 1998
------------ ------------
<S> <C> <C>
Land.................................................. $ 1,800,000 $ 1,403,846
Buildings............................................. 425,000 2,011,282
Towers................................................ 2,662,000 10,187,129
Equipment............................................. 77,440 1,388,797
Intangibles........................................... 8,019,000 27,595,582
------------ ------------
$ 12,983,440 $ 42,586,636
============ ============
</TABLE>
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Company operates telecommunications transmission sites in various states
and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Company's customer base. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of September 30, 1998 and for the nine months ended
September 30, 1998 are unaudited. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the respective interim periods. All such adjustments are of a normal
recurring nature.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the nine months ended September 30, 1998, the Company had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is
F-59
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
required to be adopted for the year ended December 31, 1998. SFAS 131 changes
the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. The disclosure for
segment information on the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred income represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time..
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
then the carrying amount of those assets. Based on management's estimation
process, no impairment losses were recorded as of December 31, 1997. As of
December 31, 1997 all fixed assets were held for use and the Company does not
plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, management agreements, tenant licenses, and goodwill. Such assets
are being amortized using the straight-line method over their estimated useful
lives not to exceed fifteen years.
Escrow Deposits
The Company has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed as site investigation costs and included
in general and administrative expenses, or reclassified into cash. As such,
certain amounts have been reserved against these escrow amounts.
F-60
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Financing and Offering Costs
The costs incurred in obtaining member interests in the Company have been
deducted from Members' Equity.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provisions have been made for federal and state taxes on the operations of
the Company. These taxes are the responsibility of the individual members who
are to include their share of the Company's income and deductions in their
respective income tax returns. Certain states do tax limited liability
corporations; however, as a result of related operations, no provision has been
recorded.
2. PROPERTY AND EQUIPMENT
At December 31, 1997 and September 30, 1998, respectively, property, towers,
and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Land.............................................. $1,816,333 $ 3,230,815
Buildings......................................... 476,665 2,628,757
Towers............................................ 2,587,490 15,487,923
Equipment......................................... 113,365 2,854,885
Construction-in-progress.......................... -0- 449,754
---------- -----------
4,993,853 24,652,134
Accumulated depreciation.......................... (39,869) (4,057,566)
---------- -----------
Net fixed assets.................................. $4,953,984 $20,594,568
========== ===========
</TABLE>
F-61
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INTANGIBLE ASSETS
At December 31, 1997 and September 30, 1998, respectively, intangible assets
consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Goodwill.......................................... $4,270,000 $34,765,939
Tenant licenses................................... 2,662,627 --
Land leases....................................... 825,000 --
Management Agreements............................. 103,500 --
Non-solicitation.................................. 25,000 --
Non-compete....................................... 154,000 2,459,000
Other intangibles................................. 380,041 21,587,910
---------- -----------
8,420,168 58,812,849
Accumulated amortization.......................... (119,353) (4,825,940)
---------- -----------
Net intangibles................................... $8,300,815 $53,986,909
========== ===========
</TABLE>
These intangibles resulted from acquisitions of towers made by the Company and
costs associated with the initial formation of the Company. Other intangibles
relate to costs associated with investigating site acquisitions and
development. Amortization of such amounts will begin once the sites are
acquired and in operation, unless such acquisitions fail to materialize, at
which point the related costs will be expensed as site investigation costs and
included in general and administrative expenses.
4. LONG-TERM DEBT
The Company financed certain purchases through the issuance of seller financed
notes. The $3,900,000 in notes payable are due in one installment on the sixth
anniversary of the notes, which is September 30, 2003. The interest rate on
each note is 8.5% during the first three years and the greater of 8.5% or
prime, thereafter. Interest is payable quarterly in arrears. The notes are
secured by the assets of the Company.
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Company licenses space for communication systems on its transmission sites
to customers under generally noncancelable agreements requiring payments over
various terms. At December 31, 1997, future minimum license agreement receipts
are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998............................................................ $1,398,804
1999............................................................ 1,228,289
2000............................................................ 534,618
2001............................................................ 308,052
2002............................................................ 173,898
Thereafter...................................................... 847,900
----------
$4,491,561
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
As general partner, the Company is a co-borrower of the debt of the limited
partnerships described in Note 1. Such debt in aggregate totaled approximately
$25,830,000 at December 31, 1997 and $24,586,000 at September 30, 1998.
F-62
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company is committed for various ground leases at several transmission
sites. Lease expense for the period from September 30, 1997 to December 31,
1997 and the nine months ended September 30, 1998 (unaudited) was $11,155 and
$195,398, respectively. Future minimum lease payments at December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998.............................................................. $ 68,400
1999.............................................................. 66,400
2000.............................................................. 64,983
2001.............................................................. 63,150
2002.............................................................. 59,700
Thereafter........................................................ 458,645
--------
$781,278
========
</TABLE>
7. RELATED PARTIES
Beginning in 1998, the Company, by virtue of its general partner interest in
the related entities, will be entitled to a management fee equal to 8.5% of the
gross monthly revenues of the related entities (see Note 1). The Company will
also be entitled to a 3% acquisition fee to be earned on all capital funds
invested in towers and related real estate and other assets in the
Partnerships. The Company will also be entitled to up to 4% of gross monthly
revenue of the Partnerships for reimbursement of certain general partner
expenses.
The Company was allocated certain corporate expenses for services provided by
TeleCom Towers, Inc. The total amount of such expenses for the period from
September 30, 1997 to December 31, 1997 was approximately $61,000. These
corporate services were not in effect for 1998.
The Company advanced $350,000 to Telecom Towers Mid-Atlantic, LP to assist in
funding one of Mid-Atlantic's subsidiaries. There is no written agreement
concerning repayment of this advance, nor is any interest charged.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company entered into agreements to
purchase four communications towers for a total purchase price of approximately
$925,000. The Company also entered into a joint venture agreement with another
party to form Mid-Pacific Telecommunications Co. for the purpose of
establishing communications site operations in the Dallas/Ft. Worth area, for a
commitment to invest up to $7 million for a 50% interest. The Company also
purchased a 50% share in Castle Rock Tower Co. for a total purchase price of
approximately $270,000. The remaining interests are held by Telecom Southwest
Towers, LP, a related party of the Company.
9. EVENTS SUBSEQUENT TO AUDITORS REPORT
Effective August 3, 1998, the limited partners of Telecom Southwest Towers, LP,
Telecom Towers Mid-Atlantic, LP, and Telecom Towers of the West, LP
(collectively the Partnerships) agreed to a merger of the Partnerships into the
Company which is the general partner of the Partnerships. The limited partners
of the Partnerships received as merger consideration either cash or Class A
Units of the Company in exchange for their interest in each Partnership. The
accompanying unaudited September 30, 1998 statements of operations reflect the
operating results of the Partnerships since the effective date of the merger.
Except for cash acquired, these transactions have been excluded from the
statements of cash flows and have been accounted for using purchase accounting.
F-63
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The pro forma unaudited results of operations for the nine months ended
September 30, 1998, assuming the purchase of the Partnerships had been
consummated as of January 1, 1998, is as follows:
<TABLE>
<S> <C>
Revenues...................................................... $20,894,172
===========
Net loss...................................................... $(5,953,144)
===========
</TABLE>
In November 1998, the Company entered into an Agreement and Plan of Merger with
American Tower Corporation ("ATC") which, subject to certain conditions
including Hart-Scott-Rodino Act review, and excluding RCC Consultants, Inc., a
subsidiary of the Company, the beneficial interests in which will be
distributed to members of the Company prior to the consummation of the merger,
will result in the merger of the Company into ATC. The merger is scheduled to
be completed during the first half of 1999. Simultaneous with the closing of
the merger, the Company will record a charge to earnings related to certain
contingent payment obligations to various brokers and finders as a result of
their services in connection with locating and obtaining financing for tower
acquisitions. Such obligations were assumed by the Company from TTI and the
Partnerships. In connection with the discharge of such obligations, a cash
payment would be made or a certain number of units in the Company would be
issued equal to an agreed percentage ownership of the Company. Such payment or
issuance does not change the total consideration paid by ATC to consummate the
merger pursuant to an Amended and Restated Agreement and Plan of Merger, dated
as of December 18, 1998, as amended by an amendment thereto dated as of
December 23, 1998, for aggregate consideration of $148.75 million, subject to
adjustment.
F-64
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Telecom Southwest Towers Limited Partnership
We have audited the accompanying balance sheets of Telecom Southwest Towers
Limited Partnership (a Texas limited partnership) as of December 31, 1996, and
the related statements of income, partners' equity, and cash flows for the year
ended December 31, 1996 and the period from inception (January 5, 1995) to
December 31, 1995. 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 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 Telecom Southwest Towers
Limited Partnership as of December 31, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1996 and the initial period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-65
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Southwest Towers, LP
We have audited the balance sheet of Telecom Southwest Towers, LP as of
December 31, 1997, and the related statements of operations, partners' capital,
and cash flows for the year ended December 31, 1997. These financial statements
are the responsibility of the Partnership'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 Telecom Southwest Towers, LP
at December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-66
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 208,486 $ 20,821 $ 350,305
Accounts receivable, net of allowance of
$22,445, $15,500, and $0 in 1998, 1997,
and 1996, respectively.................... 55,283 75,080 76,004
Prepaid expenses........................... 4,126 24,496 11,740
Related party receivables.................. -- 11,186 24,133
---------- ---------- ----------
Total current assets..................... 267,895 131,583 462,182
Property and equipment, net of accumulated
depreciation of $1,077,426, $859,782, and
$512,138 in 1998, 1997, and 1996,
respectively................................ 3,455,005 4,131,451 3,954,305
Intangibles, net of accumulated amortization
of $1,160,431, $897,157, and $415,844 in
1998, 1997, and 1996, respectively.......... 2,447,826 4,027,976 3,814,702
Deferred rent receivable..................... -- 36,524 47,952
Escrow deposits.............................. -- 50,200 --
Investment in joint ventures................. 282,840 292,322 304,803
---------- ---------- ----------
Total assets............................. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses...... $ 42,116 $ 36,232 $ 288,902
Current portion of long-term debt.......... 349,375 631,834 833,574
Prepaid rents.............................. 64,904 77,749 142,047
Deposits................................... 1,000 -- --
---------- ---------- ----------
Total current liabilities................ 457,395 745,815 1,264,523
Long-term debt, net of current portion....... 4,446,250 6,823,803 6,373,260
Partners' capital............................ 1,549,921 1,100,438 946,161
---------- ---------- ----------
Total liabilities and partners' capital.. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
</TABLE>
F-67
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seven months
Years ended December 31, ended July 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues.......... $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct tower costs...... 221,783 306,553 374,535 195,220 264,606
---------- ---------- ---------- ---------- ----------
Gross profit............ 962,824 1,299,425 1,687,476 957,162 1,025,712
General and
administrative......... 729,009 781,877 463,176 277,704 302,304
Depreciation............ 197,725 308,957 358,477 206,747 217,645
Amortization............ 198,843 222,847 481,314 252,275 263,274
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (162,753) (14,256) 384,509 220,436 242,489
Other income (expense):
Interest income....... 19,259 13,890 4,259 2,935 99
Interest expense...... (246,770) (424,237) (640,741) (272,714) (396,865)
Gain (loss) on
disposition of
assets............... 132 (3,697) (29,158) -- --
Partnership loss...... (83) (13,337) (5,814) -- --
Miscellaneous income.. -- -- 21,704 -- --
---------- ---------- ---------- ---------- ----------
Loss before
extraordinary item..... (390,215) (441,637) (265,241) (49,343) (154,277)
Extraordinary item--Gain
on early extinguishment
of debt................ 60,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................ $ (330,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
</TABLE>
F-68
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity (1%) Equity (99%) Capital
----------- ------------ ----------
<S> <C> <C> <C>
Balance at January 5, 1995 (inception).... $ -- $ -- $ --
Capital Contributions..................... 1,000 3,000,000 3,001,000
Syndication/Offering costs................ -- (374,732) (374,732)
Distributions-Limited partners............ -- (64,495) (64,495)
Net Loss.................................. (3,302) (326,913) (330,215)
-------- ---------- ----------
Balance, December 31, 1995................ $ (2,302) $2,233,860 $2,231,558
Distributions-Limited partners............ -- (240,000) (240,000)
Net Loss.................................. (4,416) (437,221) (441,637)
-------- ---------- ----------
Balance at December 31, 1996.............. $ (6,718) $1,556,639 $1,549,921
Distributions............................. (4,242) (180,000) (184,242)
Net loss.................................. (2,652) (262,589) (265,241)
-------- ---------- ----------
Balance at December 31, 1997.............. $(13,612) $1,114,050 $1,100,438
Distributions............................. -- -- --
Net loss.................................. (1,543) (152,734) (154,277)
-------- ---------- ----------
Balance at July 31, 1998.................. $(15,155) $ 961,316 $ 946,161
======== ========== ==========
</TABLE>
F-69
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seven months
Years ended December 31, ended July 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $ (330,215) $(441,637) $ (265,241) $ (49,343) $(154,277)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation........... 197,725 308,957 358,477 206,747 217,645
Amortization........... 198,843 222,847 481,314 252,275 263,274
(Gain) loss on
disposition of
assets................ (132) 3,697 29,158 -- --
Gain on early
extinguishment of
debt.................. (60,000) -- -- -- --
Amortize consulting
agreement............. 425,000 425,000 -- -- --
Partnership loss....... 83 13,337 5,814 -- --
Changes in operating
assets and liabilities:
Accounts receivable.... (36,257) (19,026) (30,983) 3,783 (924)
Prepaid expenses....... (4,345) 219 (20,370) 985 12,756
Other assets........... (200) -- (50,000) (50,000) 50,200
Deferred rent
receivable............ -- -- (36,524) -- (11,428)
Accounts payable and
accrued liabilities... 42,419 (303) (5,884) 63,499 252,670
Payable to related
parties............... 4,430 (4,430) -- -- (12,947)
Prepaid rents.......... -- -- 77,749 51,431 64,298
Deferred revenue....... 54,451 10,453 (64,904) -- --
Other liabilities...... -- 1,000 (1,000) -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
operating activities.. 491,802 520,114 477,606 479,377 681,267
Investing activities
Asset acquisitions, net
of cash received....... (3,971,800) -- (2,601,595) (1,877,877) (50,000)
Purchases of property
and equipment.......... (976,705) (562,599) (531,450) (982,341) (40,498)
Contributions to
investments in joint
ventures............... (120,061) (180,000) (40,496) (29,896) (12,481)
Distributions from joint
ventures............... -- 10,000 25,000 -- --
Proceeds from sale of
assets................. 14,132 22,709 7,500 -- --
Payables for acquisition
fees................... 17,720 (17,720) -- -- --
Prepaid consulting
agreement.............. (850,000) -- -- -- --
Non-compete agreement... (875,000) -- -- -- --
Organization,
acquisition and closing
costs.................. (240,500) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash used in
investing activities.. (7,002,214) (727,610) (3,141,041) (2,890,214) (102,979)
Financing activities
Proceeds from debt...... 4,900,000 -- 2,996,751 2,996,751 --
Payments on debt........ -- (104,375) (336,739) (287,990) (248,804)
Distributions to
partners............... (64,495) (240,000) (184,242) (123,636) --
Accounts receivable from
general partner........ (1,000) 1,000 -- -- --
Financing and
acquisition costs...... (248,348) (2,656) -- -- --
Capital contribution--
general partner........ 1,000 -- -- -- --
Capital contribution--
limited partners....... 3,000,000 -- -- -- --
Syndication/offering
costs.................. (374,732) -- -- -- --
Seller notes............ 2,400,000 -- -- -- --
Liquidation of seller
notes.................. (2,340,000) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
financing activities.. 7,272,425 (346,031) 2,475,770 2,585,125 (248,804)
Net increase in cash.... 762,013 (553,527) (187,665) 174,288 329,484
Cash at beginning of
period................. -- 762,013 208,486 208,486 20,821
---------- --------- ---------- ---------- ---------
Cash at end of period... 762,013 $ 208,486 $ 20,821 $ 382,774 $350,305
========== ========= ========== ========== =========
Supplemental cash flow
information
Cash paid for interest.. 245,451 $ 425,556 $ 640,741 $ 272,714 $ 396,865
========== ========= ========== ========== =========
</TABLE>
F-70
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and September 30, 1998
(Information as of and for the period ended September 30, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
Telecom Southwest Towers, LP (the Partnership), a Texas limited partnership,
owns and manages telecommunications tower sites in Eastern and Central Texas
and has joint ventures in both Louisiana and Texas, and licenses space on such
towers to customers for a fee. The general partner is TeleCom Towers, L.L.C.,
which has an interest in the Partnership. The Partnership shall continue in
full force and effect until December 31, 2020, unless the Partnership is sooner
dissolved by the occurrence of certain events as specified in the Partnership
Agreement.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
Acquisitions
On January 5, 1995, the Partnership acquired the assets of Rental Towers. The
purchase method was used to account for the acquisition, and the purchase price
was allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................................... $1,500,000
Goodwill........................................................ 1,471,525
Other........................................................... 3,475
----------
$2,975,000
==========
</TABLE>
In addition to the asset acquisition, $875,000 was paid for a 5-year non-
compete agreement with the previous owner of the towers. A two-year consulting
agreement in the total amount of $850,000, which expired in 1996, was also
entered into with this owner.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
<TABLE>
<S> <C>
Land.............................................................. $ 151,523
Buildings......................................................... 175,000
Towers............................................................ 429,372
Equipment......................................................... 50,000
Intangibles....................................................... 1,795,703
----------
$2,601,598
==========
</TABLE>
F-71
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of July 31, 1998 and for the seven months ended
July 31, 1998 and 1997 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods. All such adjustments are of a
normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change
F-72
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
in accounting principle. When adopting this SOP, entities are not required to
report the pro forma effects of retroactive application. The effect of adopting
SOP 98-5 is not expected to have a material effect on the financial statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings
thirty-nine years; towers twenty years; equipment seven years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets.
Based on management's estimation process, no impairment losses were recorded as
of December 31, 1997. As of December 31, 1997, all fixed assets were held for
use and the Partnership does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed to general and administrative expenses as
site investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
F-73
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996, and
1997, and July 31, 1998, respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Land.................................... $ 168,165 $ 319,688 $ 319,688
Buildings............................... 369,802 582,596 582,967
Towers.................................. 2,972,840 3,866,771 3,886,908
Equipment, furniture, and fixtures...... 138,257 222,178 242,168
Tower construction-in-progress.......... 318,079 -- --
---------- ---------- ----------
3,967,143 4,991,233 5,031,731
Accumulated depreciation................ (512,138) (859,782) (1,077,426)
---------- ---------- ----------
Property and equipment, net............. $3,455,005 $4,131,451 $3,954,305
========== ========== ==========
</TABLE>
F-74
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996, and 1997, and
July 31, 1998, respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................... $1,665,791 $3,011,494 $3,061,494
Organization costs..................... 72,437 72,437 72,437
Acquisition and loan costs............. 250,442 516,202 516,202
Non-compete and consulting agreements.. 875,000 1,325,000 1,325,000
---------- ---------- ----------
2,863,670 4,925,133 4,975,133
Accumulated amortization............... (415,844) (897,157) (1,160,431)
---------- ---------- ----------
Net Intangibles........................ $2,447,826 $4,027,976 $3,814,702
========== ========== ==========
</TABLE>
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $36,750, $0, $160,000, and $0 in such fees during the years ended
December 31, 1995, 1996, and 1997 and the seven months ended July 31, 1998,
respectively. The agreements also contain a provision for a Line of Credit
Facility Fee at the rate of 0.25% per annum on the average unborrowed portion
of the Line of Credit Commitment. These fees are paid on a proportionate basis
by the various entities utilizing the line of credit. The Partnership incurred
$9,353, $7,967, $7,967 and $1,459 in credit facility fees during the years
ended December 31, 1995, 1996, and 1997 and the seven months ended July 31,
1998, respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership and the general partner. Balances at December 31, 1996 and 1997,
and July 31, 1998, respectively, are as follows:
F-75
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
Interest ---------------------- July 31,
Due date: Rate: 1996 1997 1998
--------- -------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
June 2002...................... 9.25% $2,730,000 $2,528,247 $2,395,182
September 2002................. 9.25% 633,750 586,914 556,025
October 2002................... 9.25% 641,875 602,360 556,024
December 2002.................. 9.1875% 790,000 741,366 702,853
July 2004...................... 9.25% -- 2,996,750 2,996,750
---------- ---------- ----------
4,795,625 7,455,637 7,206,834
Less current maturities........ (349,375) (631,834) (833,574)
---------- ---------- ----------
Long-term portion.............. $4,446,250 $6,823,803 $6,373,260
========== ========== ==========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998.............................................................. $ 631,834
1999.............................................................. 1,078,859
2000.............................................................. 1,439,634
2001.............................................................. 1,660,389
2002.............................................................. 1,390,030
Thereafter........................................................ 1,254,891
----------
Total........................................................... $7,455,637
==========
</TABLE>
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
others under noncancellable agreements requiring monthly, quarterly or annual
payments over various terms. Certain agreements contain various options. At
December 31, 1997, future minimum license agreement receipts were as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $1,759,659
December 31, 1999................................................. 1,475,706
December 31, 2000................................................. 1,251,731
December 31, 2001................................................. 980,231
December 31, 2002................................................. 779,865
Thereafter........................................................ 2,099,272
----------
Total........................................................... $8,346,464
==========
</TABLE>
F-76
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the years ended December 31, 1995, 1996, and 1997, and for the
seven months ended July 31, 1998 was $53,277, $49,282, $105,274, and $66,387,
respectively. At December 31, 1997, future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................... $ 58,295
December 31, 1999................................................... 56,927
December 31, 2000................................................... 52,471
December 31, 2001................................................... 50,671
December 31, 2002................................................... 49,671
Thereafter.......................................................... 167,354
--------
Total............................................................. $435,389
========
</TABLE>
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. The Partnership had receivables due from these
affiliates of $0, $11,186, and $24,133 at December 31, 1996, and 1997, and July
31, 1998, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998 was $98,452, $137,745, $176,985, and $112,829, respectively. The
Partnership is also obligated to pay a 2.5% acquisition fee on the purchase
price of all acquisitions. The Partnership is also obligated to pay up to 4% of
gross monthly revenue to the general partner for reimbursement of certain
general partner expenses. Acquisition fees are capitalized as incurred by the
Partnership. Acquisition fees capitalized during 1997 were $66,250. Expense
reimbursement fees totaled $47,435, $39,084, $52,657, and $53,096 for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998.
8. INVESTMENTS IN JOINT VENTURES
The Partnership is a 50% partner in Shreveport Tower Company, a Louisiana
partnership formed in 1995 to operate a tower in Shreveport, Louisiana. The
Company is also a 50% partner in Castle Rock Tower Company, a Texas partnership
formed to operate towers in Georgetown and Plano, Texas and another tower
currently under construction in Glen Rose, Texas. These investments are
considered joint ventures and are accordingly recorded on the equity method.
Financial information for these investments is not significant.
9. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-77
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1996 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1996 and the period from inception (June 23, 1995) to December 31,
1995. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the 1996
consolidated financial statements of RCC Consultants, Inc., (a wholly-owned
subsidiary of RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom
Towers Mid-Atlantic, LP), which statements reflect total assets constituting
42% and total revenues constituting 87% of the related 1996 consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
RCC Consultants, Inc., is based solely on the report of the other auditors.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 and the report of
other auditors provide a reasonable basis for our opinion.
In our report dated April 2, 1997, we expressed an opinion that the December
31, 1996 financial statements did not fairly present financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles because Telecom Towers Mid-Atlantic, LP presented wholly-
owned subsidiaries on the equity method. As described in Note 1, the
Partnership has changed its method of accounting for these items and has
restated its December 31, 1996 consolidated financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the December 31, 1996 consolidated financial statements, as presented
herein, is different from that expressed in our previous report.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Telecom Towers Mid-
Atlantic, LP at December 31, 1996 and the consolidated results of their
operations and their cash flows for the year ended December 31, 1996 and the
initial period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
December 11, 1998
F-78
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1997, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
March 13, 1998
F-79
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
period from May 1, 1996 to December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the period from May 1, 1996 to December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
December 19, 1997
F-80
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1997 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the consolidated
financial statements of RCC Consultants, Inc., (a wholly-owned subsidiary of
RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom Towers Mid-
Atlantic, LP), which statements reflect total assets constituting 41% and total
revenues constituting 82% of the related consolidated totals. These statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for RCC Consultants, Inc., is
based solely on the report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Telecom Towers Mid-Atlantic,
LP at December 31, 1997 and the consolidated results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-81
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 1,894,748 $ 379,373 $ 275,661
Accounts receivable, net of allowance of
$499,268, $402,800, and $197,566 in
1998, 1997, and 1996, respectively...... 5,282,749 4,907,503 4,813,769
Prepaid expenses......................... 449,436 325,416 329,367
----------- ----------- -----------
Total current assets................... 7,626,933 5,612,292 5,418,797
Property and equipment, net of accumulated
depreciation of $1,318,167, $1,016,569,
and $556,524 in 1998, 1997, and 1996,
respectively.............................. 4,511,998 4,932,525 5,149,490
Intangibles, net of accumulated
amortization of $576,729, $369,970, and
$134,271 in 1998, 1997, and 1996,
respectively.............................. 2,232,525 3,195,642 2,988,883
Affiliate receivable....................... -- -- 109,204
Deferred rent receivable................... -- 67,770 88,387
Other assets............................... 29,862 131,646 126,273
----------- ----------- -----------
Total assets........................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses.... $ 2,681,222 $ 2,442,119 $ 2,054,672
Current portion of long-term debt........ 198,750 417,077 638,710
Affiliate payable........................ 104,149 386,756 792,953
Short-term notes......................... 1,330,000 -- --
Prepaid rents............................ 199,407 174,508 463,767
Other liabilities........................ 852,000 20,000 --
----------- ----------- -----------
Total current liabilities.............. 5,365,528 3,440,460 3,949,782
Long-term debt, net of current portion..... 3,832,500 6,805,958 6,400,044
Partners' capital.......................... 5,203,290 3,693,457 3,531,208
----------- ----------- -----------
Total liabilities and partners'
capital............................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
</TABLE>
See accompanying notes.
F-82
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seven months
Year ended December 31, ended July 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Tower revenues........ $111,999 $ 1,770,597 $ 3,406,579 $1,753,784 $2,212,009
Consulting revenues... -- 11,735,000 14,912,000 8,997,000 9,368,000
-------- ----------- ----------- ---------- ----------
Total revenues...... 111,999 13,505,597 18,318,579 10,750,784 11,580,009
Direct tower costs.. 25,728 760,551 1,176,106 395,719 606,750
Direct consulting
costs.............. -- 9,321,000 12,298,000 7,039,000 6,955,000
-------- ----------- ----------- ---------- ----------
Total costs......... 25,728 10,081,551 13,474,106 7,434,719 7,561,750
-------- ----------- ----------- ---------- ----------
Gross profit............ 86,271 3,424,046 4,844,473 3,316,065 4,018,259
General and
administrative......... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
Depreciation............ 33,127 271,576 491,806 268,442 325,466
Amortization............ 28,274 114,818 234,752 115,223 206,760
-------- ----------- ----------- ---------- ----------
Operating income
(loss)................. 231 175,928 (504,892) 143,762 290,771
Interest income......... -- 96,411 813 697 288
Interest expense........ (73,370) (328,878) (518,892) (206,655) (403,308)
Other income (expense).. -- 85,718 (126,797) 19,649 (50,000)
-------- ----------- ----------- ---------- ----------
Net income (loss)....... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ (162,249)
======== =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-83
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity Equity Equity
--------- ---------- ----------
<S> <C> <C> <C>
Balance at June 23, 1995 (inception)......... $ -- $ -- $ --
Capital Contributions........................ 1,000 1,063,000 1,064,000
Syndication/Offering costs................... -- (144,639) (144,639)
Net Loss..................................... (71,288) (1,851) (73,139)
-------- ---------- ----------
Balance, December 31, 1995................... $(70,288) $ 916,510 $ 846,222
Capital Contributions........................ -- 4,937,000 4,937,000
Distributions................................ -- (120,000) (120,000)
Syndication/Offering costs................... -- (489,111) (489,111)
Net Income................................... 291 28,888 29,179
-------- ---------- ----------
Balance at December 31, 1996................. $(69,997) $5,273,287 $5,203,290
Distributions to partners.................... (65) (360,000) (360,065)
Net loss..................................... (11,498) (1,138,270) (1,149,768)
-------- ---------- ----------
Balance at December 31, 1997................. $(81,560) $3,775,017 $3,693,457
Distributions to partners.................... -- -- --
Net loss..................................... (1,622) (160,627) (162,249)
-------- ---------- ----------
Balance at July 31, 1998 (unaudited)......... $(83,182) $3,614,390 $3,531,208
======== ========== ==========
</TABLE>
See accompanying notes.
F-84
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seven months
Year ended December 31, ended July 31,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............... $ (73,139) $ 29,179 $(1,149,768) $ (42,547) $(162,249)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... 33,127 271,576 491,806 268,442 325,466
Amortization.......... 28,274 114,818 234,752 115,223 206,760
Partnership income.... -- 11,282 -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable... (24,079) (1,239,017) 352,426 (731,205) 93,734
Prepaid expenses...... (3,589) (60,847) 124,020 (48,877) (3,951)
Due from affiliates... -- -- -- (175,742) (109,204)
Deferred rent
receivable........... -- -- (67,770) -- (20,617)
Other assets.......... (1,000) (26,697) (93,949) (111,859) 5,373
Accounts payable and
accrued expenses..... 12,964 1,160,667 (246,938) (296,885) (387,447)
Other liabilities..... -- -- (935,000) (852,000) (20,000)
Prepaid rents......... -- -- 78,101 50,264 288,939
Due to affiliates..... -- 5,713 305,427 277,744 406,197
Deferred income....... 9,006 (273,538) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities.......... (18,436) (6,864) (906,893) (1,547,442) 623,001
Investing activities
Asset acquisitions, net
of cash received...... (1,300,000) (4,255,000) (1,250,000) (1,284,568) --
Purchases of towers,
buildings and
equipment............. (103,357) (573,970) (871,847) (195,980) (542,432)
Investment in
partnerships.......... -- (3,558,491) -- -- --
Accounts payable for
purchase.............. -- 61,402 -- -- --
Acquisition and closing
costs................. (33,933) (562,461) -- -- --
Proceeds from sale of
assets................ -- -- 11,645 -- --
---------- ----------- ----------- ----------- ---------
Net cash (used in)
investing
activities.......... (1,437,290) (8,888,520) (2,110,202) (1,480,548) (542,432)
Financing activities
Proceeds from notes
payable............... 750,000 5,130,000 3,374,973 2,876,293 --
Payments on notes
payable............... -- (518,750) (1,513,188) (76,250) (184,281)
Payment of short-term
notes................. -- -- -- (1,330,000) --
Capital contribution--
general partner....... 801,000 1,325,100 -- -- --
Capital returned to
general partner....... (800,000) -- -- -- --
Capital contributions--
limited partners...... 1,063,000 4,937,010 -- -- --
Distributions to
partners.............. -- (120,000) (360,065) (240,024) --
Receivables from
related parties....... (42,678) 42,568 -- -- --
Amount payable to
escrow................ 100,000 (100,000) -- -- --
Syndication/offering
costs................. (43,877) (582,148) -- -- --
Effects of exchange
rates................. -- 40,000 -- 21,797 --
Financing costs........ (121,606) (35,761) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
financing
activities.......... 1,705,839 10,118,019 1,501,720 1,251,816 (184,281)
Net increase (decrease)
in cash............... 250,113 1,222,635 (1,515,375) (1,776,174) (103,712)
Cash at beginning of
period................ -- 672,113 1,894,748 1,894,748 379,373
---------- ----------- ----------- ----------- ---------
Cash at end of period.. $ 250,113 $ 1,894,748 $ 379,373 $ 118,574 $ 275,661
========== =========== =========== =========== =========
Supplemental cash flow
information
Cash paid for
interest.............. $ 73,789 $ 296,881 $ 518,892 $ 206,655 $ 403,308
========== =========== =========== =========== =========
</TABLE>
See accompanying notes.
F-85
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and July 31, 1998
(Information as of and for the period ended July 31, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
Telecom Towers Mid-Atlantic, LP (the "Partnership" or "Mid-Atlantic"), is a
South Carolina limited partnership. The general partner is TeleCom Towers,
L.L.C., which owns a one percent (1%) interest in the Partnership. The
Partnership is a general partner in both RFM Facilities Management, LP ("RFM")
and RCC Holdings, LP ("RCC Holdings"). The consolidated financial statements of
the Partnership include the accounts of RFM and RCC Holdings. The Partnership
holds a 99.99% interest in each. RCC Holdings has no operations of its own and
was formed as the holding company for RCC Consultants, Inc. ("RCC"), a wholly-
owned subsidiary of RCC Holdings. RCC provides wireless communications
consulting services to public and private sector communication systems
operators.
The Partnership shall continue in full force and effect until December 31,
2020, unless the Partnership is sooner dissolved by the occurrence of certain
events as specified in the Partnership Agreement.
Mid-Atlantic owns and manages telecommunication tower sites in South Carolina,
Ohio, West Virginia, Kentucky, and Kansas. RFM owns and manages
telecommunications sites in various states. Both entities license space on
towers and roof-top sites to customers for a fee under contracts that extend
for more than one year.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interest at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage interest
as adjusted per the preceding paragraph.
Acquisitions
On June 23, 1995, the Partnership acquired the assets of the Towers Division of
The Communications Group. The purchase method was used to account for the
acquisition, and the purchase price was allocated as follows:
<TABLE>
<S> <C>
Escrowed funds................................................... $ 75,000
Property and equipment........................................... 690,000
Non-compete agreement............................................ 5,000
Goodwill......................................................... 530,000
----------
$1,300,000
==========
</TABLE>
Subsequent to the purchase date, the escrowed funds of $75,000 were released to
the seller and have been classified as goodwill.
F-86
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1996, the Partnership acquired, in three separate transactions, certain
assets of RAM Technologies, Inc., Advantage Communications, Inc., and Tower
Communications, Inc. The purchase method was used to account for the
acquisitions, and the purchase prices were allocated as follows:
<TABLE>
<CAPTION>
Advantage Tower
RAM Communications, Communications,
Technologies Inc. Inc.
------------ --------------- ---------------
<S> <C> <C> <C>
Land........................... $ 7,000 $ -- $ 100,000
Property and equipment......... 1,250,000 102,500 600,000
Goodwill....................... 243,000 72,500 880,000
---------- -------- ----------
$1,500,000 $175,000 $1,580,000
========== ======== ==========
</TABLE>
In addition to the acquisition, a 5-year maintenance and consulting agreement
was entered into with Advantage Communications, Inc. Terms are $1,000 per month
with an annual review of the fee.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
<TABLE>
<S> <C>
Land.............................................................. $ 50,000
Buildings......................................................... 15,000
Towers............................................................ 170,000
Intangibles....................................................... 1,015,000
----------
$1,250,000
==========
</TABLE>
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable is limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
F-87
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses are recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenues are recognized ratably over time. Consulting revenues are recognized
when services are performed.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements,
which extend the useful lives of the assets are capitalized and maintenance and
repairs are charged to expense as incurred. The cost and accumulated
depreciation related to asset disposals are removed from the accounts and the
resulting gain or loss is included in the results from operations. Depreciation
of towers is computed using the double declining balance method. The straight-
line method is used for equipment and buildings. Estimated useful lives are as
follows: buildings, 39 years; towers, 20 years; equipment, 7 years.
F-88
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
and consulting agreements, organization costs, goodwill, and acquisition and
loan costs. Such assets are being amortized using the straight line method over
their estimated useful lives not to exceed fifteen years.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the lives of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns. RCC is a corporation which provides for
income taxes under the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As of December 31, 1997, RCC
had federal net operating loss carryforwards of approximately $5,600,000, which
may be subject to annual limitations due to the change in ownership of RCC that
occurred in 1996. A valuation allowance has been established against the
related net deferred tax asset.
Cash
For purposes of the statement of cash flows, cash consists of cash in bank.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
F-89
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACCOUNTS RECEIVABLE
Mid-Atlantic and RFM accounts receivable balances as of December 31, 1996, and
1997, and July 31, 1998 (unaudited) were primarily for tower sites licensing
agreements. RCC accounts receivable balances as of December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively, consisted primarily of amounts
billed and unbilled to customers under time and material and site type
contracts as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Billed accounts receivable.............. $3,828,315 $4,002,303 $3,775,037
Unbilled accounts receivable............ 1,652,000 1,308,000 1,538,000
---------- ---------- ----------
5,480,315 5,310,303 5,313,037
Allowance for doubtful accounts......... (197,566) (402,800) (499,268)
---------- ---------- ----------
Net accounts receivable................. $5,282,749 $4,907,503 $4,813,769
========== ========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996, and
1997, and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Land.................................. $ 476,511 $ 528,077 $ 528,078
Buildings............................. 622,447 720,242 721,532
Towers................................ 3,081,895 3,435,975 3,501,107
Equipment, furniture, and fixtures.... 887,669 1,264,800 1,716,940
---------- ----------- -----------
5,068,522 5,949,094 6,467,657
Accumulated depreciation.............. (556,524) (1,016,569) (1,318,167)
---------- ----------- -----------
Property and equipment, net........... $4,511,998 $ 4,932,525 $ 5,149,490
========== =========== ===========
</TABLE>
F-90
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................... $1,919,056 $2,887,727 $2,887,727
Acquisition and loan costs............. 442,740 577,885 577,885
Non-compete and consulting agreements.. 5,000 100,000 100,000
---------- ---------- ----------
2,366,796 3,565,612 3,565,612
Accumulated amortization............... (134,271) (369,970) (576,729)
---------- ---------- ----------
Net Intangibles........................ $2,232,525 $3,195,642 $2,988,883
========== ========== ==========
</TABLE>
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years. Loan
costs are being amortized over the life of the respective loan.
5. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $121,000 and $0 in draw fees during the year ended December 31,
1997, and the seven months ended July 31, 1998 (unaudited), respectively. The
agreements also contain a provision for a Line of Credit Facility Fee at the
rate of 0.25% per annum on the average unborrowed portion of the Line of Credit
Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $1,917 and
$1,189 in credit facility fees during the year ended December 31, 1997 and the
seven months ended July 31, 1998 (unaudited), respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership.
RCC has obtained a separate secured line of credit in the amount of $3,000,000.
The line has a term of three years with interest at prime plus 3%. The line is
secured by the domestic accounts receivable of RCC. RCC is subject to an early
termination fee under the agreement whereby the lender is entitled to a
percentage of the total line based on the time of termination.
F-91
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Balances at December 31, 1996, and 1997, and July 31, 1998 (unaudited),
respectively, were as follows:
<TABLE>
<CAPTION>
December 31,
Interest ---------------------- July 31,
Due date: Rate: 1996 1997 1998
--------- ------------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
April 2000................ Prime plus 3% $ -- $1,112,000 $1,166,000
April 2002................ 9.25% -- 2,400,938 2,247,031
June 2002................. 9.25% 731,250 676,875 641,250
March 2003................ 9.25% 800,000 770,250 721,500
April 2003................ 9.00% 2,500,000 -- --
July 2004................. 9.25% -- 2,262,972 2,262,973
---------- ---------- ----------
4,031,250 7,223,035 7,038,754
Less current maturities... (198,750) (417,077) (638,710)
---------- ---------- ----------
Long-term portion....... $3,832,500 $6,805,958 $6,400,044
========== ========== ==========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998.............................................................. $ 417,077
1999.............................................................. 767,061
2000.............................................................. 2,262,835
2001.............................................................. 1,415,002
2002.............................................................. 1,363,232
Thereafter........................................................ 997,828
----------
Total........................................................... $7,223,035
==========
</TABLE>
6. DESCRIPTION OF LEASING ARRANGEMENTS
Mid-Atlantic and RFM license space for communication systems on their towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Certain of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $2,601,906
December 31, 1999................................................. 1,973,959
December 31, 2000................................................. 1,544,165
December 31, 2001................................................. 1,114,167
December 31, 2002................................................. 521,787
Thereafter........................................................ 506,358
----------
Total........................................................... $8,262,342
==========
</TABLE>
7. COMMITMENTS
Mid-Atlantic and RFM are committed to various land leases for tower sites. RCC
is obligated under operating leases for office space and equipment. Land lease
expense for the years ended December 31, 1996, and 1997, and for the seven
months ended July 31, 1998 (unaudited) was $139,258, $239,697, and $149,262,
respectively.
F-92
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for the office space and equipment for the years ended December
31, 1996, and 1997, and for the seven months ended July 31, 1998 (unaudited)
totaled approximately $489,000, $891,665, and $525,000, respectively. At
December 31, 1997, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $ 907,774
December 31, 1999................................................. 825,179
December 31, 2000................................................. 798,752
December 31, 2001................................................. 686,029
December 31, 2002................................................. 520,992
Thereafter........................................................ 771,533
----------
Total........................................................... $4,510,259
==========
</TABLE>
8. RELATED PARTIES
In the normal course of business, the Partnership advances and receives funds
to and from affiliated parties for certain shared expenses. Amounts are repaid
on a regular and timely basis. The Partnership had a payable to these
affiliates at December 31, 1996, 1997, and July 31, 1998 (unaudited) of
$104,149, $36,758, and $792,953, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998, was $9,463, $150,319, $269,786, and $188,204, respectively. The
Partnership is also obligated to pay a 3% acquisition fee on all capital funds
invested in towers and related real estate and other assets, as well as up to
4% of gross monthly revenue, to the general partner for reimbursement of
certain general partner expenses. Acquisition fees are capitalized as incurred
by the Partnership. No acquisition fees were incurred or capitalized during
1997. Expense reimbursement fees for the years ended December 31, 1995, 1996,
and 1997, and for the seven months ended July 31, 1998 (unaudited) totaled
$5,510, $27,759, $76,357, and $88,570, respectively.
9. EQUITY PROGRAM DESCRIPTION
In 1996 RCC Holdings and RFM established an equity participation program
("Equity Program") for the employees of RCC. At the time this Equity Program
was established, RCC was wholly owned by RCC Holdings, and RFM was affiliated
with RCC Holdings. The Partnership and TeleCom Towers, Inc., a Texas
corporation ("TTI"), were the general partners of RFM. The objective of the
Equity Program is to reward employees for the success of RCC Holdings and RFM
as if they were owners of the Partnership. The Equity Program generally
provides that each employee will receive a designated percentage (as set forth
in the award agreement) of amounts distributed to TTI from the proceeds of RCC
Holdings and RFM. Employee-participants vest their benefits over a period of
five years of service with RCC, beginning after May 1, 1996; however,
participants will be 100% vested upon death or permanent disability. All
payments are to be made out of the general assets of either RCC Holdings or
RFM.
An event which would trigger the Partnership's obligations under the Equity
Program has not occurred, and no such event is presently anticipated or
contemplated. Therefore, the Partnership has not recorded a charge for the
Equity Program.
F-93
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C. which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-94
<PAGE>
INDEPENDENT AUDITORS' REPORT
Telecom Towers of the West
(A Division of TeleCom Towers, Inc.)
We have audited the accompanying balance sheet of Telecom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the related
statements of income, divisional equity, and cash flows for the period from
inception (August 1, 1996) to December 31, 1996. These financial statements are
the responsibility of the division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 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 TeleCom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the results of
its operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-95
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers of the West, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
of the West, LP as of December 31, 1997, and the related statements of
operations, partners' capital, and cash flows for the year ended December 31,
1997. These financial statements are the responsibility of the Partnership'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 Telecom Towers of the West, LP
at December 31, 1997, and the results of its operations and its cash flows for
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-96
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 202,451 $ 425,791 $ 605,040
Accounts receivable, net of allowance of
$35,195, $15,000, and $0 in 1998, 1997,
and 1996, respectively.................. 8,285 255,975 195,377
Prepaid expenses......................... 9,254 33,073 44,205
---------- ----------- -----------
Total current assets................... 219,990 714,839 844,622
Property and equipment, net of accumulated
depreciation of $1,029,180, $743,916, and
$19,359 in 1998, 1997, and 1996,
respectively.............................. 545,155 4,700,217 4,670,462
Intangibles, net of accumulated
amortization of $1,728,297, $939,261, and
$45,825 in 1998, 1997, and 1996,
respectively.............................. 1,900,339 17,665,725 16,677,854
Investment in joint venture................ -- 1,520,475 1,645,236
Escrow deposits............................ 401,500 550,000 750,000
Advance to Prime Building Top.............. 1,302,000 -- --
Deferred acquisition costs................. 25,814 -- --
Deferred rent receivable................... -- 119,054 199,198
Other assets............................... 4,670 10,877 63,946
---------- ----------- -----------
Total assets........................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $ 111,119 $ 62,663 $ 460,597
Current portion of long-term debt........ 32,500 204,644 643,576
Other liabilities........................ -- 16,965 --
Due to related entities.................. 33,787 415,717 --
Prepaid rents............................ -- 215,386 --
Deferred income.......................... 12,608 -- 360,756
Advance from TeleCom Towers, Inc......... 1,302,000 -- --
Bridge loan--TeleCom Towers, Inc......... 1,900,000 -- --
---------- ----------- -----------
Total current liabilities.............. 3,392,014 915,375 1,464,929
Long-term debt, net of current portion..... 1,267,500 10,950,632 10,862,950
Partners' capital.......................... (260,046) 13,415,180 12,523,439
---------- ----------- -----------
Total liabilities and partners'
capital............................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
</TABLE>
See accompanying notes.
F-97
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 31, 1996 Seven months
(inception) to Year ended ended July 31,
December 31, December 31, ---------------------
1996 1997 1997 1998
--------------- ------------ --------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Total revenues........... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct tower costs....... 24,958 372,964 85,223 364,032
--------- ----------- --------- ----------
Gross profit............. 116,500 1,795,729 695,967 1,597,650
General and administra-
tive.................... 21,014 561,233 272,949 495,936
Depreciation............. 19,359 320,729 128,915 285,264
Amortization............. 45,825 893,436 194,106 789,036
--------- ----------- --------- ----------
Operating income......... 30,302 20,331 99,997 27,414
Interest income.......... -- 55,065 167,413 15,328
Interest expense......... (154,916) (693,161) (226,031) (611,244)
Partnership share of loss
in joint venture........ -- (531,525) -- (323,239)
--------- ----------- --------- ----------
Net loss................. $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
</TABLE>
See accompanying notes.
F-98
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity (1%) Equity (99%) Capital
----------- ------------ -----------
<S> <C> <C> <C>
Balance at August 1, 1996 (inception)... $ -- $ -- $ --
Syndication and offering costs.......... -- (135,432) (135,432)
Net loss................................ (124,614) -- (124,614)
--------- ----------- -----------
Balance at December 31, 1996............ $(124,614) $ (135,432) $ (260,046)
Capital contributions................... -- 16,338,000 16,338,000
Syndication and offering costs.......... -- (1,513,484) (1,513,484)
Net loss................................ (11,493) (1,137,797) (1,149,290)
--------- ----------- -----------
Balance at December 31, 1997............ $(136,107) $13,551,287 $13,415,180
Capital contributions................... -- -- --
Syndication and offering costs.......... -- -- --
Net loss................................ (8,917) (882,824) (891,741)
--------- ----------- -----------
Balance at July 31, 1998 (unaudited).... $(145,024) $12,668,463 $12,523,439
========= =========== ===========
</TABLE>
See accompanying notes.
F-99
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
August 31, 1996 Seven months
(inception) to Year ended ended July 31,
December 31, December 31, -----------------------
1996 1997 1997 1998
--------------- ------------ ------------ ---------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................. $ (124,614) $(1,149,290) $ 41,379 $(891,741)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation............ 19,359 320,729 128,915 285,264
Amortization............ 45,825 893,436 194,106 789,036
Partnership loss........ -- 531,525 -- 323,239
Changes in operating
assets and liabilities:
Accounts receivable..... (8,285) (307,170) (415,220) 60,598
Prepaid expenses........ (9,254) (30,835) (14,794) (11,132)
Escrow deposits......... (1,500) (148,500) (369,611) (200,000)
Other assets............ (4,670) (6,207) (308,818) (133,213)
Accounts payable and
accrued liabilities.... 7,667 (121,565) 307,561 397,934
Due to related
entities............... 16,734 (2,820,070) (33,787) (415,717)
Prepaid rents........... -- 88,064 495,790 145,370
Other liabilities....... -- 16,965 -- (16,965)
Deferred income......... 12,608 -- -- --
---------- ----------- ------------ ---------
Net cash (used in)
operating activities... (46,130) (2,732,918) 25,521 332,673
Investing activities
Asset acquisitions, net
of cash received........ (2,755,431) (12,851,347) (10,329,590) 198,835
Net assets acquired, net
of cash received........ (5,874,798) -- --
Purchases of property and
equipment............... (526) (2,247,389) (5,094,542) (255,509)
Contributions to
investments in joint
ventures................ (750,000) (1,802,600) (448,000)
Due to related parties... 9,553 -- -- --
Acquisition costs........ (123,221) -- -- --
Deferred acquisition
costs................... (25,814) -- 25,814 --
Acquisition costs
accrued................. 24,187 -- -- --
---------- ----------- ------------ ---------
Net cash used in
investing activities... (2,871,252) (21,723,534) (17,200,318) (504,674)
Financing activities
Proceeds from debt....... 3,200,000 9,871,526 2,966,875 400,000
Payments on debt......... -- (16,250) (16,250) (48,750)
Contributions from
limited partners........ -- 16,338,000 16,085,251 --
Advance to Prime Building
Top..................... (1,302,000) -- (1,302,000) --
Advance from TeleCom
Towers, Inc............. 1,302,000 -- 1,302,000 --
Deferred
syndication/offering
costs................... (135,432) -- -- --
Syndication and offering
costs................... 79,265 (1,513,484) (1,258,310) --
Financing costs.......... (31,500) -- -- --
Due to related parties... 7,500 -- -- --
---------- ----------- ------------ ---------
Net cash provided by
financing activities... 3,119,833 24,679,792 17,777,366 351,250
Net increase in cash..... 202,451 223,340 602,569 179,249
Cash at beginning of
period.................. -- 202,451 202,451 425,791
---------- ----------- ------------ ---------
Cash at end of period.... $ 202,451 $ 425,791 $ 805,020 $ 605,040
========== =========== ============ =========
Supplemental cash flow
information
Cash paid for interest... $ 154,916 $ 693,161 $ 226,031 $ 611,244
========== =========== ============ =========
</TABLE>
See accompanying notes.
F-100
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and July 31, 1998
(Information as of and for the period ended July 31, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
TeleCom Towers of the West Limited Partnership (the Partnership), a Texas
limited partnership, operates in the communications industry. The Partnership
operates tower sites in various states, primarily New York, California,
Arkansas and northern Louisiana. The Partnership shall continue in full force
and effect until December 31, 2020, unless the Partnership is sooner dissolved
by the occurrence of certain events as specified in the Partnership Agreement.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
The consolidated financial statements include the accounts of Signal Tower
Company, Inc., (Signal), a wholly-owned subsidiary, acquired in March 1997.
Acquisitions
On August 1, 1996, the Partnership acquired tower assets of TOF, Inc., Travis
Carroll, Inc., and Sedricks, Inc. in a single transaction. The purchase method
was used to account for the acquisition, and the purchase price was allocated
as follows:
<TABLE>
<S> <C>
Property and equipment........................................... $ 659,740
Goodwill and intangibles......................................... 2,096,260
----------
$2,756,000
==========
</TABLE>
As part of the acquisition, $400,000 of the purchase price has been placed in a
contingent escrow account. Pursuant to an agreement with the sellers, if
certain revenue increases are realized within one year of the acquisition date,
the amount in the contingent escrow account will be paid to the sellers. If the
revenue increases are not realized, the amount to be paid to the sellers will
be determined by a formula in the agreement. Any remaining balance would then
be returned to the Partnership.
A one-year maintenance and consulting agreement in the amount of $16,560 was
also entered into with an entity related to the sellers.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
F-101
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<S> <C>
Land............................................................. $ 526,000
Buildings........................................................ 501,000
Towers........................................................... 2,915,000
Intangibles...................................................... 8,909,347
-----------
$12,851,347
===========
</TABLE>
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates tower transmission sites in various states and grants
credit to its customers in the normal course of business and normally does not
require collateral. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers in the
Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected
F-102
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
segment information in interim financial reports to stockholders. The
disclosure for segment information on the financial statements is not expected
to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
F-103
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations amounts will either be reclassified as part
of the purchase price, expensed to general and administrative expenses as site
investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits, losses, deductions and credits are reported by the
individual partners on their respective income tax returns. Signal is a
corporation which provides for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and 1997,
and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
-------------------- July 31,
1996 1997 1998
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Land...................................... $ -- $ 549,399 $ 549,399
Buildings................................. 133,860 643,181 644,825
Towers.................................... 430,128 4,045,323 4,242,346
Equipment, furniture, and fixtures........ 526 206,230 263,072
-------- ---------- ----------
564,514 5,444,133 5,699,642
Accumulated depreciation.................. (19,359) (743,916) (1,029,180)
-------- ---------- ----------
Property and equipment, net............... $545,155 $4,700,217 $4,670,462
======== ========== ==========
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997, and
July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................. $1,291,443 $16,392,223 $15,991,475
Acquisition and loan costs........... 154,721 1,857,763 1,859,676
Non-compete and consulting agree-
ments............................... -- 355,000 555,000
Ground leases........................ 500,000 -- --
---------- ----------- -----------
1,946,164 18,604,986 18,406,151
Accumulated amortization............. (45,825) (939,261) (1,728,297)
---------- ----------- -----------
Net intangibles...................... $1,900,339 $17,665,725 $16,677,854
========== =========== ===========
</TABLE>
F-104
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These intangibles result from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $270,000 in such fees during 1997. The agreements also contain a
provision for a Line of Credit Facility Fee at the rate of one quarter of one
percent (0.25%) per annum on the average unborrowed portion of the Line of
Credit Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $7,967 in
credit facility fees during 1997.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership. Balances at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Interest December 31, July 31,
Due date Rate 1997 1998
-------- -------- ------------ -----------
(unaudited)
<S> <C> <C> <C>
July 2004................................ 9.125% $ 9,871,526 $ 9,871,526
July 2003................................ 9.125% 1,283,750 1,235,000
July 2004................................ 9.1875% -- 400,000
----------- -----------
11,155,276 11,506,526
Less current maturities.................. (204,644) (643,576)
----------- -----------
Long-term portion........................ $10,950,632 $10,862,950
=========== ===========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
1998......................................................... $ 204,644
1999......................................................... 763,220
2000......................................................... 1,329,921
2001......................................................... 1,958,319
2002......................................................... 2,521,717
Thereafter................................................... 4,377,455
-----------
Total...................................................... $11,155,276
===========
</TABLE>
F-105
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Some of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
December 31, 1998............................................ $ 2,513,811
December 31, 1999............................................ 2,307,355
December 31, 2000............................................ 1,900,124
December 31, 2001............................................ 1,520,525
December 31, 2002............................................ 929,789
Thereafter................................................... 4,524,635
-----------
Total...................................................... $13,696,239
===========
</TABLE>
F-106
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the period from inception (August 1, 1996) through December 31,
1996, the year ended December 31, 1997, and the seven months ended July 31,
1998 (unaudited), was $3,129, $65,449, and $72,266, respectively. At December
31, 1997, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
December 31, 1998............................................... $115,223
December 31, 1999............................................... 106,082
December 31, 2000............................................... 96,475
December 31, 2001............................................... 83,914
December 31, 2002............................................... 73,665
Thereafter...................................................... 305,645
--------
Total......................................................... $781,004
========
</TABLE>
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. Amounts due (to)/from these related parties at
December 31, 1997 were as follows:
<TABLE>
<S> <C>
TeleCom Towers Mid-Atlantic, LP.............................. $ 788
TeleCom Towers, Inc. ........................................ (408,302)
TeleCom Towers Southwest, LP................................. (8,203)
---------
Due to related entities...................................... $(415,717)
=========
</TABLE>
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the period
from inception (August 1, 1996) through December 31, 1996, the year ended
December 31, 1997, and the seven months ended July 31, 1998 (unaudited) was
$12,024, $127,373, and $166,742, respectively. The Partnership is also
obligated to pay a 3% acquisition fee on all capital funds invested in towers
and related real estate and other assets, as well as up to 4% of gross monthly
revenue, to the general partner for reimbursement of certain general partner
expenses. Acquisition fees are capitalized as incurred by the Partnership.
Acquisition fees capitalized during 1997 were $800,136. Expense reimbursement
fees for the period from inception (August 31, 1996) through December 31, 1996,
the year ended December 31, 1997, and the seven months ended July 31, 1998
(unaudited) totaled $3,625, $69,533, and $78,468, respectively.
8. INVESTMENTS IN JOINT VENTURE
The Partnership is a 50% partner in Prime-Telecom Communications Co., a
California general partnership formed to operate rooftop sites and towers in
the Los Angeles Metropolitan area. This investment is considered a joint
venture and is accordingly accounted for on the equity method.
Summarized financial information of this joint venture from the unaudited
financial statements as of December 31, 1997 and July 31, 1998, are as follows:
F-107
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Prime Telecom Communications
----------------------------
July 31,
December 31, 1997 1998
----------------- ----------
(unaudited)
<S> <C> <C>
Total Assets............................... $ 3,060,364 $1,427,281
Total Liabilities.......................... 1,071,414 708,670
Partners' Capital.......................... 1,988,950 718,611
Total Revenue.............................. 1,237,039 955,559
Net Loss................................... (1,063,050) (646,478)
Partnership's Share of Loss................ (531,525) (323,239)
</TABLE>
9. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-108
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MicroNet, Inc. and Affiliates and
American Tower Systems, Inc.
We have audited the accompanying combined statements of net assets of MicroNet,
Inc. and affiliates sold to American Tower Systems, Inc. (the "Company") as of
December 31, 1996 and October 31, 1997, and the related combined statements of
income and cash flows derived from those assets for the year ended December 31,
1996, and the ten months ended October 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, such combined financial statements present fairly, in all
material respects, the net assets of MicroNet, Inc. and affiliates sold to
American Tower Systems, Inc. as of December 31, 1996 and October 31, 1997, and
the results of operations related to those assets, and cash flows generated
from those assets for the year ended December 31, 1996, and the ten months
ended October 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Company and may not be indicative of the
conditions that would have existed or the results of operations had the net
assets sold been operated as an unaffiliated company. Certain expenses
represent allocations made by the Company's Parent, and, as discussed in Note
A, no provision for income taxes has been made in the combined statements of
income derived from the net assets sold.
Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
February 26, 1998
F-109
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF NET ASSETS SOLD
December 31, 1996 and October 31, 1997
<TABLE>
<CAPTION>
December 31, October 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Prepaid expenses.................................. $ 301,942 $ 465,611
------------ ------------
Total Current Assets............................ 301,942 465,611
Property and Equipment.............................. 39,564,758 40,329,382
Less accumulated depreciation..................... (22,486,975) (24,513,888)
------------ ------------
17,077,783 15,815,494
Goodwill, net of amortization....................... 4,120,276 3,691,081
Intangible Assets, net of amortization.............. 902,227 742,047
Other Assets........................................ 183,087 70,354
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
LIABILITIES AND NET ASSETS TO BE SOLD
Current Liabilities
Customer service prepayments...................... $ 459,638 $ 307,961
------------ ------------
Total Current Liabilities....................... 459,638 307,961
Commitments and Contingencies
Net Assets To Be Sold............................... 22,125,677 20,476,626
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
</TABLE>
See accompanying notes.
F-110
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME DERIVED FROM NET ASSETS SOLD
Year Ended December 31, 1996, and Ten Months Ended October 31, 1997
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended
December October 31,
31, 1996 1997
----------- -----------
<S> <C> <C>
Net Revenues.......................................... $15,058,305 $15,103,459
Operating Expenses
Service............................................. 5,955,270 5,670,523
Selling and marketing............................... 488,857 347,475
General and administrative.......................... 3,422,581 2,676,978
Depreciation........................................ 3,199,495 2,034,072
Amortization........................................ 736,025 591,775
----------- -----------
13,802,228 11,320,823
----------- -----------
Operating Income...................................... 1,256,077 3,782,636
Other Income--Net..................................... 42,904 33,681
----------- -----------
Net Income Derived from Net Assets To Be Sold......... 1,298,981 3,816,317
Net Assets To Be Sold, Beginning of Period............ 22,563,349 22,125,677
Distributions To Parent............................... (1,736,653) (5,465,368)
----------- -----------
Net Assets To Be Sold, End of Period.................. $22,125,677 $20,476,626
=========== ===========
</TABLE>
See accompanying notes.
F-111
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS DERIVED FROM NET ASSETS SOLD
Year Ended December 31, 1996, and Ten Months Ended October 31, 1997
<TABLE>
<CAPTION>
Ten Months
Ended
Year Ended October
December 31,
31, 1996 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income derived from net assets sold.................. $ 1,298,981 $3,816,317
Adjustments to reconcile income derived from net
assets sold to cash provided by operating
activities:
Depreciation and amortization...................... 3,935,520 2,625,847
Loss (gain) on disposal of property and equipment.. (400) 9,062
Write off assets to net realizable value........... 65,313 --
Change in assets and liabilities:
Prepaid expenses................................. (49,781) (163,669)
Other assets..................................... 15,396 112,733
Customer service prepayments..................... 149,642 (151,677)
----------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES................ 5,414,671 6,248,613
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................... (3,678,418) (783,845)
Increase in intangible assets........................ -- (2,400)
Proceeds from sale of property and equipment......... 400 3,000
----------- ----------
CASH USED FOR INVESTING ACTIVITIES................... (3,678,018) (783,245)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS BEFORE
ADJUSTMENT.......................................... 1,736,653 5,465,368
ADJUSTMENT FOR NET ASSETS NOT SOLD................... (1,736,653) (5,465,368)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... $ -- $ --
=========== ==========
</TABLE>
See accompanying notes.
F-112
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and October 31, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of MicroNet, Inc. and
affiliates (the "Company") is presented to assist in understanding its combined
financial statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the combined financial statements.
Basis of Presentation and Combination
The accompanying combined statements of net assets sold to American Tower
Systems, Inc. ("ATS") are intended to present the assets and liabilities of the
Company sold to ATS (the "Net Assets") pursuant to an asset purchase agreement
between ATS and Suburban Cable TV Co. Inc. ("Suburban") and the income and cash
flows derived from such assets and liabilities. MicroNet is a wholly owned
subsidiary of Suburban (the "Company's Parent"), which is a wholly owned
subsidiary of Lenfest Communications, Inc. ("LCI"). As of July 8, 1997, the
Company agreed to sell substantially all of the operating assets of its
communication towers, satellite transmission and microwave video and data
signal transmission businesses to ATS for approximately $70.25 million. The
accompanying combined statements include 128 operating tower sites of the
Company, including 28 tower sites operated by Suburban and other cable TV
operating subsidiaries of LCI. The transaction closed as of October 31, 1997.
The combined financial statements include the accounts of MicroNet, Inc. and
those of all wholly owned subsidiaries, excluding the assets, liabilities and
results of operations of assets not sold to ATS. The combined financial
statements also include the assets, liabilities and results of operations of
the 28 tower sites included in the sale that are operated by Suburban and other
cable TV operating subsidiaries of LCI.
Business Activity and Concentrations of Credit Risk
The Company provides satellite and microwave transmission of video, voice and
data communications and tower site rental throughout the United States. The
Company grants credit to broadcast and cable networks and cellular and paging
companies throughout the nation. Consequently, the Company's ability to collect
the amounts due from customers is affected by economic fluctuations in these
industries.
Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates, and such
differences could be material to the combined financial statements.
Property and Equipment
Property and equipment are stated at cost. For acquired communication networks
and facilities, the purchase price has been allocated to net assets on the
basis of appraisal reports issued by an independent appraiser. Depreciation is
provided using the accelerated and straight-line methods of depreciation for
financial reporting purposes at rates based on estimated useful lives ranging
from 3 to 33 years.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
F-113
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Capitalization of Costs
All costs properly attributable to capital items, including that portion of
employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized.
Goodwill and Intangible Assets
Goodwill and intangible assets acquired in connection with the purchases of
communications networks and facilities have been valued at acquisition cost on
the basis of the allocation of the purchase price on a fair market value basis
to net assets as determined by an independent appraiser. Additions to these
assets are stated at cost. Intangible assets consist of FCC licenses,
organization costs and covenants not to compete. The intangible assets are
being amortized on the straight-line method over their legal or estimated
useful lives to a maximum of forty (40) years. Goodwill represents the cost of
an acquired partnership interest in excess of amounts allocated to specific
assets based on their fair market values. Goodwill is amortized on the
straight-line method over ten years. In accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of ", the Company assesses on
an on-going basis the recoverability of intangible assets based on estimates of
future undiscounted cash flows for the applicable business acquired compared to
net book value. If the future undiscounted cash flow estimate is less than net
book value, net book value is then reduced to the undiscounted cash flow
estimate. The Company also evaluates the amortization periods of intangible
assets to determine whether events or circumstances warrant revised estimates
of useful lives. As of October 31, 1997, management believes that no revisions
to the remaining useful lives or writedowns of deferred charges are required.
Revenue Recognition
The Company bills certain customers in advance; however, revenue is recognized
as services are provided. Credit risk is managed by discontinuing services to
customers who are delinquent.
Income Taxes
The Company, as a participating subsidiary, joins in the filing of a
consolidated Federal tax return with LCI. Current and deferred Federal income
taxes are allocated among LCI and its consolidated subsidiaries based upon the
respective net income (loss) and timing differences of each company. The
Company files separate state tax returns. No provision for income taxes has
been made in the combined financial statements. Deferred tax assets and
liabilities are excluded from net assets sold.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Fair Value of Financial Instruments
The Company believes that the carrying value of all financial instruments is a
reasonable estimate of fair value at December 31, 1996 and October 31, 1997.
NOTE B--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
ATS did not assume any debt of the Company. There is no interest expense paid
reflected in the accompanying financial statements. The Company did not make
any income tax payments to LCI.
In 1996, the Company wrote down $65,313 of property and equipment to net
realizable value. (See Note C).
F-114
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE C--PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1996 and October 31,
1997, is as follows:
<TABLE>
<CAPTION>
Estimated
December 31, October 31, Useful Lives
1996 1997 In Years
------------ ------------ ------------
<S> <C> <C> <C>
Land................................ $ 3,027,303 $ 3,027,303
Building and improvements........... 1,799,553 1,814,012 15-33
Computer equipment.................. 291,002 299,976 5
Furniture, fixtures and office
equipment.......................... 616,678 619,028 7
Tower, head-end equipment and
microwave equipment................ 32,289,707 33,025,202 7-15
Land improvements................... 188,195 206,337 7-15
Leasehold improvements.............. 278,430 278,430 5-15
Radio equipment..................... 9,360 9,360 5-7
Test equipment...................... 584,458 588,305 7
Vehicles............................ 480,072 461,429 3-5
------------ ------------
$ 39,564,758 $ 40,329,382
============ ============
</TABLE>
During 1996, the Company recognized an impairment loss in connection with a
failed project to rebuild a tower. The township denied the Company's request to
tear-down and rebuild a larger tower on an existing tower site. Legal and
engineering costs associated with the project in the amount of $65,313,
previously capitalized, were written off. This impairment loss is included in
general and administrative expenses in the 1996 combined statement of income.
NOTE D--GOODWILL
The excess of the purchase price paid over the acquired net assets has been
allocated to goodwill. Accumulated amortization at December 31, 1996 and
October 31, 1997, was $1,030,069 and $1,459,264, respectively.
NOTE E--INTANGIBLE ASSETS
A schedule of intangible assets and accumulated amortization at December 31,
1996 and October 31, 1997, is as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------
Accumulated
Description Amount Amortization Net
----------- ----------- ------------ ---------
<S> <C> <C> <C>
FCC licenses............................ $ 326,163 $ 49,238 $ 276,925
Organization costs and covenants not to
compete................................ 1,201,174 575,872 625,302
----------- --------- ---------
$ 1,527,337 $ 625,110 $ 902,227
=========== ========= =========
<CAPTION>
October 31, 1997
----------------------------------
Accumulated
Description Amount Amortization Net
----------- ----------- ------------ ---------
<S> <C> <C> <C>
FCC licenses............................ $ 326,163 $ 56,033 $ 270,130
Organization costs and covenants not to
compete................................ 1,203,574 731,657 471,917
----------- --------- ---------
$ 1,529,737 $ 787,690 $ 742,047
=========== ========= =========
</TABLE>
F-115
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE F--LEASES
The Company leases office space from an individual who is a shareholder,
chairman of the board and chief executive officer of LCI. The lease began on
May 24, 1990, and is classified as an operating lease. The initial lease term
assumed by ATS expires October 31, 1998.
Future minimum lease payments under all non-cancelable operating leases with
initial terms of one year or more consisted of the following at October 31,
1997:
<TABLE>
<CAPTION>
Related
Year Ending December 31, Party Other
------------------------ ------- -----------
<S> <C> <C>
1998............................................... $81,874 $ 997,956
1999............................................... -- 833,947
2000............................................... -- 784,922
2001............................................... -- 750,748
2002............................................... -- 548,683
Thereafter.......................................... -- 1,535,365
------- -----------
Total minimum lease payments......................... $81,874 $ 5,451,621
======= ===========
</TABLE>
Rental expense for all operating leases, principally head-end land and building
facilities, amounted to $1,149,855 for the year ended December 31, 1996, and
$982,484 for the ten months ended October 31, 1997. In addition, the Company
made total payments to the related party for office space of $81,874 for the
year ended December 31, 1996, and $68,228 for the ten month period ended
October 31, 1997.
In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices. It is expected that, in the normal course of business,
expiring leases will be renewed or replaced by leases on other properties;
thus, it is anticipated that future minimum operating lease commitments will
not be less than the annualized amount shown for the ten months ended October
31, 1997.
NOTE G--LESSOR OPERATING LEASES
The Company is the lessor of tower and head-end equipment and microwave
equipment under operating leases expiring in various years through 2005. Rental
income from operating leases amounted to $5,909,260 for the year ended December
31, 1996, and $7,624,515 for the ten months ended October 31, 1997.
Following is a summary of property held for lease at December 31, 1996 and
October 31, 1997:
<TABLE>
<CAPTION>
December 31, October 31,
1996 1997
------------ ------------
<S> <C> <C>
Tower, head-end equipment and microwave
equipment................................. $ 32,289,707 $ 33,025,202
Less accumulated depreciation.............. (20,271,612) (22,049,480)
------------ ------------
$ 12,018,095 $ 10,975,722
============ ============
</TABLE>
F-116
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Minimum future rentals to be received on non-cancelable leases consisted of the
following as of October 31, 1997:
<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------
<S> <C>
1998....................................................... $ 7,778,174
1999....................................................... 5,481,722
2000....................................................... 4,671,884
2001....................................................... 3,327,044
2002....................................................... 831,607
Thereafter.................................................. 299,311
------------
$ 22,389,742
============
</TABLE>
NOTE H--OTHER INCOME
The schedules of other income for the year ended December 31, 1996, and ten
months ended October 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, October 31,
1996 1997
------------ ----------------
<S> <C> <C>
Interest income.............................. $ 42,504 $ 42,743
Gain (loss) on disposal of property and
equipment................................... 400 (9,062)
-------- --------
$ 42,904 $ 33,681
======== ========
</TABLE>
NOTE I--EMPLOYEE HEALTH BENEFIT PLAN
As a subsidiary of LCI, the Company participates in the Lenfest Group Employee
Health Plan (a trust) in order to provide health insurance for its employees.
This trust is organized under Internal Revenue Code Section 501(c)(9)--
Voluntary Employee Beneficiary Association (VEBA). Benefits are prefunded by
contributions from the Company and all other participating LCI subsidiaries.
Insurance expense is recognized as incurred. The Company does not provide
postretirement benefits to its employees. Therefore, Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions", does not have an impact on the Company's
financial statements.
NOTE J--401(k) PLAN
LCI provides a 401(k) retirement plan to the employees of its subsidiaries. The
Company, as an indirect wholly owned subsidiary, is entitled to participate.
The Company matches the entire amount contributed by an eligible employee up to
5% of their salary, subject to regulatory limitations. For the year ended
December 31, 1996, the Company matched $112,033 of contributions. For the ten
months ended October 31, 1997, the Company matched $90,616.
NOTE K--RELATED PARTY TRANSACTIONS
The Company does business and generates revenue with subsidiaries of Tele-
Communications, Inc. ("TCI"), (a stockholder of LCI, through an indirect,
wholly owned subsidiary). The amount of revenues generated was $1,225,000 for
the year ended December 31, 1996, and $1,477,000 for the ten months ended
October 31, 1997. An additional $69,000 received from TCI was included in
customer service prepayments as of December 31, 1996 and October 31, 1997.
F-117
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
All services provided to related parties were at standard billing rates.
Certain management services are provided to the Company by Suburban. Such
services include legal, tax, treasury, risk management, benefits administration
and other support services. Included in selling, general and administrative
expenses for the year ended December 31, 1996, and the ten months ended October
31, 1997, were allocated expenses of $108,000 and $90,000, respectively,
related to these services. Allocated expenses are based on Suburban's estimate
of expenses related to the services provided to the Company in relation to
those provided to other affiliates of Suburban. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Company contracted directly with third parties. Management has not made
a study or any attempt to obtain quotes from third parties to determine what
the cost of obtaining such services from third parties would have been. The
fees and expenses charged by Suburban are subject to change.
The Company entered into a lease agreement with a principal stockholder of LCI
(See Note F).
F-118
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Diablo
Communications, Inc. (A California
S Corporation):
We have audited the accompanying balance sheets of Diablo Communications, Inc.
(the "Company"), as of December 31, 1995 and 1996, and the related statements
of income, stockholders' equity and cash flows for the years 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
November 4, 1997
F-119
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1995 1996 1997
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................. $ 515,896 $ 708,434 $ 554,201
Accounts receivable:
Trade, net of allowance for doubt-
ful accounts of $10,000 at each
date.............................. 292,971 334,926 398,844
Affiliates......................... 440,532 560,813 1,231,952
Prepaid and other current assets..... 242,436 160,678 199,702
----------- ----------- ----------
Total current assets............. 1,491,835 1,764,851 2,384,699
PROPERTY AND EQUIPMENT, net............ 1,720,423 2,952,926 2,992,593
INVESTMENT IN AFFILIATE................ 4,158 10,053 7,757
DEPOSITS AND OTHER ASSETS.............. 224,338 182,984 293,617
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 191,258 $ 246,579 $ 188,624
Accrued expenses..................... 164,211 232,691 178,000
Deferred revenue..................... 340,556 364,865 250,056
Current portion of long-term debt.... 303,045 420,875 505,129
----------- ----------- ----------
Total current liabilities........ 999,070 1,265,010 1,121,809
----------- ----------- ----------
LONG-TERM DEBT......................... 925,002 1,786,410 1,732,390
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value,
10,000,000 shares authorized,
202,000 shares issued and outstand-
ing................................. 3,465,242 3,465,242 3,465,242
Accumulated deficit.................. (1,948,560) (1,605,848) (640,775)
----------- ----------- ----------
Total stockholders' equity....... 1,516,682 1,859,394 2,824,467
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-120
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Tower revenues................ $5,925,022 $6,337,292 $4,778,569 $5,878,022
Sublease revenues--related
party........................ 414,000 365,500 253,500 337,940
Management fees--related par-
ty........................... 96,968 97,513 70,531 80,621
Insurance proceeds............ -- 213,000 -- --
---------- ---------- ---------- ----------
Total revenues.............. 6,435,990 7,013,305 5,102,600 6,296,583
---------- ---------- ---------- ----------
OPERATING EXPENSES:
General and administrative.... 1,229,313 1,414,136 1,036,774 968,071
Depreciation and amortiza-
tion......................... 283,023 416,883 359,184 359,856
Rent expense.................. 1,875,527 2,039,302 1,512,615 1,829,720
Technical..................... 1,422,267 1,618,722 1,144,103 1,244,912
Sales and promotional......... 433,443 530,447 393,685 430,846
---------- ---------- ---------- ----------
Total operating expenses.... 5,243,573 6,019,490 4,446,361 4,833,405
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.......... 1,192,417 993,815 656,239 1,463,178
OTHER INCOME (EXPENSE), NET..... (120,388) (144,257) (90,335) 133,704
---------- ---------- ---------- ----------
NET INCOME...................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-121
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------
Outstanding Accumulated
Shares Amount Deficit Total
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994.... 202,000 $3,465,242 $(1,689,475) $ 1,775,767
Cash and noncash
distributions to
stockholders............... (1,331,114) (1,331,114)
Net income.................. 1,072,029 1,072,029
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995.... 202,000 3,465,242 (1,948,560) 1,516,682
Cash distributions to stock-
holders.................... (506,846) (506,846)
Net income.................. 849,558 849,558
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996.... 202,000 3,465,242 (1,605,848) 1,859,394
Cash distributions to stock-
holders (unaudited)........ (631,809) (631,809)
Net income (unaudited)...... -- -- 1,596,882 1,596,882
------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997
(unaudited).................. 202,000 $3,465,242 $ (640,775) $ 2,824,467
======= ========== =========== ===========
</TABLE>
See notes to financial statements.
F-122
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------------- ----------------------
1995 1996 1996 1997
---------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortiza-
tion....................... 283,023 416,883 359,184 359,856
Changes in assets and lia-
bilities:
Accounts receivable--
trade..................... (163,273) (30,000) (213,355) (63,918)
Accounts receivable--Affil-
iates..................... (244,175) (132,236) (74,543) (671,139)
Prepaid and other current
assets.................... (178,370) 81,758 (16,395) (39,024)
Deposits and other assets.. (37,181) 22,778 65,703 (108,337)
Accounts payable and ac-
crued expenses............ 115,175 123,801 (265,136) (112,646)
Deferred revenue........... 67,287 24,309 69,329 (114,809)
---------- ----------- ---------- ----------
Net cash provided by oper-
ating activities......... 914,515 1,356,851 490,691 846,865
---------- ----------- ---------- ----------
CASH FLOW FROM INVESTING
ACTIVITIES--Purchases of
property and equipment....... (948,781) (1,636,705) (1,219,152) (399,523)
---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Long-term borrowings........ 500,000 1,250,000 1,250,000 217,075
Repayments of long-term
debt....................... (50,469) (270,762) (192,775) (186,841)
Cash distributions to stock-
holders.................... (880,193) (506,846) (362,171) (631,809)
---------- ----------- ---------- ----------
Net cash provided by (used
in) financing
activities............... (430,662) 472,392 695,054 (601,575)
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH......................... (464,928) 192,538 (33,407) (154,233)
CASH, BEGINNING OF PERIOD..... 980,824 515,896 515,896 708,434
---------- ----------- ---------- ----------
CASH, END OF PERIOD........... $ 515,896 $ 708,434 $ 482,489 $ 554,201
========== =========== ========== ==========
SUPPLEMENTAL INFORMATION:
Cash paid for interest...... $ 92,384 $ 140,970 $ 91,988 $ 90,335
Noncash distribution to
stockholders............... 450,921 -- -- --
</TABLE>
See notes to financial statements.
F-123
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--Diablo Communications, Inc. (the "Company")
is engaged in acquiring, developing and operating communications towers, for
use by radio operators as well as other communication related businesses. As of
December 31, 1996, the Company owned and/or operated 81 towers and rooftops
throughout Northern California.
Sale of the Company--On October 9, 1997, substantially all of the Company's
assets were sold to American Tower Systems, Inc. ("ATS"). ATS also assumed the
Company's operating lease agreements and certain of the Company's liabilities
on that date. The sale price was approximately $40,000,000. Subsequent to the
sale, the Company changed its name and will pursue other business opportunities
as Tyris Corporation.
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 amounts could differ from these estimates.
Unaudited Interim Information--The financial information with respect to the
nine-month periods ended September 30, 1996 and 1997 is unaudited. In the
opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year.
Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("FAS 121"). FAS 121 addresses the accounting for the impairment
of long-lived assets, certain intangibles and goodwill when events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this statement during 1996 and the impact on
the Company's results of operations, liquidity or financial position was not
material.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation is provided using the double-declining method over estimated
useful lives ranging from 3 to 15 years.
Investment in Affiliate--The Company owns a 25% interest in New Loma
Communications, Inc. which is accounted for using the equity method of
accounting.
Revenue Recognition--Tower and sublease revenues are recognized when earned
over the lease terms. Management fee revenues are recognized when earned over
the terms of the management contracts. Deferred revenue represents advance
payments by customers where related revenue is recognized when services are
provided.
S Corporation Election--The accompanying financial statements do not include
any provision for federal or state income taxes since the Company is treated as
a partnership under Subchapter S of the Internal Revenue Code and under similar
state income tax provisions. Accordingly, income or loss is allocated to the
shareholders and included in their tax returns.
Retirement Plan--Employees of the Company are eligible for participation in a
401-K plan managed by the Company, subject to certain minimum age and length-
of-employment requirements. Under the plan, the Company does not match the
participants' contributions.
F-124
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Land and improvements................ $ 674,574 $1,017,949 $1,135,034
Towers............................... 533,175 1,342,178 1,543,206
Technical equipment.................. 387,451 508,212 510,097
Office equipment, furniture, fixtures
and other equipment................. 378,290 478,285 506,172
Construction in progress............. 209,592 473,163 631,241
---------- ---------- ----------
Total.............................. 2,183,082 3,819,787 4,325,750
Less accumulated depreciation and am-
ortization.......................... (462,659) (866,861) (1,333,157)
---------- ---------- ----------
Property and equipment, net.......... $1,720,423 $2,952,926 $2,992,593
========== ========== ==========
</TABLE>
Technical and office equipment include assets under capital leases of $285,749,
$285,749 and $288,698 at September 30, 1997, December 31, 1996 and 1995,
respectively with related accumulated depreciation of $223,980, $199,588 and
$167,065, respectively.
3. LONG-TERM DEBT
Outstanding amounts under the Company's financing arrangements consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Advances on bank term loan approved up
to $1,500,000, varying interest rates
at 9.44% to 9.85%.................... $1,250,000 $1,250,000
Notes payable to banks at interest
rates of prime plus 1.5%............. $ 858,333 658,333 525,000
Other notes payable to banks.......... 212,107 202,302 419,377
Capital lease obligations............. 157,607 96,650 43,142
---------- ---------- ----------
Total............................... 1,228,047 2,207,285 2,237,519
Less scheduled current maturities..... (303,045) (420,875) (505,129)
---------- ---------- ----------
Long-term debt........................ $ 925,002 $1,786,410 $1,732,390
========== ========== ==========
</TABLE>
In October 1997, the Company's long-term debt was either assumed by ATS or
repaid by the Company with proceeds from the sale of assets to ATS (see Note
1--"Sale of the Company").
4. COMMITMENTS AND CONTINGENCIES
The Company leases various technical and office equipment under capital leases
and certain office space and other real property under noncancelable operating
leases. Future minimum lease payments under these operating and capital leases
are as follows:
F-125
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- --------
<S> <C> <C>
Year ending December 31:
1997................................................ $ 662,260 $ 73,529
1998................................................ 613,607 31,161
1999................................................ 608,642
2000................................................ 567,817
2001................................................ 510,557
Thereafter.......................................... 2,808,872
---------- --------
Total............................................. $5,771,755 104,690
==========
Less interest portion................................... (8,040)
--------
Present value of minimum lease payments................. $ 96,650
========
</TABLE>
5. RELATED PARTY TRANSACTIONS
New Loma Communications, Inc., is a corporation in which the Company owns 25%
of the outstanding capital stock.
Drake Industrial Park, Inc. and Diablo Communications of Southern California,
Inc. are corporations under common ownership as that of the Company.
During the nine months ended September 30, 1996 and 1997 and the years ended
December 31, 1995 and 1996, the Company received income from New Loma
Communications, Inc., as follows:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------- -----------------
1995 1996 1996 1997
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Sublease revenues........................ $414,000 $365,500 $253,500 $337,940
Management services...................... 96,968 97,513 70,531 80,621
-------- -------- -------- --------
Total.................................. $510,968 $463,013 $324,031 $418,561
======== ======== ======== ========
</TABLE>
The Company had the following accounts receivable from affiliates:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1995 1996 1997
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Diablo Communications of Southern Califor-
nia, Inc................................. $391,872 $517,400 $1,214,622
New Loma Communications................... 48,660 27,859 176
Drake Industrial Park, Inc................ 15,554 17,154
-------- -------- ----------
Total................................... $440,532 $560,813 $1,231,952
======== ======== ==========
</TABLE>
F-126
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
6. SPIN-OFF OF SOUTHERN CALIFORNIA OPERATION--NONCASH DISTRIBUTION TO
STOCKHOLDERS
In order to establish a separate company under which to conduct Southern
California business, on September 1, 1995, all of the Company's Southern
California communication site leases, customer contracts, affiliated
receivables, communication site equipment, vehicles, vehicle obligations,
office lease and contracts, and office equipment were distributed to the
Company's stockholders at net book value according to their pro rata ownership.
The net book value of such distribution was $450,921.
The Company's 1995 statement of income includes a net loss from the Southern
California operations of $318,291 for the eight months ended August 31, 1995.
7. MT. DIABLO COMMUNICATION SITE DAMAGE
On December 12, 1995, a severe wind destroyed the tower at the Company's Mt.
Diablo communication facility. The Company received insurance proceeds
totalling approximately $434,000 in 1996. Of these proceeds, $126,000 was
capitalized in property and equipment, $213,000 was recorded as revenue and
$95,000 was recorded as a reduction of operating expenses.
8. FUTURE LEASE INCOME
The Company has long-term, non-cancelable agreements under operating leases for
license fee income. Future minimum annual lease income at December 31, 1996 is
as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997..................................................... $ 3,263,693
1998..................................................... 2,786,793
1999..................................................... 1,935,638
2000..................................................... 1,493,622
2001..................................................... 964,394
Thereafter............................................... 593,206
-----------
Total.................................................. $11,037,346
===========
</TABLE>
F-127
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diablo Communications of Southern California, Inc.
We have audited the balance sheets of Diablo Communications of Southern
California, Inc. (a California S Corporation) (the "Company") as of December
31, 1995 and December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the period from September 1, 1995
(inception) to December 31, 1995 and for the year ended December 31, 1996.
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 of the financial statements
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 Diablo Communications of
Southern California, Inc. as of December 31, 1995 and December 31, 1996, and
the results of its operations and its cash flows for the period from September
1, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996
in conformity with generally accepted accounting principles.
As emphasized in Note 9 to the financial statements, during October 1997, the
Company sold substantially all of its assets to an outside party.
Rooney, Ida, Nolt & Ahern
Certified Public Accountants
Oakland, California
February 7, 1997
October 9, 1997 as to note 9
to the financial statements
F-128
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
--------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................... $ 204,781 $ 61,043 $ 15,094
Accounts receivable, trade............. 7,591 27,245 12,914
Prepaid expenses....................... 1,272 2,462 24,990
--------- ----------- -----------
Total current assets................. 213,644 90,750 52,998
--------- ----------- -----------
PROPERTY AND EQUIPMENT--net.............. 441,105 1,013,434 1,667,418
--------- ----------- -----------
OTHER ASSETS:
Prepaid expenses--net.................. 2,348 7,970 6,468
Deposits............................... 6,976 10,776 11,146
--------- ----------- -----------
Total other assets................... 9,324 18,746 17,614
--------- ----------- -----------
TOTAL.................................... $ 664,073 $ 1,122,930 $ 1,738,030
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Notes and contracts payable............ $ 283,544 $ 310,522 $ 382,494
Accounts payable....................... 148,438 447,232 1,242,179
Customer fees advanced................. 1,707 12,839 17,426
Accrued liabilities.................... 5,419 16,023 11,634
--------- ----------- -----------
Total current liabilities............ 439,108 786,616 1,653,733
--------- ----------- -----------
LONG-TERM DEBT........................... 21,139 930,617 1,065,417
--------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 10,000,000
shares authorized, 1,000,000 issued
and outstanding....................... 450,921 450,921 450,921
Accumulated deficit.................... (247,095) (1,045,224) (1,432,041)
--------- ----------- -----------
Total stockholders' equity
(deficiency)........................ 203,826 (594,303) (981,120)
--------- ----------- -----------
TOTAL.................................... $ 664,073 $ 1,122,930 $ 1,738,030
========= =========== ===========
</TABLE>
See notes to financial statements.
F-129
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
September 1, Nine Months Ended
(Inception) to Year Ended September 30,
December 31, December 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES............... $ 45,445 $ 408,555 $ 251,733 $ 660,195
OPERATING EXPENSES:
Operating expenses,
excluding depreciation
and amortization and
corporate general and
administrative
expenses................ 49,488 319,011 196,377 402,945
Depreciation and
amortization............ 8,459 29,405 22,123 32,886
Corporate general and
administrative.......... 226,528 776,063 604,853 500,014
--------- ---------- --------- ---------
Total operating
expenses.............. 284,475 1,124,479 823,353 935,845
--------- ---------- --------- ---------
OPERATING LOSS............. (239,030) (715,924) (571,620) (275,650)
--------- ---------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense......... (8,656) (85,911) (54,096) (113,643)
Interest income.......... 1,391 4,506 3,461 3,276
--------- ---------- --------- ---------
Total other income
(expenses)............ (7,265) (81,405) (50,635) (110,367)
--------- ---------- --------- ---------
LOSS FROM OPERATIONS BEFORE
INCOME TAXES.............. (246,295) (797,329) (622,255) (386,017)
INCOME TAX PROVISION....... 800 800 800 800
--------- ---------- --------- ---------
NET LOSS................... $(247,095) $ (798,129) $(623,055) $(386,817)
========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-130
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit Total
------------ ----------- ---------
<S> <C> <C> <C>
BALANCES, SEPTEMBER 1, 1995 (inception)... $450,921 $ -0- $ 450,921
Net loss................................ (247,095) (247,095)
-------- ----------- ---------
BALANCES, DECEMBER 31, 1995............... 450,921 (247,095) 203,826
Net loss................................ (798,129) (798,129)
-------- ----------- ---------
BALANCES, DECEMBER 31, 1996............... 450,921 (1,045,224) (594,303)
Net loss (unaudited).................... (386,817) (386,817)
-------- ----------- ---------
BALANCES, SEPTEMBER 30, 1997.............. $450,921 $(1,432,041) $(981,120)
======== =========== =========
</TABLE>
See notes to financial statements.
F-131
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
September 1 Nine Months Ended
(Inception) to Year Ended September 30,
December 31, December 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.................. $(247,095) $ (798,129) $(623,055) $(386,817)
--------- ---------- --------- ---------
Adjustments to reconcile
net loss to cash used by
operating activities:
Depreciation and
amortization............ 8,459 29,405 21,517 32,886
Changes in assets and
liabilities:
Accounts receivable.... (7,591) (19,654) (23,386) 14,331
Prepaid expenses....... (1,151) (1,190) (4,129) (22,528)
Deposits............... (4,096) (3,800) (3,800) (370)
Accounts payable and
accrued expenses...... 153,857 309,398 119,535 790,558
Customer fees
advanced.............. 1,707 11,132 (1,707) 4,587
--------- ---------- --------- ---------
Total adjustments........ 151,185 325,291 108,030 819,464
--------- ---------- --------- ---------
Cash provided (used) by
operating activities...... (95,910) (472,838) (515,025) 432,647
--------- ---------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Collection on note
receivable.............. 81,310
Purchase of property and
equipment............... (50,449) (599,856) (371,191) (685,368)
Organization costs....... (2,516)
Loan fees................ (7,500) (7,500)
--------- ---------- --------- ---------
Cash provided (used) by
investing activities...... 28,345 (607,356) (378,691) (685,368)
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt....... 275,000 1,000,000 750,000 248,751
Repayment of debt........ (2,654) (63,544) (47,523) (41,979)
--------- ---------- --------- ---------
Cash provided by financing
activities................ 272,346 936,456 702,477 206,772
--------- ---------- --------- ---------
INCREASE (DECREASE) IN
CASH...................... 204,781 (143,738) (191,239) (45,949)
CASH, BEGINNING OF PERIOD.. -0- 204,781 204,781 61,043
--------- ---------- --------- ---------
CASH, END OF PERIOD........ $ 204,781 $ 61,043 $ 13,542 $ 15,094
========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-132
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
The Company develops and operates telecommunications sites in Southern
California. The Company has a broad customer base which includes specialized
mobile radio companies, paging companies, cellular telephone providers,
broadcasters, emergency services, various private and governmental two-way
radio users, and other entities with wireless communications needs.
Revenues are generated primarily from individual license agreements which
entitle a customer to use an antenna system or antenna tower space, and to use
on-site space in a climate controlled building for their transmitters,
receivers, and related equipment.
For most of its sites, the Company holds a long-term lease interest. As a
recognized full service site manager, the Company also manages sites for
outside site owners.
Allowances for doubtful accounts:
The Company uses the allowance method for accounting for bad debts. An
allowance for bad debts has not been provided currently since the Company's bad
debt experience indicates that the amount would not be material.
Leases:
Leases meeting certain criteria are treated as capital leases requiring related
assets and lease obligations to be recorded at their present value in the
financial statements. Other leases, not qualifying under these criteria, are
treated as operating leases for which rentals are charged to expense.
S Corporation election:
The Company has elected, by unanimous consent of its stockholders, to have its
income taxed directly to the stockholders. Accordingly, provision for income
taxes, except for an $800 minimum state franchise taxes, has not been made.
Deferred income taxes have not been recorded because such amounts are
immaterial.
Property and equipment:
Property and equipment are recorded at cost and depreciation is computed using
a combination of straight-line and accelerated methods of accounting over
useful lives of 5 to 15 years.
Organization costs and loan fees:
Organization costs and loan fees are amortized using the straight-line method
of accounting over 5 years.
Unaudited interim financial information:
In the opinion of management, the financial statements for the unaudited
periods presented include all adjustments necessary for a fair presentation in
accordance with generally accepted accounting principles, consisting solely of
normal recurring accruals and adjustments. The results of operations and cash
flows for the nine months ended September 30, 1996 and September 30, 1997 are
not necessarily indicative of results which would be expected for a full year.
F-133
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 disclosures. Accordingly, actual results
could differ from those estimates.
Concentration of Credit Risk:
The Company extends credit to customers on an unsecured basis in the normal
course of business. No individual customer is significant to the Company's
customer base. The Company has policies governing the extension of credit and
collection of amounts due from customers.
Recognition of Revenues:
Tower and sublease revenues are recognized when earned over the lease terms.
Management fee revenues are recognized when earned over the terms of the
management contracts.
Corporate general and administrative expenses:
Corporate general and administrative expenses consists of corporate overhead
costs not specifically allocable to any of the Company's direct operating
profit centers.
Impairment of long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of ", the company assesses on an on-going basis the
recoverability of intangible assets based on estimates of future undiscounted
cash flows for the applicable business acquired compared to net book value. If
the future undiscounted cash flow estimate is less than net book value, net
book value is then reduced to the undiscounted cash flow estimate. The Company
also evaluates the amortization periods of intangible assets to determine
whether events or circumstances warrant revised estimates of useful lives. As
of September 30, 1997, management believes that no revisions to the remaining
useful lives or writedowns of deferred charges are required.
Fair value of financial instruments:
The Company believes that the carrying value of all financial instruments is a
reasonable estimate of fair value as of December 31, 1996 and September 30,
1997.
Retirement plan:
Employees of the Company, through its affiliate Diablo Communications, Inc.,
are eligible for participation in a 401(k) plan, subject to certain minimum age
and length-of-employment requirements. The plan does not provide for any
Company contributions.
Supplemental cash flow information:
For financial statement purposes of the statements of cash flows, the Company
issued capital stock in exchange for $450,921 in net assets, primarily property
and equipment on September 1, 1995.
Cash payments for interest approximated $8,656, $71,256, $50,653 and $116,663
for period September 1, 1995 to December 31, 1995, for the year ended December
31, 1996 and the nine months ended September 30, 1996 and 1997, respectively.
F-134
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash payments for income taxes was $800 for the period September 1, 1995 to
December 31, 1995, for the year ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
NOTE 2. COMPANY ORGANIZATION:
In order to establish a separate company under which to conduct business in
Southern California, on September 1, 1995, Diablo Communications, Inc.
distributed all of its Southern California communication site leases, customer
contracts, affiliated receivables, communication site equipment, vehicles,
vehicle obligations, office lease and contracts, and office equipment to its
stockholders according to their pro rata ownership. The stockholders then
contributed these assets in exchange for 1,000,000 shares of capital stock. The
net value of this contribution was $450,921.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1995 1996 1997
-------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Land improvements.......................... $ 8,276 $ 48,770 $ 48,770
Towers and wiring.......................... 6,261 31,815 205,269
Equipment.................................. 19,190 26,477 26,477
Office furniture and equipment............. 27,729 27,729 27,729
Computers and software..................... 23,718 24,746 24,746
Vehicles................................... 27,546 27,546 27,546
Construction in progress................... 355,276 880,769 1,392,684
-------- ---------- ----------
Total.................................... 467,996 1,067,852 1,753,221
-------- ---------- ----------
Less accumulated depreciation............ 26,891 54,418 85,803
-------- ---------- ----------
Property and equipment, net.............. $441,105 $1,013,434 $1,667,418
======== ========== ==========
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS:
Richard D. Spight and the Mary C. Spight Family Trust are the majority
stockholders of Diablo Communications of Southern California, Inc. and Diablo
Communications, Inc.
At the end of each period, the Company owed the following amounts to Diablo
Communications, Inc:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1995 1996 1997
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Note payable at 8.68%....................... $275,000 $220,000 $ 183,333
Accounts payable............................ 116,872 297,400 1,214,622
</TABLE>
After the sale of the Company's assets on October 9, 1997, these related note
and accounts payable were paid in full.
Interest expense on this related party note payable was $4,776, $22,424,
$17,335 and $13,290 for the period September 30, 1995 (inception) to December
31, 1995, year ended December 31, 1996 and for the nine month periods ended
September 30, 1996 and September 30, 1997, respectively.
F-135
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5. NOTES PAYABLE:
The Company has taken advances against a bank term loan approved for
$1,500,000. The Company pays interest only on the advances at rates ranging
from 9.44% to 9.85%. The line of credit requires that certain financial
covenants be maintained. The note is secured by a blanket lien on all of the
Company's assets.
During March 1997, the Company entered into an unsecured credit agreement with
American Tower Systems, Inc., that provides the Company with a $650,000
unsecured loan commitment of which $248,751 was outstanding at September 30,
1997. The Company pays interest only on the advances at prime, currently 8.5%.
The note matures at the earlier of consummation of the sale or June 30, 2000.
The Company repaid all advances on both of these notes after the sale of
substantially all its assets.
NOTE 6. LONG-TERM DEBT:
Maturities of long-term debt for the years subsequent to December 31, 1996, are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997.......................................................... $ 87,689
1998.......................................................... 204,759
1999.......................................................... 205,199
2000.......................................................... 201,841
2001.......................................................... 200,000
Thereafter..................................................... 116,666
----------
Totals........................................................ $1,016,154
==========
</TABLE>
NOTE 7. COMMITMENTS:
Capital leases:
The future minimum lease payments under capital leases for communications
equipment and certain office equipment in effect at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................................................ $ 3,422
1998............................................................ 2,282
-------
Total........................................................... 5,704
Less interest portion........................................... 719
-------
Present value of minimum lease payments......................... 4,985
Less current installments....................................... 2,833
-------
Long-term obligations under capital leases...................... $ 2,152
=======
Cost of equipment under capital leases.......................... $12,946
Less accumulated depreciation to December 31, 1996.............. 7,625
-------
Net............................................................. $ 5,321
=======
Current depreciation expense.................................... $ 2,129
=======
</TABLE>
F-136
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Operating leases:
At December 31, 1996, the Company was liable for various leases of office space
and other real and personal property which require future minimum annual rental
payments as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................... $231,937
1998............................... 211,661
1999............................... 216,298
2000............................... 193,998
2001............................... 62,950
Thereafter.......................... -0-
--------
Total.............................. $916,844
========
</TABLE>
In addition, the Company is liable for various real property leases based on
percentages of gross income ranging from 25% to 70%.
Rental expenses for these operating leases were $35,611, $271,419, $173,407 and
$344,987, for the period September 1, 1995 (inception) to December 31, 1995,
the year ended December 31, 1996 and for the nine month periods ended September
30, 1996 and September 30, 1997, respectively.
NOTE 8. FUTURE LEASE INCOME:
At December 31, 1996, the Company has long-term, non-cancelable agreements
under operating-type leases for license fee income. Future minimum annual lease
income is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................. $ 659,445
1998............................. 585,155
1999............................. 434,161
2000............................. 287,430
2001............................. 193,657
Thereafter........................ -0-
----------
Total............................ $2,159,848
==========
</TABLE>
NOTE 9. SUBSEQUENT EVENT:
On October 9, 1997 the Company, along with Diablo Communications, Inc., a
related company, sold substantially all of its assets to American Tower
Systems, Inc. (ATS) for a combined purchase price of approximately $46.5
million. DCSC's allocable share of the purchase price is approximately $5.4
million. Some of DCSC's liabilities were included in the transaction.
F-137
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors, Stockholders and Partners of
Meridian Communications
Calabasas, California:
We have audited the accompanying combined balance sheets of Meridian
Communications (the "Company") as of December 31, 1995 and 1996, and the
related combined statements of income, partners' capital and stockholders'
equity, and cash flows for the years 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 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, such combined financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Long Beach, California
October 31, 1997
F-138
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED BALANCE SHEETS
December 31, 1995 and 1996 and June 30, 1997
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1995 1996 1997
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 30,897 $ 63,665 $ 21,168
Accounts receivable:
Trade, net of allowance for doubtful ac-
counts of $1,244 and $10,118 in 1995 and
1996, respectively, and $17,720 (unau-
dited) at June 30, 1997................... 60,961 80,190 103,709
Other accounts receivable (Note 8)......... 19,461 25,889 2,260,295
Prepaid expenses and other current assets.. 79,044 77,108 122,366
---------- ---------- ----------
Total current assets..................... 190,363 246,852 2,507,538
PROPERTY AND EQUIPMENT, Net (Note 2)......... 2,523,929 2,917,751 3,147,692
INTANGIBLES, Net............................. 22,000 141,948 112,292
OTHER ASSETS................................. 1,859 2,259 6,299
---------- ---------- ----------
TOTAL........................................ $2,738,151 $3,308,810 $5,773,821
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL AND
STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term loans pay-
able to shareholder and partner (Note 7).. $ 119,121 $ 234,607 $ 477,388
Accounts payable and accrued expenses...... 175,627 182,441 286,803
Security and other deposits................ 128,208 231,154 131,611
---------- ---------- ----------
Total current liabilities................ 422,956 648,202 895,802
---------- ---------- ----------
LONG-TERM LOANS PAYABLE TO SHAREHOLDER AND
PARTNER (Note 7)............................ 553,533 1,012,681 918,808
DEFERRED REVENUE............................. 214,918 279,641 186,413
COMMITMENTS AND CONTINGENCIES (Note 3)
PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY:
Common stock; $1.00 par value; 75,000
shares authorized; 4,000 shares issued and
outstanding............................... 4,000 4,000 4,000
Additional paid-in capital................. 16,632 16,632 16,632
Partners' capital.......................... 631,690 507,245 2,734,202
Retained earnings.......................... 894,422 840,409 1,017,964
---------- ---------- ----------
Total partners' capital and stockholders'
equity.................................. 1,546,744 1,368,286 3,772,798
---------- ---------- ----------
TOTAL........................................ $2,738,151 $3,308,810 $5,773,821
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-139
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED STATEMENTS OF INCOME
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
<TABLE>
<CAPTION>
Years Ended
December 31, Six Months Ended June 30,
---------------------- --------------------------
1995 1996 1996 1997
---------- ---------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Site use................. $3,918,420 $4,165,919 $ 2,103,614 $ 2,278,612
Site management.......... 72,337 125,348 51,355 52,178
Repeater service......... 140,945 206,556 67,319 54,087
---------- ---------- ------------ ------------
Total revenues......... 4,131,702 4,497,823 2,222,288 2,384,877
EXPENSES:
Operating expenses,
excluding depreciation
and amortization........ 3,034,285 3,217,369 1,543,333 1,730,211
Depreciation and
amortization............ 303,197 416,369 202,154 210,983
---------- ---------- ------------ ------------
OPERATING INCOME........... 794,220 864,085 476,801 443,683
OTHER INCOME (EXPENSE):
Interest and other income
(expense)............... 5,155 3,581 23,311 (17,741)
Interest expense to
shareholder and
partner (Note 6)........ (36,111) (73,126) (36,712) (61,968)
Gain on sale of business
(Note 8)................ 3,080,563
---------- ---------- ------------ ------------
Total other income (ex-
pense)................ (30,956) (69,545) (13,401) 3,000,854
---------- ---------- ------------ ------------
INCOME BEFORE INCOME TAX-
ES........................ 763,264 794,540 463,400 3,444,537
INCOME TAXES............... 800 800 3,145 2,526
---------- ---------- ------------ ------------
NET INCOME................. $ 762,464 $ 793,740 $ 460,255 $ 3,442,011
========== ========== ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-140
<PAGE>
MERIDAN COMMUNICATIONS
COMBINED STATEMENTS OF PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Partners' Retained
Stock Capital Capital Earnings Total
------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994................... $4,000 $16,632 $ 630,902 $ 987,093 $ 1,638,627
Net income (loss)....... 855,135 (92,671) 762,464
Cash distributions...... (854,347) (854,347)
------ ------- ----------- ---------- -----------
BALANCE, DECEMBER 31,
1995................... 4,000 16,632 631,690 894,422 1,546,744
Net income (loss)....... 847,753 (54,013) 793,740
Cash distributions...... (972,198) (972,198)
------ ------- ----------- ---------- -----------
BALANCE, DECEMBER 31,
1996................... 4,000 16,632 507,245 840,409 1,368,286
Net income (Unaudited).. 3,264,456 177,555 3,442,011
Cash distributions (Un-
audited)............... (1,037,499) (1,037,499)
------ ------- ----------- ---------- -----------
BALANCE, JUNE 30, 1997
(Unaudited)............ $4,000 $16,632 $ 2,734,202 $1,017,964 $ 3,772,798
====== ======= =========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-141
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income.................... $ 762,464 $ 793,740 $ 460,255 $ 3,442,011
Adjustments to reconcile net
income to net cash
provided by operating activi-
ties:
Depreciation and amortiza-
tion......................... 303,197 416,369 202,154 210,983
Provision for doubtful ac-
counts....................... (907) 8,874 1,955 7,748
Loss (gain) on disposal of
property and equipment....... 7,315 8,954 (2,922,335)
Changes in operating assets
and liabilities:
Accounts receivable--trade... 45,358 (28,108) (5,500) (31,266)
Accounts receivable--other... 10,136 (6,428) 11,962 15,594
Prepaid expenses and other
current assets.............. (23,359) 1,936 (76,357) (45,258)
Other assets................. (59) (400) (4,200) (4,040)
Accounts payable and accrued
expenses.................... 47,801 (23,185) 255,826 153,552
Security and other depos-
its......................... 9,679 2,946 (400) 457
Deferred revenue............. 28,628 64,723 5,500 (93,228)
---------- ---------- --------- -----------
Net cash provided by operat-
ing activities............. 1,182,938 1,237,782 860,149 734,218
---------- ---------- --------- -----------
CASH FLOWS FROM INVESTING AC-
TIVITIES:
Purchase of property and
equipment.................... (716,932) (857,562) (312,264) (508,699)
Proceeds from sale of property
and equipment................ 42,609 29,175 750,575
Purchase of intangibles....... (122,500)
Receipt of deposits for re-
peater services.............. 130,000
Application of deposits for
repeater services............ (130,000)
---------- ---------- --------- -----------
Net cash provided by (used
in) investing activities... (716,932) (807,453) (283,089) 111,876
---------- ---------- --------- -----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Borrowings from shareholder
and partner.................. 400,000 655,000 100,000 219,000
Repayments on loans from
shareholder and partner...... (37,346) (80,366) (26,432) (70,092)
Cash distributions............ (854,347) (972,195) (486,101) (1,037,499)
---------- ---------- --------- -----------
Net cash provided by (used
in) financing activities... (491,693) (397,561) (412,533) (888,591)
---------- ---------- --------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. (25,687) 32,768 164,527 (42,497)
CASH AND CASH EQUIVALENTS, BE-
GINNING OF PERIOD............. 56,584 30,897 30,897 63,665
---------- ---------- --------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 30,897 $ 63,665 $ 195,424 $ 21,168
========== ========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during the period
for:
Interest...................... $ 36,111 $ 72,673 $ 13,087 $ 33,168
Income taxes.................. $ 0 $ 900 $ 900 $ 800
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
-- During December 1996, the Company acquired equipment by incurring accrued
expenses in the amount of $19,191.
-- During February 1997, the Company received a non-trade account receivable
in the amount of $2,250,000 from the sale of a repeater system.
See accompanying notes to combined financial statements.
F-142
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The combined financial statements include the accounts of Meridian
Sales and Services Company ("MSSC"), a California S corporation, Meridian
Communications North ("MCN"), a general partnership, and Meridian Radio Sites
("MRS"), a general partnership (referred to collectively as Meridian
Communications or the "Company") which share common ownership and management.
All significant intercompany balances and transactions have been eliminated in
combination.
Meridian Communications develops and manages telecommunication antenna site
facilities and repeater (mobile relay) equipment throughout Southern
California.
Cash and Cash Equivalents--Cash and cash equivalents include cash in the bank
as well as short-term investments with an original maturity of three months or
less.
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 those estimates.
Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. Major renewals or betterments are capitalized and
depreciated over their estimated useful lives. Repairs and maintenance are
charged to expense in the period incurred.
Depreciation for financial statements purposes is computed using the straight-
line method over the estimated useful lives of the assets. Buildings and
leasehold improvements are depreciated over a period of 20 years, antenna site
equipment over a period of 7 years, and office furniture, equipment, and
automobiles over a period of 5 years.
Intangibles--Intangible assets are primarily comprised of the rights to a site
lease acquired in 1996 and, to a lesser extent, an FCC license. The FCC license
was sold in February 1997 with the sale of the assets used in connection with
the repeater business for $3,000,000 (see Note 8). The site lease rights are
amortized on a straightline basis over the remainder of the lease term of 8
years.
Long-Lived Assets--The Company records impairment losses on long-lived assets
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets.
Concentration of Credit Risk--The Company performs ongoing credit evaluation of
its customers' financial condition and generally requires a one-month security
deposit from its customers. As of December 31, 1996, the Company had no
significant concentrations of credit risk.
F-143
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
Revenue Recognition and Deferred Revenue--Revenue is recorded when services are
provided, according to rates set forth in customer contracts. Deferred revenue
is recorded when services are paid in advance of performance.
Income Taxes--The Company is comprised of an S corporation and two partnerships
for federal and state income tax purposes. The stockholders and partners report
any income or loss of the Company directly on their personal tax returns. State
income tax expense is computed using statutory tax rates applicable to S
corporations.
Interim Financial Statements--The accompanying combined balance sheet as of
June 30, 1997 and the combined statements of income, partners' capital and
stockholders' equity, and cashflows for the six months ended June 30, 1997 and
1996 are unaudited. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein. These adjustments consist of normal recurring adjustments.
The results of operations for such interim periods are not necessarily
indicative of results for the full year.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
1995 1996 1997
----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Land.............................. $ 28,839 $ 28,839 $ 28,839
Antenna site equipment............ 2,258,476 2,518,713 2,315,813
Buildings and leasehold improve-
ments............................ 1,767,261 1,793,290 1,793,290
Office furniture, equipment and
automobiles...................... 259,586 247,260 248,342
Construction in progress.......... 195,787 687,006 1,167,466
----------- ---------- -----------
4,509,949 5,275,108 5,553,750
Less accumulated depreciation and
amortization..................... (1,986,020) (2,357,357) (2,406,058)
----------- ---------- -----------
$ 2,523,929 $2,917,751 $ 3,147,692
=========== ========== ===========
</TABLE>
3. LEASE COMMITMENTS
The Company leases office and antenna site facilities under operating lease
agreements through the year 2009. One of the facilities is leased from a
shareholder of MSSC for $28,800 annually. This lease expires December 31, 1997.
The Company is committed to minimum rental payments under leases (exclusive of
real estate taxes, maintenance and other related charges) at December 31, 1996,
as follows:
Years Ended December 31:
<TABLE>
<S> <C>
1997............................................................ $ 512,706
1998............................................................ 495,449
1999............................................................ 441,866
2000............................................................ 319,169
2001............................................................ 275,987
Thereafter...................................................... 2,100,576
----------
$4,145,753
==========
</TABLE>
F-144
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
Rent expense charged to operations for the years ended December 31, 1995 and
1996 amounted to $629,242 and $727,427, respectively, of which $20,400 and
$28,800, respectively, was paid to the shareholder. Rent expense charged to
operations for the six months ended June 30, 1996 and 1997 amounted to $311,266
and $414,990, respectively, of which $14,400 was paid to the shareholder in
both periods.
4. INCOME TAXES
The Company's provision for income taxes for the years ended December 31, 1995
and 1996 consists of a minimum state liability of $800 for each year which is
assessed to MSSC.
The Company does not pay federal corporate income taxes on its taxable income.
Instead, the stockholders and partners are liable for individual federal and
state income taxes on their respective shares of the Company's taxable income.
The Corporation continues to pay a California surtax of 1.5% of taxable income
or the minimum state tax, whichever is greater.
5. PROFIT SHARING PLAN
MSSC has a profit sharing plan (the "Plan") which covers all employees who have
accumulated a minimum amount of hours of service during a year. MSSC's
contribution to the Plan is determined annually by the Board of Directors.
Provisions for contributions to the profit sharing plan of $22,578 and $21,457,
respectively, were made for the years ended December 31, 1995 and 1996.
Effective July 1, 1997, there will be no additional contributions to the Plan.
Additionally, the Plan will be terminated and all assets distributed to the
participants as defined in the Plan.
6. RELATED PARTY TRANSACTIONS
The Company engages in transactions with a shareholder and partner whereby
working capital funds are loaned to the Company and repaid over terms agreed to
by both parties (see Note 7). Interest expense incurred on these loans amount
to $36,111 and $73,126 for the years ended December 31, 1995 and 1996,
respectively, and $36,712 and $61,968 for the six months ended June 30, 1996
and 1997, respectively.
Certain of the Company's buildings and equipment are regularly repaired and
maintained by Lee's Two-Way Radio, a California corporation owned and
controlled by Norman Kramer, a general partner. Payments to Lee's Two-Way Radio
for the years ended December 31, 1995 and 1996 were $31,369 and $34,765,
respectively.
Payments for administrative services in the amount of $16,194 and $14,466 for
the years ended December 31, 1995 and 1996, respectively, were paid to Norman
Kramer, a general partner.
F-145
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
7. LONG-TERM LOANS PAYABLE TO SHAREHOLDER AND PARTNER
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1995 1996 1997
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Unsecured loan payable to shareholder in the
original amount of $310,000, payable in sixty
monthly installments of $6,857, including
interest at the rate of 10% per annum. Final
installment is due March 31, 2000............ $272,654 $ 218,440 $ 189,240
Unsecured loan payable to shareholder in the
original amount of $400,000 at December 31,
1995 and increased to $500,000 during 1996,
payable in sixty monthly installments of
$10,624 per month, including interest at the
rate of 10% per annum. Final installment due
August 31, 2001.............................. 400,000 473,848 432,956
Unsecured loan payable to shareholder in the
original amount of $55,000, interest payable
at the rate of 10% per annum, due November
27, 2001..................................... 55,000 55,000
Unsecured loan payable to shareholder in the
original amount of $500,000, interest payable
at the rate of 10% per annum, due December
31, 2001..................................... 500,000 500,000
Unsecured temporary loans payable to share-
holder and partner, at the rate of 10% per
annum, payable upon demand................... 219,000
-------- ---------- ----------
672,654 1,247,288 1,396,196
Less current maturities....................... 119,121 234,607 477,388
-------- ---------- ----------
$553,533 $1,012,681 $ 918,808
======== ========== ==========
</TABLE>
All loans to the shareholder and partner were paid in full following the sale
of the Company's assets and business to ATS (see Note 9).
8. SALE OF THE REPEATER BUSINESS
Effective December 1, 1996, the Company entered into a ten-year agreement with
an unrelated party granting the party the right to manage a repeater system and
granting the party an option to purchase the system. Under the agreement, the
Company received a non-refundable $300,000 option fee in the first quarter of
1997 from the party. In addition, the Company receives repeater service fees
quarterly from the party. As of June 30, 1997, the system is still being
managed by the party and the purchase option has not been exercised.
Effective February 19, 1997, the Company sold a repeater system to an unrelated
party for $3,000,000. As of June 30, 1997, the uncollected portion of the
purchase price, $2,250,000, was included in non-trade accounts receivable. This
amount was received during August 1997.
Effective February 28, 1997, the balance of the repeater business was sold to a
separate buyer for the assumption of certain liabilities regarding the
business.
Revenues for the repeater business which were transferred as a result of these
transactions are $140,945, $206,556 and $54,087 for the years and period ended
December 31, 1995 and 1996, and June 30, 1997, respectively.
F-146
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
9. SUBSEQUENT EVENT (Unaudited)
Effective July 1, 1997, the Company sold substantially all of its assets and
the business related to these assets to American Tower Systems, Inc. ("ATS").
The combined purchase price was $32,121,638 plus construction adjustments of
$581,042 for the acquisition and construction of certain new sites from June
14, 1996 through the date of the sale. Assets which were not sold to ATS
include cash, accounts receivable, and assets related to the repeater business
which were sold to unrelated buyers (see Note 8).
F-147
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Gearon & Co., Inc.:
We have audited the accompanying balance sheets of Gearon & Co., Inc. (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Atlanta, Georgia
February 27, 1998
F-148
<PAGE>
GEARON & CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 4,285,940 $ 813,182
Accounts receivable--trade, net of allowance for
doubtful accounts of $309,164 and $129,650 in 1997
and 1996, respectively............................ 6,516,370 7,132,363
Unbilled receivables............................... 4,741,198 515,688
Accounts receivable--other......................... 286,751 6,390
Receivable from related party...................... -- 200,000
----------- ----------
Total current assets............................. 15,830,259 8,667,623
PROPERTY AND EQUIPMENT, net.......................... 3,793,881 561,028
OTHER ASSETS......................................... 138,800 27,530
----------- ----------
TOTAL................................................ $19,762,940 $9,256,181
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 2,653,403 $ 27,587
Accrued expenses................................... 239,350 39,693
Accrued merger related expenses.................... 6,225,205
Note payable....................................... 5,000,000
----------- ----------
Total current liabilities........................ 14,117,958 67,280
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares
authorized;
7,500 issued and outstanding in 1996.............. 750
Class A voting common stock, no par value, 10,000
shares authorized, 7,500 issued and outstanding in
1997.............................................. 8
Class B nonvoting common stock, no par value,
1,000,000 shares authorized, 798,335 issued and
outstanding in 1997............................... 798
Additional paid-in capital......................... 5,549,944
Retained earnings.................................. 94,232 9,188,151
----------- ----------
Total stockholder's equity....................... 5,644,982 9,188,901
----------- ----------
TOTAL................................................ $19,762,940 $9,256,181
=========== ==========
</TABLE>
See notes to financial statements.
F-149
<PAGE>
GEARON & CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Fees and bonuses................................... $25,052,348 $15,613,655
Pass-through revenues.............................. 4,376,070 5,349,795
Tower rentals...................................... 172,868 53,200
Other.............................................. 328,467 467,785
----------- -----------
Total revenues................................... 29,929,753 21,484,435
OPERATING EXPENSES:
Operating expenses................................. 12,835,263 6,619,029
Tower expenses..................................... 165,887 41,926
Pass-through expenses.............................. 4,376,070 5,349,795
----------- -----------
Total operating expenses......................... 17,377,220 12,010,750
----------- -----------
GROSS PROFIT......................................... 12,552,533 9,473,685
General and administrative expenses.................. 2,496,749 1,394,757
Merger related expenses.............................. 13,796,434
----------- -----------
INCOME (LOSS) FROM OPERATIONS........................ (3,740,650) 8,078,928
OTHER INCOME AND EXPENSES, NET....................... 73,310 94,822
----------- -----------
NET INCOME (LOSS).................................... $(3,667,340) $ 8,173,750
=========== ===========
</TABLE>
See notes to financial statements.
F-150
<PAGE>
GEARON & CO., INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Common Class A Class B Paid-in Retained
Stock Voting Nonvoting Capital Earnings Total
------ ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--January 1,
1996................... $ 750 $-- $-- $ -- $ 8,783,131 $ 8,783,881
Distributions to
shareholder.......... (7,768,730) (7,768,730)
Net income............ 8,173,750 8,173,750
----- ---- ---- ---------- ----------- -----------
BALANCE--December 31,
1996................... 750 9,188,151 9,188,901
Exchange of 7,500
shares of original
common stock for
7,500 shares of Class
A voting stock and
742,500 shares of
Class B nonvoting
common stock......... (750) 8 742
Issuance of 55,835
shares of Class B
nonvoting stock to
certain employees.... 56 5,549,944 5,550,000
Distributions to
shareholder.......... (5,426,579) (5,426,579)
Net loss.............. (3,667,340) (3,667,340)
----- ---- ---- ---------- ----------- -----------
BALANCE--December 31,
1997................... $ -- $ 8 $798 $5,549,944 $ 94,232 $ 5,644,982
===== ==== ==== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-151
<PAGE>
GEARON & CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(3,667,340) $ 8,173,750
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for doubtful accounts................. 383,167 129,650
Depreciation.................................... 185,670 103,283
Noncash merger related expense.................. 5,550,000
Changes in assets and liabilities;
Decrease (increase) in accounts receivable
trade........................................ 232,826 (3,434,228)
Decrease (increase) in unbilled receivables... (4,225,510) 782,867
Decrease (increase) in accounts receivable
other........................................ (280,361) 20,307
Increase in other assets...................... (111,270) (21,748)
Increase (decrease) in accounts payable....... 1,779,560 (35,463)
Increase (decrease) in accrued expenses....... 199,657 (22,523)
Increase in accrued merger related expense.... 6,225,205
------------ -----------
Net cash provided by operating activities......... 6,271,604 5,695,895
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES;
Acquisition of property and equipment............. (329,998) (134,910)
Construction of towers, net of accounts payable... (2,242,269) (336,242)
------------ -----------
Net cash used in investing activities....... (2,572,267) (471,152)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholder...................... (5,426,579) (7,768,730)
Repayments from (loans to) related party.......... 200,000 (170,000)
Proceeds from note payable........................ 5,000,000
Loan from stockholder............................. 500,000
Repayment to stockholder.......................... (500,000)
------------ -----------
Net cash used in financing activities....... (226,579) (7,938,730)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 3,472,758 (2,713,987)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....... 813,182 3,527,169
------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 4,285,940 $ 813,182
============ ===========
</TABLE>
See notes to financial statements.
F-152
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS
(As of and for the Years Ended December 31, 1997 and 1996)
1. Summary of Significant Accounting Policies
Business and Corporate Structure--Gearon & Co., Inc. (the "Company"), a Georgia
corporation, was incorporated on September 6, 1991 and is engaged in the site
acquisition, development, construction and facility management of wireless
network communication facilities on behalf of its customers. The Company
operates in markets throughout the United States. In addition, as of December
31, 1997, the Company owned and operated 16 communications towers with an
additional 20 towers in varying stages of development. The towers are located
in Georgia, Florida, and Tennessee.
On January 22, 1998, the Company merged into and became a part of American
Tower Systems, Inc. (ATSI) a subsidiary of American Radio Systems Corporation
(ARS), pursuant to an Agreement and Plan of Merger ("the Merger Agreement")
executed on November 21, 1997. Under the Merger Agreement, the holders of the
Company's common stock at the effective date of the merger received a total of
$32,000,000 in cash and liabilities assumed by ATSI and 5,333,333 shares of
ATSI stock with an agreed-upon fair value of $48,000,000.
On December 30, 1997, the Company awarded a total of 55,835 shares of Class B
common stock valued at $5,550,000 (based on the share price paid by ATSI in the
merger) to certain key employees, awarded cash bonuses totaling approximately
$7,667,000 to certain employees, and incurred approximately $580,000 in other
merger related expenses. On January 20, 1998, the Company awarded an additional
503 shares of Class B common stock valued at $50,000 (based on the share price
paid by ATSI in the merger) to a key employee. In addition, on January 20,
1998, accounts receivable of approximately $11,000,000 and two automobiles with
a net book value of $16,247 were distributed to the majority stockholder.
Pursuant to the Merger Agreement, the Company borrowed a total of $10,000,000
from ATSI in two $5,000,000 installments on December 24, 1997 and January 20,
1998, respectively, to fund working capital and merger related expenses. Such
borrowings bore interest at 7.5% and were repaid at closing.
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 those estimates.
Concentration of Credit Risk--The Company extends credit to customers on an
unsecured basis in the normal course of business. Credit risk is limited due to
the financial reputation of the customers comprising the Company's customer
base. The Company has policies governing the extension of credit and collection
of amounts due from customers.
The following represents a summary of fees and bonuses earned from individual
customers in excess of 10% of total fees and bonuses for the year ended:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Customer A........................................... $7,705,000 $4,773,000
Customer B........................................... 5,462,000
Customer C........................................... 5,660,000
</TABLE>
Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets
F-153
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and for Long-Lived Assets to be Disposed Of. SFAS 121 addresses the accounting
for the impairment of long-lived assets, certain intangibles and goodwill when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company adopted this statement during 1996
and the impact on the Company's results of operations, liquidity or financial
position was not material.
Cash and Cash Equivalents--Cash and cash equivalents includes cash on hand,
demand deposits and short-term investments with original maturities of three
months or less.
Property and Equipment--Property and equipment are recorded at cost. Ordinary
repairs and maintenance are expensed as incurred; major replacements and
improvements are capitalized and depreciated over their estimated useful lives.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... Life of lease
Furniture and fixtures...................................... 3-7 years
Machinery and equipment..................................... 3-7 years
Communications towers....................................... 15 years
</TABLE>
Construction in Progress--The Company's tower construction expenditures are
recorded as construction in progress until the assets are placed in service.
When the assets are placed in service, they are transferred to the appropriate
property and equipment category and depreciated. The Company also capitalizes
subcontractor and employee labor and overhead costs incurred in connection with
the construction of towers.
Revenue Recognition--Revenues from fees and bonuses are recognized based upon
the completion of certain activities as defined by the respective contracts
with individual customers. Several of the contracts provide for reimbursement
by customers of certain costs in addition to fees earned. Such costs are
recognized on the accrual basis and are reflected as pass-through revenues and
expenses in the statements of operations. Tower and sublease revenues are
recognized when earned over the terms of the related leases.
Income Taxes--At inception, the Company elected to be treated as a Subchapter S
Corporation ("S Corporation") for income tax purposes. Accordingly, no
recognition has been given to income taxes in the financial statements since
the income is reportable on the individual tax return of the stockholders. Two
states in which the Company does business do not recognize S Corporations for
tax purposes and therefore the Company is liable for income taxes in those
states. The amounts paid or accrued for income taxes were not material in
relation to the financial statements.
New Accounting Pronouncement--In June 1997, the Financial Accounting Standards
Board issued SFAS 131, "Disclosure About Segments of an Enterprise and Related
Information" which the Company will adopt in 1998. SFAS 131 redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The Company
has not yet completed its analysis of the impact of this statement.
Reclassifications--Certain 1996 amounts have been reclassified to conform to
the 1997 presentation.
F-154
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land............................................ $ 82,198 $ --
Leasehold improvements.......................... 73,180 60,902
Furniture and fixtures.......................... 138,111 81,694
Machinery and equipment......................... 564,404 306,705
Communications towers........................... 2,542,922 336,242
Construction in progress........................ 801,060 --
---------- ---------
Property and equipment, at cost................. 4,201,875 785,543
Accumulated depreciation........................ (407,994) (224,515)
---------- ---------
Property and equipment--net..................... 3,793,881 $ 561,028
========== =========
</TABLE>
3. Commitments and Contingencies
Lease Obligations--The Company currently leases office space, office equipment
and land for communications towers under operating leases that expire at
varying dates through 2002. The tower ground leases contain options for the
Company to renew, at its discretion, for five-year periods up to a maximum term
of twenty-five years. The leases require the Company to maintain certain
insurance coverage and provide for maintenance and repairs. Future minimum
lease payments for noncancelable office, equipment and ground leases are as
follows for the periods ending December 31:
<TABLE>
<S> <C>
1998........................................................... 400,794
1999........................................................... 374,501
2000........................................................... 351,755
2001........................................................... 234,971
2002........................................................... 179,705
----------
Total.......................................................... $1,541,726
==========
</TABLE>
Customer Leases--The Company owns communications towers which it leases to
third parties. The leases which are noncancelable and expire at various dates
through 2006, contain options for the lessees to renew, at their discretion,
for 5-year periods up to a maximum term of 25 years.
Future minimum rental receipts expected to be received from customers under
noncancelable leases are as follows for the periods ending December 31:
<TABLE>
<S> <C>
1998........................................................... $ 731,511
1999........................................................... 794,812
2000........................................................... 803,334
2001........................................................... 766,185
2002........................................................... 654,154
Thereafter..................................................... 159,016
----------
Total.......................................................... $3,909,012
==========
</TABLE>
F-155
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Purchase Commitments--At December 31, 1997, the Company had entered into an
agreement to acquire land for a communications tower for a purchase price of
$100,000. The purchase closed on February 11, 1998. In addition, at December
31, 1997, the Company had a verbal agreement with a customer to purchase seven
communications towers for an aggregate purchase price of approximately
$1,000,000. This purchase is expected to be consummated in March 1998.
Employment Agreement--In August 1997, the Company entered into an employment
agreement with an officer of the Company. The Agreement is for a term of one
year and is renewable for successive one-year terms. The agreement contains
provisions for compensation in the event of termination or a change in control
of the Company. The compensation due to this officer as a result of the merger
discussed in Note 1 has been included in accrued merger related expenses as of
December 31, 1997. In November and December 1997, the Company entered into
employment agreements with two officers of the Company. These agreements are
for a term of two years, renewable for successive two-year terms and contain
provisions for compensation in the event of termination other than for cause.
Legal Matters--The Company is a party to certain legal matters arising in the
ordinary course of business. In the opinion of management, none of these
matters are expected to have a material effect on the financial position,
results of operations, or cash flows of the Company.
4. Retirement Plan
On September 1, 1996, the Company established the Gearon & Co., Inc. Employee
Savings and Retirement Plan (the "Plan"), a 401(k) plan. Employees of the
Company are eligible for participation in the Plan subject to certain minimum
age and length of employment requirements. Plan participants can contribute
from 2% to 15% of their compensation, as defined. The Company matches 25% of
the participants' contributions up to 10% of compensation. The Plan's assets
are invested in equity, bond, balanced, and money market mutual funds. The
Company contributed approximately $79,000 and $24,000 for the years ended
December 31, 1997 and 1996, respectively.
5. Common Stock
Effective October 23, 1997, the Company authorized the issuance of 10,000
shares of Class A common stock and 1,000,000 shares of Class B common stock.
Class A has voting privileges while Class B common stock is nonvoting. On
October 23, 1997, all 7,500 shares of common stock previously outstanding were
exchanged for 7,500 shares of Class A common stock and 742,500 shares of Class
B common stock which were transferred to the original stockholder and a trust
related to the original stockholder.
6. Related Party Transactions
The receivable from a related party totaling $200,000 at December 31, 1996 was
repaid in full in January 1997.
F-156
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Tower Corporation:
We have audited the accompanying consolidated balance sheets of American Tower
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Tower
Corporation and subsidiaries as of December 31, 1996 and 1997 and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG llp
Houston, Texas
January 23, 1998
F-157
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1996 1997 1998
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 92 $ 996 $ 1,111
Accounts receivable, net of allowance
for doubtful accounts of $104, $175
and $174 respectively................. 816 1,021 1,084
Prepaid expenses and other current
assets................................ 793 719 984
Assets held for sale................... 700 -- --
------- -------- --------
Total current assets.................. 2,401 2,736 3,179
Land.................................... 5,301 6,234 6,239
Rental towers and related fee based as-
sets, net of accumulated depreciation
of $3,984, $8,362 and $9,730, respec-
tively................................. 61,556 112,412 125,788
Other assets, net of accumulated
amortization of $836, $951 and $1,268,
respectively........................... 6,269 7,432 7,785
------- -------- --------
Total assets.......................... $75,527 $128,814 $142,991
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 720 $ 2,810 $ 688
Accrued interest payable............... 598 1,061 4
Deferred revenues and other current
liabilities........................... 978 2,125 3,277
Current portion of long-term debt...... 1,075 1,000 1,000
------- -------- --------
Total current liabilities............. 3,371 6,996 4,969
Long-term debt, less current portion.... 49,771 74,478 90,139
Other liabilities....................... 450 190 184
Deferred income taxes................... 6,337 6,767 6,957
------- -------- --------
Total liabilities..................... 59,929 88,431 102,249
Commitments and contingencies
Redeemable preferred stock $.01 par
value.
Authorized 5,000,000 shares; 22,500
shares issued and outstanding......... 4,000 4,052 4,067
Stockholders' equity:
Common stock, $.01 par value.
Authorized 250,000 shares; 75,331,
149,549 and 149,549 shares issued and
outstanding, respectively............. 1 2 2
Additional paid-in capital............. 12,051 36,426 36,426
Retained earnings (accumulated
deficit).............................. (454) (97) 247
------- -------- --------
Total stockholders' equity............ 11,598 36,331 36,675
------- -------- --------
Total liabilities and stockholders'
equity............................... $75,527 $128,814 $142,991
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-158
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ --------------------
1995 1996 1997 1997 1998
------ ------- ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues................ $8,277 $12,366 $20,006 $ 4,581 $ 6,260
Operating expenses:
Direct tower costs........... 1,868 2,849 4,138 856 1,305
Selling, general and
administrative.............. 1,601 2,049 3,183 723 862
Depreciation and
amortization................ 1,908 2,709 4,903 1,027 1,755
------ ------- ------- --------- ---------
Total operating expenses.... 5,377 7,607 12,224 2,606 3,922
------ ------- ------- --------- ---------
Operating income.............. 2,900 4,759 7,782 1,975 2,338
Interest expense.............. 3,068 3,808 5,439 1,285 1,791
Other expenses................ 414 150 514 33 --
------ ------- ------- --------- ---------
Income (loss) before income
taxes and extraordinary
item......................... (582) 801 1,829 657 547
Income tax (expense) benefit.. 217 (303) (801) (288) (188)
------ ------- ------- --------- ---------
Income (loss) before
extraordinary item........... (365) 498 1,028 369 359
Extraordinary loss, net of tax
benefit of $117, $272, and
$371, respectively........... 207 451 619 -- --
------ ------- ------- --------- ---------
Net income (loss)............. (572) 47 409 369 359
Accretion of preferred stock.. -- -- 52 -- 15
------ ------- ------- --------- ---------
Net income (loss) available to
common stockholders.......... $ (572) $ 47 $ 35 $ 369 $ 344
====== ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-159
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
-------------
Total
Additional Accumulated stockholders'
Shares Value paid-in capital deficit equity
------- ----- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1994................... 67,500 $ 1 $ 7,424 $ 71 $ 7,496
Allocation of redeemable
preferred stock
proceeds to warrants... -- -- 500 -- 500
Net loss................ -- -- -- (572) (572)
------- --- ------- ---- -------
Balances at December 31,
1995................... 67,500 1 7,924 (501) 7,424
Shares of common stock
issued in acquisition.. 6,481 -- 4,127 -- 4,127
Conversion of warrants
to common stock........ 1,350 -- -- -- --
Net income.............. -- -- -- 47 47
------- --- ------- ---- -------
Balances at December 31,
1996................... 75,331 1 12,051 (454) 11,598
Conversion of warrants
to common stock........ 24,265 -- -- -- --
Conversion of warrants
with put feature to
common stock........... 12,462 -- 174 -- 174
Sale of common stock,
net of issuance costs.. 36,049 1 23,201 -- 23,202
Common stock issued in
connection with tower
acquisition............ 1,442 -- 1,000 -- 1,000
Net income.............. -- -- -- 409 409
Accretion of redeemable
preferred stock........ -- -- -- (52) (52)
------- --- ------- ---- -------
Balances at December 31,
1997................... 149,549 $ 2 36,426 (97) 36,331
Net income (unaudited)
....................... -- -- -- 359 359
Accretion of redeemable
preferred stock
(unaudited) ........... -- -- -- (15) (15)
------- --- ------- ---- -------
Balances at March 31,
1998 (unaudited) ...... 149,549 $ 2 $36,426 $247 $36,675
======= === ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-160
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ --------------------
1995 1996 1997 1997 1998
------ ------- ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $ (572) $ 47 $ 409 $ 369 $ 359
Adjustments to reconcile
net income (loss) to net
cash
provided by operating
activities:
Depreciation and
amortization............ 1,908 2,709 4,903 1,027 1,755
Accretion of debt
discounts............... 202 808 121 109 111
Deferred income taxes.... (334) 31 430 288 190
Deferred loan costs
written-off............. 324 -- 990 -- --
Changes in assets and
liabilities:
Increase in accounts
receivable, net......... (203) (218) (205) (709) (63)
(Increase) decrease in
prepaid expenses and
other current assets.... (109) (111) 74 (239) (265)
Increase (decrease) in
accounts payable........ 59 231 2,090 194 (2,122)
Increase (decrease) in
accrued interest
payable................. 14 59 463 67 (1,057)
Increase (decrease) in
deferred revenues and
other................... 332 (417) 1,061 143 1,152
------ ------- ------- --------- ---------
Total adjustments....... 2,193 3,092 9,927 880 (299)
------ ------- ------- --------- ---------
Net cash provided by
operating activities... 1,621 3,139 10,336 1,249 60
------ ------- ------- --------- ---------
Cash flows from investing
activities:
Payments for purchases of
towers and related
assets................... (7,351) (14,249) (56,075) (11,795) (15,484)
Proceeds from the sale of
land..................... 24 -- -- -- --
Payments for purchases of
land..................... (500) (1,124) (933) (100) (5)
------ ------- ------- --------- ---------
Net cash used in
investing activities... (7,827) (15,373) (57,008) (11,895) (15,489)
------ ------- ------- --------- ---------
Cash flows from financing
activities:
Proceeds from borrowings
on long-term debt........ 4,646 39,850 70,800 11,262 15,544
Proceeds from issuance of
common stock............. -- -- 23,202 -- --
Proceeds from issuance of
preferred stock.......... 4,133 367 -- -- --
Payments of long-term
debt..................... (1,680) (28,736) (45,633) -- --
Payments of deferred loan
costs and interest rate
cap...................... (98) (1,060) (793) -- --
------ ------- ------- --------- ---------
Net cash provided by
(used in) financing
activities............. 7,001 10,421 47,576 11,262 15,544
------ ------- ------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 795 (1,813) 904 616 115
Cash and cash equivalents
at beginning of period.... 1,110 1,905 92 92 996
------ ------- ------- --------- ---------
Cash and cash equivalents
at end of period.......... $1,905 $ 92 $ 996 $ 708 $ 1,111
====== ======= ======= ========= =========
Supplemental disclosure of
cash flow information--
cash paid during the
period for interest....... $2,915 $ 2,925 $ 3,902 $ 656 $ 1,919
====== ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-161
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997 and March 31, 1997 and 1998 (unaudited)
(1)Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements reflect the financial
position, results of operations, and cash flows of American Tower Corporation
and its wholly-owned subsidiaries, collectively referred to as ATC or the
Company. All significant intercompany transactions and balances have been
eliminated.
(b) Description of Business
The primary business of the Company is the leasing of antenna and transmitter
space on communication towers to companies using or providing cellular
telephone, paging, microwave and specialized mobile radio services. The Company
currently owns and operates communication tower sites located primarily in the
western, eastern and southern United States.
(c) Interim Financial Information
The unaudited financial statements for the three months ended March 31, 1997
and 1998 are presented for comparative purposes only and have been prepared on
a basis substantially consistent with that of the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments, which are of a normal and recurring nature,
considered necessary for a fair presentation. Operating results for the three-
month periods ended March 31, 1997 and 1998 are not necessarily indicative of
the results that may be expected for a full year.
(d) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity of
three months or less.
(e) Rental Towers and Related Fee Based Assets
Rental towers and related fee based assets are stated at cost. Depreciation on
rental towers and related fee based assets is calculated on the straight-line
method over the estimated useful lives of the assets which range from 3 to 25
years.
(f) Other Assets
Other assets include licenses and permits which are amortized on a straight-
line basis over their expected period of benefit, 25 years, and a noncompete
agreement with a stockholder which is being amortized on a straight-line basis
over its seven year term. Also included are deferred loan costs associated with
various debt issuances which are amortized over the terms of the related debt
based on the amount of outstanding debt using the interest method.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or the fair value less costs of disposal. Adoption of this
statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
F-162
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Fair Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of Financial Instruments requires the
Company to disclose estimated fair values for its financial instruments. Fair
value estimates are made at discrete points in time based on relevant market
information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be
determined with precision.
The Company believes that the carrying amounts of its financial instrument
current assets and current liabilities approximate the fair value of such items
due to their short-term nature. The carrying amount of long-term debt
approximates its fair value because the interest rates approximate market.
(j) Revenue Recognition
Revenues are recognized as tower services are provided. Amounts billed or
received prior to services being performed are deferred until such time as the
revenue is earned.
(k) Stock Option Plan
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-
Based Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of Accounting Principles Board (APB) Opinion No. 25 and provide pro forma net
income disclosures as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure requirements of SFAS
No. 123.
(l) Interest Rate Cap Agreements
The Company was party to a financial instrument to reduce its exposure to
fluctuations in interest rates. The purchase price of the interest rate cap
agreements was capitalized and included in prepaid expenses in the accompanying
consolidated balance sheets and amortized over the life of the agreements using
the straight-line method. The interest rate cap agreements expired in December
1997.
(m) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of 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 those estimates.
(n) Reclassifications
Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
(2)Rental Towers and Related Fee Based Assets
Asset Acquisitions
In December 1995, the Company acquired in a single transaction substantially
all of the tower sites and locations of CSX Realty Development Corporation
(CSX) for $9,750,000 which was funded through cash and
F-163
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
seller financed debt. In addition during 1995, the Company acquired 81 other
tower sites in several unrelated transactions.
In October 1996, the Company acquired in a single transaction substantially all
of the tower sites and locations of Prime Communications Sites Holdings LLC and
its subsidiary (Prime) for approximately $15.3 million which was funded through
borrowings under the Company's credit facility, seller financed debt and the
issuance of common stock of the Company to the seller. In addition, during 1996
the Company acquired four other tower sites in two unrelated transactions.
In July 1997, the Company acquired in a single transaction 32 tower sites for
approximately $11.8 million which was funded through borrowings under the
Company's credit facility. In addition, during 1997 the Company acquired 89
tower sites in several unrelated transactions totaling $25.2 million. The
purchase price for all acquisitions has been allocated to the land, towers and
related fee based assets and licenses and permits based on their respective
estimated fair values.
The following unaudited pro forma information represents the consolidated
results of operations of the Company as if the 1997 acquisitions had occurred
on January 1, 1996, and the 1996 acquisitions had occurred on January 1, 1995
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Rental revenue.................................... $10,575 $17,290 $21,578
Operating income.................................. $ 3,737 $ 7,835 $ 9,039
Net loss.......................................... $(1,442) $(2,002) $ (326)
</TABLE>
The pro forma information is not necessarily indicative of operating results
that would have occurred if each acquisition had been consummated as of the
respective dates, nor is it necessarily indicative of future operating results.
The actual results of operations of the acquired assets are included in the
Company's consolidated financial statements only from the date of acquisition.
Tower Disposal
On January 13, 1997, the Company entered into a binding letter agreement with a
related shareholder and director to sell 45 communication towers for a purchase
price of $700,000. The closing of this transaction occurred during March 1997.
At the closing, the Company sold the communication towers to the shareholder in
exchange for a $700,000 reduction in payments owed under the subordinated note
payable to the shareholder issued in October 1994. See note 6 for further
discussion. Due to the agreement, the related assets have been reflected as
assets held for resale on the December 31, 1996 balance sheet.
(3)Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December
31,
--------- March 31,
1996 1997 1998
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Prepaid land leases................................... $619 $637 $727
Other current assets.................................. 174 82 257
---- ---- ----
$793 $719 $984
==== ==== ====
</TABLE>
F-164
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4)Other Assets
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1996 1997 1998
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Deferred loan costs, net.............................. $1,009 $ 751 $719
Licenses and permits, net............................. 4,428 5,898 6,289
Noncompete costs, net................................. 623 538 502
Other assets.......................................... 209 245 275
------ ------ ------
$6,269 $7,432 $7,785
====== ====== ======
</TABLE>
(5)Deferred Revenues and Other Current Liabilities
Deferred revenues and other current liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December
31,
----------- March 31,
1996 1997 1998
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Deferred revenues....................................... $201 $1,125 $1,799
Deferred compensation contracts......................... 300 150 150
Accrued expenses and other.............................. 477 850 1,328
---- ------ ------
$978 $2,125 $3,277
==== ====== ======
</TABLE>
(6)Long-term Debt
On October 11, 1996, the Company entered into a senior credit facility (the
Credit Facility) in connection with the acquisition of the communication towers
from Prime as discussed in note 2. The Credit Facility was extinguished during
1997 in connection with the Company entering into a new Senior Credit
Agreement, discussed in further detail below.
The Credit Facility included a $23 million revolving line of credit, which
included a sub-allotment for letters of credit, and a $37 million term loan
facility. The Company utilized the proceeds of the term loan to (i) repay $21.6
million of principal and interest to its existing senior lenders, (ii) prepay
in full $6.1 million of principal and interest to its senior subordinated
lender, and (iii) to fund $8.6 million of the purchase price for the Prime
acquisition.
The Credit Facility incurred interest at LIBOR plus 275 basis points for
interest periods ranging up to five months; thereafter, the credit facility
incurred interest at LIBOR plus an applicable margin, not to exceed 275 basis
points, based upon a defined leverage ratio, for interest periods of one, three
or six months. The term loan and the revolving Credit Facility required
principal amortization with quarterly payments totaling $5.6 million in 1999.
The Credit Facility contained restrictions on payment of dividends, and set
forth minimum operating cash flows, as defined, to be attained by the Company.
Immediately prior to entering into the Credit Facility in October 1996, the
Company owed its senior lenders $21.5 million under a term loan, revolving line
of credit and acquisition line of credit facilities which had been amended and
extended in December 1995. The outstanding balance of the prior senior
agreement bore interest at LIBOR plus 275 basis points. In conjunction with
entering into the Credit Facility, the Company expensed $451,000, net of taxes,
of deferred loan and other financing costs associated with prior credit
facilities. In conjunction with the amendment of the Company's senior credit
agreement in December 1995, the Company expensed $207,000, net of taxes, of
deferred loan and other financing costs associated with prior credit
facilities. Such deferred loan and other financing costs written off in 1995
have been reflected as extraordinary losses in the consolidated statements of
operations.
F-165
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 30, 1997, the Company entered into a new senior credit agreement (the
Credit Agreement). The Credit Agreement includes a $100 million revolving line
of credit, which includes a sub-allotment for letters of credit and a $25
million term loan facility. In connection with entering into the Credit
Agreement, the Company expensed $619,000, net of taxes, of deferred loan and
other financing costs associated with the prior credit facility. These
deferred loan and other financing costs written off in 1997 have been
reflected as extraordinary loss in the consolidated statements of operations.
Seller Acquisition Financing
In connection with the acquisition of the towers and related sites in October
1996 as more fully discussed in note 2 and above, the Company issued an
aggregate of $2.5 million of subordinated term notes to certain
sellers. Payment terms required (i) a single installment on October 11, 2004
or (ii) immediate payment upon an initial public offering. The subordinated
term notes incurred interest at 11% payable quarterly commencing January 1997.
During 1997 these notes were fully repaid.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1996 1997 1998
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Term note payable, due in quarterly payments
beginning in September 1999, interest at a
base rate, as defined...................... $ -- $70,800 $86,350
Term note payable, due in quarterly payments
beginning in January 1999, interest at
8.38% until May 1997 at which time interest
is LIBOR plus a maximum of 2.75%. Balance
repaid during 1997......................... 39,850 -- --
Seller financing, noninterest-bearing
secured note payable, due in annual
installments commencing December 20, 1996
through December 20, 2000.................. 6,313 5,313 5,313
Subordinated note payable to shareholder,
interest payable in quarterly installments
at 10.5% per annum; payment of principal
due in annual installments beginning
November 15, 2001; original principal
reduced by value of stock warrant (see note
9). Balance repaid during 1997............. 3,000 -- --
Subordinated notes payable, interest payable
in quarterly installments at 11.0% per
annum; single installment due October 2004.
Balance repaid during 1997................. 2,561 -- --
Noninterest-bearing unsecured note payable,
maturing in 1999........................... 500 500 500
Note payable, due in quarterly installments
commencing January 1, 1995 bearing interest
at 10%. Balance repaid during 1997......... 300 -- --
Other....................................... 43 34 34
Discounts associated with noninterest-
bearing obligations........................ (1,671) (1,169) (1,058)
Discount assigned to stock warrants (see
note 9).................................... (50) -- --
------- ------- -------
Total long-term debt...................... 50,846 75,478 91,139
Less current portion........................ 1,075 1,000 1,000
------- ------- -------
Long-term debt excluding current portion.. $49,771 $74,478 $90,139
======= ======= =======
</TABLE>
The Company was party to a financial instrument in order to reduce its
exposure to fluctuations in interest rates. The agreement provided for the
third parties to make payments to the Company whenever a defined floating
interest rate exceeded 10 percent per annum. No such payments were made in
1995 or 1996. Payments on the interest rate cap agreements were based on the
notional principal amount of the agreements; no funds were actually borrowed
or are to be repaid as of December 31, 1996. The unamortized portion of the
purchase price was approximately $107,000 and $50,000 at December 31, 1995 and
1996, respectively. $5,000,000 under this interest rate cap agreement expired
in 1995 and the remaining $9,000,000 agreement expired in December 1997.
F-166
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate annual maturities of long-term debt (not reduced for discount
rates on noninterest-bearing obligations) for each of the five years subsequent
to December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998................................. $ 1,000
1999................................. 2,250
2000................................. 6,457
2001................................. 5,000
2002................................. 8,300
Thereafter........................... 53,640
-------
$76,647
=======
</TABLE>
(7)Federal Income Taxes
Income tax expense for the years ended December 31, 1995, 1996, and 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---- ----
<S> <C> <C> <C>
Current.................................................... $ -- $-- $--
Deferred................................................... (217) 303 801
------ ---- ----
$(217) $303 $801
====== ==== ====
</TABLE>
Income tax expense at December 31, 1995, 1996 and 1997 differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to income
before taxes and extraordinary items as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).................. $(198) $272 $622
State taxes................................................ 29 28 30
Adjustment of prior taxes.................................. -- -- 112
Other...................................................... (48) 3 37
----- ---- ----
Total.................................................... $(217) $303 $801
===== ==== ====
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards (NOLs)
of approximately $14,285,000 for U.S. Federal income tax purposes. The NOLs, if
unused, will expire between 2008 and 2012. The portion of the NOLs which
existed prior to October 15, 1994 are subject to annual limitations imposed by
the Internal Revenue Code under Section 382. The current NOL balance is subject
to limitations should a change in ownership occur.
F-167
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.............................. $3,472 $5,357
Accrued liabilities.......................................... 64 92
Other........................................................ 72 67
------ ------
Net deferred tax assets..................................... 3,608 5,516
------ ------
Deferred tax liability--rental towers and related fee based
assets, principally due to differences in basis for financial
reporting purposes and tax purposes.......................... 9,945 12,283
------ ------
Net deferred tax liability.................................. $6,337 $6,767
====== ======
</TABLE>
There is no valuation allowance at December 31, 1996 and 1997 recorded against
the deferred tax assets. It is the opinion of management that the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies will more likely than not result in the realization of the
deferred tax assets.
(8)Redeemable Preferred Stock
In December 1995, the Company completed a private placement offering to its
existing security holders to sell up to 22,500 newly created shares of Series A
Redeemable Preferred Stock, $0.01 par value (Series A Preferred Stock), at $200
per share. Net proceeds to the Company were approximately $4,500,000.
The shares of Series A Preferred Stock were sold together with 10-year warrants
to purchase a total of 22,500 shares of common stock at a nominal exercise
price. The Company determined the warrants to have an estimated fair value of
$500,000 at the offering date which was recorded as additional paid-in capital
and a reduction of the outstanding Series A Preferred Stock. As of December 31,
1997, all of these warrants had been exercised.
Each share of Series A Preferred Stock has a liquidation preference of $200 per
share. The Company at its option can redeem any or all the outstanding shares
of preferred stock for $200 per share. The Company is required to redeem all
such shares at a price of $200 per share upon the occurrence of (i) a public
offering or (ii) a change of control. The preferred shares have no voting or
dividend rights.
(9)Stockholders' Equity
In conjunction with the acquisition of Bowen-Smith Holdings, Inc., the Company
issued warrants to the senior subordinated debt holder for 12,462 shares of
common stock with an exercise price of $.01 per share. This warrant was
immediately exercisable into common stock of the Company. The Company
determined this warrant to have an estimated market value of $600,000 at the
acquisition date which was recorded as additional paid-in capital and a
reduction of the outstanding principal of the senior subordinated note payable.
The Company recorded accretion of the debt discount of $75,000 and $59,000 for
the years ended December 31, 1995 and 1996, respectively. As discussed further
in note 6, the Company prepaid the senior subordinated debt holder in
connection with the October 1996 amendment and extension of the Company's
senior credit facility. The remaining unamortized debt discount of $450,000 was
included as an extraordinary loss on the consolidated statement of operations
for the year ended December 31, 1996. The senior subordinated warrant holder
could require the Company to purchase the stock warrants beginning in October
2002. The put amount was defined in the warrant agreement with the senior
subordinated lender. At December 31, 1996, the accompanying consolidated
financial statements include an accrual for $174,000 related to the put feature
of the warrants granted to the senior subordinated lender. These warrants were
exercised and the put retired on June 30, 1997.
F-168
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1994, a warrant was also issued to a stockholder for 3,115 shares of
common stock with a nominal exercise price. Due to certain restrictions as to
the exercisability of this warrant, it was determined to have a value of
$75,000. This amount is reduced against the principal amount of the
subordinated note payable to stockholder. The Company recorded accretion of the
debt discount of $12,000 for each of the years ended December 31, 1995 and
1996. This warrant was exercised in 1997 in connection with the retirement of
the subordinated note payable to stockholder.
In June 1997, the Company completed a private placement offering of 36,049
shares of common stock with Clear Channel Communications, Inc. whereby the
Company raised proceeds of $23 million, net of issuance costs of approximately
$2 million.
(10)Stock Option Plan
In 1995, the Company adopted a stock option plan (the Plan) pursuant to which
the Company's Board of Directors may grant stock options to officers and key
employees. The Plan authorizes grants of options to purchase up to 9,231 shares
of common stock. Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant. All stock options have 10-year
terms and vest and become fully exercisable after a range of 3 to 4 years from
the date of grant.
At December 31, 1997, there were 2,731 additional shares available for grant
under the Plan. The per share weighted-average value of stock options granted
during 1995, 1996, and 1997 was $37, $192, and $233, respectively, on the date
of grant, using the Black Scholes model with the following assumptions: risk-
free interest rate of 5.71% for the 1995 options, 6.58% for the 1996 options,
and 6.50% for the 1997 options, expected life of 8 years, expected volatility
of 0%, and an expected dividend yield of 0%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Net income (loss)
As reported................................................ $(572) $ 47 $377
Pro forma.................................................. (579) (231) 73
</TABLE>
At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $100-$475, and 3.7 years,
respectively. At December 31, 1997, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was $100--$475, and 7
years, respectively. Stock option activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Weighted average
Number of shares exercise price
---------------- ----------------
<S> <C> <C>
Balance at December 31, 1994 -- $--
Granted................................... 1,100 100
----- ----
Balance at December 31, 1995............... 1,100 100
Granted................................... 4,600 475
Forfeited................................. (500) 100
----- ----
Balance at December 31, 1996............... 5,200 432
Granted................................... 1,300 475
Forfeited................................. -- --
----- ----
Balance at December 31, 1997............... 6,500 $440
===== ====
</TABLE>
F-169
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1996 and 1997, the number of options exercisable was 116 and
1,805, respectively, and the weighted-average exercise price of these options
was $100 and $392 per share respectively.
(11)Related Party Transactions and Commitments
Leases
In the ordinary course of business the Company leases land and buildings under
long-term (ranging from one to ten years) operating leases. Total rent expense
relating to land and building leases was approximately $459,000, $665,000,
$1,285,000, $307,000 and $457,000 for the years ending December 31, 1995, 1996
and 1997 and the three months ended March 31, 1997 and 1998, respectively.
Minimum future lease payments for the years ending December 31, are as follows
(in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 1,517
1999................................................................ 1,363
2000................................................................ 1,223
2001................................................................ 1,271
2002................................................................ 829
Thereafter.......................................................... 4,237
-------
Total minimum lease payments...................................... $10,440
=======
</TABLE>
Related Party Transactions
The Company has entered into consulting agreements with three shareholders. The
total management payments under these agreements was $300,000 for each of the
years ended December 31, 1996 and 1997, respectively, and future minimum
payments required by these management agreements are $300,000 and $262,500 for
the years ended December 31, 1998 and 1999, respectively.
The Company was subject to a management agreement, which was terminated during
1997, with a private investment firm which is a significant shareholder of the
Company. The Company paid $127,000 and $342,725 to this investment firm during
the years ended December 31, 1996 and 1997, respectively. The Company's
president and chairman, as well as another director are the principal executive
officers in the private investment firm.
The Company leases land for certain of its tower sites from an entity owned by
a shareholder. During the years ended December 31, 1996 and 1997, rental
expense relating to these land leases totaled $35,000 and $63,000,
respectively. Additionally, prior to 1997, the Company leased its office
facility from the same entity. Annual expense for the office facility
approximated $48,000 per year. The same shareholder is President of a tower
fabrication and construction company. The Company has acquired the majority of
its new towers from this entity, and during the years ended December 31, 1996
and 1997, the Company made payments of $1,710,000 and $3,057,000 respectively,
to this entity.
F-170
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12)Supplemental Disclosure of Noncash Activities
The Company had the following noncash financing and investing activities (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Notes payable issued for tower acquisitions............. $8,164 2,361 --
Common stock issued for acquisitions.................... -- 4,127 1,000
Reduction of note payable in connection with disposal of
towers................................................. -- -- 700
Put accrual written-off................................. -- -- 174
Notes payable issued for noncompete agreements.......... 160 -- --
Accrued acquisition costs............................... 150 -- --
Accrued debt refinancing costs.......................... 100 -- --
</TABLE>
(13)Merger Agreement
In December 1997, the Company entered into a Merger Agreement with American
Tower Systems Corporation (ATS) which, subject to certain conditions, will
result in the merger of the Company into ATS. The merger is scheduled to be
completed during the first half of 1998.
F-171
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
OPM-USA-INC.
Sarasota, Florida
We have audited the accompanying balance sheets of OPM-USA-INC. (the "Company")
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity (deficiency), and cash flows for the years 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 2, 1998
F-172
<PAGE>
OPM-USA-INC.
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 790,267 $ 28,673
Accounts receivable................................. 349,628 --
Prepaid expenses and other current assets........... 268,236 60,830
----------- ----------
Total current assets.............................. 1,408,131 89,503
PROPERTY AND EQUIPMENT, Net........................... 15,333,257 2,694,349
OTHER ASSETS.......................................... 93,776 91,049
----------- ----------
TOTAL................................................. $16,835,164 $2,874,901
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable.................................... $ 2,104,929 $ 708,003
Accrued compensation................................ 177,210 --
Accrued expenses.................................... 189,233 2,384
Deferred revenue.................................... 804,705 18,932
Current maturities of long-term debt................ 1,744 1,587
----------- ----------
Total current liabilities......................... 3,277,821 730,906
----------- ----------
LONG-TERM DEBT........................................ 16,333,310 1,600,853
----------- ----------
COMMITMENTS AND CONTINGENCIES......................... -- --
----------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock: $1.00 par value; 100 shares
authorized; 100 shares issued and outstanding
(including treasury shares)........................ 100 100
Additional paid-in capital.......................... 999,956 999,956
Accumulated deficit................................. (2,276,023) (456,914)
Treasury stock, at cost, 10 shares at December 31,
1997............................................... (1,500,000) --
----------- ----------
Total stockholders' equity (deficiency)........... (2,775,967) 543,142
----------- ----------
TOTAL................................................. $16,835,164 $2,874,901
=========== ==========
</TABLE>
See notes to financial statements.
F-173
<PAGE>
OPM-USA-INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
REVENUES--Tower revenue................................ $ 863,258 $ 60,402
EXPENSES:
Operating expenses, excluding depreciation and amor-
tization............................................ 1,145,699 280,868
Depreciation and amortization........................ 428,499 43,230
General and administrative expenses.................. 488,496 138,967
----------- ---------
OPERATING LOSS......................................... (1,199,436) (402,663)
----------- ---------
OTHER INCOME (EXPENSE):
Interest expense..................................... (635,956) (17,625)
Other income......................................... 16,283 7,621
----------- ---------
Total other expense................................ (619,673) (10,004)
----------- ---------
NET LOSS............................................... $(1,819,109) $(412,667)
=========== =========
</TABLE>
See notes to financial statements.
F-174
<PAGE>
OPM-USA-INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $100 $ 3,281 $ (44,247) $ -- $ (40,866)
Net loss.............. -- -- (412,667) -- (412,667)
Contributed capital... -- 996,675 -- -- 996,675
---- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 100 999,956 (456,914) -- 543,142
Net loss.............. -- -- (1,819,109) -- (1,819,109)
Acquisition of trea-
sury stock........... -- -- -- (1,500,000) (1,500,000)
---- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... $100 $999,956 $(2,276,023) $(1,500,000) $(2,775,967)
==== ======== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-175
<PAGE>
OPM-USA-INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (1,819,109) $ (412,667)
Adjustments to reconcile net loss to net cash pro-
vided by operating activities:
Depreciation and amortization..................... 428,499 43,230
Interest expense added to loan principal.......... 2,400 900
Changes in operating assets and liabilities:
Prepaid expenses and other current assets....... (207,406) (60,830)
Accounts receivable............................. (349,628) --
Loan origination costs.......................... (35,000) (88,167)
Accounts payable and accrued expenses........... 1,760,985 655,049
Deferred revenue................................ 785,773 18,932
------------ -----------
Net cash provided by operating activities......... 566,514 156,447
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Purchase of property and equipment................. (13,034,977) (2,736,879)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions.............................. -- 996,675
Purchase of treasury stock......................... (1,500,000) --
Proceeds from long-term debt....................... 14,731,638 1,602,556
Repayment of long-term debt........................ (1,581) (126)
------------ -----------
Net cash provided by financing activities.......... 13,230,057 2,599,105
------------ -----------
INCREASE IN CASH.................................... 761,594 18,673
CASH, BEGINNING OF YEAR............................. 28,673 10,000
------------ -----------
CASH, END OF YEAR................................... $ 790,267 $ 28,673
============ ===========
</TABLE>
See notes to financial statements.
F-176
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--OPM-USA-INC. (the "Company") develops and manages telecommunication
antenna site facilities in the Southeastern United States.
Sale of Company--In September 1997, the Company's stockholders entered into an
agreement to sell their common stock to American Tower Systems, Inc. ("ATSI")
for a maximum purchase price of $105,000,000. The purchase price is contingent
upon the actual number of towers to be built on sites identified by OPM and the
cash flows generated from those towers. Approximately $21,300,000 was paid at
closing. The sale closed on January 8, 1998. ATSI also agreed to provide
financing on identified sites which are in various stages of receiving site
permits to enable an additional 190 towers to be constructed. The aggregate
amount of this financing is limited to $37,000,000, of which $5,784,156 was
outstanding at December 31, 1997.
Concentration of Credit Risk--The Company performs ongoing credit evaluation of
its customers' financial condition. As of December 31, 1997, there are three
customers which individually comprise approximately 47%, 17% and 16% of the
Company's total revenue.
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 those estimates.
Property and Equipment--Property and equipment is stated at cost, less
accumulated depreciation. Repairs and maintenance are charged to expense in the
year incurred. Depreciation for financial statement purposes is computed using
the straight-line method over the estimated useful lives of the assets.
Telecommunication towers and antenna site equipment are depreciated over a
period of 15 years, and office furniture, equipment, and automobiles are
depreciated over the useful lives of the assets ranging from 5 to 7 years.
Construction in Progress--The Company's tower construction expenditures are
recorded as construction in progress until the assets are placed in service.
The Company capitalizes subcontractor employee labor and overhead costs
incurred in connection with the construction of towers. As assets are placed in
service, they are transferred to the appropriate property and equipment
category and depreciation commences.
Other Assets--Other assets consist principally of deferred financing costs
which are being amortized over a three-year period. Accumulated amortization
aggregated $35,500 and $3,200 at December 31, 1997 and 1996, respectively.
Long-Lived Assets--The Company records impairment losses on long-lived assets
if events and circumstances indicate that the assets might be impaired.
Recoverability of long-lived assets is determined by periodically comparing the
forecasted, undiscounted net cash flows of the operations to which the assets
relate to the carrying amount. Through December 31, 1997, no impairments
requiring adjustments have occurred.
Revenue Recognition and Deferred Revenue--Tower revenues are recognized as
earned. Deferred revenue is recorded when tower rents are paid in advance of
performance.
Income Taxes--The Company is an S corporation for federal and state income tax
purposes. The stockholders report any income or loss of the Company directly on
their personal tax returns.
F-177
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land.............................................. $ 575,102 $ 110,000
Telecommunication towers and antenna site equip-
ment............................................. 11,525,984 1,559,302
Office furniture, equipment and automobiles....... 326,439 109,893
Construction in progress.......................... 3,342,056 955,243
----------- ----------
Total........................................... 15,769,581 2,734,438
Less accumulated depreciation..................... (436,324) (40,089)
----------- ----------
Property and equipment, net....................... $15,333,257 $2,694,349
=========== ==========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases office and antenna site facilities under
various operating lease agreements expiring through the year 2016. The Company
is committed to minimum rental payments under leases (exclusive of real estate
taxes, maintenance and other related charges) at December 31, 1997, as follows:
<TABLE>
<CAPTION>
Years Ending December 31:
-------------------------
<S> <C>
1998.......................................................... $ 715,623
1999.......................................................... 737,092
2000.......................................................... 759,205
2001.......................................................... 781,981
2002.......................................................... 805,440
Thereafter.................................................... 14,176,317
-----------
Total......................................................... $17,975,658
===========
</TABLE>
Rent expense charged to operations for the years ended December 31, 1997 and
1996 amounted to $277,600 and $43,500, respectively.
Contract Obligations--The Company has contract obligations for the erection of
tower sites of $4,531,000 at December 31, 1997.
Litigation--The Company periodically becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of management,
there are no matters currently pending which would, in the event of adverse
outcome, have a material impact on the Company's financial position, the
results of operations or liquidity.
4. CUSTOMER LEASES
The Company leases space on its tower properties to customers for set periods
of time. Long-term leases typically contain provisions for renewals and
specified rent increases over the lease terms. The Company has minimum lease
commitments from its customers under these leases at December 31, 1997, as
follows:
F-178
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Years Ending December 31:
-------------------------
<S> <C>
1998.......................................................... $ 1,375,980
1999.......................................................... 1,384,847
2000.......................................................... 1,394,065
2001.......................................................... 1,403,636
2002.......................................................... 1,582,977
Thereafter.................................................... 10,171,488
-----------
$17,312,993
===========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The Corporation has engaged with Atlantic Tower Construction, Inc. ("ATC"), a
corporation 100% owned by the Company's existing stockholder, to construct
certain telecommunication antenna site facilities. Payments to ATC aggregated
$922,700 and $617,000 for the years ended December 31, 1997 and 1996,
respectively.
In January 1998, the Company's stockholder paid bonuses aggregating $600,000 to
certain employees of the Company in connection with the sale of the Company.
Such amounts will be expensed by the Company in 1998.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Unsecured loan payable to stockholder, Owen P.
Mills, in the original amount of $937,786, with
no repayment terms, including interest at the
rate of 8% per annum............................. $ 1,144,249 $ 972,110
Secured loan payable to Suntrust Bank in the
original amount of $575,000. Suntrust Bank has
made available a nonrevolving credit facility in
an amount not to exceed $10,000,000 for sites and
fully constructed antenna towers located thereon.
The loan matures in three years, at which time
the principal balance and accrued interest are
payable in full. The rate of interest accrues on
the outstanding principal balance of the loan
based on a floating rate equal to 3% above the
LIBOR rates...................................... 9,350,500 575,000
Secured loan payable to ATSI for financing con-
struction of antenna towers and sites, including
interest at a rate of 11.5% per annum............ 5,784,156 --
Unsecured mortgage loan payable to
Goodwin/Woodhouse in the original amount of
$25,000; interest payable at the rate of 9.5% per
annum, due November 30, 2006..................... 23,293 24,874
Secured loan payable to Huntington Bank in the
original amount of $30,000, interest accrued at
the rate of 8% per annum, principal and interest
due March 31, 2013............................... 32,856 30,456
----------- ----------
Total............................................. 16,335,054 1,602,440
Less current maturities........................... (1,744) (1,587)
----------- ----------
Long-term debt--net............................... $16,333,310 $1,600,853
=========== ==========
</TABLE>
In connection with the sale of the Company, the loans to the stockholder,
Suntrust Bank and ATS were paid in full (see Note 1).
* * * * * *
F-179
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wauka Communications, Inc.:
We have audited the accompanying consolidated balance sheet of Wauka
Communications, Inc. (a Georgia corporation) and subsidiary as of December 31,
1997 and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the year 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 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 Wauka Communications, Inc. and
subsidiary as of December 31, 1997 and the results of their operations and
their cash flows for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 25, 1998
F-180
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December September
31, 30,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 387,514 $ 196,015
Accounts receivable................................ 148,003 94,383
Due from affiliates (current)...................... 23,416 0
Prepaids and other current assets.................. 47,418 21,990
----------- -----------
Total current assets............................. 606,351 312,388
----------- -----------
PROPERTY AND EQUIPMENT, net (Note 2)................. 10,287,523 16,560,247
INTANGIBLE ASSETS, net of accumulated amortization of
$196,752 and $284,791 in 1997 and 1998, respectively
(Note 2)............................................ 1,170,395 1,152,356
DUE FROM AFFILIATES.................................. 756,735 0
NOTES RECEIVABLE..................................... 0 434,050
OTHER ASSETS......................................... 3,400 4,196
----------- -----------
Total assets..................................... $12,824,404 $18,463,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt............... $ 83,964 $ 50,398
Margin loan payable (Note 3)....................... 1,279,270 0
Accounts payable................................... 287,423 215,282
Accrued expenses................................... 374,204 150,964
Deferred revenue................................... 178,729 269,748
Due to affiliates (current)........................ 0 54,162
----------- -----------
Total current liabilities........................ 2,203,590 740,554
----------- -----------
LONG-TERM DEBT, excluding current portion............ 7,083,120 9,497,769
DUE TO SHAREHOLDERS.................................. 2,593,105 2,460,308
DUE TO AFFILIATES.................................... 1,498,928 3,918,918
COMMITMENTS AND CONTINGENCIES (Note 6 and 7)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 5):
Common stock, $1 par value; 1,000 shares
authorized, issued, and outstanding in 1997 and
1998.............................................. 1,000 1,000
Paid-in capital.................................... 800,000 3,600,000
Accumulated deficit................................ (1,355,339) (1,755,312)
----------- -----------
Total shareholders' equity (deficit)............. (554,339) 1,845,688
----------- -----------
Total liabilities and shareholders' equity
(deficit)....................................... $12,824,404 $18,463,237
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-181
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
December 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Tower rental............................. $3,031,832 $1,948,299 $3,971,335
Construction income...................... 2,644,059 2,282,435 204,702
Land rental income....................... 166,593 122,804 103,049
Other.................................... 370,718 257,720 194,022
---------- ---------- ----------
Total revenues......................... 6,213,202 4,611,258 4,473,108
---------- ---------- ----------
OPERATING EXPENSES:
Direct................................... 1,695,417 1,153,623 1,870,431
Construction costs....................... 2,378,151 2,022,009 88,083
Corporate, general and administrative.... 1,208,936 806,763 1,169,724
Depreciation and amortization............ 571,310 363,569 860,486
---------- ---------- ----------
Total operating expenses............... 5,853,814 4,345,964 3,988,724
---------- ---------- ----------
OPERATING INCOME........................... 359,388 265,294 484,384
---------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest expense, net.................... (741,556) (489,682) (897,947)
Other.................................... (131) (7,443) 13,590
---------- ---------- ----------
(741,687) (497,125) (884,357)
---------- ---------- ----------
NET LOSS................................... $ (382,299) $ (231,831) $ (399,973)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-182
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period Ended September 30, 1998 (Unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Common Paid-In Accumulated Equity
Stock Capital Deficit (Deficit)
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996....... $1,000 $ 800,000 $ (973,040) $ (172,040)
Net loss......................... 0 0 (382,299) (382,299)
------ ---------- ----------- ----------
BALANCE, DECEMBER 31, 1997....... 1,000 800,000 (1,355,339) (554,339)
Conversion of affiliate payables
to additional paid-in capital
(unaudited)..................... 0 2,800,000 0 2,800,000
Net loss (unaudited)............. 0 0 (399,973) (399,973)
------ ---------- ----------- ----------
BALANCE, SEPTEMBER 30, 1998
(unaudited)..................... $1,000 $3,600,000 $(1,755,312) $1,845,688
====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-183
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (382,299) $ (231,831) $ (399,973)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization
expense............................ 571,310 363,569 860,486
Gain on disposal of land, property,
and equipment...................... (7,313) (7,313) (16,590)
Changes in assets and liabilities:
Accounts receivable and due from
affiliate........................ 13,394 (487,347) 77,036
Prepaids and other current
assets........................... (38,049) (58,680) 25,428
Accounts payable and accrued
expenses......................... 482,797 471,494 (295,381)
Deferred revenue.................. 47,120 (89,056) 91,024
----------- ----------- -----------
Total adjustments................. 1,069,259 192,667 742,003
----------- ----------- -----------
Net cash provided by (used in)
operating activities............. 686,960 (39,164) 342,030
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net.................................. (6,853,829) (5,308,801) (7,219,581)
Proceeds from sale of property and
equipment............................ 20,800 20,800 191,000
Additions to other assets and
intangibles.......................... (53,872) (53,872) (70,796)
(Increase) decrease in due from
affiliates........................... (468,054) 288,681 756,735
Issuance of notes receivable.......... 0 0 (434,050)
----------- ----------- -----------
Net cash used in investing
activities....................... (7,354,955) (5,053,192) (6,776,692)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under margin loan...... 192,632 167,492 (1,279,270)
Net borrowings under line of credit... 6,477,250 5,336,313 2,522,750
Payments on long-term debt............ (113,155) (89,625) (141,668)
Advances from (repayments to)
shareholders......................... 223,270 178,748 (132,801)
Advances from (repayments to)
affiliates........................... 255,438 (520,646) 5,274,152
----------- ----------- -----------
Net cash provided by financing
activities....................... 7,035,435 5,072,282 6,243,163
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... 367,440 (20,074) (191,499)
CASH, beginning of period............... 20,074 20,074 387,514
----------- ----------- -----------
CASH, end of period..................... $ 387,514 $ 0 $ 196,015
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 394,900 $ 296,200 $ 621,000
----------- ----------- -----------
Noncash transfer of property and
equipment to affiliates, net......... $ 458,796 $ 458,796 $ 0
----------- ----------- -----------
Noncash conversion of due to affiliate
to additional paid-in capital........ $ 0 $ 0 $ 2,800,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-184
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS
On June 17, 1996, the shareholders acquired all the assets of Wauka
Communications, Inc. (a Georgia corporation) (the "Company") under the terms of
a stock purchase and sale agreement. The Company is headquartered in Roswell,
Georgia, and owns real property. The acquired assets consisted primarily of
separate tracts of land. The purchase price was approximately $800,000 and was
funded by the shareholders based on their ownership percentage. The transaction
was accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16 and accordingly the purchase price has been allocated to the
assets based on their estimated fair value as of the acquisition dates. The
excess of the cost over the estimated fair value of the net tangible assets
acquired has been allocated to goodwill.
On June 30, 1998, shareholders of the Company contributed their 100% ownership
interest of Grid Towers LLC ("Grid") to the Company. The transaction has been
accounted for in a manner similar to a pooling of interests. Grid owns
communications towers throughout Georgia on which customers lease space for
radio transmitters and antennas. The Company's primary customers are national
and multiregional cellular, personal communication services, specialized mobile
radio, and pager companies; local radio stations; two-way radio users; and VHS
and UHF television stations. As a result of the contribution of interest, Grid
is a wholly owned subsidiary of the Company.
The Company has experienced net losses as a result of management's focus on
acquiring property and towers, obtaining new customer license agreements, and
generally increasing business. The Company plans to continue these efforts in
the coming year. Accordingly, the Company expects that its cost of capital will
have a negative impact on short-term results, but expects a profit in the near
future. During the year ended December 31, 1997, the Company entered into an
agreement for a $9,000,000 line of credit (Note 4) to fund operations and
expand operating base. Additionally, during the year ended December 31, 1997,
the Company received approximately $215,000 in additional funding from its
shareholders (Note 5) and approximately $282,000 in additional funding from
affiliates. In addition, the Company's shareholders currently have no plans to
discontinue financial support of the Company. Based on the above, management
believes sufficient funds will be available to support the Company's operations
throughout fiscal year 1998.
Additionally, effective October 26, 1998, the Company sold substantially all of
its assets and the business related to these assets to American Tower
Corporation (Note 8).
Presentation
The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting. The consolidated financial statements reflect the
assignment of the member's interest in Grid in a manner similar to a pooling of
interest and include the accounts of the company and its wholly owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Usage fees, rental income, and management fees are recognized monthly as
earned. Construction income is recognized using the percentage-of-completion
method. All construction projects had been completed and the related revenue
recognized by December 31, 1997. Deferred revenue represents prepayments of
usage fees relating to periods subsequent to December 31, 1997 and September
30, 1998.
F-185
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed at December
31, 1997 and September 30, 1998 using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
December September
Lives 31, 1997 30, 1998
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Land................................... $ 579,913 $ 172,000
Buildings and improvements............. 15-30 years 2,324,398 4,016,409
Towers and equipment................... 10 years 7,323,024 13,233,711
Machinery and equipment................ 3-10 years 127,604 304,131
Construction in progress............... 600,818 274,200
----------- -----------
10,955,757 18,000,451
Accumulated depreciation............... (668,234) (1,440,204)
----------- -----------
$10,287,523 $16,560,247
=========== ===========
</TABLE>
Depreciation expense was $468,219 for the year ended December 31, 1997 and
$772,447 for the nine months ended September 30, 1998 (unaudited).
Maintenance and repairs are charged to expense as incurred. Major additions and
improvements of existing facilities are capitalized. For retirements or sales
of property, the Company removes the original cost and the related accumulated
depreciation from the accounts and the resulting gain or loss is reflected in
other income.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash, accounts receivable, and accounts payable,
approximate carrying value due to the short-term maturity of the instruments.
The fair value of short-term and long-term debt amounts approximate carrying
value and are based on their effective interest rates compared to current
market rates.
Income Taxes
The Company utilizes the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under the liability method, deferred taxes are
determined based on the difference between the financial and tax bases of
assets and liabilities using enacted tax rates in effect in the year in which
the differences are expected to reverse. The Company does not have any
significant temporary differences to create deferred tax assets or liabilities.
The Company recorded no federal or state income tax benefit for the year ended
December 31, 1997 and the period ended September 30, 1998 (unaudited).
Through June 1998, Grid, as a limited liability company, was treated as a
partnership for income tax purposes. Accordingly, federal income taxes or net
earnings of Grid are payable by its members (unaudited).
At December 31, 1997, the Company had no net operating loss carryforwards
("NOLs") due to nearly all of the net loss incurred by Grid and generated NOLs
of Wauka being carried back to prior years.
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
F-186
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 those estimates.
Intangible Assets
Intangible assets at December 31, 1997 and September 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Goodwill.......................................... $ 990,933 $ 990,933
Customer base..................................... 316,320 386,320
Organizational costs.............................. 7,671 7,671
Deferred loan costs............................... 52,223 52,223
---------- ----------
1,367,147 1,437,147
Accumulated amortization.......................... (196,752) (284,791)
---------- ----------
$1,170,395 $1,152,356
========== ==========
</TABLE>
These assets are being amortized on a straight-line basis over the expected
periods to be benefited, 15 years for goodwill, 10 years for customer base, and
5 years for organizational costs. Loan costs associated with the establishment
of the Company's line of credit are amortized over seven years, the term of
agreement. The Company assesses the recoverability of these intangible assets
by determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired assets. The amount of impairment, if any, is measured based on
projected undiscounted future operating cash flows.
3. MARGIN LOAN PAYABLE
At December 31, 1997, the Company had $1,279,270 outstanding on a margin loan
payable to an investment bank. The outstanding balance is secured by 140,000
shares of NexTel Communications, Inc. stock which is owned by a shareholder of
the Company. The loan bears interest at the investment bank's margin interest
call rate, less .625% (7.125% at December 31, 1997). Interest is payable
monthly. Interest expense recognized on this loan was approximately $83,000 for
the year ended December 31, 1997.
F-187
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt at December 31, 1997 and September 30, 1998 consists of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Term note payable to an individual bearing interest
at 12%, monthly principal and interest payments of
$9,828, maturing July 1, 2005, secured by a tower
located in Macon, Georgia, and all of the related
customer contracts................................ $ 585,393 $ 548,167
Mortgage note payable to an individual bearing
interest at 10.5%, monthly principal and interest
payments of $1,147, maturing September 1, 2001,
secured by land purchased......................... 41,737 0
Mortgage note payable to an individual bearing
interest at 10.5%, monthly principal and interest
payments of $518, maturing September 1, 2001,
secured by land purchased......................... 19,211 0
Various mortgage notes payable to individuals,
including a related party, bearing interest from
8% to 10.5%, monthly and quarterly principal and
interest payments totaling $900 and $6,000,
respectively, maturing June 1, 1998 through August
1, 2001, secured by land purchased................ 43,493 0
Borrowings under line of credit with a bank,
bearing interest at 9.375%, payable in monthly
installments commencing July 1, 1999, secured by
all assets of the Company as well as an assignment
of license agreements and guarantees of members
and affiliates of the Company..................... 6,477,250 9,000,000
---------- ----------
7,167,084 9,548,167
Less current maturities............................ (83,964) (50,398)
---------- ----------
$7,083,120 $9,497,769
========== ==========
</TABLE>
Interest expense recognized on long-term debt was approximately $395,000 and
the year ended December 31, 1997 and approximately $703,000 for the nine months
ended September 30, 1998 (unaudited).
Aggregate maturities of long-term debt during the years subsequent to December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 83,964
1999.............................................................. 80,620
2000.............................................................. 90,447
2001.............................................................. 92,698
2002.............................................................. 81,253
Thereafter........................................................ 6,738,102
----------
Total........................................................... $7,167,084
==========
</TABLE>
During 1997, the Company entered into a line-of-credit agreement with a bank
for capital expenditure purposes. Interest is fixed at a rate of 9.375% until
May 31, 1999, at which time the rate becomes variable. Interest is payable
monthly. The principal balance will be due in 60 equal monthly installments
commencing on July 1, 1999 through June 1, 2004 and is secured by all assets of
the Company as well as an assignment of license agreements and guarantees of
members and affiliates of the Company. At December 31, 1997, the company had
$2,522,750 availability to borrow under the agreement.
F-188
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. RELATED-PARTY TRANSACTIONS
Due to Shareholders
At December 31, 1997, the Company had advances payable to shareholders totaling
approximately $2,075,000, which are included in due to shareholders on the
accompanying balance sheets. The principal balances accrue interest at 9% and
are due on demand. Accrued interest on these advances payable is approximately
$518,000 at December 31, 1997 and is also included in due to shareholders on
the accompanying balance sheet. Interest expense recognized on these advances
was approximately $189,000 for the year ended December 31, 1997. The
shareholders have agreed to defer collection on these advances and accrued
interest indefinitely until such time that the Company's cash flow enables it
to repay the outstanding balances. The advances payable and related accrued
interest have been classified as long-term liabilities at December 31, 1997.
Grid-Site Services, Inc.
The members of the Company are shareholders in Grid-Site Services, Inc. ("Grid-
Site"), an S corporation. Grid-Site owns several tower sites which the Company
manages. Under a management agreement, the Company remits 70% of the revenues
earned from those sites to Grid-Site. During the year ended December 31, 1997,
the Company remitted approximately $594,000 to Grid-Site. At December 31, 1997,
the Company had amounts due from and due to Grid-Site of approximately $22,000.
These amounts are included in due from affiliates (current) and accounts
payable on the respective accompanying balance sheets.
Grid Properties, LLC
The shareholders of the Company are members in Grid Properties, LLC ("Grid
Properties") a limited liability company. Grid Properties owns the land on
which a number of the Company's towers are located. The Company leases this
land from Grid Properties. During the year ended December 31, 1997, the Company
recognized approximately $158,000 in site rental expense related to these
leases. At December 31, 1997, future minimum payments under these leases
totaled approximately $2,067,000. Management believes that the agreements are
at market rates based on similar transactions entered into with third parties.
Due to Affiliates
At December 31, 1997, the Company had advances payable to various related
parties totaling $1,354,000, which are included in due to affiliates in the
accompanying balance sheets. The principal balances accrue interest at 9% and
are due on demand. Accrued interest on these advances payable is $145,000 at
December 31, 1997 and is also included in due to affiliates on the accompanying
balance sheets. Interest expense recognized on these advances was $103,000 for
the year ended December 31, 1997. The related parties have agreed to defer
collection on these advances and accrued interest indefinitely until such time
that the Company's cash flow enables it to repay the outstanding balances. The
advances payable and related accrued interest have been classified as long-term
liabilities at December 31, 1997.
Transfers of Property, Equipment, and Intangibles Between Affiliates
During the year ended December 31, 1997, the Company transferred approximately
$459,000 worth of land to Grid Properties as partial payment on amounts due to
the Company's members. This property was transferred at the Company's recorded
value; no gain or loss was recognized on the transfer.
At December 31, 1997, the Company had amounts due from Grid Properties of
approximately $757,000 included in due from affiliates on the accompanying
balance sheets.
F-189
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES
The Company leases land for tower sites and corporate office space under
various noncancelable operating leases. Lease and rental costs charged to
expense during the year ended December 31, 1997 were approximately $527,000.
At December 31, 1997, future minimum payments under operating leases were as
follows:
<TABLE>
<S> <C>
1998.............................................................. $ 825,681
1999.............................................................. 818,701
2000.............................................................. 800,662
2001.............................................................. 744,289
2002.............................................................. 605,357
Thereafter........................................................ 3,729,011
----------
Total........................................................... $7,523,701
==========
</TABLE>
7. LEASES
The Company has operating leases on certain parcels of land. Lease terms range
from 1 to 99 years. At December 31, 1997, future minimum revenues under these
leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 64,538
1999................................................................ 64,583
2000................................................................ 61,538
2001................................................................ 57,938
2002................................................................ 28,469
Thereafter.......................................................... 58,050
--------
Total............................................................. $335,116
========
</TABLE>
8. SUBSEQUENT EVENTS (Unaudited)
Effective October 26, 1998, the Company sold substantially all of its assets
and the business related to these assets under the terms of an asset purchase
and merger agreement with American Tower Corporation, which included the assets
of Grid Site Services, Inc., an affiliated company. The combined consideration
was approximately $83.0 million.
F-190
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
OmniAmerica Holdings Corporation
We have audited the accompanying consolidated balance sheet of OmniAmerica
Holdings Corporation (the Company) as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the period from inception (October 15, 1997) through 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OmniAmerica Holdings Corporation at December 31, 1997, and the consolidated
results of their operations and their cash flows for the period from inception
(October 15, 1997) through December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
February 20, 1998
F-191
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 4,442
Accounts receivable, less allowance for doubtful accounts of
$323............................................................ 15,273
Prepaid expenses................................................. 56,411
-----------
Total current assets........................................... 76,126
Property and equipment:
Land............................................................. 234,805
Buildings and improvements....................................... 729,195
Towers........................................................... 517,239
Office and computer equipment.................................... 37,855
Vehicles......................................................... 38,707
-----------
1,577,801
Less allowance for depreciation.................................. 2,407
-----------
1,555,394
Other assets:
Goodwill, net of accumulated amortization of $11,848............. 5,040,640
Investment in Kline Iron & Steel Co., Inc. ...................... 7,509,019
Other............................................................ 425,314
-----------
12,974,973
-----------
Total assets................................................... $14,606,493
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................. $ 11,175
Accounts payable, officers....................................... 568,184
Accrued liabilities.............................................. 937,895
Note payable..................................................... 6,325,000
-----------
7,842,254
Stockholder's equity:
Common stock, $.01 par value:
Authorized shares--30,000,000
Issued and outstanding shares--7,501,000......................... 75,010
Additional paid-in capital....................................... 7,500,990
Retained earnings (deficit)...................................... (811,761)
-----------
Total stockholder's equity..................................... 6,764,239
-----------
Total liabilities and stockholder's equity..................... $14,606,493
===========
</TABLE>
See accompanying notes.
F-192
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Period from Inception (October 15, 1997) through December 31, 1997
<TABLE>
<S> <C>
Tower rental revenues............................................... $ 15,597
Cost of services.................................................... 1,206
Gross margin........................................................ 14,391
General and administrative expenses................................. 838,791
Depreciation and amortization....................................... 14,255
---------
853,046
---------
Operating loss...................................................... (838,655)
Other income (expense):
Equity in earnings of Kline Iron & Steel Co., Inc. ................. 59,279
Interest income..................................................... 360
Interest expense.................................................... (32,745)
---------
26,894
---------
Loss before income taxes............................................ (811,761)
Income tax benefit.................................................. --
Net loss............................................................ $(811,761)
=========
</TABLE>
See accompanying notes.
F-193
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Period from Inception (October 15, 1997) through December 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
----------------- Paid-in Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
--------- ------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 15,
1997 (Inception)....... -- $ -- $ -- $ -- $ --
Common stock issued for
cash................... 7,501,000 75,010 7,425,990 -- 7,501,000
Issuance of stock option
(Note 9)............... -- -- 75,000 -- 75,000
Net loss................ -- -- -- (811,761) (811,761)
--------- ------- ---------- --------- ----------
Balance at December 31,
1997................... 7,501,000 $75,010 $7,500,990 $(811,761) $6,764,239
========= ======= ========== ========= ==========
</TABLE>
See accompanying notes.
F-194
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from Inception (October 15, 1997) through December 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (811,761)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................... 14,255
Equity in earnings of Kline Iron & Steel Co., Inc. .............. (59,279)
Provision for losses on accounts receivable...................... 323
Change in operating assets and liabilities:
Increase in accounts receivable.................................. (15,596)
Increase in prepaid expenses..................................... (56,411)
Increase in accounts payable, officers........................... 568,184
Increase in accounts payable..................................... 11,175
Increase in accrued expenses..................................... 937,895
-----------
Net cash provided by operating activities........................ 588,785
INVESTING ACTIVITIES
Purchase of property and equipment............................... (76,564)
Acquisitions of tower sites and related property................. (208,725)
Investment in Kline Iron & Steel Co., Inc. ...................... (7,374,740)
Other............................................................ (425,314)
-----------
Net cash used in investing activities............................ (8,085,343)
FINANCING ACTIVITIES
Proceeds from stock issuance..................................... 7,501,000
-----------
Net cash provided by financing activities........................ 7,501,000
-----------
Increase in cash................................................. 4,442
Cash at beginning of period...................................... --
-----------
Cash at end of period............................................ $ 4,442
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest......................................................... $ --
Income taxes..................................................... --
Non-cash investing and financing activities:
Issuance of note payable to purchase Radio Seaway Incorporated
(Note 8)........................................................ 6,325,000
Issuance of stock option (Note 9)................................ 75,000
</TABLE>
See accompanying notes.
F-195
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Organization and Description of Business
OmniAmerica Holdings Corporation (the Corporation), a Delaware corporation, is
headquartered in West Palm Beach, Florida, and was formed by HMTF/Omni
Partners, L.P. (the Partnership) as a holding company for its wholly-owned
subsidiary, OmniAmerica, Inc. (Omni), on October 15, 1997. The Company owns and
manages transmission towers for radio and television broadcasting, paging,
cellular, personal communication system (PCS), and other wireless technologies
throughout the United States.
On November 14, 1997, the Corporation acquired a one-third interest in Kline
Iron & Steel Co., Inc. (Kline), a tower fabrication company, for approximately
$7 million which is accounted for using the equity method (see Note 9).
Additionally, the Corporation acquired the following towers, real estate, and
property during 1997, each of which was accounted for using the purchase method
of accounting:
<TABLE>
<CAPTION>
Purchase
Property Acquired From Location Price Date Acquired
- ---------------------- ---------------- ---------- -----------------
<S> <C> <C> <C>
Dein P. Spriggs and Robert D.
Abersold (three non-operating Palm Beach $ 175,000 November 24, 1997
towers)........................ Gardens, Florida
Radio Seaway, Incorporated (one Warrensville $6,325,000 December 19, 1997
operating tower)............... Heights, Ohio
</TABLE>
The statement of operations includes revenues and operating costs of the
acquired towers from their respective dates of acquisition.
2. Accounting Policies
Preparation of Financial Statements
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of the Corporation
and Omni. All significant intercompany accounts and transactions have been
eliminated.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings.............................................................. 39 years
Towers................................................................. 15 years
Antenna equipment...................................................... 5 years
Vehicles............................................................... 5 years
Furniture and fixtures................................................. 7 years
Computer and office equipment.......................................... 5 years
</TABLE>
F-196
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Accounting Policies (Continued)
Goodwill and Other Assets
Goodwill of $5,052,488, primarily associated with the Radio Seaway,
Incorporated transaction, is being amortized on a straight-line basis over its
estimated useful life of fifteen years.
Revenue Recognition
Revenue is recognized as earned over the respective lease terms.
Federal Income Taxes
Income taxes are reported under the liability method. Accordingly, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Investment in Kline
The difference between the cost of the Corporation's interest in Kline and the
amount of underlying equity in net assets at the date of acquisition is
approximately $6.2 million, which is being amortized on a straight-line basis
over 40 years.
Concentration of Credit Risk
The Corporation provides services to major communications companies, most of
which are in major metropolitan areas. The Corporation may perform periodic
credit evaluations of the customers' financial condition and generally does not
require collateral. Receivables generally are due within 30 days.
3. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
1997
-----------
<S> <C>
Accrued professional fees........................................ $555,691
Accrued payroll and related...................................... 332,186
Accrued franchise taxes.......................................... 32,075
Accrued interest................................................. 16,636
Other............................................................ 1,307
--------
$937,895
========
</TABLE>
4. Income Taxes
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31
1997
-----------
<S> <C>
Deferred tax assets:
Tax benefit of net operating loss carryforward................. $ 64,028
Start-up costs deferred for tax purposes....................... 271,643
---------
Total deferred tax assets...................................... 335,671
Less: valuation allowance...................................... (312,789)
---------
22,882
Deferred tax liability:
Equity in earnings of Kline Iron & Steel Co., Inc. not
currently taxable............................................. (22,882)
=========
Net deferred tax assets........................................ $ --
=========
</TABLE>
F-197
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The difference between the effective income tax rate and the statutory tax rate
is attributable to the uncertainty of the realization of deferred tax assets.
The Corporation has a net operating loss carryforward of approximately $165,000
for tax purposes to offset future taxable income. The net operating loss
carryforward expires in 2012.
5. Related Party
Carl E. Hirsch and Anthony S. Ocepek, officers of the Corporation, used
personal funds to pay expenses relating to the formation of the Corporation,
such as office space rent, travel, telephone, payroll, and purchases of
property and equipment. These expenses totaled $568,184 and are included in
accounts payable, officers.
6. Commitments
The Company leases office space and certain equipment under operating leases
expiring through 2000. Rent expense was $29,719 for the period ended December
31, 1997. Future minimum payments under non-cancelable operating leases for the
year ending December 31, are as follows:
<TABLE>
<S> <C>
1998............................................................. $42,260
1999............................................................. 9,000
2000............................................................. 1,500
-------
$52,760
=======
</TABLE>
7. Tower Rental Revenue
The Corporation receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower rental revenues under tower leases in effect at December
31, 1997, are as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 493,176
1999.......................................................... 457,782
2000.......................................................... 402,039
2001.......................................................... 355,797
2002.......................................................... 259,974
Thereafter.................................................... 766,188
----------
$2,734,956
==========
</TABLE>
8. Notes Payable
The acquisition of Radio Seaway, Incorporated was financed by the issuance to
its owner of a note payable for $6,325,000, bearing interest at 8% and due on
January 7, 1998. The note was paid in full on that date, including $16,636 of
accrued interest.
9. Investment in Kline Iron & Steel Co., Inc.
Summarized financial information of Kline is as follows:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Year Ended
December 31 September 30
1997 1997
------------------ ------------
<S> <C> <C>
Sales........................................... $13,311,541 $49,045,582
Gross profit.................................... 1,931,713 6,608,425
Net income...................................... 480,939 1,009,375
</TABLE>
F-198
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Investment in Kline Iron & Steel Co., Inc.
<TABLE>
<CAPTION>
(Unaudited)
December 31
1997
-----------
<S> <C>
Current assets..................................................... $14,327,009
Non-current assets................................................. 3,408,961
Current liabilities................................................ 11,494,362
Non-current liabilities............................................ 2,267,391
Stockholders' equity............................................... 3,974,217
</TABLE>
In connection with the Kline transaction, the Corporation granted Jerome C.
Kline, Kline's shareholder, an option to purchase up to 500,000 shares of the
Corporation's common stock at an exercise price of $1.00 per share, increasing
8% per year, for a period of five years commencing on November 14, 1997, and
ending on November 14, 2002. The value assigned to this option at its date of
issue of $75,000 represents additional consideration for the Kline stock
purchase. As of December 31, 1997, no options have been exercised.
The Corporation's investment in Kline includes a 1.5% transaction fee of
$105,000 paid to Hicks, Muse, Tate & Furst Incorporated, an affiliate of the
Partnership.
10. Partnership Interests
The agreement under which the Partnership was formed (the Partnership
Agreement) provides for conveying to members of management, interests in the
partnership, representing rights to partnership distributions to the extent
cumulative partnership distributions exceed specified thresholds. The
partnership interests that may be allocated to members of management range from
zero up to a total of 15% (rights to up to 6.4% have been allocated to members
of management through December 31, 1997). The percentage to be conveyed is
determined based on performance criteria set forth in the Partnership
Agreement. The fair value of partnership interests earned through December 31,
1997, is not material.
11. Year 2000 Issue (Unaudited)
When the Corporation was formed during 1997, it purchased Year 2000-ready
computers and related office equipment. Additionally, management has determined
that its towers and related equipment are unaffected by the year 2000.
12. Subsequent Events
On January 6, 1998, the Corporation issued 11,183,724 shares of common stock to
the Partnership in exchange for approximately $11.2 million cash. A portion of
these funds were used to pay the note payable to Radio Seaway, Incorporated.
On February 4, 1998, the Corporation issued 55,414,574 shares of common stock
to the Partnership in exchange for approximately $55.4 million cash.
Through February 20, 1998, the Corporation has acquired the following towers,
real estate, and property:
<TABLE>
<CAPTION>
Acquisition Location Purchase Price Date Acquired
- ----------- -------------- -------------- ----------------
<S> <C> <C> <C>
Ardman Broadcasting (2 operating
towers)........................ Ft. Pierce, FL $ 1,350,000 January 15, 1998
TowerCom, Limited (2 operating
towers and
2 towers under construction)... Miami, FL $27,500,000 February 5, 1998
Miller Transmission Tower
Company Ltd. (2 operating
towers and 1 tower under
construction).................. Dallas, TX $24,100,000 February 6, 1998
</TABLE>
F-199
<PAGE>
OMNIAMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Subsequent Events (Continued)
On February 17, 1998, the Partnership signed a definitive agreement under which
the Corporation and Specialty Teleconstructors, Inc. (Specialty), a publicly
traded Nasdaq-listed company, will merge in a stock-for-stock transaction
valued at approximately $500 million. The Corporation and Specialty will
combine in a tax-free exchange of stock in which the Partnership will receive
approximately 6.75 million newly-issued shares of Specialty in exchange for
100% of the Corporation's common stock.
Immediately prior to the closing of the Corporation's merger with Specialty,
the Corporation expects to merge with Omni/HSW Acquisition, Inc. (Omni/HSW), a
corporation formed by the Partnership in 1998 which, in January 1998, purchased
and currently manages 22 operating towers and has two towers under
construction. These transactions are expected to be completed by the end of
April 1998.
F-200
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
HSW Associates, Inc.
We have audited the accompanying statement of assets sold by HSW Associates,
Inc. (HSW) as of December 31, 1997, and the related statements of revenues and
direct operating expenses of assets sold by HSW Associates, Inc. for each of
the two years in the period then ended. These statements are the responsibility
of HSW's management. Our responsibility is to express an opinion on these
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 statement of assets sold by HSW
Associates, Inc. and the related statements of revenues and direct operating
expenses of assets sold by HSW Associates, Inc. are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of assets sold by HSW Associates,
Inc. and the related statements of revenues and direct operating expenses of
assets sold by HSW Associates, Inc. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement of assets sold by
HSW Associates, Inc. and the related statements of revenues and direct
operating expenses of assets sold by HSW Associates, Inc. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the assets sold by HSW Associates, Inc. as of December 31,
1997, and the related revenues and direct operating expenses of assets sold by
HSW Associates, Inc. for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
March 31, 1998
F-201
<PAGE>
HSW ASSOCIATES, INC.
STATEMENT OF ASSETS SOLD BY HSW ASSOCIATES, INC.
December 31, 1997
<TABLE>
<S> <C>
Fixed assets, at cost:
Buildings........................................................... $ 152,201
Towers.............................................................. 1,669,608
----------
1,821,809
Less: accumulated depreciation...................................... 431,812
----------
Fixed assets, net................................................... $1,389,997
==========
</TABLE>
See accompanying notes.
F-202
<PAGE>
HSW ASSOCIATES, INC.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSESOF ASSETS SOLD BY HSW
ASSOCIATES, INC.
Year End December 31
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Lease revenue of assets sold................................ $962,664 $638,887
Direct operating expenses of assets sold:
Depreciation................................................ 99,518 60,609
Utilities................................................... 118,596 98,968
Maintenance................................................. 48,846 29,780
Insurance................................................... 1,195 1,552
Property Taxes.............................................. 33,322 20,115
Other....................................................... 22,563 13,429
-------- --------
Total direct operating expenses of assets sold.............. 324,040 224,453
-------- --------
Excess of revenues over direct operating expenses of assets
sold....................................................... $638,624 $414,434
======== ========
</TABLE>
See accompanying notes.
F-203
<PAGE>
HSW ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Basis of Presentation
HSW Associates, Inc. (HSW) and OmniAmerica, Inc. (the Buyer) entered into an
Agreement for the acquisition of certain towers of HSW (the Agreement) dated
January 15, 1998, under which the Buyer acquired certain assets and assumed
certain obligations of HSW. The assets acquired consist primarily of twenty-
four telecommunication towers (the Towers) owned by HSW. Of these twenty-four
towers, twenty-one are currently operational. The remaining three towers are
valued at $54,252 at December 31, 1997, and are included in the Statement of
Assets Sold by HSW Associates, Inc. Under the terms of the Agreement, the Buyer
assumed all obligations of HSW as landlord, licensor or tenant relating to the
tower space leases with respect to the period after the closing date. The Buyer
also assumed all obligations of HSW subsequent to the closing date relating to
the operation of the Towers and any contracts entered into by HSW during the
ordinary course of business of HSW relating to the Towers but only to the
extent that such contracts were chosen to be included in the obligations
assumed by the Buyer. The Buyer did not assume any of the following operating
liabilities incurred prior to the acquisition of the Towers: liabilities
relating to litigation or claims, tax liabilities, liabilities of HSW as
employer, operating liabilities incurred prior to the acquisition of the
Towers, liabilities relating to indebtedness of HSW, environmental liabilities
and liabilities associated with transaction costs incurred by HSW relating to
the Agreement.
The accompanying statement of assets sold by HSW Associates, Inc. and the
related statements of revenues and direct operating expenses of assets sold by
HSW Associates, Inc. were prepared for the purpose of complying with the
requirements of the Securities and Exchange Commission for inclusion in the
Current Report on Form 8-K of Specialty Teleconstructors, Inc. and are not
intended to be a complete presentation of HSW's assets and liabilities or
revenues and expenses.
Property taxes are allocated for the assets sold by HSW based on the respective
asset's net book value.
Lease revenues represent charges for tower usage billed to third-party
customers under lease arrangements.
2. Significant Accounting Policies
Revenue Recognition
Revenue is recognized ratably over the lease term, reduced by any amounts not
considered collectible.
Depreciation
Tower and buildings are depreciated using a straight-line method over 15 years.
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 statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Future Minimum Rentals
Future minimum rentals receivable under noncancelable operating leases as of
December 31, 1997, are approximately:
<TABLE>
<S> <C>
1998.......................................................... $1,114,145
1999.......................................................... 988,707
2000.......................................................... 883,959
2001.......................................................... 674,941
2002 and thereafter........................................... 370,121
----------
Total......................................................... $4,031,873
==========
</TABLE>
F-204
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of
TowerCom, Limited:
We have audited the accompanying balance sheets of TowerCom, Limited (the
Partnership) as of December 31, 1997 and 1996 and the related statements of
operations, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership'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 the Partnership as of December
31, 1997 and 1996 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
March 19, 1998
Jacksonville, Florida
F-205
<PAGE>
TOWERCOM, LIMITED
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 149,148 495,617
Accounts receivable--trade (note 3).................. 200,134 179,699
Accounts receivable--related party (note 5).......... 100,237 23,609
Prepaid expenses..................................... 57,825 58,868
----------- ----------
Total current assets............................... 507,344 757,793
Property, plant and equipment (notes 2, 3 and 4): 11,209,671 10,643,177
Less accumulated depreciation........................ (1,311,641) (951,387)
----------- ----------
9,989,030 9,691,790
Accounts receivable, net of current portion.......... 506,216 387,370
Goodwill, net of accumulated amortization of $68,117
in 1997 and $46,316 in 1996......................... 258,740 280,541
Deferred debt issue costs, net of accumulated
amortization of $49,016 in 1997 and $33,331 in
1996................................................ 107,835 123,520
Other................................................ 12,454 24,820
----------- ----------
Total assets....................................... $11,290,619 11,265,834
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current installments of long-term debt (note 3)...... 762,194 703,935
Accounts payable..................................... 10,502 11,796
Accrued liabilities.................................. 48,350 39,878
----------- ----------
Total current liabilities.......................... 821,046 755,609
Long-term debt, excluding current installments (note
3).................................................. 5,824,760 6,552,848
----------- ----------
Total liabilities.................................. 6,645,806 7,308,457
----------- ----------
Partners' capital.................................... 4,644,813 3,957,377
----------- ----------
Commitments (note 6)
Total liabilities and partners' capital............ $11,290,619 11,265,834
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-206
<PAGE>
TOWERCOM, LIMITED
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Rental income (notes 3 and 4)............................ $2,720,657 2,721,020
Operating expenses (note 5):
Salaries and benefits.................................... 244,247 181,384
Depreciation and amortization............................ 400,207 437,252
Real estate and other taxes.............................. 62,562 61,303
Insurance................................................ 53,119 45,186
Rent..................................................... 22,194 17,736
Utilities................................................ 69,445 69,961
Repairs and maintenance.................................. 81,698 101,561
Professional fees........................................ 45,614 67,523
Security................................................. 80,696 78,042
Travel and entertainment................................. 12,200 16,637
Promotion................................................ 12,116 4,226
Other.................................................... 37,443 31,248
---------- ---------
Total operating expenses................................. 1,121,541 1,112,059
---------- ---------
Net operating income..................................... 1,599,116 1,608,961
Other, net:
Interest income.......................................... 43,226 16,668
Interest expense......................................... (577,590) (663,595)
Development expense...................................... (46,909) (34,637)
---------- ---------
Total other.............................................. (581,273) (681,564)
---------- ---------
Net income............................................... $1,017,843 927,397
========== =========
</TABLE>
See accompanying notes to financial statements.
F-207
<PAGE>
TOWERCOM, LIMITED
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
South- South
coast Atlantic
TowerCom, Capital Tower John H. Anthony S.
Inc. Corp. Corp. Wilson Ocepek Total
--------- --------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $ 32,358 1,461,885 1,461,885 279,652 -- 3,235,780
Net income.............. 9,274 418,998 418,998 80,127 -- 927,397
Distribution to
Partners'.............. (2,000) (93,000) (93,000) (17,800) -- (205,800)
-------- --------- --------- ------- ------- ----------
Balance, December 31,
1996................... 39,632 1,787,883 1,787,883 341,979 -- 3,957,377
Paid in Capital......... -- -- -- -- 675,000 675,000
Net income.............. 10,178 436,634 436,634 83,505 50,892 1,017,843
Distributions to
Partners'.............. (10,056) (454,234) (454,234) (86,883) -- (1,005,407)
-------- --------- --------- ------- ------- ----------
Balance, December 31,
1997................... $ 39,754 1,770,283 1,770,283 338,601 725,892 4,644,813
======== ========= ========= ======= ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-208
<PAGE>
TOWERCOM, LIMITED
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,017,843 927,397
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 400,207 437,252
Changes in assets and liabilities:
Accounts receivable............................... (215,909) (121,555)
Prepaid expenses and other........................ 10,942 (10,965)
Accounts payable.................................. (1,294) (16,262)
Accrued liabilities............................... 8,472 (19,851)
----------- ---------
Net cash provided by operating activities....... 1,220,261 1,196,016
----------- ---------
Cash flows from investing activities:
Capital expenditures.................................. (566,494) (13,759)
----------- ---------
Net cash used in investing activities........... (566,494) (13,759)
----------- ---------
Cash flows from financing activities:
Paid in Capital....................................... 675,000 --
Distributions to Partners............................. (1,005,407) (205,800)
Repayment of long-term debt........................... (669,829) (614,543)
----------- ---------
Net cash used in financing activities........... (1,000,236) (820,343)
----------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (346,469) 361,914
Cash and cash equivalents at beginning of period...... 495,617 133,703
----------- ---------
Cash and cash equivalents at end of period............ $ 149,148 495,617
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.............. $ 580,143 635,429
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-209
<PAGE>
TOWERCOM, LIMITED
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
TowerCom, Limited, a Florida Limited Partnership (the Partnership), was formed
on November 17, 1994 to engage in the business of owning, developing,
constructing, leasing, operating, and selling broadcast towers and related
equipment. The Partnership currently owns and leases two broadcast towers
located in Dade County and Orange County, Florida.
The Partnership is owned 1% by TowerCom, Inc., a Florida corporation, 42.898%
(45.18% in 1996) by Southcoast Capital Corporation, a Florida corporation
(Southcoast), 42.898% (45.18% in 1996) by South Atlantic Tower Corporation, a
Delaware corporation, 5% (0% in 1996) by TowerCom's President, and 8.204%
(8.64% in 1996) by an individual.
(b) Cash Equivalents
Cash and cash equivalents includes all short-term investments with original
maturity dates of three months or less.
(c) Property Plant and Equipment
Property, plant and equipment, excluding the towers and buildings, are recorded
at cost and depreciated over their estimated useful lives by a method that
approximates the double declining balance method.
The towers and buildings are recorded at cost and depreciated over their
estimated useful lives by the straight-line method.
(d) Goodwill
Goodwill represents the excess of the purchase price over the fair value of
property, plant and equipment and is amortized over 15 years by the straight-
line method.
(e) Deferred Debt Issue Costs
Debt origination costs are deferred and amortized over the term of the loan
using the straight-line method which approximates the effective interest
method.
(f) Revenue Recognition
Rent income is recognized as revenue over the life of the lease by the
straight-line method.
(g) Income Taxes
No provision for Federal or state income taxes has been made since income taxes
of the Partnership are the responsibility of the Partners.
(h) 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 those estimates.
F-210
<PAGE>
TOWERCOM, LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(i) Allocation of Profits and Losses and Cash Distributions
As defined in the Limited Partnership agreement, the following summarizes the
allocation of net income and losses and cash distributions:
. The net income and losses of the Partnership shall be allocated to the
Partners in proportion to their Percentage Interests, as defined.
. Annual cash distributions shall be made in amounts at least equal to the
Federal Income Tax liability of the Partners attributable to the net
income allocated to the Partners for the year calculated at an assumed
marginal income tax rate of thirty one percent (31%).
. Cash distributions for any other purpose are at the sole discretion of
the General Partner and shall be distributed to the Partners in
proportion to their Percentage Interests, as defined.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles, including goodwill, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered impaired, the impairment to be recognized is
measured by the amounts by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(k) Reclassifications
Certain 1996 financial statement amounts have been reclassified to conform to
the 1997 presentation.
(2) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
Estimated
depreciable
1997 1996 lives (years)
----------- ----------- -------------
<S> <C> <C> <C>
Land.................................. $ 2,558,334 $ 2,174,148 --
Land Improvements..................... 469,802 469,802 15
Towers................................ 5,680,925 5,680,925 30
Buildings............................. 1,690,996 1,686,643 39
Electrical, mechanical and technical
equipment............................ 554,559 542,042 7
Office equipment...................... 43,297 39,278 5
Furniture and fixtures................ 22,484 22,299 7
Other................................. 28,040 28,040 7
Construction in progress.............. 161,234 --
----------- -----------
Property, plant and equipment......... 11,209,671 10,643,177
Less accumulated depreciation......... (1,311,641) (951,387)
----------- -----------
Net property, plant and equipment..... $ 9,898,030 $ 9,691,790
=========== ===========
</TABLE>
F-211
<PAGE>
TOWERCOM, LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) Long-term Debt
Long-term debt represents a promissory note payable to a bank, secured by all
property, plant, and equipment, rents and leases. Monthly installments of
$104,164, including interest at 8.23%, are payable through November 2004.
Principal payment requirements for the next five years and thereafter are as
follows:
<TABLE>
<S> <C>
1998.......................................................... $ 762,194
1999.......................................................... 825,275
2000.......................................................... 892,423
2001.......................................................... 967,436
2002.......................................................... 1,047,503
Thereafter.................................................... 2,092,123
----------
$6,586,954
==========
</TABLE>
The fair value of long-term debt, as determined using current rates,
approximates carrying value. The long-term debt was paid in full on February 6,
1998 (note 7).
(4) Rentals under Operating Leases
The two broadcast towers and adjacent buildings are leased under various
operating leases with expiration dates extending to the year 2010. The cost and
accumulated depreciation of these assets were $7,371,920 and $768,765 at
December 31, 1997, and $7,367,568 and $537,924 at December 31, 1996,
respectively.
The following is a schedule by years of the minimum future rentals on non
cancelable operating leases as of December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 2,264,917
1999........................................................ 2,113,982
2000........................................................ 1,328,255
2001........................................................ 1,153,471
2002........................................................ 820,758
Later years................................................. 2,834,657
-----------
Total minimum future rentals................................ $10,516,040
===========
</TABLE>
(5) Transactions With Related Parties
Accounts receivable represent non-interest bearing advances due from two
related parties.
The Partnership had a management agreement with Southcoast. Management fees of
$30,000 a year were recorded for the years ended December 31, 1997 and 1996,
respectively.
The Partnership paid $7,000 and $6,000 to a related party for reimbursement of
attorney costs associated with ongoing lease review and new projects for the
years ended December 31, 1997 and 1996, respectively.
(6) Commitments
On August 27, 1997, the Partnership entered a capital lease with the Milwaukee
Area Technical College (MATC) for excess tower capacity on a transmission tower
yet to be constructed, on land owned by MATC. The initial lease term is for 25
years with renewal options extending the term for up to 80 years.
F-212
<PAGE>
TOWERCOM, LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Partnership has agreed to finance and construct the tower. The debt service
cost is to be recovered from gross revenues received from tenants on the tower
which the Partnership must secure. The Partnership will then share 30-35% of
the remaining net cash flow after debt service cost with MATC, as defined in
the lease agreement.
To date, no contracts have been entered for the engineering, construction or
financing of the tower.
(7) Subsequent Event
On February 6, 1998, the Partnership was sold to OmniAmerica, Inc. for
$28,000,000. The senior vice president and chief operating officer of
OmniAmerica, Inc. also served as president of the Partnership from May 21, 1997
to the date of sale. The note payable to the bank was paid in full in
conjunction with the closing of this sale.
F-213
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MILLER TRANSMISSION TOWER COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP)
New York, New York
We have audited the accompanying balance sheets of MILLER TRANSMISSION TOWER
COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and 1996
and the related statements of operations, changes in partners' deficiency and
cash flows for the years 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 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 MILLER TRANSMISSION TOWER
COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and 1996
and the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
March 3, 1998
F-214
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash.................................................... $ 132,936 $ 306,110
Accounts receivable..................................... 19,371 20,375
Prepaid insurance....................................... 12,967 12,557
Land.................................................... 1,207,260 1,207,260
Towers, net of accumulated depreciation................. 2,079,195 2,376,219
Investment in partnership............................... 5,274 --
Deferred loan costs, net................................ 42,662 53,545
---------- ----------
$3,499,665 $3,976,066
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES
Note payable............................................ $3,989,443 $4,300,000
Accrued expenses........................................ 47,150 43,888
Security deposits....................................... 116,360 89,280
Prepaid rental income................................... 19,746 1,000
---------- ----------
4,172,699 4,434,168
PARTNERS' DEFICIENCY.................................... (673,034) (458,102)
---------- ----------
$3,499,665 $3,976,066
========== ==========
</TABLE>
See notes to financial statements.
F-215
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
SALES................................................... $1,575,110 $1,512,843
OPERATING EXPENSES...................................... 873,075 729,989
---------- ----------
INCOME FROM OPERATIONS.................................. 702,035 782,854
---------- ----------
OTHER (INCOME) EXPENSES
Interest income......................................... (11,739) (1,553)
Income from partnership................................. (4,474) --
Amortization of other assets............................ 10,883 908
Interest expense........................................ 352,297 427,081
---------- ----------
346,967 426,436
---------- ----------
NET INCOME.............................................. $ 355,068 $ 356,418
========== ==========
</TABLE>
See notes to financial statements.
F-216
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIENCY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partner Deficiency
------- --------- ----------
<S> <C> <C> <C>
PARTNERS' DEFICIENCY, DECEMBER 31, 1995......... $(5,144) $(509,376) $(514,520)
CAPITAL DISTRIBUTIONS--1996..................... (3,000) (297,000) (300,000)
NET INCOME--1996................................ 3,564 352,854 356,418
------- --------- ---------
PARTNERS' DEFICIENCY, DECEMBER 31, 1996......... $(4,580) $(453,522) $(458,102)
CAPITAL DISTRIBUTIONS--1997..................... (5,700) (564,300) (570,000)
NET INCOME--1997................................ 3,551 351,517 355,068
------- --------- ---------
PARTNERS' DEFICIENCY, DECEMBER 31, 1997......... $(6,729) $(666,305) $(673,034)
======= ========= =========
</TABLE>
See notes to financial statements.
F-217
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 355,068 $ 356,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 297,024 281,392
Amortization of other assets........................ 10,883 908
(Increase) decrease in:
Accounts receivable............................... 1,004 29,165
Prepaid insurance................................. (410) 645
Increase (decrease) in:
Accrued expenses.................................. 3,262 43,888
Security deposits................................. 27,080 200
Prepaid rental income............................. 18,746 618
--------- -----------
Net cash from operating activities.................. 712,657 713,234
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in partnership............................. (5,274) --
--------- -----------
Net cash (used for) investing activities.............. (5,274) --
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable........................... -- 4,300,000
Deferred loan cost.................................... -- (54,454)
Payment of notes payable.............................. (310,557) (4,401,424)
Capital distributions paid............................ (570,000) (300,000)
--------- -----------
Net cash (used for) financing activities.............. (880,557) (455,878)
--------- -----------
NET INCREASE (DECREASE) IN CASH....................... (173,174) 257,356
CASH, BEGINNING....................................... 306,110 48,753
--------- -----------
CASH, END............................................. $ 132,936 $ 306,110
========= ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST.............................................. $ 352,297 $ 310,910
========= ===========
</TABLE>
See notes to financial statements.
F-218
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Note 1--Summary of Significant Accounting Policies
Business Activity
Miller Transmission Tower Company, Ltd. is a Texas Limited Partnership whose
primary purpose is to lease tower space on two transmission towers. The towers
are located in the State of Texas.
Method of Accounting
The Partnership prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Management believes that all accounts receivable as of December 31, 1997 and
1996 were fully collectible. Therefore, no allowance for doubtful accounts was
recorded.
Property and Equipment
Property and equipment is stated at cost. The cost of equipment is depreciated
over the estimated useful lives of 15 years utilizing the 150% declining
balance method. A change to the straight-line depreciation method was made in
the year in which the straight-line method yields a higher expense than the
150% declining balance method. Depreciation expense for December 31, 1997 and
1996 was $297,024 and $281,392, respectively.
Deferred Loan Cost
The deferred loan cost is the unamortized balance of bank fees and professional
fees that were incurred to obtain long-term financing from Compass Bank. These
costs are amortized on a straight-line basis over 60 months. Amortization
expense for the years ended December 31, 1997 and 1996 was $10,883 and $908,
respectively.
Income Tax
The Partnership is not a taxpaying entity for Federal and State income tax
purposes and therefore no provision for Federal income taxes has been recorded
in the financial statements. Income from the partnership is taxed to the
partners on their respective income tax returns.
Partnership Allocation
The General and Limited Partner have an agreement as to the allocation of net
earnings and distributions.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnership to credit risk
include cash deposits in excess of federally insured limits.
F-219
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
Credit risks to the Partnership relate to the broadcasting industry which serve
as its customer base.
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 disclosures at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2--TOWERS
The towers are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Tower--Milton............................................ $4,889,029 $4,889,029
Tower--Evelyn............................................ 200,000 200,000
---------- ----------
5,089,029 5,089,029
Less accumulated depreciation............................ 3,009,834 2,712,810
---------- ----------
$2,079,195 $2,376,219
========== ==========
</TABLE>
NOTE 3--NOTES PAYABLE
On November 21, 1996, the Partnership borrowed from Compass Bank, a Texas state
chartered association, in the form of a promissory note, $4,300,000. The
proceeds of the loan were used to refinance the existing long-term debt and for
the repairs and maintenance of the towers. This note was subsequently paid off
on February 2, 1998 (see Subsequent Events).
The interest rate on the outstanding principal amount of the loan was based on
the prime rate as published in The Wall Street Journal's "Money Rates" table.
The rates at December 31, 1997 and 1996 were 8.50% and 8.25%, respectively. The
outstanding principal amount was to be paid in sixty monthly installments which
began January 3, 1997. Accrued but unpaid interest on the loan shall be payable
on the same dates as, but in addition to, the principal payments. Any
additional prepayments of principal will be applied first toward accrued but
unpaid interest and then to principal in the inverse order of maturity.
The loan was collateralized by a first priority deed of trust lien on the two
towers and guaranteed, jointly and severally, by each partner.
Interest expense incurred on the above note was $352,297 and $41,388 as of
December 31, 1997 and 1996, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS
The Partnership is managed by the general partner, Cadogan, Inc. The
Partnership paid the general partner $231,000 and $225,080 during the years
ended December 31, 1997 and 1996, respectively, for management services.
F-220
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997
On May 6, 1997 Miller Transmission Tower Company, Ltd. paid $800 for an eighty
percent interest in Cowboy Tower Company, LLC, a newly formed Limited Liability
Company. Its share of income from Cowboy Tower Company, LLC was $4,474.
Note 5--Subsequent Events
The Partnership sold its land, building, and towers on February 6, 1998 and has
effectively ceased active operations.
F-221
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Kline Iron & Steel Co., Inc.
Columbia, South Carolina
We have audited the accompanying balance sheets of Kline Iron & Steel Co., Inc.
as of September 30, 1997 and 1996, and the related statements of income,
retained earnings and cash flows for the years 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 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 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 Kline Iron & Steel Co., Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information is
presented for the purpose 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 audits of the basic financial statements
and, in our opinion, is fairly stated, in all material respects, in relation to
the basic financial statements taken as a whole.
DERRICK, STUBBS & STITH, L.L.P.
December 9, 1997
F-222
<PAGE>
KLINE IRON & STEEL CO., INC.
BALANCE SHEET
September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 3,901,167 $
Accounts Receivable--Customers, Less, Allowance for
Doubtful Accounts (1997--$9,989; 1996--$9,989)........... 7,953,448 7,158,078
Accounts Receivable--Other................................ 81,865 47,035
Inventories............................................... 2,421,259 2,643,472
Prepaid Expenses.......................................... 205,953 139,457
Income Tax Refunds Due.................................... 47,785
Investments............................................... 30,000 30,000
----------- -----------
Total Current Assets...................................... $14,593,692 $10,065,827
=========== ===========
Long-Term Receivables:
Notes Receivable--Related Parties......................... $ 121,296 $ 135,699
Cash Surrender Value of Life Insurance.................... 215,627 195,259
----------- -----------
Total Long-Term Receivables............................... $ 336,923 330,958
----------- -----------
Property and Equipment:
Machinery and Equipment................................... $ 6,511,786 $ 6,346,461
Vehicles.................................................. 449,598 364,843
Office Equipment and Furniture............................ 1,192,001 1,102,521
Buildings and Improvements--West.......................... 2,714,334 2,699,775
Columbia
Leasehold Improvements--Columbia.......................... 340,485 329,763
Other Property............................................ 19,688 49,797
Land--West Columbia....................................... 274,690 274,690
Construction in Progress.................................. 1,972
Total Cost................................................ $11,504,554 $11,167,850
Less, Accumulated Depreciation............................ 8,127,699 7,593,013
----------- -----------
Net Property and Equipment................................ $ 3,376,855 $ 3,574,837
----------- -----------
Other Assets:
Deposits with Others...................................... $ 3,740 $ 3,625
Deferred Financing Costs--Net of Accumulated Amortization
(1997--$10,735; 1996--$6,939)............................ 3,691 7,488
----------- -----------
Total Other Assets........................................ $ 7,431 $ 11,113
----------- -----------
Total Assets.......................................... $18,314,901 $13,982,735
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable.......................................... $ 2,781,335 $ 3,655,636
Current Maturities of Long-Term Debt...................... 570,684 397,951
Billings in Excess of Costs and Estimated Earnings........ 6,489,592 3,384,852
Sales Tax Payable......................................... 91,394 64,430
Payroll Taxes Payable..................................... 38,093 38,839
Accrued Expenses.......................................... 1,497,859 462,954
Accrued Income Taxes...................................... 316,007 5,646
Other Liabilities......................................... 31,636 30,715
----------- -----------
Total Current Liabilities................................. $11,816,600 $ 8,041,023
Long-Term Debt, Less Current Maturities:
Notes Payable............................................. $ 2,778,063 $ 3,341,526
Deferred Income Taxes..................................... $ 206,960 $ 96,283
----------- -----------
Total Liabilities......................................... 14,801,623 $11,478,832
Stockholder's Equity:
Common Stock:
Voting (100,000 shares of $1 par value authorized; 32,000
shares issued and outstanding)........................... $ 32,000 $ 32,000
Non-voting (1,000,000 shares of $1 par value authorized;
160,000 shares issued and outstanding)................... 160,000 160,000
Additional Paid-In Capital................................ 11,527 11,527
Retained Earnings......................................... 3,309,751 2,300,376
----------- -----------
Total Stockholder's Equity................................ $ 3,513,278 $ 2,503,903
----------- -----------
Total Liabilities and Stockholder's Equity................ $18,314,901 $13,982,735
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-223
<PAGE>
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
% of % of
Amount Sales Amount Sales
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Sales.................................... $49,045,582 100.00 $36,423,115 100.00
----------- ------ ----------- ------
Cost of Sales:
Inventories--Beginning................... $ 2,643,472 5.39 $ 2,145,286 5.89
Purchases--Steel......................... 10,709,825 21.84 9,829,072 26.98
Purchases--Bolts......................... 486,762 .99 484,343 1.33
Purchases--Paint......................... 929,381 1.90 1,210,299 3.32
Engineering--In House.................... 1,292,614 2.64 1,118,478 3.07
Engineering--Outside..................... 1,842,501 3.76 1,588,207 4.36
Plant Salaries and Wages................. 3,913,893 7.98 3,145,804 8.64
Plant Vacation and Sick Pay.............. 274,091 .55 264,823 .73
Plant Payroll Taxes and Insurance........ 511,003 1.04 440,934 1.21
Plant Workman's Compensation............. 210,150 .43 283,647 .78
Plant Supervision........................ 854,528 1.74 755,031 2.07
Temporary Labor.......................... 297,477 .61 113,191 .31
Quality Assurance........................ 119,888 .24 110,566 .30
Repairs and Maintenance.................. 723,481 1.47 590,809 1.62
Welding Supplies......................... 188,401 .38 147,418 .40
Painting Supplies........................ 189,224 .39 213,457 .59
Small Tools and Supplies................. 329,522 .67 247,334 .68
Plant Vehicle Expense.................... 82,214 .17 65,119 .18
Utilities................................ 423,735 .86 412,121 1.13
Depression--Machinery and Equipment...... 307,599 .63 167,157 .46
Depreciation--Plant...................... 160,915 .33 157,870 .43
Rent..................................... 108,000 .22 100,000 .27
Property Taxes........................... 167,176 .34 122,309 .34
Other Plant Expense...................... 162,511 .33 144,985 .40
Sublet Fabrication....................... 5,962,399 12.16 2,534,005 6.96
Sublet Installation...................... 7,228,873 14.74 3,750,948 10.30
Purchased Finished Goods................. 3,349,288 6.83 3,173,681 8.71
Sales and Use Tax........................ 369,186 .75 155,030 .43
Insurance and Bonds...................... 310,151 .63 75,143 .21
Other Direct Job Costs................... 343,278 .70 351,496 .97
Delivery Expense--In House............... 140,314 .29 118,900 .33
Delivery Expense--Common Carrier......... 226,564 .46 721,971 1.98
----------- ------ ----------- ------
$44,858,416 91.46 $34,739,434 95.38
Inventories--Ending...................... 2,421,259 4.93 2,643,472 7.26
----------- ------ ----------- ------
Cost of Sales............................ $42,437,157 86.53 $32,095,962 88.12
Gross Profit............................. $ 6,608,425 13.47 $ 4,327,153 11.88
General and Administrative Expenses:
Administrative Salaries.................. $ 1,784,835 3.64 $ 1,154,904 3.17
Vacation and Sick Pay.................... 25,680 .05 19,765 .05
Payroll Taxes and Insurance.............. 120,337 .25 101,764 .28
</TABLE>
F-224
<PAGE>
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME--Continued
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
% of % of
Amount Sales Amount Sales
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Selling Expenses............................. $1,296,328 2.64 $1,126,255 3.09
Commissions.................................. 33,500 .07
Profit Sharing Contribution.................. 233,727 .48 42,684 .12
Office Supplies.............................. 51,555 .11 56,848 .16
Office Repairs and Maintenance............... 30,844 .06 22,479 .06
Temporary Services........................... 2,914 20,819 .06
Advertising.................................. 17,994 .04 18,158 .05
Telephone and Telegraph...................... 46,708 .10 48,257 .13
Dues and Subscriptions....................... 42,870 .10 33,441 .10
Travel and Entertainment..................... 53,355 .11 48,660 .13
Taxes and Licenses........................... 49,505 .10 53,358 .15
Insurance--General........................... 293,365 .60 247,852 .68
Insurance--Life.............................. 114,622 .23 58,922 .16
Utilities.................................... 32,432 .06 30,887 .09
Legal and Auditing........................... 89,332 .18 66,659 .18
Special Services and Education............... 130,612 .27 54,051 .15
Automobile Expense........................... 47,436 .10 48,604 .13
Depreciation--Vehicles....................... 1,500 1,500
Depreciation--Office Equipment............... 21,328 .04 18,367 .05
Depreciation--Furniture and Fixtures......... 3,597 4,718 .01
Depreciation--Office Building................ 15,565 .03 14,726 .04
Amortization--Cost of Obtaining Loan......... 3,796 4,214 .01
Rent......................................... 100,000 .20 100,000 .28
Janitorial Services.......................... 22,116 .05 19,434 .05
Other General Expenses....................... 77,261 .16 64,253 .18
---------- ---- ---------- ----
Total General and Administrative
Expenses................................. $4,743,114 9.67 $3,481,579 9.56
---------- ---- ---------- ----
Operating Income....................... $1,865,311 3.80 $ 845,574 2.32
---------- ---- ---------- ----
Other Income and Deductions:
Other Income:
Discounts Earned............................. $ 18,962 .04 $ 17,885 .05
Interest Earned.............................. 114,813 .23 4,344 .01
Gain on Sale of Fixed Assets................. 7,500 .02
Net Recoveries of Bad Debts.................. 7,545 .02 3,685 .01
Service Charges.............................. 55 105
Other Income................................. 5,223 .01 3,782 .01
Management Fees.............................. 26,250 .05
---------- ---- ---------- ----
Total Other Income....................... $ 180,348 .37 $ 29,801 .08
---------- ---- ---------- ----
Other Deductions:
Discounts Allowed............................ $ 4,813 .01
Interest Expense............................. $ 339,845 .69 402,727 1.11
Contributions................................ 76,251 .16 36,563 .10
</TABLE>
F-225
<PAGE>
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME--Continued
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- --------------
% of % of
Amount Sales Amount Sales
---------- ----- -------- -----
<S> <C> <C> <C> <C>
Loss on Disposal of Fixed Assets................ $ 11,032 .02
Other Deductions................................ 14,989 .03 $ 47,113 .13
---------- ---- -------- ----
Total Other Deductions...................... $ 442,117 .90 $491,216 1.35
---------- ---- -------- ----
Income Before Income Taxes.................. $1,603,542 3.27 $384,159 1.05
---------- ---- -------- ----
Income Taxes:
States.......................................... $ 87,711 .18 $ 19,031 .05
Federal......................................... 506,456 1.03 88,110 .24
---------- ---- -------- ----
Total Income Taxes.............................. $ 594,167 1.21 $107,141 .29
---------- ---- -------- ----
Net Income--Exhibit C....................... $1,009,375 2.06 $277,018 .76
========== ==== ======== ====
Net Income--Per Share....................... $ 5.26 $ 1.44
========== ========
</TABLE>
See Notes to Financial Statements.
F-226
<PAGE>
KLINE IRON & STEEL CO., INC.
STATEMENT OF RETAINED EARNINGS
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Retained Earnings, Beginning............................. $2,300,376 $2,023,358
Net Income--Exhibit B.................................... 1,009,375 277,018
---------- ----------
Retained Earnings, Ending--Exhibit A..................... $3,309,751 $2,300,376
========== ==========
</TABLE>
See Notes to Financial Statements.
F-227
<PAGE>
KLINE IRON & STEEL CO., INC.
STATEMENT OF CASH FLOWS
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income--Exhibit B.................................. $1,009,375 $ 277,018
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization........................ 595,442 426,358
Deferred Income Taxes................................ 110,677 76,272
Allowance for Doubtful Accounts...................... (5,750)
(Gain) Loss on Sale of Property and Equipment........ 3,532
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable......... (830,200) (1,979,227)
(Increase) Decrease in Inventories................. 222,213 (498,186)
(Increase) Decrease in Prepaid Expenses............ (66,496) 351,685
(Increase) Decrease in Other Assets................ 47,671 (52,141)
Increase (Decrease) in Accounts Payable and Accrued
Expenses.......................................... 498,104 1,774,777
Increase (Decrease) in Excess Billings............. 3,104,740 1,516,854
---------- -----------
Net Cash Provided by (Used in) Operating
Activities...................................... $4,695,058 $ 1,887,660
---------- -----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment..................... $ (409,696) $(1,527,661)
Purchase of Investment Property........................ (219,989)
Proceeds from Sale of Investment Property.............. 440,542
Proceeds from Sale of Property and Equipment........... 12,500
(Increase) Decrease in Notes and Loans Receivable...... 14,403 (28,533)
(Increase) Decrease in Cash Surrender Value of Life
Insurance............................................. (20,368) (22,033)
---------- -----------
Net Cash (Used in) Investing Activities................ $ (403,161) $(1,357,674)
---------- -----------
Cash Flows from Financing Activities:
Net Principal Payments on Debt......................... $ (390,730) $ (870,793)
---------- -----------
Net Increase (Decrease) In Cash........................ $3,901,167 $ (340,807)
Cash:
Beginning.............................................. 340,807
---------- -----------
Ending................................................. $3,901,167 $ --
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Payment for:
Interest............................................. $ 356,610 $ 400,454
========== ===========
Income Taxes (Net of Refunds)........................ $ 114,685 $ 156,868
========== ===========
</TABLE>
See Notes to Financial Statements.
F-228
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 1997 and 1996
1. Nature of Business and Significant Accounting Policies:
1.1 Nature of Business:
The Company, founded in 1923, contracts nationally and internationally for the
fabrication of structural and tower steel products for private, industrial,
commercial and governmental markets. The Company's revenue from an individual
customer typically exceeds 10% of the total revenue from all contracts during
the year. Because of the nature of the Company's business, the major customers
will vary between years.
1.2 Revenue Recognition
The Company recognizes revenue from contacts on the percentage-of-completion
method, measured by the percentage of costs incurred to date to estimated total
cost of each contract. This method is used because management considers total
cost to be the best available measure of progress on these contracts. Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance. 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 and estimated earnings in excess of
billings" represents revenues recognized in excess of amounts billed. The
liability "billings in excess of costs and estimated earnings" represents
billings in excess of revenues recognized.
1.3 Cash and Cash Equivalents:
Cash and Cash Equivalents include cash in banks and all highly liquid
investments with a maturity of three months or less.
1.4 Inventories:
Inventories of structural steel (materials only) are stated at cost, using the
last-in, first-out method (LIFO). All other inventories are valued at the lower
of cost or market, using the first-in, first-out method (FIFO).
1.5 Property and Equipment:
Property and Equipment is recorded at cost. For financial reporting purposes,
depreciation is computed using principally the straight-line method over the
useful lives of the assets which are as follows:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Autos and Truck........................................................ 5
Machinery and Equipment................................................ 5 to 10
Office Furniture and Fixture........................................... 7
Computer Hardware and Software......................................... 5
Buildings.............................................................. 10 to 20
Leasehold Improvements................................................. 10
</TABLE>
For income tax purposes, depreciation is computed using principally the
accelerated methods over recovery periods prescribed by current tax law.
F-229
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
1.6 Deferred Income Taxes:
Deferred income taxes are provided for in the financial statements as a result
of timing differences between book income and taxable income. Timing
differences arise principally from the use of accelerated methods of
depreciation.
1.7 Profit Sharing Plan:
The Company offers a defined contribution profit sharing plan under Section
401(k) of the Internal Revenue Code covering employees who meet the age and
service requirements. Employees may elect to make voluntary salary reduction
contributions of from 1% to 15% of their compensation limited to $9,500 per
calendar year (amount adjusted annually). During the year ended September 30,
1996, the plan was amended to provide for employer matching contributions of
25% of the employee's salary reductions up to 4% of compensation. Additionally,
the Company has made discretionary contributions based on net profits of
$233,727 and $42,684 for 1997 and 1996, respectively. At September 30, 1997 and
1996, the Company had unfunded contributions to the plan of $233,727 and
$42,684, respectively. Profit sharing plan expense, including employer matching
and discretionary amounts, for the years ended September 30, 1997 and 1996 were
$282,376 and $49,286, respectively.
1.8 Deferred Loan Costs:
The Company has incurred $14,427 in financing costs in connection with
obtaining several loans. These costs are being amortized over the lives of
these loans using the straight-line method. Accumulated amortization at
September 30, 1997 and 1996 was $10,735 and $6,939, respectively.
1.9 Bad Debts:
Bad debts are provided for using the reserve method of accounting.
1.10 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 those estimates.
2. Inventories:
Inventories consist of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw Material, structural steel........................... $1,694,906 $2,319,408
Work in Process.......................................... 615,049 186,020
Bolts.................................................... 7,000 37,000
Paint.................................................... 69,104 67,298
Plant Supplies........................................... 35,199 33,746
---------- ----------
Totals................................................... $2,421,258 $2,643,472
========== ==========
</TABLE>
Under the last-in, first-out (LIFO) method of valuing inventories, the
procedure has been to charge higher costs to cost of goods sold while deferring
relatively lower costs in inventory, thereby reducing earnings and
F-230
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
inventories both for financial reporting and income tax purposes. The amounts
of inventories valued by the last-in, first-out (LIFO) method, $1,694,906 at
September 30, 1997 and $2,319,408 at September 30, 1996, are less than
replacement or current cost by $1,826,129 and $1,435,588, respectively.
The last-in, first-out (LIFO) method's effect was to decrease net income for
the year ended September 30, 1997 by $390,541 and to decrease net income for
the year ended September 30, 1996 by $158,641.
3. Investments:
Investments are categorized as available-for-sale and consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
State of Israel floating rate Bonds............................ $30,000 $30,000
======= =======
</TABLE>
4. Notes Receivable--Related Parties:
Related party notes receivable consist of non-interest bearing notes arising
from Company payments of premiums on life insurance policies owned by certain
corporate executives or their wives under split-dollar life insurance
agreements. The notes are collateralized by assignment of the cash surrender
values of those policies which in aggregate at September 30, 1997 and 1996 were
$113,796 and $91,082, respectively.
5. Notes Payable and Capital Lease Obligations:
5.1 On October 24, 1994, the Company entered into a loan agreement with
Carolina First Bank which provided for three types of financing. This agreement
was subsequently modified on March 26, 1996. The financing arrangement
includes:
A revolving working capital line of credit in the maximum amount of $3,000,000.
Interest only payments, based on the bank's prime rate plus one percent (prime
+ 1%) are payable monthly with the entire balance becoming due on April 2,
1997. The due date was subsequently extended until April 2, 1998.
A permanent working capital term loan in the amount of $965,000. Interest on
this loan is calculated at the bank's prime rate plus one percent (prime + 1%).
The note provides for monthly interest and principal payments of $12,620 with
the entire remaining balance due April 2, 1999. The note also provides for an
additional principal payment due December 15th each year based on 25% of year-
end net income after taxes less current maturities of long-term debt. An
additional principal payment of $146,230 is due for the year ended September
30, 1997. No additional principal payment was due for the year ended September
30, 1996.
A $550,000 mortgage loan. The loan provides for monthly principal payments of
$3,056 plus interest at the bank's prime rate plus one percent (prime + 1%)
with the remaining balance becoming due on September 2, 1997. The due date was
subsequently extended until April 2, 2000.
The above loans are cross-collateralized and are secured by liens on the
Company's accounts receivable, equipment, inventories and by a first mortgage
on the Company's West Columbia real property. Carolina First Bank also received
assignment of a $2 million face value life insurance policy on Mr. Jerome C.
Kline (the Company's President). These loans are unconditionally guaranteed by
Mr. Jerome C. Kline.
F-231
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
The loan agreements contain various restrictive covenants pertaining to net
working capital, current ratios, tangible net worth, debt to tangible net worth
and cash flow. At September 30, 1997 and 1996, the Company was not in
compliance with the loan's indebtedness to tangible net worth covenant,
however, the Company subsequently received waivers of that covenant violation
from Carolina First Bank effective until October 1, 1998.
5.2 On March 1, 1994, the Company entered into a promissory note with a major
shareholder which provided for the following:
A promissory note agreeing to pay the shareholder the principal sum of $835,175
in thirteen (13) equal annual installments of $60,000 beginning on March 1,
1995 and continuing through March 1, 2007 with the entire remaining principal
balance being due and payable on March 1, 2008. Interest at the prime rate plus
one-half of one percent (prime + 1/2%) was payable monthly beginning April 1,
1994.
Mr. Jerome C. Kline, President, had personally guaranteed the obligations of
the Company under this agreement and as security for this personal guarantee
had granted to the shareholder a first lien mortgage on his real estate on
Huger Street, Columbia, S.C. The Company had also agreed to carry life
insurance on the shareholder in the amount sufficient to cover the note. The
life insurance policy had been assigned to the shareholder as further
collateral for the Company's obligation.
In November 1997, the Company paid the remaining principal balance of this note
in full. Prior written consent waiver was obtained from Carolina First Bank and
the surety company. The Company's balance sheet (Exhibit A) reflects both
current and long-term portions of this debt at September 30, 1997 as if the
note was to be paid according to the original schedule of payments to avoid
distortion of the Company's financial ratios.
5.3 On February 8, 1994, the Company financed the purchase of an angle machine
for $197,000 with Machine Tool Finance Corp. The terms of the agreement are a
down payment of $4,000 and 65 monthly payments of $3,676 including interest of
8.08%, beginning April 1, 1994 through August 1, 1999.
5.4 On August 16, 1994, the Company financed the purchase of a 1994 Dodge
Intrepid for $16,800 with GMAC. The note provides for monthly payments of $532
including interest of 8.5%, beginning September 30, 1994 through August 31,
1997.
5.5 On January 1, 1995, the Company financed the purchase of a Drill and
Marking Press Machine for $496,851 with Machine Tool Finance Corp. The terms
are 84 monthly payments of $7,942 including interest at a rate which is 275
basis points over "LIBOR", beginning February 1, 1995 through March 1, 2002.
5.6 On June 10, 1994, the,Company financed the purchase of a phone system for
$76,753 with Siemens Credit. The terms are 60 monthly payments of $1,594
including interest of 10%, beginning June, 10, 1994 through May 1, 1999.
5.7 On September 9, 1996, the Company entered into a capital lease agreement
with Amplicon, Inc. involving a Peddinghaus coping machine. The term of the
lease provide for a down payment of $5,107, twenty (20) quarterly payments of
$15,321 including interest at 8.05% beginning December 1, 1996 through
September 1, 2001 and a final purchase payment of $27,951 due October 1, 2001.
The coping machine has been capitalized at a cost of $285,394 with accumulated
depreciation of $28,538 at September 30, 1997.
5.8 On October 17, 1995, the Company entered into a term loan agreement with
the South Carolina Jobs-Economic Development Authority (JEDA) to provide a
$500,000 community development block grant loan for equipment acquisition and
working capital at its West Columbia plant. The lender is the City of West
F-232
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
Columbia, South Carolina. Under the terms of the loan, $250,000 is to be used
for equipment acquisition and $250,000 for working capital. Interest accrues at
eight and one-half percent (8 1/2%) fixed. The loan is to be repaid in 59 equal
monthly installments of $6,082 including interest beginning October 31, 1995
through July 31, 2000 with a final payment of $318,150 due August 31, 2000.
The loan is secured by a first purchase money lien on equipment acquired with
loan proceeds and a second priority blanket lien on all furniture, fixtures,
machinery and equipment owned by the Company. Carolina First Bank (See Note
5.1) has granted waiver of its security lien as it relates to equipment
purchased with JEDA loan proceeds. This loan has also been unconditionally
guaranteed by Mr. Jerome C. Kline (the Company's President) and life insurance
in the face amount of $500,000 on Mr. Kline has been collaterally assigned.
This loan is pursuant to certain job creation restrictions whereby if the
Company fails to create/retain twenty-five (25) new jobs after twenty-four (24)
months, JEDA has the right to demand payment of the loan balance or to increase
the rate of interest up to an additional five percent (5%). This stipulation
was satisfied during the year ended September 30, 1997.
On March 27,1996, the South Carolina Jobs-Economic Development Authority
transferred and assigned this loan to WAMCO XXIV, LTD.
5.9 On September 28, 1995, the Company entered into a note payable to Concord
Commercial in the amount of $342,200 to purchase a Pangborn vertical blasting
machine and a Peddinghaus fabripunch machine. The note bears interest at eight
and one quarter percent (8.25%) and is payable in sixty (60) monthly
installments of $5,340 beginning October 13, 1995 through September 13, 2000
with one final payment of $117,765 due October 13, 2000. The note is
collateralized by the equipment purchased.
5.10 On November 25, 1996, the Company financed the purchase of a 1996
Chevrolet Impala for $26,238 with Carolina First Bank. The note provides for 36
monthly payments of $827 including interest at 8.264% beginning January 2,
1997.
5.11 The comparative principal balances of notes payable are as follows:
<TABLE>
<CAPTION>
1997 1997
---------- ----------
<S> <C> <C>
Carolina First Bank--Line of Credit (Note 5.1)...........
Carolina First Bank--Working Capital (Note 5.1).......... $ 876,003 $ 940,970
Carolina First Bank--Mortgage Loan (Note 5.1)............ 449,167 482,778
Shareholder Stock Purchase (Note 5.2).................... 655,175 715,175
Machine Tool Finance Corp. (Note 5.3).................... 74,852 111,195
GMAC (Note 5.4).......................................... 5,615
Machine Tool Finance Corp. (Note 5.5).................... 336,928 399,573
Siemens Credit (Note 5.6)................................ 27,883 43,327
Amplicon Lease (Note 5.7)................................ 215,501 271,930
JEDA Loan (Note 5.8)..................................... 431,826 466,482
Concord Commercial (Note 5.9)............................ 261,794 302,432
Carolina First Bank--Auto Loan (Note 5.10)............... 19,618
---------- ----------
Totals................................................... $3,348,747 $3,739,477
Less, Current Maturities................................. 570,684 397,951
---------- ----------
Long-Term Portion........................................ $2,778,063 $3,341,526
========== ==========
</TABLE>
F-233
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
5.12 Future maturity of debt is as follows:
<TABLE>
<S> <C>
Year Ending September 30,
1998............................................................. $ 570,684
1999............................................................. 1,024,754
2000............................................................. 978,283
2001............................................................. 336,371
2002............................................................. 83,480
Subsequent Years................................................... 355,175
----------
$3,348,747
==========
</TABLE>
6. Uncompleted Contracts:
Costs, estimated earnings and billings on uncompleted contracts are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Costs Incurred on Uncompleted Contracts................ $44,003,729 $27,916,466
Estimated Earnings..................................... 7,192,472 3,895,673
----------- -----------
$51,196,201 $31,812,139
----------- -----------
Billings to Date....................................... 57,685,793 35,196,991
----------- -----------
Billings in Excess of Costs and Estimated Earnings..... $ 6,489,592 $ 3,384,852
=========== ===========
</TABLE>
7. Income Tax Matters:
Net deferred tax liability at September 30 consists of the following
components:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Depreciation............................................. $(217,832) $(130,662)
Bad Debt Reserve......................................... 3,726 3,726
Inventory Capitalization................................. 7,146 10,171
Contributions Carryforward............................... 20,482
--------- ---------
Total Deferred Income Taxes.............................. $(206,960) $ (96,283)
========= =========
</TABLE>
The provision for income taxes charged to operations for the year consists of
the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current Tax Expense.......................................... $483,490 $ 30,869
Deferred Tax Expense......................................... 110,677 76,272
-------- --------
Total Income Tax Expense..................................... $594,167 $107,141
======== ========
</TABLE>
F-234
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the years ended
September 30, 1997 and 1996 due to the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Computed "Expected" Tax Expense......................... $545,204 $ 133,072
Increase (Decrease) in Income Taxes Resulting from:
Depreciation Method Difference.......................... (75,746) (110,203)
Nondeductible Expenses.................................. 47,575 38,596
State Income Taxes, Net of Federal Tax Benefit.......... 48,097 8,012
Difference in Book and Tax Loss on Assets Disposed...... (3,712)
Contributions Carryover................................. (17,770)
Alternative Minimum Tax................................. (60,158) (38,608)
Deferred Tax Increase................................... 110,677 76,272
-------- ---------
$594,167 $ 107,141
======== =========
</TABLE>
8. Related Party Transactions:
The Company leases its Huger Street property from the Company's President and
major stockholder, Mr. Jerome C. Kline. The lease is for a period of ten years
beginning February 1, 1994 for a monthly rental of $16,666 ($200,000 annually).
On March 1, 1994, the Company purchased and retired 269,000 shares of non-
voting common stock from a major shareholder for $895,175 (See Note 5.2 for
additional information).
Until July 1997, the Company's major shareholder, Mr. Jerome C. Kline, owned a
40% interest in Prioleau Steel, Inc. In July 1997, Mr. Kline disposed of all of
his ownership in Prioleau. During the periods, the Company had business
transactions with Prioleau as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Transactions:
Sales To................................................ $ 127,054 $181,295
Purchases From.......................................... 2,334,725 226,916
Balances:
Accounts and Notes Receivable........................... 34,667 55,480
Accounts Payable........................................ 476,207
</TABLE>
As discussed in Note 4, the Company is owed $121,296 by certain executives or
their wives pursuant to split-dollar life insurance agreements.
F-235
<PAGE>
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended September 30, 1997 and 1996
9. Lease Commitments:
The Company has entered into certain lease agreements covering real property
(Note 8) and vehicles. Minimum future lease payments at September 30, 1996 ar
summarized as follows:
<TABLE>
<S> <C>
Year Ending September 30,
1998.......................................................... $ 229,995
1999.......................................................... 209,838
2000.......................................................... 200,000
2001.......................................................... 200,000
2002.......................................................... 200,000
Thereafter...................................................... 266,668
----------
$1,306,501
==========
</TABLE>
10. Subsequent Event--Change in Ownership:
In November 1997, Mr. Jerome C. Kline, the Company's President and former sole
shareholder, sold one-third of his stock in the Company to OmniAmerica, Inc.
and a one-third interest in his Huger Street rental property (see Note 8) to
Carl E. Hirsch and Anthony S. Ocepek. Mr. Kline maintains management of the
Company.
F-236
<PAGE>
SCHEDULE 1
KLINE IRON & STEEL CO., INC.
SCHEDULE OF LIFE INSURANCE IN FORCE
September 30, 1997
<TABLE>
<CAPTION>
Cash
Surrender
Policy Policy Amount of Annual Value Owner and
Number Date Insurance Premium 9/30/97 Type Insured Beneficiary
--------- ------- ---------- ------- --------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jefferson-Pilot Life.... JP4325636 8/12/94 $2,000,000 $17,500 $ Universal Life Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(a)
Jefferson-Pilot Life.... TP4375052 9/11/95 500,000 2,275 10 Year Term Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(b)
Manufacturers Life...... 5808645-5 8/7/90 1,300,000 55,000 213,014 Flexible B.H. Kline Kline Iron &
Insurance Company, Premium Steel Co.,
Toronto, Ontario Adjustable Inc.(c)
Life
Jefferson-Pilot Life.... JP4454060 7/1/97 400,000 5,400 2,613 Adjustable R.C. White Kline Iron &
Insurance Company, Joint Steel Co.,
Greensboro, N.C. Ownership Life Inc. and
R.C. White
---------- -------- ------------
Totals.................. $4,200,000 $215,627
========== ========
</TABLE>
- --------
(a) Collaterally assigned to Carolina First Bank
(b) Collaterally assigned to JEDA
(c) Collaterally assigned to Mr. B.H. Kline
F-237
<PAGE>
APPENDIX I
<PAGE>
AGREEMENT AND PLAN OF MERGER
By and Among
AMERICAN TOWER CORPORATION,
AMERICAN TOWERS, INC.
and
OMNIAMERICA, INC.
Dated as of
November 16, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <C> <S> <C>
ARTICLE 1 DEFINED TERMS; TARGET DISCLOSURE SCHEDULE................... I-1
ARTICLE 2 THE MERGER.................................................. I-1
2.1 The Merger............................................ I-1
2.2 Closing............................................... I-2
2.3 Effective Time........................................ I-2
2.4 Effect of the Merger.................................. I-2
2.5 Certificate of Incorporation.......................... I-2
2.6 Bylaws................................................ I-2
2.7 Directors and Officers................................ I-2
ARTICLE 3 CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES.............. I-2
3.1 Conversion of Capital Stock........................... I-2
3.2 Exchange of Certificates.............................. I-3
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TARGET.................... I-5
Organization and Business; Power and Authority; Effect
4.1 of Transaction........................................ I-5
4.2 Financial and Other Information....................... I-6
4.3 Material Statements and Omissions; Absence of Events.. I-6
4.4 Title to Properties; Leases........................... I-7
4.5 Compliance with Private Authorizations................ I-8
Compliance with Governmental Authorizations and Appli-
4.6 cable Law............................................. I-8
4.7 Year 2000 Compliant................................... I-9
4.8 Related Transactions.................................. I-9
4.9 Insurance............................................. I-10
4.10 Tax Matters........................................... I-10
4.11 ERISA Matters......................................... I-10
4.12 Product Liability..................................... I-12
4.13 Bank Accounts, Etc. .................................. I-12
4.14 Employment and Consulting Arrangements................ I-12
4.15 Material Agreements................................... I-12
4.16 Ordinary Course of Business........................... I-13
4.17 Broker or Finder...................................... I-13
4.18 Environmental Matters................................. I-14
4.19 Capital Stock......................................... I-14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ATC AND ATI............... I-15
Organization and Business; Power and Authority; Effect
5.1 of Transaction........................................ I-15
5.2 Financial and Other Information....................... I-16
5.3 Material Statements and Omissions; Absence of Events.. I-16
5.4 Broker or Finder...................................... I-17
5.5 Capital Stock......................................... I-17
5.6 Tax Matters........................................... I-17
Compliance with Governmental Authorizations and Appli-
5.7 cable Law............................................. I-17
5.8 Year 2000 Compliant................................... I-18
5.9 Compliance with Private Authorizations................ I-18
5.10 Title to Properties; Leases........................... I-18
5.11 Related Transactions.................................. I-19
5.12 Insurance............................................. I-20
5.13 ERISA Matters......................................... I-20
5.14 Product Liability..................................... I-21
5.15 Ordinary Course of Business........................... I-21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <C> <S> <C>
5.16 Environmental Matters................................. I-22
5.17 Materiality........................................... I-22
5.18 Material Agreements................................... I-22
ARTICLE 6 COVENANTS................................................... I-23
6.1 Access to Information; Confidentiality................ I-23
6.2 Agreement to Cooperate; Certain Other Covenants ...... I-24
6.3 Public Announcements.................................. I-24
6.4 Notification of Certain Matters ...................... I-25
6.5 Other Offers; No Solicitation ........................ I-25
6.6 Conduct of Business by Target Pending the Merger ..... I-26
6.7 Additional Tax Matters................................ I-28
6.8 Certificates of Non-Foreign Status.................... I-28
6.9 Target Stock Options ................................. I-28
6.10 Stockholder Approval ................................. I-29
Registration Statement and Proxy/Information State-
6.11 ment ................................................. I-29
6.12 Directors', Officers' and Employees' Indemnification.. I-30
6.13 Solicitation of Employees ............................ I-31
6.14 Registration Rights Agreement......................... I-31
ARTICLE 7 CLOSING CONDITIONS.......................................... I-31
7.1 Conditions to Obligations of Each Party .............. I-31
7.2 Conditions to Obligations of ATC and ATI.............. I-31
7.3 Conditions to Obligations of Target................... I-33
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER........................... I-34
8.1 Termination .......................................... I-34
8.2 Effect of Termination ................................ I-35
ARTICLE 9 GENERAL PROVISIONS.......................................... I-35
9.1 Waivers; Amendments .................................. I-35
9.2 Fees and Expenses .................................... I-35
9.3 Notices .............................................. I-35
9.4 Specific Performance; Other Rights and Remedies ...... I-36
9.5 Severability ......................................... I-37
9.6 Counterparts ......................................... I-37
9.7 Section Headings ..................................... I-37
9.8 Governing Law ........................................ I-37
9.9 Entire Agreement ..................................... I-37
9.10 Assignment ........................................... I-38
9.11 Parties in Interest .................................. I-38
Non-Survival of Representations, Warranties, Covenants
9.12 and Agreements........................................ I-38
9.13 Mutual Drafting....................................... I-38
APPENDIX A: Definitions
EXHIBITS:
EXHIBIT A: Registration Rights Agreement (Section 7.2(f)).
EXHIBIT B: Target Investment Letter (Section 7.2(g)).
EXHIBIT C: Target Tax Certificate (Section 7.2(h)).
EXHIBIT D: ATC Tax Certificate (Section 7.3(e)).
EXHIBIT E: ATC Voting Agreement (Section 7.3(f)).
Representation Letter to Target's Auditors (Section
EXHIBIT F: 6.10(e)).
EXHIBIT G: Target Officer's Certificate (Section 7.2(a)).
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of November 16, 1998, by and among
American Tower Corporation, a Delaware corporation ("ATC"), American Towers,
Inc. a Delaware corporation ("ATI"), and OmniAmerica, Inc., a Delaware
corporation ("Target").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of ATC, ATI and Target have determined that
the merger (the "Merger") of Target into ATI on the terms and conditions set
forth in this Agreement and Plan of Merger (this "Agreement") is consistent
with and in furtherance of the long-term business strategy of each, and is fair
to, and in the best interests of, ATI and Target and the stockholders of each;
and
WHEREAS, this Agreement provides that Target shall be merged with and into ATI,
and ATI shall be the surviving corporation; and
WHEREAS, the Boards of Directors of ATI and Target have approved and adopted
this Agreement and have directed that this Agreement be submitted to the
stockholders of ATI and Target, respectively, for their adoption and approval;
and
WHEREAS, the Board of Directors of ATC has approved and adopted this Agreement
and approved the Merger on behalf of ATI as the sole stockholder of ATI;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained and other valuable
consideration, the receipt and adequacy whereof are hereby acknowledged, the
parties hereto hereby, intending to be legally bound, represent, warrant,
covenant and agree as follows:
ARTICLE 1
Defined Terms; Target Disclosure Schedule
As used herein, unless the context otherwise requires, the terms defined in
Appendix A shall have the respective meanings set forth therein. References to
the term "Target" in such definitions shall include all of Target's
Subsidiaries, except as the context otherwise requires. Terms defined in the
singular shall have a comparable meaning when used in the plural, and vice
versa, and the reference to any gender shall be deemed to include all genders.
Unless otherwise defined or the context otherwise clearly requires, terms for
which meanings are provided in this Agreement shall have such meanings when
used in the Target Disclosure Schedule, and each Collateral Document executed
or required to be executed pursuant hereto or thereto or otherwise delivered,
from time to time, pursuant hereto or thereto. References to "hereof," "herein"
or similar terms are intended to refer to the Agreement as a whole and not a
particular section, and references to "this Section" or "this Article" are
intended to refer to the entire section or article and not a particular
subsection thereof. The term "either party" shall, unless the context otherwise
requires, refer to ATC and ATI, on the one hand, and Target, on the other hand.
All matters set forth in or otherwise disclosed in the Target SEC Documents are
hereby incorporated by reference into the Target Disclosure Schedule.
ARTICLE 2
The Merger
2.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DCL"), at the Effective Time, Target shall be merged with
<PAGE>
and into ATI. As a result of the Merger, the separate corporate existence of
Target shall cease and ATI shall continue as the surviving corporation in the
Merger (sometimes referred to, as such, as the "Surviving Corporation").
2.2 Closing. Unless this Agreement shall have been terminated pursuant to
Section 8.1 and subject to the satisfaction or, to the extent permitted by
Applicable Law, waiver of the conditions set forth in Article 7, the closing of
the Merger (the "Closing") will take place, at 10:00 a.m., on the Closing Date,
at the offices of Sullivan & Worcester LLP, One Post Office Square, Boston,
Massachusetts 02109, on the business date that is the fifth (5th) business day
after the date on which all of the conditions set forth in Article 7 (other
than those which require delivery of opinions or documents at the Closing)
shall have been satisfied or waived, unless another date, time or place is
agreed to in writing by the parties. The date on which the Closing occurs is
herein referred to as the "Closing Date."
2.3 Effective Time. Subject to the provisions of this Agreement, as promptly as
practicable after the Closing, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger and any related filings required
under the DCL with the Secretary of State of the State of Delaware. The Merger
shall become effective at such time as such documents are duly filed as
aforesaid, or at such later time as is specified in such documents (the
"Effective Time").
2.4 Effect of the Merger. The Merger shall have the effects provided for under
the DCL.
2.5 Certificate of Incorporation. The Certificate of Incorporation of ATI, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
therein and in accordance with Applicable Law.
2.6 Bylaws. The bylaws of ATI in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with Applicable
Law and the Organic Documents of ATI.
2.7 Directors and Officers. From and after the Effective Time, until their
successors are duly elected or appointed and qualified, or upon their earlier
resignation or removal, in accordance with Applicable Law and the Organic
Documents of ATI, (a) the directors of ATI at the Effective Time shall be the
directors of the Surviving Corporation, and (b) the officers of ATI at the
Effective Time shall be the officers of the Surviving Corporation.
ARTICLE 3
Conversion of Shares; Exchange of Certificates
3.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of ATC, ATI or Target or their respective
stockholders:
(a) Each share of Common Stock, par value $.01 per share, of ATI issued and
outstanding immediately prior to the Effective Time shall remain
outstanding;
(b) Each share of Common Stock, par value $.01 per share (collectively, the
"Target Common Stock") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive one and
one-tenth (1.1) shares (the "Exchange Ratio") of Class A Common Stock, par
value $.01 per share, of ATC (the "ATC Common Stock") (the "Merger
Consideration"); and
(c) Each share of Target Common Stock owned by Target immediately prior to
the Effective Time shall automatically be canceled and extinguished without
any conversion thereof and no payment shall be made with respect thereto.
I-2
<PAGE>
If, prior to Closing, ATC
(i) pays a dividend or makes a distribution on the ATC Common Stock in
shares of ATC Common Stock;
(ii) subdivides its outstanding shares of ATC Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of ATC Common Stock into a
smaller number of shares;
(iv) pays a dividend or makes a distribution on ATC Common Stock in
shares of its capital stock or other securities other than ATC Common
Stock; or
(v) issues by reclassification of ATC Common Stock any shares of its
capital stock or other securities;
then the Merger Consideration and the Exchange Ratio in effect immediately
prior to such action shall be proportionately adjusted so that each holder of
shares of Target Common Stock thereafter shall receive the aggregate number and
kind of shares of ATC capital stock or other securities that it would have
owned immediately following such action if such shares of Target Common Stock
had been converted to ATC Common Stock immediately prior to such action. The
adjustment provided for in this Section shall become effective immediately
after the record date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
At the Effective Time, all shares of Target Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and certificates previously evidencing any such shares of Target Common
Stock (each, a "Certificate") shall thereafter represent the right to receive,
upon the surrender of such Certificate in accordance with the provisions of
Section 3.2, the Merger Consideration multiplied by the number of shares of
Target Common Stock represented by such Certificate, and a holder of more than
one Certificate shall have the right to receive the Merger Consideration
multiplied by the number of shares of Target Common Stock represented by all
such Certificates. In lieu of issuing fractional shares, ATC shall convert the
holder's right to receive ATC Common Stock pursuant to the provisions of this
Section into a right to receive (i) the highest whole number of shares of ATC
Common Stock to which the holder is entitled plus (ii) cash equal to the
fraction of a share of ATC Common Stock to which the holder would otherwise be
entitled multiplied by the Fair Market Value of one share of ATC Common Stock
as of the Effective Time. The holders of such Certificates previously
evidencing shares of Target Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Target Common Stock, except as otherwise provided herein or by Applicable Law.
3.2 Exchange of Certificates.
(a) Pursuant to an agreement reasonably satisfactory to ATC and Target (the
"Exchange Agent Agreement") to be entered into at or prior to the Closing Date
between ATC and the transfer agent for the ATC Common Stock (the "Exchange
Agent"), at or from time to time following the Effective Time, ATC shall
deposit or cause to be deposited in trust for the benefit of the Target
stockholders an aggregate number of shares of ATC Common Stock representing the
aggregate Merger Consideration and an amount of cash necessary to cash out
fractional shares to which holders of Target Common Stock shall be entitled at
the Effective Time pursuant to the provisions of this Article. The Exchange
Agent shall invest any cash held by it in such manner as ATC directs. Any net
profit from, or interest or income produced by, such investments shall be
payable to ATC as and when requested by ATC. ATC shall be required to replace
any cash lost as a result of any investment.
(b) As soon as practicable, but within five (5) business days subsequent to the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon actual delivery of the Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for cash and certificates representing shares of ATC
Common Stock. Upon surrender of Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and
I-3
<PAGE>
such other documents as the Exchange Agent shall reasonably require, the holder
of such Certificates shall be entitled to receive in exchange therefor cash and
a certificate representing that number of whole shares of ATC Common Stock into
which the shares of Target Common Stock, theretofore represented by the
Certificates so surrendered, shall have been converted pursuant to the
provisions of Section 3.1, and the Certificates so surrendered shall be
canceled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Target Common Stock for
any shares of ATC Common Stock or dividends or distributions thereon delivered
to a public official pursuant to applicable abandoned property, escheat or
similar Laws. Certificates surrendered for exchange by any Person constituting
an "affiliate", as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act, of Target shall not be exchanged until ATC has
received a written agreement from such Person as provided in Section 7.2(g).
(c) Promptly following the date which is six (6) months after the Closing Date,
the Exchange Agent shall deliver to ATC all cash, certificates (including any
ATC Common Stock) and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to ATC and (subject to applicable abandoned property, escheat and
similar Laws) receive in exchange therefor the Merger Consideration to which
such holder is entitled, without any interest thereon. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Target Common Stock for any ATC Common Stock delivered to a public
official pursuant to applicable abandoned property, escheat or similar Laws.
(d) If the Merger Consideration (or any portion thereof) is to be paid to a
Person other than the Person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the payment of the
Merger Consideration that the Certificate so surrendered shall be properly
endorsed or accompanied by appropriate stock powers (with signatures guaranteed
in accordance with the transmittal form) and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the Person requesting
such transfer pay to the Exchange Agent any transfer or other Taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such Taxes have been paid or are not required to be paid.
(e) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and subject to such other
reasonable conditions as the Board of Directors of ATC may impose, ATC shall
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article. When authorizing such issue of the Merger Consideration in
exchange therefor, the Board of Directors of ATC may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to give ATC a bond or other surety in such sum
as it may reasonably direct as indemnity against any Claim that may be made
against ATC or the transfer agent for the ATC Common Stock with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(f) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on ATC Common Stock shall
be paid with respect to any whole shares of ATC Common Stock represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of Applicable Laws, following surrender of any
such Certificate, there shall be paid to the holder of the shares of ATC Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of ATC Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of ATC Common Stock, less
the amount of any withholding taxes which may be required thereon.
(g) ATC shall be entitled to, or shall be entitled to cause the Exchange Agent
to, deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Target Common Stock such amounts as
are required to be deducted and withheld with respect to the making of such
payment under
I-4
<PAGE>
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by ATC or the Exchange Agent, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Target Common Stock in respect
of which such deduction and withholding was made by ATC or the Exchange Agent.
ARTICLE 4
Representations and Warranties of Target
Target hereby represents and warrants to ATC and ATI as follows:
4.1 Organization and Business; Power and Authority; Effect of Transaction.
(a) Target is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has all requisite
power and authority (corporate and other) to own or hold under lease its
properties and to conduct its business as now conducted and is duly qualified
and in good standing as a foreign corporation in each other jurisdiction (as
shown on Section 4.1(a) of the Target Disclosure Schedule) in which the
character of the property owned or leased by it or the nature of its business
or operations requires such qualification, except for such qualifications the
failure of which to obtain, individually or in the aggregate, would not have a
Material Adverse Effect on Target.
(b) Target has all requisite power and authority (corporate and other)
necessary to enable it to execute and deliver, and to perform its obligations
under, this Agreement and each Collateral Document executed or required to be
executed by it pursuant hereto or thereto and to consummate the Transactions;
and the execution, delivery and performance by Target of this Agreement and
each Collateral Document executed or required to be executed by it pursuant
hereto or thereto have been duly authorized by all requisite corporate or other
action on the part of Target, subject to the requisite approval of the
stockholders of Target. The affirmative vote of the holders of shares of Target
Common Stock representing a majority of the outstanding voting power of Target
Common Stock is the only vote necessary to approve and adopt this Agreement and
the transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Target and constitutes, and each Collateral Document
executed or required to be executed by it pursuant hereto or thereto or to
consummate the Transactions when executed and delivered by Target will
constitute, legal, valid and binding obligations of Target, enforceable in
accordance with their respective terms, except as such enforceability may be
subject to bankruptcy, moratorium, insolvency, reorganization, arrangement,
voidable preference, fraudulent conveyance and other similar Laws relating to
or affecting the rights of creditors and except as the same may be subject to
the effect of general principles of equity. The provisions of Section 203 of
the DCL will not apply to ATC by reason of this Agreement or the Merger. The
Board of Directors of Target, at a meeting duly called and held at which a
quorum was present throughout, has approved the Merger and this Agreement, and
has recommended that the Target stockholders approve and adopt this Agreement
and the transactions contemplated hereby, including without limitation the
Merger and the acquisition by ATC of the "beneficial" ownership contemplated
thereby.
(c) Except to the extent necessary under the Target Credit Agreements or as set
forth in Section 4.1(c) of the Target Disclosure Schedule, neither the
execution and delivery by Target of this Agreement or any Collateral Document
executed or required to be executed by it pursuant hereto or thereto, nor the
consummation of the Transactions, nor compliance with the terms, conditions and
provisions hereof or thereof by Target:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Organic Document of Target or any material
Applicable Law, or will conflict with, or result in a breach or violation
of, or constitute a default under, or permit the acceleration of any
obligation or liability in, or but for any requirement of giving of notice
or passage of time or both would constitute such a conflict with, breach or
violation of, or default under, or permit any such acceleration in, any
Material Agreement of Target; or
I-5
<PAGE>
(ii) will require Target to make or obtain any Governmental Authorization,
Governmental Filing or Private Authorization, except (A) filings under the
Hart-Scott-Rodino Act, (B) for FCC approvals, (C) the filing with the SEC
of (I) the Target Proxy Statement and (II) such reports under Section 13(a)
or 15(d) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (D) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Target is
qualified to do business, and (E) such other Governmental Authorizations,
Governmental Filings and Private Authorizations the failure of which to be
made or obtained would not, individually or in the aggregate, have a
Material Adverse Effect on Target.
(d) Except as set forth in Section 4.1(d) of the Target Disclosure Schedule,
Target does not have any Subsidiaries, each of which, unless noted otherwise in
Section 4.1(d) of the Target Disclosure Schedule, is (i) wholly-owned, (ii) a
corporation duly organized, validly existing and in good standing under the
laws of the respective state of incorporation set forth opposite its name on
Section 4.1(d) of the Target Disclosure Schedule, and (iii) duly qualified and
in good standing as a foreign corporation in each other jurisdiction (as shown
on Section 4.1(d) of the Target Disclosure Schedule) in which the character of
the property owned or leased by it or the nature of its business or operations
requires such qualification, with full power and authority (corporate and
other) to carry on the business in which it is engaged, except for such
qualifications the failure of which to obtain, individually or in the
aggregate, would not have a Material Adverse Effect on Target. Target owns,
directly or indirectly, all of the outstanding capital stock and equity
interests (as shown in Section 4.1(d) of the Target Disclosure Schedule) of
each Subsidiary, free and clear of all Liens (except under the Target Credit
Agreements and as described in the notes to the Target Financial Statements),
and all such stock or other equity interests have been duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
Option Securities or Convertible Securities, or agreements or understandings of
any nature whatsoever, relating to the authorized and unissued or outstanding
capital stock or equity interests of any Subsidiary of Target. Except as the
context otherwise requires, the representations and warranties of Target set
forth in this Article shall apply to each of such Subsidiaries with the same
force and effect as though each of them were named in each Section of this
Article.
4.2 Financial and Other Information. Target has heretofore made available to
ATC its Annual Report on Form 10-KSB for its fiscal year ended June 30, 1998,
its Information Statement on Schedule 14C filed on August 24, 1998, its Proxy
Statement on Schedule 14A filed on November 9, 1998, and all Current Reports
filed on Form 8-K since May 1, 1998 (collectively, the "Target SEC Documents").
As of the respective dates thereof, the Target SEC Documents were prepared in
all material respects in accordance with the Exchange Act and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Target
has timely filed all forms, reports and documents with the SEC required to be
filed by it pursuant to the Securities Act and the Exchange Act which complied
as to form, at the time such form, document or report was filed, in all
material respects with the applicable requirements of the Securities Act and
the Exchange Act. The consolidated financial statements of Target included in
the Target SEC Documents (the "Target Financial Statements"), including in each
case the notes thereto, have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, except as otherwise
noted therein, are true, accurate and complete in all material respects, and
fairly present the consolidated financial condition and the consolidated
results of operations and cash flow of Target, on the bases therein stated, as
of the respective dates thereof, and for the respective periods covered thereby
subject, in the case of unaudited financial statements, to normal nonmaterial
year-end audit adjustments and accruals.
4.3 Material Statements and Omissions; Absence of Events.
(a) Neither any representation or warranty made by Target contained in this
Agreement or in the certificate to be delivered pursuant to Section 7.2 (a) nor
the Target Disclosure Schedule contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact required to
make any statement contained herein or therein, in light of the circumstances
under which they were made, not misleading. Without
I-6
<PAGE>
limiting the generality of the foregoing, (i) the Target Proxy Statement will
not, at the date it is first mailed to the holders of Target Common Stock and
at the time of the Target Stockholders Meeting, and (ii) the information with
respect to Target furnished to ATC for inclusion in the ATC Registration
Statement and the ATC Transaction Prospectus will not, at the time such
Registration Statement becomes effective under the Securities Act, and the ATC
Transaction Prospectus, at the date it is first mailed to the holders of Target
Common Stock and at the time of the Target Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. For
purposes of the foregoing, the truth of any information or the existence of any
omissions at the time of the Target Stockholders Meeting shall be determined
with reference to the Target Proxy Statement and the ATC Transaction
Prospectus, each as then amended or supplemented. The Target Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, no representation or warranty is made by Target with respect to
statements made or incorporated by reference therein based on information
specifically supplied by ATC for inclusion or incorporation by reference in the
Target Proxy Statement.
(b) Since the date of the most recent financial statements constituting a part
of the Target Financial Statements, except to the extent specifically described
in Section 4.3(b) of the Target Disclosure Schedule, there has been no material
adverse change in Target from that reflected in the most recent Target
Financial Statements. There is no Event known to Target which has had, or will
have, a Material Adverse Effect on Target, except to the extent specifically
described in Section 4.3(b) of the Target Disclosure Schedule and except for
matters affecting the tower rental, ownership and construction industry
generally, and except for any Event arising out of the execution or public
announcement of this Agreement. Target is not aware of any impending or
contemplated Event that would cause any of the representations and warranties
made by it in this Article not to be true, correct and complete on the date of
such Event as if made on that date.
4.4 Title to Properties; Leases.
(a) Section 4.4(a) of the Target Disclosure Schedule sets forth a list of all
Real Property owned by Target. Target has good indefeasible, marketable and
insurable title to all such real property (other than easement and leasehold
real property) and good indefeasible and marketable title to all of its other
owned property and assets, tangible and intangible (collectively, the "Target
Assets"); all of the Target Assets are so owned, in each case, free and clear
of all Liens, except (i) Permitted Liens, and (ii) Liens set forth on Section
4.4(a) of the Target Disclosure Schedule. Except as disclosed in Section 4.4(a)
of the Target Disclosure Schedule, all improvements on the real property owned
or leased by Target are in compliance with applicable zoning, wetlands and land
use laws, ordinances and regulations and applicable title covenants,
conditions, restrictions and reservations in all respects necessary to conduct
the Target Business as presently conducted or proposed to be conducted on or
prior to the Closing Date, except for any instances of non-compliance which,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect on Target. Except as disclosed in Section 4.4(a) of the Target
Disclosure Statement, all such improvements comply with all Applicable Laws,
Governmental Authorizations and Private Authorizations, except for any
instances of non-compliance which, individually or in the aggregate, have not
had and will not have a Material Adverse Effect on Target. Except as disclosed
in Section 4.4(a) of the Target Disclosure Statement, all of the transmitting
towers, ground radials, guy anchors, transmitting buildings and related
improvements, if any, located on the real property owned or leased by Target
are located entirely on such real property except for any instances of non-
compliance which, individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Target. Except as set forth in Section 4.4(a)
of the Target Disclosure Schedule, such transmitting towers, ground radials,
guy anchors, transmitting buildings and related improvements and other material
items of personal property, including equipment, are, in Target's reasonable
business judgment, in a state of good repair and maintenance and sound
operating condition, normal wear and tear excepted, have been maintained in a
manner consistent with generally accepted standards of sound engineering
practice, and currently permit the Target Business to be operated in accordance
with the terms and conditions of all Applicable Laws, Governmental
Authorizations and Private Authorizations, except where the failure to be in
such repair or condition or to be so usable,
I-7
<PAGE>
individually or in the aggregate, has not had and will not have a Material
Adverse Effect on Target. Except for such exceptions as would not, individually
or in the aggregate, have a Material Adverse Effect on Target, all inventory
reflected in the most recent balance sheet constituting a part of the Target
Financial Statements or manufactured, purchased or acquired since such time is
up to normal commercial standards and is saleable, in the case of finished
goods inventory in the ordinary course of business within a reasonable period
of time; no material amount of inventory so reflected is obsolete, and all
inventory so reflected or subsequently manufactured, purchased or acquired is
in amounts and categories substantially consistent with prior practice.
(b) Section 4.4(b) of the Target Disclosure Schedule contains a list of all
Leases under which any real property used in the business of Target (the
"Target Business") is leased to Target by any Person. Except as otherwise set
forth in Section 4.4(b) of the Target Disclosure Schedule, each Lease under
which Target holds real property constituting a part of the Target Assets is in
full force and effect, has been duly authorized, executed and delivered by
Target and, to its knowledge, each of the other parties thereto, and is a
legal, valid and binding obligation of Target, and, to its knowledge, each of
the other parties thereto, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, moratorium, insolvency and
similar Laws affecting the rights and remedies of creditors and obligations of
debtors generally and by general principles of equity except, in each case, for
such exceptions which individually or in the aggregate, have not had and will
not have a Material Adverse Effect on Target. Target has a valid leasehold
interest in and enjoys peaceful and undisturbed possession under all Leases
pursuant to which it holds any such real property, subject to the terms of each
Lease and Applicable Law and except for Permitted Liens and such other Liens
as, individually or in the aggregate, have not had and will not have a Material
Adverse Effect on Target. Neither Target nor, to Target's knowledge, any other
party thereto, has failed to duly comply with all of the material terms and
conditions of each such Lease or has done or performed, or failed to do or
perform (and no Claim is pending or, to the knowledge of Target, threatened to
the effect that Target has not so complied, done and performed or failed to do
and perform) any act which would invalidate or provide grounds for the other
party thereto to terminate (with or without notice, passage of time or both)
such Leases or impair the rights or benefits, or increase the costs, of Target
under any of such Leases in any material respect except, in each case, for such
exceptions which individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Target.
4.5 Compliance with Private Authorizations. Section 4.5 of the Target
Disclosure Schedule sets forth a true, accurate and complete list and
description of each Private Authorization which individually is material to
Target. Target has obtained all Private Authorizations that are necessary for
the ownership or operation of the Target Assets or the conduct of the Target
Business, as currently conducted or proposed to be conducted on or prior to the
Closing Date, which, if not obtained and maintained, individually or in the
aggregate, have not and will not have a Material Adverse Effect on Target. All
of such Private Authorizations are valid and in good standing and are in full
force and effect, except for such exceptions as, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on Target.
Target is not in breach or violation of, or in default in the performance,
observance or fulfillment of, any such Private Authorization, and, to Target's
knowledge, no Event exists or has occurred which constitutes, or but for any
requirement of giving of notice or passage of time or both would constitute,
such a breach, violation or default, under any such Private Authorization,
except for such breaches, violations or defaults as, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on Target.
4.6 Compliance with Governmental Authorizations and Applicable Law.
(a) Section 4.6(a) of the Target Disclosure Schedule contains a true, complete
and accurate description of each Governmental Authorization required under
Applicable Law (i) to own and operate the Target Assets and conduct the Target
Business, as currently conducted or proposed to be conducted on or prior to the
Closing Date, which, individually or in the aggregate, is material to Target.
Target has obtained all Governmental Authorizations that are necessary for the
ownership or operation of the Target Assets or the conduct of the Target
Business as now conducted and which, if not obtained and maintained, would,
individually or in the aggregate, have a Material Adverse Effect on Target, all
of which are valid and in good standing and in full
I-8
<PAGE>
force and effect, with such exceptions as, individually or in the aggregate,
have not had and will not have a Material Adverse Effect on Target. None of the
Governmental Authorizations listed in Section 4.6(a) of the Target Disclosure
Schedule is subject to any restriction or condition that would limit in any
material respect the ownership or operations of the Target Assets or the
conduct of the Target Business as currently conducted, except for restrictions
and conditions generally applicable to Governmental Authorizations of such type
and such exceptions as, individually or in the aggregate, have not had and will
not have a Material Adverse Effect on Target. The conduct of the Target
Business is in accordance with the Governmental Authorizations, except for such
noncompliances as, individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Target. No such Governmental Authorization is
the subject of any pending or, to Target's knowledge, threatened challenge or
proceeding to revoke or terminate any such Governmental Authorization.
(b) Except as otherwise specifically set forth in Section 4.6(b) of the Target
Disclosure Schedule, Target has conducted its business and owned and operated
its property and assets in accordance with all Applicable Laws and Governmental
Authorizations, except for such breaches, violations and defaults as,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect on Target. Except as otherwise specifically described in Section
4.6(b) of the Target Disclosure Schedule, Target is not in and is not charged
by any Authority with, and, to Target's knowledge, is not threatened or under
investigation by any Authority with respect to, any breach or violation of, or
default in the performance, observance or fulfillment of, any Applicable Law
relating to the ownership and operation of the Target Assets or the conduct of
the Target Business which, individually or in the aggregate, has had or will
have a Material Adverse Effect on Target. Except as otherwise specifically
described in Section 4.6(b) of the Target Disclosure Schedule, to Target's
knowledge, no Event exists or has occurred, as of the date of this Agreement,
which constitutes, or but for any requirement of giving of notice or passage of
time or both would constitute, such a breach, violation or default, under any
Governmental Authorization or any Applicable Law, except for such breaches,
violations or defaults as, individually or in the aggregate, have not had and
will not have a Material Adverse Effect on Target. With respect to matters, if
any, of a nature referred to in Section 4.6(b) of the Target Disclosure
Schedule, except as otherwise specifically described in Section 4.6(b) of the
Target Disclosure Schedule, all such information and matters set forth in the
Target Disclosure Schedule, if adversely determined against Target,
individually or in the aggregate, will not have a Material Adverse Effect on
Target.
(c) As of the date of this Agreement, there are no Legal Actions of any kind
pending or, to the knowledge of Target, threatened at law, in equity or before
any Authority against Target or any of its officers or directors relating to
the ownership or operation of the Target Assets or the conduct of the Target
Business, which if determined adversely to Target, individually or in the
aggregate, will have a Material Adverse Effect on Target.
4.7 Year 2000 Compliant. Target has reviewed the areas within its business and
operations which Target believes could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by Target may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999), and is
making related inquiry of material suppliers, vendors and customers. Based on
such reviews, Target believes that the "Year 2000 Problem" will not have a
Material Adverse Effect on Target. Except as set forth in Section 4.7 of the
Target Disclosure Schedule, to Target's knowledge, each hardware, software and
firmware product (collectively "Software") used by Target in its business is
Year 2000 compliant, except for such noncompliances that, individually or in
the aggregate, have not and will not have a Material Adverse Effect on Target.
The current status, projected cost and prognosis of any Year 2000 remedial
efforts with respect to non-compliant Software and with respect to any
identified Year 2000 issues with any material supplier, vendor or customer are
listed in Section 4.7 of the Target Disclosure Schedule.
4.8 Related Transactions. Target is not a party or subject to any Contractual
Obligation relating to the ownership or operation of the Target Assets or the
conduct of the Target Business between Target and any of its officers or
directors or, to the knowledge of Target, any member of the Immediate Family of
any thereof or any Affiliate of any of the foregoing, including without
limitation any Contractual Obligation providing for the furnishing of services
to or by, providing for rental of property, real, personal or mixed, to or
from, or
I-9
<PAGE>
providing for the lending or borrowing of money to or from or otherwise
requiring payments to or from, any such Person, other than (a) Employment
Arrangements listed or described in Section 4.14 of the Target Disclosure
Schedule or not required to be disclosed thereon because of the amount involved
in such Employment Arrangement, (b) Contractual Obligations between Target and
any of the foregoing, that will be terminated, at no cost or expense to Target,
prior to the Closing, or (c) as specifically set forth in Section 4.8 of the
Target Disclosure Schedule.
4.9 Insurance. Target maintains, with respect to the Target Assets and the
Target Business, policies of fire and extended coverage and casualty, liability
and other forms of insurance in such amounts and against such risks and losses
as are customary in Target's business.
4.10 Tax Matters. Except where all failures to do so will not in the aggregate
have a Material Adverse Effect on Target, Target has in accordance with all
Applicable Laws filed all Tax Returns which are required to be filed, and has
paid, or made adequate provision for the payment of, all Taxes which have or
may become due and payable pursuant to said Tax Returns and all other
governmental charges and assessments received to date other than those Taxes
being contested in good faith for which adequate provision has been made on the
most recent balance sheet forming part of the Target Financial Statements. The
Tax Returns of Target have been prepared in all material respects in accordance
with all Applicable Laws. Except where all failures to do so will not in the
aggregate have a Material Adverse Effect on Target, all Taxes which Target is
required by Law to withhold and collect have been duly withheld and collected,
and have been paid over, in a timely manner, to the proper Authorities to the
extent due and payable. Except as set forth in Section 4.10 of the Target
Disclosure Schedule, Target has not executed any waiver to extend, or otherwise
taken or failed to take any action that would have the effect of extending, the
applicable statute of limitations in respect of any Tax liabilities of Target
for the fiscal years prior to and including the most recent fiscal year.
Adequate provision has been made on the most recent balance sheet forming part
of Target Financial Statements for all Taxes accrued through the date of such
balance sheet of any kind, including interest and penalties in respect thereof,
whether disputed or not, and whether past, current or deferred, accrued or
unaccrued, fixed, contingent, absolute or other, and there are, to Target's
knowledge, no past transactions or matters which, individually or in the
aggregate, could result in additional Taxes which would, if imposed, have a
Material Adverse Effect on Target for which an adequate reserve has not been
provided on such balance sheet. Target is not a "consenting corporation" within
the meaning of Section 341(f) of the Code. Target has at all times been taxable
as a Subchapter C corporation under the Code, and has never been a member of
any consolidated group for Tax purposes, except as otherwise set forth in
Section 4.10 of the Target Disclosure Schedule. To the best of Target's
knowledge, Target does not have any material income or gain that has been and
continues to be deferred under Regulations Section 1.1502-13 or Regulations
Section 1.1502-13T (or under Regulations Sections 1.1502-13, 1.1502-13T,
1.1502-14, or 1.1502-14T, all as in effect prior to Treasury Decision 8597) and
Target does not have any material excess loss account in a Subsidiary under
Regulations Section 1.1502-19. Except as disclosed in Section 4.10 of the
Target Disclosure Schedule, Target is not a party to any tax sharing agreement
or arrangement.
Target is not currently, has not been within the past five years, and does not
anticipate becoming prior to the Effective Time, a "United States real property
holding corporation" within the meaning of Section 897(c) of the Code. To
Target's knowledge, no Person has beneficially owned more than five percent
(5%) of the then outstanding Target Common Stock at any time during the part
five (5) years, other than Persons who are "United States persons" within the
meaning of Section 7701(a)(30) of the Code and other than Persons who have
individually or as part of a group filed a Schedule 13D or a Schedule 13G
relating to such holdings under the Exchange Act.
4.11 ERISA Matters
(a) Target (which for purposes of this Section shall include any ERISA
Affiliate of Target) currently sponsors, maintains and contributes only to the
Plans and Employment Arrangements set forth in Section 4.11(a) and Section
4.14, respectively, of the Target Disclosure Schedule. Target does not
contribute to or have an
I-10
<PAGE>
obligation to contribute to, and has not at any time contributed to or had an
obligation to contribute to, and no Plan listed in Section 4.11(a) of the
Target Disclosure Schedule is, (i) an employee pension benefit plan within the
meaning of Section 3(2) of ERISA, (ii) a Multiemployer Plan, or (iii) a Plan
subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
Target has no actual or potential liability under Title IV of ERISA. Target
does not maintain any Plan that provides for post-retirement medical or life
insurance benefits, and Target does not have any obligation or liability with
respect to any such Plan previously maintained by Target, except as the
provisions of COBRA may apply to any former employees of Target. Except as set
forth in Section 4.11(a) of the Target Disclosure Schedule, as to all Plans and
Employment Arrangements listed in Section 4.11(a) or Section 4.14 of the Target
Disclosure Schedule:
(i) all such Plans and Employment Arrangements comply and have been
administered in form and in operation, in all material respects, in
accordance with their respective terms and with all Applicable Laws except
for such noncompliance that will not, individually or in the aggregate,
have a Material Adverse Effect on Target and Target has not received any
notice from any Authority disputing or investigating such compliance;
(ii) none of the assets of any such Plan are invested in employer
securities or employer real property;
(iii) there are no Claims (other than routine Claims for benefits or
actions seeking qualified domestic relations orders) pending or, to
Target's knowledge, threatened involving such Plans or the assets of such
Plans, and, to Target's knowledge, no facts exist which are reasonably
likely to give rise to any such Claims (other than routine Claims for
benefits or actions seeking qualified domestic relations orders) except, in
each case, as will not, individually or in the aggregate, have a Material
Adverse Effect on Target;
(iv) all material contributions to, and material payments from, the Plans
and Employment Arrangements that may have been required to be made in
accordance with the terms of the Plans and Employment Arrangements, and any
applicable collective bargaining agreement, have been made other than
contributions and payments which will not, individually or in the
aggregate, have a Material Adverse Effect on Target. All such contributions
to, and payments from, the Plans and Employment Arrangements, except those
payments to be made from a trust qualified under Section 401(a) of the
Code, for any period ending before the Closing Date that are not yet, but
will be, required to be made, will be properly accrued and reflected on the
financial books and records of Target;
(v) to Target's knowledge, no Event has occurred which would result in
imposition on Target of (A) any breach of fiduciary duty liability damages
under Section 409 of ERISA, (B) a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(vi) Target has not incurred any material liability to a Plan (other than
for contributions not yet due) which liability has not been fully paid or
accrued for payment as of the date hereof;
(vii) except as otherwise set forth in Section 4.11(a) of the Target
Disclosure Schedule, no current or former employee of Target will be
entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any Plan or Employment Arrangement
as a result of the transactions contemplated by this Agreement;
(viii) no compensation payable by Target to any of its employees under any
existing Plan or Employment Arrangement (including by reason of the
transactions contemplated hereby) will be subject to disallowance under
Section 162(m) of the Code; and
(ix) any amount that could be received (whether in cash or property or by
virtue of the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer, director or
independent contractor of Target who is a "disqualified individual" (as
such term is defined in proposed Regulation Section 1.280G-1) under any
employment arrangement would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code),
except for any amount that is approved by the stockholders of Target on or
before the Closing Date in the manner provided in Section 280G(b)(5) of the
Code.
I-11
<PAGE>
(b) The execution, delivery and performance by Target of this Agreement and the
Collateral Documents executed or required to be executed by Target pursuant
hereto and thereto will not involve any prohibited transaction within the
meaning of ERISA or Section 4975 of the Code with respect to any Plan listed in
Section 4.11(a) of the Target Disclosure Schedule.
4.12 Product Liability. Except as expressly set forth in Section 4.12 of the
Target Disclosure Schedule, there is not now pending or, to the knowledge of
Target, threatened any Claim (or any basis for any such Claim) relating to, any
damages to or losses of any third party for injuries to Persons or damage to
property, or for breach of warranty, arising out of any alleged defect in the
quality or condition of any of Target's products or services or property or
assets, which, in the case of pending or threatened Claims, if determined
adversely to Target, individually or in the aggregate (taking into account
unasserted Claims of a similar nature), will have a Material Adverse Effect on
Target.
4.13 Bank Accounts, Etc. Section 4.13 of the Target Disclosure Schedule
contains a true, accurate and complete list as of the date hereof of all banks,
trust companies, savings and loan associations and brokerage firms in which
Target has an account or a safe deposit box and the names of all Persons
authorized to draw thereon, to have access thereto, or to authorize
transactions therein, the names of all Persons, if any, holding valid and
subsisting powers of attorney from Target and a summary statement as to the
terms thereof. Target will not make or permit to be made any change affecting
its account or safe deposit box with any bank, trust company, savings and loan
association or brokerage firm, in the names of the Persons authorized to draw
thereon, to have access thereto or to authorize transactions therein or in such
powers of attorney, or open any additional accounts or boxes or grant any
additional powers of attorney, without in each case first notifying ATC in
writing.
4.14 Employment and Consulting Arrangements. Section 4.14 of the Target
Disclosure Schedule contains a true, accurate and complete list of all Target
employees and consultants whose annual compensation is in excess of $100,000
(the "Target Employees"), together with each such Person's title or the
capacity in which he or she is employed or retained and each such Person's
annual compensation. Target has no obligation or liability, contingent or
other, under any Employment Arrangement with any Target Employee, other than
(i) those listed or described in Section 4.14 of the Target Disclosure
Schedule, (ii) those incurred in the ordinary and usual course of business, or
(iii) such obligations or liabilities as do not and will not have, in the
aggregate, any Material Adverse Effect on Target. Except as described in
Section 4.14 of the Target Disclosure Schedule, (a) none of the employees of
Target is now represented by any labor union or other employee collective
bargaining organization, and Target is not a party to any labor or other
collective bargaining agreement with respect to any of employees of Target, (b)
there are no pending grievances, disputes or controversies with any union or
any other employee or collective bargaining organization of such employees, or
threats of strikes, work stoppages or slowdowns or any pending demands for
collective bargaining by any such union or other organization, (c) neither
Target nor any of such employees is now subject to or involved in or, to
Target's knowledge, threatened with, any union elections, petitions therefor or
other organizational or recruiting activities, in each case with respect to the
employees of Target, and (d) as of the date hereof, none of the Target
Employees has notified Target that he or she does not intend to continue
employment with Target until the Closing or with ATC following the Closing.
Target has performed in all material respects all obligations required to be
performed under all Employment Arrangements with Target Employees and is not in
material breach or violation of or in material default or arrears under any of
the terms, provisions or conditions thereof.
4.15 Material Agreements. Listed on Section 4.15 of the Target Disclosure
Schedule are all Material Agreements (other than Leases of Real Property to
Target) relating to the ownership or operation of the Target Assets or the
conduct of the Target Business or to which Target is a party or to which it is
bound or which any of the Target Assets is subject. True, accurate and complete
copies of each of such Material Agreements have been made available by Target
to ATC. All of such Material Agreements are valid, binding and legally
enforceable obligations of Target and, to its knowledge, all other parties
thereto, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency and similar Laws affecting the rights and remedies of
creditors and obligations of debtors generally and by general principles of
equity except in each case, for such
I-12
<PAGE>
exceptions which individually or in the aggregate, have not had and will not
have a Material Adverse Effect on Target. Neither Target nor, to its knowledge,
any other party thereto, has failed to duly comply with all of the material
terms and conditions of each such Material Agreement or has done or performed,
or failed to do or perform (and no Claim is pending or, to the knowledge of
Target, threatened in writing to the effect that Target has not so complied,
done and performed or failed to do and perform) any act which would invalidate
or provide grounds for the other party thereto to terminate (with or without
notice, passage of time or both) such Material Agreement or impair the rights
or benefits, or increase the costs, of Target under any such Material Agreement
except, in each case, for such exceptions which individually or in the
aggregate, have not had and will not have a Material Adverse Effect on Target.
All Contracts for the construction by Target of towers for other Persons can be
performed, in the aggregate for all such Contracts, without any loss to Target.
4.16 Ordinary Course of Business. Target, from the date of the most recent
Target Financial Statements to the date hereof, except (i) as may be described
on Section 4.16 of the Target Disclosure Schedule, (ii) as may be required or
expressly contemplated by the terms of this Agreement, or (iii) as may be
described in the Target Financial Statements, including the notes thereto:
(a) has operated its business in all material respects in the normal, usual
and customary manner in the ordinary and regular course of business,
consistent with prior practice;
(b) except in each case in the ordinary course of business, consistent with
prior practice:
(i) has not incurred any obligation or liability (fixed, contingent or
other) individually having a value in excess of $100,000;
(ii) has not sold or otherwise disposed of or contracted to sell or
otherwise dispose of any of its properties or assets having a value in
excess of $100,000;
(iii) has not entered into any individual commitment having a value in
excess of $100,000; and
(iv) has not canceled any debts or claims having a value in excess of
$100,000;
(c) has not created or permitted to be created any Lien on any of the
Target Assets, except for Permitted Liens;
(d) has not made or committed to make any additions to its property or any
purchases of equipment in excess of $100,000, except in the ordinary course
of business consistent with past practice or for normal maintenance and
replacements;
(e) has not increased the compensation payable or to become payable to any
of the Target Employees other than nonmaterial increases in the ordinary
course of business, or otherwise materially altered, modified or changed
the terms of their employment;
(f) has not suffered any material damage, destruction or loss (whether or
not covered by insurance) or any acquisition or taking of property by any
Authority;
(g) has not waived any rights of material value without fair and adequate
consideration;
(h) has not experienced any work stoppage;
(i) except in the ordinary course of business, has not entered into,
amended or terminated any Lease, Governmental Authorization, Private
Authorization, Material Agreement or Employment Arrangement, or any
transaction, agreement or arrangement with any Affiliate of Target;
(j) has not made, paid or declared any Distribution; and
(k) has not entered into any transactions or series of related transactions
which individually or in the aggregate is material to the Target Assets or
the Target Business and which is not otherwise disclosed in the Target
Disclosure Schedule.
4.17 Broker or Finder. No Person assisted in or brought about the negotiation
of this Agreement or the Merger in the capacity of broker, agent or finder or
in any similar capacity on behalf of Target, other than BT Wolfensohn whose
fees and expenses will be paid by Target.
I-13
<PAGE>
4.18 Environmental Matters. Except as set forth in Section 4.18 of the Target
Disclosure Schedule, and except for exceptions that, individually or in the
aggregate, have not had and would not have a Material Adverse Effect on Target,
Target:
(a) has not been notified in writing that it is potentially liable under,
has not received any written request for information or other
correspondence concerning its potential liability with respect to any site
or facility under, and, to Target's knowledge, is not a "potentially
responsible party" under, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource
Conservation Recovery Act, as amended, or any similar state Law;
(b) is not a party to any outstanding consent decree, compliance order or
administrative order or other judgment, order, writ, injunction or decree
creating on-going obligations issued pursuant to any Environmental Law;
(c) has, to its knowledge, obtained all material Environmental Permits
required under Environmental Laws, and, to its knowledge, has filed all
applications, notices and other material documents required to be filed
prior to the date of this Agreement to effect the timely renewal or
issuance of all Environmental Permits necessary for the continued ownership
or operation of the Target Assets or conduct of the Target Business in the
manner currently owned, operated and conducted and proposed to be owned,
operated and conducted on or prior to the Closing Date;
(d) is in compliance with all Environmental Laws, and is not the subject of
or, to Target's knowledge, threatened with any Legal Action involving a
demand for damages or other potential liability, including any Lien, with
respect to violations or breaches of any Environmental Law;
(e) has not knowingly installed or used any above ground or underground
storage tanks, friable asbestos, polychlorinated biphenyls or urea
formaldehyde foam insulation on any property currently owned, leased or
operated by Target and, to its knowledge, there are no above ground or
underground storage tanks containing Hazardous Materials, friable asbestos,
polychlorinated biphenyls or urea formaldehyde foam insulation on any
property currently owned, leased or operated by Target, the installation,
use or presence of which is not in compliance with Environmental Laws; and
(f) has no knowledge of any past or present Event related to Target's
properties, operations or business, which Event, individually or in the
aggregate, could reasonably be expected to interfere with or prevent
continued compliance in all material respects with all Environmental Laws
applicable to the ownership or operation of the Target Assets or the
conduct of the Target Business substantially in the manner now conducted or
proposed to be conducted on or prior to the Closing Date, or which,
individually or in the aggregate, may form the basis of any material Claim
for or arising out of the release or threatened release into the
environment of any Hazardous Material.
Section 4.18 of the Target Disclosure Schedule sets forth a true, correct and
complete list of all existing Phase I environmental site assessment reports (an
"Environmental Report") on each parcel of Real Property owned or leased by
Target for which an Environmental Report has previously been prepared for
Target (true, correct and complete copies of which, in each case, have
heretofore been delivered by Target to ATC).
4.19 Capital Stock. The authorized and outstanding capital stock of Target, on
a fully-diluted basis, is as set forth in Section 4.19 of the Target Disclosure
Schedule. All of such outstanding capital stock has been duly authorized and
validly issued, is fully paid and nonassessable and is not subject to any
statutory preemptive or similar rights. As of the date hereof, there is no
owner of record or, to Target's knowledge, beneficially of more than five
percent (5%) of the Target Common Stock, except as shown in Section 4.19 of the
Target Disclosure Schedule. Target has not granted or issued, nor has Target
agreed to grant or issue, any shares of its capital stock or any Option
Security or Convertible Security, and Target is not a party to or bound by any
agreement, put or commitment pursuant to which it is obligated to purchase,
redeem or otherwise acquire any shares of capital stock or any Option Security
or Convertible Security, except in each case as set forth in the most recent
Target Financial Statements or Section 4.19 of the Target Disclosure Schedule.
I-14
<PAGE>
4.20 Materiality. The representations and warranties set forth in this Article
are true and correct as of the date hereof without the materiality exceptions
or qualifications contained therein, except to the extent that the failure of
such representations and warranties to be so true and correct, individually or
in the aggregate, will not have a Material Adverse Effect on Target.
ARTICLE 5
Representations and Warranties of ATC and ATI
Each of ATC and ATI, jointly and severally, hereby represents and warrants to
Target as follows:
5.1 Organization and Business; Power and Authority; Effect of Transaction.
(a) Each of ATC and ATI is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
requisite power and authority (corporate and other) to own or hold under lease
its properties and to conduct its business as now conducted and is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which the character of the property owned or leased by it or
the nature of its business or operations requires such qualification, except
for such qualifications the failure of which to obtain, individually or in the
aggregate, would not have a Material Adverse Effect on ATC.
(b) Each of ATC and ATI has all requisite power and authority (corporate and
other) necessary to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each Collateral Document executed or
required to be executed by it pursuant hereto or thereto and to consummate the
Transactions; and the execution, delivery and performance by ATC and ATI of
this Agreement and each Collateral Document executed or required to be executed
by it pursuant hereto or thereto have been duly authorized by all requisite
corporate or other action on the part of ATC and ATI. This Agreement has been
duly executed and delivered by ATC and ATI and constitutes, and each Collateral
Document executed or required to be executed by each of them pursuant hereto or
thereto or to consummate the Transactions when executed and delivered by ATC
and ATI will constitute, legal, valid and binding obligations of each of ATC
and ATI, enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency and similar
Laws affecting the rights and remedies of creditors and obligations of debtors
generally and by general principles of equity.
(c) Except to the extent necessary under their credit facilities, neither the
execution and delivery by ATC and ATI of this Agreement or any Collateral
Document executed or required to be executed by each of them pursuant hereto or
thereto, nor the consummation of the Transactions, nor compliance with the
terms, conditions and provisions hereof or thereof by ATC and ATI:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Organic Document of ATC or ATI or any
material Applicable Law, or will conflict with, or result in a breach or
violation of, or constitute a default under, or permit the acceleration of
any obligation or liability in, or but for any requirement of giving of
notice or passage of time or both would constitute such a conflict with,
breach or violation of, or default under, or permit any such acceleration
in, any material agreement of ATC or ATI; or
(ii) will require ATC or ATI to make or obtain any Governmental
Authorization, Governmental Filing or Private Authorization, except (A)
filings contemplated by the Registration Rights Agreement, (B) filings
under the Hart-Scott-Rodino Act, (C) for FCC approvals, (D) the filing with
the SEC of (I) the ATC Registration Statement and (II) such reports under
Section 13(a) or 15(d) of the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated by this Agreement,
(E) the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant authorities of other
states in which ATI is qualified to do business, (F) the filing of a
Supplemental Listing Application with the New York Stock Exchange, and (G)
such other Governmental
I-15
<PAGE>
Authorizations, Governmental Filings and Private Authorizations the failure
of which to be made or obtained would not, individually or in the
aggregate, have a Material Adverse Effect on ATC.
5.2 Financial and Other Information. ATC has heretofore made available to
Target its Annual Report on Form 10-K for its fiscal year ended December 31,
1997, its Prospectus, dated July 1, 1998, and all Current Reports filed on Form
8-K since July 1, 1998 (collectively, the "ATC SEC Documents"). As of the
respective dates thereof, the ATC SEC Documents were prepared in all material
respects in accordance with the Securities Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. ATC
has timely filed all forms, reports and documents with the SEC required to be
filed by it pursuant to the Securities Act and the Exchange Act which complied
as to form, at the time such form, document or report was filed, in all
material respects with the applicable requirements of the Securities Act and
the Exchange Act. The consolidated financial statements of ATC included in the
ATC SEC Documents (the "ATC Financial Statements"), including in each case the
notes thereto, have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, except as otherwise
noted therein, are true, accurate and complete in all material respects, and
fairly present the consolidated financial condition and the consolidated
results of operations and cash flow of ATC, on the bases therein stated, as of
the respective dates thereof, and for the respective periods covered thereby
subject, in the case of unaudited financial statements, to normal nonmaterial
year-end audit adjustments and accruals.
5.3 Material Statements and Omissions; Absence of Events.
(a) Neither any representation or warranty made by ATC or ATI contained in this
Agreement or in the certificate to be delivered pursuant to Section 7.3(a) nor
the ATC SEC Documents contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to make
any statement contained herein or therein, in light of the circumstances under
which they were made, not misleading. Without limiting the generality of the
foregoing, (i) the ATC Registration Statement will not, at the time such
Registration Statement becomes effective under the Securities Act, and the ATC
Transaction Prospectus, at the date it is first mailed to the holders of Target
Common Stock and at the time of the Target Stockholders Meeting, and (ii) the
information with respect to ATC furnished to Target for inclusion in the Target
Proxy Statement will not, at the date it is first mailed to the holders of
Target Common Stock and at the time of the Target Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. For purposes of the foregoing, the truth of any information or the
existence of any omissions at the time of the Target Stockholders Meeting shall
be determined with reference to the ATC Transaction Prospectus and the Target
Proxy Statement, each as then amended or supplemented. The ATC Registration
Statement and the ATC Transaction Prospectus will comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations thereunder. Notwithstanding the foregoing, no representation or
warranty is made by ATC with respect to statements made or incorporated by
reference therein based on information specifically supplied by Target for
inclusion or incorporation by reference in the ATC Registration Statement or
the ATC Transaction Prospectus.
(b) Since the date of the most recent financial statements constituting a part
of the ATC Financial Statements, except to the extent specifically described in
the ATC SEC Documents, there has been no material adverse change in ATC or any
of its Subsidiaries from that reflected in the most recent ATC Financial
Statements. There is no Event known to ATC which has had a Material Adverse
Effect on ATC, except to the extent specifically described in the ATC SEC
Documents and except for matters affecting the tower rental, ownership and
construction industry generally, and except for any Event arising out of the
execution or public announcement of this Agreement. ATC is not aware of any
impending or contemplated Event that would cause any of the representations and
warranties made by it in this Article not to be true, correct and complete on
the date of such Event as if made on that date.
I-16
<PAGE>
5.4 Broker or Finder. No Person assisted in or brought about the negotiation of
this Agreement or the Transactions in the capacity of broker, agent or finder
or in any similar capacity on behalf of ATC or ATI, other than Credit Suisse
First Boston Corporation whose fees and expenses will be paid by ATC.
5.5 Capital Stock. The authorized and outstanding capital stock of ATC, as of
September 30, 1998, is as set forth in the most recent ATC SEC Documents.
Between September 30, 1998 and the date of this Agreement, ATC has not issued
or agreed to issue any shares of ATC Common Stock, other capital stock,
Convertible Securities or Option Securities, other than pursuant to (a) the
exercise of Option Securities theretofore granted pursuant to the 1997 Stock
Option Plan, as amended and restated, of ATC (the "ATC Option Plan"), (b)
acquisitions or mergers referred to in the ATC SEC Documents, (c) conversions
of Class B Common Stock, par value $.01 per share, of ATC into ATC Common
Stock, (d) the ATC Option Plan and (e) the issuance of 1,430,879 shares of ATC
Common Stock in a recently consummated acquisition. All of such outstanding
capital stock has been, and, when issued in accordance with the terms of this
Agreement, the ATC Common Stock to be issued upon consummation of the Merger
will be, duly authorized and validly issued, fully paid and nonassessable and
not subject to any statutory preemptive or similar rights.
5.6 Tax Matters. Except where all failures to do so will not in the aggregate
have a Material Adverse Effect on ATC, ATC and each of its Subsidiaries has (a)
in accordance with all Applicable Laws filed all Tax Returns which are required
to be filed, and (b) paid, or made adequate provision for the payment of, all
Taxes which have or may become due and payable pursuant to said Tax Returns and
all other governmental charges and assessments received to date other than
those Taxes being contested in good faith for which adequate provision has been
made on the most recent balance sheet forming part of the ATC Financial
Statements. The Tax Returns of ATC and each of its Subsidiaries have been
prepared in all material respects in accordance with all Applicable Laws.
Except where all failures to do so will not in the aggregate have a Material
Adverse Effect on ATC, all Taxes which ATC and each of its Subsidiaries is
required by Law to withhold and collect have been duly withheld and collected,
and have been paid over, in a timely manner, to the proper Authorities to the
extent due and payable. Adequate provision has been made on the most recent
balance sheet forming part of the ATC Financial Statements for all Taxes
accrued through the date of such balance sheet of any kind, including interest
and penalties in respect thereof, whether disputed or not, and whether past,
current or deferred, accrued or unaccrued, fixed, contingent, absolute or
other, and there are, to ATC's knowledge, no past transactions or matters
which, individually or in the aggregate, could result in additional Taxes which
would, if imposed, have a Material Adverse Effect on ATC for which an adequate
reserve has not been provided on such balance sheet. Neither ATC nor any of its
Subsidiaries is a "consenting corporation" within the meaning of Section 341(f)
of the Code. ATC, and each of its corporate Subsidiaries at all times since
owned directly or indirectly by ATC, has been taxable as a Subchapter C
corporation under the Code, and has never been a member of any consolidated
group for Tax purposes, except (i) during the period it was included in the tax
reports of American Radio Systems Corporation, as described in the ATC SEC
Documents, and (ii) any consolidated group with one or more of ATC and its
Subsidiaries. Neither ATC nor any of its Subsidiaries is a party to any tax
sharing agreement or arrangement, except (i) the ARS-ATS Separation Agreement,
as described in the ATC SEC Documents, and (ii) any agreement among one or more
of ATC and ATC's Subsidiaries.
5.7 Compliance with Governmental Authorizations and Applicable Law.
(a) ATC and its Subsidiaries have conducted their respective businesses and
owned and operated their respective property and assets in accordance with all
Applicable Laws and Governmental Authorizations, except for such breaches,
violations and defaults as, individually or in the aggregate, have not had and
will not have a Material Adverse Effect on ATC. Neither ATC nor any of its
Subsidiaries is in, or is charged by any Authority with, or, to ATC's
knowledge, is threatened or under investigation by any Authority with respect
to, any breach or violation of, or default in the performance, observance or
fulfillment of, any Applicable Law relating to the ownership and operation of
their respective assets or the conduct of their respective businesses which,
individually or in the aggregate, has had or will have a Material Adverse
Effect on ATC. No Event exists or has occurred which constitutes, or but for
any requirement of giving of notice or passage of time or
I-17
<PAGE>
both would constitute, such a breach, violation or default, under any
Governmental Authorization or any Applicable Law, except for such breaches,
violations or defaults as, individually or in the aggregate, have not had and
will not have a Material Adverse Effect on ATC.
(b) ATC or one of its Subsidiaries has obtained all Governmental Authorizations
that are necessary for the ownership or operation of the assets of ATC and its
Subsidiaries or the conduct of the business of ATC and its Subsidiaries as now
conducted and which, if not obtained and maintained, would, individually or in
the aggregate, have a Material Adverse Effect on ATC, all of which are valid
and in good standing and in full force and effect, with such exceptions as,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect on ATC. None of such Governmental Authorizations is subject to
any restriction or condition that would limit in any material respect the
ownership or operations of the assets of ATC and its Subsidiaries or the
conduct of the business of ATC and its Subsidiaries as currently conducted,
except for restrictions and conditions generally applicable to Governmental
Authorizations of such type and such exceptions as, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on ATC. The
conduct of the business of ATC and its Subsidiaries is in accordance with the
Governmental Authorizations, except for such noncompliances as, individually or
in the aggregate, have not had and will not have a Material Adverse Effect on
ATC. No such Governmental Authorization is the subject of any pending or, to
ATC's knowledge, threatened challenge or proceeding to revoke or terminate any
such Governmental Authorization.
(c) There are no Legal Actions of any kind pending or, to the knowledge of ATC,
threatened at law, in equity or before any Authority against ATC or any of its
Subsidiaries or the officers or directors of any thereof relating to the
ownership or operation of their respective assets or the conduct of their
respective businesses which, if determined adversely to ATC or its
Subsidiaries, individually or in the aggregate, will have a Material Adverse
Effect on ATC.
5.8 Year 2000 Compliant. ATC has reviewed the areas within its and its
Subsidiaries' businesses and operations which ATC believes could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by ATC may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date on or after
December 31, 1999), and is making related inquiry of material suppliers,
vendors and customers. Based on such reviews, ATC believes that the "Year 2000
Problem" will not have a Material Adverse Effect on ATC. To ATC's knowledge,
each hardware, software and firmware product (collectively "Software") used by
ATC in its business is Year 2000 compliant, except for such noncompliances
that, individually or in the aggregate, have not had and will not have a
Material Adverse Effect on ATC.
5.9 Compliance with Private Authorizations. ATC and its Subsidiaries have
obtained all Private Authorizations that are necessary for the ownership or
operation by ATC and its Subsidiaries of their respective assets or the conduct
of their respective businesses, as currently conducted or proposed to be
conducted on or prior to the Closing Date, which, if not obtained and
maintained, individually or in the aggregate, have not had and will not have a
Material Adverse Effect on ATC and its Subsidiaries taken as a whole. All of
such Private Authorizations are valid and in good standing and are in full
force and effect, except for such exceptions as, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on ATC and
its Subsidiaries taken as a whole. Neither ATC nor any of its Subsidiaries is
in breach or violation of, or in default in the performance, observance or
fulfillment of, any such Private Authorization, and no Event exists or has
occurred which constitutes, or but for any requirement of giving of notice or
passage of time or both would constitute, such a breach, violation or default,
under any such Private Authorization, except for such breaches, violations or
defaults as, individually or in the aggregate, have not had and will not have a
Material Adverse Effect on ATC and its Subsidiaries taken as a whole.
5.10 Title to Properties; Leases.
(a) Each of ATC and its Subsidiaries has good indefeasible, marketable and
insurable title to all of its real property (other than easement and leasehold
real property) and good indefeasible and marketable title to all of
I-18
<PAGE>
its other owned property and assets, tangible and intangible; all of such
property and assets are so owned, in each case, free and clear of all Liens,
except (i) Permitted Liens, and (ii) Liens set forth in the ATC Financial
Statements. All improvements on the real property owned or leased by ATC or any
of its Subsidiaries are in compliance with applicable zoning, wetlands and land
use laws, ordinances and regulations and applicable title covenants,
conditions, restrictions and reservations in all respects necessary to conduct
the business as presently conducted or proposed to be conducted on or prior to
the Closing Date by ATC and its Subsidiaries, except for any instances of non-
compliance which, individually or in the aggregate, have not had and will not
have a Material Adverse Effect on ATC. All such improvements comply with all
Applicable Laws, Governmental Authorizations and Private Authorizations, except
for any instances of non-compliance which, individually or in the aggregate,
have not had and will not have a Material Adverse Effect on ATC. All of the
transmitting towers, ground radials, guy anchors, transmitting buildings and
related improvements, if any, located on the real property owned or leased by
ATC or any of its Subsidiaries are located entirely on such real property
except for any instances of non-compliance, individually or in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on ATC. Such transmitting towers, ground radials, guy anchors,
transmitting buildings and related improvements and other material items of
personal property, including equipment, are, in ATC's reasonable business
judgment, in a state of good repair and maintenance and sound operating
condition, normal wear and tear excepted, have been maintained in a manner
consistent with generally accepted standards of sound engineering practice, and
currently permit the business of ATC and its Subsidiaries to be operated in
accordance with the terms and conditions of all Applicable Laws, Governmental
Authorizations and Private Authorizations, except where the failure to be in
such repair or condition or to be so usable, individually or in the aggregate,
has not had and will not have a Material Adverse Effect on ATC.
(b) Each Lease under which ATC or any of its Subsidiaries holds real property
is in full force and effect, has been duly authorized, executed and delivered
by ATC and, to its knowledge, each of the other parties thereto, and is a
legal, valid and binding obligation of ATC or one of its Subsidiaries, and, to
its knowledge, each of the other parties thereto, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency and similar Laws affecting the rights and remedies of
creditors and obligations of debtors generally and by general principles of
equity except, in each case, for exceptions which individually or in the
aggregate, have not had and will not have a Material Adverse Effect on ATC. ATC
or one of its Subsidiaries has a valid leasehold interest in and enjoys
peaceful and undisturbed possession under all Leases pursuant to which it holds
any such real property, subject to the terms of each Lease and Applicable Law
and except for Permitted Liens and such other Liens as, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on ATC.
Neither ATC nor any of its Subsidiaries nor, to ATC's knowledge, any other
party thereto, has failed to duly comply with all of the material terms and
conditions of each Lease or has done or performed, or failed to do or perform
(and no Claim is pending or, to the knowledge of ATC, threatened to the effect
that ATC has not so complied, done and performed or failed to do and perform)
any act which would invalidate or provide grounds for the other party thereto
to terminate (with or without notice, passage of time or both) such Leases or
impair the rights or benefits, or increase the costs, of ATC under any Lease in
any material respect except, in each case, for exceptions which individually or
in the aggregate, have not had and will not have a Material Adverse Effect on
ATC.
5.11 Related Transactions. Neither ATC nor any of its Subsidiaries is a party
or subject to any Contractual Obligation relating to the ownership or operation
of the assets of ATC and its Subsidiaries or the conduct of its or any of their
businesses between ATC or any of its Subsidiaries, on the one hand, and any of
its officers or directors, on the other hand, or, to the knowledge of ATC, any
member of the Immediate Family of any thereof or any Affiliate of any of the
foregoing, including without limitation any Contractual Obligation providing
for the furnishing of services to or by, providing for rental of property,
real, personal or mixed, to or from, or providing for the lending or borrowing
of money to or from or otherwise requiring payments to or from, any such
Person, other than (a) as described in the ATC SEC Documents, (b) employment
agreements with certain of the officers, and (c) other Contractual Obligations
that are, in the reasonable business judgment of ATC, on terms no less
favorable to ATC or the applicable Subsidiary than would exist with a
nonaffiliated Person.
I-19
<PAGE>
5.12 Insurance. ATC or one of its Subsidiaries maintains, with respect to the
assets of ATC and its Subsidiaries and the business of ATC and its
Subsidiaries, policies of fire and extended coverage and casualty, liability
and other forms of insurance in such amounts and against such risks and losses
as are customary in ATC's and its Subsidiaries' businesses.
5.13 ERISA Matters
(a) Except as described in the ATC SEC Documents, neither ATC nor any of its
Subsidiaries contributes to or has an obligation to contribute to, and has not
at any time contributed to or had an obligation to contribute to, (i) an
employee pension benefit plan within the meaning of Section 3(2) of ERISA, (ii)
a Multiemployer Plan, or (iii) a Plan subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA. Neither ATC nor any of its
Subsidiaries has any actual or potential liability under Title IV of ERISA.
Neither ATC nor any of its Subsidiaries maintains any Plan that provides for
post-retirement medical or life insurance benefits, and neither ATC nor any of
its Subsidiaries has any obligation or liability with respect to any such Plan
previously maintained by ATC or any of its Subsidiaries, except as the
provisions of COBRA may apply to any former employees of ATC or any of its
Subsidiaries. As to all Plans and Employment Arrangements of ATC and its
Subsidiaries:
(i) all such Plans and Employment Arrangements comply and have been
administered in form and in operation, in all material respects, in
accordance with their respective terms and with all Applicable Laws, except
for such noncompliance that will not, individually or in the aggregate,
have a Material Adverse Effect on ATC, and neither ATC nor any of its
Subsidiaries has received any notice from any Authority disputing or
investigating such compliance;
(ii) there are no Claims (other than routine Claims for benefits or actions
seeking qualified domestic relations orders) pending or, to ATC's
knowledge, threatened involving such Plans or the assets of such Plans,
and, to ATC's knowledge, no facts exist which are reasonably likely to give
rise to any such Claims (other than routine Claims for benefits or actions
seeking qualified domestic relations orders) except, in each case, as will
not, individually or in the aggregate, have a Material Adverse Effect on
ATC;
(iii) all material contributions to, and material payments from, the Plans
and Employment Arrangements that may have been required to be made in
accordance with the terms of the Plans and Employment Arrangements, and any
applicable collective bargaining agreement, have been made other than
contributions and payments which will not, individually or in the
aggregate, have a Material Adverse Effect on ATC. All such contributions
to, and payments from, the Plans and Employment Arrangements, except those
payments to be made from a trust qualified under Section 401(a) of the
Code, for any period ending before the Closing Date that are not yet, but
will be, required to be made, will be properly accrued and reflected on the
financial books and records of ATC;
(iv) to ATC's knowledge, no Event has occurred which would result in
imposition on ATC or any of its Subsidiaries of (A) any breach of fiduciary
duty liability damages under Section 409 of ERISA, (B) a civil penalty
assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or
(C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code;
(v) neither ATC nor any of its Subsidiaries has incurred any material
liability to a Plan (other than for contributions not yet due) which
liability has not been fully paid or accrued for payment as of the date
hereof;
(vi) no current or former employee of ATC or any of its Subsidiaries will
be entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any Plan or Employment Arrangement
as a result of the transactions contemplated by this Agreement; and
(vii) no compensation payable by ATC or any of its Subsidiaries to any of
its employees under any existing Plan or Employment Arrangement (including
by reason of the transactions contemplated hereby) will be subject to
disallowance under Section 162(m) of the Code.
(b) The execution, delivery and performance by ATC of this Agreement and the
Collateral Documents executed or required to be executed by ATC pursuant hereto
and thereto will not involve any prohibited
I-20
<PAGE>
transaction within the meaning of ERISA or Section 4975 of the Code with
respect to any Plan maintained by ATC or any of its Subsidiaries.
5.14 Product Liability. There is not now pending or, to the knowledge of ATC,
threatened any Claim (or any basis for any such Claim) relating to, any damages
to or losses of any third party for injuries to Persons or damage to property,
or for breach of warranty, arising out of any alleged defect in the quality or
condition of any of ATC's products or services or property or assets, which, in
the case of pending or threatened Claims, if determined adversely to ATC,
individually or in the aggregate (taking into account unasserted Claims of a
similar nature), will have a Material Adverse Effect on ATC.
5.15 Ordinary Course of Business. From the date of the most recent ATC
Financial Statements to the date hereof, except (i) as may be required or
expressly contemplated by the terms of this Agreement, (ii) for the merger
agreement with TeleCom Towers, L.L.C., or (iii) as may be described in or
contemplated by the ATC SEC Documents, each of ATC and its Subsidiaries:
(a) has operated its business in all material respects in the normal, usual
and customary manner in the ordinary and regular course of business (which
includes, without limitation, the construction and acquisition of towers),
consistent with prior practice;
(b) except in each case in the ordinary course of business (which includes,
without limitation, the construction and acquisition of towers), consistent
with prior practice:
(i) has not incurred any obligation or liability (fixed, contingent or
other) individually having a value in excess of $500,000;
(ii) has not sold or otherwise disposed of or contracted to sell or
otherwise dispose of any of its properties or assets having a value in
excess of $500,000;
(iii) has not canceled any debts or claims having a value in excess of
$100,000;
(iv) has not entered into any individual commitment having a value in
excess of $500,000; and
(c) has not created or permitted to be created any Lien on any of the
assets of ATC and its Subsidiaries, except for Permitted Liens;
(d) has not made or committed to make any additions to its property or any
purchases of equipment in excess of $500,000, except in the ordinary course
of business consistent with past practice or for normal maintenance and
replacements;
(e) has not increased the compensation payable or to become payable to any
of the ATC Employees other than increases in the ordinary course of
business that are not material to ATC, or otherwise altered, modified or
changed, in a manner material to ATC, the terms of their employment;
(f) has not suffered any material damage, destruction or loss (whether or
not covered by insurance) or any acquisition or taking of property by any
Authority;
(g) has not waived any rights of material value without fair and adequate
consideration;
(h) has not experienced any work stoppage;
(i) except in the ordinary course of business (which includes the
construction and acquisition of towers), has not entered into, amended or
terminated any Lease, Governmental Authorization, Private Authorization,
Material Agreement or Employment Arrangement, or any transaction, agreement
or arrangement with any Affiliate of ATC;
(j) has not made, paid or declared any Distribution; and
(k) has not entered into any transactions or series of related transactions
which individually or in the aggregate is material to the assets of ATC and
its Subsidiaries taken as a whole or the business of ATC and its
Subsidiaries taken as a whole.
I-21
<PAGE>
5.16 Environmental Matters. Except for exceptions that, individually or in the
aggregate, have not had and would not have a Material Adverse Effect on ATC,
neither ATC nor any of its Subsidiaries:
(a) has been notified in writing that it is potentially liable under, has
received any written request for information or other correspondence
concerning its potential liability with respect to any site or facility
under, or, to ATC's knowledge, is a "potentially responsible party" under,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Resource Conservation Recovery Act, as amended, or
any similar state Law;
(b) is a party to any outstanding consent decree, compliance order or
administrative order or other judgment, order, writ, injunction or decree
creating on-going obligations issued pursuant to any Environmental Law;
(c) has, to its knowledge, failed to obtain all material Environmental
Permits required under Environmental Laws, or, to its knowledge, failed to
file all applications, notices and other material documents required to be
filed prior to the date of this Agreement to effect the timely renewal or
issuance of all Environmental Permits necessary for the continued ownership
or operation of the assets of ATC and its Subsidiaries taken as a whole or
conduct of the business of ATC and its Subsidiaries taken as a whole in the
manner currently owned, operated and conducted and proposed to be owned,
operated and conducted on or prior to the Closing Date;
(d) is not in compliance with all Environmental Laws, or is the subject of
or, to ATC's knowledge, threatened with any Legal Action involving a demand
for damages or other potential liability, including any Lien, with respect
to violations or breaches of any Environmental Law;
(e) has knowingly installed or used any above ground or underground storage
tanks, friable asbestos, polychlorinated biphenyls or urea formaldehyde
foam insulation on any property currently owned, leased or operated by ATC
or any of its Subsidiaries and, to ATC's knowledge, there are no above
ground or underground storage tanks containing Hazardous Materials, friable
asbestos, polychlorinated biphenyls or urea formaldehyde foam insulation on
any property currently owned, leased or operated by ATC or any of its
Subsidiaries, the installation, use or presence of which is not in
compliance with Environmental Laws; and
(f) has any knowledge of any past or present Event related to ATC's or any
of its Subsidiaries' properties, operations or business, which Event,
individually or in the aggregate, could reasonably be expected to interfere
with or prevent continued compliance in all material respects with all
Environmental Laws applicable to the ownership or operation of the assets
of ATC and its Subsidiaries taken as a whole or the business of ATC and its
Subsidiaries taken as a whole substantially in the manner now conducted or
proposed to be conducted on or prior to the Closing Date, or which,
individually or in the aggregate, may form the basis of any material Claim
for or arising out of the release or threatened release into the
environment of any Hazardous Material.
5.17 Materiality. The representations and warranties set forth in this Article
are true and correct as of the date hereof without the materiality exceptions
or qualifications contained therein, except to the extent that the failure of
such representations and warranties to be so true and correct, individually or
in the aggregate, will not have a Material Adverse Effect on ATC.
5.18 Material Agreements. All of the agreements filed in the ATC SEC Documents
under exhibit 10 pursuant to Regulation S-K are valid, binding and legally
enforceable obligations of ATC or its Subsidiaries, as the case may be, and, to
ATC's knowledge, all other parties thereto, except as such enforceability may
be limited by bankruptcy, moratorium, insolvency and similar Laws affecting the
rights and remedies of creditors and obligations of debtors generally and by
general principles of equity except, in each case, for exceptions which
individually or in the aggregate, have not had and will not have a Material
Adverse Effect on ATC. Except as set forth in the ATC SEC Documents, neither
ATC (or its Subsidiaries, as the case may be) nor, to its knowledge, any other
party thereto, has failed to duly comply with all of the material terms and
conditions of each such material agreement or has done or performed, or failed
to do or perform (and no Claim, other than
I-22
<PAGE>
ATC's Notice of Disagreement with CBS Corporation, described in ATC's Form 10-Q
for the fiscal quarter ended September 30, 1998, is pending or, to the
knowledge of ATC, threatened in writing to the effect that ATC has not so
complied, done and performed or failed to do and perform) any act which would
invalidate or provide grounds for the other party thereto to terminate (with or
without notice, passage of time or both) such material agreement or impair the
rights or benefits, or increase the costs, of ATC (or its Subsidiaries, as the
case may be) under any such material agreement, except, in each case, for
exceptions which individually or in the aggregate, have not had and will not
have a Material Adverse Effect on ATC. All Contracts for the construction by
ATC (or its Subsidiaries) of towers for other Persons can be performed, in the
aggregate for all such Contracts, without any loss to ATC (or its
Subsidiaries).
ARTICLE 6
Covenants
6.1 Access to Information; Confidentiality.
(a) Each party shall afford to the other party and its accountants, counsel,
financial advisors and other representatives (the "Representatives") full
access during normal business hours and upon reasonable notice throughout the
period prior to the Closing Date to all of its (and its Subsidiaries')
properties, books, contracts, insurance policies, studies and reports,
environmental studies and reports, commitments and records (including without
limitation Tax Returns) and, during such period, shall furnish promptly upon
written request (i) a copy of each report, schedule and other document filed or
received by any party pursuant to the requirements of any Applicable Law or
filed by it with any Authority in connection with the Merger or any other
report, schedule or documents which may have a material effect on the
businesses, operations, properties, prospects, personnel, condition (financial
or other), or results of operations of their respective businesses, and (ii)
such other information concerning any of the foregoing as ATC or Target shall
reasonably request. All Confidential Information furnished pursuant to the
provisions of this Agreement, including without limitation this Section, or
developed based upon disclosures pursuant to this Agreement or otherwise will
be kept confidential and shall not, without the prior written consent of the
party disclosing such Confidential Information, be disclosed by the other party
in any manner whatsoever, in whole or in part, and, except as required by
Applicable Law (including without limitation in connection with any
registration, proxy or information statement or similar document filed pursuant
to any federal or state securities Law in connection with the Merger) shall not
be used for any purposes, other than in connection with the Merger. Except as
otherwise herein provided, each party agrees to reveal such Confidential
Information only to those of its Representatives or other Persons whom it
believes need to know such Confidential Information for the purpose of
evaluating and consummating the Merger. For purposes of this Agreement,
"Confidential Information" shall mean any and all information related to the
business or businesses of ATC, ATI and their respective Affiliates or Target
and its Affiliates, including any of their respective successors and assigns,
other than information that (i) has been or is obtained from a source
independent of the disclosing party that, to the receiving party's knowledge,
is not subject to any confidentiality restriction, (ii) is or becomes generally
available to the public other than as a result of unauthorized disclosure by
the receiving party, or (iii) is independently developed by the receiving party
without reliance in any way on information provided by the disclosing party or
a third party independent of the disclosing party that, to the receiving
party's knowledge, is subject to any confidentiality restriction.
(b) Notwithstanding the provisions of Section 6.1(a), (i) in connection with
the Merger, each party may disclose such information as it may reasonably
determine to be necessary in connection with seeking all Governmental and
Private Authorizations or that is required by Applicable Law to be disclosed,
including without limitation in any registration, proxy or information
statement or other document required to be filed under any federal or state
securities Law, and (ii) each party may, with the prior written consent of the
other party, which consent shall not be unreasonably withheld, delayed or
conditioned, disclose the subject matters of this Agreement to Persons with
whom the other party has a business or contractual relationship in connection
with the due diligence investigation of the other party and its attorneys,
financial advisors and accountants in connection with the transactions
contemplated hereunder. In the event that this Agreement is terminated in
I-23
<PAGE>
accordance with its terms, each party shall promptly redeliver all written
Confidential Information provided pursuant to this Section or any other
provision of this Agreement or otherwise in connection with the Merger or
developed based on such information and shall not retain any copies, extracts
or other reproductions in whole or in part of such written material, other
than, unless mutual releases are exchanged by the parties, one copy thereof
which shall be delivered to independent counsel for such party which shall be
bound by the provisions of Section 6.1(a).
(c) Anything in this Section or elsewhere in this Agreement to the contrary
notwithstanding, either party may disclose information received or retained by
it in accordance with the provisions of this Agreement if it can demonstrate
(i) such information is generally available to or known by the public from a
source other than the party seeking to disclose such information or (ii) was
obtained by the party seeking to disclose such information from a source other
than the other party, provided that such source was not, to the knowledge of
the disclosing party, bound by a duty of confidentiality to the other party or
another party with respect to such information.
(d) No investigation pursuant to this Section or otherwise shall affect any
representation or warranty in this Agreement of any party or any condition to
the obligations of the parties hereto.
(e) The provisions of this Section shall apply to all Subsidiaries of ATC and
Target.
6.2 Agreement to Cooperate; Certain Other Covenants.
(a) Each of the parties hereto shall use reasonable business efforts (x) to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under Applicable Law to consummate the
Merger and the other Transactions, and (y) to refrain from taking, or cause to
be refrained from taking, any action and to refrain from doing or causing to be
done, anything which could impede or impair the consummation of the Merger or
the consummation of the other Transactions, including, in all cases, without
limitation using its reasonable business efforts (i) to prepare and file with
the applicable Authorities as promptly as practicable after the execution of
this Agreement all requisite applications and amendments thereto, together with
related information, data and exhibits, necessary to request issuance of orders
approving the Merger by all such applicable Authorities, (ii) to obtain all
necessary or appropriate waivers, consents and approvals, (iii) to effect all
necessary registrations, filings and submissions (including without limitation
filings within ten (10) business days of the date of this Agreement under the
Hart-Scott-Rodino Act and all filings necessary for ATI to own and operate the
Target Assets and the Target Business), (iv) to lift any injunction or other
legal bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible), (v) to obtain the satisfaction of the conditions
specified in Article 7, and (vi) to cure any breach or untruth of such party
upon receipt of notice as provided in Section 8.1(c) or (d) or upon otherwise
becoming aware of such breach or untruth.
(b) The parties shall cooperate with one another in the preparation of all Tax
Returns, questionnaires, applications or other documents regarding any Taxes or
transfer, recording, registration or other fees which become payable in
connection with the Merger that are required to be filed on or before the
Closing Date.
(c) The provisions of this Section shall apply to all Subsidiaries of ATC and
Target.
6.3 Public Announcements. Until the Closing or the termination of this
Agreement, each party shall consult with the other before issuing any press
release or otherwise making any public statements with respect to this
Agreement or the Merger and shall not issue any such press release or make any
such public statement without the prior written approval of the other.
Notwithstanding the foregoing, the parties acknowledge and agree that they may,
without each other's prior consent, issue such press releases or make such
public statements as may be required by Applicable Law, in which case the
issuing party shall use all reasonable efforts to consult with the other party
and agree upon the nature, content and form of such press release or public
statement. The provisions of this Section shall apply to all Subsidiaries of
ATC and Target.
I-24
<PAGE>
6.4 Notification of Certain Matters. Each party shall give prompt notice to the
other of the occurrence or non-occurrence of any Event the occurrence or non-
occurrence of which would be reasonably likely to cause (a) any representation
or warranty made by it contained in this Agreement to be untrue or inaccurate
in any material respect or (b) any failure by it to comply with or satisfy, or
be able to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement in any material respect, such that, in any such case, one or more of
the conditions of Closing would not be satisfied; provided, however, that the
delivery of any notice pursuant to this Section shall not limit or otherwise
affect the rights and remedies available hereunder to the party receiving such
notice or the obligations of the party delivering such notice and shall not, in
any event, affect the representations, warranties, covenants and agreements of
the parties or the conditions to their respective obligations under this
Agreement.
6.5 Other Offers; No Solicitation.
(a) Target shall not, nor shall Target knowingly permit any of its Subsidiaries
or any of its or any of its Subsidiaries' officers, directors, investment
bankers, brokers, financial advisors, finders, attorneys, accountants or other
agents or representatives to, directly or indirectly, (i) solicit, initiate or
encourage (including by way of furnishing non-public information), or take any
other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Alternative
Transaction or (ii) participate in any discussions or negotiations or otherwise
cooperate regarding an Alternative Transaction; provided, however, that if the
Board of Directors of Target determines in good faith, based on the advice of
outside counsel, that failure to do so would constitute a breach of its
fiduciary duties to Target's stockholders under Applicable Law, Target, in
response to a written Alternative Transaction that (I) was unsolicited or that
did otherwise result from a breach of this Section, and (II) is reasonably
likely to lead to a Superior Proposal, may (x) furnish non-public information
with respect to Target to the Person who made such Alternative Transaction
pursuant to a customary confidentiality agreement and (y) participate in
discussions and negotiations regarding such Alternative Transaction. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any director or officer of Target or any
of its Subsidiaries, whether or not acting on behalf of Target or any of its
Subsidiaries, shall be deemed to be a breach of this Section by Target.
(b) The Board of Directors of Target shall not (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to ATC, its approval or
recommendation of this Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, an Alternative Transaction, or (iii) cause
Target to enter into any letter of intent, agreement in principle, acquisition
agreement or merger or other similar agreement with respect to an Alternative
Transaction, unless (x) the Board of Directors of Target shall have determined
in good faith, based on the advice of independent counsel, that (A) failure to
do so would be inconsistent with its fiduciary duties to Target's stockholders
under Applicable Law, and (B) based upon the advice of Target's financial
advisors, such Alternative Transaction is a Superior Proposal, and (y) Target
shall have terminated this Agreement pursuant to the provisions of paragraph
(f) of Section 8.1.
(c) Nothing contained in this Section shall prohibit Target from at any time
(i) taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act; provided, however, that neither
Target nor its Board of Directors shall, except as permitted by Section 6.5(b),
propose to approve or recommend an Alternative Transaction or (ii) making a
"stop-look-and-listen" communication with respect to an Alternative Transaction
of the nature contemplated by, and in compliance with, Rule 14d-9 under the
Exchange Act as a result of receiving an Acquisition Proposal.
(d) If Target decides to terminate this Agreement under paragraph (f) of
Section 8.1 because of a Superior Proposal, it shall give ATC written notice of
such termination no later than five (5) days prior to any such termination. At
such time, Target will cause its financial advisor to supply ATC with such
information as such financial advisor deems necessary to maximize value to the
Target's stockholders. Target shall be obligated to consider any revised offer
communicated to Target by ATC in connection with its decision to terminate this
Agreement.
I-25
<PAGE>
(e) If Target shall receive a firm, bona fide written proposal or proposals
from any Person relating to any Alternative Transaction, and Target's Board of
Directors shall determine in good faith, based upon the advice of independent
counsel, and after receiving advice from Target's independent financial
advisors, that (i) such Alternative Transaction is a Superior Proposal and (ii)
the failure to terminate this Agreement would be inconsistent with the
director's fiduciary obligations under Applicable Law, then Target shall
terminate this Agreement.
(f) If Target terminates this Agreement pursuant to Section 6.5(e), Target
shall pay ATC the amounts set forth in Section 8.2 hereof in accordance with
the terms thereof.
6.6 Conduct of Business by Target Pending the Merger.
Except as set forth in Section 6.6 of the Target Disclosure Schedule, otherwise
contemplated by this Agreement or as provided in Target's business plan
previously provided to ATC (the "Business Plan"), after the date hereof and
prior to the Closing Date or earlier termination of this Agreement, unless ATC
shall otherwise consent in writing, which consent shall not be unreasonably
withheld, Target shall, and shall cause each of its Subsidiaries to:
(a) conduct its business in the ordinary and usual course of business and
consistent with past practice;
(b) not (i) amend or propose to amend its Organic Documents, (ii) split,
combine or reclassify (whether by stock dividend or otherwise) its outstanding
capital stock or issue or authorize the issue of any other securities in
respect of, in lieu of, or in substitution for, shares of its capital stock, or
(iii) declare, set aside, pay or make, or agree to declare, set aside, pay or
make, any Distribution, whether in cash, stock, property or otherwise; other
than distributions to Target or its Subsidiaries by one of Target's
Subsidiaries;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any shares of Target Common Stock, other shares of capital stock,
Convertible Securities or Option Securities, except pursuant to the exercise of
options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any
Indebtedness for Money Borrowed, other than (x) borrowings, not to exceed the
sum of (I) the principal amount of borrowings presently outstanding and (II)
the Indebtedness set forth in the Business Plan, (ii) redeem, purchase, acquire
or offer or agree to redeem, purchase or acquire any shares of its capital
stock, Convertible Securities or Option Securities, (iii) sell, lease, license,
pledge, dispose of or encumber any properties or assets or sell any businesses
other than (x) inventory in the ordinary course of business, (y) Liens arising
in accordance with the provisions of indebtedness in effect on the date hereof
and in accordance with their present terms, and (z) leases of towers and
shelter space to third-party customers, or (iv) make any loans, advances or
capital contributions to, or investments in, any other Person, except to
officers and employees of Target for travel, business or relocation expenses in
the ordinary course of business;
(e) not enter into or agree to enter into (other than agreements which are
binding on Target as of the date hereof) any Restricted Transaction (or group
of related Restricted Transactions), whether for its own account or for any
other Person, if (i) the aggregate amount reasonably expected to be expended by
Target or any of its Subsidiaries in connection with such individual Restricted
Transaction (together with any group of related Restricted Transactions)
exceeds $10.0 million, or (ii) the aggregate amount to be expended in
connection with all Restricted Transactions (together with any group of related
Restricted Transactions) exceeds $100.0 million; provided, however, that the
foregoing restriction shall not apply to any Restricted Transaction pursuant to
agreements which are described in Section 6.6(e) of the Target Disclosure
Schedule;
(f) use reasonable business efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
customers and others having business relationships with them and not engage in
any action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
I-26
<PAGE>
(g) confer on a regular and frequent basis with one or more representatives of
ATC to report material operational matters and the general status of ongoing
operations;
(h) not adopt, enter into, amend or terminate any employment, severance,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or key
employees;
(i) maintain with financially responsible insurance companies insurance on the
Target Assets and the Target Business in such amounts and against such risks
and losses as are consistent with past practice;
(j) not make any Tax election that could reasonably be likely to have a
Material Adverse Effect on Target or settle or compromise any material Tax
liability;
(k) except in the ordinary course of business or except as would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Target, not modify, amend or terminate any Material Agreement to
which Target is a party or by which any of the Target Assets may be bound or to
which any of them may be subject or waive, release or assign any material
rights or claims thereunder;
(l) not make any material change to its accounting methods, principles or
practices, except as may be required by GAAP;
(m) except in the ordinary course of business and in accordance with past
practices and policies, not enter into any Lease or other agreement with
respect to any antennae site on any of its towers, whether presently owned or
hereafter acquired by Target;
(n) except as set forth in Section 4.14 of the Target Disclosure Schedules, (i)
not grant to any executive officer or other key employee of Target any increase
in compensation, except for normal increases in the ordinary course of business
consistent with past practice or as required under Employment Arrangements set
forth in Section 4.14 of the Target Disclosure Schedule, (ii) not grant to any
such executive officer any increase in severance or termination pay, except as
was required under any Employment Arrangements set forth in Section 4.14 of the
Target Disclosure Schedule, (iii) not adopt or amend any Plan or Employment
Arrangement (including change any actuarial or other assumption used to
calculate funding obligations with respect to any Plan, or change the manner in
which contributions to any Plan are made or the basis on which such
contributions are determined) and (iv) except in the ordinary course, not enter
into, amend in any material respect or terminate any material Governmental
Authorization, material Private Authorization or Material Agreement;
(o) not voluntarily take or permit to be taken any action which if taken
between the end of its most recent fiscal quarter and prior to the date of this
Agreement would have been required to be noted as an exception on Section 4.16
of the Target Disclosure Schedule, other than pursuant to the conduct of its
business in the ordinary and usual course of business and consistent with past
practice; and
(p) not authorize or enter into any agreement that would violate any of the
foregoing.
In the event that Target or any of its Subsidiaries desires to take any of the
actions prohibited by the provisions of this Section, Target shall give prompt
written notice to ATC, referring to the provisions of this Section. As stated
above, Target's ability to take such action shall be subject to the written
consent of ATC, which consent shall not be unreasonably withheld; provided,
however, that if ATC does not object to the taking of such action within five
(5) business days of receipt of such notice and all material information
requested by ATC with respect thereto, Target or such Subsidiary shall have the
right to take such action. ATC's failure to object to the taking of any such
action shall not, in any event, relieve Target from the obligation to comply
with the provisions of this Agreement (other than, to the extent provided, in
paragraph (d) of this Section) and shall not be deemed to be a waiver of any
condition of ATC's obligations to consummate the Merger set forth in Section
7.2. The parties also agree that, regardless of whether or not ATC's consent is
required by this Section 6.6,
I-27
<PAGE>
Target shall communicate with the Chief Operating Officer and the Chief
Financial Officer of ATC on a reasonably regular basis with respect to the
Business Plan and the ongoing operations of Target.
6.7 Additional Tax Matters. Each party hereto shall use all reasonable business
efforts to cause the Merger to qualify, and shall not take, and shall use all
reasonable business efforts to prevent any Affiliate of such party from taking,
any action that could reasonably be expected to prevent the Merger from
qualifying as a reorganization under the provisions of Section 368(a) of the
Code.
6.8 Certificates of Non-Foreign Status. Prior to the Closing Date, Target and
ATC shall in respect of the conversion of Target Common Stock pursuant to the
Merger use their reasonable business efforts to obtain on behalf of themselves,
from each Person who owned of record or, to Target's knowledge, beneficially,
five percent (5%) or more of the Target Common Stock at any time during the
five-year period preceding the Effective Time and who will continue to own any
Target Common Stock immediately prior to the Effective Time, a certificate of
non-foreign status of such stockholder that meets the requirements of Section
1445 of the Code and Section 1.1445-2(b) of the Regulations, it being
understood that the failure to obtain any such certificate shall not be deemed
to be a breach of this Section. Target shall furnish to ATC on the Closing Date
a copy of any such certificates of non-foreign status obtained by Target.
6.9 Target Stock Options. Prior to the Effective Time, ATC and Target shall
take such action as may be necessary to cause each unexpired and unexercised
option to purchase Target Common Stock from Target or any of its Subsidiaries
that is outstanding immediately prior to the Merger and that will not expire if
not exercised prior thereto, a true, correct and complete list of which, as of
the date of this Agreement, is set forth in Section 6.9 of the Target
Disclosure Schedule (each, a "Target Option" and collectively, the "Target
Options") to be automatically converted at the Effective Time into an option
(each, an "ATC Option" and collectively, the "ATC Options") to purchase a
number of shares of ATC Common Stock equal to the product of the number of
shares of Target Common Stock which the holder is entitled to purchase under
the Target Option multiplied by the Exchange Ratio, at a price per share equal
to the quotient obtained by dividing (a) the per share option exercise price
determined pursuant to the Target Option, by (b) the Exchange Ratio. Each ATC
Option will otherwise have the same terms and conditions as the Target Option
exchanged therefor, including acceleration and period of exercise, and, with
respect to Target Options that are "incentive stock options" under the Code at
the Effective Time, will contain such terms as are necessary to preserve such
status following the conversion described herein. At the Effective Time, ATC
will execute and deliver to each holder of an ATC Option a document evidencing
ATC's assumptions of Target's obligations under the Target Option and all
references in the stock option agreements to Target shall be deemed to refer to
ATC. As of the Effective Time, ATC shall assume all of Target's obligations
with respect to the Target Options as so amended and shall, from and after the
Effective Time, have reserved for issuance upon exercise of the ATC Options all
shares of ATC Common Stock covered thereby and shall file a Registration
Statement on Form S-8 to register under the Securities Act the shares of ATC
Common Stock subject to the ATC Options granted in replacement of Target
Options. ATC shall take all actions reasonably necessary to maintain the
effectiveness of such Registration Statement (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such ATC
Options remain outstanding. ATC shall also use its reasonable business efforts
to list, subject to official notice of issuance, all shares of ATC Common Stock
subject to the ATC Options on The New York Stock Exchange and/or such other
exchanges or trading markets on which the ATC Common Stock is then listed or
traded. No fractional shares of ATC Common Stock will be issued upon the
exercise of any ATC Option, and instead the exercising holder of such ATC
Option shall receive cash for any fractional share amounts, based on the fair
market value of the ATC Common Stock at the time of exercise. To the extent
that any former holder of Target Options is terminated by ATC or its
Subsidiaries other than for cause subsequent to the Effective Time, ATC shall
provide such holder with the opportunity to effect a broker-assisted cashless
exercise, to the extent exercisable at the time of such termination, of the ATC
Options then held by such holder prior to the expiration of such options. The
foregoing provision is intended to be for the benefit of, and shall be enforced
by, the holders of Target Options and subject to the provisions of the plans
governing the Target Options, their heirs and personal representatives and
shall be binding upon ATC and its successors and assigns.
I-28
<PAGE>
6.10 Stockholder Approval. Target will, as soon as practicable following the
date hereof, establish a record date for, and, after the Registration Statement
has become effective, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Target Stockholders Meeting") for the purpose of
obtaining the approval and adoption of this Agreement and the approval of the
Merger by the Target stockholders (the "Target Stockholder Approval"). Such
notice shall comply with the provisions of Applicable Law. Target will, through
its Board of Directors, recommend to its stockholders approval and adoption of
this Agreement and approval of the Merger, subject to the fiduciary duties of
the Target Board of Directors under Applicable Law.
6.11 Registration Statement and Proxy/Information Statement.
(a) ATC shall prepare and file with the SEC as soon as is reasonably
practicable after the date hereof a Registration Statement under the Securities
Act (the "ATC Registration Statement") on Form S-4 in connection with the
Merger for the purpose of registering all of the shares of ATC Common Stock to
be issued in the Merger. ATC shall also take any action required under
Applicable Law in connection with causing the ATC Registration Statement to be
declared effective by the SEC as promptly as practicable, including without
limitation making all filings under applicable state blue sky or securities
Laws in connection with the issuance of shares of ATC Common Stock in the
Merger.
(b) Target shall prepare and file with the SEC as soon as is reasonably
practicable after the date hereof a proxy statement in connection with the
Target Stockholders Meeting (the "Target Proxy Statement"), complying with
applicable rules and regulations of the SEC and the DCL.
(c) ATC and Target shall promptly furnish to the other all information, and
take such other actions, as may reasonably be requested in connection with any
action taken to comply with the provisions of this Section including, in the
case of ATC, the preparation of the final prospectus (the "ATC Transaction
Prospectus") contained in the ATC Registration Statement and, in the case of
Target, the preparation of the Target Proxy Statement. Target and ATC shall
correct promptly any information provided by it to be used specifically in the
Target Proxy Statement or the ATC Registration Statement that shall have become
false or misleading in any material respect and shall take all steps necessary
to file with the SEC and have cleared by the SEC any amendment or supplement to
the Target Proxy Statement or the ATC Registration Statement so as to correct
the Target Proxy Statement or the ATC Registration Statement and cause it to be
disseminated to the stockholders of Target, to the extent required by
Applicable Law. Without limiting the generality of the foregoing, each party
shall notify the other promptly of the receipt of the comments of the SEC and
of any request by the SEC for amendments or supplements to the Target Proxy
Statement or the ATC Registration Statement, as the case may be, or for
additional information, and shall supply the other with copies of all
correspondence between it or its representatives, on the one hand, and the SEC
or members of its staff, on the other hand, with respect to the Target Proxy
Statement or the ATC Registration Statement. Whenever any Event occurs which
should be described in an amendment or a supplement to the Target Proxy
Statement or the ATC Registration Statement, Target and ATC shall, upon
learning of such Event, promptly prepare, file and clear with the SEC and, if
prior to the Effective Time, mail to the holders of shares of Target Common
Stock such amendment or supplement; provided, however, that, prior to such
mailing, (i) Target and ATC shall consult with each other with respect to such
amendment or supplement, (ii) shall afford to the other reasonable opportunity
to comment thereon, and (iii) each such amendment or supplement shall be
reasonably satisfactory to the other.
(d) In the event Target shall not be required to call the Target Stockholders
Meeting pursuant to Section 6.10, all references to the Target Proxy Statement
in this Agreement shall be deemed to be references to the Target Information
Statement.
(e) Target shall use its reasonable business efforts to cause to be delivered
to ATC and its directors a letter of independent auditors, dated (i) the date
of the ATC Registration Statement, and (ii) the Closing Date, and addressed to
ATC and its directors, in form, scope and substance customary for letters
delivered by independent public accountants in connection with registrations
statements similar to the ATC Registration
I-29
<PAGE>
Statement; provided that ATC shall have delivered a representation letter to
Target's auditors in the form attached hereto as Exhibit F.
6.12 Directors', Officers' and Employees' Indemnification
(a) The Organic Documents of ATC shall contain provisions no less favorable
with respect to indemnification than are set forth in the Organic Documents of
Target, as in effect on the date hereof, which provisions shall not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were officers or
directors of Target, unless such modification shall be required by Applicable
Law.
(b) From and after the Effective Time, ATC shall indemnify, defend and hold
harmless the present and former officers and directors, in their capacities as
such, of Target (collectively, the "Indemnified Parties") against all losses,
expenses, claims, damages, liabilities or amounts that are paid in settlement
of, or otherwise in connection with any claim, action, suit, proceeding or
investigation (as used in this Section, a "claim"), based in whole or in part
on the fact that the Indemnified Party (or the Person controlled by the
Indemnified Party) is or was an officer or director of Target and arising out
of actions or omissions occurring at or prior to the Effective Time (including
without limitation in connection with this Agreement, the Merger and the
Transactions), whether asserted or claimed prior to, at or after the Effective
Time, in each case to the fullest extent permitted under Applicable Law (and
shall pay any expenses, as incurred, in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the fullest extent
permitted under Applicable Law). Without limiting the foregoing, in the event
any such claim is brought against any of the Indemnified Parties, (i) such
Indemnified Parties may retain counsel (including local counsel) which shall be
reasonably satisfactory to ATC, and ATC shall pay all reasonable fees and
expenses of such counsel for such Indemnified Parties; (ii) ATC shall have the
right, but not the obligation, to assume the defense of any such claim with
counsel (including local counsel) which shall be reasonably satisfactory to the
Indemnified Parties (after which time ATC shall not be liable for any fees and
expenses of counsel retained by the Indemnified Parties); and (iii) ATC shall
use its reasonable business efforts to assist in the defense of any such claim;
provided, however, that ATC shall not be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld,
delayed or conditioned.
(c) ATC will cause to be maintained for a period of not less than six (6) years
from the Effective Time Target's current directors' and officers' insurance and
indemnification policies to the extent that they provide coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all persons who
are directors and executive officers of Target on the date of this Agreement,
so long as the annual premium therefor would not be in excess of two hundred
fifty percent (250%) of the current premium. If any then existing D&O Insurance
expires, is terminated or canceled during such six-year period, ATC will use
its best efforts to cause to be obtained as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of two hundred fifty percent (250%), on terms and conditions no less
advantageous to the covered Persons than the then existing D&O Insurance.
Notwithstanding the foregoing, ATC or its Subsidiaries may, in lieu of
maintaining such existing D&O Insurance as provided above, cause coverage to be
provided under any policy maintained for the benefit of ATC and its
Subsidiaries so long as the terms thereof are not materially less advantageous
to the beneficiaries thereof than the existing D&O Insurance.
(c) In the event ATC or any of their respective successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provisions shall be made so that the
successors and assigns of ATC shall assume the obligations set forth in this
Section.
(d) This Section is intended to be for the benefit of, and shall be enforceable
by, the Indemnified Parties, their heirs and personal representatives and shall
be binding on ATC and its successors and assigns.
I-30
<PAGE>
6.13 Solicitation of Employees. If this Agreement is terminated, each of ATC
and Target agrees that neither it nor any of its Affiliates will, for a period
of twelve (12) months from the date of such termination, solicit or actively
seek to hire any individual who during such period is employed by ATC or any of
its Affiliates or Target or any of its Affiliates, as the case may be, whether
or not such individual would commit breach of such individual's employment
agreement in leaving such employment; provided, however, that the foregoing
shall not prevent ATC or Target (or any of their respective Affiliates) from
soliciting or actively seeking to hire any such key employee who (i) initiates
employment discussions with it, (ii) is not employed by ATC or Target, as the
case may be, on the date Target or ATC (or any of their respective Affiliates),
as the case may be, first solicits such key employee, or (iii) soliciting
through general advertisement, including without limitation on the Internet.
6.14 Registration Rights Agreement. ATC agrees that, from time to time after
the Closing, ATC shall add or shall cause to be added as a party to the
Registration Rights Agreement each Person who is an affiliate of Hicks, Muse,
Tate & Furst Incorporated and who receives shares of ATC Common Stock as a
direct or indirect distributee or transferee of HMTF/Omni Partners LP. The
foregoing provision is intended to be for the benefit of, and shall be enforced
by, such distributees or transferee and shall be binding upon ATC and its
successors and assigns.
ARTICLE 7
Closing Conditions
7.1 Conditions to Obligations of Each Party. The respective obligations of each
party to consummate the Merger shall, except as hereinafter provided in this
Section, be subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived, in whole or in part,
to the extent permitted by Applicable Law:
(a) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Authority of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger
shall be in effect; provided, however, that the party invoking this
condition shall use its reasonable business efforts to have such order,
injunction, restraint or prohibition vacated or lifted.
(b) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the Hart-Scott-Rodino Act shall have
expired or been terminated;
(c) Except with respect to the Hart-Scott-Rodino Act (which is addressed in
Section 7.1(b)), all authorizations, consents, waivers, orders or approvals
required to be obtained from all Authorities, and all filings (other than
the Certificate of Merger), submissions, registrations, notices or
declarations required to be made by any of the parties with any Authority
which would prevent the consummation of the Merger or result in a Material
Adverse Effect on Target if not obtained or made shall have been obtained
from, and made with, all such Authorities;
(d) The ATC Common Stock to be issued as part of the Merger Consideration
shall have been listed for trading on The New York Stock Exchange, subject
to official notice of issuance;
(e) The ATC Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order; and
(f) The Target Stockholder Approval shall have been obtained.
7.2 Conditions to Obligations of ATC and ATI. The obligation of ATC to cause
ATI to, and of ATI to, consummate the Merger shall be subject to the
satisfaction of the following conditions, any or all of which may be waived, in
whole or in part, by ATC and ATI to the extent permitted by Applicable Law:
(a)(i) The representations and warranties of Target contained in this
Agreement (other than in Section 4.19) shall be true and correct at and as
of the Closing Date with the same force and effect as though made on and as
of such date, except (x) to the extent such representations and warranties
expressly speak
I-31
<PAGE>
as of an earlier date (in which case such representations and warranties
shall be true and correct as of such earlier date) and (y) to the extent
that the failure of such representations and warranties to be true and
correct, individually or in the aggregate, will not have a Material Adverse
Effect on Target; provided, however, that for the purpose of this clause
(y), representations and warranties that are qualified as to materiality
(including by reference to "Material Adverse Effect") shall not be deemed
to be so qualified; (ii) the representations and warranties of Target set
forth in Section 4.19 of this Agreement shall be true and correct;
provided, however, that any untruth shall be disregarded for purposes of
this Section 7.2(c) if, by mutually agreed upon adjustment of the Exchange
Ratio and the Merger Consideration at Closing, the untruth is rendered
harmless and such adjustment either does not require the approval of the
Target stockholders, or such approval has been obtained, in accordance with
the DCL; (iii) each and all of the agreements and covenants to be performed
or satisfied by Target or any of the Target stockholders hereunder at or
prior to the Closing Date shall have been duly performed or satisfied in
all material respects; and (iv) Target shall have furnished ATC with an
officer's certificate in the form attached hereto as Exhibit G evidencing
the truth of such representations, warranties, covenants and agreements and
the performance of such agreements or conditions;
(b) Other than those which, individually or in the aggregate, the failure
of which to obtain will not have a Material Adverse Effect on Target, all
authorizations, consents, waivers, orders or approvals required by the
provisions of this Agreement to be obtained from all Persons (other than
Authorities) prior to the consummation of the Merger, including without
limitation those required in order for ATI to continue to own all of the
Target Assets and continue to operate the Target Business substantially as
conducted immediately prior to the Closing shall have been obtained,
without the imposition, individually or in the aggregate, of any condition
or requirement which will have a Material Adverse Effect on Target;
(c) Between the date of this Agreement and the Closing Date, there shall
not have occurred and be continuing any material adverse change in Target
from that reflected in the most recent Target Financial Statements;
(d) As of the Closing Date, no Legal Action shall be pending before any
Authority which, individually or in the aggregate, will have a Material
Adverse Effect on Target, it being understood and agreed that a written
request by any Authority for information with respect to the Merger, which
information could be used in connection with such Legal Action, shall not
be deemed to be a Legal Action pending before any such Authority and no
Legal Action by any Target stockholder in respect of the transactions
contemplated herein will be deemed to create a Material Adverse Effect;
(e) All Convertible Securities and Option Securities (other than the Target
Options which shall be exchanged for ATC Options in accordance with the
provisions of Section 6.9) of Target, if any, outstanding immediately prior
to the Closing shall be canceled and, from and after the Closing, shall no
longer be of any force or effect;
(f) Each of the Target stockholders listed therein shall have executed and
delivered to ATC an agreement substantially in the form attached hereto as
Exhibit A and made a part hereof (the "Registration Rights Agreement");
(g) Each executive officer, director and other Person who, in the opinion
of ATC based on the advice of counsel, may be an "affiliate," as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Target shall have executed and delivered to ATC an investment letter
substantially in the form of Exhibit B attached hereto and made a part
hereof (the "Target Investment Letters");
(h) ATC shall have received from its tax counsel, Sullivan & Worcester LLP,
a favorable opinion, dated as of the Closing Date, to the effect that the
Merger constitutes a reorganization within the meaning of Section 368 of
the Code and that, as a consequence, none of ATC, ATI or Target will
recognize any gain or loss for federal income tax purposes as a result of
consummation of the Merger, and, in connection with such opinion, Target
shall have executed and delivered to ATC and such counsel a certificate
substantially in the form attached hereto as Exhibit C and made a part
hereof;
I-32
<PAGE>
(i) All instruments evidencing Indebtedness for Money Borrowed of Target
represented by all bank credit agreements (the "Target Credit Agreements")
shall permit the repayment thereof by ATC without premium or penalty; and
(j) Each of the agreements listed in Section 7.2(j) of the Target
Disclosure Schedule shall have been terminated by Target, or amended on the
terms and conditions set forth in such Section, and the fees and expenses
payable by Target with respect to the Merger pursuant to the Financial
Advisory Agreement listed therein shall have been waived, in each case, at
no cost or expense to Target; provided, however, that this provision shall
not prevent the payment in full of accrued fees and expenses under the
Monitoring and Oversight Agreement incurred in the ordinary course.
7.3 Conditions to Obligations of Target. The obligation of Target to consummate
the Merger shall be subject to the satisfaction of the following conditions,
any or all of which may be waived, in whole or in part, by Target to the extent
permitted by Applicable Law:
(a) The representations and warranties of ATC and ATI contained in this
Agreement (other than in Section 5.5) shall be true and correct in all
material respects at and as of the Closing Date with the same force and
effect as though made on and as of such date, except (x) to the extent such
representations and warranties expressly speak as of an earlier date (in
which case such representations and warranties shall be true and correct as
of such earlier date) and (y) to the extent that the failure of such
representations and warranties to be true and correct, individually or in
the aggregate, will not have a Material Adverse Effect on ATC; provided,
however, that for the purpose of this clause (y), representations and
warranties that are qualified as to materiality (including by reference to
"Material Adverse Effect ") shall not be deemed to be so qualified; (ii)
the representations and warranties of ATC set forth in Section 5.5 of this
Agreement shall be true and correct; provided, however, that any untruth
shall be disregarded for purposes of this Section 7.3(c) if, by mutually
agreed upon adjustment of the Exchange Ratio and the Merger Consideration
at Closing, the untruth is rendered harmless and such adjustment either
does not require the approval of the ATC or ATI stockholders, or such
approval has been obtained, in accordance with the DCL; (iii) each and all
of the agreements and covenants to be performed or satisfied by ATC or ATI
hereunder at or prior to the Closing Date shall have been duly performed or
satisfied in all material respects; and (iv) ATC and ATI shall have
furnished Target with an officer's certificate in the form of Exhibit G
hereto evidencing the truth of such representations, warranties, covenants
and agreements and the performance of such agreements or conditions;
(b) Between the date of this Agreement and the Closing Date, there shall
not have occurred and be continuing any material adverse change in ATC from
that reflected in the most recent ATC Financial Statements;
(c) As of the Closing Date, no Legal Action shall be pending before any
Authority which, individually or in the aggregate, will have a Material
Adverse Effect on ATC, it being understood and agreed that a written
request by any Authority for information with respect to the Merger, which
information could be used in connection with such Legal Action, shall not
be deemed to be a Legal Action pending before any such Authority and no
Legal Action by any Target stockholder in respect of the transactions
contemplated herein will be deemed to create a Material Adverse Effect;
(d) ATC shall have executed and delivered the Registration Rights
Agreement;
(e) Target shall have received from its tax counsel, Weil, Gotshal & Manges
LLP a favorable opinion, dated as of the Closing Date, to the effect that
the Merger constitutes a reorganization within the meaning of Section 368
of the Code and that, as a consequence, the Target stockholders will not
recognize gain or loss for federal income tax purposes as a result of
consummation of the Merger, except to the extent of the cash, property
(other than the ATC Common Stock) or other nonstock Merger Consideration
received pursuant to the consummation of the Merger, and, in connection
with such opinion, ATC shall have executed and delivered to Target and such
counsel a certificate substantially in the form attached hereto as Exhibit
D and made a part hereof; and
I-33
<PAGE>
(f) ATC shall have delivered to Target an agreement substantially in the
form of Exhibit E attached hereto and made a part hereof (the "ATC Voting
Agreement") executed by the Persons named therein and any individual
nominated pursuant thereto shall have been elected a director of ATC.
ARTICLE 8
Termination, Amendment and Waiver
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time only pursuant to the following provisions:
(a) by mutual consent of Target and ATC; or
(b) by ATC or Target if any permanent injunction, decree or judgment of any
Authority preventing consummation of the Merger shall have become final and
nonappealable; or
(c) by Target in the event (i) it is not in material breach of its
covenants and agreements under this Agreement and none of its
representations or warranties shall have become and continue to be untrue
in any manner that would cause the condition set forth in Section 7.2(c)
not to be satisfied, and (ii) either (A) the Termination Date has occurred
without the consummation of the Merger, or (B) ATC or ATI is in material
breach of its covenants and agreements under this Agreement or any of its
representations or warranties shall have been or become and continue to be
untrue in any manner that would cause the conditions set forth in Section
7.3(c) not to be satisfied, and such a breach or untruth is not cured prior
to the earlier of thirty (30) days after delivery of notice thereof to ATC
by Target or the Termination Date; or
(d) by ATC in the event (i) neither ATC nor ATI is in material breach of
its covenants and agreements under this Agreement and none of its
representations or warranties shall have become and continue to be untrue
in any manner that would cause the condition set forth in Section 7.3(c)
not to be satisfied, and (ii) either (A) the Termination Date has occurred
without the consummation of the Merger, or (B) Target is in material breach
of its covenants and agreements under this Agreement or any of Target's
representations or warranties shall have been or become and continue to be
untrue in any manner that would cause the conditions set forth in Section
7.2(c) not to be satisfied, and such a breach or untruth is not cured prior
to the earlier of thirty (30) days after delivery of notice thereof to
Target by ATC or the Termination Date; or
(e) by ATC or Target in the event that prior to the Termination Date the
Target Stockholder Approval has not been obtained, so long as the
terminating party is not in material breach of its covenants and agreements
under this Agreement and none of its representations and warranties shall
have been or become and continue to be untrue in any manner that would
cause the conditions set forth in Section 7.2(c) or 7.3(c), as the case may
be, not to be satisfied; or
(f) by Target pursuant to and in compliance with the provisions of Section
6.5.
The term "Termination Date" shall mean April 30, 1999; provided, however, that
if FCC approval has not been obtained and/or the expiration or earlier
termination of the waiting period under the Hart-Scott-Rodino Act has not
occurred by that date, ATC may elect in its sole discretion to extend such date
to September 30, 1999, subject to the following conditions: (i) all conditions
to closing set forth in Sections 7.1, 7.2 and 7.3, other than obtaining
regulatory approval under the Hart-Scott-Rodino Act or applicable FCC rules and
regulations, shall have been fulfilled (or waived by the party whom the
condition(s) benefit) and certificates to such effect in the form of Exhibit G
shall have been delivered as of April 30, 1999 by Target and ATC, respectively,
(ii) the provisions of paragraph (c) of Section 7.1 (other than those regarding
approvals from the FCC) shall be terminated after April 30, 1999, (ii)
paragraphs (a), (b), (c) and (d) of Section 7.2 shall be terminated after April
30, 1999, and (iii) paragraphs (a), (b), and (c) of Section 7.3 shall be
terminated after April 30, 1999. If ATC elects to extend the Termination Date
to September 30, 1999, it shall give Target written notice of such extension by
no later than the close of business on April 30, 1999. If such notice has not
been so received, this Agreement shall automatically terminate with the effect
set forth in Section 8.2. In the event that ATC elects to extend the
Termination Date to September 30, 1999, this Agreement may thereafter
I-34
<PAGE>
only be terminated prior to the Effective Time pursuant to paragraphs (a), (b)
and (f) of Section 8.1 or in the event of failure of Target Stockholder
Approval to have been obtained.
The right of ATC or Target to terminate this Agreement pursuant to this Section
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party, any Person controlling any
such party or any of their respective Representatives whether prior to or after
the execution of this Agreement.
8.2 Effect of Termination. Except as provided in Sections 6.1 (with respect to
confidentiality), 6.3, 6.13 and 9.2 and this Section, in the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void, there shall be no liability on the part of any party, or
any of their respective stockholders, officers or directors, to the other and
all rights and obligations of any party shall cease; provided, however, that
such termination shall not relieve any party from liability for any willful or
intentional misrepresentation or breach of any of its warranties, covenants or
agreements set forth in this Agreement. In the event that this Agreement is
terminated by either party pursuant to Section 8.1(e) or by Target pursuant to
Section 8.1(f), Target shall promptly, but in no event later than two (2) days
after the date of such termination, pay ATC a fee equal to $12,000,000 in
immediately available funds. ATC and Target agree in advance that actual
damages would be difficult to ascertain and that $12,000,000 is a fair and
equitable reimbursement to ATC for damages sustained due to Target's failure to
consummate the Merger for the reasons specified in this Section.
Notwithstanding the foregoing, each party shall have the right to seek specific
performance of this Agreement pursuant to the provisions of Section 9.4. If,
however, such termination relates to the provisions of Section 6.5, ATC's sole
rights shall be those set forth in that Section.
ARTICLE 9
General Provisions
9.1 Waivers; Amendments. Changes in or additions to this Agreement may be made,
or compliance with any term, covenant, agreement, condition or provision set
forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the
consent in writing of the parties hereto. No delay on the part of either party
at any time or times in the exercise of any right or remedy shall operate as a
waiver thereof. Any consent may be given subject to satisfaction of conditions
stated therein. The failure to insist upon the strict provisions of any
covenant, term, condition or other provision of this Agreement or to exercise
any right or remedy hereunder shall not constitute a waiver of any such
covenant, term, condition or other provision hereof or default in connection
therewith. The waiver of any covenant, term, condition or other provision
hereof or default hereunder shall not affect or alter this Agreement in any
other respect, and each and every covenant, term, condition or other provision
of this Agreement shall, in such event, continue in full force and effect,
except as so waived, and shall be operative with respect to any other then
existing or subsequent default in connection herewith.
9.2 Fees and Expenses. All costs and expenses incurred in connection with any
transfer Taxes, sales Taxes, recording or documentary Taxes, stamps or other
charges levied by any Authority in connection with this Agreement and the
consummation of the Merger shall be borne equally by Target and ATC, all Hart-
Scott-Rodino filing fees and expenses, if any, shall be borne by the party
making such filing, and all other costs and expenses incurred in connection
with this Agreement and the consummation of the Merger, including without
limitation fees and disbursements of counsel, financial advisors and
accountants incurred by the parties hereto, shall, unless otherwise provided
herein, be borne solely and entirely by the party which has incurred such costs
and expenses.
9.3 Notices. All notices and other communications which by any provision of
this Agreement are required or permitted to be given shall be given in writing
and shall be deemed to have been delivered (a) three (3) business days after
being mailed by first-class or express mail, postage prepaid, (b) the next day
when sent
I-35
<PAGE>
overnight by recognized courier service, (c) upon confirmation when sent by
telex, telegram, telecopy or other form of rapid transmission, confirmed by
mailing (by first class or express mail, postage prepaid, or by recognized
courier service) written confirmation at substantially the same time as such
rapid transmission, or (d) upon delivery when personally delivered to the
receiving party (which if other than an individual shall be an officer or other
responsible party of the receiving party). All such notices and communications
shall be mailed, sent or delivered as follows:
(a) If to ATC or ATI:
116 Huntington Avenue
Boston, Massachusetts 02116
Attention: Joseph L. Winn, Chief Financial Officer
Telecopier No.: (617) 375-7575
with a copy to (which shall not constitute notice to ATC or ATI):
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Norman A. Bikales, Esq.
Telecopier No.: (617) 338-2880
(b) If to Target:
OmniAmerica, Inc.
200 Crescent Court,
Suite 1600
Dallas, Texas 75201
Attention: Jack D. Furst
Telecopier No.: (214) 740-7313
with a copy to (which shall not constitute notice to Target):
Weil, Gotshal & Manges, LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby, Esq.
Telecopier No.: (214) 746-7777
or to such other person(s), telex or facsimile number(s) or address(es) as the
party to receive any such communication or notice may have designated by
written notice to the other party.
9.4 Specific Performance; Other Rights and Remedies. Each party recognizes and
agrees that in the event the other party should refuse to perform any of its
obligations under this Agreement or any Collateral Document, the remedy at law
would be inadequate and agrees that for breach of such provisions, each party
shall, in addition to such other remedies as may be available to it at law or
in equity, be entitled to injunctive relief and to enforce its rights by an
action for specific performance to the extent permitted by Applicable Law. Each
party hereby waives any requirement for security or the posting of any bond or
other surety in connection with any temporary or permanent award of injunctive,
mandatory or other equitable relief. Nothing herein contained shall be
construed as prohibiting any party from pursuing any other remedies available
to it pursuant to the provisions of this Agreement or Applicable Law for such
breach or threatened breach, including without limitation the recovery of
damages; provided, however, that none of the parties shall pursue, and each
party hereby waives, any punitive, incidental and consequential damages arising
out of this Agreement (including without limitation damages for diminution in
value and loss of anticipated profits).
I-36
<PAGE>
9.5 Severability. If any term or provision of this Agreement shall be held or
deemed to be, or shall in fact be, invalid, inoperative, illegal or
unenforceable as applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in all cases, because of the
conflicting of any provision with any constitution or statute or rule of public
policy or for any other reason, such circumstance shall not have the effect of
rendering the provision or provisions in question invalid, inoperative, illegal
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative, illegal or unenforceable to the extent that such other provisions
are not themselves actually in conflict with such constitution, statute or rule
of public policy, but this Agreement shall be reformed and construed in any
such jurisdiction or case as if such invalid, inoperative, illegal or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case. Notwithstanding the
foregoing, in the event of any such determination the effect of which is to
affect materially and adversely any party, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by Applicable
Law in an acceptable manner to the end that the Transactions are fulfilled and
consummated to the maximum extent possible.
9.6 Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, binding upon all of the parties. In
pleading or proving any provision of this Agreement, it shall not be necessary
to produce more than one set of such counterparts.
9.7 Section Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.8 Governing Law. The validity, interpretation, construction and performance
of this Agreement shall be governed by, and construed in accordance with, the
applicable laws of the United States of America and the laws of State of New
York applicable to contracts made and performed in such State and, in any
event, without giving effect to any choice or conflict of laws provision or
rule that would cause the application of domestic substantive laws of any other
jurisdiction, except to the extent the DCL applies to the Merger. Anything in
this Agreement to the contrary notwithstanding, in the event of any dispute
between the parties which results in a Legal Action, the prevailing party shall
be entitled to receive from the non-prevailing party reimbursement for
reasonable legal fees and expenses incurred by such prevailing party in such
Legal Action.
9.9 Entire Agreement. This Agreement (together with the Target Disclosure
Schedule, the Exhibits hereto and the other documents delivered or to be
delivered in connection herewith) constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements, covenants, promises, conditions, undertakings,
inducements, representations, warranties and negotiations, expressed or
implied, oral or written, between the parties, with respect to the subject
matter hereof, including without limitation any previously executed
confidentiality agreement. Each of the parties is a sophisticated Entity that
was advised by experienced counsel and, to the extent it deemed necessary,
other advisors in connection with this Agreement. Each of the parties hereby
acknowledges that (a) none of the parties has relied or will rely in respect of
this Agreement or the transactions contemplated hereby upon any document or
written or oral information previously furnished to or discovered by it or its
representatives, other than this Agreement (or such of the foregoing as are
delivered at the Closing), (b) there are no covenants or agreements by or on
behalf of any party or any of its respective Affiliates or representatives
other than those expressly set forth in this Agreement and the Collateral
Documents, and (c) the parties' respective rights and obligations with respect
to this Agreement and the events giving rise thereto will be solely as set
forth in this Agreement and the Collateral Documents. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT AND ANY COLLATERAL
DOCUMENT, NONE OF THE PARTIES MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES,
AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY
ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
I-37
<PAGE>
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR
THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH
RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.10 Assignment. This Agreement shall not be assignable by any party and any
such assignment shall be null and void, except that it shall inure to the
benefit of and be binding upon any successor to any party by operation of law,
including by way of merger, consolidation or sale of all or substantially all
of its assets, and ATC and ATI may assign its rights and remedies hereunder to
any bank or other financial institution which has loaned funds or otherwise
extended credit to it.
9.11 Parties in Interest. This Agreement shall be binding upon and inure solely
to the benefit of each party, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except as
otherwise provided in Sections 6.9, 6.12, 6.14 and 9.10.
9.12 Non-Survival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants and agreements
in this Agreement shall survive the Merger, and after effectiveness of the
Merger neither party nor any of its respective officers, directors or
stockholders shall have any further obligation with respect thereto. This
Section shall not limit any covenant or agreement of the parties which by its
terms contemplates performance after the Effective Time.
9.13 Mutual Drafting. This Agreement is the result of the joint efforts of
Target and ATC, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of the parties and there shall be no
construction against any party based on any presumption of that party's
involvement in the drafting thereof.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
I-38
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
American Tower Corporation
/s/ Steven B. Dodge
By: ----------------------------------
Name: Steven B. Dodge
Title:Chief Executive Officer
American Towers, Inc.
/s/ Steven B. Dodge
By: ----------------------------------
Name: Steven B. Dodge
Title:Chief Executive Officer
OmniAmerica, Inc.
/s/ Jack D. Furst
By: ----------------------------------
Name: Jack D. Furst
Title:Chairman of the Board
I-39
<PAGE>
APPENDIX A
DEFINITIONS
Affiliate, Affiliated shall mean, with respect to any Person, (a) any other
Person at the time directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person, (b) any other Person of
which such Person at the time owns, or has the right to acquire, directly or
indirectly, five percent (5%) or more of any class of the capital stock or
beneficial interest, (c) any other Person which at the time owns, or has the
right to acquire, directly or indirectly, five percent (5%) or more of any
class of the capital stock or beneficial interest of such Person, (d) any
executive officer or director of such Person, (e) with respect to any
partnership, joint venture or similar Entity, any general partner thereof, and
(f) when used with respect to an individual, shall include any member of such
individual's Immediate Family or a family trust.
Agreement shall mean this Agreement as originally in effect, including, unless
the context otherwise specifically requires, this Appendix A, the Target
Disclosure Schedule, and all exhibits hereto, and as any of the same may from
time to time be supplemented, amended, modified or restated in the manner
herein or therein provided.
Alternative Transaction shall mean a transaction or series of related
transactions (other than the Transactions) resulting in or likely to result in
(a) any Change of Control of Target, (b) any merger, consolidation or other
business combination of Target, regardless of whether Target is the surviving
Entity unless the surviving Entity remains obligated under this Agreement to
the same extent as Target was, (c) any tender offer or exchange offer for, or
any acquisition of, any securities of Target, (d) any sale or other disposition
of all or any substantial part of the assets or business of Target, (e) any
issue or sale, or any agreement to issue or sell, any capital stock,
Convertible Securities or Option Securities of Target that could result in a
Change of Control of Target.
Applicable Law shall mean any Law of any Authority, whether domestic or
foreign, including without limitation the FCA and all federal and state
securities and Environmental Laws, to which a Person is subject or by which it
or any of its business or operations is subject or any of its property or
assets is bound.
ATC shall have the meaning given to it in the Preamble.
ATC Common Stock shall have the meaning given to it in Section 3.1.
ATC Financial Statements shall have the meaning given to it in Section 5.2.
ATC Option Plan shall have the meaning given to it in Section 5.5.
ATC Options shall have the meaning given to it in Section 6.9.
ATC Registration Statement shall have the meaning given to it in Section
6.11(a).
ATC SEC Documents shall have the meaning given to it in Section 5.2.
ATC Transaction Prospectus shall have the meaning given to it in Section
6.11(c).
ATC Voting Agreement shall have the meaning given to it in Section 7.3(i).
ATC's knowledge (or words of similar import) shall mean the actual knowledge of
any director or executive officer of ATC or ATI, as such knowledge exists on
the date of this Agreement, after reasonable review of appropriate ATC and ATI
records and after reasonable inquiry of appropriate ATC and ATI employees.
ATI shall have the meaning given to it in the Preamble.
I-40
<PAGE>
Authority shall mean any governmental or quasi-governmental authority, whether
administrative, executive, judicial, legislative or other, or any combination
thereof, including without limitation any federal, state, territorial, county,
municipal or other government or governmental or quasi-governmental agency,
arbitrator, authority, board, body, branch, bureau, or comparable agency or
Entity, commission, corporation, court, department, instrumentality, mediator,
panel, system or other political unit or subdivision or other Entity of any of
the foregoing, whether domestic or foreign, including without limitation the
FCC.
Business Plan shall have the meaning given to it in Section 6.6.
Certificate shall have the meaning given to it in Section 3.1.
Change of Control shall mean the acquisition, directly or indirectly, by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
of twenty percent (20%) or more of the Target Common Stock.
Claims shall mean any and all debts, liabilities, obligations, losses, damages,
deficiencies, assessments and penalties, together with all Legal Actions,
pending or threatened, claims and judgments of whatever kind and nature
relating thereto, and all fees, costs, expenses and disbursements (including
without limitation reasonable attorneys' and other legal fees, costs and
expenses) relating to any of the foregoing.
Closing shall have the meaning given to it in Section 2.2.
Closing Date shall have the meaning given to it in Section 2.2.
COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Code and Part 6 of Subtitle B of
Title I of ERISA.
Code shall mean the Internal Revenue Code of 1986, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
Law, rules or regulations, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Collateral Documents shall mean the Registration Rights Agreement, the Target
Investment Letters, the Certificate of Merger and the Voting Agreement.
Confidential Information shall have the meaning given to it in Section 6.1(a).
Contract, Contractual Obligation shall mean any agreement, arrangement,
commitment, contract, covenant, indemnity, undertaking or other obligation or
liability to which Target is a party or to which it or any of the Target Assets
is subject.
Control (including the terms "controlled," "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, or the disposition of such Person's assets or properties,
whether through the ownership of stock, equity or other ownership, by contract,
arrangement or understanding, or as trustee or executor, by contract or credit
arrangement or otherwise.
Convertible Securities shall mean any evidences of indebtedness, shares of
capital stock (other than common stock) or other securities directly or
indirectly convertible into or exchangeable for shares of common stock, whether
or not the right to convert or exchange thereunder is immediately exercisable
or is conditioned upon the passage of time, the occurrence or non-occurrence or
existence or non-existence of some other Event, or both.
DCL shall have the meaning given to it in Section 2.1.
Distribution shall mean, with respect to any Person, (a) the declaration or
payment of any dividend (except dividends payable in common stock of such
Person) on or in respect of any shares of any class of capital stock
I-41
<PAGE>
of such Person or any shares of capital stock of any Subsidiary owned by a
Person other than such Person or a Subsidiary of such Person, (b) the purchase,
redemption or other retirement of any shares of any class of capital stock of
such Person or any shares of capital stock of any Subsidiary of such Person
owned by a Person other than such Person or a Subsidiary of such Person, and
(c) any other distribution on or in respect of any shares of any class of
capital stock of such Person or any shares of capital stock of any Subsidiary
of such Person owned by a Person other than such Person or a Subsidiary of such
Person.
D&O Insurance shall have the meaning given to it in Section 6.2(c).
Effective Time shall have the meaning given to it in Section 2.3.
Employment Arrangement shall mean any employment, consulting, retainer,
severance or similar contract, agreement, plan, or arrangement (exclusive of
any which is terminable within thirty (30) days without liability, penalty or
payment of any kind by Target or any of its Affiliates), or providing for
severance, termination payments, or for deferred compensation, profit-sharing,
bonuses, stock options, stock purchase or appreciation rights or other forms of
incentive compensation, or post-retirement insurance, compensation or benefits,
or any collective bargaining or other labor agreement, whether or not any of
the foregoing is subject to the provisions of ERISA, but only to the extent
that it covers or relates to any officer, employee or other Person involved in
the ownership or operation of the Target Assets or the conduct of the Target
Business or, as the case may be, the assets of ATC or the conduct of the
business of ATC.
Encumber shall mean to suffer, accept, agree to or permit the imposition of a
Lien.
Entity shall mean any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, insane or incompetent individual, business
trust, joint stock company, joint venture or other organization, entity or
business, whether acting in an individual, fiduciary or other capacity, or any
Authority.
Environmental Law shall mean any applicable Law relating to or otherwise
imposing liability or standards of conduct concerning pollution or protection
of the environment, including without limitation Laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials into the
environment (including, without limitation, ambient air, surface water, ground
water, mining or reclamation or mined land, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, generation, distribution,
use, treatment, storage, disposal, cleanup, transport or handling of Hazardous
Materials. Environmental Laws shall include without limitation, to the extent
applicable, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 6901 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.),the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), and the Surface Mining Control and Reclamation Act of
1977 (30 U.S.C. Section 1201 et seq.), and any analogous and applicable
federal, state, local or foreign Laws, and the rules and regulations
promulgated thereunder and in effect on the date hereof, and any reference to
any statutory or regulatory provision shall be deemed to be a reference to any
successor statutory or regulatory provision.
Environmental Permit shall mean any Governmental Authorization required by or
pursuant to any Environmental Law.
Environmental Report shall have the meaning given to it in Section 4.18.
ERISA shall mean the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, all as from time to time in effect, or any
successor law, rules or regulations, and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
I-42
<PAGE>
ERISA Affiliate shall mean any Person that is treated as a single employer with
Target under Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA.
Event shall mean the existence or occurrence of any act, action, activity,
circumstance, condition, event, fact, failure to act, omission, incident or
practice, or any set or combination of any of the foregoing.
Exchange Act shall mean the Securities Exchange Act of 1934, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
Law, rules or regulations, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Exchange Agent shall have the meaning given to it in Section 3.2(a).
Exchange Agent Agreement shall have the meaning given to it in Section 3.2(a).
Exchange Ratio shall have the meaning given to it in Section 3.1.
Fair Market Value shall mean, with respect to the ATC Common Stock, (a) the
average of the high and low reported sales prices, regular way, or, in the
event that no sale takes place on any day, the average of the reported high and
low bid and asked prices, regular way, in either case as reported on the
principal stock exchange on which such stock is listed, or, if not so listed,
on the Nasdaq National Market System; or (b) if such stock is not so listed,
(i) the average of the high and low bid and high and low asked prices on such
day in the over-the-counter market as reported by Nasdaq, or (ii) if bid and
asked prices for such security on any day shall not have been reported through
Nasdaq, the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm regularly making a market in such
security selected for such purpose by ATC; or (c) if such security is not
publicly traded, as determined by an independent investment banking firm
selected by ATC whose fees and expenses shall be borne by ATC.
FCA shall mean the Communications Act of 1934, and the rules and regulations
thereunder, all as from time to time in effect, or any successor Law, rules or
regulations, and any reference to any statutory or regulatory provision shall
be deemed to be a reference to any successor statutory or regulatory provision.
FCC shall mean the Federal Communications Commission and shall include any
successor Authority.
GAAP shall mean generally accepted accounting principles applied on a
consistent basis, (i) as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants ("AICPA")
and/or in statements of the Financial Accounting Standards Board that are
applicable in the circumstances as of the date in question, (ii) when not
inconsistent with such opinions and statements, as set forth in other AICPA
publications and guidelines and/or (iii) that otherwise arise by custom for the
particular industry, all as the same shall exist on the date of this Agreement.
Governmental Authorizations shall mean all approvals, concessions, consents,
franchises, licenses, permits, plans, registrations and other authorizations of
all Authorities, including without limitation the FCA and the Federal Aviation
Administration, in connection with the ownership or operation of the Target
Assets or the conduct of the Target Business.
Governmental Filings shall mean all filings, including franchise and similar
Tax filings, and the payment of all fees, assessments, interest and penalties
associated with such filings, with all Authorities.
Hart-Scott-Rodino Act shall mean the Hart-Scott-Rodino Improvement Act of 1976,
as from time to time in effect, or any successor Law, and any reference to any
statutory provision shall be deemed to be a reference to any successor
statutory provision.
Hazardous Materials shall mean and include any substance, material, waste,
constituent, compound, chemical (in whatever state of matter): (a) the presence
of which requires investigation or remediation under any
I-43
<PAGE>
applicable Environmental Law; or (b) that is defined as a "hazardous waste" or
"hazardous substance" under any applicable Environmental Law; or (c) that is
toxic, explosive, corrosive, etiologic, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is regulated with respect to
its impact on the environment by any applicable Authority or regulated by any
applicable Environmental Law; or (d) that contains gasoline, diesel fuel or
other petroleum hydrocarbons, or any by-products or fractions thereof, natural
gas, polychlorinated biphenyls ("PCBs") and PCB-containing equipment, radon or
other radioactive elements, lead, asbestos or asbestos-containing materials
("ACM"), or urea formaldehyde foam insulation.
Immediate Family shall mean, with respect to any individual, his or her
spouses, past or present, children, parents and siblings, and any of the
spouses of the foregoing, past or present, in all cases whether related by
blood, by adoption or by marriage.
Indebtedness shall mean, with respect to any Person, (a) all items, except
items of capital stock or of surplus or of general contingency or deferred tax
reserves or any minority interest in any Subsidiary of such Person to the
extent such interest is treated as a liability with indeterminate term on the
consolidated balance sheet of such Person, which in accordance with GAAP would
be included in determining total liabilities as shown on the liability side of
a balance sheet of such Person, (b) all obligations secured by any Lien to
which any property or asset owned or held by such Person is subject, whether or
not the obligation secured thereby shall have been assumed, and (c) to the
extent not otherwise included, all Contractual Obligations of such Person
constituting capitalized leases and all obligations of such Person with respect
to Leases constituting part of a sale and leaseback arrangement.
Indebtedness for Money Borrowed shall mean, with respect to Target, money
borrowed and Indebtedness represented by notes payable and drafts accepted
representing extensions of credit, all obligations evidenced by bonds,
debentures, notes or other similar instruments, the maximum amount currently or
at any time thereafter available to be drawn under all outstanding letters of
credit issued for the account of such Person, all Indebtedness upon which
interest charges are customarily paid by such Person, and all Indebtedness
(including capitalized lease obligations) issued or assumed as full or partial
payment for property or services, whether or not any such notes, drafts,
obligations or Indebtedness represent Indebtedness for money borrowed, but
shall not include (a) trade payables, (b) expenses accrued in the ordinary
course of business, (c) customer advance payments and customer deposits
received in the ordinary course of business, or (d) conditional sales
agreements not prohibited by the terms of this Agreement.
Law shall mean any (a) administrative, judicial, legislative or other action,
code, consent decree, constitution, decree, directive, enactment, finding, law,
injunction, interpretation, judgment, order, ordinance, policy statement,
proclamation, promulgation, regulation, requirement, rule, rule of law, rule of
public policy, settlement agreement, statute, or writ of any Authority,
domestic or foreign, as in effect on the date hereof; (b) the common law, or
other legal precedent; or (c) arbitrator's, mediator's or referee's award,
decision, finding or recommendation.
Lease shall mean any lease of property, whether real, personal or mixed, and
all amendments thereto, and shall include without limitation all use or
occupancy agreements.
Legal Action shall mean, with respect to any Person, any and all litigation or
legal or other actions, arbitrations, counterclaims, investigations,
proceedings, requests for material information by or pursuant to the order of
any Authority or suits, at law or in arbitration, equity or admiralty, whether
or not purported to be brought on behalf of such Person, affecting such Person
or any of such Person's business, property or assets.
Lien shall mean any of the following: mortgage; lien (statutory or other); or
other security agreement, arrangement or interest; hypothecation, pledge or
other deposit arrangement; assignment; charge; levy; executory seizure;
attachment; garnishment; encumbrance (including any easement, exception,
reservation or limitation, right of way, and the like); conditional sale, title
retention or other similar agreement, arrangement, device or restriction;
preemptive or similar right; any financing lease involving substantially the
same economic
I-44
<PAGE>
effect as any of the foregoing; the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction; restriction on
sale, transfer, assignment, disposition or other alienation; or any option,
equity, claim or right of or obligation to, any other Person, of whatever kind
and character.
material, materially or materiality for the purposes of this Agreement, shall,
unless specifically stated to the contrary, be determined without regard to the
fact that various provisions of this Agreement set forth specific dollar
amounts, but shall be determined with regard to the relevant party and its
Subsidiaries, taken as a whole.
Material Adverse Effect shall mean an Event that has an effect which is
materially adverse to the business or financial condition of ATC and its
Subsidiaries, taken as a whole, or Target and its Subsidiaries, taken as a
whole, as the case may be.
Material Agreement shall mean, with respect to Target, any Contractual
Obligation which (a) was not entered into in the ordinary course of business,
(b) was entered into in the ordinary course of business which (i) involved the
purchase, sale or lease of goods or materials, or purchase of services,
aggregating more than $100,000 annually during any of the last three fiscal
years, or (ii) involves the leasing of space on any tower of Target, (c)
involves a capitalized lease obligation or Indebtedness for Money Borrowed, (d)
is or otherwise constitutes a written agency, broker, dealer, license,
distributorship, sales representative or similar written agreement involving
annual payments in excess of $100,000, (e) accounted for more than three
percent (3%) of the revenues of the Target Business in any of the last three
fiscal years or is likely to account for more than three percent (3%) of
revenues of the Target Business during the current fiscal year, or (f) involves
the management by Target of any communication tower of any other Person.
Merger shall have the meaning given to it in the first Whereas paragraph.
Merger Consideration shall have the meaning given to it in Section 3.1.
Multiemployer Plan shall mean a Plan which is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
Option Securities shall mean all stock appreciation rights, rights, options and
warrants, and calls or commitments evidencing the right, to subscribe for,
purchase or otherwise acquire shares of capital stock or Convertible
Securities, whether or not the right to subscribe for, purchase or otherwise
acquire is immediately exercisable or is conditioned upon the passage of time,
the occurrence or non-occurrence or the existence or non-existence of some
other Event.
Organic Document shall mean, with respect to a Person which is a corporation,
its charter, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its capital stock and, with respect
to a Person which is a partnership, its agreement and certificate of
partnership, any agreements among partners, and any management and similar
agreements between the partnership and any general partners (or any Affiliate
thereof).
PBGC shall mean the Pension Benefit Guaranty Corporation and any Entity
succeeding to any or all of its functions under ERISA.
Permitted Liens shall mean (a) Liens for current Taxes not yet due and payable,
(b) such imperfections of title, easements, encumbrances and mortgages or other
Liens, if any, as are not, individually or in the aggregate, material in
character, amount or extent and do not materially detract from the value, or
materially interfere with the present use, of the property subject thereto or
affected thereby, or otherwise materially impair the conduct of the Target
Business and (c) in the case of Target, any Liens pursuant to the Target Credit
Agreements, and, in the case of ATC, the credit facilities of ATC and its
Subsidiaries.
Person shall mean any natural individual or any Entity.
I-45
<PAGE>
Personal Property shall mean all of the machinery, equipment, tools, vehicles,
furniture, leasehold improvements, office equipment, plant, inventory, spare
parts and other tangible personal property which are owned or leased by Target
and used or useful as of the date hereof in the conduct of the business or
operations of the Target Business, plus such additions thereto and deletions
therefrom arising in the ordinary course of business between the date hereof
and the Closing Date.
Plan shall mean, with respect to any Person and at a particular time, any
employee benefit plan which is covered by ERISA and in respect of which such
Person or an ERISA Affiliate is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA, but only to the extent that it covers or relates to any
officer, employee or other Person involved in the ownership and operation of
the Target Assets or the conduct of the business of the Target Business.
Private Authorizations shall mean all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all Persons (other
than Authorities) including without limitation those with respect to
intellectual property.
Real Property shall mean all of the fee estates and buildings and other
fixtures and improvements thereon, leasehold interests, easements, licenses,
rights to access, rights-of-way, and other real property interests which are
owned or used by Target as of the date hereof, in the operations of the Target
Business, plus such additions thereto and deletions therefrom arising in the
ordinary course of business between the date hereof and the Closing Date.
Registration Rights Agreement shall have the meaning given to it in Section
7.2(f).
Regulations shall mean the federal income tax regulations promulgated under the
Code, as such Regulations may be amended from time to time. All references
herein to specific sections of the Regulations shall be deemed also to refer to
any corresponding provisions of succeeding Regulations, and all references to
temporary Regulations shall be deemed also to refer to any corresponding
provisions of final Regulations.
Representatives shall have the meaning given to it in Section 6.1(a).
Restricted Transaction shall mean any (i) acquisition or agreement to acquire
(x) by merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any Person or other
business organization or division thereof or (y) any assets (other than in the
ordinary course of business which for purposes of this definition does not
include the acquisition of communications sites and related assets and other
business involved in the communications sites industry or the construction of
communications towers and related assets), or (ii) any undertaking or agreement
to undertake the construction of one or more communications towers.
SEC shall mean the Securities and Exchange Commission and shall include any
successor Authority.
Securities Act shall mean the Securities Act of 1933, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
Law, rules or regulations, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Subsidiary shall mean, with respect to a Person, any Entity a majority of the
capital stock ordinarily entitled to vote for the election of directors of
which, or if no such voting stock is outstanding, a majority of the equity
interests of which, is owned directly or indirectly, legally or beneficially,
by such Person or any other Person controlled by such Person.
Superior Proposal shall mean an Alternative Transaction that the Board of
Directors of Target determines in good faith, based on the advice of
independent counsel and Target's independent financial advisors, contains terms
and conditions, including likelihood of consummation, that are materially more
favorable to the Target
I-46
<PAGE>
stockholders that those set forth in this Agreement (as ATC may have proposed
to amend it pursuant to the provisions of Section 6.5(d)).
Surviving Corporation shall have the meaning given to it in Section 2.1.
Target shall have the meaning given to it in the Preamble.
Target Assets shall have the meaning given to it in Section 4.4(a), and shall
include as appropriate, the assets of Target's Subsidiaries, as contemplated by
Section 4.4(a) and the final sentence of Section 4.1(d).
Target Business shall have the meaning given to it in Section 4.4(b), and shall
include as appropriate, the businesses of Target's Subsidiaries, as
contemplated by Section 4.4(a) and the final sentence of Section 4.1(d).
Target Credit Agreements shall have the meaning given to it in Section 7.2.
Target Common Stock shall have the meaning given to it in Section 3.1.
Target Disclosure Schedule shall mean the Target Disclosure Schedule dated as
of the date hereof and heretofore delivered by Target to ATC.
Target Employees shall have the meaning given to it in Section 4.14.
Target Financial Statements shall have the meaning given to it in Section 4.2.
Target Information Statement shall mean the information statement to be filed
with the SEC by Target in the event Target does not solicit proxies under the
Exchange Act and is not, therefore, required to file the Target Proxy
Statement.
Target Investment Letters shall have the meaning given to it in Section 7.2(g).
Target Options shall have the meaning given to it in Section 6.9.
Target Proxy Statement shall have the meaning given to it in Section 6.11(b).
Target SEC Documents shall have the meaning given to it in Section 4.2.
Target Stockholder Approval shall have the meaning given it in Section 6.10.
Target Stockholders Meeting shall have the meaning given it in Section 6.10.
Target's knowledge (or words of similar import) shall mean the actual knowledge
of any Target director or officer, as such knowledge exists on the date of this
Agreement, after reasonable review of appropriate Target records and after
reasonable inquiry of appropriate Target employees.
Tax (and "Taxable", which shall mean subject to Tax), shall mean, with respect
to any Person, (a) all taxes (domestic or foreign), including without
limitation any income (net, gross or other including recapture of any tax items
such as investment tax credits), alternative or add-on minimum tax, gross
income, gross receipts, gains, sales, use, leasing, lease, user, ad valorem,
transfer, recording, franchise, profits, property (real or personal, tangible
or intangible), fuel, license, withholding on amounts paid to or by such
Person, payroll, employment, unemployment, social security, excise, severance,
stamp, occupation, premium, environmental or windfall profit tax, custom, duty
or other tax, or other like assessment or charge of any kind whatsoever,
together with any interest, levies, assessments, charges, penalties, additions
to tax or additional amount imposed by any Taxing Authority, (b) any joint or
several liability of such Person with any other Person for the payment of any
amounts of the type described in (a), and (c) any liability of such Person for
the payment of any
I-47
<PAGE>
amounts of the type described in (a) as a result of any express or implied
obligation to indemnify any other Person.
Tax Return or Returns shall mean all returns, consolidated or otherwise
(including without limitation information returns), required to be filed with
any Authority with respect to Taxes.
Taxing Authority shall mean any Authority responsible for the imposition of any
Tax.
Termination Date shall have the meaning given to it in Section 8.1.
Transactions shall mean the transactions contemplated to be consummated on or
prior to the Closing Date, including without limitation the Merger and the
execution, delivery and performance of the Collateral Documents.
I-48
<PAGE>
APPENDIX II
<PAGE>
Appendix II
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
By and Among
AMERICAN TOWER CORPORATION,
AMERICAN TOWERS, INC.,
ATC MERGER CORPORATION
and
TELECOM TOWERS, L.L.C.
Dated as of
December 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINED TERMS................................................ II-1
ARTICLE 2 THE MERGER................................................... II-2
2.1 The Merger.................................................... II-2
2.2 Closing....................................................... II-2
2.3 Effective Time................................................ II-2
2.4 Effect of the Merger.......................................... II-2
2.5 TCT Operating Agreement....................................... II-2
ARTICLE 3 CONVERSION OF INTERESTS...................................... II-2
3.1 Conversion of TCT Units....................................... II-2
3.2 Delivery of Merger Consideration.............................. II-4
Option Securities and Convertible Securities; No Payment
3.3 Rights........................................................ II-4
3.4 Determination of Merger Consideration......................... II-4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TCT........................ II-5
Organization and Business; Power and Authority; Effect of
4.1 Transaction................................................... II-5
4.2 Financial and Other Information............................... II-6
4.3 Material Statements and Omissions; Absence of Events.......... II-6
4.4 Title to Properties; Leases................................... II-6
4.5 Compliance with Private Authorizations........................ II-7
Compliance with Governmental Authorizations and Applicable
4.6 Law........................................................... II-8
4.7 Intangible Assets............................................. II-9
4.8 Related Transactions.......................................... II-9
4.9 Insurance..................................................... II-9
4.10 Tax Matters................................................... II-9
4.11 Employee Retirement Income Security Act of 1974............... II-10
4.12 Solvency...................................................... II-11
4.13 Bank Accounts, Etc............................................ II-11
4.14 Employment and Consulting Arrangements........................ II-11
4.15 Material Agreements........................................... II-12
4.16 Ordinary Course of Business................................... II-12
4.17 Material and Adverse Restrictions............................. II-13
4.18 Broker or Finder.............................................. II-13
4.19 Environmental Matters......................................... II-13
4.20 Capital Stock................................................. II-14
4.21 Year 2000 Compliant........................................... II-14
4.22 Materiality................................................... II-14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ATC AND ATMC............... II-15
Organization and Business; Power and Authority; Effect of
5.1 Transaction................................................... II-15
5.2 ATC SEC Reports............................................... II-16
5.3 Material Statements and Omissions; Absence of Events.......... II-16
5.4 Broker or Finder.............................................. II-16
5.5 Capital Stock................................................. II-16
Compliance with Governmental Authorizations and Applicable
5.6 Law........................................................... II-17
5.7 Materiality................................................... II-17
ARTICLE 6 COVENANTS.................................................... II-17
6.1 Access to Information; Confidentiality........................ II-17
6.2 Agreement to Cooperate; Certain Other Covenants............... II-18
6.3 Public Announcements.......................................... II-19
</TABLE>
II-i
<PAGE>
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.4 Notification of Certain Matters................................ II-19
6.5 No Solicitation................................................ II-20
6.6 Conduct of Business by TCT Pending the Merger.................. II-20
6.7 Preliminary Title Reports...................................... II-22
6.8 Environmental Site Assessments................................. II-22
6.9 Solicitation of Employees...................................... II-22
6.10 Certificate of Non-Foreign Status.............................. II-22
6.11 Tax Returns and Other Reports.................................. II-22
6.12 Section 754 Elections.......................................... II-22
ARTICLE 7 CLOSING CONDITIONS............................................. II-23
7.1 Conditions to Obligations of Each Party........................ II-23
7.2 Conditions to Obligations of ATC and ATMC...................... II-23
7.3 Conditions to Obligations of TCT............................... II-25
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER............................. II-27
8.1 Termination.................................................... II-27
8.2 Effect of Termination.......................................... II-27
ARTICLE 9 INDEMNIFICATION................................................ II-28
9.1 Survival....................................................... II-28
9.2 Indemnification................................................ II-28
9.3 Limitation of Liability........................................ II-28
9.4 Notice of Claims............................................... II-29
9.5 Defense of Third Party Claims.................................. II-29
9.6 Exclusive Remedy............................................... II-30
9.7 Indemnification of Directors and Officers...................... II-30
ARTICLE 10 GENERAL PROVISIONS............................................ II-31
10.1 Waivers; Amendments............................................ II-31
10.2 Fees, Expenses and Other Payments.............................. II-31
10.3 Notices........................................................ II-32
10.4 Specific Performance; Other Rights and Remedies................ II-33
10.5 Severability................................................... II-33
10.6 Counterparts................................................... II-33
10.7 Section Headings............................................... II-33
10.8 Governing Law; Venue........................................... II-33
10.9 Further Acts................................................... II-33
10.10 Entire Agreement............................................... II-34
10.11 Assignment..................................................... II-34
10.12 Parties in Interest............................................ II-34
10.13 Mutual Drafting................................................ II-34
10.14 TCT Disclosure Schedule........................................ II-34
10.15 ATC's Due Diligence............................................ II-35
10.16 Original Merger Agreement...................................... II-36
</TABLE>
II-ii
<PAGE>
TABLE OF CONTENTS (Continued)
<TABLE>
<S> <C> <C>
APPENDIX A: Definitions
EXHIBITS:
EXHIBIT A: New TCT Operating Agreement (Section 2.5)
EXHIBIT B: Opinion of TCT Counsel (Section 7.2(b)).
EXHIBIT C: Registration Rights Agreement (Section 7.2(m)).
EXHIBIT D: TCT Investment Letter (Section 7.2(n)).
EXHIBIT E: ATC Noncompetition Agreements (Section 7.2(p)).
EXHIBIT F: Indemnity Escrow Agreement (Section 7.2(s)).
EXHIBIT G: Opinion of Sullivan & Worcester LLP (Section 7.3(b)).
EXHIBIT H: ATC Voting Agreement (Section 7.3(h)).
EXHIBIT I: Cox Special Release (Section 7.2(t)).
</TABLE>
II-iii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Amended and Restated Agreement and Plan of Merger, dated as of December 18,
1998, by and among American Tower Corporation, a Delaware corporation ("ATC"),
American Towers, Inc., a Delaware corporation ("ATI"), ATC Merger Corporation,
a Delaware corporation ("ATMC"), and TeleCom Towers, L.L.C., a Delaware
limited liability company ("TCT").
W I T N E S S E T H:
WHEREAS, ATC, ATI and TCT are parties to an Agreement and Plan of Merger,
dated as of November 16, 1998 (the "Original Merger Agreement"), providing for
the merger of TCT with and into ATI on the terms and conditions set forth
therein; and
WHEREAS, ATC, ATI, ATMC and TCT desire to amend and restate the Original
Merger Agreement in its entirety to make certain changes to the Original
Merger Agreement; and
WHEREAS, ATC, ATI, ATMC and TCT have entered into this Amended and Restated
Agreement and Plan of Merger (this "Agreement") providing that ATMC shall be
merged with and into TCT, which shall be the surviving entity, on the terms
and conditions set forth in this Agreement (the "Merger").
WHEREAS, the Boards of Directors of ATC, ATI and ATMC and the Management
Committee of TCT have determined that the Merger on the terms and conditions
set forth in this Agreement and Plan of Merger (this "Agreement") is
consistent with and in furtherance of the long-term business strategy of each,
and is fair to, and in the best interests of, the stockholder of ATMC and the
members of TCT (the "TCT Members"); and
WHEREAS, the Boards of Directors of ATMC and the Management Committee of TCT
have approved and adopted this Agreement and have directed that this Agreement
be submitted to the stockholder of ATMC and the members of TCT, respectively,
for their adoption and approval; and
WHEREAS, the Board of Directors of ATI has approved and adopted this
Agreement and approved the Merger on behalf of ATMC as the sole stockholder of
ATMC; and
WHEREAS, as a condition of the willingness of ATC and ATMC to enter into
this Agreement, and as an inducement thereto, TCT Members with the interests
in TCT required for TCT's approval of the Merger and this Agreement are
delivering their written consents approving and adopting the Merger and this
Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained and other valuable
consideration, the receipt and adequacy whereof are hereby acknowledged, the
parties hereto hereby, intending to be legally bound, represent, warrant,
covenant and agree as follows:
ARTICLE 1
DEFINED TERMS
As used herein, unless the context otherwise requires, the terms defined in
Appendix A shall have the respective meanings set forth therein. The term
"TCT" as used in Appendix A shall include all Subsidiaries of TCT, except as
the context otherwise clearly requires. Terms defined in the singular shall
have a comparable meaning when used in the plural, and vice versa, and the
reference to any gender shall be deemed to include all genders. Unless
otherwise defined or the context otherwise clearly requires, terms for which
meanings are provided in this Agreement shall have such meanings when used in
the TCT Disclosure Schedule, and each Collateral Document executed or required
to be executed pursuant hereto or thereto or otherwise delivered, from
II-1
<PAGE>
time to time, pursuant hereto or thereto. References to "hereof," "herein" or
similar terms are intended to refer to the Agreement as a whole and not a
particular section, and references to "this Section" or "this Article" are
intended to refer to the entire section or article and not a particular
subsection thereof. The term "either party" shall, unless the context
otherwise requires, refer to ATC, ATI and ATMC, on the one hand, and TCT, on
the other hand.
ARTICLE 2
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law
(the "DCL"), and the Delaware Limited Liability Company Act (the "DLLCA"), at
the Effective Time, ATMC shall be merged with and into TCT. As a result of the
Merger, the separate corporate existence of ATMC shall cease and TCT shall
continue as the surviving Entity in the Merger (sometimes referred to, as
such, as the "Surviving Entity").
2.2 Closing. Unless this Agreement shall have been terminated pursuant to
Section 9.1 and subject to the satisfaction or, to the extent permitted by
Applicable Law, waiver of the conditions set forth in Article 8, the closing
of the Merger (the "Closing") will take place, at 10:00 a.m., on the Closing
Date, at the offices of Sullivan & Worcester LLP, One Post Office Square,
Boston, Massachusetts 02109, on the later of (a) January 4, 1999 and (b) a
date set by mutual agreement within ten (10) business days after the
satisfaction of the conditions set forth in Sections 7.1(b), 7.1(c) and 7.2(d)
(unless any such condition is waived by the party entitled to make such
waiver) shall have been satisfied or waived, unless another date, time or
place is agreed to in writing by the parties. The date on which the Closing
occurs is herein referred to as the "Closing Date."
2.3 Effective Time. Subject to the provisions of this Agreement, as promptly
as practicable after the Closing, the parties hereto shall cause the Merger to
be consummated by filing a Certificate of Merger and any related filings
required under the DCL or the DLLCA with the Secretary of State of the State
of Delaware. The Merger shall become effective at such time as such documents
are duly filed as aforesaid, or at such later time as is specified in such
documents (the "Effective Time").
2.4 Effect of the Merger. The Merger shall have the effects provided for
under the DCL and the DLLCA.
2.5 TCT Operating Agreement. The Amended and Restated Operating Agreement of
TCT, as in effect immediately prior to the Effective Time, shall be amended
and restated to read in its entirety as set forth in Exhibit A attached hereto
and made a part hereof (the "New TCT Operating Agreement"), and as such shall
be the operating agreement of the Surviving Entity until thereafter changed or
amended as provided therein or by Applicable Law.
ARTICLE 3
CONVERSION OF INTERESTS
3.1 Conversion of TCT Units At the Effective Time, by virtue of the Merger
and without any action on the part of ATC, ATMC or TCT or their respective
stockholders or members, as the case may be:
(a) Each share of Common Stock, par value $.01 per share, of ATMC issued
and outstanding immediately prior to the Effective Time shall be converted
into one TCT Interest (as defined in the New TCT Operating Agreement); and
(b) Each Class A Unit of TCT and each Class B Unit of TCT (collectively,
the "TCT Units") issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive its pro-rata
share of the Merger Consideration.
II-2
<PAGE>
The term "Merger Price" shall mean an amount equal to the amount determined
by (i) subtracting from $148.75 million, the amount, if any, by which the
Indebtedness for Money Borrowed of TCT and its Subsidiaries at the Effective
Time (computed on a consolidated basis in accordance with GAAP) exceeds (ii)
the sum of (x) $30.0 million and (y) the aggregate amount (including
acquisition costs) TCT has paid subsequent to the execution and delivery of
the Original Agreement and prior to the Effective Time for any and all
acquisitions including ComSites USA and the remaining general partnership
interests in Mid Pacific (for an amount not in excess of $5.5 million) or
capital expenditures, and (iii) adding the amount by which the Current Balance
as of the Effective Time exceeds zero or subtracting the amount by which the
Current Balance as of the Effective Time is less than zero. The term "Merger
Consideration" shall mean and shall be paid in (i) shares (the "ATC Stock
Consideration") of Class A Common Stock, par value $.01 per share, of ATC (the
"ATC Common Stock") in an amount equal to sixty percent (60%) of the Merger
Price (before adjustment pursuant to clause (iii) of the immediately preceding
sentence) and (ii) cash for the balance of the Merger Price (the "Cash
Consideration"). (For example, assuming Indebtedness for Borrowed Money equal
to $30.0 million and no capital expenditures, if the Current Balance equals
$10.0 million, the Merger Consideration shall be equal to $158.75 million,
payable $89.25 million in ATC Common Stock and $69.5 million in Cash
Consideration. With the same assumptions, if the Current Balance equals ($10.0
million), the Merger Consideration shall be equal to $138.75 million, payable
$89.25 million in ATC Common Stock and $49.5 million in Cash Consideration.)
The Cash Consideration and the ATC Stock Consideration shall be paid or
issued, as applicable, to each TCT Member in the same proportion that the
number of TCT Units held by such TCT Member bears to the aggregate number of
TCT Units held by all TCT Members, in all cases without distinction between
classes of TCT Units. For purposes of determining the number of shares of ATC
Common Stock issuable as the ATC Stock Consideration, the amount of the Merger
Price payable in ATC Common Stock will be divided by the Current Market Price,
subject to adjustment as provided in the following paragraph.
In the event the Closing Date Share Price is less than $17.75 (the Current
Market Price ($21.25) minus $3.50 per share) (the "Floor Share Price"), the
ATC Stock Consideration shall be increased by a number of shares of ATC Common
Stock determined as follows:
(i) Divide the ATC Stock Consideration by the Floor Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (i) from the amount
determined under paragraph (ii).
In the event the Closing Date Share Price exceeds $24.75 (the Current Market
Price ($21.25) plus $3.50 per share) (the "Ceiling Share Price") the ATC Stock
Consideration shall be decreased by a number of shares of ATC Common Stock
determined as follows:
(i) Divide the ATC Stock Consideration by the Ceiling Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (ii) from the amount
determined under paragraph (i).
At the Effective Time, all TCT Units shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of TCT Units shall have, instead, the right to receive, in accordance
with the provisions of Section 3.2, its pro rata share of the Merger
Consideration. In lieu of issuing fractional shares, ATC shall convert the
holder's right to receive ATC Common Stock pursuant to the provisions of this
Section into a right to receive (i) the highest whole number of shares of ATC
Common Stock to which the holder would otherwise be entitled, plus (ii) cash
equal to the fraction of a share of ATC Common Stock to which the holder would
otherwise be entitled multiplied by the Fair Market Value of one share of ATC
Common Stock as of the Effective Time. As of the Effective Time, the holders
of TCT Units outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to such TCT Units, except as otherwise
provided herein or by Applicable Law.
II-3
<PAGE>
3.2 Delivery of Merger Consideration At and after the Effective Time, each
TCT Member, upon the execution and delivery to ATC of a certificate, in
substantially the form heretofore agreed upon by ATC and TCT, with respect to
such TCT Units and its ownership thereof, shall be entitled to receive (a) its
pro rata share of the Cash Consideration and (b) a certificate for ATC Common
Stock representing the highest number of whole shares constituting its pro
rata share of the ATC Stock Consideration and cash in an amount sufficient to
make payment for any fractional share constituting a part of its pro rata
share of ATC Stock Consideration, in each case representing the Merger
Consideration with respect to the TCT Units formerly held by such TCT Member
in accordance with the provisions of this Article, subject, however, to the
provisions of the Indemnity Escrow Agreement. ATC shall be entitled to deduct
and withhold from cash or ATC Common Stock otherwise payable pursuant to this
Agreement such amounts of cash or ATC Common Stock as ATC shall deem necessary
to satisfy any requirement for deduction or withholding with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by ATC, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the TCT Member in respect of which such deduction and withholding
was made by ATC.
3.3 Option Securities and Convertible Securities; No Payment Rights. At the
Effective Time, each outstanding Option Security and each Convertible Security
of TCT, if any, whether or not then exercisable for or convertible into TCT
Units or other TCT securities, outstanding immediately prior to the Effective
Time, shall be canceled and retired and shall cease to exist, and the holder
thereof shall not be entitled to receive any consideration therefor.
3.4 Determination of Merger Consideration. Not later than ten (10) days
prior to the Closing Date, TCT shall submit to ATC its preliminary
determination of the amount of the Merger Consideration determined in
accordance with the provisions of Section 3.1. Within seven (7) days
thereafter, ATC shall submit to TCT its objections, if any, to such
preliminary determination, specifying in reasonable detail the nature of such
objections. The parties shall use their reasonable business efforts to agree
upon the amount of the Merger Consideration, but in the event they are unable
to do so, then (a) the Merger shall be consummated (assuming that all other
conditions thereto shall have been satisfied), (b) the Merger Consideration at
the Effective Time shall be comprised of the Cash Consideration and the ATC
Stock Consideration as provided in this Section, and (c) a post-Effective Time
adjusting cash payment (if any) shall be made by ATC to the TCT Members as
provided in this Section. In the event the parties are unable to agree as
aforesaid, then (a) the ATC Stock Consideration at the Effective Time shall be
the ATC Stock Consideration determined by TCT, and (b) the Cash Consideration
at the Effective Time shall be the Cash Consideration determined by TCT
reduced by an amount equal to the sum (the "Adjustment Holdback") of (i) the
difference between the Cash Consideration determined by TCT and that
determined by ATC, and (ii) the difference (valued at the Current Market
Price) between the ATC Stock Consideration determined by TCT and that
determined by ATC, in each case using Merger Considerations determined
pursuant to the provisions of Section 3.1. To the extent the parties are
unable to agree upon the amount of the Current Balance, the Adjustment
Holdback shall consist of cash, and to the extent the parties are unable to
agree upon the aggregate amount of acquisition expense and capital
expenditures of TCT referred to in clause (ii) of the second sentence of
Section 3.1, the Adjustment Holdback shall consist of ATC Common Stock and
cash in the proportions specified in Section 3.1. Under such circumstances,
TCT and ATC shall, within ten (10) days following the Effective Time, jointly
designate a nationally known independent public accounting firm to be retained
to determine the amount of the Current Balance and aggregate amount of
acquisition expenses and capital expenditures of TCT referred to in clause
(ii) of the second sentence of Section 3.1. The fees and other expenses of
retaining such independent public accounting firm shall be borne by ATC and
TCT (prior to Closing) and the TCT Members (out of the Adjustment Holdback
after the Closing) in inverse proportion to its determination of the contested
amount of the Merger Consideration. Such firm shall report its conclusions
pursuant to this Section, and such report shall be conclusive on all parties
to this Agreement and not subject to dispute or review. Upon determination by
such independent accounting firm (or sooner agreement of the Merger
Consideration by the parties), ATC shall deliver to the TCT Members, as their
interests may appear, the amount of the Adjustment Holdback, if any, to which
they are entitled, together with interest on the cash portion thereof at the
rate of ten percent (10%) per annum.
II-4
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TCT
All representations and warranties, unless the context indicates otherwise,
exclude RCC, Prime and TTP which will be distributed by TCT to some or all TCT
Members prior to the Merger. TCT hereby represents and warrants to ATC and
ATMC as follows:
4.1 Organization and Business; Power and Authority; Effect of Transaction.
(a) TCT is a limited liability company duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
requisite power and authority (limited liability company and other) to own or
hold under lease its properties and to conduct its business as now conducted
and is duly qualified and in good standing as a foreign limited liability
company in each other jurisdiction (as shown on Section 4.1(a) of the TCT
Disclosure Schedule) in which the character of the property owned or leased by
it or the nature of its business or operations requires such qualification,
except for such qualifications the failure of which to obtain, individually or
in the aggregate, would not have a material adverse effect on TCT.
(b) TCT has all requisite power and authority (limited liability company and
other) necessary to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each Collateral Document executed or
required to be executed by it pursuant hereto or thereto and to consummate the
Transactions; and the execution, delivery and performance by TCT of this
Agreement and each Collateral Document executed or required to be executed by
it pursuant hereto or thereto have been duly authorized by all requisite
limited liability company or other action on the part of TCT, including
without limitation the requisite approval of the TCT Members, if any. The
affirmative vote of the holders of TCT Units representing a majority of the
outstanding voting power of all TCT Units is sufficient to approve and adopt
this Agreement and the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by TCT and constitutes, and
each Collateral Document executed or required to be executed by it pursuant
hereto or thereto or to consummate the Transactions when executed and
delivered by TCT will constitute, legal, valid and binding obligations of TCT,
enforceable in accordance with their respective terms, except as such
enforceability may be subject to bankruptcy, moratorium, insolvency,
reorganization, arrangement, voidable preference, fraudulent conveyance and
other similar Laws relating to or affecting the rights of creditors and except
as the same may be subject to the effect of general principles of equity.
(c) Except as set forth in Section 4.1(c) of the TCT Disclosure Schedule,
neither the execution and delivery by TCT of this Agreement or any Collateral
Document executed or required to be executed by it pursuant hereto or thereto,
nor the consummation of the Transactions, nor compliance with the terms,
conditions and provisions hereof or thereof by TCT:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Organic Document of TCT or any Applicable
Law, or will conflict with, or result in a breach or violation of, or
constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of giving of notice or passage of
time or both would constitute such a conflict with, breach or violation of,
or default under, or permit any such acceleration in, any Material
Agreement of TCT; or
(ii) will require TCT to make or obtain any Governmental Authorization,
Governmental Filing or Private Authorization, except (A) filings under the
Hart-Scott-Rodino Act, (B) for FCC approvals, and (C) the filing of the
Certificate of Merger with the Delaware Secretary of State.
(d) Except as set forth in Section 4.1(d) of the TCT Disclosure Schedule,
TCT does not have any Subsidiaries, and each such disclosed Subsidiary is (i)
wholly-owned unless noted otherwise in Section 4.1(d) of the TCT Disclosure
Schedule, (ii) a corporation or other Entity which is duly organized, validly
existing and in good standing under the laws of the respective state of
incorporation or formation set forth opposite its name on Section 4.1(d) of
the TCT Disclosure Schedule, and (iii) duly qualified and in good standing as
a foreign corporation or Entity in each other jurisdiction (as shown on
Section 4.1(d) of the TCT Disclosure Schedule) in
II-5
<PAGE>
which the character of the property owned or leased by it or the nature of its
business or operations requires such qualification, with full power and
authority (corporate, partnership, limited liability company and other) to
carry on the business in which it is engaged, except for such qualifications
the failure of which to obtain, individually or in the aggregate, would not
have a material adverse effect on TCT. TCT owns, directly or indirectly, all
of the outstanding capital stock or equity interests (as shown in Section
4.1(d) of the TCT Disclosure Schedule) of each Subsidiary, free and clear of
all Liens (except for restrictions on transfer of partnership interests set
forth in partnership agreements, as listed on Section 4.1(d) of the TCT
Disclosure Schedule, and as described in the notes to the TCT Financial
Statements), and all such stock or other equity interests has been duly
authorized and validly issued and is fully paid and nonassessable. Except as
set forth in Section 4.1(d) of the TCT Disclosure Schedule, there are no
outstanding Option Securities or Convertible Securities, or agreements or
understandings of any nature whatsoever, relating to the authorized and
unissued or outstanding capital stock or equity interests of any Subsidiary of
TCT. Except as the context otherwise requires, the representations and
warranties of TCT set forth in this Article shall apply to each of such
Subsidiaries with the same force and effect as though each of them were named
in each Section of this Article.
4.2 Financial and Other Information. TCT has heretofore made available to
ATC copies of the financial statements of TCT listed in Section 4.2 of the TCT
Disclosure Schedule (the "TCT Financial Statements"). The TCT Financial
Statements, including in each case the notes thereto, have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, except as otherwise noted therein, are true, accurate and
complete in all material respects, and fairly present the consolidated
financial condition and the consolidated results of operations and cash flow
of TCT, on the bases therein stated, as of the respective dates thereof, and
for the respective periods covered thereby subject, in the case of unaudited
financial statements, to normal nonmaterial year-end audit adjustments and
accruals. The Monthly Tower Revenue Run Rate of TCT for the month of October
1998 was not less than $1,050,000.
4.3 Material Statements and Omissions; Absence of Events. Neither any
representation or warranty made by TCT contained in this Agreement or any
certificate, document or other instrument furnished or to be furnished by TCT
pursuant to the provisions hereof nor the TCT Disclosure Schedule contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to make any statement contained herein or
therein, in light of the circumstances under which they were made, not
misleading. Since the date of the most recent financial statements
constituting a part of the TCT Financial Statements, except to the extent
specifically described in Section 4.3 of the TCT Disclosure Schedule, there
has been no change with respect to TCT which has had, or (so far as TCT can
now reasonably foresee) is likely to have, a material adverse effect on TCT.
There is no Event known to TCT which has had, or (so far as TCT can now
reasonably foresee) is likely to have, a material adverse effect on TCT,
except to the extent specifically described in Section 4.3 of the TCT
Disclosure Schedule.
4.4 Title to Properties; Leases.
(a) Section 4.4(a) of the TCT Disclosure Schedule contains a true, accurate
and complete description of real property owned by TCT. TCT has good
indefeasible, marketable and insurable title to all such real property (other
than easement and leasehold real property) and good indefeasible and
marketable title to all of its other property and assets, tangible and
intangible (collectively, the "TCT Assets"); all of the TCT Assets are so
owned, in each case, free and clear of all Liens, except (i) Permitted Liens,
and (ii) Liens set forth on Section 4.4(a) of the TCT Disclosure Schedule
(which Liens shall be released prior to the Closing). Except for financing
statements evidencing Liens referred to in the immediately preceding sentence
(a true, accurate and complete list and description of which is set forth in
Section 4.4(a) of the TCT Disclosure Schedule), no financing statements under
the Uniform Commercial Code and no other filing which names TCT as debtor or
which covers or purports to cover any of the TCT Assets is on file in any
state or other jurisdiction, and TCT has not signed or agreed to sign any such
financing statement or filing or any agreement authorizing any secured party
thereunder to file any such financing statement or filing. Except as disclosed
in Section 4.4(a) of the TCT Disclosure Schedule, all improvements on the real
property owned or leased by TCT which improvements are owned by TCT are in
compliance with applicable zoning, wetlands and land use laws, ordinances and
regulations and applicable title
II-6
<PAGE>
covenants, conditions, restrictions and reservations in all respects necessary
to conduct the operations as presently conducted, except for any instances of
non-compliance which, individually or in the aggregate, do not and will not
have a material adverse effect on the TCT Assets taken as a whole. Except as
disclosed in Section 4.4(a) of the TCT Disclosure Statement, all such
improvements comply in all material aspects with all Applicable Laws,
Governmental Authorizations and Private Authorizations. Except as disclosed in
Section 4.4(a) of the TCT Disclosure Statement, and except as would not,
individually or in the aggregate, have a material adverse effect on TCT, all
of the transmitting towers, ground radials, guy anchors, transmitting
buildings and related improvements, if any, located on the real property owned
or leased by TCT are located entirely on such real property. There is no
pending or, to TCT's knowledge, threatened or contemplated action to take by
eminent domain or otherwise to condemn any material part of any real property
owned or leased by TCT. Except as set forth in Section 4.4(a) of the TCT
Disclosure Schedule, such transmitting towers, ground radials, guy anchors,
transmitting buildings and related improvements and other material items of
personal property, including equipment are, in TCT's reasonable business
judgment, in a state of good repair and maintenance and sound operating
condition, normal wear and tear excepted, have been maintained in a manner
consistent with generally accepted standards of sound engineering practice,
and, currently permit the TCT Business to be operated in all material respects
in accordance with the terms and conditions of all Applicable Laws,
Governmental Authorizations and Private Authorizations.
(b) Section 4.4(b) of the TCT Disclosure Schedule contains a true, accurate
and complete description of all Leases under which any real property used in
the business of TCT (the "TCT Business") is leased to TCT by any Person or by
TCT to any Person. Except as otherwise set forth in Section 4.4(b) of the TCT
Disclosure Schedule, each Lease under which TCT holds real or personal
property constituting a part of the TCT Assets has been duly authorized,
executed and delivered by TCT or its predecessor in interest thereunder and,
to its knowledge, each of the other parties thereto, and is a legal, valid and
binding obligation of TCT, and, to its knowledge, each of the other parties
thereto, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency and
similar Laws affecting the rights and remedies of creditors and obligations of
debtors generally and by general principles of equity. Except as would not,
individually or in the aggregate, have a material adverse effect on the TCT
Assets or the TCT Business taken as a whole, TCT has a valid leasehold
interest in and enjoys peaceful and undisturbed possession under all Leases
pursuant to which it holds any such real property or tangible personal
property, subject to the terms of each Lease and Applicable Law. None of the
fixed assets or equipment comprising a part of the TCT Assets is subject to
contracts of sale, and none is held by TCT as lessee or as conditional sales
vendee under any Lease or conditional sales contract and none is subject to
any title retention agreement, except as set forth in Section 4.4(b) of the
TCT Disclosure Schedule. True, accurate and complete copies of each of such
Leases will be made available by TCT to ATC and TCT will provide ATC with
photocopies of all such Leases requested by ATC (or true, accurate and
complete descriptions thereof have been set forth in Section 4.4(b) of the TCT
Disclosure Schedule, with respect to those that are oral). Except as would
not, individually or in the aggregate, have a material adverse effect on the
TCT Assets or the TCT Business taken as a whole, all of such Leases are valid
and subsisting and in full force and effect; neither TCT nor, to TCT's
knowledge, any other party thereto, has failed to duly comply with all of the
material terms and conditions of each such Lease or has done or performed, or
failed to do or perform (and no Claim is pending or, to the knowledge of TCT,
threatened to the effect that TCT has not so complied, done and performed or
failed to do and perform) any act which would invalidate or provide grounds
for the other party thereto to terminate (with or without notice, passage of
time or both) such Leases or impair the rights or benefits, or increase the
costs, of TCT under any of such Leases in any material respect.
4.5 Compliance with Private Authorizations. Section 4.5 of the TCT
Disclosure Schedule sets forth a true, accurate and complete list and
description of each Private Authorization which individually is material to
the TCT Assets or the TCT Business. TCT has obtained all Private
Authorizations that are necessary for the ownership or operation of the TCT
Assets or the conduct of the TCT Business, as currently conducted or proposed
to be conducted on or prior to the Closing Date, which, if not obtained and
maintained, could, individually or in the aggregate, have a material adverse
effect on TCT. Except as would not, individually or in
II-7
<PAGE>
the aggregate, have a material adverse effect on the TCT Assets or the TCT
Business taken as a whole, all of such Private Authorizations are valid and in
good standing and are in full force and effect. TCT is not in material breach
or violation of, or in default in the performance, observance or fulfillment
of, any such Private Authorization, and no Event exists or has occurred which
constitutes, or but for any requirement of giving of notice or passage of time
or both would constitute, such a material breach, violation or default, under
any such Private Authorization. No such Private Authorization that is material
to the TCT Business is the subject of any pending or, to TCT's knowledge,
threatened attack, revocation or termination.
4.6 Compliance with Governmental Authorizations and Applicable Law.
(a) Section 4.6(a) of the TCT Disclosure Schedule contains a true, complete
and accurate description of each material Governmental Authorization required
under Applicable Law (i) to own and operate the TCT Assets and conduct the TCT
Business, as currently conducted or proposed to be conducted on or prior to
the Closing Date, all of which are in full force and effect or (ii) that is
necessary to permit TCT to execute and deliver this Agreement and to perform
its obligations hereunder. TCT has obtained all Governmental Authorizations
that are necessary for the ownership or operation of the TCT Assets or the
conduct of the TCT Business as now conducted and which, if not obtained and
maintained, would, individually or in the aggregate, have any material adverse
effect on TCT. None of the Governmental Authorizations listed in Section
4.6(a) of the TCT Disclosure Schedule is subject to any restriction or
condition that would limit in any material respect the ownership or operations
of the TCT Assets or the conduct of the TCT Business as currently conducted,
except for restrictions and conditions generally applicable to Governmental
Authorizations of such type. The Governmental Authorizations listed in Section
4.6(a) of the TCT Disclosure Schedule are valid and in good standing, are in
full force and effect and are not impaired in any material respect by any act
or omission of TCT or its officers, directors, employees or agents, and the
ownership and operation of the TCT Assets and the conduct of the TCT Business
are in accordance in all material respects with the Governmental
Authorizations. All material reports, forms and statements required to be
filed by TCT with all Authorities with respect to the TCT Business have been
filed and are true, complete and accurate in all material respects. No such
Governmental Authorization is the subject of any pending or, to TCT's
knowledge, threatened challenge or proceeding to revoke or terminate any such
Governmental Authorization.
(b) Except as otherwise specifically set forth in Section 4.6(b) of the TCT
Disclosure Schedule, since January 1, 1998, TCT has conducted its business and
owned and operated its property and assets in accordance with all Applicable
Laws and Governmental Authorizations, except for such breaches, violations and
defaults as, individually or in the aggregate, have not had and are not
reasonably likely to have a material adverse effect on TCT. Except as
otherwise specifically described in Section 4.6(b) of the TCT Disclosure
Schedule, TCT is not is in and is not charged by any Authority with, and, to
TCT's knowledge, is not threatened or under investigation by any Authority
with respect to, any breach or violation of, or default in the performance,
observance or fulfillment of, any Applicable Law relating to the ownership and
operation of the TCT Assets or the conduct of the TCT Business which will,
individually or in the aggregate, have a material adverse effect on TCT.
Except as otherwise specifically described in Section 4.6(b) of the TCT
Disclosure Schedule, no Event exists or has occurred, which constitutes, or
but for any requirement of giving of notice or passage of time or both would
constitute, such a breach, violation or default, under any Governmental
Authorization or any Applicable Law, except for such breaches, violations or
defaults as, individually or in the aggregate, have not had and reasonably
would not have a material adverse effect on TCT. With respect to matters, if
any, of a nature referred to in Section 4.6(b) of the TCT Disclosure Schedule,
except as otherwise specifically described in Section 4.6(b) of the TCT
Disclosure Schedule, all such information and matters set forth in the TCT
Disclosure Schedule, if adversely determined against TCT, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on TCT.
(c) Except as set forth in Section 4.6(c) of the TCT Disclosure Schedule,
there have not been since the formation of TCT and there are no Legal Actions
of any kind pending or, to the knowledge of TCT, threatened at law, in equity
or before any Authority against TCT or any of its officers or Management
Committee representatives relating to the ownership or operation of the TCT
Assets or the conduct of the TCT Business.
II-8
<PAGE>
Such disclosed Legal Actions, if determined adversely to TCT, individually or
in the aggregate, would not reasonably be expected to not have a material
adverse effect on TCT; such disclosed Legal Actions could not materially and
adversely affect the ability of TCT to perform its obligations under this
Agreement, nor are there any judgments or orders outstanding against TCT that
could have such effect.
4.7 Intangible Assets. Section 4.7 of the TCT Disclosure Schedule sets forth
a true, accurate and complete description of all Intangible Assets (other than
Governmental Authorizations and Private Authorizations and Leases) relating to
the ownership and operation of the TCT Assets or the conduct of the TCT
Business held or used by TCT, including without limitation the nature of TCT's
interest in each and the extent to which the same have been duly registered in
the offices as indicated therein. Except as set forth in Section 4.7 of the
TCT Disclosure Schedule, no Intangible Assets (except Governmental
Authorizations, Private Authorizations, and the Intangible Assets so set
forth) are required for the ownership or operation of the TCT Assets or the
conduct of the TCT Business as currently owned, operated and conducted or
proposed to be owned, operated and conducted on or prior to the Closing Date.
TCT does not, to its knowledge, wrongfully infringe upon or unlawfully use any
Intangible Assets owned or claimed by another, and TCT has not received any
notice of any claim or infringement relating to any such Intangible Asset.
4.8 Related Transactions. TCT is not a party or subject to any Contractual
Obligation relating to the ownership or operation of the TCT Assets or the
conduct of the TCT Business between TCT and any of its officers or Management
Committee representatives or, to the knowledge of TCT, any member of the
Immediate Family of any thereof or any Affiliate of any of the foregoing,
including without limitation any Contractual Obligation providing for the
furnishing of services to or by, providing for rental of property, real,
personal or mixed, to or from, or providing for the lending or borrowing of
money to or from or otherwise requiring payments to or from, any such Person,
other than (a) Employment Arrangements listed or described in Section 4.14 of
the TCT Disclosure Schedule, (b) Contractual Obligations between TCT and any
of its officers, Management Committee representatives or Affiliates of TCT or
any of the foregoing, that will be terminated, at no cost or expense to ATC,
prior to the Closing, or (c) as specifically set forth in Section 4.8 of the
TCT Disclosure Schedule.
4.9 Insurance. TCT maintains, with respect to the TCT Assets and the TCT
Business, policies of fire and extended coverage and casualty, liability and
other forms of insurance in such amounts and against such risks and losses as
are set forth in Section 4.9 of the TCT Disclosure Schedule.
4.10 Tax Matters. TCT has, in accordance with all Applicable Laws, filed all
Tax Returns that it was required to file, and has paid, or made adequate
provision on the most recent balance sheet forming part of the TCT Financial
Statements for the payment of, all material Taxes which have or may become due
and payable pursuant to said Tax Returns other than those Taxes being
contested in good faith for which adequate provision has been made. The Tax
Returns of TCT have been prepared in all material respects in accordance with
all Applicable Laws. All material Taxes which TCT is required by law to
withhold and collect have been duly withheld and collected, and have been paid
over, in a timely manner, to the proper Taxing Authorities to the extent due
and payable. TCT has not executed any waiver to extend, or otherwise taken or
failed to take any action that would have the effect of extending, the
applicable statute of limitations in respect of any Tax liabilities of TCT for
the fiscal years prior to and including the most recent fiscal year. Adequate
provision has been made on the most recent balance sheet forming part of the
TCT Financial Statements for all Taxes accrued through the date of such
balance sheet in accordance with GAAP whether disputed or not, and there are,
to TCT's knowledge, no past transactions or matters which could result in
additional Taxes of a material nature being imposed on TCT for which an
adequate reserve has not been provided on such balance sheet. TCT has at all
times been classified as a partnership under the Code and, except as set forth
in Section 4.10 of the TCT Disclosure Schedule, has been similarly classified
under all state and local income Tax Laws to which it is subject; TCT has
never been a publicly traded partnership treated as a corporation under
Section 7704 of the Code, and, except as set forth in Section 4.10 of TCT
Disclosure Schedule, has never been similarly classified under state and local
income Tax Laws to which it is subject. TCT has never been a member of any
"affiliated group" of corporations, within the meaning of Section 1504(a) of
the Code. TCT is not a party to any tax sharing agreement or arrangement.
II-9
<PAGE>
At all times during its existence, each member of TCT has been a "United
States person" as defined in Section 7701(a)(30) of the Code as then in
effect. TCT has complied with all material withholding obligations under
Sections 1445(e)(1) or 1446 of the Code, and under any comparable provisions
of state or local income Tax Laws.
Except as disclosed in Section 4.10 of the TCT Disclosure Schedule and for
Taxes of a nature referred to in Section 10.2, the completion of the
Transactions will not (either alone or upon the occurrence of any additional
or subsequent Event) result in TCT being subject to additional Taxes which,
individually or in the aggregate, are material.
4.11 Employee Retirement Income Security Act of 1974.
(a) TCT (which for purposes of this Section shall include any ERISA
Affiliate of TCT) currently sponsors, maintains and contributes only to the
Plans and Benefit Arrangements set forth in Section 4.11(a) of the TCT
Disclosure Schedule. TCT has delivered or made available to ATC true, complete
and correct copies of (i) each Plan and Benefit Arrangement (or, in the case
of any unwritten Plans or Benefit Arrangements, reasonable descriptions
thereof), (ii) the two most recent annual reports on Form 5500 (including all
schedules and attachments thereto) filed with the Internal Revenue Service
with respect to each Plan or Benefit Arrangement (if any such report was
required by Applicable Law), (iii) the most recent summary plan description
(or similar document) for each Plan for which such a summary plan description
is required by Applicable Law or was otherwise provided to plan participants
or beneficiaries, and (iv) each trust agreement and insurance or annuity
contract or other funding or financing arrangement relating to any Plan. To
the knowledge of TCT, each such Form 5500 and each such summary plan
description (or similar document) did not, as of the date of the Original
Merger Agreement, contain any material misstatements. Except as set forth in
Section 4.11(a) of the TCT Disclosure Schedule, TCT does not contribute to or
have an obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, and no Plan listed in Section 4.11(a) of
the TCT Disclosure Schedule is, (i) an employee pension benefit plan within
the meaning of Section 3(2) of ERISA, (ii) a Multiemployer Plan, or (iii) a
Plan subject to Section 412 of the Code, Section 302 of ERISA or Title IV of
ERISA. TCT has no actual or potential liability under Title IV of ERISA. TCT
does not maintain any Plan that provides for post-retirement medical or life
insurance benefits, and TCT does not have any obligation or liability with
respect to any such Plan previously maintained by TCT, except as the
provisions of COBRA may apply to any former employees of TCT. Except as set
forth in Section 4.11(a) of the TCT Disclosure Schedule, as to all Plans and
Benefit Arrangements listed in Section 4.11(a) of the TCT Disclosure Schedule:
(i) all such Plans and Benefit Arrangements comply and have been
administered in form and in operation, in all material respects, in
accordance with their respective terms and with all Applicable Laws and TCT
has not received any notice from any Authority that it is currently or is
going to be disputing or investigating such compliance;
(ii) none of the assets of any such Plan are invested in employer
securities or employer real property;
(iii) there are no Claims (other than routine Claims for benefits or
actions seeking qualified domestic relations orders) pending or, to TCT's
knowledge, threatened involving such Plans or the assets of such Plans,
and, to TCT's knowledge, no facts exist which are reasonably likely to give
rise to any such Claims (other than routine Claims for benefits or actions
seeking qualified domestic relations orders);
(iv) all material contributions to, and material payments from, the Plans
and Benefit Arrangements that may have been required to be made in
accordance with the terms of the Plans and Benefit Arrangements, and any
applicable collective bargaining agreement, have been made. All such
contributions to, and payments from, the Plans and Benefit Arrangements,
except those payments to be made from a trust qualified under Section
401(a) of the Code, for any period ending before the Closing Date that are
not yet, but will be, required to be made, will be properly accrued and
reflected on the financial books and records of TCT;
II-10
<PAGE>
(v) no Event has occurred which would result in imposition on TCT of any
material liability for (A) any breach of fiduciary duty damages under
Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code;
(vi) TCT has not incurred any material liability to a Plan (other than
for contributions not yet due) which liability had not been fully paid or
accrued for payment as of the date of the Original Merger Agreement;
(vii) except as otherwise set forth in Section 4.11(a) of the TCT
Disclosure Schedule, no current or former employee of TCT will be entitled
to any additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Plan or Benefit Arrangement as a result
of the transactions contemplated by this Agreement;
(viii) no compensation payable by TCT to any of its employees under any
existing Plan or Benefit Arrangement (including by reason of the
transactions contemplated hereby) will be subject to disallowance under
Section 162(m) of the Code; and
(ix) any amount that could be received (whether in cash or property or by
virtue of the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer, director or
independent contractor of TCT who is a "disqualified individual" (as such
term is defined in proposed Regulation Section 1.280G-1) under any
employment arrangement would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code),
except for any amount that is approved by the stockholders of TCT on or
before the Closing Date in the manner provided in Section 280G(b)(5) of the
Code.
(b) The execution, delivery and performance by TCT of this Agreement and the
Collateral Documents executed or required to be executed by TCT pursuant
hereto and thereto will not involve any prohibited transaction within the
meaning of ERISA or Section 4975 of the Code with respect to any Plan listed
in Section 4.11(a) of the TCT Disclosure Schedule.
4.12 Solvency. As of the execution and delivery of this Agreement, TCT is,
and immediately prior to and immediately after giving effect to the
consummation of the Merger will be, Solvent.
4.13 Bank Accounts, Etc. Section 4.13 of the TCT Disclosure Schedule
contains a true, accurate and complete list as of the date of the Original
Merger Agreement of all banks, trust companies, savings and loan associations
and brokerage firms in which TCT has an account or a safe deposit box and the
names of all Persons authorized to draw thereon, to have access thereto, or to
authorize transactions therein, the names of all Persons, if any, holding
valid and subsisting powers of attorney from TCT and a summary statement as to
the terms thereof. TCT agrees that prior to the Closing Date it will not make
or permit to be made any change affecting any bank, trust company, savings and
loan association, brokerage firm or safe deposit box or in the names of the
Persons authorized to draw thereon, to have access thereto or to authorize
transactions therein or in such powers of attorney, or open any additional
accounts or boxes or grant any additional powers of attorney, without in each
case first notifying ATC in writing.
4.14 Employment and Consulting Arrangements. Section 4.14 of the TCT
Disclosure Schedule contains a true, accurate and complete list of all TCT
employees and consultants, exclusive of consultants whose services for TCT are
terminable within thirty (30) days without liability, penalty or payment of
any kind by TCT or any Affiliate of TCT (the "TCT Employees"), together with
each such Person's title or the capacity in which he or she is employed or
retained and each such Person's compensation. TCT has no obligation or
liability, contingent or other, under any Employment Arrangement with any TCT
Employee, other than (i) those listed or described in Section 4.14 of the TCT
Disclosure Schedule, (ii) those incurred in the ordinary and usual course of
business, or (iii) such obligations or liabilities as do not and will not
have, in the aggregate, any material adverse effect on TCT. Except as
described in Section 4.14 of the TCT Disclosure Schedule, (a) none of the TCT
Employees is now, or since its organization has been, represented by any labor
union or other employee collective bargaining
II-11
<PAGE>
organization, and TCT is not, and never has been, a party to any labor or
other collective bargaining agreement with respect to any of the TCT
Employees, (b) there are no pending grievances, disputes or controversies with
any union or any other employee or collective bargaining organization of such
employees, or threats of strikes, work stoppages or slowdowns or any pending
demands for collective bargaining by any such union or other organization, and
(c) neither TCT nor any of such employees is now, or has since its
organization been, subject to or involved in or, to TCT's knowledge,
threatened with, any union elections, petitions therefor or other
organizational activities, in each case with respect to the TCT Employees. TCT
has performed in all material respects all obligations required to be
performed under all Employment Arrangements and is not in material breach or
violation of or in material default or arrears under any of the terms,
provisions or conditions thereof.
4.15 Material Agreements. Listed on Section 4.15 of the TCT Disclosure
Schedule are all Material Agreements (other than Leases, Private
Authorizations and Governmental Authorizations) relating to the ownership or
operation of the TCT Assets or the conduct of the TCT Business or to which TCT
is a party or to which it is bound or to which any of the TCT Assets is
subject. True, accurate and complete copies of each of such Material
Agreements have been made available by TCT to ATC, and TCT will provide ATC
with photocopies of all such Material Agreements requested by ATC (or true,
accurate and complete descriptions thereof have been set forth in Section 4.15
of the TCT Disclosure Schedule with respect to Material Agreements comprised
of site leases and site licenses granted by TCT to third parties and with
respect to Material Agreements that are oral). All of such Material Agreements
are valid, binding and legally enforceable obligations of TCT and, to its
knowledge, all other parties thereto, except as such enforceability may be
limited by bankruptcy, moratorium, insolvency and similar Laws affecting the
rights and remedies of creditors and obligations of debtors generally and by
general principles of equity. Except as would not, individually or in the
aggregate, have a material adverse effect on the TCT Assets or the TCT
Business taken as a whole, neither TCT nor, to its knowledge, any other party
thereto, has failed to duly comply with all of the material terms and
conditions of each such Material Agreement or has done or performed, or failed
to do or perform (and no Claim is pending or, to the knowledge of TCT,
threatened in writing to the effect that TCT has not so complied, done and
performed or failed to do and perform) any act which would invalidate or
provide grounds for the other party thereto to terminate (with or without
notice, passage of time or both) such Material Agreement or impair the rights
or benefits, or materially increase the costs, of TCT under any of such
Material Agreement.
4.16 Ordinary Course of Business. TCT, from the date of the most recent TCT
Financial Statements to the date of the Original Merger Agreement, except (i)
as may be described on Section 4.16 of the TCT Disclosure Schedule, (ii) as
may be required or expressly contemplated by the terms of this Agreement, or
(iii) as may be described in the TCT Financial Statements, including the notes
thereto:
(a) has operated its business in all material respects in the normal,
usual and customary manner in the ordinary and regular course of business,
consistent with prior practice;
(b) except in each case in the ordinary course of business, consistent
with prior practice:
(i) has not incurred any obligation or liability (fixed, contingent
or other) individually having a value in excess of $50,000;
(ii) has not sold or otherwise disposed of or contracted to sell or
otherwise dispose of any of its properties or assets having a value in
excess of $50,000;
(iii) has not entered into any individual commitment having a value
in excess of $50,000; and
(iv) has not canceled any debts or claims;
(c) has not created or permitted to be created any Lien on any of the TCT
Assets, except for Permitted Liens;
(d) has not made or committed to make any additions to its property or
any purchases of equipment, except in the ordinary course of business
consistent with past practice or for normal maintenance and replacements;
II-12
<PAGE>
(e) has not increased the compensation payable or to become payable to
any of the TCT Employees other than increases in the ordinary course of
business, or otherwise materially altered, modified or changed the terms of
their employment;
(f) has not suffered any material damage, destruction or loss (whether or
not covered by insurance) or any acquisition or taking of property by any
Authority;
(g) has not waived any rights of material value without fair and adequate
consideration;
(h) has not experienced any work stoppage;
(i) except in the ordinary course of business, has not entered into,
amended or terminated any Lease, Governmental Authorization, Private
Authorization, Material Agreement or Employment Arrangement, or any
transaction, agreement or arrangement with any Affiliate of TCT;
(j) has not issued or sold, or agreed to issue or sell, any shares of TCT
Units, other shares of capital stock, Convertible Securities or Option
Securities;
(k) has not made, paid or declared any Distribution; and
(l) has not entered into any transactions or series of related
transactions which individually or in the aggregate is material to the TCT
Assets or the TCT Business.
4.17 Material and Adverse Restrictions. TCT is not a party to or subject to,
nor is any of the TCT Assets subject to, any Employment Arrangement, Lease,
Material Agreement or Private Authorization which, individually or in the
aggregate, has had or, as far as TCT can now reasonably foresee, have, a
material adverse effect on TCT, except as set forth in Section 4.17 of the TCT
Disclosure Schedule and except for matters affecting the communications site
industry generally and assuming the TCT Business continues to be operated
substantially as in the past.
4.18 Broker or Finder. No Person assisted in or brought about the
negotiation of this Agreement or the Merger in the capacity of broker, agent
or finder or in any similar capacity on behalf of TCT or any TCT Member.
4.19 Environmental Matters. Except as set forth in Section 4.19 of the TCT
Disclosure Schedule, TCT:
(a) has not been notified that it is potentially liable under, has not
received any request for information or other correspondence concerning its
potential liability with respect to any site or facility under, and, to
TCT's knowledge, is not a "potentially responsible party" under, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Resource Conservation Recovery Act, as amended, or
any similar state Law;
(b) has not entered into or received any consent decree, compliance order
or administrative order issued pursuant to any Environmental Law;
(c) is not a party in interest or in default under any judgment, order,
writ, injunction or decree of any Final Order issued pursuant to any
Environmental Law;
(d) has, to its knowledge, obtained all material Environmental Permits
required under Environmental Laws, and has filed all material applications,
notices and other documents required to be filed prior to the date of the
Original Merger Agreement to effect the timely renewal or issuance of all
Environmental Permits for the continued ownership or operation of the TCT
Assets or conduct of the TCT Business in the manner currently owned,
operated and conducted or proposed to be owned, operated and conducted
prior to the Closing Date;
(e) is in compliance in all material respects with all Environmental
Laws, and is not the subject of or, to TCT's knowledge, threatened with any
Legal Action involving a demand for damages or other potential liability,
including any Lien, with respect to violations or breaches of any
Environmental Law;
II-13
<PAGE>
(f) has not conducted or received any site assessment, audit or other
investigation as to material environmental matters at any property
currently owned, leased, operated or occupied by TCT;
(g) has not installed or used any above ground or underground storage
tanks, friable asbestos, polychlorinated biphenyls or urea formaldehyde
foam insulation on any property currently owned, leased or operated by TCT
and, to its knowledge, there are no above ground or underground storage
tanks, friable asbestos, polychlorinated biphenyls or urea formaldehyde
foam insulation on any property currently owned, leased or operated by TCT;
and
(h) has no knowledge of any past or present Event related to TCT's
properties, operations or business, which Event, individually or in the
aggregate, could reasonably be expected to interfere with or prevent
continued compliance in all material respects with all Environmental Laws
applicable to the ownership or operation of the TCT Assets to the conduct
of the TCT Business substantially in the manner now conducted, or which,
individually or in the aggregate, may form the basis of any material Claim
for or arising out of the release or threatened release into the
environment of any Hazardous Material.
Section 4.19 of the TCT Disclosure Schedule sets forth a true, correct and
complete list of all existing Phase I environmental site assessment reports
(an "Environmental Report") on each parcel of Real Property owned or leased by
TCT for which an Environmental Report has previously been prepared for TCT
(true, correct and complete copies of which have heretofore been delivered by
TCT to ATC).
4.20 Capital Stock. The authorized and outstanding equity interests of TCT
are as set forth in Section 4.20 of the TCT Disclosure Schedule. All of the
outstanding TCT Units have been duly authorized and validly issued, are fully
paid and nonassessable and are not subject to any preemptive or similar rights
and are owned of record and, to TCT's knowledge, beneficially as shown in
Section 4.20 of the TCT Disclosure Schedule. No certificates have been issued
evidencing ownership of TCT Units. Except as set forth in Section 4.20 of the
TCT Disclosure Schedule, TCT has not granted or issued, nor has TCT agreed to
grant or issue, any TCT Units, other equity interests, or any Option Security
or Convertible Security, and TCT is not a party to or bound by any agreement,
put or commitment pursuant to which it is obligated to purchase, redeem or
otherwise acquire any equity interests in TCT or any Option Security or
Convertible Security.
4.21 Year 2000 Compliant. TCT has reviewed the areas within their business
and operations which TCT believes could be materially and adversely affected
by the "Year 2000 Problem" (that is, the risk that computer applications used
by TCT may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after December
31, 1999). Based on such reviews, TCT believes that the "Year 2000 Problem"
will not have a material adverse effect on TCT. Except as set forth in Section
4.21 of the TCT Disclosure Schedule, to TCT's knowledge, each hardware,
software and firmware product (collectively "Software") used by TCT in its
business is Year 2000 compliant, except for such noncompliance that does not
and could not reasonably be expected to have a material adverse effect on TCT.
4.22 Materiality. The representations and warranties set forth in this
Article are true and correct as of the date of the Original Merger Agreement
without the materiality exceptions or qualifications contained therein, except
to the extent that the failure of such representations and warranties to be so
true and correct, individually or in the aggregate, would not have a material
adverse effect on TCT.
II-14
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ATC AND ATMC
Each of ATC and ATMC, jointly and severally, hereby represents and warrants
to TCT and the TCT Members as follows:
5.1 Organization and Business; Power and Authority; Effect of Transaction.
(a) Each of ATC and ATMC is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, has
all requisite power and authority (corporate and other) to own or hold under
lease its properties and to conduct its business as now conducted and is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which the character of the property owned or leased by it or
the nature of its business or operations requires such qualification, except
for such qualifications the failure of which to obtain, individually or in the
aggregate, would not have a material adverse effect on ATC.
(b) Each of ATC and ATMC has all requisite power and authority (corporate
and other) necessary to enable it to execute and deliver, and to perform its
obligations under, this Agreement and each Collateral Document executed or
required to be executed by it pursuant hereto or thereto and to consummate the
Transactions; and the execution, delivery and performance by ATC and ATMC of
this Agreement and each Collateral Document executed or required to be
executed by it pursuant hereto or thereto have been duly authorized by all
requisite corporate or other action on the part of ATC and ATMC. This
Agreement has been duly executed and delivered by ATC and ATMC and
constitutes, and each Collateral Document executed or required to be executed
by each of them pursuant hereto or thereto or to consummate the Transactions
when executed and delivered by ATC and ATMC will constitute, legal, valid and
binding obligations of each of ATC and ATMC, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, moratorium, insolvency and similar Laws affecting the rights and
remedies of creditors and obligations of debtors generally and by general
principles of equity.
(c) Except to the extent necessary under its credit facilities, neither the
execution and delivery by ATC and ATMC of this Agreement or any Collateral
Document executed or required to be executed by each of them pursuant hereto
or thereto, nor the consummation of the Transactions, nor compliance with the
terms, conditions and provisions hereof or thereof by ATC and ATMC:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any Organic Document of ATC or ATMC or any
Applicable Law, or will conflict with, or result in a breach or
violation of, or constitute a default under, or permit the acceleration
of any obligation or liability in, or but for any requirement of giving
of notice or passage of time or both would constitute such a conflict
with, breach or violation of, or default under, or permit any such
acceleration in, any Material Obligation of ATC or ATMC; or
(ii) will require ATC or ATMC to make or obtain any Governmental
Authorization, Governmental Filing or Private Authorization, except (A)
filings contemplated by the Registration Rights Agreement, (B) filings
under the Hart-Scott-Rodino Act, (C) for FCC approvals, (D) the filing
with the Commission of such reports under Section 13(a) or 15(d) of the
Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (E) the filing of the Certificate
of Merger with the Delaware Secretary of State, and appropriate
documents with the relevant authorities of other states in which ATMC
is qualified to do business, (F) the filing of a Supplemental Listing
Application with the New York Stock Exchange, and (G) such other
Governmental Authorizations, Governmental Filings, and Private
Authorizations the failure of which to be made or obtained would not,
individually or in the aggregate, have a material adverse effect
on ATC.
II-15
<PAGE>
5.2 ATC SEC Reports. ATC has heretofore made available to TCT its Annual
Report on Form 10-K for its most recent fiscal year for which such a report
has been filed and its Quarterly Reports on Form 10-Q for all fiscal quarters
for which such reports have been filed (collectively, the "ATC SEC
Documents"). As of the respective dates thereof, the ATC SEC Documents were
prepared in all material respects in accordance with the Exchange Act and did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. ATC has timely filed all forms, reports and documents with the
SEC required to be filed by it pursuant to the Securities Act and the Exchange
Act which complied as to form, at the time such form, document or report was
filed, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act. The consolidated financial statements of
ATC included in the ATC SEC Documents (the "ATC Financial Statements"),
including in each case the notes thereto, have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered
thereby, except as otherwise noted therein, are true, accurate and complete in
all material respects, and fairly present the consolidated financial condition
and the consolidated results of operations and cash flow of ATC, on the bases
therein stated, as of the respective dates thereof, and for the respective
periods covered thereby subject, in the case of unaudited financial
statements, to normal nonmaterial year-end audit adjustments and accruals. As
of the respective dates thereof, all forms, reports and documents to be filed
by ATC with the SEC pursuant to the Securities Act and the Exchange Act
between the date of the Original Merger Agreement and the Closing Date will
comply as to form, at the time such form, document or report is filed, in all
material respects with the applicable requirements of the Securities Act and
the Exchange Act and will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
5.3 Material Statements and Omissions; Absence of Events. Neither any
representation or warranty made by ATC or ATMC contained in this Agreement or
any certificate, document or other instrument furnished or to be furnished by
ATC or ATMC pursuant to the provisions hereof nor the ATC SEC Documents
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to make any statement contained
herein or therein, in light of the circumstances under which they were made,
not misleading. Since the date of the most recent financial statements
constituting a part of the ATC Financial Statements, except to the extent
specifically described in the ATC SEC Documents, there has been no change with
respect to ATC or any of its Subsidiaries that has had a material adverse
effect on ATC. There is no Event known to ATC which has had or (so far as ATC
can now reasonably foresee) is likely to have a material adverse effect on
ATC, except to the extent specifically described in the ATC SEC Documents. ATC
is not aware of any impending or contemplated Event that would cause any of
the representations and warranties made by it in this Article not to be true,
correct and complete on the date of such Event as if made on that date.
5.4 Broker or Finder. No Person assisted in or brought about the negotiation
of this Agreement or the Transactions in the capacity of broker, agent or
finder or in any similar capacity on behalf of ATC or ATMC.
5.5 Capital Stock. The authorized and outstanding capital stock of ATC, as
of the date set forth therein, is as set forth in the most recent ATC SEC
Documents. All of such outstanding capital stock has been, and, when issued in
accordance with the terms of this Agreement, the ATC Common Stock to be issued
upon consummation of the Merger will be, duly authorized and validly issued,
fully paid and nonassessable and not subject to any preemptive or similar
rights, and free and clear of all Liens attributable to any action or failure
to act of ATC or any of the Subsidiaries. Since the date as of which
information is set forth in the most recent ATC SEC Documents, ATC has not
issued (a) any shares of common stock of any class, except (i) upon conversion
of shares of one class into shares of another class, (ii) upon exercise of
options referred to in the most recent ATC Financial Statements, (iii)
pursuant to the consummation of acquisitions referred to in the ATC SEC
Documents, or (iv) pursuant to the consummation of an acquisition as part of
which an aggregate of 1,430,879 shares of ATC Common Stock were issued, or (b)
any Convertible Securities or Option Securities, except for the issue of stock
options under its 1997 Stock Option Plan, as amended and restated. Except as
disclosed in the ATC SEC Documents, all outstanding shares of capital stock of
the Significant Subsidiaries (as
II-16
<PAGE>
defined for purposes of Regulations S-X under the Exchange Act) of ATC are
owned by ATC (in the case of ATMC and certain of such other Significant
Subsidiaries) or a direct or indirect wholly-owned Subsidiary of ATC.
5.6 Compliance with Governmental Authorizations and Applicable Law.
(a) ATC and its Subsidiaries have conducted their respective business and
owned and operated their respective property and assets in accordance with all
Applicable Laws (including without limitation all Environmental Laws) and
Governmental Authorizations, except for such breaches, violations and defaults
as, individually or in the aggregate, have not had and are not reasonably
likely to have a material adverse effect on ATC. Neither ATC nor any of its
Subsidiaries, as of the date of the Original Merger Agreement, was in, or was
charged by any Authority with, or, to ATC's knowledge, was threatened or under
investigation by any Authority with respect to, any breach or violation of, or
default in the performance, observance or fulfillment of, any Applicable Law
(including without limitation any Environmental Laws) relating to the
ownership and operation of their respective assets or the conduct of their
respective businesses which, individually or in the aggregate, has had or will
have a material adverse effect on ATC. No Event existed or had occurred, as of
the date of the Original Merger Agreement, which constitutes, or but for any
requirement of giving of notice or passage of time or both would constitute,
such a breach, violation or default, under any Governmental Authorization or
any Applicable Law (including without limitation any Environmental Law),
except for such breaches, violations or defaults as, individually or in the
aggregate, have not had and will not have a material adverse effect on ATC.
(b) There were, as of the date of the Original Merger Agreement, no Legal
Actions of any kind pending or, to the knowledge of ATC, threatened at law, in
equity or before any Authority against ATC or any of its Subsidiaries or the
officers or directors of any thereof relating to the ownership or operation of
their respective assets or the conduct of their respective businesses which,
if determined adversely to ATC, individually or in the aggregate, will have a
material adverse effect on ATC or which could materially and adversely affect
the ability of ATC or ATMC to perform its obligations under this Agreement,
nor are there any judgments or orders outstanding against ATC or ATMC that
could have such effect.
5.7 Materiality. The representations and warranties set forth in this
Article are true and correct as of the date of the Original Merger Agreement
without the materiality exceptions or qualifications contained therein, except
to the extent that the failure of such representations and warranties to be so
true and correct, individually or in the aggregate, would not have a material
adverse effect on ATC.
ARTICLE 6
COVENANTS
6.1 Access to Information; Confidentiality.
(a) Each party shall afford to the other party and its accountants, counsel,
financial advisors and other representatives (the "Representatives") full
access during normal business hours throughout the period prior to the Closing
Date to all of its (and its Subsidiaries') properties, books, contracts,
insurance policies, studies and reports, environmental studies and reports,
commitments and records (including without limitation Tax Returns) and, during
such period, shall furnish promptly upon written request (i) a copy of each
report, schedule and other document filed or received by any party pursuant to
the requirements of any Applicable Law or filed by it with any Authority in
connection with the Merger or any other report, schedule or documents which
may have a material effect on the businesses, operations, properties,
prospects, personnel, condition (financial or other), or results of operations
of their respective businesses, (ii) to the extent not provided for pursuant
to the immediately preceding clause, in the case of TCT, all financial
records, ledgers, work papers and other sources of financial information
possessed or controlled by it or its accountants deemed by ATC or its
Representatives necessary or useful for the purpose of performing an audit of
the business and assets of TCT, and (iii) such other information
II-17
<PAGE>
concerning any of the foregoing as ATC or TCT shall reasonably request. All
Confidential Information furnished pursuant to the provisions of this
Agreement, including without limitation this Section, will be kept
confidential and shall not, without the prior written consent of the party
disclosing such Confidential Information, be disclosed by the other party in
any manner whatsoever, in whole or in part, and, except as required by
Applicable Law (including without limitation in connection with any
registration, proxy or information statement or similar document filed
pursuant to any federal or state securities Law) shall not be used for any
purposes, other than in connection with the Merger. Except as otherwise herein
provided, each party agrees to reveal such Confidential Information only to
those of its Representatives or other Persons who it believes need to know
such Confidential Information for the purpose of evaluating and consummating
the Merger. For purposes of this Agreement, "Confidential Information" shall
mean any and all information (excluding information that (i) has been or is
obtained from a source independent of the disclosing party that, to the
receiving party's knowledge, is not subject to any confidentiality
restriction, (ii) is or becomes generally available to the public other than
as a result of unauthorized disclosure by the receiving party, or (iii) is
independently developed by the receiving party without reliance in any way on
information provided by the disclosing party or a third party independent of
the disclosing party that, to the receiving party's knowledge, is not subject
to any confidentiality restriction) related to the business or businesses of
ATC, ATMC and their respective Affiliates or TCT and its Affiliates, including
any of their respective successors and assigns.
(b) Notwithstanding the provisions of Section 6.1(a), (i) each party may
disclose such information as it may reasonably determine to be necessary in
connection with seeking all Governmental and Private Authorizations or that is
required by Applicable Law to be disclosed, including without limitation in
any registration, proxy or information statement or other document required to
be filed under any federal or state securities Law, and (ii) ATC may, with the
prior written consent of TCT, which consent shall not be unreasonably
withheld, delayed or conditioned, disclose the subject matter of this
Agreement to Persons with whom TCT has a business or contractual relationship
in connection with ATC's due diligence investigation of TCT. In the event that
this Agreement is terminated in accordance with its terms, each party shall
promptly redeliver all written Confidential Information provided pursuant to
this Section or any other provision of this Agreement or otherwise in
connection with the Merger and shall not retain any copies, extracts or other
reproductions in whole or in part of such written material, other than one
copy thereof which shall be delivered to independent counsel for such party
which shall be bound by the provisions of Section 6.1(a).
(c) Anything in this Section or elsewhere in this Agreement to the contrary
notwithstanding, either party may disclose information received or retained by
it in accordance with the provisions of this Agreement if it can demonstrate
(i) such information is generally available to or known by the public from a
source other than the party seeking to disclose such information or (ii) was
obtained by the party seeking to disclose such information from a source other
than the other party, provided that such source was not bound by a duty of
confidentiality to the other party or another party with respect to such
information.
(d) No investigation pursuant to this Section or otherwise shall affect any
representation or warranty in this Agreement of any party or any condition to
the obligations of the parties hereto.
(e) The provisions of this Section shall apply to all Subsidiaries of ATC
and TCT.
6.2 Agreement to Cooperate; Certain Other Covenants.
(a) Each of the parties hereto shall use reasonable business efforts (x) to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under Applicable Law to consummate the
Merger and the other Transactions, and (y) to refrain from taking, or cause to
be taken, any action and to refrain from doing or causing to be done, anything
which could impede or impair the consummation of the Merger or the
consummation of the other Transactions, including, in all cases, without
limitation using its reasonable business efforts (i) to prepare and file with
the applicable Authorities as promptly as practicable after the execution of
this Agreement all requisite applications and amendments thereto, together
with related information, data and exhibits, necessary to request issuance of
orders approving the Merger by all such applicable Authorities, (ii) to obtain
all necessary or appropriate waivers, consents and approvals, (iii) to effect
II-18
<PAGE>
all necessary registrations, filings and submissions (including without
limitation filings within fifteen (15) business days of the date of the
Original Merger Agreement under the Hart-Scott-Rodino Act and all filings
necessary for ATMC to own and operate the TCT Assets and the TCT Business),
(iv) to lift any injunction or other legal bar to the Merger (and, in such
case, to proceed with the Merger as expeditiously as possible), and (v) to
obtain the satisfaction of the conditions specified in Article 8, and (vi) to
advise the other of, in the case of TCT, any changes that would be required in
the TCT Disclosure Schedule if the applicable representations and warranties
set forth in Article 4 did not refer to the date of the Original Merger
Agreement and, in the case of ATC, of the information with respect to its
authorized and issued capital stock, other than as a consequence of matters
heretofore disclosed by ATC to TCT, including without limitation those set
forth in the ATC SEC Documents.
(b) The parties shall cooperate with one another in the preparation of all
Tax Returns, questionnaires, applications or other documents (i) regarding any
Taxes or transfer, recording, registration or other fees which become payable
in connection with the Merger that are required to be filed on or before the
Closing Date; and (ii) to allocate under Section 1060 of the Code all the
consideration under this Agreement provided by ATC and ATMC in conformity with
the past practice of ATC and ATMC and with a third-party appraisal of fixed
assets to be obtained by ATMC at its sole expense.
(c) TCT shall cooperate and use its reasonable business efforts to cause its
independent accountants to reasonably cooperate with ATC in order to enable
ATC, at its sole and absolute discretion and expense, to have its independent
accountants prepare audited financial statements for TCT described in Section
7.2(g). TCT will use its reasonable business efforts to ensure that such
financial statements will have been prepared in accordance with GAAP applied
on a basis consistent with the TCT Financial Statements and will present
fairly the financial condition, results of operation and cash flow of TCT.
Without limiting the generality of the foregoing, TCT agrees that it will (i)
consent to the use of such audited financial statements in any registration,
proxy or information statement or other document filed by ATC or any of its
Affiliates under the Securities Act or the Exchange Act and (ii) execute and
deliver, and cause its officers to execute and deliver, such "representation"
letters as are customarily delivered in connection with audits and as ATC's
independent accountants may reasonably request under the circumstances.
ATC shall, if permitted by the SEC, register under the Securities Act the
shares of ATC Common Stock issuable pursuant to the consummation of the
Merger. If such registration is effective, the form of TCT Investment Letter
shall be appropriately revised and the Persons from whom it is required to be
delivered shall be limited to those Persons who may be deemed to be
"affiliates" of TCT, within the meaning of the applicable rules and
regulations of the SEC under the Securities Act.
6.3 Public Announcements. Until the Closing or the termination of this
Agreement, each party shall consult with the other before issuing any press
release or otherwise making any public statements with respect to this
Agreement or the Merger and shall not issue any such press release or make any
such public statement without the prior written approval of the other.
Notwithstanding the foregoing, the parties acknowledge and agree that they
may, without each other's prior consent, issue such press releases or make
such public statements as may be required by Applicable Law, in which case the
issuing party shall use all reasonable efforts to consult with the other party
and agree upon the nature, content and form of such press release or public
statement.
6.4 Notification of Certain Matters. Each party shall give prompt notice to
the other of the occurrence or non-occurrence of any Event the occurrence or
non-occurrence of which would be reasonably likely to cause (a) any
representation or warranty made by it contained in this Agreement to be untrue
or inaccurate in any material respect or (b) any failure by it to comply with
or satisfy, or be able to comply with or satisfy, in any material respect, any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement in any material respect, such that, in any such case, one or
more of the conditions of Closing would not be satisfied; provided, however,
that the delivery of any notice pursuant to this Section shall not limit or
II-19
<PAGE>
otherwise affect the rights and remedies available hereunder to the party
receiving such notice or the obligations of the party delivering such notice
and shall not, in any event, affect the representations, warranties, covenants
and agreements of the parties or the conditions to their respective
obligations under this Agreement.
6.5 No Solicitation. Unless and until this Agreement has been terminated,
TCT shall not, and shall not permit any TCT Member to, nor shall it or any of
them knowingly permit any of its or any of their Representatives (including,
without limitation, any investment banker, financial adviser, broker, finder,
attorney, accountant or other agent or representative retained by it or any of
them) to, initiate, solicit, encourage or facilitate, or any of their
Representatives (including, without limitation, any investment banker, broker,
finder, attorney or accountant retained by it or any of them) to, initiate,
solicit or facilitate, directly or indirectly, any inquiries or the making of
any proposal with respect to any Alternative Transaction, engage in any
discussions or negotiations concerning, or provide to any other Person any
information or data relating to, it for the purposes of, or otherwise
cooperate in any way with or assist or participate in, or facilitate any
inquiries or the making of any proposal which constitutes, or may reasonably
be expected to lead to, a proposal to seek or effect any Alternative
Transaction, or agree to or endorse any Alternative Transaction. If TCT, any
TCT Member or its or any of their Representatives receives any inquiry with
respect to an Alternative Transaction while this Agreement is in effect, TCT
or such TCT Member shall inform the inquiring party that it is not entitled to
enter into discussions or negotiations relating to an Alternative Transaction.
The provisions of this Section shall apply to all Subsidiaries of TCT.
6.6 Conduct of Business by TCT Pending the Merger. Except as set forth in
Section 6.6 of the TCT Disclosure Schedule or as otherwise contemplated by
this Agreement, after the date of the Original Merger Agreement and prior to
the Closing Date or earlier termination of this Agreement, unless ATC shall
otherwise consent in writing, TCT shall, and shall cause each of its
Subsidiaries to:
(a) conduct its business in the ordinary and usual course of business and
consistent with past practice;
(b) not (i) amend or propose to amend its Organic Documents, (ii) split,
combine or reclassify (whether by stock dividend or otherwise) its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of its
capital stock, or (iii) other than any Distribution resulting from the
spin-off of Prime, declare, set aside, pay or make any Distribution,
whether in cash, stock, property or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any TCT Units, other equity interests in TCT,
Convertible Securities or Option Securities;
(d) not (i) incur or become contingently liable with respect to any
Indebtedness for Money Borrowed, other than (x) borrowings, in addition to
those permitted or consented to pursuant to the provisions of clause (y)
immediately following, not to exceed the sum of (I) the principal amount of
borrowings presently outstanding and (II) $3.0 million in the aggregate
outstanding at any one time, and (y) borrowings necessary to finance
acquisitions and construction projects permitted or consented pursuant to
the provisions of paragraph (e) below, (ii) redeem, purchase, acquire or
offer or agree to redeem, purchase or acquire any of its equity interests,
including without limitation any TCT Units, other equity interests,
Convertible Securities or Option Securities, (iii) sell, lease, license,
pledge, dispose of or encumber any properties or assets or sell any
businesses other than (x) dispositions in the ordinary course of business,
(y) Liens arising in accordance with the provisions of Indebtedness for
Money Borrowed in effect on the date of the Original Merger Agreement and
in accordance with their present terms, and (z) leases of towers and
shelter space to third-party customers in the ordinary course of business
and in accordance with past practices and policies, or (iv) make any loans,
advances or capital contributions to, or investments in, any other Person,
except to officers and employees of TCT for travel, business or relocation
expenses in the ordinary course of business;
(e) not enter into or agree to enter into any Restricted Transaction (or
group of related Restricted Transactions), whether for its own account or
for any other Person, if (i) the aggregate amount reasonably expected to be
expended by TCT or any of its Subsidiaries in connection with such
individual Restricted Transaction (together with any group of related
Restricted Transactions) exceeds $3.0 million, or (ii) the
II-20
<PAGE>
aggregate amount to be expended in connection with all Restricted
Transactions (together with any group of related Restricted Transactions)
exceeds $10.0 million; provided, however, that the foregoing restriction
shall not apply to any Restricted Transaction pursuant to agreements which
are described in Section 6.6(e) of the TCT Disclosure Schedule;
(f) use reasonable business efforts to preserve intact its business
organization and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with customers and others having business relationships with
them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(g) confer on a regular and frequent basis with one or more
representatives of ATC to report material operational matters and the
general status of ongoing operations;
(h) not adopt, enter into, amend or terminate any employment, severance,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or key
employees without the prior approval of ATC;
(i) maintain with financially responsible insurance companies insurance
on the TCT Assets and the TCT Business in such amounts and against such
risks and losses as are consistent with past practice;
(j) not make any Tax election that could reasonably be likely to have a
material adverse effect on TCT or settle or compromise any material Tax
liability;
(k) except in the ordinary course of business or except as would not,
individually or in the aggregate, have a material adverse effect on TCT,
not modify, amend or terminate any Material Agreement to which TCT is a
party or by which any of the TCT Assets may be bound or to which any of
them may be subject or waive, release or assign any material rights or
claims thereunder;
(l) not make any material change to its accounting methods, principles or
practices, except as may be required by GAAP;
(m) not enter into any Lease or other agreement with respect to any
antennae site on any of its towers, whether presently owned or hereafter
acquired by TCT other than in the ordinary course of business and in
accordance with past practices and policies;
(n) except as set forth in Section 4.14 of the TCT Disclosure Schedules,
(i) not grant to any executive officer or other key employee of TCT any
increase in compensation, except for normal increases in the ordinary
course of business consistent with past practice or as required under
Benefit Arrangements set forth in Section 4.14 of the TCT Disclosure
Schedule, (ii) not grant to any such executive officer any increase in
severance or termination pay, except as was required under any Benefit
Arrangements set forth in Section 4.14 of the TCT Disclosure Schedule,
(iii) not adopt or, except in the ordinary course of business, amend any
Plan or Benefit Arrangement (including change any actuarial or other
assumption used to calculate funding obligations with respect to any Plan,
or change the manner in which contributions to any Plan are made or the
basis on which such contributions are determined) and (iv) except in the
ordinary course, not enter into, amend in any material respect or terminate
any Governmental Authorization, material Private Authorization or material
Contract;
(o) not voluntarily take or permit to be taken any action which if taken
between the end of its most recent fiscal quarter and prior to the date of
the Original Merger Agreement would have been required to be noted as an
exception on Section 4.16 of the TCT Disclosure Schedule, other than
pursuant to the conduct of its business in the ordinary and usual course of
business and consistent with past practice; and
(p) not authorize or enter into any agreement that would violate any of
the foregoing.
In the event that TCT or any of its Subsidiaries desires to take any of the
actions prohibited by the provisions of this Section, TCT shall give prompt
written notice to ATC, referring to the provisions of this Section. In the
event that ATC does not object to the taking of such action within ten (10)
business days of
II-21
<PAGE>
receipt of such notice and all material information requested by ATC with
respect thereto, TCT or such Subsidiary shall have the right to take such
action.
6.7 Preliminary Title Reports. As promptly as practicable after the
execution of this Agreement, ATC may obtain at its expense a standard
preliminary title report (the "Title Report") dated on or after the date of
the Original Merger Agreement issued by such title company or companies as TCT
and ATC shall mutually reasonably agree with respect to each parcel of Real
Property owned or leased by TCT or any of its Subsidiaries.
6.8 Environmental Site Assessments. As promptly as practicable after the
execution of this Agreement, ATC may at its own cost and expense obtain, and
deliver to TCT full and complete copies of, an Environmental Report on each
parcel of Real Property owned or leased by TCT or any of its Subsidiaries for
which an Environmental Report has not heretofore been delivered by TCT to ATC
(or as to which ATC has heretofore indicated that the existing Environmental
Report raises questions of potential liability which has had or could be
reasonably expected to have a material adverse effect on TCT). Site
assessments shall be conducted by such consultants and professionals as ATC
and TCT shall mutually reasonably agree and shall be arranged at times
mutually convenient to the parties. Each of TCT and ATC shall be entitled to
have representatives present at the time such site assessments are conducted
and to have copies of all correspondence with the company preparing such
Environmental Reports.
6.9 Solicitation of Employees. If this Agreement is terminated, each of ATC
and TCT agrees that neither it nor any of its Affiliates will, for a period of
twelve (12) months from the date of such termination, solicit or actively seek
to hire any individual who during such period is employed by ATC or any of its
Affiliates or TCT or any of its Affiliates, as the case may be, whether or not
such individual would commit breach of such individual's employment agreement
or contract in leaving such employment; provided, however, that the foregoing
shall not prevent ATC or TCT (or any of their respective Affiliates) from
soliciting or actively seeking to hire any such key employee who (i) initiates
employment discussions with it, (ii) is not employed by ATC or TCT, as the
case may be, on the date TCT or ATC (or any of their respective Affiliates),
as the case may be, first solicits such key employee, or (iii) soliciting
through general advertisement, including without limitation on the Internet.
6.10 Certificate of Non-Foreign Status. Prior to the Closing Date, TCT shall
use its reasonable business efforts to obtain on behalf of itself and ATC (in
connection with potential deduction and withholding obligations under Sections
1445 or 1446 of the Code), from each TCT Member a certificate of non-foreign
status of such member that meets the requirements of both Section 1.1445-2(b)
of the Regulations and Section 5.04 of Revenue Procedure 89-31, 1989-1 C.B.
895, it being understood that the failure to obtain any such certificates
shall not be deemed to be a breach of this Section. TCT shall furnish to ATC
on the Closing Date a copy of such certificates of non-foreign status.
6.11 Tax Returns and Other Reports. TCT's former tax matters partner (within
the meaning of Section 6231 of the Code) will prepare and file all Tax Returns
and other reports, filings, and amendments required to be filed by TCT or
delivered to the TCT members after the Effective Time, but only to the extent
that such Tax Returns and other documents relate to taxable periods (or
portions thereof) ending at or prior to the Effective Time; provided however
that ATC and ATMC shall be provided the opportunity to review and comment upon
such Tax Returns, reports, filings, and amendments prior to their filing or
delivery. The parties hereto agree that the Merger is being effected as a
convenient mechanism for the TCT Members to sell their TCT Units to ATI, and
accordingly the parties will (irrespective of the subsequent liquidation or
merger of TCT into ATI) treat the Merger for income Tax purposes as a sale by
the TCT Members of their TCT Units to ATI.
6.12 Section 754 Elections. At the request of ATC, TCT and ATC shall use
reasonable business efforts to cooperate to cause each Subsidiary of TCT that
is identified by ATC to implement an election under Section 754 of the Code
and under comparable provisions of all state and local income Tax Laws.
II-22
<PAGE>
ARTICLE 7
CLOSING CONDITIONS
7.1 Conditions to Obligations of Each Party. The respective obligations of
each party to consummate the Merger shall, except as hereinafter provided in
this Section, be subject to the satisfaction at or prior to the Closing Date
of the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by Applicable Law:
(a) As of the Closing Date, no Legal Action shall be pending before any
Authority seeking to enjoin, restrain, prohibit or make illegal or to
impose any materially adverse conditions in connection with, the
consummation of the Merger, it being understood and agreed that a written
request by any Authority for information with respect to the Merger, which
information could be used in connection with such Legal Action, shall not
in itself be deemed to be a Legal Action pending before any such Authority;
(b) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the Hart-Scott-Rodino Act shall have
expired or been terminated without any condition that has a material
adverse effect on TCT or any of its Members or any Affiliate thereof;
(c) Except with respect to the Hart-Scott-Rodino Act (which is addressed
in Section 7.1(b)), all authorizations, consents, waivers, orders or
approvals required to be obtained from all Authorities, and all filings
(other than the Certificate of Merger), submissions, registrations, notices
or declarations required to be made by any of the parties with any
Authority, prior to the consummation of the Merger, shall have been
obtained from, and made with, all such Authorities, except for such
authorizations, consents, waivers, orders, approvals, filings,
registrations, notices or declarations the failure to obtain or make would
not have a material adverse effect on TCT; and
(d) The ATC Common Stock to be issued as part of the Merger Consideration
shall have been listed for trading on The New York Stock Exchange, subject
to official notice of issuance.
7.2 Conditions to Obligations of ATC and ATMC. The obligation of ATC to
cause ATMC to, and of ATMC to, consummate the Merger shall be subject to the
satisfaction of the following conditions, any or all of which may be waived,
in whole or in part, by ATC and ATMC to the extent permitted by Applicable
Law:
(a) All agreements, certificates, opinions and other documents required
to be delivered pursuant to the provisions of this Agreement shall be
reasonably satisfactory in form, scope and substance to ATC and its
counsel, and ATC and its counsel shall have received all information and
copies of all documents, including records of corporate proceedings, which
they may reasonably request in connection therewith, such documents where
appropriate to be certified by proper Authorities or corporate officers;
(b) TCT shall have furnished ATC and, at ATC's request, any bank or other
financial institution providing credit to ATC, with one or more favorable
opinions, dated the Closing Date, of counsel for TCT, reasonably
satisfactory to ATC, covering the matters set forth in Exhibit B and made a
part hereof, and in forms and scope reasonably satisfactory to ATC, and
with respect to such other matters arising after the date of the Original
Merger Agreement as ATC or its counsel may reasonably request;
(c) (i) The representations and warranties of TCT contained in this
Agreement (other than in Section 4.20) shall be true and correct at and as
of the Closing Date with the same force and effect as though made on and as
of such date, except (x) to the extent such representations and warranties
expressly speak as of an earlier date (in which case such representations
and warranties shall continue to be true and correct as of such earlier
date) and (y) to the extent that the failure of such representations and
warranties to be true and correct, individually or in the aggregate, would
not have a material adverse effect on TCT; provided, however, that for the
purpose of this clause (y), representations and warranties that are
qualified as to materiality (including by reference to "material adverse
effect") shall not be deemed to be so qualified; (ii) the representations
and warranties of TCT set forth in Section 4.20 of this Agreement shall be
true and correct; provided, however, such untruth shall be disregarded for
purposes of this Section 7.2(c) if, by
II-23
<PAGE>
adjusting the Merger Consideration at Closing, the untruth is rendered
harmless and such adjustment either does not require the approval of the
TCT Members, or such approval has been obtained, in accordance with the
DLLCA: (iii) each and all of the agreements and covenants to be performed
or satisfied by TCT or any of the TCT stockholders hereunder at or prior to
the Closing Date shall have been duly performed or satisfied in all
material respects; and (iv) TCT shall have furnished ATC with such
certificates and other documents evidencing the truth of such
representations, warranties, covenants and agreements and the performance
of such agreements or conditions as ATC or its counsel shall have
reasonably requested;
(d) Other than those which, individually or in the aggregate, the failure
of which to obtain would not have a material adverse effect on the TCT
Assets or the TCT Business taken as a whole, all authorizations, consents,
waivers, orders or approvals required by the provisions of this Agreement
to be obtained from all Persons (other than Authorities) prior to the
consummation of the Merger, including without limitation those required in
order for TCT to continue to own all of the TCT Assets and continue to
operate the TCT Business as conducted immediately prior to the Closing
(including without limitation, at the cost and expense of TCT, all
modifications, if any, of Private Authorizations, Leases and Material
Agreements of TCT set forth in Section 7.2(d) of the TCT Disclosure
Schedule) shall have been obtained, without the imposition, individually or
in the aggregate, of any condition or requirement which could have a
material adverse effect on TCT;
(e) Between the date of the Original Merger Agreement and the Closing
Date, there shall not have occurred and be continuing any material adverse
change in TCT from that reflected in the most recent TCT Financial
Statements;
(f) The TCT Members and TCT shall have delivered or cause to be delivered
to ATC all of the Collateral Documents and other agreements, documents and
instruments required to be delivered by the TCT Members or TCT to ATC at or
prior to the Closing pursuant to the terms of this Agreement;
(g) ATC shall have received a letter from its independent accountants to
the effect that an unqualified report (as to the scope of the audit, access
to the books and records and the cooperation of management) on the
financial statements (consisting of a balance sheet for the fiscal year
ended December 31, 1997, and statements of operations and cash flow for the
period ended December 31, 1997) of TCT could be prepared by them in
conformity with GAAP and Regulation S-X under the Securities Act;
(h) As of the Closing Date, except as otherwise set forth in Section
4.6(a) of the TCT Disclosure Schedule, no Legal Action shall be pending
before any Authority which could, individually or in the aggregate, have a
material adverse effect on TCT, it being understood and agreed that a
written request by any Authority for information with respect to the
Merger, which information could be used in connection with such Legal
Action, shall not be deemed to be a Legal Action pending before any such
Authority;
(i) The Environmental Reports prepared pursuant to the provisions of
Section 6.8 shall not indicate the likelihood of potential liability which
has had or could reasonably be likely to have a material adverse effect on
TCT, and no Event or Events shall have occurred subsequent to the date of
the Original Merger Agreement, which, individually or in the aggregate,
would cause the representations and warranties of TCT set forth in Section
4.19 (without regard to knowledge) to be inaccurate or incomplete in any
material respect;
(j) ATC shall have received, at its expense, a commitment to issue
standard ALTA title insurance policies insuring TCT's or any of its
Subsidiaries' leasehold or fee interest in the parcels of land representing
at least 95% of TCT net revenues on which each of its towers is located and
the improvements located thereon and the Title Report shall not disclose
any exception, other than Permitted Liens (and liens on real property owned
by other Persons as to which TCT has a ground lease), and no Event or
Events shall have occurred subsequent to the date of the Original Merger
Agreement, which, individually or in the aggregate, would cause the
representations and warranties of TCT set forth in Section 4.4 (without
regard to knowledge) to be inaccurate or incomplete in any material
respect;
II-24
<PAGE>
(k) All Convertible Securities and Option Securities of TCT, if any,
outstanding immediately prior to the Closing shall be canceled or converted
to TCT Units and, from and after the Closing, shall no longer be of any
force or effect;
(l) ATC shall have received, at its expense, a report with respect to
each of the towers of TCT and any of its Subsidiaries, of such structural
engineers as are reasonably satisfactory to ATC and TCT, that shall
indicate that towers representing at least 95% of TCT net revenues (i) are
structurally sound and in good operating condition, (ii) are in compliance
with all Applicable Laws, Governmental Authorizations, Private
Authorizations and issuance requirements, and (iii) do not require
structural or other material repairs (other than those set forth in Section
7.2(l) of the TCT Disclosure Schedule heretofore delivered to ATC) costing
more than $250,000 in the aggregate; provided, however, that to the extent
the aggregate amount of such repairs is in excess of $250,000, ATC shall
not be entitled to terminate this Agreement but the Cash Consideration
shall be reduced by an amount equal to the excess of (x) the aggregate
amount of such repairs over (y) $250,000;
(m) Cox shall have executed and delivered to ATC an agreement
substantially in the form attached hereto as Exhibit C and made a part
hereof, amended to reflect the fact that Cox shall be entitled to one
(1) demand registration on Form S-1 under the Securities Act (the
"Registration Rights Agreement");
(n) Each TCT Member that owns Class B TCT Units shall have executed and
delivered to ATC an investment letter substantially in the form of Exhibit
D attached hereto and made a part hereof (the "TCT Investment Letters");
(o) The Monthly Revenue Run Rate of TCT for the month ended immediately
prior to the Closing Date shall have been not less than $978,815, increased
for the period between October 31, 1998 and such month end at an annual
rate of 15%, compounded annually;
(p) Cox and each of the executive officers of TCT shall have executed and
delivered to ATC agreements substantially in the form attached hereto as
part of Exhibit E and made a part hereof (the "ATC Noncompetition
Agreements");
(q) All instruments evidencing Indebtedness for Money Borrowed of TCT or
any of its Subsidiaries shall permit the repayment thereof by ATC without
premium or penalty;
(r) Any employment agreement or other arrangement between TCT and any of
Messrs. Madigan, Sivertsen, D. Smith, R. Smith and Williams will be
terminated, at no cost to ATC or ATMC, and any Contractual Obligation
between TCT and any TCT Member or any member of the Immediate Family of any
TCT Member, or any Affiliate of any of the foregoing, that is to survive
the Merger shall, to the extent requested by ATC, be amended, at no cost to
ATC or ATMC, to contain terms and conditions satisfactory to ATC;
(s) Each of the Persons named therein shall have executed and delivered
to ATC an agreement substantially in the form attached hereto as Exhibit F
and made a part hereof (the "Indemnity Escrow Agreement") and ATC shall
have been permitted to make the deposits contemplated thereby; and
(t) Cox shall shall have executed and delivered to TCT a special release
substantially in the form of Exhibit I attached hereto and made a part
hereof (the "Cox Special Release").
7.3 Conditions to Obligations of TCT. The obligation of TCT to consummate
the Merger shall be subject to the satisfaction of the following conditions,
any or all of which may be waived, in whole or in part, by TCT to the extent
permitted by Applicable Law:
(a) All agreements, certificates, opinions and other documents required
to be delivered pursuant to the provisions of this Agreement shall be
reasonably satisfactory in form, scope and substance to TCT and its
counsel, and TCT and its counsel shall have received all information and
copies of all documents, including
II-25
<PAGE>
records of corporate proceedings, which they may reasonably request in
connection therewith, such documents where appropriate to be certified by
proper Authorities or corporate officers;
(b) ATC shall have furnished TCT, with favorable opinions, dated the
Closing Date, of Sullivan & Worcester LLP, counsel for ATC, substantially
in the form attached hereto as Exhibit G and made a part hereof, and with
respect to such other matters arising after the date of the Original Merger
Agreement as TCT or its counsel may reasonably request;
(c) (i) The representations and warranties of ATC and ATMC contained in
this Agreement (other than in Section 5.5) shall be true and correct at and
as of the Closing Date with the same force and effect as though made on and
as of such date, except (x) to the extent such representations and
warranties expressly speak as of an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date) and (y) to the extent that the failure of such representations and
warranties to be true and correct, individually or in the aggregate, would
not have a material adverse effect on ATC; provided, however, that for the
purpose of this clause (y), representations and warranties that are
qualified as to materiality (including by reference to "material adverse
effect") shall not be deemed to be so qualified; (ii) the representations
and warranties of ATC set forth in Section 5.5 of this Agreement shall be
true and correct; provided, however, such untruth shall be disregarded for
purposes of this Section 7.3(c) if, by adjusting the Merger Consideration
at Closing, the untruth is rendered harmless and such adjustment either
does not require the approval of the ATC or ATMC stockholders, or such
approval has been obtained, in accordance with the DCL; (iii) each and all
of the agreements and covenants to be performed or satisfied by ATC or ATMC
hereunder at or prior to the Closing Date shall have been duly performed or
satisfied in all material respects; and (iv) ATC and ATMC shall have
furnished TCT with such certificates and other documents evidencing the
truth of such representations, warranties, covenants and agreements and the
performance of such agreements or conditions as TCT or its counsel shall
have reasonably requested;
(d) ATC and ATMC shall have delivered or cause to be delivered to TCT all
of the Collateral Documents and other agreements, documents and instruments
required to be delivered by ATC and ATMC to TCT at or prior to the Closing
pursuant to the terms of this Agreement;
(e) Between the date of the Original Merger Agreement and the Closing
Date, there shall not have occurred and be continuing any material adverse
change in ATC from that reflected in the most recent ATC Financial
Statements;
(f) As of the Closing Date, no Legal Action shall be pending before any
Authority which could, individually or in the aggregate, be reasonably
expected to have a material adverse effect on ATC, it being understood and
agreed that a written request by any Authority for information with respect
to the Merger, which information could be used in connection with such
Legal Action, shall not be deemed to be a Legal Action pending before any
such Authority;
(g) ATC shall have executed and delivered the Registration Rights
Agreement and permitted Cox and such other TCT Members as so request, in
their sole and absolute discretion, to become signatories thereto;
(h) ATC shall have delivered to Cox an agreement substantially in the
form of Exhibit H attached hereto and made a part hereof (the "ATC Voting
Agreement") executed by the ATC stockholders named therein and any
individual nominated pursuant thereto shall have been elected a director of
ATC; and
(i) ATC shall have executed and delivered to TCT the Indemnity Escrow
Agreement.
II-26
<PAGE>
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time only pursuant to the following provisions:
(a) by mutual consent of TCT and ATC; or
(b) by ATC or TCT if any permanent injunction, decree or judgment of any
Authority preventing consummation of the Merger shall have become final and
nonappealable; or
(c) by TCT in the event (i) TCT is not in material breach of this
Agreement and none of its representations or warranties shall have become
and continue to be untrue in any manner that would cause the condition set
forth in Section 7.2(c) not to be satisfied, and (ii) either (A) the Merger
has not been consummated on or prior to June 30, 1999, or (B) ATC or ATMC
is in material breach of this Agreement or any of its representations or
warranties shall have been or become and continue to be untrue in any
manner that would cause the conditions set forth in Section 7.3(c) not to
be satisfied, and such a breach or untruth exists and is not capable of
being cured by and will prevent or delay consummation of the Merger by or
beyond June 30, 1999; or
(d) by ATC in the event (i) neither ATC nor ATMC is in material breach of
this Agreement and none of its representations or warranties shall have
become and continue to be untrue in any manner that would cause the
condition set forth in Section 7.3(c) not to be satisfied, and (ii) either
(A) the Merger has not been consummated on or prior to June 30, 1999, or
(B) TCT is in material breach of this Agreement or any of TCT's
representations or warranties shall have been or become and continue to be
untrue in any manner that would cause the conditions set forth in Section
7.2(c) not to be satisfied, and such a breach or untruth exists and is not
capable of being cured by and will prevent or delay consummation of the
Merger by or beyond June 30, 1999; or
(e) by ATC or TCT in the event the Merger has not been consummated on or
prior to the Termination Date.
The term "Termination Date" shall mean September 30, 1999 or such other date
as the parties may, from time to time, mutually agree.
The right of ATC or TCT to terminate this Agreement pursuant to this Section
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party, any Person controlling any
such party or any of their respective Representatives whether prior to or
after the execution of this Agreement.
8.2 Effect of Termination. Except as provided in Sections 6.1 (with respect
to confidentiality), 6.3 and 10.2 and this Section, in the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void, there shall be no liability on the part of any party,
or any of their respective stockholders, officers or directors, to the other
and all rights and obligations of any party shall cease; provided, however,
that such termination (including without limitation any termination pursuant
to the provisions of Section 8.1(e)) shall not relieve any party from
liability for any willful or intentional misrepresentation or breach of any of
its warranties, covenants or agreements set forth in this Agreement. In the
event this Agreement is terminated by either party pursuant to Section 8.1 (c)
or 8.1(d) because of the intentional or wilful breach of covenant or agreement
of the other party (including without limitation the refusal of the other
party to consummate the Merger notwithstanding the fact that all of its
conditions to do so have been satisfied), the terminating party shall be
entitled to liquidated damages in the amount of $10,000,000, it being agreed
that such amount shall constitute full payment for any and all damages
suffered by the nondefaulting party by reason of such intentional or wilful
breach of covenant or agreement. ATC and TCT agree in advance that actual
damages would be difficult to ascertain and that $10,000,000 is a fair and
equitable amount to reimburse TCT or ATC, as the case may be, for damages
sustained due to ATC's or TCT's failure to consummate the Merger for the
reasons
II-27
<PAGE>
specified in the immediately preceding sentence. Notwithstanding the
foregoing, the liquidated damages provisions set forth herein are not
exclusive remedies and each party shall have the right, in its sole and
absolute discretion, to seek specific performance of this Agreement pursuant
to the provisions of Section 10.4. Anything in this Agreement to the contrary
notwithstanding, although a party may have multiple reasons for terminating
this Agreement, it shall not be entitled to collect liquidated or other
damages more than once.
ARTICLE 9
INDEMNIFICATION
9.1 Survival. The representations and warranties of the parties contained in
or made pursuant to this Agreement or any Collateral Document shall survive
the Closing and shall remain operative and in full force and effect for a
period of twelve (12) months after the Closing Date, except that in the case
of matters of a nature referred to in Sections 4.1, 4.20, 5.1 and 5.5 which
shall survive and remain operative and in full force and effect for a period
of twenty-four (24) months after the Closing Date, regardless of any
investigation or statement as to the results thereof made by or on behalf of
any party hereto. The covenants and agreements of the parties contained in or
made pursuant to this Agreement or any Collateral Document shall survive the
Closing (unless any such covenant or agreement by its express terms in this
Agreement does not so survive) and shall remain operative and in full force
and effect for the statute of limitations applicable to contractual
obligations. The term "Indemnity Period" shall mean the applicable period with
respect to which a representation, warranty, covenant or agreement survives
the Closing as provided in this Section. No claim for indemnification, other
than with respect to fraud may be asserted after the expiration of the
Indemnity Period. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant and agreement which arises and is the
subject of a Claim which is asserted in writing prior to the expiration of the
applicable Indemnity Period shall survive with respect to such Claim or any
dispute with respect thereto until the final resolution thereof.
9.2 Indemnification.
(a) TCT agrees, with respect to the extent of each TCT Member's interest in
the Escrow Indemnity Funds on behalf of each TCT Member, to the extent
provided in this Article 9, including without limitation Section 9.3, that on
and after the Closing ATC and ATMC and their respective Subsidiaries,
stockholders, directors, officers, employees, agents and representatives
(collectively, the "ATC Indemnified Parties") shall be indemnified and held
harmless from and against any and all damages, claims, losses, expenses,
costs, obligations, and liabilities including, without limiting the generality
of the foregoing, liabilities for all reasonable attorneys', accountants' and
experts' fees and expenses incurred, including those incurred to enforce the
terms of this Agreement or any Collateral Document (collectively, "Loss and
Expense"), suffered by the ATC Indemnified Parties by reason of or arising out
of (i) any breach of representation or warranty made by TCT pursuant to this
Agreement or any Collateral Document, and (ii) any failure by TCT to perform
or fulfill any of its covenants or agreements set forth in this Agreement or
any Collateral Document.
(b) ATC and ATMC, jointly and severally, agree that on and after the Closing
they will indemnify each former TCT Member and hold it harmless from and
against all Loss and Expense suffered by any of them by reason of or arising
out of (i) any breach of representation or warranty made by ATC or ATMC
pursuant to this Agreement or any Collateral Document, and (ii) any failure by
ATC or ATMC to perform or fulfill any of its covenants or agreements set forth
in this Agreement or any Collateral Document.
9.3 Limitation of Liability.
(a) Notwithstanding the provisions of Section 9.2, after the Closing, the
ATC Indemnified Parties, on the one hand, and the TCT Members, on the other
hand, shall be entitled to recover their Loss and Expense in respect of any
Claim only (i) in the event that the aggregate Loss and Expense for all Claims
exceed, in the aggregate, $500,000, in which event the indemnified party shall
be entitled to recover all such Loss and Expense including
II-28
<PAGE>
such $500,000; and (ii) to the extent that the aggregate Loss and Expense for
all Claims do not exceed $5,000,000.
(b) Anything in this Agreement, including without limitation the provisions
of Sections 9.2 or 9.3(a), to the contrary notwithstanding, except as provided
in Section 9.6, (i) the exclusive recourse of any and all of the ATC
Indemnified Parties after the Closing with respect to the liability of the TCT
Members pursuant to Section 9.2 or any other provision of this Agreement or
Applicable Law which requires the TCT Members to defend, indemnify or hold
harmless any and all of the ATC Indemnified Parties from or against any Claim
or Loss and Expense shall be the Escrow Indemnity Funds (as defined in the
Indemnity Escrow Agreement); and (ii) any and all of the ATC Indemnified
Parties' remedies for any such liability of any TCT Member, or for any Claim
arising under this Agreement, shall be limited to its right to recover from
the Escrow Indemnity Funds in accordance with the provisions of the Indemnity
Escrow Agreement, and none of the ATC Indemnified Parties shall have any right
of recovery against any TCT Member or any of its officers, directors,
shareholders, agents or Affiliates or against the assets of any of them for
any such liability.
(c) In the case any event shall occur which would otherwise entitle any
party to assert a claim for indemnification hereunder, no Loss and Expense
shall be deemed to have been sustained by such party to the extent of any
proceeds received by such party from any insurance policies with respect
thereto.
9.4 Notice of Claims. If an indemnified party believes that it has suffered
or incurred any Loss and Expense, it shall notify the indemnifying party
promptly in writing, and in any event within the applicable Indemnity Period
specified in Section 9.1, describing such Loss and Expense, all with
reasonable particularity and containing a reference to the provisions of this
Agreement in respect of which such Loss and Expense shall have occurred. If
any Legal Action is instituted by a third party with respect to which an
indemnified party intends to claim any liability or expense as Loss and
Expense under this Article, such indemnified party shall promptly notify the
indemnifying party of such Legal Action, but the failure to so notify the
indemnifying party shall not relieve such indemnifying party of its
obligations under this Article, except to the extent such failure to notify
prejudices such indemnifying party's ability to defend against such Claim.
9.5 Defense of Third Party Claims. The indemnifying party shall have the
right to conduct and control, through counsel of its own choosing, reasonably
acceptable to the indemnified party, any third party Legal Action or other
Claim, but the indemnified party may, at its election, participate in the
defense thereof at its sole cost and expense; provided, however, that if the
indemnifying party shall fail to defend any such Legal Action or other Claim,
then the indemnified party may defend, through counsel of its own choosing,
such Legal Action or other Claim, and (so long as it gives the indemnifying
party at least fifteen (15) days' notice of the terms of the proposed
settlement thereof and permits the indemnifying party to then undertake the
defense thereof) settle such Legal Action or other Claim and to recover the
amount of such settlement or of any judgment and the reasonable costs and
expenses of such defense. The indemnifying party shall not compromise or
settle any such Legal Action or other Claim without the prior written consent
of the indemnified party, which consent shall not unreasonably be withheld,
delayed or conditioned if the terms and conditions of such compromise or
settlement proposed by the indemnifying party and agreed to in writing by the
claimant in such Legal Action or other Claim (a) include a full release of the
indemnified party from the Legal Action or other Claim which is the subject of
the Settlement Proposal, and (b) if the indemnified party is an ATC
Indemnified Party, do not include any term or condition which would restrict
in any material manner the continued ownership or operations of the TCT Assets
or the conduct of the TCT Business in substantially the manner then being
owned, operated and conducted by ATMC (or any successor or assign). No matter
whether an indemnifying party defends or prosecutes any third party Legal
Action or Claim, the indemnified and indemnifying parties shall cooperate in
the defense or prosecution thereof. Such cooperation shall include access
during normal business hours afforded to the indemnifying party to, and
reasonable retention by the indemnified party of, records and information
which are reasonably relevant to such third party Legal Action or Claim, and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder, and
the indemnifying party shall reimburse the indemnified party for all its
reasonable out-of-pocket expenses in connection therewith.
II-29
<PAGE>
9.6 Exclusive Remedy. Except for fraud, the indemnification provided in this
Article shall be the sole and exclusive post-Closing remedy available to any
party against any other party for any Claim under this Agreement.
9.7 Indemnification of Directors and Officers.
(a) From and after the Effective Time, ATC and the Surviving Entity shall,
jointly and severally, indemnify, defend and hold harmless the present and
former officers, Management Committee representatives and employees of TCT and
any of its Subsidiaries, and any Person who is or was serving at the request
of TCT as an officer, director or employee or agent of another Person, against
all losses, expenses, claims, damages or liabilities arising out of actions or
omissions occurring on or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the fullest extent permitted
under Applicable Law (and shall also, subject to the provisions of Section
9.7(d), advance expenses as incurred to the fullest extent permitted under
Applicable Law; provided, however, that the Person to whom expenses are
advanced provides an undertaking, reasonably satisfactory in form, scope and
substance to ATC, to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification); and provided further,
however, that such indemnification shall be provided only to the extent any
directors' and officers' liability insurance policy of ATC or its Subsidiaries
does not provide coverage and actual payment thereunder with respect to the
matters that would otherwise be subject to indemnification hereunder (it being
understood that ATC or the Surviving Entity shall, subject to the provisions
of Section 9.7(d), advance expenses on a current basis as provided in this
Section notwithstanding such insurance coverage to the extent that payments
thereunder have not yet been made, in which case ATC or the Surviving Entity,
as the case may be, shall be entitled to repayment of such advances from the
proceeds of such insurance coverage).
(b) ATC and ATMC agree that all rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any Claim,
existing in favor of the present or former Management Committee
representatives, directors, officers, employees, fiduciaries and agents of TCT
or any of its Subsidiaries, and any Person who is or was serving at the
request of TCT as an officer, director or employee or agent (collectively, the
"Indemnified Parties") as provided in the Amended and Restated Operating
Agreement of TCT or pursuant to other agreements, or certificates of
incorporation or by-laws or similar documents of any of TCT's Subsidiaries, as
in effect as of the date of the Original Merger Agreement, with respect to
matters occurring through the Effective Time, shall survive the Merger and
shall continue in full force and effect for a period of not less than six
years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Claim asserted, made or commenced within
such period shall continue until the final disposition of such Claim.
(c) ATC shall maintain in effect for not less than six years after the
Effective Time the current policies of directors' and officers' liability
insurance maintained by TCT and its Subsidiaries with respect to matters
occurring prior to the Effective Time; provided, however, that (i) ATC may
substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous to the Indemnified
Parties with an insurance company or companies, the claims paving ability of
which is substantially equivalent to the claims paying ability of the
insurance company or companies providing such insurance coverage for directors
and officers of ATC and (ii) ATC shall not be required to pay an annual
premium for such insurance in excess of two (2) times the last annual premium
paid prior to the date of the Original Merger Agreement, but in such case
shall purchase as much coverage as possible for such amount.
(d) In the event that any Claim relating hereto or to the transactions
contemplated by this Agreement is commenced, before the Effective Time, the
parties hereto agree to cooperate and use their respective reasonable efforts
to vigorously defend against and respond thereto. Any Indemnified Party
wishing to claim indemnification under Section 9.7(a) upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify
ATC thereof, whereupon ATC or the Surviving Entity shall have the right, from
and after the Effective Time, to assume and control the defense thereof, and
upon such assumption, neither ATC nor the Surviving Entity shall be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses
II-30
<PAGE>
subsequently incurred by such Indemnified Parties in connection with the
defense thereof. Neither ATC nor the Surviving Entity shall be liable for any
settlement effected without its prior written consent.
(e) This Section 9.7 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of ATC and the Surviving
Entity.
ARTICLE 10
GENERAL PROVISIONS
10.1 Waivers; Amendments. Changes in or additions to this Agreement may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the
consent in writing of the parties hereto. No delay on the part of either party
at any time or times in the exercise of any right or remedy shall operate as a
waiver thereof. Any consent may be given subject to satisfaction of conditions
stated therein. The failure to insist upon the strict provisions of any
covenant, term, condition or other provision of this Agreement or to exercise
any right or remedy hereunder shall not constitute a waiver of any such
covenant, term, condition or other provision thereof or default in connection
therewith. The waiver of any covenant, term, condition or other provision
hereof or default hereunder shall not affect or alter this Agreement in any
other respect, and each and every covenant, term, condition or other provision
of this Agreement shall, in such event, continue in full force and effect,
except as so waived, and shall be operative with respect to any other then
existing or subsequent default in connection herewith.
10.2 Fees, Expenses and Other Payments.
(a) All transfer Taxes, sales Taxes, recording or documentary Taxes, stamps
or other charges levied by any Authority in connection with this Agreement,
the consummation of the Merger and the subsequent or contemporaneous actual or
deemed liquidation of TCT into ATI as well as all costs and expenses in
connection with such Taxes, stamps or other charges shall be borne equally by
TCT and ATC, all costs referred to in Sections 6.7, 6.8 and 7.2(j) shall be
borne by ATC, all Hart-Scott-Rodino filing fees and expenses shall be borne
equally by TCT and ATC, and all other costs and expenses incurred in
connection with this Agreement and the consummation of the Merger, including
without limitation fees and disbursements of counsel, financial advisors and
accountants incurred by the parties hereto, shall, unless otherwise provided
herein, be borne solely and entirely by the party which has incurred such
costs and expenses. All such costs and expenses to be borne by TCT shall, to
the extent not then paid, be accrued for purposes of determining the Current
Balance as of the Effective Time. Such accrual shall also include all costs
and expenses (including without limitation all transfer Taxes, sales Taxes,
recording or documentary Taxes, stamps or other charges levied by any
Authority) in connection of transferring into the name of TCT all property,
real, personal or mixed, held by any predecessor Entity.
(b) At the Closing, ATC shall transfer to an escrow account an amount of
cash equal to the aggregate amount of Taxes accrued pursuant to the last two
sentences of Section 10.2(a) for purposes of determining the Current Balance
as of the Effective Time (collectively, "Accrued Transfer Taxes"). The terms
of such escrow arrangement shall provide that: (i) if TCT is not liquidated
into ATI within three (3) months after the Closing Date, then an amount equal
to all Accrued Transfer Taxes that were accrued based on the assumption that
such liquidation would occur shall be paid to the TCT Members in proportion to
their ownership of TCT Units as of the Effective Time, and (ii) if the amount
of Accrued Transfer Taxes exceeds the amount of Taxes actually paid by ATI,
and required to be borne by TCT pursuant to Section 10.2(a), then such excess
shall be paid, from time to time, to the TCT Members in proportion to their
ownership of TCT Units as of the Effective Time; provided, however, that ATI
need not make any such payment unless it exceeds $10,000 in the aggregate.
II-31
<PAGE>
10.3 Notices. All notices and other communications which by any provision of
this Agreement are required or permitted to be given shall be given in writing
and shall be deemed to have been delivered (a) three (3) business days after
being mailed by first-class or express mail, postage prepaid, (b) the next day
when sent overnight by recognized courier service, (c) upon confirmation when
sent by telex, telegram, telecopy or other form of rapid transmission,
confirmed by mailing (by first class or express mail, postage prepaid, or by
recognized courier service) written confirmation at substantially the same
time as such rapid transmission, or (d) upon delivery when personally
delivered to the receiving party (which if other than an individual shall be
an officer or other responsible party of the receiving party). All such
notices and communications shall be mailed, sent or delivered as follows:
(a) If to ATC, ATI or ATMC:
116 Huntington Avenue
Boston, Massachusetts 02116
Attention: Joseph L. Winn, Chief Financial Officer
Telecopier No.: (617) 375-7575
with a copy to (which shall not constitute notice to ATC, ATI OR
ATMC):
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Norman A. Bikales, Esq.
Telecopier No.: (617) 338-2880
(b) If to TCT:
1525 Wilson Blvd.
Suite 500
Arlington, VA 22209
Attention: Randall N. Smith
Telecopier No.: (703) 247-2135
with copies to (which shall not constitute notice to TCT or any
TCT Member):
Cox Telecom Towers, Inc.
1400 Lake Hearn Dr. N.E.
Atlanta, GA 30319
Attention: Dean Eisner
Telecopier No.: (404) 847-6110
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue
Suite 800
Washington, DC 20036
Attention: Stuart A. Sheldon, Esq.
Telecopier No.: (202) 776-2222
Cameron & Mittleman
56 Exchange Terrace
Providence, RI 02903
Attention: David L. Mayer, Esq.
Telecopier No.: (401) 454-4526
or to such other person(s), telex or facsimile number(s) or address(es) as the
party to receive any such communication or notice may have designated by
written notice to the other party.
II-32
<PAGE>
10.4 Specific Performance; Other Rights and Remedies. Each party recognizes
and agrees that in the event the other party should refuse to perform any of
its obligations under this Agreement or any Collateral Document, the remedy at
law would be inadequate and agrees that for breach of such provisions, each
party shall, in addition to such other remedies as may be available to it at
law or in equity or as provided in Article 10, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by Applicable Law. Each party hereby waives any requirement
for security or the posting of any bond or other surety in connection with any
temporary or permanent award of injunctive, mandatory or other equitable
relief. Subject to the provisions of Section 9.3, nothing herein contained
shall be construed as prohibiting any party from pursuing any other remedies
available to it pursuant to the provisions of this Agreement or Applicable Law
for such breach or threatened breach, including without limitation the
recovery of damages; provided, however, that none of the parties shall pursue,
and each party hereby waives, any punitive, incidental and consequential
damages arising out of this Agreement (including without limitation damages
for diminution in value and loss of anticipated profits).
10.5 Severability. If any term or provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative, illegal or
unenforceable as applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in all cases, because of the
conflicting of any provision with any constitution or statute or rule of
public policy or for any other reason, such circumstance shall not have the
effect of rendering the provision or provisions in question invalid,
inoperative, illegal or unenforceable in any other jurisdiction or in any
other case or circumstance or of rendering any other provision or provisions
herein contained invalid, inoperative, illegal or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative, illegal or unenforceable provision had never been contained
herein and such provision reformed so that it would be valid, operative and
enforceable to the maximum extent permitted in such jurisdiction or in such
case. Notwithstanding the foregoing, in the event of any such determination
the effect of which is to affect materially and adversely any party, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest
extent permitted by Applicable Law in an acceptable manner to the end that the
Transactions are fulfilled and consummated to the maximum extent possible.
10.6 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, binding upon all of the parties. In
pleading or proving any provision of this Agreement, it shall not be necessary
to produce more than one set of such counterparts.
10.7 Section Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
10.8 Governing Law; Venue. The validity, interpretation, construction and
performance of this Agreement shall be governed by, and construed in
accordance with, the applicable laws of the United States of America and the
laws of State of New York applicable to contracts made and performed in such
State and, in any event, without giving effect to any choice or conflict of
laws provision or rule that would cause the application of domestic
substantive laws of any other jurisdiction, except to the extent the DCL or
the DLLCA applies to the Merger. Anything in this Agreement to the contrary
notwithstanding, in the event of any dispute between the parties which results
in a Legal Action, the prevailing party shall be entitled to receive from the
non-prevailing party reimbursement for reasonable legal fees and expenses
incurred by such prevailing party in such Legal Action. In the event of any
Legal Action between the parties arising out of this Agreement, the parties
agree to submit the matter to the Delaware Chancery Court, and the parties
agree to submit to the jurisdiction of such court.
10.9 Further Acts. Each party agrees that at any time, and from time to
time, before and after the consummation of the transactions contemplated by
this Agreement, it will do all such things and execute and
II-33
<PAGE>
deliver all such Collateral Documents and other assurances, as any other party
or its counsel reasonably deems necessary or desirable in order to carry out
the terms and conditions of this Agreement and the transactions contemplated
hereby or to facilitate the enjoyment of any of the rights created hereby or
to be created hereunder.
10.10 Entire Agreement. This Agreement (together with the TCT Disclosure
Schedule, the Exhibits the other Collateral Documents, and the other documents
delivered or to be delivered in connection herewith) constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements, covenants, promises,
conditions, undertakings, inducements, representations, warranties and
negotiations, expressed or implied, oral or written, between the parties, with
respect to the subject matter hereof, including without limitation any
previously executed confidentiality agreements and letters of intent. Each of
the parties is a sophisticated Person that was advised by experienced counsel
and, to the extent it deemed necessary, other advisors in connection with this
Agreement. Each of the parties hereby acknowledges that (a) none of the
parties has relied or will rely in respect of this Agreement or the
transactions contemplated hereby upon any document or written or oral
information previously furnished to or discovered by it or its
representatives, other than this Agreement (or such of the foregoing as are
delivered at the Closing), (b) there are no covenants or agreements by or on
behalf of any party or any of its respective Affiliates or representatives
other than those expressly set forth in this Agreement and the Collateral
Documents, and (c) the parties' respective rights and obligations with respect
to this Agreement and the events giving rise thereto will be solely as set
forth in this Agreement and the Collateral Documents. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT AND ANY COLLATERAL
DOCUMENT, NONE OF THE PARTIES MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES,
AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY
ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND
LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY
ONE OR MORE OF THE FOREGOING.
10.11 Assignment. This Agreement shall not be assignable by any party and
any such assignment shall be null and void, except that it shall inure to the
benefit of and be binding upon any successor to any party by operation of law,
including by way of merger, consolidation or sale of all or substantially all
of its assets, and ATC may assign its rights and remedies hereunder to any
bank or other financial institution which has loaned funds or otherwise
extended credit to it.
10.12 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except
as otherwise provided in Section 10.11.
10.13 Mutual Drafting. This Agreement is the result of the joint efforts of
TCT and ATC, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of the parties and there shall be no
construction against any party based on any presumption of that party's
involvement in the drafting thereof.
10.14 TCT Disclosure Schedule. TCT will deliver to ATC, on or prior to
December 14, 1998, the TCT Disclosure Schedule and all other documents
required to be delivered by TCT pursuant to Article 4 of this Agreement.
Without limiting the generality of the foregoing, the TCT Disclosure Schedule
shall set forth TCT's proposal with respect to which modifications, if any, of
Private Authorizations, Leases and Material Agreements are proposed to be a
condition to Closing pursuant to the provisions of Section 7.2(d). ATC shall
have the right, for a period commencing upon its receipt of the TCT Disclosure
Schedule and each other document together with a letter from TCT indicating
that such delivery constitutes a "final and complete" delivery pursuant to
this
II-34
<PAGE>
Section and terminating at 11:59 p.m. on the tenth (10th) business day
following such receipt, (a) to terminate this Agreement, if the TCT Disclosure
Schedule reveals any Event of which ATC was unaware as of the date of the
Original Merger Agreement, which unknown Events, individually or in the
aggregate, would have a material adverse effect on TCT, and (b) to propose to
TCT alternatives as to which Private Authorizations, Leases and Material
Agreements and which modifications, if any, of Leases and Material Agreements
are to be a condition to Closing pursuant to the provisions of Section 7.2(d).
In the event TCT does not agree to any proposal of ATC pursuant to clause (b)
of the prior sentence, TCT and ATC shall be obligated to negotiate in good
faith with respect to resolving such matters. In the event ATC and TCT do not
agree in writing on the resolution of matters raised by any proposal made by
ATC pursuant to such clause (b) on or prior to ten (10) business days of
receipt by TCT of any such proposal of ATC (the "Interim Period") either party
may, on or prior to ten (10) business days (the "Termination Period"),
following the expiration of the Interim Period, terminate this Agreement. In
the event neither party shall have so terminated this Agreement on or prior to
the expiration of the Termination Period, or, in the event ATC makes no
proposal pursuant to clause (b) of the preceding paragraph, this Agreement
shall continue in full force and effect and the original proposal of TCT (as
set forth in Section 7.2(d) of the TCT Disclosure Schedule) shall control for
purposes of determining the conditions of Closing set forth in Section 7.2(d).
The disclosures in the TCT Disclosure Schedule are to be taken as relating to
all of the representations and warranties of TCT. The disclosure of a
particular item in the TCT Disclosure Schedule shall not be construed as an
admission by TCT that such matter falls within the scope of any applicable
materiality or other qualifications or limitations, or that such matter has
had or is reasonably likely to have a material adverse effect. In addition, to
the extent the TCT Disclosure Schedule includes matters that are not required
by this Agreement to be reflected on such TCT Disclosure Schedule, such
additional matters are set forth for information purposes only and shall not
be construed as expanding the scope of any representations, warranties or
covenants of TCT hereunder. Any reference in the TCT Disclosure Schedule to a
contract, agreement, instrument, document, order, decree or judgment shall be
deemed to include a reference to all amendments and modifications thereof, if
any, so long as such amendments and modifications are made available to ATC as
part of its due diligence investigation. In the event either party terminates
this Agreement pursuant to the provisions of this Section, neither party shall
have any liability to the other. The rights of ATC in this Section are in
addition to those set forth in Section 10.15.
10.15 ATC's Due Diligence. On or prior to December 18, 1998, ATC shall have
completed its due diligence investigation of TCT and the TCT Assets and the
TCT Business. ATC shall have the right, at any time prior to 11:59 p.m. on
December 18, 1998 to terminate this Agreement if such investigation reveals
any Event of which ATC was unaware as of the date of the Original Merger
Agreement, which unknown Events, individually or in the aggregate, would have
a material adverse effect on TCT. Without limiting the generality of the
foregoing, ATC shall have been satisfied as a consequence of such due
diligence that TCT and each of its Subsidiaries has at all times been
classified as a partnership under the Code, and that neither TCT nor any of
its Subsidiaries has ever been a publicly traded partnership treated as a
corporation under Section 7704 of the Code. In the event ATC terminates this
Agreement pursuant to the provisions of this Section, neither party shall have
any liability to the other. The rights of ATC in this Section are in addition
to those set forth in Section 10.14.
II-35
<PAGE>
10.16 Original Merger Agreement. Notwithstanding anything to the contrary in
Section 10.1 of the Original Merger Agreement, this Agreement shall not amend
or restate the Original Merger Agreement, and the Original Merger Agreement
shall continue in full force and effect without any amendment or modification
thereof pursuant to the provisions of this Agreement, until such time as this
Agreement shall have been approved and adopted by the required vote of the TCT
Members.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
II-36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first written above.
American Tower Corporation
By: /s/ James S. Eisenstein
----------------------------------
Name: James S. Eisenstein
Title: Executive Vice President
ATC Merger Corporation
By: /s/ James S. Eisenstein
----------------------------------
Name: James S. Eisenstein
Title: Executive Vice President
American Towers, Inc.
By: /s/ James S. Eisenstein
----------------------------------
Name: James S. Eisenstein
Title: Executive Vice President
TeleCom Towers, L.L.C.
By: /s/ Randall N. Smith
----------------------------------
Name: Randall N. Smith
Title: Chairman & CEO
II-37
<PAGE>
APPENDIX A
DEFINITIONS
Accrued Transfer Taxes shall have the meaning given to it in Section
10.2(b).
Adjustment Holdback shall have the meaning given to it in Section 3.4.
adverse, adversely, when used alone or in conjunction with other terms
(including without limitation "affect," "change" and "effect") shall mean any
Event which is reasonably likely, in the reasonable business judgment of the
relevant party, to be expected to (a) adversely affect the validity or
enforceability of this Agreement or the likelihood of consummation of the
Merger, or (b) adversely affect the business, operations, management, or
properties, or the financial condition, or results of operation of the TCT
Assets or the TCT Business or ATC and its Subsidiaries, taken as a whole, as
applicable, or (c) impair such party's ability to fulfill its obligations
under the terms of this Agreement, or (d) adversely affect the aggregate
rights and remedies of such party under this Agreement. Notwithstanding the
foregoing, and anything in this Agreement to the contrary notwithstanding, the
following events shall not be deemed to constitute such a change, affect or
effect: (i) changes in the financial markets or general economic conditions
and Events affecting the communications sites industry generally, including
without limitation conditions or changes which affect the prevailing interest
rates available to businesses involved in the communications sites industry or
which affect the prevailing resale valuation or the method of determining such
valuations of the businesses involved in the communications sites industry,
and (ii) the resignation or retirement of any TCT employee or group of TCT
employees because of the execution and delivery of this Agreement.
Affiliate, Affiliated shall mean, with respect to any Person, (a) any other
Person at the time directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person, (b) any other Person of
which such Person at the time owns, or has the right to acquire, directly or
indirectly, twenty percent (20%) or more of any class of the capital stock or
beneficial interest, (c) any other Person which at the time owns, or has the
right to acquire, directly or indirectly, twenty percent (20%) or more of any
class of the capital stock or beneficial interest of such Person, (d) any
executive officer or director of such Person, (e) with respect to any
partnership, joint venture or similar Entity, any general partner thereof, and
(f) when used with respect to an individual, shall include any member of such
individual's family or a family trust.
Agreement shall mean this Agreement as originally in effect, including,
unless the context otherwise specifically requires, this Appendix A, the TCT
Disclosure Schedule, the ATC SEC Documents and all exhibits hereto, and as any
of the same may from time to time be supplemented, amended, modified or
restated in the manner herein or therein provided.
Alternative Transaction shall mean a transaction or series of related
transactions (other than the Transactions) resulting in or likely to result in
(a) any Change of Control of TCT, (b) any merger, consolidation or other
business combination of TCT, regardless of whether TCT is the surviving Entity
unless the surviving Entity remains obligated under this Agreement to the same
extent as TCT was, (c) any tender offer or exchange offer for, or any
acquisition of, any securities of TCT, (d) any sale or other disposition of
all or any substantial part of the assets or business of TCT, or (e) any
issue, sale, transfer, pledge, assignment or other conveyance, or any
agreement to issue, sell, transfer, pledge, assign or otherwise convey, any
equity securities, Convertible Securities or Option Securities by TCT or any
TCT Member that could result in a Change of Control of TCT.
Applicable Law shall mean any Law of any Authority, whether domestic or
foreign, including without limitation the FCA and all federal and state
securities and Environmental Laws, to which a Person is subject or by which it
or any of its business or operations is subject or any of its property or
assets is bound.
ATC shall have the meaning given to it in the Preamble.
ATC Common Stock shall have the meaning given to it in Section 3.1.
II-A-1
<PAGE>
ATC Financial Statements shall have the meaning given to it in Section 5.2.
ATC Indemnified Parties shall have the meaning given to it in Section
9.2(a).
ATC Noncompetition Agreements shall have the meaning given to it in Section
7.2(p).
ATC SEC Documents shall have the meaning given to it in Section 5.2.
ATC Stock Consideration shall have the meaning given to it in Section 3.1.
ATC Voting Agreement shall have the meaning given to it in Section 7.3(h).
ATC's knowledge (or words of similar import) shall mean the actual knowledge
of any director or executive officer of ATC or ATMC, as such knowledge existed
on the date of the Original Merger Agreement, after reasonable review of
appropriate ATC and ATMC records and after reasonable inquiry of appropriate
ATC and ATMC employees.
ATI shall have the meaning given to it in the Preamble.
ATMC shall have the meaning given to it in the Preamble.
Authority shall mean any governmental or quasi-governmental authority,
whether administrative, executive, judicial, legislative or other, or any
combination thereof, including without limitation any federal, state,
territorial, county, municipal or other government or governmental or quasi-
governmental agency, arbitrator, authority, board, body, branch, bureau, or
comparable agency or Entity, commission, corporation, court, department,
instrumentality, mediator, panel, system or other political unit or
subdivision or other Entity of any of the foregoing, whether domestic or
foreign, including without limitation the FCC.
Benefit Arrangement shall mean any material benefit arrangement that is not
a Plan, including (a) any employment or consulting agreement, (b) any
arrangement providing for insurance coverage or workers' compensation
benefits, (c) any incentive bonus or deferred bonus arrangement, (d) any
arrangement providing termination allowance, severance or similar benefits,
(e) any equity compensation plan, (f) any deferred compensation plan, and (g)
any compensation policy and practice, but only to the extent that it covers or
relates to any officer, employee or other Person involved in the ownership and
operation of the assets of TCT or the conduct of the business of TCT.
Cash Consideration shall have the meaning given to it in Section 3.1.
Ceiling Share Price shall have the meaning given to it in Section 3.1.
Change of Control shall mean the acquisition, directly or indirectly, by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
of twenty percent (20%) or more of the TCT Units.
Claims shall mean any and all debts, liabilities, obligations, losses,
damages, deficiencies, assessments and penalties, together with all Legal
Actions, pending or threatened, claims and judgments of whatever kind and
nature relating thereto, and all fees, costs, expenses and disbursements
(including without limitation reasonable attorneys' and other legal fees,
costs and expenses) relating to any of the foregoing.
Closing shall have the meaning given to it in Section 2.2.
Closing Date shall have the meaning given to it in Section 2.2.
Closing Date Share Price shall mean, with respect to the ATC Common Stock,
the average of the daily Fair Market Values thereof for each of the ten (10)
Trading Days prior to the Closing Date.
II-A-2
<PAGE>
COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, as set forth in Section 4980B of the Code and Part 6 of Subtitle B
of Title I of ERISA.
Code shall mean the Internal Revenue Code of 1986, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
Law, rules or regulations, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Collateral Documents shall mean the Indemnity Escrow Agreement, the
Noncompetition Agreements, the Registration Rights Agreement, the TCT
Investment Letters, the Cox Special Release, the Prime Letter Agreement, the
Prime Definitive Agreement (if executed), the Certificate of Merger, and any
other agreement, certificate, contract, instrument, notice, opinion or other
document delivered pursuant to the provisions of this Agreement or any
Collateral Document.
Confidential Information shall have the meaning given to it in Section
6.1(a).
Construction Cost shall mean, with respect to each of the Subject Towers
that is not in service at the Effective Time, an amount equal to the funded
cost of such Subject Tower, determined in accordance with GAAP, applied on a
basis consistent with the TCT Financial Statements.
Contract, Contractual Obligation shall mean any agreement, arrangement,
commitment, contract, covenant, indemnity, undertaking or other obligation or
liability to which TCT is a party or to which it or any of the TCT Assets is
subject.
Control (including the terms "controlled," "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, or the disposition of such Person's assets or
properties, whether through the ownership of stock, equity or other ownership,
by contract, arrangement or understanding, or as trustee or executor, by
contract or credit arrangement or otherwise.
Convertible Securities shall mean any evidences of indebtedness, shares of
capital stock (other than common stock) or other securities directly or
indirectly convertible into or exchangeable for shares of common stock, or
other securities directly or indirectly convertible into or exchangeable for
TCT Units or other equity interests of TCT, whether or not the right to
convert or exchange thereunder is immediately exercisable or is conditioned
upon the passage of time, the occurrence or non-occurrence or existence or
non-existence of some other Event, or both.
Cox shall mean Cox Telecom Towers, Inc., a Delaware corporation and one of
the TCT Members.
Cox Special Release shall have the meaning given to it in Section 7.2(t).
Current Balance shall mean, with respect to TCT, the amount by which the
current assets of TCT and its Subsidiaries are more (or are less than) the
current liabilities of TCT (exclusive of current maturities of principal of
any Indebtedness for Money Borrowed), as determined in accordance with GAAP,
consistently applied with the TCT Financial Statements.
Current Market Price shall mean, with respect to the ATC Common Stock, the
average of the daily Fair Market Values thereof for each of the twenty (20)
Trading Days commencing ten (10) Trading Days prior to the date of the
Original Merger Agreement; provided, however that the Current Market Price
shall not be less than $19.20 or more than $21.25. The Current Market Price as
so calculated was $21.55, and therefore, it is $21.25.
DCL shall have the meaning given to it in Section 2.1.
Distribution shall mean, with respect to any Person, (a) the declaration or
payment of any dividend (except dividends payable in common stock of such
Person) on or in respect of any shares of any class of capital stock
II-A-3
<PAGE>
of such Person or any shares of capital stock of any Subsidiary owned by a
Person other than such Person or a Subsidiary of such Person, (b) the
purchase, redemption or other retirement of any shares of any class of capital
stock of such Person or any shares of capital stock of any Subsidiary of such
Person owned by a Person other than such Person or a Subsidiary of such
Person, and (c) any other distribution on or in respect of any shares of any
class of capital stock of such Person or any shares of capital stock of any
Subsidiary of such Person owned by a Person other than such Person or a
Subsidiary of such Person.
DLLCA shall have the meaning given to it in Section 2.1.
Effective Time shall have the meaning given to it in Section 2.3.
Employment Arrangement shall mean, with respect to TCT, any employment,
consulting, retainer, severance or similar contract, agreement, plan,
arrangement or policy (exclusive of any which is terminable within thirty (30)
days without liability, penalty or payment of any kind by TCT or any of its
Affiliates), providing for severance, termination payments, insurance coverage
(including any self-insured arrangements), workers compensation, disability
benefits, life, health, medical, dental or hospitalization benefits,
supplemental unemployment benefits, vacation or sick leave benefits, pension
or retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock purchase or appreciation rights or other forms of
incentive compensation or post-retirement insurance, compensation or benefits,
or any collective bargaining or other labor agreement, whether or not any of
the foregoing is subject to the provisions of ERISA, but only to the extent
that it covers or relates to any officer, employee or other Person involved in
the ownership or operation of the TCT Assets or the conduct of the TCT
Business.
Encumber shall mean to suffer, accept, agree to or permit the imposition of
a Lien.
Entity shall mean any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, insane or incompetent individual,
business trust, joint stock company, joint venture or other organization,
entity or business, whether acting in an individual, fiduciary or other
capacity, or any Authority.
Environmental Law shall mean any Law relating to or otherwise imposing
liability or standards of conduct concerning pollution or protection of the
environment, including without limitation Laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials or other
chemicals or industrial pollutants, substances, materials or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, mining or reclamation or mined land, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances, materials or wastes. Environmental Laws shall include
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 6901 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section
2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651
et seq.), the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), and the Surface Mining Control and Reclamation Act of
1977 (30 U.S.C. Section 1201 et seq.), and any analogous federal, state, local
or foreign Laws, and the rules and regulations promulgated thereunder all as
from time to time in effect, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Environmental Permit shall mean any Governmental Authorization required by
or pursuant to any Environmental Law.
Environmental Report shall have the meaning given to it in Section 4.19.
II-A-4
<PAGE>
ERISA shall mean the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, all as from time to time in effect, or
any successor law, rules or regulations, and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
ERISA Affiliate shall mean any Person that is treated as a single employer
with TCT under Sections 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA.
Event shall mean the existence or occurrence of any act, action, activity,
circumstance, condition, event, fact, failure to act, omission, incident or
practice, or any set or combination of any of the foregoing.
Exchange Act shall mean the Securities Exchange Act of 1934, and the rules
and regulations thereunder, all as from time to time in effect, or any
successor Law, rules or regulations, and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
Fair Market Value shall mean, with respect to the ATC Common Stock, (a) the
average of the high and low reported sales prices, regular way, or, in the
event that no sale takes place on any day, the average of the reported high
and low bid and asked prices, regular way, in either case as reported on the
principal stock exchange on which such stock is listed, or, if not so listed,
on the Nasdaq National Market System; or (b) if such stock is not so listed,
(i) the average of the high and low bid and high and low asked prices on such
day in the over-the-counter market as reported by Nasdaq, or (ii) if bid and
asked prices for such security on any day shall not have been reported through
Nasdaq, the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm regularly making a market in such
security, or (c) if such security is not publicly traded, as from time to time
agreed to by ATC and the TCT Members or, if no such agreement is reached
within ten (10) business days of good faith negotiations, as determined by an
independent investment banking firm mutually agreeable to ATC and the TCT
Members whose fees and expenses shall be shared equally by ATC and the TCT
Members.
FCA shall mean the Communications Act of 1934, and the rules and regulations
thereunder, all as from time to time in effect, or any successor Law, rules or
regulations, and any reference to any statutory or regulatory provision shall
be deemed to be a reference to any successor statutory or regulatory
provision.
FCC shall mean the United States Federal Communications Commission and shall
include any successor Authority.
Floor Share Price shall have the meaning given to it in Section 3.1.
GAAP shall mean generally accepted accounting principles applied on a
consistent basis, (i) as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants ("AICPA")
and/or in statements of the Financial Accounting Standards Board that are
applicable in the circumstances as of the date in question, (ii) when not
inconsistent with such opinions and statements, as set forth in other AICPA
publications and guidelines and/or (iii) that otherwise arise by custom for
the particular industry, all as the same shall exist on the date of the
Original Merger Agreement.
Governmental Authorizations shall mean all approvals, concessions, consents,
franchises, licenses, permits, plans, registrations and other authorizations
of all Authorities, including without limitation the United States Forest
Service and the Federal Aviation Administration, in connection with the
ownership or operation of the TCT Assets or the conduct of the TCT Business.
Governmental Filings shall mean all filings, including franchise and similar
Tax filings, and the payment of all fees, assessments, interest and penalties
associated with such filings, with all Authorities.
Hart-Scott-Rodino Act shall mean the Hart-Scott-Rodino Improvement Act of
1976, as from time to time in effect, or any successor Law, and any reference
to any statutory provision shall be deemed to be a reference to any successor
statutory provision.
II-A-5
<PAGE>
Hazardous Materials shall mean and include any substance, material, waste,
constituent, compound, chemical, natural or man-made element or force (in
whatever state of matter): (a) the presence of which requires investigation or
remediation under any Environmental Law; or (b) that is defined as a
"hazardous waste" or "hazardous substance" under any Environmental Law; or (c)
that is toxic, explosive, corrosive, etiologic, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated
by any applicable Authority or subject to any Environmental Law; or (d) the
presence of which on the real property owned or leased by such Person causes
or threatens to cause a nuisance upon any such real property or to adjacent
properties or poses or threatens to pose a hazard to the health or safety of
persons on or about any such real property; or (e) the presence of which on
adjacent properties could constitute a trespass by such Person; or (f) that
contains gasoline, diesel fuel or other petroleum hydrocarbons, or any by-
products or fractions thereof, natural gas, polychlorinated biphenyls ("PCBs")
and PCB-containing equipment, radon or other radioactive elements, ionizing
radiation, electromagnetic field radiation and other non-ionizing radiation,
sonic forces and other natural forces, lead, asbestos or asbestos-containing
materials ("ACM"), or urea formaldehyde foam insulation.
Indebtedness shall mean, with respect to any Person as of any date, (a) all
items, except items of capital stock or of surplus or of general contingency
or deferred tax reserves or any minority interest in any Subsidiary of such
Person to the extent such interest is treated as a liability with an
indeterminate term on the consolidated balance sheet of such Person, which in
accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person, (b) all
obligations secured by any Lien to which any property or asset owned or held
by such Person is subject, whether or not the obligation secured thereby shall
have been assumed, and (c) to the extent not otherwise included, all
Contractual Obligations of such Person constituting capitalized leases and all
obligations of such Person with respect to Leases constituting part of a sale
and leaseback arrangement.
Indebtedness for Money Borrowed shall mean, with respect to any Person as of
any date, money borrowed and Indebtedness represented by notes payable and
drafts accepted representing extensions of credit, all obligations evidenced
by bonds, debentures, notes or other similar instruments, the maximum amount
currently or at any time thereafter available to be drawn under all
outstanding letters of credit issued for the account of such Person, all
Indebtedness upon which interest charges are customarily paid by such Person,
and all Indebtedness (including capitalized lease obligations) issued or
assumed as full or partial payment for property or services, whether or not
any such notes, drafts, obligations or Indebtedness represent Indebtedness for
money borrowed, but shall not include (a) trade payables, (b) expenses accrued
in the ordinary course of business, (c) customer advance payments and customer
deposits received in the ordinary course of business, or (d) conditional sales
agreements not prohibited by the terms of this Agreement.
Indemnity Escrow Agreement shall have the meaning given to it in Section
7.2(s).
Intangible Assets shall mean all assets and property lacking physical
properties the evidence of ownership of which must customarily be maintained
by independent registration, documentation, certification, recordation or
other means, and shall include, without limitation, concessions, copyrights,
franchises, licenses, patents, permits, service marks, trademarks, trade
names, and applications with respect to any of the foregoing, technology and
know-how.
Intellectual Property shall mean any and all research, information,
inventions, designs, procedures, developments, discoveries, improvements,
patents and applications therefor, trademarks and applications therefor,
service marks, trade names, copyrights and applications therefor, logos, trade
secrets, drawing, plans, systems, methods, specifications, computer software
programs, tapes, discs and related data processing software (including without
limitation object and source codes) owned by such Person or in which it has an
ownership interest and all other manufacturing, engineering, technical,
research and development data and know-how made, conceived, developed and/or
acquired by such Person, which relate to the manufacture, production or
processing of any products developed or sold by such Person or which are
within the scope of or usable in connection with such Person's business as it
may, from time to time, hereafter be conducted or proposed to be conducted.
II-A-6
<PAGE>
Interim Period shall have the meaning given to it in Section 11.14.
Law shall mean any (a) administrative, judicial, legislative or other
action, code, consent decree, constitution, decree, directive, enactment,
finding, law, injunction, interpretation, judgment, order, ordinance, policy
statement, proclamation, promulgation, regulation, requirement, rule, rule of
law, rule of public policy, settlement agreement, statute, or writ of any
Authority, domestic or foreign; (b) the common law, or other legal precedent;
or (c) arbitrator's, mediator's or referee's award, decision, finding or
recommendation.
Lease shall mean any lease of property, whether real, personal or mixed, and
all amendments thereto, and shall include without limitation all use or
occupancy agreements.
Legal Action shall mean, with respect to any Person, any and all litigation
or legal or other actions, arbitrations, counterclaims, investigations,
proceedings, requests for material information by or pursuant to the order of
any Authority or suits, at law or in arbitration, equity or admiralty, whether
or not purported to be brought on behalf of such Person, affecting such Person
or any of such Person's business, property or assets.
Lien shall mean any of the following: mortgage; lien (statutory or other);
or other security agreement, arrangement or interest; hypothecation, pledge or
other deposit arrangement; assignment; charge; levy; executory seizure;
attachment; garnishment; encumbrance (including any easement, exception,
reservation or limitation, right of way, and the like); conditional sale,
title retention or other similar agreement, arrangement, device or
restriction; preemptive or similar right; any financing lease involving
substantially the same economic effect as any of the foregoing; the filing of
any financing statement under the Uniform Commercial Code or comparable law of
any jurisdiction; restriction on sale, transfer, assignment, disposition or
other alienation; or any option, equity, claim or right of or obligation to,
any other Person, of whatever kind and character.
Loss and Expense shall have the meaning given to it in Section 9.2(a).
material, materially or materiality for the purposes of this Agreement,
shall, unless specifically stated to the contrary, be determined without
regard to the fact that various provisions of this Agreement set forth
specific dollar amounts.
Material Agreement shall mean, with respect to TCT, any Contractual
Obligation which (a) was not entered into in the ordinary course of business,
(b) was entered into in the ordinary course of business which (i) involved the
purchase, sale or lease of goods or materials, or purchase of services,
aggregating more than $100,000 since December 31, 1997, (ii) extends for more
than three (3) months, or (iii) is not terminable on thirty (30) days or less
notice without penalty or other payment or (iv) involves the leasing of space
on any tower of TCT involving not less than $10,000 in annual rental payments,
(c) involves a capitalized lease obligation or Indebtedness for Money
Borrowed, (d) is or otherwise constitutes a written agency, broker, dealer,
license, distributorship, sales representative or similar written agreement,
(e) accounted for more than three percent (3%) of the revenues of the TCT
Business in any of the last three fiscal years or is likely to account for
more than three percent (3%) of revenues of the TCT Business during the
current fiscal year, (f) is with the United States Forest Service, or
(g) involves the management by TCT of any communication tower of any other
Person.
Merger shall have the meaning given to it in the third Whereas paragraph.
Merger Consideration shall have the meaning given to it in Section 3.1.
Merger Price shall have the meaning given to it in Section 3.1.
Mid Pacific shall mean Mid-Pacific-Telecom Communications Co., a Nevada
general partnership.
Monthly Tower Revenue Run Rate shall mean an amount equal to the normal
monthly recurring net lease revenues (e.g., excluding charges for installation
and excluding reimbursement of expenses, other than those billed at a fixed
amount, which amount may vary from month to month and which shall be included
in normal
II-A-7
<PAGE>
monthly recurring net lease revenues) received by TCT and its Subsidiaries
with respect to space rented on the towers (including net revenues received by
TCT and its Subsidiaries for managing towers of other Persons) of TCT and its
Subsidiaries, including its proportionate share of the following entities:
Mid-Pacific, Shreveport Tower Company, a Louisiana general partnership and
Haysville Towers LLC, a Kansas limited liability company.
Multiemployer Plan shall mean a Plan which is a "multiemployer plan" within
the meaning of Section 4001(a)(3) of ERISA.
New TCT Operating Agreement shall have the meaning given to it in Section
2.5.
Option Securities shall mean all stock or equity appreciation rights,
rights, options and warrants, and calls or commitments evidencing the right,
to subscribe for, purchase or otherwise acquire shares of capital stock or TCT
Units or other equity interests in TCT or Convertible Securities, whether or
not the right to subscribe for, purchase or otherwise acquire is immediately
exercisable or is conditioned upon the passage of time, the occurrence or non-
occurrence or the existence or non-existence of some other Event.
Organic Document shall mean, with respect to a Person which is a
corporation, its charter, its by-laws and all shareholder agreements, voting
trusts and similar arrangements applicable to any of its capital stock, with
respect to a Person which is a partnership, its agreement and certificate of
partnership, any agreements among partners, and any management and similar
agreements between the partnership and any general partners (or any Affiliate
thereof) or, with respect to a Person which is a limited liability company,
its agreement of limited liability company, any agreements among members, and
any management and similar agreements between the limited liability company
and any member (or any Affiliate thereof).
Original Merger Agreement shall have the meaning given to it in the first
Whereas paragraph.
Permitted Liens shall mean (a) Liens for current Taxes not yet due and
payable, (b) such imperfections of title, easements, encumbrances and
mortgages or other Liens, or other matters of record if any, as are not,
individually or in the aggregate, substantial in character, amount or extent
and that do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby, or
otherwise materially impair the conduct of the TCT Business, (c) Liens
securing Indebtedness for Money Borrowed of a nature referred to in Section
7.2(q), and (d) such other Liens as are permitted by the provisions of this
Agreement to be in place on the Closing Date.
Person shall mean any natural individual or any Entity.
Personal Property shall mean all of the machinery, equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant,
inventory, spare parts and other tangible personal property which are owned or
leased by TCT and used or useful as of the date of the Original Merger
Agreement in the conduct of the business or operations of the TCT Business,
plus such additions thereto and deletions therefrom arising in the ordinary
course of business between the date of the Original Merger Agreement and the
Closing Date.
Plan shall mean, with respect to any Person and at a particular time, any
employee benefit plan which is covered by ERISA and in respect of which such
Person or an ERISA Affiliate is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA, but only to the extent that it covers or
relates to any officer, employee or other Person involved in the ownership and
operation of the TCT Assets or the conduct of the business of the TCT
Business.
Prime shall mean Prime-Telecom Communications Co., a California general
partnership.
Prime Definitive Agreement shall mean the definitive purchase agreement
which may be executed by, among others, ATI and TTP as contemplated by the
Prime Letter Agreement.
II-A-8
<PAGE>
Prime Letter Agreement shall mean the letter agreement, dated as of December
, 1998, by and between ATC and TTP, relating to the sale of Prime to ATI.
Private Authorizations shall mean all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all Persons (other
than Authorities) including without limitation those with respect to
Intellectual Property, but excluding leases, easements and other rights to use
real property.
RCC shall mean RCC Consultants, Inc., a Delaware corporation, and its
Subsidiaries.
Real Property shall mean all of the fee estates and buildings and other
fixtures and improvements thereon, leasehold interests, easements, licenses,
rights to access, rights-of-way, and other real property interests which are
owned or used by TCT as of the date of the Original Merger Agreement, in the
operations of the TCT Business, plus such additions thereto and deletions
therefrom arising in the ordinary course of business between the date of the
Original Merger Agreement and the Closing Date.
Registration Rights Agreement shall have the meaning given to it in Section
7.2(m).
Regulations shall mean the federal income tax regulations promulgated under
the Code, as such Regulations may be amended from time to time. All references
herein to specific sections of the Regulations shall be deemed also to refer
to any corresponding provisions of succeeding Regulations, and all references
to temporary Regulations shall be deemed also to refer to any corresponding
provisions of final Regulations.
Representatives shall have the meaning given to it in Section 6.1(a).
Restricted Transaction shall mean any (i) acquisition or agreement to
acquire (x) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any Person
or other business organization or division thereof or (y) any assets (other
than in the ordinary course of business which for purposes of this definition
does not include the acquisition of communications sites and related assets
and other business involved in the communications sites industry or the
construction of communications towers and related assets), or (ii) any
undertaking or agreement to undertake the construction of one or more
communications towers.
SEC shall mean the United States Securities and Exchange Commission.
Securities Act shall mean the Securities Act of 1933, and the rules and
regulations thereunder, all as from time to time in effect, or any successor
Law, rules or regulations, and any reference to any statutory or regulatory
provision shall be deemed to be a reference to any successor statutory or
regulatory provision.
Solvent shall mean, with respect to any Person on a particular date, that
such Person is "solvent" within the meaning of the federal Bankruptcy Code and
applicable state insolvency and fraudulent conveyance statutes.
Subsidiary shall mean, with respect to a Person, any Entity a majority of
the capital stock ordinarily entitled to vote for the election of directors of
which, or if no such voting stock is outstanding, a majority of the equity
interests of which, is owned directly or indirectly, legally or beneficially,
by such Person or any other Person controlled by such Person, other than RCC
and TTP.
Surviving Entity shall have the meaning given to it in Section 2.1.
Tax (and "Taxable", which shall mean subject to Tax), shall mean, with
respect to any Person, (a) all taxes (domestic or foreign), including without
limitation any income (net, gross or other including recapture of any tax
items such as investment tax credits), alternative or add-on minimum tax,
gross income, gross receipts, gains, sales, use, leasing, lease, user, ad
valorem, transfer, recording, franchise, profits, property (real or personal,
tangible or intangible), fuel, license, withholding on amounts paid to or by
such Person, payroll, employment, unemployment, social security, excise,
severance, stamp, occupation, premium, environmental or windfall profit
II-A-9
<PAGE>
tax, custom, duty or other tax, or other like assessment or charge of any kind
whatsoever, together with any interest, levies, assessments, charges,
penalties, additions to tax or additional amount imposed by any Taxing
Authority, (b) any joint or several liability of such Person with any other
Person for the payment of any amounts of the type described in (a), and (c)
any liability of such Person for the payment of any amounts of the type
described in (a) as a result of any express or implied obligation to indemnify
any other Person.
Tax Return or Returns shall mean all returns, consolidated or otherwise
(including without limitation information returns), required to be filed with
any Authority with respect to Taxes.
Taxing Authority shall mean any Authority responsible for the imposition of
any Tax.
TCT shall have the meaning given to it in the Preamble.
TCT Assets shall have the meaning given to it in Section 4.4(a) and shall,
in any event, include the assets of TCT's Subsidiaries, as contemplated by
Section 4.4(a) and the final sentence of Section 4.1(d).
TCT Business shall have the meaning given to it in Section 4.4(b) and shall,
in any event, include the business of TCT's Subsidiaries, as contemplated by
Section 4.4(b) and the final sentence of Section 4.1(d).
TCT Disclosure Schedule shall mean the TCT Disclosure Schedule to be
furnished in accordance with Section 10.14.
TCT Employees shall have the meaning given it in Section 4.14.
TCT Financial Statements shall have the meaning given to it in Section 4.2.
TCT Investment Letters shall have the meaning given to it in Section 7.2(n).
TCT Member(s) shall have the meaning given to such terms in the fourth
Whereas paragraph.
TCT Units shall have the meaning given to it in Section 3.1.
TCT's knowledge (or words of similar import) shall mean the actual knowledge
of any TCT Member or any TCT Management Committee representative or officer,
as such knowledge existed on the date of the Original Merger Agreement, after
reasonable review of appropriate TCT records and after reasonable inquiry of
appropriate TCT employees.
TTP shall mean TeleCom Towers-Pacific, L.L.C., a to be formed Delaware
limited liability company and a wholly-owned Subsidiary of TCT.
Title Report shall have the meaning given to it in Section 6.7.
Termination Date shall have the meaning given to it in Section 8.1.
Trading Day shall mean any day on which shares of ATC Common Stock are
actually sold on the New York Stock Exchange.
Transactions shall mean the transactions contemplated to be consummated on
or prior to the Closing Date, including without limitation the Merger and the
execution, delivery and performance of the Collateral Documents.
II-A-10
<PAGE>
Appendix IIA
AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
By and Among
AMERICAN TOWER CORPORATION,
AMERICAN TOWERS, INC.,
ATC MERGER CORPORATION
and
TELECOM TOWERS, L.L.C.
Dated as of
December 23, 1998
<PAGE>
Amendment, dated as of December 23, 1998, by and among American Tower
Corporation, a Delaware corporation ("ATC"), American Towers, Inc., a Delaware
corporation ("ATI"), ATC Merger Corporation, a Delaware corporation ("ATMC"),
and TeleCom Towers, L.L.C., a Delaware limited liability company ("TCT"), to
the Amended and Restated Agreement and Plan of Merger, dated as of December 18,
1998, by and among ATC, ATI, ATMC and TCT.
W I T N E S S E T H:
WHEREAS, ATC, ATI and TCT are parties to an Amended and Restated Agreement
and Plan of Merger, dated as of December 18, 1998 (the "Merger Agreement"),
providing for the merger of ATMC with and into TCT on the terms and conditions
set forth therein; and
WHEREAS, ATC, ATI, ATMC and TCT desire to amend the Merger Agreement in
certain respects; and
WHEREAS, the Boards of Directors of ATC, ATI and ATMC and the Management
Committee of TCT and the TCT Members have heretofore authorized the officers of
such companies to enter into amendments to the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained and other valuable
consideration, the receipt and adequacy whereof are hereby acknowledged, the
parties hereto hereby, intending to be legally bound, represent, warrant,
covenant and agree as follows:
1.Defined Terms
As used herein, unless the context otherwise requires, the terms defined in
Appendix A to the Merger Agreement when used in this Amendment without
definition shall have the respective meanings set forth therein. Terms defined
in the singular shall have a comparable meaning when used in the plural, and
vice versa, and the reference to any gender shall be deemed to include all
genders. Unless otherwise defined or the context otherwise clearly requires,
terms for which meanings are provided in this Amendment or Appendix A to the
Merger Agreement shall have such meanings when used in each Collateral Document
executed or required to be executed pursuant hereto or thereto or otherwise
delivered, from time to time, pursuant hereto or thereto. References to
"hereof," "herein" or similar terms are intended to refer to this Amendment as
a whole and not a particular section, and references to "this Section" or "this
Article" are intended to refer to the entire section or article and not a
particular subsection thereof. The term "either party" shall, unless the
context otherwise requires, refer to ATC, ATI and ATMC, on the one hand, and
TCT, on the other hand.
2.The Amendments
(a) Conversion of TCT Units. Section 3.1 of the Merger Agreement shall be
amended as follows:
(i) The title shall be amended to read in its entirety as follows:
"Conversion of ATMC Common Stock and TCT Units";
(ii) The last sentence of the first paragraph shall be amended to
delete the last word, "paragraph" and insert in its place the words
"two paragraphs"; and
(iii) The following paragraph shall be added as the penultimate
paragraph of Section 3.1:
In the event the Monthly Tower Revenue Run Rate of TCT for the
month ended immediately prior to the Closing Date shall have been
less than the TCT Target Monthly Tower Revenue Run Rate, the ATC
Stock Consideration shall be reduced by a number of shares of ATC
Common Stock determined as follows: (i) the difference between the
actual Monthly Tower Revenue Run Rate of TCT and the TCT Target
Monthly Tower Revenue Run Rate shall be determined (the "Revenue
Shortfall"); (ii) the Revenue Shortfall shall be multiplied by
twelve (12), and the result shall be multiplied by fourteen and
eight-tenths (14.8) (the
IIA-1
<PAGE>
"Enterprise Value Shortfall"); and (iii) the Enterprise Value
Shortfall shall be divided by the Closing Date Share Price;
provided, however, that in no event shall the number of shares of
ATC Common Stock to be delivered as part of the ATC Stock
Consideration be reduced by more than 600,000 shares of ATC Common
Stock. The term "TCT Target Monthly Tower Revenue Run Rate" shall
mean the amount set forth opposite the month in which the Closing
shall occur:
<TABLE>
<CAPTION>
TCT Target
Month in which Revenue
Closing Occurs Run Rate
-------------- ----------
<S> <C>
January........................... $1,008,179
February.......................... $1,022,862
March............................. $1,037,544
April............................. $1,052,226
May............................... $1,067,132
June.............................. $1,079,143
July and thereafter............... $1,091,378
</TABLE>
In the event that the Closing shall occur after June 1999, the
Monthly Tower Revenue Run Rate of TCT shall be determined
exclusively on the basis of its Monthly Tower Revenue Run Rate as of
June 30, 1999, and no adjustment to the ATC Stock Consideration
shall be made under this Section 3.1 on account of the amount of
TCT's Monthly Tower Revenue Run Rate as of a date later than June
30, 1999.
Anything in this Section to the contrary notwithstanding, the
parties shall have the right to terminate this Agreement in
accordance with the provisions of Section 8.1(b) and Section 8.1(c),
as applicable.
(b) Conditions to Obligations of ATC and ATMC. The provisions of Section
7.2(o) are deleted in their entirety and the section shall be designated
with the term "Intentionally Omitted".
(c) Appendix A. Appendix A is amended to add the following definitions in
their appropriate alphabetical order:
Enterprise Value Shortfall shall have the meaning given to it in
Section 3.1.
Revenue Shortfall shall have the meaning given to it in Section 3.1.
TCT Target Monthly Tower Revenue Run Rate shall have the meaning given
to it in Section 3.1.
(d) TCT Disclosure Schedule. Sections 4.11(a) and 6.6 of the TCT
Disclosure Schedule shall be deemed to have been amended to reflect the
fact that TCT may change its stay bonus program to award up to $500,000
exclusively to sales persons in relation to their obtaining additional
revenue-generating leases and contracts.
3.General Provisions
(a) No Other Changes in Merger Agreement. Except as specifically amended
by this Amendment, the Merger Agreement shall remain in full force and
effect and shall not otherwise be amended, modified or changed by this
Amendment.
(b) Incorporation by Reference. The provisions of Sections 10.1 through
10.13, both inclusive, of the Merger Agreement shall be deemed incorporated
herein by reference with the same force and effect as though set forth
hereat in their entirety, except that any reference to the term "this
Agreement" in any such incorporated provision shall be deemed to refer to
this Amendment.
[SIGNATURE PAGE FOLLOWS]
IIA-2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment or caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first written above.
American Tower Corporation
By:______________________________
Name:____________________________
Title:___________________________
ATC Merger Corporation
By:______________________________
Name:____________________________
Title:___________________________
American Towers, Inc.
By:______________________________
Name:____________________________
Title:___________________________
TeleCom Towers, L.L.C.
By:______________________________
Name:____________________________
Title:___________________________
IIA-3
<PAGE>
APPENDIX III
<PAGE>
APPENDIX III
Dated as of November 16, 1998
Board of Directors
OmniAmerica, Inc.
777 S. Flagler Drive
West Tower, 8th Floor
West Palm Beach, FL 33401
Attention: Mr. Jack Furst, Chairman or
Mr. Carl E. Hirsch, CEO
Dear Directors:
BT Wolfensohn has acted as financial advisor to OmniAmerica, Inc. ("Client") in
connection with the proposed merger transaction between Client and American
Tower Corporation ("Parent") pursuant to the Agreement and Plan of Merger,
dated as of November 16, 1998, among the Client, Parent and American Towers,
Inc., a wholly owned subsidiary of Parent ("Merger Sub") (the "Merger
Agreement"), which provides, among other things, for the merger of Client with
and into Merger Sub (the "Transaction"), as a result of which Client will
become a wholly owned subsidiary of Parent. As set forth more fully in the
Merger Agreement, as a result of the Transaction, each share of the Common
Stock, par value $0.01 per share, of Client ("Client Common Stock") not owned
directly or indirectly by Client or Parent will be converted into the right to
receive 1.1 shares (the "Exchange Ratio") of Class A Common Stock, par value
$0.01 per share, of Parent ("Parent Common Stock"). The terms and conditions of
the Transaction are more fully set forth in the Merger Agreement.
You have requested BT Wolfensohn's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Exchange Ratio to holders of
Client Common Stock pursuant to the Merger Agreement.
In connection with BT Wolfensohn's role as financial advisor to Client, and in
arriving at its opinion, BT Wolfensohn has reviewed certain publicly available
financial and other information concerning Client and Parent and certain
internal analyses and other information furnished to it by Client and Parent.
BT Wolfensohn has also held discussions with members of the senior managements
of Client and Parent regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, BT
Wolfensohn has (i) reviewed the reported prices and trading activity for Client
Common Stock and Parent Common Stock, (ii) compared certain financial and stock
market information for Client and Parent with similar information for certain
other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger
Agreement, and (v) performed such other studies and analyses and considered
such other factors as it deemed appropriate.
BT Wolfensohn has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning the Client or Parent, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and
completeness of all such information and BT Wolfensohn has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of the Client or Parent. We have not solicited, and we have not
been authorized to solicit, third party acquisition interest in Client. With
respect to the financial forecasts and projections, including the analyses and
forecasts of certain cost savings, operating efficiencies, revenue effects and
financial synergies expected by Client to be achieved as a result of the
Transaction (collectively, the "Synergies"), made available to BT Wolfensohn
and used in its analyses, BT Wolfensohn has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of
III-1
<PAGE>
the management of the Client or Parent, as the case may be, as to the matters
covered thereby. In rendering its opinion, BT Wolfensohn expresses no view as
to the reasonableness of such forecasts and projections, including the
Synergies, or the assumptions on which they are based. In addition, we are not
expressing any opinion as to the price or range of prices at which Parent
Common Stock may trade subsequent to the Transaction. BT Wolfensohn's opinion
is necessarily based upon economic, market and other conditions as in effect
on, and the information made available to it as of, the date hereof, and we
undertake no obligation to update our opinion to reflect any developments
occurring after the date hereof.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in all
respects material to its analysis, the representations and warranties of
Parent, Merger Sub and Client contained in the Merger Agreement are true and
correct, Parent, Merger Sub and Client will each perform all of the covenants
and agreements to be performed by it under the Merger Agreement, and all
conditions to the obligations of each of Parent, Merger Sub and Client to
consummate the Transaction will be satisfied without any waiver thereof. BT
Wolfensohn has also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any
necessary governmental, regulatory or other approvals and consents, or any
amendments, modifications or waivers to any agreements, instruments or orders
to which either Client or Parent is a party or is subject or by which it is
bound, no limitations, restrictions or conditions will be imposed or
amendments, modifications or waivers made that would have a material adverse
effect on Client or Parent or materially reduce the contemplated benefits of
the Transaction to Parent and its shareholders. In addition, you have informed
BT Wolfensohn, and accordingly for purposes of rendering its opinion BT
Wolfensohn has assumed, that the Transaction will be tax-free to each of Client
and Parent and their respective stockholders.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Client and is not a recommendation to the stockholders of Client
to approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of Client Common
Stock, and BT Wolfensohn expresses no opinion as to the merits of the
underlying decision by Client to engage in the Transaction.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates the "BT Group") and,
for legal and regulatory purposes, is a division of BT Alex. Brown
Incorporated, a registered broker-dealer and member of the New York Stock
Exchange. BT Wolfensohn will be paid a fee for its services as financial
advisor to Client in connection with the Transaction. One or more members of
the BT Group have, from time to time, provided investment banking and other
financial services to Client, its largest shareholder and Parent or their
respective affiliates for which it has received compensation. In the ordinary
course of business, members of the BT Group may actively trade in the
securities and other instruments and obligations of Client and Parent for their
own accounts and for the accounts of their customers. Accordingly, the BT Group
may at any time hold a long or short position in such securities, instruments
and obligations.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to holders of Client Common Stock.
Very truly yours,
BT WOLFENSOHN
III-2
<PAGE>
APPENDIX IV
Description
of
OmniAmerica, Inc.
<PAGE>
BUSINESS OF OMNIAMERICA
General
OmniAmerica is a leading independent owner and operator of wireless
communications and broadcast towers with 223 towers in 24 states, including 12
towers on ten sites managed for third-party owners. OmniAmerica has agreed to
acquire up to an additional 27 towers. OmniAmerica's principal tower networks
are located in Florida, Illinois, Kentucky, New Mexico, Ohio, Oklahoma,
Tennessee and Texas. OmniAmerica is also a leading builder of wireless
communications and broadcast towers, providing a complete package of design,
construction and installation services. OmniAmerica also manufactures and sells
wireless infrastructure components used in the construction and maintenance of
wireless communication transmitting and receiving facilities.
OmniAmerica's tower services include (i) owning, leasing, managing and
developing multi-use telecommunications sites for radio and television
broadcasting (including high definition television ("HDTV")), paging, cellular,
PCS and other wireless technologies; (ii) providing wireless infrastructure
building and implementation services primarily for providers of wireless
communication services in the United States; and (iii) manufacturing and
selling wireless infrastructure components used in the construction and
maintenance of wireless communication transmitting and receiving facilities.
The April 23, 1998 merger (the "April Merger") combined the operations of
Specialty Teleconstructors, Inc. ("Specialty"), which was and is engaged in the
construction of wireless communications towers and the manufacture and sale of
wireless infrastructure components, with OmniAmerica Holdings Corporation
("OmniAmerica Holdings") which was engaged in the ownership, operating and
leasing of communication sites. In 1998, OmniAmerica acquired 168 towers
(including rooftops) at an aggregate cost of approximately $117.0 million and,
as of early December 1998, constructed or had under construction approximately
173 telecommunications towers at an aggregate cost of approximately $12.0
million and three broadcast towers at an aggregate cost of $11.3 million.
Operations
OmniAmerica plans to take advantage of increasing demand from wireless
providers and broadcasters for tower space by (i) expanding its network of
tower sites, either owned, leased or managed, and (ii) leasing space to
multiple tenants. Adding customers to an existing tower does not result in
materially increased operating expenses. Since wireless providers and
broadcasters are generally reluctant to change tower locations (due to the
specific configurations required for transmission networks, significant capital
expenditures to install or relocate transmission equipment and complex
regulatory requirements), OmniAmerica can take advantage of low fixed costs
while providing a churn-resistant, recurring revenue stream by co-locating
multiple tenants on its towers.
Furthermore, OmniAmerica plans to continue to capitalize on its reputation for
quality, on-time construction and implementation services by building towers
for third-party owners. Also, OmniAmerica will continue to manufacture and sell
its line of wireless infrastructure components. During the fiscal year ended
June 30, 1998, OmniAmerica's revenues, which include the revenues of
OmniAmerica Holdings and its subsidiaries' tower ownership and leasing services
from April 23, 1998, were approximately $62.8 million. Wireless infrastructure
building and implementation services accounted for approximately 84.5% of such
revenues. Sales of wireless infrastructure components accounted for
approximately 13.5% of such revenues. Tower ownership and leasing services
accounted for the remaining approximately 2.0% of such revenues.
Tower Services
OmniAmerica's business strategy includes aggressively marketing available
rental space on its towers. OmniAmerica's leasing operations primarily depend
on the location of towers and the amount of equipment installations that each
tower can support. OmniAmerica believes that its portfolio of existing towers
and towers under construction or subject to acquisition contracts, together
with OmniAmerica's construction resources, will provide OmniAmerica with tower
locations and equipment bearing capabilities suitable for attracting additional
IV-1
<PAGE>
leasing clients. Given their dependence on location and their reluctance to re-
locate, OmniAmerica's tenants generally are willing to enter into long-term
leases. OmniAmerica's standard lease for wireless communications tenants
generally provides for a five-year term, with multiple options of the tenant to
renew the lease for additional five-year terms. OmniAmerica's standard lease
for broadcast tenants generally provides for a 10-20 year term.
OmniAmerica designs, builds, installs, modifies and maintains (collectively,
"wireless infrastructure building and implementation services") land-based
wireless communications transmitting and receiving facilities located in the
U.S. ("wireless communications facilities") primarily for providers of wireless
communications services. As part of OmniAmerica's wireless infrastructure
building and implementation services business, OmniAmerica also provides
certain electrical engineering services, wireless equipment testing services
and site acquisition and evaluation services in connection with the location
and installation of wireless communications facilities.
OmniAmerica also manufactures and sells a line of fasteners and other mounting
components, waveguide bridge products, square support rail, tower lighting
systems, tower safety products and other hardware products (collectively,
"wireless infrastructure components"). End users utilize these products
primarily in connection with the installation and maintenance of wireless
communications facilities. OmniAmerica markets certain of its wireless
infrastructure components directly to end users in conjunction with
OmniAmerica's wireless infrastructure building and implementation services. In
addition, OmniAmerica markets certain of its wireless infrastructure components
through independent third party distributors located principally in the U.S.
who then resell these products to end users. Finally, OmniAmerica manufactures
certain wireless components on a private label basis for sale to several large
wireless communications equipment vendors who market these products under their
own brand names. OmniAmerica believes that, to date, the vast majority of
OmniAmerica's wireless infrastructure components have been sold to end users
located in the U.S.
Customers
OmniAmerica provides leased tower space and renders wireless infrastructure
building and implementation services to radio and television broadcasters and
providers of a broad range of wireless communications services including paging
services, analog and digital cellular telephone services, PCS services, SMR
services, ESMR services and microwave communications services. Examples of
OmniAmerica's customers include (i) Western Wireless, (ii) AT&T Wireless
Services, (iii) Sprint, (iv) PCS PrimeCo, (v) BellSouth Mobility, (vi) Nextel
Communications and (vii) Arch, among others. In fiscal 1998, Sprint accounted
for approximately 15% of OmniAmerica's revenues and was the only customer
accounting for 10% or more of OmniAmerica's revenues.
Sales and Marketing
OmniAmerica markets rental space on its towers by offering strategically
located towers and groups of towers to wireless communications providers and
radio and television broadcasters.
OmniAmerica markets its "build to suit" and other wireless infrastructure
building and implementation services primarily to providers of wireless
communications services in the U.S. OmniAmerica sells its wireless
infrastructure building and implementation services on a contract basis and
markets these services through either direct customer contact or in response to
competitive bids by a national marketing team. OmniAmerica generates
prospective new customers through referrals from existing customers, wireless
communications equipment manufacturers and vendors, through participation in
conferences and trade shows and from other sources. OmniAmerica does not use
independent distributors or agents in connection with the marketing of its
wireless infrastructure building and implementation services.
OmniAmerica markets its wireless infrastructure components (i) directly to end
users in conjunction with OmniAmerica's wireless infrastructure building and
implementation services and (ii) through independent third party distributors
located principally in the U.S. who resell these products to end users.
OmniAmerica also manufactures certain wireless components on a private label
basis for sale to several large wireless communications equipment vendors who
market these products under their own brand names to end users.
IV-2
<PAGE>
Manufacturing and Component Assembly
OmniAmerica manufactures wireless infrastructure components by (i) obtaining
sheet metal and other raw materials, standard parts and components from a
variety of vendors and (ii) fabricating and configuring those materials to
produce OmniAmerica's wireless infrastructure components. OmniAmerica also
engages third-party contract manufacturers and assemblers to produce certain
wireless infrastructure components based on OmniAmerica's specifications. With
the exception of wireless infrastructure components manufactured by third-party
contract manufacturers and assemblers, substantially all OmniAmerica's wireless
infrastructure components are manufactured or assembled at OmniAmerica's
manufacturing facilities in Salem, Oregon and Baltimore, Maryland. Although
OmniAmerica has a limited number of suppliers, OmniAmerica generally has been
able to obtain the needed quantities of the items in a timely manner from these
suppliers. In addition, substantially all of these items are available from
numerous other suppliers.
Research and Development
Although OmniAmerica has designed many of its wireless infrastructure
components and has the capability to custom design wireless infrastructure
components to meet specific customer requirements, historically, OmniAmerica
has not incurred significant research and development expenses. Furthermore,
OmniAmerica does not currently anticipate making significant expenditures for
research and development activities in the foreseeable future.
Trademarks
OmniAmerica markets certain of its wireless infrastructure components under the
ICECo(TM) brand name. OmniAmerica has filed for trademark protection for the
ICECo(TM) trademark. There can be no assurance that OmniAmerica will be
successful in obtaining this trademark or that this trademark will afford
OmniAmerica with any competitive advantages.
History
OmniAmerica was incorporated in April 1994 under the name "Specialty
Teleconstructors, Inc." OmniAmerica was incorporated for the purpose of
acquiring all of the stock of Michael R. Budagher Specialty Constructors, Inc.
(now named Specialty Constructors, Inc.), whose primary business involved
wireless infrastructure building and implementation services related to the
build-out and expansion of cellular telephone and paging networks in the U.S.
On September 14, 1998, OmniAmerica, pursuant to a merger (the "Reincorporation
Merger") with and into a wholly-owned subsidiary of OmniAmerica, changed its
name from "Specialty Teleconstructors, Inc." to "OmniAmerica, Inc." OmniAmerica
also changed its state of incorporation from Nevada to Delaware at that time.
On April 23, 1998, OmniAmerica consummated the April Merger pursuant to an
Amended and Restated Agreement and Plan of Merger among OmniAmerica (then known
as Specialty Teleconstructors, Inc.), OAI Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of OmniAmerica ("Acquisition"),
OmniAmerica Holdings, OmniAmerica, Inc. (subsequently renamed OmniAmerica
Towers, Inc.), a Delaware corporation and wholly-owned subsidiary of
OmniAmerica Holdings, Omni/HSW Acquisition, Inc., a Delaware corporation
("Omni/HSW"), and HMTF/Omni Partners, L.P., a Delaware limited partnership
("OmniPartners"). At the time of the April Merger, Omni/HSW was merged into
OmniAmerica Holdings, with OmniAmerica Holdings surviving, and immediately
thereafter, Acquisition was merged into OmniAmerica Holdings, with OmniAmerica
Holdings surviving as a wholly-owned subsidiary of OmniAmerica. OmniAmerica
Holdings and its subsidiaries' operations primarily involve tower ownership and
leasing services. In addition, as a result of the April Merger, OmniAmerica
acquired a 33 1/3% equity ownership position in Kline Iron & Steel Co., Inc., a
diversified steel fabricator that also fabricates broadcasting towers. Upon
consummation of the April Merger, OmniAmerica issued 6,750,000 shares of
OmniAmerica Common Stock to OmniPartners, the former stockholder of OmniAmerica
Holdings. OmniPartners is an affiliate of the Dallas-based investment firm
Hicks, Muse, Tate & Furst Incorporated.
IV-3
<PAGE>
In the last five years, exclusive of the April Merger, OmniAmerica has
consummated approximately 12 material acquisitions of assets or companies. The
largest and most strategically important of such transactions was the April
Merger described above. Certain of the other more significant acquisitions are
described below.
. On July 9, 1998, OmniAmerica, through a wholly-owned subsidiary,
acquired substantially all the assets of Teleforce, LLC, a California
limited liability company providing site acquisition services for the
wireless communications industry, in exchange for $640,000 and 81,270
shares of OmniAmerica Common Stock.
. On April 10, 1998, OmniAmerica Towers, Inc. entered into an Asset
Purchase and Sale Agreement with certain wholly-owned subsidiaries of
Arch pursuant to which OmniAmerica will acquire substantially all of the
telecommunications sites owned by Arch. OmniAmerica has acquired
ownership or management of a total of 123 towers for approximately $33.5
million in closings in June and September 1998. The final closing is
expected to take place during the first calendar quarter of 1999,
pursuant to which OmniAmerica has the right to acquire up to 16
additional towers for an aggregate price of approximately $4.5 million.
. On October 7, 1997, a wholly-owned subsidiary of OmniAmerica purchased
substantially all of the assets of Ellis Tower Co., Inc. in exchange for
approximately $450,000 in cash and 120,848 shares of OmniAmerica Common
Stock. Ellis Tower, located in Ft. Lauderdale, Florida, provides
wireless infrastructure building services.
. On June 30, 1997, OmniAmerica acquired Microwave Tower Service, Inc., an
Oregon corporation ("MTS"), pursuant to the merger of a wholly-owned
subsidiary of OmniAmerica with and into MTS. MTS is based in Salem,
Oregon, and designs, engineers, constructs and installs wireless
communications facilities primarily for providers of wireless
communications services in the western half of the U.S. In addition, MTS
manufactures and distributes a line of tower installation products used
in the implementation, installation and maintenance of wireless
communications facilities. OmniAmerica issued 2,380,000 shares of
OmniAmerica Common Stock in connection with the acquisition of MTS.
. On May 14, 1997, OmniAmerica acquired Novak & Lackey Construction Co.,
Inc., an Oklahoma corporation ("N&L"), pursuant to the merger of a
wholly-owned subsidiary of OmniAmerica with and into N&L. N&L is based
in Oklahoma City, Oklahoma, and builds wireless communications
facilities and switching facilities primarily for providers of wireless
communications services in the western half of the U.S. OmniAmerica
issued 400,000 shares of OmniAmerica Common Stock in connection with the
acquisition of N&L.
In addition to the foregoing, prior to the April Merger, OmniAmerica Holdings
and its subsidiaries consummated the following material acquisitions:
. In November, 1997, OmniAmerica Towers Inc. acquired a strategic one-
third interest in Kline Iron & Steel Co., Inc. ("Kline") for $7.0
million. Based in Columbia, South Carolina, Kline is one of the world's
premier manufacturer of tall towers with over 75 years of experience.
. In January and August, 1998, OmniAmerica Towers Inc. purchased
27 telecommunications towers in western and central Florida for
approximately $20.4 million.
. In February, 1998, OmniAmerica Towers Inc. purchased two broadcast
towers, one tower construction project and 42 acres of land, all in
Texas. The construction project has now been completed.
. Also in February, 1998, OmniAmerica Towers Inc. purchased a company that
owned two towers in Florida and tower construction projects in each of
Milwaukee, Wisconsin and Tampa, Florida, for approximately $27.5
million. These assets include tall towers in Miami and Orlando.
IV-4
<PAGE>
OmniAmerica intends to continue to aggressively pursue acquisition
opportunities for existing wireless and broadcast communications sites and
towers that meet its geographical and economic requirements. Certain of such
acquisitions, if consummated, could be significant in size and may be funded
with cash, stock of OmniAmerica, increased indebtedness or a combination
thereof. OmniAmerica is in various stages of negotiation with owners of sites
and towers that meet its criteria. However, the tower industry is consolidating
rapidly, and it is likely that other tower operators will compete for existing
assets in prime areas. Therefore, there can be no assurances that OmniAmerica
will be successful in its acquisition strategy.
Competition
The market for tower space leasing is highly competitive. OmniAmerica competes
with (i) wireless communications providers and broadcasters who own and operate
their own tower networks, (ii) site management companies which acquire space on
existing towers, rooftops and other sites, (iii) other independent tower
companies, and (iv) traditional local independent tower operators. Wireless
communications providers who own and operate their own tower networks generally
are, and some broadcasters and independent tower companies are, larger and have
greater financial resources than OmniAmerica. OmniAmerica believes the most
significant competitive factors affecting tower rental companies are tower
location and capacity, price, quality of service and density within a
geographic market. OmniAmerica believes that competition for tower acquisitions
will increase and that additional competitors will enter the tower leasing
market, some of which may have greater financial resources than OmniAmerica.
Historically, the market for wireless infrastructure building and
implementation services has been highly competitive, but also highly
fragmented. As such, most participants in this market have been relatively
small firms of between three and fifty employees. While OmniAmerica believes
that the industry continues to be comprised predominately of these smaller
firms, in recent years, as the market for wireless infrastructure building and
implementation services has grown, several of OmniAmerica's historical
competitors have grown substantially. In addition, OmniAmerica has faced
increasing competition from (i) wireless communications equipment manufacturers
which provide wireless infrastructure building and implementation services in
conjunction with the sale of wireless communications equipment, (ii) wireless
and non-wireless engineering companies, (iii) construction companies and
construction management companies and (iv) non-wireless subcontractors.
OmniAmerica believes that, historically, competition in the market for wireless
infrastructure building and implementation services has been based primarily on
price and the competitor's reputation for quality and timely completion of
work. In recent years, certain competitors, predominately wireless
communications equipment manufacturers, have increasingly offered turnkey
package solutions for the implementation of new wireless communications
networks such as PCS networks. These turnkey package solutions typically
include wireless communications equipment, radio frequency or "RF" engineering
services, wireless infrastructure building and implementation services and, in
many cases, financing for all or a significant portion of the build-out of the
network. Initially, many providers of wireless communications services found
these turnkey package solutions attractive because of perceived administrative
efficiencies of contracting with one party rather than contracting separately
for the different products and services necessary to implement their networks.
Increasingly, however, current and prospective providers of wireless
communications services have become dependent on these turnkey package
solutions to implement their networks due largely to the availability of the
financing component.
OmniAmerica believes that many of the wireless communications equipment
manufacturers that offer these turnkey package solutions do not themselves have
the personnel necessary to perform the wireless infrastructure building and
implementation services included as a part of these turnkey package solutions.
Consequently, many wireless communications equipment manufacturers contract
with other companies to provide some or all of these wireless infrastructure
building and implementation services. From time to time, OmniAmerica has
performed wireless infrastructure building and implementation services in
connection with turnkey package solutions offered by certain of these wireless
communications equipment manufacturers.
IV-5
<PAGE>
However, OmniAmerica believes that, in recent years, several wireless
communications equipment manufacturers have begun to acquire or enhance their
ability to perform wireless infrastructure building and implementation services
with their own personnel, thus competing directly with OmniAmerica.
In addition, OmniAmerica believes that many of its other competitors have
either developed or are currently seeking to develop a customer finance
capability as a method for obtaining future business. As a consequence of this
trend, OmniAmerica believes that the ability to offer some element of financing
in conjunction with the sale of wireless infrastructure building and
implementation services is becoming an important competitive factor.
Historically, OmniAmerica has not provided significant financing to its third
party tower construction customers. However, OmniAmerica believes that its
build-to-suit programs, pursuant to which OmniAmerica bears the capital
expenditures and overhead resulting from the construction and ownership of a
carrier's network, provide a competitive alternative to the customer finance
programs of other manufacturers.
Employees
As of December 1, 1998, OmniAmerica employed 559 full-time employees. None of
OmniAmerica's employees are members of a labor union and OmniAmerica considers
its employee relations to be satisfactory.
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the FCC, the FAA, Congress, the courts and other
governmental bodies. There can be no assurance that any of these governmental
bodies will not adopt or change regulations or take other actions that would
adversely affect the wireless communications industry and OmniAmerica's
business, results of operations and financial condition.
In addition, the Telecommunications Act of 1996 is expected to continue to
cause significant changes in existing regulation of the telecommunications
industry that are intended to promote the competitive development of new
services, to expand public availability of telecommunications services and to
streamline regulation of the industry. These changes include requirements that
local exchange carriers must: (i) permit other competitive carriers, which may
include many wireless communications service providers, to interconnect to
their networks, (ii) establish reciprocal compensation agreements with
competitive carriers to terminate traffic on each other's networks, and (iii)
offer resale of their local loop facilities. The implementation of these
requirements by the FCC and state authorities potentially involves numerous
changes in established rules and policies that could adversely affect the
wireless communications industry and OmniAmerica's business, results of
operations and financial condition.
In addition, the construction and installation of wireless transmitting and
receiving facilities are often subject to state or local zoning, land use and
other regulation. Such regulation may include zoning, environmental and
building permit approvals or other state or local certification. The
Telecommunications Act of 1996 provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular and other cellular mobile radio services and unlicensed
wireless services) shall not prohibit or have the effect of prohibiting
personal wireless services or unreasonably discriminate among providers of
functionally equivalent services. Although state and local zoning authorities
retain their rights over land use, their actions cannot have the effect of
banning wireless services or picking and choosing among similar wireless
providers.
Property
OmniAmerica presently leases approximately 9,000 square feet of office space in
Cedar Crest, New Mexico from Michael R. Budagher, the Chief Operating Officer
and a Director of OmniAmerica, for $121,500 annually. The New Mexico office
serves as the headquarters for OmniAmerica's wireless infrastructure building
and implementation services. OmniAmerica's headquarters for its corporate
administration, tower ownership and leasing services are located in
Independence, Ohio.
IV-6
<PAGE>
OmniAmerica maintains the following regional offices: (i) four regional offices
in California, (ii) three regional offices in Florida, (iii) two regional
offices in Illinois, (iv) two regional offices in Ohio, (v) two regional
offices in Texas and (vi) one regional office in each of Alabama, Arizona,
Colorado, Louisiana, New Jersey, North Carolina, Oklahoma, Oregon and Utah.
OmniAmerica conducts primarily wireless infrastructure building and
implementation operations from these locations.
OmniAmerica manufactures infrastructure components in an approximately 55,000
square foot facility located adjacent to its regional office in Salem, Oregon
and an approximately 18,000 square foot facility in Baltimore, Maryland.
OmniAmerica conducts its electrical design and engineering operations primarily
from an office in Laguna Hills, California; its build-to-suit operations
primarily from offices in Dallas, Texas, Oklahoma City, Oklahoma, and
Albuquerque, New Mexico; and its tower ownership and leasing services from the
office in Independence, Ohio. With the exception of the regional offices in
Salem and Oklahoma City, OmniAmerica leases all of its regional offices
pursuant to operating leases that do not exceed five years in duration.
OmniAmerica both owns and leases the real property upon which its owned towers
are located. As of December 1, 1998, OmniAmerica owned or managed approximately
185 towers on parcels of real estate that are leased to it and approximately 40
towers on parcels of real estate that are owned by it. In rural areas, a tower
site typically consists of a one to five acre tract that supports the tower, an
equipment shelter and guy wires that stabilize the tower. Less than 2,500
square feet are needed for a typical, self-supporting tower used in
metropolitan areas. Ground leases generally have five to 25 year terms, with
many having options for OmniAmerica to renew. Pursuant to the OmniAmerica
Credit Agreement, the senior lenders have (or have the right to obtain) liens
on, among other things, tenant leases, equipment, inventory and interests in
all real property of OmniAmerica on which towers are located or which
constitute a tower.
Legal Proceedings
OmniAmerica is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on OmniAmerica's business,
results of operations or financial condition, based on OmniAmerica's current
understanding of the relevant facts and law. OmniAmerica maintains general
liability insurance against risks arising out of the normal course of business.
Dividend Policy
To date, OmniAmerica has not declared or paid any cash dividends on the
OmniAmerica Common Stock. The present policy of the Board of Directors is to
retain any earnings to provide for OmniAmerica's growth. The Credit Agreement
dated as of June 30, 1998 among OmniAmerica, the lenders party thereto, The
Chase Manhattan Bank, as administrative agent, issuing lender and swingline
lender, Bankers Trust Company, as documentation agent, and BankBoston, N.A., as
syndication agent (the "OmniAmerica Credit Agreement"), contains covenants that
restrict OmniAmerica's ability to pay dividends. Further, future determination
to pay dividends will be at the discretion of the Board of Directors and in
light of OmniAmerica's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
IV-7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 1, 1998,
with respect to the beneficial ownership of shares of OmniAmerica's common
stock by (i) all persons known by OmniAmerica to be the beneficial owners of
more than 5% of the outstanding shares of OmniAmerica's common stock (as
derived solely from OmniAmerica's review of Schedules 13D and 13G on file with
the Commission and from correspondence received from or telephone conversations
with certain stockholders of OmniAmerica), (ii) each director of OmniAmerica,
(iii) certain executive officers of OmniAmerica, and (iv) all executive
officers and directors of OmniAmerica as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name and Address of Ownership of OmniAmerica Common
Beneficial Owner Stock (1) Percent of Class
------------------- ------------------------------- ----------------
<S> <C> <C>
Thomas O. Hicks............. 6,676,099(2) 44.2%
200 Crescent Court, Suite
1600
Dallas, Texas 75201-6950
HMTF/Omni Partners, L.P..... 6,648,811 44.0%
200 Crescent Court, Suite
1600
Dallas, Texas 75201-6950
Tommie R. Carpenter......... 2,213,000(3) 14.6%
888 Coburn St. South
Salem, Oregon 97302
Michael R. Budagher......... 2,155,000(4) 14.3%
12001 Hwy 14 North
Cedar Crest, New Mexico
87001
John D. Emery............... 12,000(5) *
Jack D. Furst............... 17,604 *
Carl E. Hirsch.............. 41,900(6) *
Jeffrey A. Howard........... 137,500(7) *
Lawrence D. Stuart, Jr...... 5,065 *
Ernie L. Carpenter.......... -- --
J. Otis Winters............. -- --
Anthony S. Ocepek........... -- (6) --
F. Howard Mandel............ -- (6) --
All executive officers and
directors as a group (10
persons)................... 2,369,069 15.7%
</TABLE>
- --------
* Less than 1%.
(1) Based upon information supplied or confirmed by officers, directors and the
principal stockholders. The percentage of class assumes the exercise of all
options and warrants held by the named individual that are exercisable on
December 1, 1998, or within sixty days thereafter, but not the exercise of
any other options or warrants that are outstanding.
(2) Includes (i) 24,412 shares owned of record by Mr. Hicks, (ii) 2,876 shares
owned of record by six trusts of which Mr. Hicks serves as trustee and
(iii) 6,648,811 shares owned of record by HMTF/Omni Partners, L.P., a
limited partnership of which the sole general partner is HM3/OmniAmerica
Partners, LLC, a limited liability company of which the sole member is HM3
Coinvestors, L.P., a limited partnership of which the sole general partner
is Hicks, Muse GP Partners III, L.P., a limited partnership of which the
sole general partner is Hicks, Muse Fund III Incorporated, a corporation of
which Mr. Hicks is the sole director, Chairman of the Board, Chief
Executive Officer, Secretary and sole stockholder. Mr. Hicks expressly
disclaims (i) the existence of any group and (ii) beneficial ownership with
respect to any shares of OmniAmerica's common stock not owned of record by
him.
(3) Includes (i) 127,300 shares owned by Carpenter Family Investments II and
(ii) 2,085,700 shares owned by Carpenter Family Investments LLC, of which
Mr. Carpenter and his wife are the sole members.
IV-8
<PAGE>
(4) Consists entirely of shares owned by the Budagher Family LLC, of which Mr.
Budagher is the general manager.
(5) Consists entirely of shares that are deemed beneficially owned by Mr. Emery
by virtue of options held by him that are exercisable within 60 days of
December 1, 1998.
(6) In addition to shares of OmniAmerica's common stock, if any, owned of
record by Messrs. Hirsch, Ocepek and Mandel, each of Messrs. Hirsch, Ocepek
and Mandel is also a limited partner of HMTF/Omni Partners, L.P. The
percentage ownership represented by each of Messrs. Hirsch's, Ocepek's and
Mandel's limited partnership interests is equivalent to 487,847, 487,847
and 71,118 shares, respectively, of the shares of OmniAmerica's common
stock owned by HMTF/Omni Partners, L.P. Each of Messrs. Hirsch, Ocepek and
Mandel expressly disclaims (i) the existence of any group and (ii)
beneficial ownership with respect to any shares of OmniAmerica's common
stock not owned of record by him.
(7) Includes (i) 50,000 shares owned of record by Mr. Howard and (ii) 87,500
shares that are deemed beneficially owned by Mr. Howard by virtue of
options held by him that are exercisable within 60 days of December 1,
1998.
Certain Directors and Executive Officers
If the OmniAmerica merger is completed, Jack D. Furst, the Chairman of the
Board of OmniAmerica, will serve as a director on the Board of Directors of
American Tower. Mr. Furst has been Chairman of the Board and a Director of
OmniAmerica since April 1998 and currently serves as a Class III Director (with
a term expiring at the 2000 annual meeting of stockholders). Mr. Furst is a
Managing Director and Principal of Hicks, Muse, Tate & Furst Incorporated and
has held such position since 1989. Mr. Furst currently serves as a Director of
Cooperative Computing, Inc., Hedstrom Corp., International Wire Holding
Company, Viasystems, Inc., Home Interiors & Gifts, Inc. and Triton Energy
Limited.
Certain executive officers have employment agreements with OmniAmerica. Each of
Messrs. Carl E. Hirsch, Michael R. Budagher and Anthony S. Ocepek entered into
Executive Employment Agreements with OmniAmerica effective April 23, 1998 with
terms ending on April 23, 2000. The term of each such employment agreement will
be extended for successive one year terms unless either party determines not to
renew. The employment agreements provide that Mr. Hirsch shall serve as
President and Chief Executive Officer of OmniAmerica, Mr. Budagher shall serve
as Vice Chairman and Chief Operating Officer of OmniAmerica and Mr. Ocepek
shall serve as Executive Vice President and Chief Financial Officer of
OmniAmerica. The employment agreements further provide that Mr. Hirsch shall
receive an annual base salary of $295,000, Mr. Budagher shall receive an annual
base salary of $245,000 and Mr. Ocepek shall receive an annual base salary of
$245,000, subject to increase as determined in the sole discretion of the Board
of Directors of OmniAmerica, and that each such executive officer shall be
eligible for annual bonuses based on budgeted earnings before income tax,
depreciation and amortization and other criteria established by the Board of
Directors at the beginning of each fiscal year. The employment agreements also
provide that Messrs. Hirsch, Budagher and Ocepek will be entitled to other
customary benefits generally made available to other executives of OmniAmerica.
The employment agreements provide for a severance payment equal to twelve
months base salary in the event of termination of employment by the executive
for Good Reason (as defined) or by OmniAmerica other than for Cause (as
defined), Financial Cause (as defined) or the executive's death, permanent
disability or retirement and for severance payments equal to six months base
salary in the event of termination by OmniAmerica for Financial Cause. Pursuant
to the employment agreements, Messrs. Hirsch, Budagher and Ocepek have agreed
that, subject to certain exceptions, during the terms of their respective
employment and for one year thereafter, they will not (i) solicit, entice,
persuade or induce any employee of OmniAmerica or its subsidiaries to terminate
his employment with OmniAmerica or its subsidiaries or become employed by any
other person and (ii) compete with OmniAmerica through any person or other
business enterprise having or operating transmission towers within any of the
same markets as OmniAmerica or any of its subsidiaries.
IV-9
<PAGE>
Executive Employment Agreement with Mr. Ernie L. Carpenter. Mr. Carpenter
entered into an Employment Agreement with MTS, on June 30, 1997 for a term of
three years pursuant to which Mr. Carpenter serves as President and Chief
Executive Officer of MTS. The employment agreement provides that Mr. Carpenter
shall receive an annual salary of $150,000 and shall be eligible for a bonus
for each fiscal year during which Mr. Carpenter is continuously employed by
MTS. The employment agreement also provides that Mr. Carpenter will be entitled
to such benefits as are customarily provided to other employees of MTS.
Pursuant to his employment agreement, Mr. Carpenter has agreed that he will
not, during the term of his employment and for two years thereafter, (i)
directly or indirectly, engage or participate in any business or other
activities in competition with MTS in the United States, (ii) directly or
indirectly, call upon any customer of MTS, OmniAmerica or their respective
subsidiaries for the purpose of selling to or supplying such customer with
products or services similar to the products and services provided by MTS,
OmniAmerica or their respective subsidiaries and (iii) directly or indirectly,
solicit or employ any person employed by MTS, OmniAmerica or their respective
subsidiaries.
IV- 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
OmniAmerica's Consolidated Financial Statements and the notes thereto and the
other financial data appearing elsewhere in this Information
Statement/Prospectus.
Plan Of Operations
Historically, OmniAmerica principally has engaged in building sites for
wireless carriers, who have traditionally owned and operated their own
transmission tower assets. Since the April Merger, OmniAmerica has continued to
provide infrastructure building and implementation services to wireless
carriers. However, OmniAmerica's focus has been directed increasingly toward
developing sources of recurring revenue, specifically: (i) building towers for
its own account, (ii) acquiring towers from carriers and other owners,
(iii) maximizing lease revenues from existing towers, and (iv) entering into
long-term maintenance contracts with other tower owners. OmniAmerica has
focused on sources of recurring revenues, in part, to capitalize on recent
trends by some wireless carriers to outsource the ownership and operation of
their wireless infrastructure. OmniAmerica believes that its historical
competency of tower construction coupled with its ownership and leasing
operations makes it one of the leading candidates for carrier outsourcing.
OmniAmerica believes owning towers and leasing tower space to the wireless
carriers will provide more stable long-term recurring revenues. Thus,
OmniAmerica plans to pursue opportunities to acquire existing sites and towers
from carriers seeking to outsource their wireless infrastructure. Also,
OmniAmerica believes that, at the present time, utilizing its infrastructure
building and implementation resources to construct towers for its own account
is a more cost effective method of expanding its portfolio of owned towers. As
part of its effort to develop sources of recurring revenue, late in the second
fiscal quarter of 1998, OmniAmerica began focusing on opportunities to provide
build-to-suit services to wireless carriers. OmniAmerica's build-to-suit
program offers an end-to-end solution to wireless carriers and is designed to
reduce carriers' capital expenditures and overhead associated with the
traditional methods of acquiring and owning their wireless networks. As of
December 1, 1998, approximately 120 sites were under construction. In addition,
as of December 1, 1998, OmniAmerica was conducting site acquisition or
construction related activities with respect to approximately 650 additional
sites. There can be no assurance that any of the following will happen: (i)
that OmniAmerica will successfully enter into additional significant build-to-
suit agreements with any wireless carrier or group of carriers, (ii) that it
will be able to reach definitive agreements with the owners of sites not
currently under written contract or develop the sites in a cost-effective
manner, (iii) that implementation of its existing build-to-suit agreements will
result in OmniAmerica's ownership of all of the towers originally contemplated
by those agreements, or (iv) that OmniAmerica will complete the development of
any of the towers or rooftop transmission facilities currently being developed
for its own account. As OmniAmerica focuses its resources increasingly on tower
ownership, revenues from its infrastructure building and implementation
services operations are likely to decline. Management believes that the decline
in revenues from its infrastructure building and implementation services
operations will be offset over time by the recurring revenue stream expected
from tower ownership.
Results Of Operations
Comparison of the Fiscal Quarters Ended September 30, 1998 and 1997
Revenues. OmniAmerica's revenues for the three-month period ended September 30,
1998 increased approximately 91% to $24,437,551 from $12,799,956 for the same
three-month period in the prior year. Management believes the increase in
revenues was due primarily to (i) an increased rollout of wireless
infrastructure building and implementation activity that began in the fourth
quarter of the last fiscal year end and continued into this quarter, (ii) a
commensurate increase in component sales, and (iii) income in the amount of
$2,128,787 derived from tower leasing operations acquired in the April Merger
that did not exist in the previous fiscal quarter.
IV-11
<PAGE>
Gross Profit. Gross profit for the three-month period ended September 30, 1998
increased approximately 75% to $4,406,131 from $2,517,253 for the same three-
month period in the prior year. Gross profit as a percentage of revenues
decreased to 18% for the first three months of fiscal 1999 from 20% for the
same three months of fiscal 1998. Management believes the increase in gross
profit was primarily due to the increase in revenues generated for the period,
as noted above. Management believes the decrease in gross profit as a
percentage of revenue is due primarily to the increase in expenses related to
the build-to-suit programs begun in the fourth quarter of the previous fiscal
year. As part of its on-going strategy, OmniAmerica has devoted significant
resources to build-to-suit programs in the first quarter of fiscal 1999, thus
reducing the extent of installation services provided to third parties. This
resulted in lower gross profit as a percentage of revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses were $3,397,483 (14% of revenues) for the
first three months of fiscal year 1999 as compared to $1,210,376 (9% of
revenues) for the same period last year. This increase was primarily due to the
increased administrative requirements of OmniAmerica for the build-to-suit
program and tower leasing, both of which did not exist in the comparable prior
period, along with an increase in goodwill amortization as a result of the
April Merger.
Interest Expense. Due to increases in debt related to the acquisition of towers
and sites primarily from Arch in the aggregate amount of approximately $33.5
million and the financing of the build-to-suit program, interest expense
increased to $626,123 for the three-month period ended September 30, 1998 from
$78,695 for the same three-month period in the prior year.
Equity in Earnings of Unconsolidated Subsidiary. As a result of the April
Merger, OmniAmerica holds a 33 1/3% interest in Kline, a diversified steel
fabricator that also fabricates broadcasting towers. For the three months ended
September 30, 1998, OmniAmerica recognized $157,361 in earnings from this
unconsolidated subsidiary.
Income Tax Provision. OmniAmerica's effective tax rate was 39% for the first
quarter of the previous fiscal year compared to 55% for the current quarter in
fiscal 1999, an increase of 16%. This increase is primarily the result of non-
deductible amortization expense for goodwill recognized as a result of the
April Merger.
Comparison of the Fiscal Years Ended June 30, 1998 and 1997
Revenues. Revenues for the fiscal year ended June 30, 1998 decreased
$2,827,729, or approximately 4%, from $65,626,800 in the fiscal year ended June
30, 1997 to $62,799,071 for fiscal 1998. Management believes the decrease in
revenues was attributable to (i) the utilization of staff during the last
quarter of the fiscal year for build-to-suit sites to be owned by OmniAmerica
instead of building for third parties (resulting in OmniAmerica incurring
approximately $2.1 million in capitalized costs through June 30, 1998 with
respect to which no revenues were generated in fiscal 1998) and (ii) the slower
rollout of wireless infrastructure building and implementation activity in the
U.S. compared to fiscal year 1997 as carriers evaluated outsourcing and build-
to-suit options. The decrease in revenues was offset in part by $1,258,936 in
revenues from OmniAmerica's leasing operations for the 67-day period subsequent
to the April Merger.
Gross Profit. Gross profit for fiscal year ended June 30, 1998 decreased
$1,349,943, or approximately 11%, from $12,215,250 in fiscal 1997 to
$10,865,307 in fiscal 1998. In addition to the decrease in revenues, this
decrease was attributable to management's decision in the third fiscal quarter
of 1998 to retain its existing workforce, despite the slowdown in building and
implementation activity, to implement the rollout of OmniAmerica's build-to-
suit programs in the fourth quarter of fiscal year 1998. Build-to-suit costs
incurred in the fourth quarter (approximately $2.1 million through June 30,
1998) have not yet resulted in the generation of revenue, resulting in a
negative impact on gross profit. In preparation for the build-to-suit program,
OmniAmerica mobilized field personnel throughout the nation to meet regional
workloads, despite the additional costs to be incurred. In addition, management
directed certain senior management personnel to focus on the development of
sites for OmniAmerica's own account, incurring substantial costs and change in
focus, thus impacting current operations. These actions resulted in less
efficient labor utilization and costs.
IV-12
<PAGE>
Selling, General and Administrative Expenses. SG&A for fiscal year ended June
30, 1998 increased $2,317,682, or approximately 39%, from $5,915,808 in fiscal
year 1997 to $8,233,490 in fiscal 1998. The increase was primarily the result
of the following: (i) approximately $582,000 in goodwill charges in connection
with fiscal 1998 acquisitions; (ii) approximately $230,000 in legal expenses
related to acquisitions and other issues not encountered in fiscal year 1997;
(iii) a $225,000 increase in OmniAmerica's allowance for doubtful accounts;
(iv) transitional costs incurred in connection with the integration of the
operations and administration of OmniAmerica Holdings' tower ownership
business; and (v) a general increase in personnel as a result of fiscal 1998
acquisitions and to meet the needs of OmniAmerica's build-to-suit programs.
OmniAmerica does not expect to incur significant additional expenses in the
future as a result of the continuing integration of the operations of
OmniAmerica Holdings and its subsidiaries with OmniAmerica.
Income Taxes. Income taxes were provided at a 46% effective rate in fiscal 1998
as compared to a 41% effective rate in fiscal 1997. The increased rate was
primarily the result of non-deductible goodwill and other non-deductible
expenses.
Net Earnings. Net earnings decreased $4,710,630 ($2,570,130 on a pro forma
basis after adjustment for tax differences resulting from MTS's prior status as
an S-Corporation), or approximately 83% (72% on a pro forma basis), to $977,112
in the fiscal year ended June 30, 1998 from $5,687,742 ($3,547,242 on a pro
forma basis) in the fiscal year ended June 30, 1997. The decrease was primarily
the result of lower revenues and associated gross profit that were a
consequence of the slowdown in wireless infrastructure building and
implementation activity compared to fiscal year 1997 and the implementation of
OmniAmerica's build-to-suit program described above. Net earnings were also
directly affected by build-to-suit costs incurred in the fourth quarter
(approximately $2.1 million through June 30, 1998) which have not yet resulted
in the generation of revenues. The remainder was due to the increased SG&A
costs noted above and to a one-time, non-cash compensation expense of
approximately $719,000 for the cashless exercise of stock options granted
primarily to a former director of OmniAmerica.
Comparison of the Fiscal Years Ended June 30, 1997 and 1996
Revenues. For the fiscal year ended June 30, 1997, revenues increased to
$65,626,800 from $32,585,986 in the fiscal year ended June 30, 1996, which
represents an increase of $33,040,814 or 101% over fiscal 1996. This increase
in revenues resulted primarily from growth in OmniAmerica's wireless
infrastructure building and implementation services and wireless infrastructure
components businesses. During the fiscal year ended June 30, 1997, two
customers represented approximately 32% of OmniAmerica's revenues: Western
Wireless--20% and AT&T Wireless--12%.
Gross Profit. Gross profit for fiscal year ended June 30, 1997 increased
$5,231,735 or 75% from $6,983,515 in fiscal year 1996 to $12,215,250 in fiscal
1997. This increase resulted primarily from growth in OmniAmerica's wireless
infrastructure building and implementation services and wireless infrastructure
components businesses associated with the build-out of new PCS networks and the
expansion of existing cellular telephone networks. Gross profit as a percentage
of revenue decreased from 21% in fiscal 1996 to 19% in fiscal 1997, primarily
due to higher use of subcontract labor during fiscal 1997 and decreases in
labor efficiency resulting from relatively lower business activity experienced
during OmniAmerica's fourth fiscal quarter.
Selling, General and Administrative Expenses. As a percentage of revenues, SG&A
expenses decreased from 10% of revenues in fiscal 1996 to 9% of revenues in
fiscal 1997. SG&A expenses increased $2,505,262 or 73% from $3,410,546 in
fiscal 1996 to $5,915,808 in fiscal 1997. The decrease in SG&A expenses as a
percentage of revenue was primarily attributable to increased operating and
administrative efficiencies realized during the fiscal year. The increase in
SG&A expenses resulted primarily from increased marketing and administrative
expenses associated with additional personnel added to accommodate
OmniAmerica's growth and costs incurred in connection with OmniAmerica's
acquisitions during the year.
IV-13
<PAGE>
Net Earnings. Net earnings increased $2,492,166 or 78% to $5,687,742 in the
fiscal year ended June 30, 1997 from $3,195,576 in the fiscal year ended June
30, 1996. This increase resulted primarily from growth in OmniAmerica's
wireless infrastructure building and implementation services and wireless
infrastructure components businesses associated with the build-out of new PCS
networks and the expansion of existing cellular telephone networks. As a
percentage of revenue, net earnings decreased from 10% in fiscal 1996 to 9% in
fiscal 1997, primarily due to (i) higher use of subcontract labor during fiscal
1997, (ii) decreases in labor efficiency resulting from relatively lower
business activity experienced during OmniAmerica's fourth fiscal quarter, and
(iii) costs incurred in connection with OmniAmerica's acquisitions during the
year.
Redemption of Public Warrants; Exercise of Underwriters' Warrants
On February 20, 1997, OmniAmerica notified registered holders of its
outstanding publicly-traded warrants to purchase common stock of OmniAmerica
(the "Public Warrants") that OmniAmerica intended to redeem all unexercised
Public Warrants on March 26, 1997 (the "Redemption Date") for a redemption
price of $.05 per Public Warrant. The Public Warrants were issued in November
1994 in connection with OmniAmerica's initial public offering. Each Public
Warrant entitled the holder thereof to purchase one (1) share of common stock
at an exercise price of $6.00 per share. The total number of Public Warrants
issued was 500,000, none of which had been exercised at February 20, 1997.
Prior to the Redemption Date, approximately 499,670 Public Warrants were
exercised resulting in the issuance of approximately 499,670 shares of
OmniAmerica Common Stock. Following the Redemption Date, OmniAmerica redeemed
the remaining Public Warrants. In addition, during fiscal 1997, the
underwriters of OmniAmerica's 1994 initial public offering exercised all of the
50,000 warrants ("Underwriters' Warrants") issued to the underwriters in
connection with OmniAmerica's 1994 initial public offering resulting in the
issuance of 150,000 shares of OmniAmerica Common Stock. OmniAmerica received
approximately $3,607,000 in net proceeds in connection with the exercise of the
Public Warrants and the Underwriters' Warrants, substantially all of which were
used for additional vehicles, equipment and facilities used in OmniAmerica's
wireless infrastructure building and implementation services business.
Liquidity And Capital Resources
OmniAmerica's principal requirements for cash are to finance tower acquisition-
related activities, capital expenditures, working capital and debt service.
OmniAmerica's present focus is on developing additional recurring revenue
through leasing revenues from towers built for its own account and acquired
towers from carriers and other owners, as well as maximizing lease revenues
from existing towers, and entering into long-term maintenance contracts with
other tower owners. OmniAmerica has relied primarily on available bank
borrowings to finance this initiative.
For the three months ended September 30, 1998, cash flows used by operating
activities were $1,342,528, as compared to $2,123,053 in cash provided by
operating activities for the same period in the prior year. This difference is
primarily attributable to the change in the level of contracts receivable
associated with installation services and to working capital investments
related to OmniAmerica's build-to-suit program partially offset by increases in
accounts payable.
Cash flows used for investing activities were $32,760,235 for the first three
months of fiscal 1999 as compared to $86,938 for the same period in fiscal
1998. The increase in fiscal 1999 is primarily due to OmniAmerica's tower
acquisition activity and build-to-suit program.
For the first quarter of fiscal 1999, cash flows provided by financing
activities were $30,539,512 in fiscal 1999 as compared to cash flows used in
financing activities of $2,553,380 in 1998. This change is primarily
attributable to the impact of borrowings under the OmniAmerica Credit Agreement
for fiscal 1999 as compared to reduction in debt in fiscal 1998. During the
three months ended September 30, 1998, OmniAmerica utilized available bank
financing under the OmniAmerica Credit Agreement in the amount of $30,496,087.
The increase is directly attributed to the purchase of existing towers and
sites primarily from Arch and OmniAmerica's
IV-14
<PAGE>
build-to-suit program. Total availability under the OmniAmerica Credit
Agreement was approximately $14,500,000 at September 30, 1998.
OmniAmerica will utilize a substantial portion of its cash flow from operations
for debt service, which will increase significantly due to the increase in debt
in the first quarter resulting in a substantial increase in interest expense.
Accordingly, OmniAmerica's leverage could make it vulnerable to a downturn in
the operating performance of its tower leasing and installation services or in
economic conditions. Management believes that its cash flows from operations
along with additional financing sources will be sufficient to meet its debt
service requirements for interest and scheduled principal payments. If such
cash flow were not sufficient to meet its debt service requirements,
OmniAmerica may need to sell equity securities, refinance its obligations, or
dispose of one or more of its properties in order to make such scheduled
payments. OmniAmerica may not be able to effect any of such transactions on
favorable terms.
As a result of the current commitments of OmniAmerica and the limited
availability of funds under the OmniAmerica Credit Agreement, OmniAmerica
amended the OmniAmerica Credit Agreement on November 18, 1998 to increase the
size of the facility from $75.0 million to $150.0 million. OmniAmerica believes
that it will be able to obtain sufficient financial resources, including
borrowings under the OmniAmerica Credit Agreement, as amended, to finance
operations for the foreseeable future. OmniAmerica intends to finance its
obligations under pending build-to-suit commitments out of borrowings from the
OmniAmerica Credit Agreement, as amended, and will consider the issuance of
debt or equity securities to finance any future tower site acquisitions or
build-to-suit commitments.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of OmniAmerica's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Failure by OmniAmerica and/or material third parties, such as power
utility providers, financial institutions and other critical suppliers and
major customers to complete Year 2000 readiness activities in a timely manner
could have a material adverse effect on OmniAmerica's business and results of
operations.
OmniAmerica is engaged in a company-wide effort to achieve Year 2000 readiness
for both information technology and non-information technology systems.
OmniAmerica expects to achieve company-wide Year 2000 readiness by mid-1999.
OmniAmerica has formed a committee consisting of senior management
and information technology staff and consultants to assess, remediate, test and
implement processes to meet Year 2000 readiness.
To date, OmniAmerica is nearly complete in its assessment of all systems that
could be significantly affected by the Year 2000 issue. This assessment
indicates that most of OmniAmerica's significant information technology systems
could be affected, particularly the general ledgers, billing, inventory, and
payment systems. OmniAmerica has determined that most of the products it has
sold and will continue to sell do not require remediation to be Year 2000
compliant. Accordingly, OmniAmerica does not believe that the Year 2000 issue
presents material exposure as it relates to OmniAmerica's products. In
addition, OmniAmerica is gathering information about the Year 2000 compliance
status of its significant suppliers and subcontractors and will continue to
monitor their compliance.
OmniAmerica's systems are at various stages of readiness. The assessment stage
is approximately 75% complete, which includes non-information technology such
as embedded microprocessors. OmniAmerica began the remediation, testing and
implementation stage in the second fiscal quarter, and expects to complete this
stage by mid-1999.
IV-15
<PAGE>
OmniAmerica has begun to make inquiries of its significant suppliers,
subcontractors and other third-party support services (i.e., banking services)
and customers to assess their Year 2000 readiness efforts. To date, OmniAmerica
is not aware of any external agent with a Year 2000 issue that would materially
impact OmniAmerica's results of operations, liquidity, or capital resources.
However, OmniAmerica has no means of ensuring that external agents will be Year
2000 ready. OmniAmerica will conduct telephone interviews and on-site visits in
an effort to avoid an interruption in operations. OmniAmerica will formalize
contingency plans to choose alternative third-party agents in the third fiscal
quarter of 1999.
OmniAmerica will utilize mostly internal resources to replace, test, and
implement the software and operating equipment and outside consultants where
necessary for Year 2000 modifications. The total cost of the Year 2000 project
is not expected to exceed $75,000 for the entire effort. Because OmniAmerica
has not yet fully implemented its readiness program, which is subject to
certain risks and uncertainties (including the readiness efforts of material
third parties), there can be no assurance that OmniAmerica will not incur
material costs beyond the anticipated costs described above. The cost of the
Year 2000 project and the dates by which OmniAmerica believes it will be Year
2000 ready are based on management's current best estimates, which OmniAmerica
derived based on numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. There can be no guarantee, however, that these estimates will be
accurate, and actual results could differ materially from those anticipated.
INFLATION
Historically, inflation has not been a significant factor to OmniAmerica as
labor is the primary cost of operations and its contracts are typically short-
term in nature. On an ongoing basis, OmniAmerica attempts to minimize any
effects of inflation on its operating results by controlling operating costs
and, whenever possible, seeking to ensure that contract prices reflect
increases in costs due to inflation.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
By unanimous written consent dated as of July 21, 1998, the Board of Directors
of OmniAmerica engaged the accounting firm of Ernst & Young LLP as the
independent auditors for OmniAmerica for its fiscal year ended June 30, 1998.
The engagement of KPMG LLP, which had theretofore served as OmniAmerica's
independent auditors, was terminated effective July 21, 1998. The additional
disclosures with respect to this matter called for by this item were previously
reported (as that term is defined in Rule 12b-2 under the Exchange Act) in
OmniAmerica's Form 8-K dated July 21, 1998 filed with the Commission on July
24, 1998.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OmniAmerica maintains a portion of its cash and cash equivalents in short-term
financial instruments which are subject to interest rate risks and,
accordingly, will decline in value if interest rates decline. Due to the
relatively small investment in such instruments and the short duration of such
instruments, fluctuations in interest rates with respect to such instruments
would not materially affect OmniAmerica's financial condition.
OmniAmerica's outstanding long-term debt at September 30, 1998 bears interest
at variable rates and, accordingly, will be affected by interest rate changes.
At September 30, 1998, OmniAmerica had approximately $61.3 million of long-term
debt subject to variable interest rates. For illustration purposes, an increase
of 1.0% in interest rates with respect to OmniAmerica's variable long-term
debt, based on September 30, 1998 positions, would have increased interest
expense for the quarter ended September 30, 1998 by approximately $153,175.
IV-16
<PAGE>
APPENDIX V
DESCRIPTION
OF
TELECOM TOWERS, L.LC.
<PAGE>
BUSINESS OF TELECOM
GENERAL
Formed in September 1997, TeleCom is a national owner and operator of
communications sites, primarily serving wireless providers. TeleCom owns or co-
owns 271 towers and manages an additional 121 revenue-generating sites in 27
states. Its principal tower networks are located in Texas, Illinois, Ohio and
Virginia. TeleCom provides site leasing/licensing services to the country's
largest commercial cellular operators, paging services and ESMR systems.
TeleCom also serves federal, state and local governments, public safety
operations, TV and FM radio stations and handles private two-way communications
systems for large corporations and small operators.
TeleCom was formed in September 1997 as a joint venture between TeleCom Towers,
Inc., a Texas corporation ("TTI"), and Cox Telecom Towers, Inc. ("CTT"), a
subsidiary of Cox Enterprises, Inc., a Delaware corporation and one of the
largest media companies in the United States ("CEI"), to capitalize on the
opportunity in the communications site industry. TTI contributed to TeleCom the
general partnership interests in TTI's three operating partnerships (the
"Partnerships") as well as other assets, and CTT committed to contribute cash
to TeleCom for purposes of transaction costs, acquisitions, capital
expenditures and other business purposes. CTT has fully funded its capital
commitment. Thereafter, TeleCom completed the roll-up of the limited
partnership interests in the Partnerships by merging the Partnerships into
TeleCom (the "TeleCom Roll-Up") on August 3, 1998. As a result of the TeleCom
Roll-Up, TeleCom is now owned 49.82% by CTT, 22.16% by TTI and 28.02% by former
limited partners of the Partnerships.
Since its formation, TeleCom has acquired an aggregate of 393 communications
sites for approximately $28.0 million in Nevada, Texas, Kansas, Oklahoma,
Louisiana, Missouri, Ohio, Michigan, Virginia, Colorado and North Carolina, and
continues actively to seek other acquisition and development opportunities.
TeleCom has also invested in and developed an infrastructure to administer its
present operations and anticipated growth, including information systems,
financial reporting systems, sales and marketing teams, acquisition and
development teams, human resources, and relationships with major wireless
communications carriers that have and/or need communications towers.
TELECOM STRATEGY
TeleCom's strategy is to continue to seek attractive acquisition opportunities
in the communications site business, and to market its towers and roof-top
sites aggressively through diverse local and national marketing efforts.
TeleCom will actively seek acquisitions that supplement areas already served by
it as well as acquisitions that would open up new markets in which the
construction or acquisition of several well-placed towers would create a
cluster in that market. The goal of this approach is to cause TeleCom to have
multiple, well-positioned tower sites within the markets in which it operates,
and thus capitalize on operators' preference for dealing with a consolidated
tower operator.
TeleCom also intends to continue constructing towers to complete or complement
its network in existing markets and to enter new markets. By locating new
towers in areas identified by its customers as optimal for their network
expansion requirements, TeleCom attempts to secure commitments for licensing
space prior to commencing construction and thus reduce the substantial risks of
constructing a new tower.
TELECOM'S SITE OPERATIONS
TeleCom's primary business is the leasing of antenna space on its towers.
TeleCom also provides customers with space in equipment shelters located at or
near the base of its towers to house associated transmitters, receivers and
other equipment. A transmitter's height on a tower determines the line-of-sight
of such transmitter with the horizon and consequently, the distance a signal
can be transmitted. Some users, such as paging companies and SMR users in rural
areas, need higher elevations for broader coverage. Other
V-1
<PAGE>
businesses such as ESMR, PCS and cellular companies in metropolitan areas do
not necessarily need to place their equipment at the highest tower point to
maximize transmission distance and quality. As a result a 400- to 600-foot
tower can provide optimum tower space locations to a variety of users.
Customers are responsible for the installation of their own equipment, and
TeleCom is responsible for maintenance of the tower and equipment facilities in
accordance with FAA and FCC regulations. Tower maintenance requires painting,
relighting, re-guying (replacing the guy wires that secure the towers) and
tensioning tower structures. In addition, TeleCom provides regular maintenance
services for the tower site grounds and equipment shelters. Equipment shelter
maintenance primarily involves servicing air conditioning systems (to prevent
damage to equipment caused by overheating) and ensuring that facilities remain
secure.
CUSTOMERS
As of December 1, 1998 TeleCom owned or co-owned directly or indirectly 270
towers and had rights to manage approximately 1,835 sites in 27 states, of
which approximately 1,700 managed sites (primarily rooftops) are non-revenue
generating. TeleCom's managed sites consist mainly of building-top and tower
sites owned by third parties, with the manager of the site typically receiving
a fee generally between 20% and 50% of revenues from tenants. As of December 1,
1998 TeleCom had approximately 700 customers, and approximately 2,000 tenant
licenses. No customer accounts for more than 6% of aggregate revenue. TeleCom's
customers are in the businesses listed below, and at December 1, 1998 the
approximate percentage of revenues from each category of customers was
estimated as follows:
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY REVENUE
-------- ----------
<S> <C>
Paging........................................................ 31.4%
Cellular...................................................... 6.0%
PCS........................................................... 8.5%
SMR/ESMR...................................................... 11.3%
Broadcast..................................................... 9.0%
Government/Other.............................................. 33.8%
------
Total....................................................... 100.0%
</TABLE>
MARKET FOR TELECOM UNITS AND DISTRIBUTIONS
There is no public trading market for the Class A and Class B TeleCom Units. As
of December 1, 1998, there were approximately 330 record holders of Class A
TeleCom Units and two record holders of Class B TeleCom Units.
To date, TeleCom has not declared or paid any cash distributions on the TeleCom
Units because it has not had taxable income. Future determinations to pay cash
dividends will be at the discretion of the TeleCom Management Committee;
however, the Management Committee will use reasonable efforts to authorize
certain distributions to TeleCom members as necessary to enable them to pay
income taxes on TeleCom income allocated to them so long as the distribution is
permitted by its 364-Day Credit Agreement, dated as of December 22, 1998, among
TeleCom, the lenders party thereto, and First Union National Bank, as
administrative agent, lender and issuing lender (the "TeleCom Credit
Facility").
V-2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 1, 1998,
with respect to the beneficial ownership of Class A and Class B Units of
TeleCom by (i) all persons known by TeleCom to be the beneficial owners of more
than 5% of the outstanding Class A or Class B Units in TeleCom, (ii) each
Management Committee representative of TeleCom, (iii) certain executive
officers of TeleCom, and (iv) all executive officers and Management Committee
representatives of TeleCom as a group. The notes to the table indicate the
ownership by each Management Committee representative and executive officer of
equity interests in parents or subsidiaries of TeleCom.
<TABLE>
<CAPTION>
Amount and Nature of Amount and Nature of Percent
Name of Beneficial Ownership Beneficial Ownership of Percent of
Beneficial Owner of Class A TeleCom Units (1) of Class B TeleCom Units (1) Class TeleCom Units
---------------- ---------------------------- ---------------------------- ------- -------------
<S> <C> <C> <C> <C>
Frederick A. 484,755(2) -- 12.04% 3.37%
Klingenstein (2)........
Randall N. Smith (3).... 35,849(4)(5) -- *
Cox Telecom Towers, Inc. -- 7,157,846 69.22% 49.82%
(6).....................
TeleCom Towers, Inc. -- 3,183,588 30.78% 22.16%
(3)(5)..................
Dean H. Eisner (6)(7)... -- -- --
William L. Killen, Jr. -- -- --
(6)(8)..................
Claus F. Kroeger -- -- --
(6)(9)..................
Clark T. Madigan -- -- --
(3)(5)..................
Robert C. O'Leary -- -- --
(6)(10).................
B. Eric Sivertsen -- -- --
(3)(5)(11)..............
Denison E. Smith -- -- --
(3)(5)..................
Michael T. Williams -- -- --
(3).....................
All executive officers
and Management
Committee
representatives as a
group (nine persons,
including those named
above)................. 35,849 -- *
</TABLE>
- --------
*Less than 1%.
(1) Based upon information supplied by TeleCom's management.
(2) Includes (i) 19,464 Class A Units owned by Frederick A. and Sharon
Klingenstein, (ii) 193,718 Class A Units owned by Klingenstein Charitable
Partners, (iii) 193,718 Class A Units owned by K Investment Partners, LP
III, (iv) 38,927 Class A Units owned by K Investment Partners, LP IV JK
Fund II, (v) 9,732 Class A Units owned by George Gould, (vi) 9,732 Class A
Units owned by Ken Pollinger, (vii) 9,732 Class A Units owned by Jon
Roberts and (viii) 9,732 Class A Units owned by Arthur Tenenbaum. The
business address of Mr. Klingenstein is c/o Klingenstein, Field and
Associates, Inc., 787 7th Avenue, New York, New York 10019-6016.
V-3
<PAGE>
(3) The business address for Randall N. Smith, Clark T. Madigan, B. Eric
Sivertsen, Denison E. Smith, Michael T. Williams and TTI is 1525 Wilson
Boulevard, Suite 500, Arlington, Virginia 22209.
(4) Includes (i) 997 Class A Units owned by Randall N. Smith IRA, (ii) 1,767
Class A Units owned by Dorothy R. Smith IRA, (iii) 1,848 Class A Units
owned by James Rooney III and (iv) 31,237 Class A Units beneficially owned
by Mr. and Mrs. Scott Faley.
(5) Dorothy R. Smith, Clark T. Madigan and B. Eric Sivertsen each own 200
shares of common stock of TTI; each such ownership interest represents 25%
of the common stock of such entity. Denison E. Smith and Angela C. Smith
each own 100 shares of common stock of TTI; together such ownership
interests represent the remaining 25% of the common stock of such entity.
(6) The business address for Dean H. Eisner, William L. Killen, Jr., Claus F.
Kroeger, Robert C. O'Leary and CTT is 1400 Lake Hearn Drive, N.E., Atlanta,
Georgia 30319.
(7) Dean H. Eisner owns 1,514 shares of common stock of CEI; such ownership
interest represents less than 1% of the common stock of such entity.
(8) William L. Killen, Jr. owns 3,153 shares of common stock of CEI; such
ownership interest represents less than 1% of the common stock of such
entity.
(9) Claus F. Kroeger owns 1,443 shares of common stock of CEI; such ownership
interest represents less than 1% of the common stock of such entity.
(10) Robert C. O'Leary owns 9,676 shares of common stock of CEI; such ownership
interest represents less than 1% of the common stock of such entity.
(11) B. Eric Sivertsen owns a 0.0008% limited partnership interest in RFM
Facilities Management, L.P., a 99.9992% subsidiary of TeleCom.
V-4
<PAGE>
TELECOM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The business that is now TeleCom was originally formed in late 1994 by Randall
Smith, Clark Madigan, B. Eric Sivertsen, Denison Smith and Michael Williams as
TTI. In 1994 TTI formed Telecom Southwest Towers Limited Partnership, a Texas
limited partnership ("TSTLP"), with TTI as the general partner.
In late 1994 TSTLP obtained $3.0 million in equity financing through the sale
of limited partnership interests, and used those proceeds to acquire
communications sites, primarily in Texas, beginning in the spring of 1995. In
late 1995, when TSTLP's funds were exhausted, TTI formed a new limited
partnership, Telecom Towers Mid-Atlantic Limited Partnership, a South Carolina
limited partnership ("TTMLP"), to expand the communications site business. In
late 1995 TTMLP raised $6.0 million from the sale of limited partnership
interests, and used those proceeds, along with bank loans, to acquire
communications sites, with the first acquisition in South Carolina and
subsequent acquisitions in various states, including Illinois, Indiana, New
Jersey and Pennsylvania.
In late 1996, in order to obtain the capital to acquire additional
communications sites, TTI formed Telecom Towers of the West, L.P., a Delaware
limited partnership ("TTWLP"), and raised in excess of $16.0 million in equity
from limited partners. TTWLP entered into a joint venture in California to own
and manage rooftop and other communications sites, and also acquired
communications sites in Arkansas, Illinois, Indiana, Louisiana, North Carolina,
Texas and Pennsylvania.
After TSTLP, TTMLP and TTWLP (the "Partnerships") had substantially exhausted
their capital in acquiring and developing communications sites, TTI desired to
continue to expand. In the spring of 1997 CEI became aware of TTI's interest in
raising additional capital. CEI indicated it was interested in investing in the
tower business, and in the summer of 1997 TTI and CEI agreed that the structure
which would best effectuate their mutual objectives and which would not
negatively impact the interest of limited partners in the Partnerships would be
for CEI, through a subsidiary, CTT, and TTI to form a new limited liability
company. The new limited liability company, TeleCom, was formed in 1997, and in
September 1997, TTI assigned to TeleCom its general partnership interests in
the Partnerships and certain other assets and CTT committed to contribute $43.0
million in capital to TeleCom.
Following its formation, TeleCom made several acquisitions aggregating
approximately $28.0 million.
At July 31, 1998, TeleCom owned 50 sites and managed seven revenue-generating
sites.
In 1998 it became clear that the business could be operated more efficiently by
merging the Partnerships into TeleCom, so that the business could be operated
as one entity. The merger was completed on August 3, 1998 by merging each of
the Partnerships into TeleCom, with the owners of the Partnerships receiving
Class A Units in TeleCom.
Liquidity and Capital Resources
TeleCom requires liquidity for site acquisitions, debt service, working capital
and capital expenditures, and to some extent distributions. TeleCom generates
sufficient cash flow from operations to meet its liquidity needs relating to
debt service, working capital and capital expenditures. In the past, TeleCom
has financed its acquisitions through the combination of capital contributed by
its members and bank borrowings. Currently, TeleCom has expended substantially
all of the capital contributed by its members.
TeleCom is a party to the TeleCom Credit Facility. The TeleCom Credit Facility
is used primarily for the acquisition of tower sites. The borrowing capacity
under this TeleCom Credit Facility is subject to certain ratios and other
requirements, the main ratio being borrowings outstanding to EBITDA. The
maintenance
V-5
<PAGE>
requirements under the TeleCom Credit Facility required TeleCom to meet certain
operating ratios. TeleCom management believes that TeleCom was in material
compliance with the covenants set forth in the TeleCom Credit Facility.
TeleCom will be required to expend an increasing portion of its cash flow to
satisfy debt service requirements. TeleCom is vulnerable to unfavorable
economic and industry factors, which could adversely impact its ability to meet
the repayment terms of the TeleCom Credit Facility. TeleCom management believes
that cash flows from operations will continue to be sufficient to meet such
repayment terms. However, in the event of a downturn, TeleCom would be required
to seek alternate financing or liquidate assets, including communication sites.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of TeleCom's
computer programs or hardware that has date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. Failure by TeleCom and/or material third parties, such as power
utility providers, financial institutions and significant vendors to complete
Year 2000 readiness activities in a timely manner could have a material adverse
effect on TeleCom's business and results of operations.
TeleCom is engaged in a company-wide effort to achieve Year 2000 readiness for
both information technology and non-information technology systems. TeleCom
expects to achieve company-wide Year 2000 readiness by June 1999.
To date, TeleCom is nearly complete in its assessment of all systems that could
be significantly affected by the Year 2000 issue. This assessment indicates
that most of TeleCom's systems do not require remediation to be Year 2000
compliant. Accordingly, TeleCom does not believe that the Year 2000 issues
presents material exposure as it relates to TeleCom's operations. TeleCom is
gathering information about the Year 2000 compliance status of its vendors and
will continue to monitor their compliance. In addition, TeleCom is compiling
information as to which systems need to be upgraded or replaced and when
compliant versions of each system would be available.
TeleCom first contacted vendors verbally and then in writing to assess their
Year 2000 readiness efforts. To date, TeleCom is not aware of any external
agent with a Year 2000 issue that would materially impact TeleCom's results of
operations, liquidity or capital resources. TeleCom's contingency plans to
mitigate the risk of a Year 2000-related business interruption include the
documentation of existing manual processes and alternative third-party
suppliers for mission-critical items.
TeleCom will replace, test and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is not
expected to exceed $50,000 for the entire effort. Because TeleCom has not yet
fully implemented its readiness program, which is subject to certain risks and
uncertainties (including the readiness efforts of material third parties),
there can be no assurance that TeleCom will not incur material costs beyond the
anticipated costs described above. The cost of the Year 2000 project and the
dates by which TeleCom believes it will be Year 2000 ready are based on TeleCom
management's current best estimates, which TeleCom derived based on numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. There can be no
guarantee, however, that these estimates will be accurate, and actual results
could differ materially from those anticipated.
In light of the recent formation of TeleCom, the following discussion relates
only to the Partnerships.
V-6
<PAGE>
TELECOM SOUTHWEST TOWERS LIMITED PARTNERSHIP ("TSTLP")
General
TSTLP was formed in January 1995 with the purpose of acquiring and operating
communication sites. TSTLP has a majority of its tower sites located in Eastern
and Central Texas. At July 31, 1998, TSTLP owned or co-owned 40 sites and
managed one revenue-generating site.
Results of Operations
The following table sets forth selected financial results of operations of
TSTLP for the periods indicated:
<TABLE>
<CAPTION>
January 5, 1995 Seven Months Ended
through Year Ended Year Ended July 31,
December 31, December 31, December 31, ----------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct costs............ 221,783 306,553 374,535 195,220 264,606
General and
administrative costs... 729,009 781,877 463,176 277,704 302,304
---------- ---------- ---------- ---------- ----------
EBITDA.................. 233,815 517,548 1,224,300 679,458 723,408
Depreciation and
amortization........... 396,568 531,804 839,791 459,022 480,919
Interest expense........ 246,770 424,237 640,741 272,714 396,865
Other expense (income).. (19,308) 3,144 9,009 (2,935) (99)
---------- ---------- ---------- ---------- ----------
Net Loss before
extraordinary items.... $ (390,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
</TABLE>
Seven Months Ended July 31, 1998 and 1997 (unaudited)
Revenue increased by 12.0% from $1,152,382 to $1,290,318 for the seven months
ended July 31, 1998. The increase resulted from new and renegotiated leases and
additional investments in tower sites and assets.
Direct costs increased 35.5% from $195,220 to $264,606 for the seven months
ended July 31, 1998. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TSTLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to additional sites acquired during
the year.
General and administrative costs increased 8.9% from $277,704 to $302,304
during the seven months ended July 31, 1998. This increase was due in part to
an increase in personnel related costs and management fees due to the general
partner, which increased proportionally with the increase in revenues.
EBITDA increased 6.5% from $679,458 to $723,408 for the seven months ended July
31, 1998. The increase is the result of higher revenues partially offset by an
increase in direct and general and administrative expenses.
EBITDA as a percentage of revenue decreased from 59.0% to 56.1% for the seven
months ended July 31, 1998. The decrease in the EBITDA margin is the result of
an increase in revenues that was outpaced by the increase in expenses.
Depreciation and amortization expense increased 4.8% from $459,022 to $480,919
for the seven months ended July 31, 1998. The increase was due to an increase
in tower assets and in intangible assets.
Interest expense increased 45.5% from $272,714 to $396,865 during the seven
months ended July 31, 1998. The increase in interest expense reflects the
higher average borrowings by TSTLP primarily for additional investments in
tower assets, offset in part by a decrease in interest rates.
V-7
<PAGE>
Other income decreased 96.6% from $2,935 to $99 for the seven months ended July
31, 1998. The decrease in other income was attributable to the expiration of a
consulting agreement at December 31, 1996.
Years Ended December 31, 1997 and 1996
Revenue increased by 28.4% from $1,605,978 to $2,062,011 for the year ended
December 31, 1997. The increase resulted from new and renegotiated leases and
additional investments in tower sites and assets.
Direct costs increased 22.2% from $306,553 to $374,535 for the year ended
December 31, 1997. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TSTLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to additional sites acquired during
the year.
General and administrative costs decreased 40.8% from $781,871 to $463,176
during the year ended December 31, 1997. This decrease was due primarily to the
expiration of a consulting agreement at December 31, 1996.
EBITDA increased 136.6% from $517,548 to $1,224,300 for the year ended December
31, 1997. The increase is the result of higher revenues partially offset by an
increase in direct and general and administrative expenses.
EBITDA as a percentage of revenue increased from 32.2% to 59.4% for the year
ended December 31, 1997. The increase in the EBITDA margin is the result of an
increase in revenues that outpaced the increase in expenses.
Depreciation and amortization expense increased 57.9% from $531,804 to $839,791
for the year ended December 31, 1997. The increase was due to an increase in
tower assets and in intangible assets.
Interest expense increased 51.0% from $424,237 to $640,741 during the year
ended December 31, 1997. The increase in interest expense reflects the higher
average borrowings by TSTLP primarily for additional investments in tower
assets, offset in part by a decrease in the interest rates.
Other expenses increased 186.5% from $3,144 to $9,009. The increase in other
expenses was attributable to the disposition of assets during 1997.
Years Ended December 31, 1996 and 1995
Revenue increased by 35.6% from $1,184,607 to $1,605,978 for the year ended
December 31, 1996. The increase resulted from new and renegotiated leases and
additional investments in tower sites and assets.
Direct costs increased 38.2% from $221,783 to $306,553 for the year ended
December 31, 1996. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TSTLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to additional sites acquired during
the year.
General and administrative costs increased 7.3% from $729,009 to $781,877
during the year ended December 31, 1996. This increase was due in part to an
increase in personnel related costs and management fees due to the general
partner, which increased proportionally with the increase in revenues.
EBITDA increased 121.3% from $233,815 to $517,548 for the year ended December
31, 1996. The increase is the result of higher revenues partially offset by an
increase in direct and general and administrative expenses.
EBITDA as a percentage of revenue increased from 19.7% to 32.2% for the year
ended December 31, 1996. The increase in the EBITDA margin is the result of an
increase in revenues that outpaced the increase in expenses.
Depreciation and amortization expense increased 34.1% from $396,568 to $531,804
for the year ended December 31, 1996. The increase was due to an increase in
tower assets and intangible assets.
V-8
<PAGE>
Interest expense increased 71.9% from $246,770 to $424,237 during the year
ended December 31, 1996. The increase in interest expense reflects the higher
average borrowings by TSTLP primarily for additional investments in tower
assets, offset in part by a decrease in the interest rates.
Other expenses changed from $19,308 of income to $3,144 of expenses during the
year ended December 31, 1996. The change was due primarily to an increase in
the loss of joint ventures to which TSTLP was a party.
TELECOM TOWERS MID-ATLANTIC LIMITED PARTNERSHIP ("TTMLP")
General
TTMLP was formed in June 1995 with the purpose of acquiring and operating
communication sites. In April 1996, TTMLP acquired 75 owned tower sites and the
rights to manage 116 tower sites from RAM/BSE Communications, LP ("RAM"). TTMLP
contributed these assets to a newly formed subsidiary, RFM Facilities
Management Limited Partnership ("RFM"). As part of the same transaction, TTMLP
purchased a consulting company from RAM, which all of the ownership stock was
contributed to a wholly owned subsidiary, RCC Holdings, LP ("RCC"). At July 31,
1998, TTMLP owned 94 towers, managed 107 revenue-generating sites and managed
approximately 1,700 sites that were not generating revenues.
Results of Operations
The following table sets forth selected financial results of operations of
TTMLP for the periods indicated:
<TABLE>
<CAPTION>
June 23, 1995 Seven Months Ended
through Year Ended Year Ended July 31,
December 31, December 31, December 31, ------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $111,999 $13,505,597 $18,318,579 $10,750,784 $11,580,009
Direct costs............ 25,728 10,081,551 13,474,106 7,434,719 7,561,750
General and
administrative costs... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
-------- ----------- ----------- ----------- -----------
EBITDA.................. 61,632 562,322 221,666 527,427 822,997
Depreciation and
amortization........... 61,401 386,394 726,558 383,665 532,226
Interest expense........ 73,370 328,878 518,892 206,655 403,308
Other expense (income).. -- (182,129) 125,984 (20,346) 49,712
-------- ----------- ----------- ----------- -----------
Net Income (Loss) before
extraordinary items.... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ (162,249)
======== =========== =========== =========== ===========
</TABLE>
Seven Months Ended July 31, 1998 and 1997 (unaudited)
Revenue increased by 7.7% from $10,750,784 to $11,580,009 for the seven months
ended July 31, 1998. New and renegotiated leases and additional investments in
tower sites and assets contributed to the increase.
Direct costs increased 1.7% from $7,434,719 to $7,561,750 for the seven months
ended July 31, 1998. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TTMLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges and direct payroll and travel expenses incurred on behalf of
consulting clients.
General and administrative costs increased 14.6% from $2,788,638 to $3,195,262
during the seven months ended July 31, 1998. This increase was due in part to
an increase in personnel related costs, management fees due to the general
partner, which increased proportionally with the increase in revenues and the
completion of contractual obligations by RCC which were part of the purchase
agreement for RCC.
V-9
<PAGE>
EBITDA increased 56.0% from $527,427 to $822,997 for the seven months ended
July 31, 1998. The increase is the result of higher revenues partially offset
by an increase in direct and general and administrative expenses.
EBITDA as a percentage of revenue increased from 4.9% to 7.1% for the seven
months ended July 31, 1998. The increase in the EBITDA margin is the result of
an increase in revenues that outpaced the increase in expenses.
Depreciation and amortization expense increased 38.7% from $383,665 to $532,226
for the seven months ended July 31, 1998. The increase was due to an increase
in tower assets and in intangible assets during the period.
Interest expense increased 95.2% from $206,655 to $403,308 during the seven
months ended July 31, 1998. The increase in interest expense reflects the
higher average borrowings by TTMLP primarily for additional investments in
tower assets, offset in part by a decrease in the interest rates.
Other income/expense (net) reversed from $20,346 of income to $49,712 of
expense for the seven months ended July 31, 1998. The reversal was largely
attributable to other costs incurred by RCC.
Years Ended December 31, 1997 and 1996
Revenue increased by 35.6% from $13,505,597 to $18,318,579 for the year ended
December 31, 1997. The increase resulted primarily from the full year of
operations for RFM and RCC. In addition, new and renegotiated leases and
additional investments in tower sites and assets contributed to the increase.
Direct costs increased 33.7% from $10,081,551 to $13,474,106 for the year ended
December 31, 1997. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TTMLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to a full year of operation for RFM
and RCC and direct payroll and travel expenses incurred on behalf of consulting
clients.
General and administrative costs increased 61.5% from $2,861,724 to $4,622,807
during the year ended December 31, 1997. The increase related primarily to a
full year of operation for RFM and RCC. Also, this increase was due in part to
an increase in personnel related costs, management fees due to the general
partner, which increased proportionally with the increase in revenues and the
completion of contractual obligations by RCC which were part of the purchase
agreement for RCC.
EBITDA decreased 60.6% from $562,322 to $221,666 for the year ended December
31, 1997. The decrease is the result of higher revenues more than offset by an
increase in direct and general and administrative expenses.
EBITDA as a percentage of revenue decreased from 4.2% to 1.2% for the year
ended December 31, 1997. The decrease in the EBITDA margin is the result of an
increase in revenues that was outpaced by the increase in expenses.
Depreciation and amortization expense increased 88.0% from $386,394 to $726,558
for the year ended December 31, 1997. The increase was due primarily to a full
year of expense for the RFM and RCC depreciable and amortizable assets and to
some extent an increase in tower assets and in intangible assets during the
year.
Interest expense increased 57.8% from $328,878 to $518,892 during the year
ended December 31, 1997. The increase in interest expense reflects the higher
average borrowings by TTMLP primarily for additional investments in tower
assets, offset in part by a decrease in the interest rates.
Other income/expense (net) reversed from $182,129 of income to $125,984 of
expense for the year ended December 31, 1997. The reversal was largely
attributable to RCC's inability to realize any income tax benefits as compared
to 1996.
V-10
<PAGE>
Years Ended December 31, 1996 and 1995
Revenue increased by 11,958.7% from $111,999 to $13,505,597 for the year ended
December 31, 1996. The increase resulted primarily from the acquisition of RFM
and RCC. In addition, TTMLP was in operation for a full year for 1996.
Direct costs increased 39,085.1% from $25,728 to $10,081,551 for the year ended
December 31, 1996. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TTMLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to the acquisition of RFM and RCC.
In addition, TTMLP was in operation for a full year for 1996.
General and administrative costs increased 11,514.6% from $24,639 to $2,861,724
during the year ended December 31, 1996. The increase related primarily to the
acquisition of RFM and RCC. Also, this increase was due in part to a full year
of operation for TTMLP, management fees due to the general partner, which
increased proportionally with the increase in revenues and the completion of
contractual obligations by RCC which were part of the purchase agreement for
RCC.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
increased 812.4% from $61,632 to $562,322 for the year ended December 31, 1996.
The increase is the result of higher revenues partially offset by an increase
in direct and general and administrative expenses.
EBITDA as a percentage of revenue decreased from 55.0% to 4.2% for the year
ended December 31, 1996. The decrease in the EBITDA margin is the result of an
increase in revenues that was outpaced by the increase in expenses due
primarily to the acquisition of RCC, which is a consulting company with margins
lower than traditional communications sites only companies.
Depreciation and amortization expense increased 529.3% from $61,401 to $386,394
for the year ended December 31, 1996. The increase was due primarily to the
acquisition of RFM and RCC. In addition, a full year of depreciation and
amortization expense was recorded for TTMLP.
Interest expense increased 348.2% from $73,370 to $328,878 during the year
ended December 31, 1996. The increase in interest expense reflects the higher
average borrowings by TTMLP primarily for the acquisition of RCC and RFM and to
some lesser extent additional investments in other tower assets, offset in part
by a decrease in the interest rates.
Other income/expense (net) changed from $0 to $182,129 of income during the
year ended December 31, 1996. The change was due solely to the recognition of
income tax benefits by RCC during 1996.
V-11
<PAGE>
TELECOM TOWERS OF THE WEST LIMITED PARTNERSHIP ("TTWLP")
General
TTWLP was formed in August 1996 with the purpose of acquiring and operating
communication sites. At July 31, 1998, TTWLP owned 84 towers and managed 5
revenue-generating sites.
Results of Operations
The following table sets forth selected financial results of operations of
TTWLP for the periods indicated:
<TABLE>
<CAPTION>
August 1, 1996 Seven Months Ended
through Year Ended July 31,
December 31, December 31, ---------------------
1996 1997 1997 1998
-------------- ------------ --------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue................... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct costs.............. 24,958 372,964 85,223 364,032
General and administrative
costs.................... 21,014 561,233 272,949 495,936
--------- ----------- --------- ----------
EBITDA.................... 95,486 1,234,496 423,018 1,101,714
Depreciation and
amortization............. 65,184 1,214,165 323,021 1,074,300
Interest expense.......... 154,916 693,161 226,031 611,244
Other expense............. -- 476,460 (167,413) 307,911
--------- ----------- --------- ----------
Net Loss before
extraordinary items...... $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
</TABLE>
Seven Months Ended July 31, 1998 and 1997 (unaudited)
Revenue increased by 151.1% from $781,190 to $1,961,682 for the seven months
ended July 31, 1998. The increase resulted primarily from the acquisition of
new communication sites.
Direct costs increased 327.2% from $85,223 to $364,032 for the seven months
ended July 31, 1998. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TTWLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to the acquisition of additional
tower sites.
General and administrative costs increased 81.7% from $272,949 to $495,936
during the seven months ended July 31, 1998. This increase was due primarily to
an increase in personnel related costs and various overhead costs resulting
from the acquisitions, and management fees due to the general partner, which
increased proportionally with the increase in revenues.
EBITDA increased 160.4% from $423,018 to $1,101,714 for the seven months ended
July 31, 1998. The increase is the result of higher revenues more than offset
by an increase in direct and general and administrative expenses primarily due
to the acquisition of additional tower sites and assets.
EBITDA as a percentage of revenue increased from 54.2% to 56.2% for the seven
months ended July 31, 1998. The increase in the EBITDA margin is the result of
an increase in revenues that was partially offset by the increase in expenses.
Depreciation and amortization expense increased 232.6% from $323,021 to
$1,074,300 for the seven months ended July 31, 1998. The increase was due
primarily to the addition of depreciable and amortizable assets through
acquisitions.
Interest expense increased 170.4% from $226,031 to $611,244 during the seven
months ended July 31, 1998. The increase in interest expense reflects the
higher average borrowings by TTWLP primarily for additional investments in
tower assets, offset in part by a decrease in the interest rates.
V-12
<PAGE>
Other expense increased from $167,413 of income to $307,911 of expense for the
seven months ended July 31, 1998. The increase was primarily attributable to
TTWLP's share of loss in a joint venture.
Years Ended December 31, 1997 and 1996
Revenue increased by 1,433.1% from $141,458 to $2,168,693 for the year ended
December 31, 1997. The increase resulted primarily from the acquisition of new
communication sites. In addition, the increase was attributable to a full year
of operation for 1997.
Direct costs increased 1,394.4% from $24,958 to $372,964 for the year ended
December 31, 1997. Direct costs consist primarily of repair and maintenance
expenses for maintaining the towers and buildings of TTWLP, land rentals,
utility expenses, real and personal property taxes and other governmental taxes
and charges. The increase related primarily to the acquisition of additional
tower sites and a full year of operation for 1997.
General and administrative costs increased 2,570.8% from $21,014 to $561,233
during the year ended December 31, 1997. This increase was due primarily to an
increase in personnel related costs and various overhead costs resulting from
acquisitions and management fees due to the general partner, which increased
proportionally with the increase in revenues.
EBITDA increased 1,192.9% from $95,486 to $1,234,496 for the year ended
December 31, 1997. The increase is the result of higher revenues more than
offset by an increase in direct and general and administrative expenses
primarily due to the acquisition of additional tower sites and assets and the
full year of operation for 1997.
EBITDA as a percentage of revenue decreased from 67.5% to 56.9% for the year
ended December 31, 1997. The decrease in the EBITDA margin is the result of an
increase in revenues that was outpaced by the increase in expenses.
Depreciation and amortization expense increased 1,762.7% from $65,184 to
$1,214,165 for the year ended December 31, 1997. The increase was due primarily
to the addition of depreciable and amortizable assets through acquisitions and
to some extent a full year of depreciation and amortization expense.
Interest expense increased 347.4% from $154,916 to $693,161 during the year
ended December 31, 1997. The increase in interest expense reflects the higher
average borrowings by TTWLP primarily for additional investments in tower
assets, offset in part by a decrease in the interest rates.
Other expense increased from $0 to $476,460 for the year ended December 31,
1997. The increase was primarily attributable to TTWLP's share of loss in a
joint venture.
V-13
<PAGE>
APPENDIX VI
AMERICAN TOWER FORM 10-Q
FOR QUARTER ENDED
SEPTEMBER 30, 1998
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -------------------------------------------------------------------------------
Form 10-Q
- -------------------------------------------------------------------------------
(Mark One):
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30, 1998.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 001-14195
AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0723837
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617) 375-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock October 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
Class A Common Stock........................................ 96,178,177 shares
Class B Common Stock........................................ 9,086,726 shares
Class C Common Stock........................................ 3,295,518 shares
- --------------------------------------------------------------------------------
Total....................................................... 108,560,421 shares
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN TOWER CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998.................... 1
Consolidated Statements of Operations
Three and nine months ended September 30, 1997 and 1998..... 2
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1998............... 3
Notes to Consolidated Financial Statements................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 19
Item 5. Other Information............................................ 19
Item 6. Exhibits and Reports on Form 8-K............................. 20
Signatures................................................... 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--UNAUDITED
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,596 $ 313,454
Accounts receivable, net of allowance for doubtful
accounts of $125 and $1,138, respectively ....... 3,239 14,455
Unbilled receivables.............................. 2,872
Prepaid and other current assets.................. 790 4,638
Deferred income taxes............................. 63 63
-------- ----------
Total current assets............................ 8,688 335,482
-------- ----------
PROPERTY AND EQUIPMENT, net......................... 117,618 388,315
UNALLOCATED PURCHASE PRICE, net..................... 108,192 662,670
OTHER INTANGIBLE ASSETS, net........................ 8,424 14,647
NOTE RECEIVABLE..................................... 10,700 6,100
DEPOSITS AND OTHER LONG-TERM ASSETS................. 1,735 4,105
DEFERRED INCOME TAXES............................... 24,435
-------- ----------
TOTAL............................................... $255,357 $1,435,754
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 110 $ 1,125
Accounts payable.................................. 3,738 6,587
Accrued expenses.................................. 4,492 18,387
Accrued separation expenses....................... 5,113
Accrued interest.................................. 914 2,166
Unearned income................................... 1,752 5,978
Due to CBS Corporation............................ 44,809
-------- ----------
Total current liabilities....................... 11,006 84,165
-------- ----------
LONG-TERM DEBT...................................... 90,066 280,480
DEFERRED INCOME TAXES............................... 418
OTHER LONG-TERM LIABILITIES......................... 33 1,195
-------- ----------
Total long-term liabilities..................... 90,517 281,675
-------- ----------
MINORITY INTEREST IN SUBSIDIARIES................... 626 567
-------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS A COMMON STOCK:
$.01 par value, 336,250 shares issued and out-
standing; at estimated redemption value of
$25.50 per share............................... 8,574
-------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Class A Common Stock; $.01 par value; 300,000,000
shares authorized; 29,667,883 and 94,396,556
shares issued and outstanding, respectively...... 297 944
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 and 9,107,962 shares
issued and outstanding, respectively............. 47 91
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 and 3,295,518 shares
issued and outstanding, respectively............. 13 33
Additional paid-in capital........................ 155,711 1,097,359
Accumulated deficit............................... (2,860) (37,654)
-------- ----------
Total stockholders' equity...................... 153,208 1,060,773
-------- ----------
TOTAL............................................... $255,357 $1,435,754
======== ==========
</TABLE>
See notes to consolidated financial statements.
VI-1
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1997 1998 1997 1998
--------- ---------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Tower rental and management....... $ 3,525 $ 17,719 $ 6,478 $ 39,305
Site acquisition services......... 996 6,572 1,424 18,848
Video, voice and data
transmission..................... 6,187 13,332
-------- ---------- ------- ---------
Total operating revenues........ 4,521 30,478 7,902 71,485
-------- ---------- ------- ---------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization,
tower separation expenses and
corporate general and
administrative expenses:
Tower rental and management..... 1,611 8,087 2,753 18,417
Site acquisition services....... 669 4,677 836 15,412
Video, voice and data
transmission................... 3,928 8,697
Depreciation and amortization..... 1,384 17,243 2,706 32,998
Tower separation expenses......... 159 12,616
Corporate general and
administrative expenses.......... 378 1,561 919 3,186
-------- ---------- ------- ---------
Total operating expenses........ 4,042 35,655 7,214 91,326
-------- ---------- ------- ---------
INCOME (LOSS) FROM OPERATIONS....... 479 (5,177) 688 (19,841)
OTHER INCOME (EXPENSE):
Interest expense.................. (1,000) (7,121) (1,318) (17,023)
Interest income and other, net.... 37 4,451 94 6,283
Minority interest in net earnings
of subsidiaries.................. (60) (66) (221) (255)
-------- ---------- ------- ---------
TOTAL OTHER EXPENSE................. (1,023) (2,736) (1,445) (10,995)
-------- ---------- ------- ---------
LOSS BEFORE BENEFIT FOR INCOME TAXES
AND EXTRAORDINARY LOSSES........... (544) (7,913) (757) (30,836)
INCOME TAX BENEFIT.................. 1,955 49 4,934
-------- ---------- ------- ---------
LOSS BEFORE EXTRAORDINARY LOSSES.... (544) (5,958) (708) (25,902)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT
OF $921............................ (1,382)
EXTRAORDINARY LOSS ON REDEMPTION OF
INTERIM PREFERRED STOCK, NET OF
INCOME TAX BENEFIT OF $5,000....... (7,510) (7,510)
-------- ---------- ------- ---------
NET LOSS............................ $ (544) $ (13,468) $ (708) $ (34,794)
======== ========== ======= =========
BASIC AND DILUTED PER COMMON SHARE:
Loss before extraordinary losses.. $ (0.01) $ (0.06) $ (0.01) $ (0.37)
Extraordinary losses.............. (0.07) (0.13)
-------- ---------- ------- ---------
Net loss.......................... $ (0.01) $ (0.13) $ (0.01) $ (0.50)
======== ========== ======= =========
WEIGHTED AVERAGE COMMON SHARES ..... 48,732 104,621 48,732 70,103
======== ========== ======= =========
</TABLE>
See notes to consolidated financial statements.
VI-2
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES....................... $ 3,118 $ 2,878
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Payments for purchase of property and equipment and
construction activities................................. (8,926) (76,291)
Payments for acquisitions................................ (62,804) (140,384)
Advances of notes receivable............................. (259) (11,100)
Repayment of notes receivable............................ 2,000
Deposits and other long-term assets...................... (2,329) (2,140)
-------- --------
Cash used for investing activities......................... (74,318) (227,915)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities....................... 50,000 205,500
Repayments of other notes payable and credit facilities.. (332) (136,954)
Net proceeds from equity offerings and stock options..... 707,399
Cash transfers to CBS Corporation........................ (221,665)
Net proceeds from Interim Preferred Stock................ 300,000
Redemption of Interim Preferred Stock.................... (303,117)
Contributions from ARS................................... 25,960 56,954
Cash transfers to ARS.................................... (4,150) (51,856)
Distributions to minority interest....................... (314) (314)
Additions to deferred financing costs.................... (42) (22,052)
-------- --------
Cash provided by financing activities...................... 71,122 533,895
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (78) 308,858
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 2,373 4,596
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 2,295 $313,454
======== ========
NON-CASH TRANSACTIONS:
Contribution of fixed assets and other assets from (to)
ARS..................................................... $ (725) $ 6,488
Issuance of common stock and assumption of options for
acquisitions............................................ $363,609
Increase in deferred tax assets from corporate
restructuring........................................... $135,000
Increase in due to CBS Corporation from estimated
remaining tax liabilities............................... $ 54,700
Adjustment to equity for CBS tax liability............... $ 76,960
</TABLE>
See notes to consolidated financial statements.
VI-3
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared by American Tower
Corporation (ATC or the Company) (formerly American Tower Systems
Corporation), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial information included herein
is unaudited; however the Company believes such information and the
disclosures are adequate to make the information presented not misleading and
reflect all adjustments (consisting only of normal recurring adjustments) that
are necessary for a fair presentation of results of operations for such
periods. Results of interim periods may not be indicative of results for the
full year. These financial statements should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K and periodic reports on Form 10-Q
filed during 1998.
Accounting Policies--In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (FAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for all fiscal quarters of years beginning after June 1999. The
Company has not completed its evaluations of FAS No. 133, but does not expect
it to significantly affect the accounting and reporting of its current hedging
activities.
Effective January 1, 1998, the Company adopted the provisions of FAS No.
130, "Reporting Comprehensive Income." There are currently no items other than
net income which would be classified as part of comprehensive income.
In February 1998, the FASB released FAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132), which ATC will be
required to adopt in 1998. FAS 132 will require additional disclosure
concerning changes in ATC's pension obligations and assets and eliminates
certain other disclosures no longer considered useful. Adoption of this
standard will have no effect on reported consolidated results of operations or
financial position.
Tower Separation expenses--Tower separation expenses consist of costs
incurred in connection with the separation of the Company from its former
parent and include legal, accounting, financial advisory, and consent
solicitation fees. The Company expects to incur additional separation expenses
through the resolution of the CBS Merger adjustments described in Note 2, but
does not expect such costs to be material to the Company's results of
operations or financial position.
Reclassifications--Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
2. Business and Corporate Structure
ATC was a majority owned subsidiary of American Radio Systems Corporation
(ARS or American Radio) until consummation of the CBS Merger on June 4, 1998,
as discussed below. American Towers, Inc. (ATI) is a wholly-owned subsidiary
of ATC. American Tower, L.P. (ATLP) is an indirect wholly-owned subsidiary of
ATC. ATI and ATLP are collectively referred to as the Borrower Subsidiaries.
CBS Merger: On June 4, 1998, the merger of American Radio and a subsidiary
of CBS Corporation (CBS) was consummated (the CBS Merger). As a consequence,
all of the shares of ATC Common Stock (the Common Stock) owned by ARS were
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock have been or will be distributed upon conversion of shares of ARS
7% Convertible Exchangeable Preferred Stock (the Convertible Preferred Stock).
As a consequence of the CBS Merger, ATC ceased to be a subsidiary of, or to be
otherwise affiliated with, American Radio and now operates as an independent
publicly traded company. Pursuant to the provisions of the CBS Merger
Agreement, ATC entered into an agreement (the Separation Agreement) with CBS
and ARS providing for, among other things, the orderly separation of ARS and
ATC, the allocation of certain tax liabilities to ATC and certain closing date
adjustments relating to ARS.
VI-4
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Separation Agreement required ATC to reimburse CBS on a "make-whole"
(after tax) basis for the tax liabilities incurred by ARS attributable to the
distribution of the Common Stock owned by ARS to the ARS security holders and
certain related transactions to the extent that the aggregate amount of taxes
required to be paid by ARS exceeded $20.0 million. The amount of that tax
liability was dependent on the "fair market value" of the Common Stock at the
time of the consummation of the CBS Merger. ATC received an appraisal from an
independent appraisal firm that the "fair market value" of ARS's stock
interest in ATC was equal to $17.25 per share. Based on such appraisal, ARS
paid estimated taxes of approximately $212.0 million and was reimbursed
therefore by ATC. As required by the Separation Agreement, ATC provided CBS
with security of $9.8 million in cash (which may be replaced at ATC's option
with a letter of credit reasonably satisfactory to CBS) in connection with the
filing of estimated tax returns based on such appraisal. Such appraisal is
not, of course, binding on the Internal Revenue Service or other taxing
authorities. The Company financed its tax reimbursement obligations to CBS
with the Interim Preferred Stock proceeds discussed in Note 6. The $212.0
million payment also included estimated payments for the "make-whole"
provisions of the liability associated with the conversion of the Convertible
Preferred Stock and the working capital adjustment described below. Such taxes
gave effect to estimated deductions of approximately $85.1 million available
to ARS as a consequence of the cancellation or exercise of ARS stock options
pursuant to the CBS Merger. ATC's reimbursement obligation with respect to
such taxes would change by approximately $21.0 million for each $1.00 change
in the "fair market value" of the Class A Common Stock under the tax reporting
method followed. The average of the high and low trading prices of the Class A
Common Stock in the when-issued over-the-counter market on June 4, 1998 was
$20.50.
The $212.0 million payment did not include all the taxes payable with
respect to the shares of Class A Common Stock deliverable upon conversion of
the Convertible Preferred Stock; such taxes will be based on the "fair market
value" of the Class A Common Stock at the time of conversion. Conversions have
occurred at various times since June 4, 1998. As of September 30, 1998,
holders of Depositary Shares representing approximately 43% of the Convertible
Preferred Stock have converted or have presented for conversion and ATC has
recorded a liability of approximately $4.7 million due to CBS associated with
these conversions. On September 30, 1998, CBS issued 7% Convertible Preferred
Debentures Due 2011 (the Convertible Preferred Debentures) in exchange for the
then outstanding shares of Convertible Preferred Stock. Holders of the
Convertible Preferred Debentures are entitled to the same conversion rights as
the Convertible Preferred Stock. ATC estimates that its remaining
reimbursement obligation with respect to the taxes on the conversion of
Convertible Preferred Debentures could be approximately $11.3 million under
the tax reporting method followed. Such estimate is based on the October 26,
1998 fair market value of the Class A Common Stock of $21.375 per share. ATC's
obligation for such conversions would change by approximately $1.2 million for
each $1.00 change in the fair market value.
ARS has agreed that it will pursue, for the benefit of and at the cost of
ATC, a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the Convertible
Preferred Stock set forth above. Any such refund claim will, in fact, be based
on the actual amount of taxes paid. In light of existing tax law, there can,
of course, be no assurance that any such refund claim will be successful.
The Separation Agreement provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of ARS as of June 4,
1998. ATC will benefit from or bear the cost of such adjustments. As of June
1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. Such preliminary estimate was based on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses and the final payment is
contingent upon a series of events as defined in the Separation Agreement. As
a result, ATC recorded a $50.0 million payable to CBS and a corresponding
reduction in equity to reflect management's estimate at that time.
VI-5
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement
setting forth a proposed purchase price adjustment payment to CBS of
approximately $82.2 million, excluding accrued interest. In October 1998, ATC
provided CBS with a Notice of Disagreement to the proposed purchase price
adjustment indicating that ATC's estimate of the final adjustment payment
aggregated $11.1 million and reserving its rights to make further adjustments
upon the receipt of additional information requested of CBS. In addition, as
noted above, ATC is obligated to reimburse CBS for the tax consequences of
such payment (approximately 66 2/3%) and has paid CBS approximately
$33.0 million based on the $50.0 million estimate. CBS is in the process of
reviewing such Notice of Disagreement and is required under the terms of the
Separation Agreement to resolve any differences with ATC by no later than
November 16, 1998, or, in the event that such differences cannot be resolved,
a third party may be employed to arbitrate the dispute. CBS and ATC have
mutually agreed to extend the aforementioned date to December 15, 1998. Under
the circumstances, ATC continues to believe that the amounts previously
recorded represent a reasonable estimate of the amounts which will be paid to
CBS and will adjust the amount as information becomes known to the Company.
In connection with an inter-corporate taxable transfer of assets entered
into in January 1998 by ATC in contemplation of the separation of ATC and ARS,
a portion of the tax with respect to which ATC is obligated to indemnify CBS
was incurred. Such transfer resulted in an increase in the tax bases of ATC's
assets of approximately $366.5 million. ATC will have potential depreciation
and amortization deductions over the next 15 years of $24.4 million per year
resulting in a deferred tax asset of approximately $135.0 million.
3. Loss Per Common Share Data
Basic loss per common share is computed using the weighted average number of
common shares outstanding during each 1998 period presented. Shares
outstanding upon consummation of the CBS Merger are assumed to be outstanding
for the entire 1998 and 1997 period presented. Shares issuable upon exercise
of options have been excluded from the computation as the effect is anti-
dilutive. Had options been included in the computation, shares for the diluted
computation would have increased by approximately 4.4 million and 4.0 million
for the three and nine months ended September 30, 1998, respectively.
4. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year for each
tax reporting corporate entity. Cumulative adjustments to the tax benefit are
recorded in the interim period in which a change in the estimated annual
effective rate is determined. Through January 1998, the Company participated
in a tax sharing agreement with ARS. The tax sharing agreement was terminated
in connection with the corporate restructuring described in Note 2; the
Company and its subsidiaries will now prepare and file income tax returns on a
separate consolidated basis.
5. Unallocated Purchase Price
The excess of purchase price over the estimated fair value of net assets
acquired has been preliminarily recorded as unallocated purchase price and is
being amortized over an estimated aggregate useful life of fifteen years using
the straight-line method. The consolidated financial statements reflect the
preliminary allocation of certain purchase prices as the appraisals for some
acquisitions have not yet been finalized. The Company is currently conducting
studies to determine the purchase price allocations and expects that upon
final allocation, the average estimated useful life will approximate fifteen
years. The final allocation of purchase price is not expected to have a
material effect on the Company's consolidated results of operations, liquidity
or financial position.
6. Stockholders' Equity
Interim Preferred Stock Financing--On June 4, 1998, the Company entered into
a stock purchase agreement (the Interim Financing Agreement) with respect to a
preferred stock financing which provided for the issuance
VI-6
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and sale by ATC of up to $400.0 million of Series A Redeemable Pay-In-Kind
Preferred Stock (the Interim Preferred Stock) to finance ATC's obligation to
CBS with respect to tax reimbursement. Dividends, which accrued at a rate
equal to the three-month LIBOR then in effect (approximately 5.69%) plus an
agreed upon adjustable spread (5.0% for the period in which the obligation was
outstanding), have been recorded as interest expense in the accompanying
financial statements. Such interest expense approximated $0.8 million and
$3.1 million for the three and nine months ended September 30, 1998,
respectively.
The Interim Preferred Stock was redeemed on July 9, 1998 at a redemption
price equal to $1,010 per share plus accrued and unpaid dividends for an
aggregate redemption value of $306.1 million. The Company incurred an
extraordinary loss of approximately $7.5 million, net of a tax benefit of
$5.0 million, during the third quarter of 1998, representing the write-off of
certain commitment, deferred financing and redemption fees.
Offering--On July 8, 1998, the Company completed a public offering of
27,861,987 shares of Class A Common Stock, $.01 par value per share (the Class
A Common Stock) (including 2,361,987 shares sold by the Company pursuant to
the exercise in full of the underwriters' over-allotment option) at $23.50 per
share. Certain selling stockholders sold an additional 3,874,911 shares in the
offering. The Company's net proceeds of the offering (after deduction of the
underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, the Company used approximately $306.1 million
of the net proceeds from the offering to redeem all of the outstanding shares
of the Interim Preferred Stock at a price of 101% of the stock's liquidation
preference plus accrued and unpaid dividends. The balance was invested in
short-term investment grade securities and will be used, together with
borrowings under the New Credit Facilities, to fund future acquisitions and
construction activities.
7. Long-term Debt
New Credit Facilities--In June 1998, ATC and the Borrower Subsidiaries
entered into agreements for new credit facilities (the New Credit Facilities).
The New Credit Facilities with ATC provide for a $150.0 million term loan
maturing at the earlier of (i) eight and one-half years or (ii) December 31,
2006, amortizing quarterly in an amount equal to 2.5% of the principal amount
outstanding at June 30, 2001 at the end of each quarter between such date and
June 30, 2006, both inclusive, and the balance in two equal installments on
September 30 and December 31, 2006. The ATC New Credit Facility was fully
drawn at closing and provides for interest rates determined, at the option of
ATC, of either the LIBOR Rate plus 3.50% or the Base Rate (as to be defined)
plus 2.5%. The New Credit Facilities with the Borrower Subsidiaries provide
for $900.0 million credit facilities maturing at the earlier of (a) eight
years or (b) June 30, 2006 consisting of the following: (i) a $250.0 million
multiple-draw term loan, (ii) a $400.0 million reducing revolving credit
facility and (iii) a $250.0 million 364-day revolving credit facility that
converts to a term loan facility thereafter. The Borrower Subsidiaries
borrowed $125.0 million in the form of a term loan and an additional $19.0
million under the revolving credit arrangements that was repaid out of the
proceeds of the Interim Preferred Stock sale. The interest rate provisions are
similar to those in the prior credit agreement. Borrowings under the Borrower
Subsidiaries' New Credit Facilities are conditioned upon compliance with
certain financial ratios and are required to be repaid, commencing June 30,
2001, in increasing quarterly amounts designed to amortize the loans through
maturity. The loans to ATC and the Borrower Subsidiaries are cross-guaranteed
and cross-collateralized by substantially all of the assets of the
consolidated group. The Borrower Subsidiaries are required to pay quarterly
commitment fees depending on their consolidated financial leverage, on the
aggregate unused portion of the aggregate commitment. In connection with the
repayment of borrowings under the prior credit agreement out of proceeds of
borrowings under the New Credit Facilities, ATC recognized an extraordinary
loss of approximately $1.4 million, net of a tax benefit of $0.9 million,
during the second quarter of 1998.
Assumed Debt Obligations--In connection with the ATC Merger discussed in
Note 8, the Company assumed certain long-term note obligations of the acquired
entity including a term note payable that was paid at
VI-7
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
closing, a $4.4 million noninterest-bearing secured note payable, due in
annual installments through December 2000, a $430,000 noninterest-bearing
unsecured note payable, maturing in October 1999 and other long-term
obligations totaling approximately $34,000.
8. Acquisitions
During the first nine months of 1998 and 1997, the Company consummated the
following transactions. See the Form 10-K for additional information on these
transactions.
1998 Acquisitions--
During the nine months ended September 30, 1998, the Company acquired
various communications sites and a major site acquisition business for an
aggregate purchase price of approximately $768.0 million, including the
issuance of approximately 34.8 million shares of Class A Common Stock valued
at approximately $354.0 million. The following describes the more significant
acquisitions:
In January 1998, the Company acquired all of the outstanding stock of Gearon
& Co. Inc. (Gearon), a company based in Atlanta, Georgia, for an aggregate
purchase price of approximately $80.0 million. The purchase price consisted of
approximately $32.0 million in cash and assumed liabilities and the issuance
of approximately 5.3 million shares of Class A Common Stock. Gearon is engaged
in site acquisition, development, construction and facility management of
wireless network communication facilities on behalf of its customers and owned
or had at the time of acquisition under construction approximately 40 tower
sites. Following consummation, the Company granted options to acquire up to
1,400,000 shares of Class A Common Stock at an exercise price of $13.00 to
employees of Gearon.
In January 1998, the Company acquired all of the outstanding stock of OPM-
USA-Inc. (OPM), a company which owned approximately 90 towers at the time of
acquisition. In addition, OPM is in the process of developing an additional
160 towers that are expected to be constructed during the next 12 to 18
months. The purchase price, which is variable and based on the number of
towers completed and the forward cash flow of the completed OPM towers, could
aggregate up to $105.0 million, of which approximately $21.3 million was paid
at the closing. In May 1998, the Company paid the second installment of
approximately $18.2 million which was based on the number of towers permitted
and completed and the forward cash flow of the completed towers as of April
30, 1998. In August 1998, the Company paid the third installment of
approximately $3.8 million which was determined on the same basis as the
second installment.
In May 1998, the Company consummated the acquisition of the assets relating
to a teleport business serving the Washington D.C. area for approximately
$30.5 million.
On June 8, 1998, the Company consummated the American Tower Corporation
Merger (ATC Merger) pursuant to which that entity was merged into ATC. The
preliminary purchase price was approximately $550.0 million. At the time of
closing, the acquired company owned approximately 775 communications towers
and managed approximately 125 communications towers. In conjunction with the
ATC Merger, the Company issued 28,782,386 shares of Class A Common Stock
valued at approximately $287.8 million (excluding 1,252,364 shares of Common
Stock reserved for options held by former employees of the acquired company
valued at approximately $9.7 million) and assumed approximately $4.5 million
of redeemable preferred stock (which was paid at closing) and $122.7 million
of debt (of which approximately $118.3 million, including interest and
associated fees, was paid at closing). The purchase price also includes
acquisition costs, assumed working capital and deferred income taxes. The
Company borrowed $57.0 million under the then existing credit agreements to
fund a portion of the debt pay-off. Upon consummation of the ATC Merger, the
Company changed its name from American Tower Systems Corporation to American
Tower Corporation.
VI-8
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the Company merged with a company owning a broadcasting tower
in the Boston, Massachusetts area and issued 720,000 shares of Class A Common
Stock to close the transaction. In connection with this transaction, ATC
acquired a $12.0 million note receivable and issued a corresponding
nonrecourse note payable which is payable only to the extent that payments on
the note receivable are made to ATC. As such, the amounts have been offset in
the accompanying financial statements. In addition, under a put agreement that
was consummated in connection with the merger, the sellers have the right to
require the Company to purchase, at any time prior to June 5, 1999, any or all
shares of ATC Class A Common Stock received pursuant to consummation of the
merger for a purchase price equal to the then current market price. In
connection with the public offering described in Note 6 the sellers sold
383,750 of the 720,000 shares in July 1998 reducing the Company's overall
redemption obligation. Accordingly, the remaining 336,250 shares have been
recorded as redeemable common stock in the accompanying financial statements
based on the September 30, 1998 fair market value of $25.50 per share.
1997 Acquisitions--
During the nine months ended September 30, 1997, ATC acquired various
communications sites and the assets of two affiliated site acquisition
businesses, and two tower site management businesses located in southern
California and South Carolina for an aggregate purchase price of approximately
$63.0 million.
In May 1997, the Company and an unaffiliated party formed a limited
liability company (ATS/PCS, LLC, formerly Communications Systems Development,
LLC) to own and operate communication towers which will be constructed on over
50 tower sites in northern California. The Company advanced approximately $0.8
million to this entity and currently owns a 70% interest in the entity, with
the remaining 30% owned by an unaffiliated party. The accounts of the limited
liability company are included in the consolidated financial statements with
the other party's investment reflected as minority interest in subsidiary.
(See Note 10).
The following unaudited pro forma summary for the nine months ended
September 30, 1997 and 1998 presents the consolidated results of operations as
if the acquisitions had occurred as of January 1, 1997 after giving effect to
certain adjustments, including depreciation and amortization of assets and
interest expense on any debt incurred to fund the acquisitions. These
unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
acquisitions been made as of January 1, 1997 or of results which may occur in
the future.
In thousands, except per share data:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net revenues......................... $ 79,647 $88,705
Loss before extraordinary items...... (37,589) (37,473)
Net loss............................. (37,589) (46,365)
Basic and diluted net loss per common
share............................... $ (0.48) $ (0.53)
</TABLE>
9. Related Party Transactions
During the period that the Company was a majority owned subsidiary of ARS,
the Company received revenues of approximately $112,000, $291,000 and $565,000
from ARS for tower rentals at Company-owned sites for the three months ended
September 30, 1997 and the nine months ended September 30, 1997 and 1998,
respectively.
VI-9
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Other Transactions
Consummated Transactions--
In October 1998, the Company acquired approximately 300 towers and certain
tower related assets in six transactions for an aggregate purchase price of
approximately $100.2 million. The most significant transactions included the
acquisition of 166 Atlanta, Georgia area towers. These transactions included
the acquisition of all the outstanding stock of Wauka Communications, Inc. and
the assets of Grid Site Services, Inc. The consideration in these related
transactions included the issuance of 1,430,881 shares of Class A Common
Stock. Included in the total 300 towers referenced above, the Company also
acquired 137 communications sites and tower related assets in the four other
transactions.
In October 1998, the Company contributed cash and a tower aggregating $12.6
million to ATS-Needham LLC, (ATS Needham), a limited liability company in
which ATC owned a 50.1% interest prior to such transactions. ATS Needham also
sold certain assets to the minority interest party. As a result of these
transactions, ATC now owns an 80% interest in ATS Needham.
Pending Transactions--
On November 16, 1998, ATC entered into an Agreement and Plan of Merger (the
Omni Merger Agreement) with OmniAmerica, Inc., a Delaware corporation (Omni),
and ATI, pursuant to which Omni will merge with and into ATI, which will be
the surviving corporation (the Omni Merger). Omni owns, manages and develops
multi-use telecommunications sites for radio and television broadcasting,
paging, cellular, PCS and other wireless technologies and offers nationwide,
turn-key tower construction and installation services through its Specialty
Constructors subsidiary. Omni currently owns 246 towers (giving effect to
announced transactions) and is currently developing or has agreed to build
approximately 470 more sites for specific tenants. Pursuant to the Omni Merger
Agreement, which has been approved by the Board of Directors of ATC and Omni,
and by holders of shares representing the required majority of the voting
power of Omni Common Stock, Omni stockholders will receive 1.1 shares of ATC
Class A Common Stock for each share of Common Stock of Omni. In the aggregate,
ATC will exchange approximately 17.7 million shares of ATC Class A Common
Stock in exchange for the approximately 16.1 million fully-diluted shares of
Common Stock of Omni, plus the assumption of debt. Consummation of the Omni
Merger is expected to occur in the first quarter of 1999, subject to certain
conditions including, the expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements act of 1976, as
amended (the HSR Act). Upon the consummation of the Omni Merger, Jack D.
Furst, the Chairman of Omni and a partner of Hicks, Muse, Tate & Furst
Incorporated, an affiliate of Omni's largest stockholder, will be elected to
the Board of Directors of ATC.
On November 16, 1998, ATC entered into an Agreement and Plan of Merger (the
TeleCom Merger Agreement) with TeleCom Towers, L.L.C., a Delaware limited
liability company (TeleCom), and ATI, pursuant to which TeleCom will merge
with and into ATI, which will be the surviving corporation (the TeleCom
Merger). TeleCom owns, or co-owns, approximately 367 towers and manages
another 130 revenue-generating sites in 27 states. Pursuant to the TeleCom
Merger Agreement, which has been approved by Board of Directors of ATC, the
Management Committee of TeleCom, and by holders of interests representing the
required majority of the voting power of TeleCom interests, ATC will pay a
purchase price for TeleCom of approximately $155.0 million, subject to
adjustment for closing date working capital. ATC will assume approximately
$30.0 million of debt, subject to adjustment for interim acquisitions and
capital expenditures. The purchase price (except for the working capital
adjustment, which is payable in cash) will be paid 60% in ATC Class A Common
Stock (based on average stock prices ten days before and ten days after
November 16, 1998) and 40% in cash. Consummation of the TeleCom Merger is
conditioned on, the expiration or early termination of the waiting period
under the HSR Act, and accordingly, is not expected to take place until the
first quarter of 1999. Upon the consummation of the TeleCom Merger, Dean H.
Eisner, Vice President, Business Development and Planning of Cox Enterprises,
Inc., will be elected to the Board of Directors of ATC.
VI-10
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ATC is negotiating certain changes in the ATS/PCS, LLC arrangements,
including the acquisition by ATC of the 58 communications sites in northern
California presently owned by ATS/PCS, LLC in exchange for shares of Class A
Common Stock, arrangements with respect to the development of communications
sites in other locations, a priority return of ATC's construction advances, an
increase in the percentage interest of the other member in ATS/PCS, LLC, and a
management fee to ATC.
In June 1998, ATC entered into an agreement to acquire a company which is in
the process of constructing towers in the Tampa, Florida area. The purchase
price will be based on a multiple of the excess of net revenues less direct
operating expenses for the month preceding closing, less the principal amount
of the secured note referred to below. The purchase price will be payable in
shares of Class A Common Stock (valued at market prices shortly prior to
closing) and, at the election of the seller, cash in an amount not to exceed
49% of the purchase price. ATC is obligated to advance construction funds to
the seller in an aggregate amount not to exceed $12.0 million in the form of a
secured note (guaranteed by the stockholders and secured by the stock of the
seller), of which approximately $6.1 million was advanced through September
30, 1998. The secured note would be payable in the event the acquisition was
not consummated. Subject to the satisfaction of certain conditions, including,
depending on the circumstances, the expiration or earlier termination of the
HSR Act waiting period, the acquisition is expected to be consummated in the
Spring of 1999.
The Company has also entered into three separate agreements to acquire
additional communications sites and tower related assets for an aggregate
purchase price of approximately $9.0 million. Such acquisitions are expected
to close in the fourth quarter of 1998 or first quarter of 1999.
The Company is also pursuing the acquisitions of tower properties and tower
businesses in new and existing locations, although there are no definitive
purchase agreements with respect thereto.
VI-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
This discussion contains "forward-looking statements" as that term is used
in the Securities Exchange Act of 1934 including statements concerning
projections, plans, objectives, future events or performance and underlying
assumptions and other statements which are other than statements of historical
fact. Certain important factors may have affected and could in the future
affect ATC's actual results and could cause ATC's actual results for
subsequent periods to differ materially from those expressed in any forward-
looking statement. Such factors include (i) substantial capital requirements
and leverage principally as a consequence of its ongoing acquisition and
construction activities, as well as its remaining tax reimbursement and other
obligations owed to ARS pursuant to the CBS Merger, (ii) dependence on demand
for wireless communications and implementation of digital television, (iii)
the success of ATC's tower construction program, and (iv) the successful
operational integration of the Company's business acquisitions. As ATC was a
wholly-owned subsidiary of American Radio during the periods presented through
June 4, 1998, the consolidated financial statements may not reflect the
results of operations or financial position of ATC had it been an independent,
public company during those periods. Because of ATC's relatively brief
operating history and the large number of recent acquisitions, the following
discussion will not necessarily reveal all significant developing or
continuing trends.
ATC was formed in July 1995 to capitalize on the opportunity in the
communications site industry. ATC is a leading independent owner and operator
of wireless communications towers in the United States. During 1997, its
acquisition and construction activity accelerated and ATC acquired or
constructed approximately 400 sites (and related site management businesses)
and its initial site acquisition and voice, video and data transmission
businesses. Since January 1, 1998, ATC has acquired various communication
sites and a major site acquisition business for an aggregate estimated
purchase price of approximately $868.0 million, including the issuance of
approximately 36.3 million shares of Class A Common Stock valued at
approximately $382.6 million.
Management expects that acquisitions consummated to date will have a
material impact on future revenues, expenses and income from continuing
operations. In addition, the impact of the construction program of ATC is not
reflected to any significant extent in the historical financial information
because most of that activity is of more recent origin and is expected to
accelerate substantially through the remainder of 1998 and 1999.
VI-12
<PAGE>
Results of Operations
As of September 30, 1998, ATC operated approximately 1,900 communications
sites, principally in the Northeast and Mid-Atlantic regions, Florida,
California and Texas. As of September 30, 1997, ATC operated approximately 370
communications sites, principally in the Northeast and Mid-Atlantic regions
and Florida. These transactions have significantly affected operations for the
three and nine months ended September 30, 1998 as compared to the three and
nine months ended September 30, 1997.
Three months ended September 30, 1997 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------- Amount of Percentage
1997 1998 Increase Increase
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Tower rental and management reve-
nues............................... $ 3,525 $ 17,719 $14,194 402.7%
Site acquisition service revenues... 996 6,572 5,576 559.8%
Video, voice and data transmission
revenues........................... 6,187 6,187
-------- ---------- ------- --------
Total operating revenues............ 4,521 30,478 25,957 574.1%
-------- ---------- ------- --------
Tower rental and management ex-
penses............................. 1,611 8,087 6,476 402.0%
Site acquisition service expenses... 669 4,677 4,008 599.1%
Video, voice and data transmission
expenses........................... 3,928 3,928
-------- ---------- ------- --------
Total operating expenses excluding
depreciation and amortization,
tower separation and corporate
general and administrative
expenses........................... 2,280 16,692 14,412 632.1%
-------- ---------- ------- --------
Depreciation and amortization....... 1,384 17,243 15,859 1,145.9%
Tower separation expenses........... 159 159
Corporate general and administrative
expenses........................... 378 1,561 1,183 313.0%
Interest expense.................... 1,000 7,121 6,121 612.1%
Interest income and other, net...... 37 4,451 4,414 11,929.7%
Minority interest in net earnings of
subsidiaries....................... 60 66 6 10.0%
Income tax benefit.................. 1,955 1,955
Extraordinary loss on redemption of
Interim
Preferred Stock, net............... 7,510 7,510
-------- ---------- ------- --------
Net loss............................ $ (544) $ (13,468) $12,924 2,375.7%
======== ========== ======= ========
</TABLE>
Except as explained below, substantially all of the increases indicated in
the above table were attributable to the impact of the acquisitions,
principally those that occurred in 1997 and 1998. Site acquisition service
revenues and expenses for the three months ended September 30, 1998 include
the operating results of the Gearon site acquisition division that was
acquired in January 1998 and, to a lesser extent, the operating results of two
similar businesses that were acquired in May 1997. For the three months ended
September 30, 1997, site acquisition service revenues and expenses included
the operating results from the May 1997 related business acquisitions. Video,
voice and data transmission revenues and expenses for the three months ended
September 30, 1998 include the operating results of the Company's first video,
voice and data transmission business acquired in October 1997 and a Washington
D.C. area teleport business acquired in May 1998. The increase in depreciation
and amortization is primarily attributable to the increase in depreciable and
amortizable assets resulting from the 1997 and 1998 acquisitions, and, to a
lesser extent, completed construction projects. Tower separation expenses
relate to financial advisory, legal, accounting and consent solicitation fees
and other expenses incurred in connection with the consummation of the CBS
Merger and the separation of ATC from its former parent on June 4, 1998. The
increase in corporate general and administrative expenses is primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy. The increase in
interest expense relates to higher borrowing levels that were used to finance
1997 and 1998 acquisitions and $0.8 million of dividends on the Interim
Preferred Stock. Interest income is related to interest earned on cash
proceeds from the
VI-13
<PAGE>
July 1998 equity offering. The minority interest in net earnings of
subsidiaries represents the elimination of the minority stockholders' earnings
of consolidated subsidiaries. The extraordinary loss was incurred, net of an
income tax benefit of $5.0 million, as a result of the write-off of certain
commitment, deferred financing and redemption fees associated with the
Company's Interim Preferred Stock which was redeemed in July 1998. The
effective tax rate benefit for the three months ended September 30, 1998 was
approximately 24.7%. The effective rate differs from the statutory rate due to
the effect of non-deductible items, principally amortization of goodwill, on
certain stock acquisitions for which no tax benefit has been recorded.
Nine months ended September 30, 1997 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------ Amount of Percentage
1997 1998 Increase Increase
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Tower rental and management reve-
nues................................ $ 6,478 $ 39,305 $32,827 506.7%
Site acquisition service revenues.... 1,424 18,848 17,424 1,223.6%
Video, voice and data transmission
revenues............................ 13,332 13,332
------- --------- ------- -------
Total operating revenues............. 7,902 71,485 63,583 804.6%
------- --------- ------- -------
Tower rental and management ex-
penses.............................. 2,753 18,417 15,664 569.0%
Site acquisition service expenses.... 836 15,412 14,576 1,743.5%
Video, voice and data transmission
expenses............................ 8,697 8,697
------- --------- ------- -------
Total operating expenses excluding
depreciation and amortization, tower
separation and corporate general and
administrative expenses............. 3,589 42,526 38,937 1,084.9%
------- --------- ------- -------
Depreciation and amortization........ 2,706 32,998 30,292 1,119.4%
Tower separation expenses............ 12,616 12,616
Corporate general and administrative
expenses............................ 919 3,186 2,267 246.7%
Interest expense..................... 1,318 17,023 15,705 1,191.6%
Interest income and other, net....... 94 6,283 6,189 6,584.0%
Minority interest in net earnings of
subsidiaries........................ 221 255 34 15.4%
Income tax benefit................... 49 4,934 4,885 9,969.4%
Extraordinary loss on extinguishment
of debt, net........................ 1,382 1,382
Extraordinary loss on redemption of
Interim Preferred Stock, net........ 7,510 7,510
------- --------- ------- -------
Net loss............................. $ (708) $ (34,794) $34,086 4,814.4%
======= ========= ======= =======
</TABLE>
Except as explained below, substantially all of the increases indicated in
the above table were attributable to the impact of the communications sites
and related business acquisitions, principally those that occurred in 1997 and
1998. Site acquisition service revenues and expenses for the nine months ended
September 30, 1998 include the operating results of the Gearon site
acquisition division that was acquired in January 1998 and, to a lesser
extent, the operating results of two similar businesses that were acquired in
May 1997. For the nine months ended September 30, 1997, site acquisition
service revenues and expenses included the operating results from the May 1997
related business acquisitions. Video, voice and data transmission revenues and
expenses for the nine months ended September 30, 1998 include the operating
results of the Company's first video, voice and data transmission business
acquired in October 1997 and a Washington D.C. area teleport business acquired
in May 1998. The increase in depreciation and amortization is primarily
attributable to the increase in depreciable and amortizable assets resulting
from the 1997 and 1998 acquisitions, and, to a lesser extent, completed
construction projects. Tower separation expenses relate to financial advisory,
legal, accounting and consent solicitation fees and other expenses incurred in
connection with the consummation of the CBS Merger and the separation of ATC
from its former parent on June 4, 1998. The increase in corporate general and
administrative expenses is primarily attributable to the higher personnel
costs associated with supporting ATC's greater number
VI-14
<PAGE>
of tower properties and growth strategy. The increase in interest expense
relates to higher borrowing levels that were used to finance 1997 and 1998
acquisitions, and $3.1 million of dividends associated with the Interim
Preferred Stock financing that occurred in June 1998. The increase in interest
income is related to interest earned on invested cash proceeds from the July
1998 equity offering. The minority interest in net earnings of subsidiaries
represents the elimination of the minority stockholders' earnings of
consolidated subsidiaries. The extraordinary loss on the redemption of the
Interim Preferred Stock was incurred, net of an income tax benefit of $5.0
million, as a result of the write-off of certain commitment, deferred
financing and redemption fees associated with the Company's Interim Preferred
Stock which was redeemed in July 1998. The extraordinary loss on the
extinguishment of debt was incurred, net of an income tax benefit of $0.9
million, as a result of the write-off of deferred financing costs associated
with the Company's previous credit agreements which were refinanced in June
1998. The effective tax rate benefit for the nine months ended September 30,
1998 was approximately 16% as compared to 6% for the nine months ended
September 30, 1997. The effective rate differs from the statutory rate due to
the effect of non-deductible items, principally amortization of goodwill, on
certain stock acquisitions for which no tax benefit has been recorded.
Liquidity and Capital Resources
ATC's liquidity needs arise from its acquisition-related activities, debt
service, working capital and capital expenditures associated principally with
its construction program. Historically, ATC has met its operational liquidity
needs with internally generated funds and has financed the acquisition of
tower related properties and its construction program, including related
working capital needs, with a combination of contributions from American Radio
and bank borrowings. For the nine months ended September 30, 1998, cash flows
from operating activities were $2.9 million, as compared to $3.1 million of
cash flows from operating activities in 1997. The change is primarily
attributable to working capital investments related to communications site
acquisitions and growth.
Cash flows used for investing activities were $227.9 million for the nine
months ended September 30, 1998 as compared to $74.3 million for the nine
months ended September 30, 1997. The increase in 1998 is due to the
acquisition and construction activity in 1998 as compared to 1997.
Cash flows provided by financing activities were $533.9 million for the nine
months ended September 30, 1998 as compared to $71.1 million in 1997. The
increase in 1998 is due principally to the impact of borrowings under the
credit facilities, the Interim Preferred Stock financing activities, and the
sale of common stock pursuant to the ATC Stock Purchase Agreement and the July
1998 equity offering, somewhat offset by the tax payments to CBS.
CBS Merger: The Separation Agreement required ATC to reimburse CBS on a
"make-whole" (after tax) basis for the tax liabilities incurred by ARS
attributable to the distribution of the Common Stock owned by ARS to the ARS
security holders and certain related transactions to the extent that the
aggregate amount of taxes required to be paid by ARS exceeded $20.0 million.
The amount of that tax liability was dependent on the "fair market value" of
the Common Stock at the time of the consummation of the CBS Merger. ATC
received an appraisal from an independent appraisal firm that the "fair market
value" of ARS's stock interest in ATC was equal to $17.25 per share. Based on
such appraisal, ARS paid estimated taxes of approximately $212.0 million and
was reimbursed therefor by ATC. As required by the Separation Agreement, ATC
provided CBS with security of $9.8 million in cash (which may be replaced at
ATC's option with a letter of credit reasonably satisfactory to CBS) in
connection with the filing of estimated tax returns based on such appraisal.
Such appraisal is not, of course, binding on the Internal Revenue Service or
other taxing authorities. The Company financed its tax reimbursement
obligations to CBS with the Interim Preferred Stock proceeds discussed below.
The $212.0 million payment also included estimated payments for the "make-
whole" provisions of the liability associated with the conversion of the
Convertible Preferred Stock and the working capital adjustment described
below. Such taxes gave effect to estimated deductions of approximately $85.1
million available to ARS as a consequence of the cancellation or exercise of
ARS stock options pursuant to the CBS Merger. ATC's reimbursement obligation
with respect to such taxes would change by approximately $21.0 million for
each $1.00
VI-15
<PAGE>
change in the "fair market value" of the Class A Common Stock under the tax
reporting method followed. The average of the high and low trading prices of
the Class A Common Stock in the when-issued over-the-counter market on June 4,
1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with
respect to the shares of Class A Common Stock deliverable upon conversion of
the Convertible Preferred Stock; such taxes will be based on the "fair market
value" of the Class A Common Stock at the time of conversion. Conversions have
occurred at various times since June 4, 1998. As of September 30, 1998,
holders of Depositary Shares representing approximately 43% of the Convertible
Preferred Stock have converted or have presented for conversion and ATC has
recorded a liability of approximately $4.7 million due to CBS associated with
these conversions. On September 30, 1998, CBS issued Convertible Preferred
Debentures in exchange for the then outstanding shares of Convertible
Preferred Stock. Holders of the Convertible Preferred Debentures are entitled
to the same conversion rights as the Convertible Preferred Stock. ATC
estimates that its remaining reimbursement obligation with respect to the
taxes on the conversion of Convertible Preferred Debentures could be
approximately $11.3 million under the tax reporting method followed. Such
estimate is based on the October 26, 1998 fair market value of the Class A
Common Stock of $21.375 per share. ATC's obligation for such conversions would
change by approximately $1.2 million for each $1.00 change in the fair market
value.
ARS has agreed that it will pursue, for the benefit of and at the cost of
ATC, a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the Convertible
Preferred Stock set forth above. Any such refund claim will, in fact, be based
on the actual amount of taxes paid. In light of existing tax law, there can,
of course, be no assurance that any such refund claim will be successful.
The Separation Agreement provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of ARS as of June 4,
1998. ATC will benefit from or bear the cost of such adjustments. As of June
1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. Such preliminary estimate was based on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses and the final payment is
contingent upon a series of events as defined in the Separation Agreement. As
a result, ATC recorded a $50.0 million payable to CBS and a corresponding
reduction in equity to reflect management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement
setting forth a proposed purchase price adjustment payment to CBS of
approximately $82.2 million, excluding accrued interest. In October 1998, ATC
provided CBS with a Notice of Disagreement to the proposed purchase price
adjustment indicating that ATC's estimate of the final adjustment payment
aggregated $11.1 million and reserving its rights to make further adjustments
upon the receipt of additional information requested of CBS. In addition, as
noted above, ATC is obligated to reimburse CBS for the tax consequences of
such payment (approximately 66 2/3%) and has paid CBS approximately
$33.0 million based on the $50.0 million estimate. CBS is in the process of
reviewing such Notice of Disagreement and is required under the terms of the
Separation Agreement to resolve any differences with ATC by no later than
November 16, 1998, or, in the event that such differences cannot be resolved,
a third party may be employed to arbitrate the dispute. CBS and ATC have
mutually agreed to extend the aforementioned date to December 15, 1998. Under
the circumstances, ATC continues to believe that the amounts previously
recorded represent a reasonable estimate of the amounts which will be paid to
CBS and will adjust the amount as information becomes known to the Company.
Interim Preferred Stock Financing: On June 4, 1998, ATC issued $300.0
million of Interim Preferred Stock and used the proceeds to fund its tax
reimbursement obligation to CBS, pay the commitment and other fees and
expenses of the issue and sale of such stock and to reduce bank borrowings. As
discussed below, the Interim Preferred Stock was redeemed on July 9, 1998 and
as a result, the Company incurred an extraordinary
VI-16
<PAGE>
loss of approximately $7.5 million, net of a tax benefit of $5.0 million,
during the third quarter of 1998 representing the write-off of certain
commitment, deferred financing and redemption fees.
Public Offering of Class A Common Stock: On July 8, 1998, the Company
completed a public offering of 27,861,987 shares of Class A Common Stock, $.01
par value per share (including 2,361,987 shares sold by the Company pursuant
to the exercise in full of the underwriters' over-allotment option) at $23.50
per share. Certain selling stockholders sold an additional 3,874,911 shares in
the offering. The Company's net proceeds of the offering (after deduction of
the underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, the Company used approximately $306.1 million
of the net proceeds from the offering to redeem all of the outstanding shares
of the Interim Preferred Stock at a price of 101% of the stock's liquidation
preference plus accrued and unpaid dividends. The balance was invested in
short-term investment grade securities and together with borrowings under the
New Credit Facilities, have and will be used to fund future acquisitions and
construction activities.
New Credit Facilities: In June 1998, ATC and its Borrower Subsidiaries
entered into definitive agreements with respect to the New Credit Facilities.
In connection with repayment of borrowings under the prior credit agreement
out of proceeds of borrowings under the New Credit Facilities, ATC recognized
an extraordinary loss of approximately $1.4 million, net of a tax benefit of
$0.9 million, during the second quarter of 1998. The terms of the New Credit
Facilities are discussed in Note 7. As of September 30, 1998, ATC had
approximately $281.6 million of long-term debt, of which approximately $150.0
million was outstanding under the ATC credit facility and $125.0 was
outstanding under the Borrower Subsidiaries credit facility.
A substantial portion of ATC's cash flow from operations is required for
debt service. Accordingly, ATC's leverage could make it vulnerable to a
downturn in the operating performance of its tower properties or in economic
conditions. ATC believes that its cash flows from operations will be
sufficient to meet its debt service requirements for interest and scheduled
payments of principal under the New Credit Facilities. If such cash flow were
not sufficient to meet such debt service requirements, ATC might be required
to sell equity securities, refinance its obligations or dispose of one or more
of its properties in order to make such scheduled payments. There can be no
assurance that ATC would be able to effect any of such transactions on
favorable terms.
ATC believes that it has sufficient financial resources available to it,
including borrowings under the New Credit Facilities, to finance operations
for the foreseeable future. ATC intends to finance its non-stock obligations
under pending acquisitions with cash, and, to the extent required, borrowings
under the New Credit Facilities and funds raised through the offering of
equity securities.
During the nine months ended September 30, 1998, ATC had capital
expenditures of approximately $77.0 million primarily related to construction
activities and has completed construction on approximately 200 towers during
this period. During the balance of 1998, ATC plans to build or commence
construction of approximately 230 additional towers (most of which are on a
build to suit basis) at an estimated aggregate remaining cost of approximately
$50.0 million. ATC plans to expand its construction activities and build a
substantial number of towers in 1999, which may aggregate more than 1,500
towers. If additional substantial acquisition or construction opportunities
become available, ATC may require additional financing. Any such financing
could take the form of an increase in the maximum borrowing levels under the
New Credit Facilities (which would be dependent on the ability to meet certain
leverage ratios), the issuance of debt or senior equity securities (which
could have the effect of increasing its consolidated leverage ratios) or
equity securities (which, in the case of Common Stock or securities
convertible into or exercisable for Common Stock, would have a dilutive effect
on the proportionate ownership of ATC of its then existing common
stockholders). There can be no assurance that any such financing would be
available on favorable terms.
Management expects that the consummated acquisitions and current and future
construction activities will have a material impact on liquidity. Management
believes that the acquisition activities, once integrated, will have a
favorable impact on liquidity and will offset the initial effects of the
funding requirements. Management also believes that the construction
activities may initially have an adverse effect on the future liquidity of ATC
VI-17
<PAGE>
as newly constructed towers will initially decrease overall liquidity,
although, as such sites become more fully operational and achieve higher
utilization, they should generate cash flow, and in the long-term, increase
liquidity.
Year 2000
The Company is aware of the issues associated with the Year 2000 as it
relates to information systems and is currently working to resolve the
potential impact. The Company is in the process of selecting an outside
consultant to conduct an extensive review and implement a comprehensive plan
to reduce the probability of operational difficulties due to Year 2000 issues.
Although the Company has not developed a formal plan to date, the Company
believes that, with the assistance of an outside consultant, it is currently
on track towards a timely completion of resolving any potential Year 2000
problems.
The components of the Company's comprehensive plan will include the
assessment of internal systems for modification and/or replacement;
communication with external vendors to determine their state of readiness to
maintain an uninterrupted supply of goods and services to the Company;
communication with customers to ensure that their state of readiness will not
result in any operational issues; evaluation of the Company's equipment and
assets as to their ability to function properly after the turn of the century;
evaluation of facility related issues, and the development of a contingency
plan to address its most likely worst case Year 2000 scenarios. The Company's
comprehensive plan is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, about the Year
2000 readiness of its material external agents.
Based on the efforts to date, the Company does not believe that the Year
2000 issue will have a material adverse effect on the Company's results of
operations, liquidity or financial condition or operational activities. With
respect to its own internal information systems, the Company does not believe
that the Year 2000 compliance issue is expected to have a material impact on
the Company's internal information systems as the Company's hardware and
software is either already Year 2000 compliant or required changes are not
expected to generate material costs. The costs incurred to date in this area
have also been immaterial, and the Company does not anticipate that the
estimated future costs, excluding any costs that may be incurred by the
Company as a result of the failure of any third parties to become Year 2000
compliant, of hiring an outside consultant and the preparation and
implementation of a comprehensive plan will be material to the Company.
Inflation
The impact of inflation on ATC'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 ATC's operating results.
Recent Accounting Pronouncement
In June 1997, the FASB released FAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information" (FAS 131). FAS 131 established
standards for reporting information about the operating segments in its annual
report and interim reports. ATC will provide the required disclosure in its
full year 1998 financial information and will provide required interim
disclosure commencing with its first fiscal quarter of 1999.
VI-18
<PAGE>
PART II. OTHER INFORMATION.
Item 1.--Legal Proceedings.
In the normal course of business, the Company is subject to certain suits
and other matters. Management believes that the eventual resolution of any
pending matters, either individually or in the aggregate, will not have a
material effect on financial position, liquidity or results of operations.
Item 5.--Other Information.
The Company has not scheduled its annual shareholders' meeting for 1999.
However, the Company anticipates that the meeting will be held in the month of
May. Shareholder proposals intended to be presented at the 1999 annual
shareholders' meeting must be received by the Secretary of ATC no later than,
January 1, 1999 in order to be included in the Company's proxy statement.
Failure to submit such shareholder proposals by the specified date will result
in management proxies being allowed to use their discretionary voting
authority when the proposal is raised at the annual meeting, without any
discussion of the matter in the proxy statement.
VI-19
<PAGE>
Item 6.--Exhibits and Reports on Form 8-K.
(a) Exhibits.
Listed below are the exhibits which are filed as part of this Form 10-Q
(according to the number assigned to them in Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
----------- ------------------------------------ -----------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated
as of November 16, 1998, by and
among ATC, American Towers, Inc., a
Delaware corporation ("ATI"), and
OmniAmerica, Inc., a Delaware
corporation (Schedules and Exhibits
omitted) .......................... Filed herewith as Exhibit 2.1
2.2 Agreement and Plan of Merger, dated
as of November 16, 1998, by and
among ATC, ATI and TeleCom Towers,
L.L.C., a Delaware limited
liability company (Schedules and
Exhibits omitted).................. Filed herewith as Exhibit 2.2
27 Financial Data Schedule............. Filed herewith as Exhibit 27
</TABLE>
(b) Reports on Form 8-K.
1. Form 8-K (Items 5 and 7) on July 16, 1998.
VI-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American Tower Corporation
By: /s/ Joseph L. Winn
Date: November 16, 1998 -----------------------------------
Joseph L. Winn
Treasurer & Chief Financial Officer
(Duly Authorized Officer)
By: /s/ Justin D. Benincasa
Date: November 16, 1998 -----------------------------------
Justin D. Benincasa
Vice President & Corporate
Controller
(Duly Authorized Officer)
VI-21
<PAGE>
AMERICAN TOWER CORPORATION
REGISTRATION STATEMENT ON FORM S-4
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the DGCL provides, in effect, that any person made a party to
any action by reason of the fact that he is or was a director, officer,
employee or agent of ATC may and, in certain cases, must be indemnified by ATC
against, in the case of a non-derivative action, judgments, fines, amounts
paid in settlement and reasonable expenses (including attorney's fees), if in
either type of action he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of ATC and, in a non-
derivative action, which involves a criminal proceeding, in which such person
had no reasonable cause to believe his conduct was unlawful. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the director, officer, employee or agent is liable to ATC,
unless upon court order it is determined that, despite such adjudication of
liability, but in view of all the circumstances of the case, he is fairly and
reasonably entitled to indemnity for expenses.
Article XII of ATC's By-Laws provides that ATC shall indemnify each person
who is or was an officer or director of ATC to the fullest extent permitted by
Section 145 of the DGCL.
Article Sixth of ATC's Restated Certificate states than no director of ATC
shall be personally liable to ATC or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for (i) breach of the
director's duty of loyalty to ATC or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (iii) liability under Section 174 of the DGCL relating to certain
unlawful dividends and stock repurchases, or (iv) any transaction from which
the director derived an improper personal benefit.
Item 21. Exhibits and Financial Statement Schedules.
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K). Each exhibit marked by a (*) is incorporated by reference to ATC's
Registration Statement on Form S-4 (File No. 333-46025) filed on February 10,
1998. Each exhibit marked by a (+) is incorporated by reference to ATC's
Registration Statement on Form S-1 (File No. 333-50111) filed on May 8, 1998.
Each exhibit marked by a (++) is incorporated by reference to the filing of
Amendment No. 2 to ATC's Registration Statement on Form S-1 (No. 333-52481)
filed on June 30, 1998. Each exhibit marked by a (**) is incorporated by
reference to the filing of ATC's Current Report on Form 8-K filed on November
30, 1998. Each exhibit marked by a (***) is incorporated by reference to the
filing of ATC's Current Report in Form 8-K filed on January 8, 1999. Exhibit
numbers in parenthesis refer to the exhibit number in the applicable filing.
<TABLE>
<CAPTION>
Exhibit Exhibit File
No. Description of Document No.
------- ----------------------- --------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of November 21,
1997, by and among American Tower Systems Corporation
("ATS"), American Tower Systems, Inc., a Delaware
corporation ("ATSI"), Gearon & Co., Inc., a Georgia
corporation ("Gearon") and J. Michael Gearon, Jr.
(the "Gearon Stockholder"). (Schedules and Exhibits
omitted)............................................. (*2.1)
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated
as of January 22, 1998, among ATS, American Tower
Systems (Delaware), Inc., a Delaware corporation
(formerly known as American Tower Systems, Inc.),
Gearon and the Gearon Stockholder.................... (*2.2)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit File
No. Description of Document No.
------- ----------------------- --------------
<C> <S> <C>
2.3 Agreement and Plan of Merger, dated as of December
12, 1997, by and among ATS and American Tower
Corporation, a Delaware corporation. (Schedules and
Exhibits omitted).................................. (*2.3)
2.4 Agreement and Plan of Merger, dated as of November
16, 1998, by and among ATC, American Towers, Inc.,
a wholly owned subsidiary of ATC and a Delaware
corporation ("ATI"), and OmniAmerica, Inc., a
Delaware corporation (Schedules and Exhibits
omitted)........................................... (**2.1)
2.5 Agreement and Plan of Merger, dated as of November
16, 1998, by and among ATC, ATI and TeleCom Towers,
L.L.C., a Delaware limited liability company
("TeleCom") (Schedules and Exhibits omitted)....... (**2.2)
2.6 Amended and Restated Agreement and Plan of Merger,
dated as of December 18, 1998, by and among ATC,
ATI, ATC Merger Corporation, a Delaware corporation
("ATMC"), and TeleCom.............................. (***2.1)
2.7 Amendment to the Amended and Restated Agreement and
Plan of Merger, dated as of December 23, 1998 by
and among ATC, ATI, ATMC and TeleCom............... (***2.2)
3(i).1 Restated Certificate of Incorporation of ATC, as
filed with the Secretary of State of the State of
Delaware on June 5, 1998........................... (++3(i).1)
3(i).2 Certificate of Designation relating to Exchange Pay-
In-Kind Preferred Stock as filed with the Secretary
of State of the State of Delaware on June 4, 1998.. (++3(i).2)
3(i).3 Certificate of Designation relating to Series A
Redeemable Pay-In-Kind Preferred Stock, as filed
with the Secretary of State of the State of
Delaware on June 4, 1998........................... (++3(i).3)
3(ii).1 By-Laws of ATC...................................... (++3(ii).1)
5 Opinion of Sullivan & Worcester LLP................. Filed herewith
as Exhibit 5
8 Tax Opinion of Sullivan & Worcester LLP............. Filed herewith
as Exhibit 8
10.1 Parent Loan Agreement, dated as of June 16, 1998, by
and among ATC, Toronto Dominion (Texas), Inc., as
Administrative Agent, and the Lenders parties
thereto (the "Parent Loan Agreement").............. (++10.1)
10.1A First Amendment to the Parent Loan Agreement, dated
as of October 30, 1998, by and among ATC, Toronto Filed herewith
Dominion (Texas), Inc., as Administrative Agent, as Exhibit
and the Lenders Parties thereo..................... 10.1A
10.2A ATS Facility A Loan Agreement, dated as of June 16,
1998 among American Tower Systems, L.P. ("ATSLP")
and ATSI, as borrowers, and Toronto Dominion
(Texas), Inc., as Administrative Agent, and the
Banks parties thereto (the "Facility A Loan
Agreement")........................................ (++10.2A)
10.2B ATS Facility B Loan Agreement, dated as of June 16,
1998, by and among ATSLP and ATSI, as borrowers,
and Toronto Dominion (Texas), Inc., and the Banks
parties thereto (the "Facility B Loan Agreement").. (++10.2B)
10.3 First Amendment to the ATS Facility A Loan
Agreement, dated as of October 30, 1998 among ATSLP
and ATI, as borrowers, and Toronto Dominion Filed herewith
(Texas), Inc., as Administrative Agent, and the as
Banks parties thereto.............................. Exhibit 10.3
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
10.4 First Amendment to the ATS Facility B Loan
Agreement, dated as of October 30, 1998 among
ATSLP and ATI, as borrowers, and Toronto Dominion Filed herewith
(Texas), Inc., as Administrative Agent, and the as
Banks parties thereto............................. Exhibit 10.4
10.5 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian Radio
Sites, a California general partnership ("Meridian
Radio"). (Schedules and Exhibits omitted)......... (*10.5)
10.6 First Amendment to Asset Purchase Agreement, dated
as of February 10, 1997, by and between ATSI and
Meridian Radio.................................... (*10.6)
10.7 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian Radio.................................... (*10.7)
10.8 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian Sales and
Services Company, a California corporation
("Meridian Sales"). (Schedules and Exhibits
omitted).......................................... (*10.8)
10.9 First Amendment to Asset Purchase Agreement, dated
as of February 10, 1997, by and between ATSI and
Meridian Sales.................................... (*10.9)
10.10 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian Sales.................................... (*10.10)
10.11 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian
Communications North, a California general
partnership ("Meridian North"). (Schedules and
Exhibits omitted)................................. (*10.11)
10.12 First Amendment to Asset Purchase Agreement, dated
as of February 10, 1997, by and between ATSI and
Meridian North.................................... (*10.12)
10.13 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian North.................................... (*10.13)
10.14 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATSI and Diablo Communications,
Inc., a California corporation. (Schedules and
Exhibits omitted)................................. (*10.20)
10.15 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATSI and Diablo Communications of
Southern California, Inc., a California
corporation. (Schedules and Exhibits omitted)..... (*10.21)
10.16 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATS and Suburban Cable T.V. Co..... (*10.22)
10.17 Stock Purchase Agreement, date as of September 30,
1997, by and between ATSI, OPM-USA-INC., a Florida
corporation ("OPM"), and the Stockholders of OPM.
(Schedules and Exhibits omitted).................. (*10.24)
10.18 Asset Purchase Agreement, dated as of October 4,
1997, by and between ATSI and Tucson
Communications Company, L.P., a California limited
partnership. (Schedules and Exhibits omitted)..... (*10.25)
10.19 American Tower Systems Corporation 1997 Stock
Option Plan, dated as of November 5, 1997, as
amended and restated on April 28, 1998............ (+10.26)
10.20 American Tower Systems Corporation Stock Purchase
Agreement, dated as of January 8, 1998, by and
among ATS and the Purchasers...................... (*10.27)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
10.21 Employment Agreement, dated as of January 22, 1988,
by and between ATSI and J. Michael Gearon, Jr..... (*10.28)
10.22 Letter of Agreement, dated as of April 13, 1998, by
and between ATC and Douglas West.................. Filed herewith
as Exhibit
10.22
10.23 ARS-ATS Separation Agreement, dated as of June 4,
1998 by and among American Radio Systems
Corporation, a Delaware Corporation ("ARS"), ATS,
and CBS Corporation............................... (++10.30)
10.24 Registration Rights Agreement, dated as of January
22, 1998, by and among ATC and each of the Parties Incorporated
named therein..................................... by reference
to Exhibit
10.3 from the
Company's
Quarterly
Report on Form
10-Q (File No.
001-14194)
dated August
14, 1998
21 Subsidiaries of ATC................................ Filed herewith
as Exhibit 21
23.0 Consents of Sullivan & Worcester LLP............... Contained in
the opinion of
Sullivan &
Worcester LLP
to be filed as
part of
Exhibits 5 and
8
23.1 Independent Auditors' Consent--Deloitte & Touche Filed herewith
LLP............................................... as Exhibit
23.1
23.2 Consent of Pressman Ciocca Smith LLP............... Filed herewith
as Exhibit
23.2
23.3 Consent of Rooney, Ida, Nolt & Ahern............... Filed herewith
as Exhibit
23.3
23.4 Consent of Ernst & Young LLP--TeleCom.............. Filed herewith
as Exhibit
23.4
23.5 Consents of KPMG LLP. ............................. Filed herewith
as Exhibit
23.5
23.6 Consents of Bill Mitts, Inc........................ Filed herewith
as Exhibit
23.6
23.7 Consent of Arthur Andersen LLP..................... Filed herewith
as Exhibit
23.7
23.8 Consent of Gollob, Morgan, Peddy & Co., P.C........ Filed herewith
as Exhibit
23.8
23.9 Consent of Mendlowitz Weitsen, LLP................. Filed herewith
as Exhibit
23.9
23.10 Consent of Derrick, Stubbs & Stith, LLP............ Filed herewith
as Exhibit
23.10
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
23.11 Consents of KPMG LLP................................. Filed herewith
as Exhibit
23.11
23.12 Consent of Ernst & Young LLP......................... Filed herewith
as Exhibit
23.12
24 Power of Attorney.................................... Filed as page
II-7 of the
Registration
Statement
99.1 Consent of Director Nominee, Jack D. Furst........... Filed herewith
as Exhibit
99.1
99.2 Consent of Director Nominee, Dean H. Eisner.......... Filed herewith
as Exhibit
99.2
99.3 Consent of BT Wolfensohn............................. Filed herewith
as Exhibit
99.3
</TABLE>
Item 22. Undertakings.
(a)(1) 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 issuer 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 applicable form.
(a)(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company 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 whether such indemnification by it is
against public as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, 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 includes information contained in documents
filed subsequently to the effective date of the registration statement through
the date of responding to the request.
(d) 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.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON THE 15TH
DAY OF JANUARY, 1999.
AMERICAN TOWER CORPORATION
By: /s/ Steven B. Dodge ___________
Steven B. Dodge
Chairman of the Board,
President and Chief Executive
Officer
The undersigned Officers and Directors of American Tower Corporation (the
"Company") hereby severally constitute Joseph L. Winn, Justin D. Benincasa,
Michael B. Milsom and Norman A. Bikales, and each of them, acting singly, our
true and lawful attorneys to sign for us and in our names in the capacities
indicated below the Company's Registration Statement on Form S-4 relating to
the registration of shares of Class A Common Stock, $.01 par value, and any
and all amendments and supplements thereto, filed with the Securities and
Exchange Commission, for the purpose of registering such shares, under the
Securities Act of 1933, as amended, granting unto each of said attorneys,
acting singly, full power and authority to do and perform each and every act
and thing requisite or 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 our signatures to said registration statement signed
by our said attorneys and all else that said attorneys may lawfully do and
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven B. Dodge Chairman, President, Chief January 15, 1999
____________________________________ Executive Officer and
Steven B. Dodge Director
/s/ Joseph L. Winn Chief Financial Officer and January 15, 1999
____________________________________ Treasurer
Joseph L. Winn
/s/ Justin D. Benincasa Vice President and Corporate January 15, 1999
____________________________________ Controller
Justin D. Benincasa
/s/ Alan L. Box Executive Vice President and January 15, 1999
____________________________________ Director
Alan L. Box
/s/ Arnold L. Chavkin Director January 15, 1999
____________________________________
Arnold L. Chavkin
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Michael Gearon Jr. Executive Vice President and January 15, 1999
____________________________________ Director
J. Michael Gearon Jr.
/s/ Randall Mays Director January 15, 1999
____________________________________
Randall Mays
/s/ Fred Lummis Director January 15, 1999
____________________________________
Fred Lummis
/s/ Thomas H. Stoner Director January 15, 1999
____________________________________
Thomas H. Stoner
/s/ Maggie Wilderotter Director January 15, 1999
____________________________________
Maggie Wilderotter
</TABLE>
II-7
<PAGE>
SCHEDULE II
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JULY 17, 1995 (INCORPORATION) TO DECEMBER 31, 1995 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- -------- ---------- ----------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Period from July 17,
1995 to December 31,
1995................... $ -- $ -- $-- $ -- $ --
Year Ended December 31,
1996................... $ -- $ 47,044 $-- $ -- $ 47,044
Year Ended December 31,
1997................... $47,044 $124,350 $-- $46,310 $125,084
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K). Each exhibit marked by a (*) is incorporated by reference to ATC's
Registration Statement on Form S-4 (File No. 333-46025) filed on February 10,
1998. Each exhibit marked by a (+) is incorporated by reference to ATC's
Registration Statement on Form S-1 (File No. 333-50111) filed on May 8, 1998.
Each exhibit marked by a (++) is incorporated by reference to the filing of
Amendment No. 2 to ATC's Registration Statement on Form S-1 (No. 333-52481)
filed on June 30, 1998. Each exhibit marked by a (**) is incorporated by
reference to the filing of ATC's Quarterly Report on Form 10-Q filed on
November 16, 1998. Each exhibit marked by a (***) is incorporated by reference
to the filing of ATC's Current Report on Form 8-K filed on January 8, 1999.
Exhibit numbers in parenthesis refer to the exhibit number in the applicable
filing.
<TABLE>
<CAPTION>
Exhibit Exhibit File
No. Description of Document No.
------- ----------------------- --------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of November
21, 1997, by and among American Tower Systems
Corporation ("ATS"), American Tower Systems, Inc.,
a Delaware corporation ("ATSI"), Gearon & Co.,
Inc., a Georgia corporation ("Gearon") and J.
Michael Gearon, Jr. (the "Gearon Stockholder").
(Schedules and Exhibits omitted)................... (*2.1)
2.2 Amendment No. 1 to Agreement and Plan of Merger,
dated as of January 22, 1998, among ATS, American
Tower Systems (Delaware), Inc., a Delaware
corporation (formerly known as American Tower
Systems, Inc.), Gearon and the Gearon Stockholder.. (*2.2)
2.3 Agreement and Plan of Merger, dated as of December
12, 1997, by and among ATS and American Tower
Corporation, a Delaware corporation. (Schedules and
Exhibits omitted).................................. (*2.3)
2.4 Agreement and Plan of Merger, dated as of November
16, 1998, by and among ATC, American Towers, Inc.,
a wholly owned subsidiary of ATC and a Delaware
corporation ("ATI"), and OmniAmerica, Inc., a
Delaware corporation (Schedules and Exhibits
omitted)........................................... (**2.1)
2.5 Agreement and Plan of Merger, dated as of November
16, 1998, by and among ATC, ATI and TeleCom Towers,
L.L.C., a Delaware limited liability company
("TeleCom") (Schedules and Exhibits omitted)....... (**2.2)
2.6 Amended and Restated Agreement and Plan of Merger,
dated as of December 18, 1998, by and among ATC,
ATI, ATC Merger Corporation, a Delaware corporation
("ATMC"), and TeleCom.............................. (***2.1)
2.7 Amendment to the Amended and Restated Agreement and
Plan of Merger, dated as of December 23, 1998 by
and among ATC, ATI, ATMC and TeleCom............... (***2.2)
3(i).1 Restated Certificate of Incorporation of ATC, as
filed with the Secretary of State of the State of
Delaware on June 5, 1998........................... (++3(i).1)
3(i).2 Certificate of Designation relating to Exchange Pay-
In-Kind Preferred Stock as filed with the Secretary
of State of the State of Delaware on June 4, 1998.. (++3(i).2)
3(i).3 Certificate of Designation relating to Series A
Redeemable Pay-In-Kind Preferred Stock, as filed
with the Secretary of State of the State of
Delaware on June 4, 1998........................... (++3(i).3)
3(ii).1 By-Laws of ATC...................................... (++3(ii).1)
5 Opinion of Sullivan & Worcester LLP................. Filed herewith
as Exhibit 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit File
No. Description of Document No.
------- ----------------------- --------------
<C> <S> <C>
8 Tax Opinion of Sullivan & Worcester LLP.............. Filed herewith
as Exhibit 8
10.1 Parent Loan Agreement, dated as of June 16, 1998, by
and among ATC, Toronto Dominion (Texas), Inc., as
Administrative Agent, and the Lenders parties
thereto (the "Parent Loan Agreement")............... (++10.1)
10.1A First Amendment to the Parent Loan Agreement, dated
as of October 30, 1998, by and among ATC, Toronto Filed herewith
Dominion (Texas), Inc., as Administrative Agent, and as Exhibit
the Lenders Parties thereo.......................... 10.1A
10.2A ATS Facility A Loan Agreement, dated as of June 16,
1998 among American Tower Systems, L.P. ("ATSLP")
and ATSI, as borrowers, and Toronto Dominion
(Texas), Inc., as Administrative Agent, and the
Banks parties thereto (the "Facility A Loan
Agreement")......................................... (++10.2A)
10.2B ATS Facility B Loan Agreement, dated as of June 16,
1998, by and among ATSLP and ATSI, as borrowers, and
Toronto Dominion (Texas), Inc., and the Banks
parties thereto (the "Facility B Loan Agreement")... (++10.2B)
10.3 First Amendment to the ATS Facility A Loan Agreement,
dated as of October 30, 1998 among ATSLP and ATI, as
borrowers, and Toronto Dominion (Texas), Inc., as Filed herewith
Administrative Agent, and the Banks parties as
thereto............................................. Exhibit 10.3
10.4 First Amendment to the ATS Facility B Loan Agreement,
dated as of October 30, 1998 among ATSLP and ATI, as
borrowers, and Toronto Dominion (Texas), Inc., as Filed herewith
Administrative Agent, and the Banks parties as
thereto............................................. Exhibit 10.4
10.5 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian Radio Sites,
a California general partnership ("Meridian Radio").
(Schedules and Exhibits omitted).................... (*10.5)
10.6 First Amendment to Asset Purchase Agreement, dated as
of February 10, 1997, by and between ATSI and
Meridian Radio...................................... (*10.6)
10.7 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian Radio...................................... (*10.7)
10.8 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian Sales and
Services Company, a California corporation
("Meridian Sales"). (Schedules and Exhibits
omitted)............................................ (*10.8)
10.9 First Amendment to Asset Purchase Agreement, dated as
of February 10, 1997, by and between ATSI and
Meridian Sales...................................... (*10.9)
10.10 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian Sales...................................... (*10.10)
10.11 Asset Purchase Agreement, dated as of February 5,
1997, by and between ATSI and Meridian
Communications North, a California general
partnership ("Meridian North"). (Schedules and
Exhibits omitted)................................... (*10.11)
10.12 First Amendment to Asset Purchase Agreement, dated as
of February 10, 1997, by and between ATSI and
Meridian North...................................... (*10.12)
10.13 Second Amendment to Asset Purchase Agreement, dated
as of June 24, 1997, by and between ATSI and
Meridian North...................................... (*10.13)
10.14 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATSI and Diablo Communications, Inc.,
a California corporation. (Schedules and Exhibits
omitted)............................................ (*10.20)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
10.15 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATSI and Diablo Communications of
Southern California, Inc., a California
corporation. (Schedules and Exhibits omitted)..... (*10.21)
10.16 Asset Purchase Agreement, dated as of July 8, 1997,
by and between ATS and Suburban Cable T.V. Co..... (*10.22)
10.17 Stock Purchase Agreement, date as of September 30,
1997, by and between ATSI, OPM-USA-INC., a Florida
corporation ("OPM"), and the Stockholders of OPM.
(Schedules and Exhibits omitted).................. (*10.24)
10.18 Asset Purchase Agreement, dated as of October 4,
1997, by and between ATSI and Tucson
Communications Company, L.P., a California limited
partnership. (Schedules and Exhibits omitted)..... (*10.25)
10.19 American Tower Systems Corporation 1997 Stock
Option Plan, dated as of November 5, 1997, as
amended and restated on April 28, 1998............ (+10.26)
10.20 American Tower Systems Corporation Stock Purchase
Agreement, dated as of January 8, 1998, by and
among ATS and the Purchasers...................... (*10.27)
10.21 Employment Agreement, dated as of January 22, 1988,
by and between ATSI and J. Michael Gearon, Jr..... (*10.28)
10.22 Letter of Agreement, dated as of April 13, 1998, by
and between ATC and Douglas West.................. Filed herewith
as Exhibit
10.22
10.23 ARS-ATS Separation Agreement, dated as of June 4,
1998 by and among American Radio Systems
Corporation, a Delaware Corporation ("ARS"), ATS,
and CBS Corporation............................... (++10.30)
10.24 Registration Rights Agreement, dated as of January
22, 1998, by and among ATC and each of the Parties Incorporated
named therein..................................... by reference
to Exhibit
10.3 from the
Company's
Quarterly
Report on Form
10-Q (File No.
001-14194)
dated August
14, 1998
21 Subsidiaries of ATC................................ Filed herewith
as Exhibit 21
23.0 Consents of Sullivan & Worcester LLP............... Contained in
the opinion of
Sullivan &
Worcester LLP
to be filed as
part of
Exhibits 5 and
8
23.1 Independent Auditors' Consent--Deloitte & Touche Filed herewith
LLP............................................... as Exhibit
23.1
23.2 Consent of Pressman Ciocca Smith LLP............... Filed herewith
as Exhibit
23.2
23.3 Consent of Rooney, Ida, Nolt & Ahern............... Filed herewith
as Exhibit
23.3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
23.4 Consent of Ernst & Young LLP--TeleCom................ Filed herewith
as Exhibit
23.4
23.5 Consent of KPMG LLP ................................. Filed herewith
as Exhibit
23.5
23.6 Consent of Bill Mitts, Inc........................... Filed herewith
as Exhibit
23.6
23.7 Consent of Arthur Andersen LLP....................... Filed herewith
as Exhibit
23.7
23.8 Consent of Gollob, Morgan, Peddy & Co., P.C.......... Filed herewith
as Exhibit
23.8
23.9 Consent of Mendlowitz Weitsen, LLP................... Filed herewith
as Exhibit
23.9
23.10 Consent of Derrick, Stubbs & Stith, LLP.............. Filed herewith
as Exhibit
23.10
23.11 Consents of KPMG LLP................................. Filed herewith
as Exhibit
23.11
23.12 Consent of Ernst & Young LLP......................... Filed herewith
as Exhibit
23.12
24 Power of Attorney.................................... Filed as page
II-7 of the
Registration
Statement
99.1 Consent of Director Nominee, Jack D. Furst........... Filed herewith
as Exhibit
99.1
99.2 Consent of Director Nominee, Dean H. Eisner.......... Filed herewith
as Exhibit
99.2
99.3 Consent of BT Wolfensohn............................. Filed herewith
as Exhibit
99.3
</TABLE>
<PAGE>
Exhibit 5
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
IN
WASHINGTON, (617) 338-2800
D.C.
1025 FAX NO. 617-338-2880
CONNECTICUT IN NEW
AVENUE, N.W. YORK CITY
WASHINGTON, 767 THIRD
D.C. 20036 AVENUE
(202) 775- NEW YORK,
8190 NEW YORK
FAX NO. 202- 10017
293-2275 (212) 486-
8200
FAX NO.
212-758-
2151
January 15, 1999
American Tower Corporation
116 Huntington Avenue
Boston, Massachusetts 02116
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Securities Act"), by American Tower Corporation, a Delaware
Corporation ("American Tower"), of 17,737,500 shares (the "Shares") of its
Class A Common Stock, par value $.01 per share (the "Class A Common Stock") the
following opinion is furnished to you to be filed with the Securities and
Exchange Commission (the "Commission") as Exhibit 5 to American Tower's
registration statement on Form S-4 (the "Registration Statement"). The Shares
will be offered as consideration under the Agreement and Plan of Merger, dated
as of November 16, 1998, as it may be amended from time to time (the "Merger
Agreement"), by and among American Tower, American Towers, Inc., a Delaware
corporation ("ATI"), and OmniAmerica, Inc., a Delaware corporation
("OmniAmerica"), pursuant to which OmniAmerica will be merged (the "Merger")
with and into ATI, which shall be the surviving corporation.
We have acted as counsel to American Tower in connection with the preparation
of the Registration Statement and the Merger Agreement, and we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement, the Merger Agreement, corporate records,
certificates and statements of officers and accountants of American Tower, and
of public officials, and such other documents as we have considered relevant
and necessary in order to furnish the opinion hereinafter set forth. We express
no opinion herein as to any laws other than the General Corporation Law of the
State of Delaware.
The authorized capital stock of American Tower consists of 20,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), the relative
designations, preferences, rights and restrictions of which are to be
designated from time to time by the Board of Directors of American Tower,
300,000,000 shares of Class A Common Stock, 50,000,000 shares of Class B Common
Stock, par value $.01 per share, and 10,000,000 shares of Class C Common Stock,
par value $.01 per share.
Based on and subject to the foregoing, we are of the opinion that the Shares,
when issued in accordance with the terms of the Merger Agreement and upon the
acceptance of the filing of a Certificate of Merger with respect to the Merger
by the Secretary of State of the State of Delaware, will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm therein under the
caption "Validity of the Shares." In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act or under the Rules and Regulations of the
Commission promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
<PAGE>
EXHIBIT 8
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
IN IN NEW
WASHINGTON, (617) 338-2800 YORK CITY
D.C. 767 THIRD
1025 FAX NO. 617-338-2880 AVENUE
CONNECTICUT NEW YORK,
AVENUE, N.W. NEW YORK
WASHINGTON, 10017
D.C. 20036 (212) 486-
(202) 775- 8200
8190 FAX NO.
FAX NO. 202- 212-758-
293-2275 2151
January 15, 1999
American Tower Corporation
116 Huntington Avenue
Boston, Massachusetts 02116
Ladies and Gentlemen:
The following opinions are furnished to you to be filed with the Securities and
Exchange Commission (the "SEC") as Exhibit 8 to the registration statement on
Form S-4, (the "Registration Statement"), to be filed by American Tower
Corporation ("ATC") under the Securities Act of 1933, as amended (the
"Securities Act").
We have acted as counsel for ATC in connection with the preparation of the
Registration Statement, and we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement,
corporate records, certificates and statements of officers and accountants of
ATC and of public officials, and such other documents as we have considered
relevant and necessary in order to furnish the opinions hereinafter set forth.
Specifically, and without limiting the generality of the foregoing, we have
reviewed (i) the Agreement and Plan of Merger, dated as of November 16, 1998,
by and among ATC, American Towers, Inc., and OmniAmerica, Inc., and (ii) the
Amended and Restated Agreement and Plan of Merger, dated as of December 18,
1998, by and among ATC, American Towers, Inc., ATC Merger Corporation, and
TeleCom Towers, L.L.C., as amended on December 23, 1998. With respect to all
questions of fact on which the opinions set forth below are based, we have
assumed the accuracy and completeness of and have relied on the information set
forth in the Registration Statement, and in the documents incorporated therein
by reference, and on representations made to us by the officers of ATC. We have
not, however, independently verified such information.
The opinions set forth below are based upon the Internal Revenue Code of 1986,
as amended, the Treasury Regulations issued thereunder, published
administrative interpretations thereof, and judicial decisions with respect
thereto, all as of the date hereof (collectively, the "Tax Laws"). No assurance
can be given that the Tax Laws will not change. In preparing the discussions
with respect to Tax Laws matters in the sections of the Registration Statement
captioned "The OmniAmerica Merger--Certain Federal Income Tax Consequences of
the Merger" and "The TeleCom Merger--Certain Federal Income Tax Consequences of
the Merger," we have made certain assumptions and expressed certain conditions
and qualifications therein, all of which assumptions, conditions and
qualifications are incorporated herein by reference.
Based upon and subject to the foregoing, we are of the opinion that the
discussions with respect to Tax Laws matters in the sections of the
Registration Statement captioned "The OmniAmerica Merger--Certain Federal
Income Tax Consequences of the Merger" and "The TeleCom Merger--Certain Federal
Income Tax Consequences of the Merger," in all material respects are accurate
and fairly summarize the Tax Laws issues addressed therein, and hereby confirm
that the opinions of counsel referred to in said sections represent our
opinions on the subject matter thereof.
These opinions are intended solely for the benefit and use of ATC, and they are
not to be used, released, quoted, or relied upon by anyone else for any purpose
(other than as required by law) without our prior written
<PAGE>
consent in each instance. We hereby consent to the filing of these opinions as
an exhibit to the Registration Statement and to the reference to our firm
therein under the sections captioned "The OmniAmerica Merger--Certain Federal
Income Tax Consequences of the Merger" and "The TeleCom Merger--Certain Federal
Income Tax Consequences of the Merger." In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or under the rules and
regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester llp
SULLIVAN & WORCESTER LLP
<PAGE>
EXHIBIT 10.1A
FIRST AMENDMENT
TO
PARENT LOAN AGREEMENT
THIS FIRST AMENDMENT TO PARENT LOAN AGREEMENT (this "Amendment"), dated
---------
as of the 30th day of October, 1998 (the "Amendment Date"), by and among
--------------
AMERICAN TOWER CORPORATION, a Delaware corporation (the "Borrower"), the
--------
FINANCIAL INSTITUTIONS SIGNATORY HERETO and TORONTO DOMINION (TEXAS), INC., as
administrative agent (the "Administrative Agent") for the Lenders (as defined in
--------------------
the Loan Agreement defined below);
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Lenders and the Administrative Agent are
parties to that certain Parent Loan Agreement dated as of June 16, 1998 (as
amended, modified, supplemented and restated from time to time, the
"Loan Agreement"); and
--------------
WHEREAS, the Borrower has informed the Administrative Agent that it would
like to make investments (a) in entities with whom it has not signed an
acquisition agreement and (b) using assets, neither of which is currently
permitted under Section 7.6, Investments and Acquisitions, of the Loan
----------------------------
Agreement; and Agreement; and
WHEREAS, the Borrower has requested that the Lenders amend the Loan
Agreement to permit such investments; and
WHEREAS, the Borrower and the Lenders have agreed to amend the Loan
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used herein shall have the
meanings ascribed thereto in the Loan Agreement, and further agree as follows:
<PAGE>
1. Amendments to Article 7.
-----------------------
(a) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby amended by deleting subsection (b) thereof in its entirety and by
substituting the following in lieu thereof:
"(b) so long as no Default then exists or would be caused thereby,
establish Unrestricted Subsidiaries and make Investments in such
Unrestricted Subsidiaries using (i) cash or, (ii)(A) that certain tower
located in Newton, Massachusetts (acquired from Intracoastal Broadcasting,
Inc.) and (B) with the consent of the Majority Lenders, other assets,
which, in the aggregate for clauses (i) and (ii) hereof do not exceed, at
any time, (x) the sum of (i) $50,000,000 and (ii) equity proceeds (which
may be retained by the Borrowers under Section 2.7 hereof) not used to pay
the Separation Obligations or to make Investments permitted under Sections
7.6(c) and (d) hereof, minus (y) the aggregate value of the assets invested
-----
(valuing such assets at the time of Investment as may be agreed to by the
Administrative Agent), if any, in such Unrestricted Subsidiaries."
(b) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby further amended by deleting subsection (d) thereof in its entirety and by
substituting the following in lieu thereof:
"(d) so long as no Default then exists or would be caused thereby and
subject to compliance with Section 5.13 hereof, make Investments in
communications sites and in related companies and related businesses using
cash in an aggregate amount not to exceed, at any time, the sum of (A)
$25,000,000 and (B) equity proceeds (which may be retained by the Borrowers
under Section 2.7 hereof) not used to pay the Separation Obligations or to
make I nvestments permitted under Sections 7.6(b) and (c); provided,
--------
however, that no more than $30,000,000 may be invested hereunder in the
-------
aggregate in any Persons with whom the Parent, either Borrower or any of
their Subsidiaries has not executed a binding acquisition or merger
agreement;"
2. No Other Amendment or Waiver. Except for the amendments set
----------------------------
forth above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect. No waiver by the Administrative
Agent or the Lenders under the Loan Agreement or any other Loan Document is
granted or intended except as expressly set forth herein, and the Administrative
Agent and the Lenders expressly reserve the right to require strict compliance
in all other respects (whether or not in connection with any Requests for
Advance). Except as set forth herein, the amendment agreed to herein shall not
constitute a modification of the Loan Agreement or any of the other Loan
Documents, or a course of dealing with the Administrative Agent and the Lenders
at variance with the Loan Agreement or any of the other Loan Documents, such as
to require further notice by the Administrative
-2-
<PAGE>
Agent, the Lenders or the Majority Lenders to require strict compliance with the
terms of the Loan Agreement and the other Loan Documents in the future.
3. Loan Documents. This document shall be deemed to be a Loan
--------------
Document for all purposes under the Loan Agreement and the other Loan Documents.
4. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
5. Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of New York.
6. Severability. Any provision of this Amendment which is
------------
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: AMERICAN TOWER CORPORATION
By:
-------------------------------------
Title:
-----------------------------
ADMINISTRATIVE AGENT
AND LENDERS: TORONTO DOMINION (TEXAS), INC., as Administrative Agent
for itself and for the Lenders and as a Lender
By:
-------------------------------------
Title:
-----------------------------
ARCHIMEDES FUNDING II, LTD., as a Lender
By:
-------------------------------------
Title:
-----------------------------
BANK OF MONTREAL, CHICAGO BRANCH, as a Lender
By:
-------------------------------------
Title:
-----------------------------
<PAGE>
DEBT STRATEGIES FUND, INC., as a Lender
By:
-------------------------------------
Title:
-----------------------------
DEBT STRATEGIES FUND II, INC., as a Lender
By:
-------------------------------------
Title:
-----------------------------
FIRST DOMINION FUNDING I, as a Lender
By:
-------------------------------------
Title:
-----------------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender
By:
-------------------------------------
Title:
-----------------------------
<PAGE>
ING HIGH INCOME PRINCIPAL PRESERVATION FUND
HOLDINGS, LDC
By ING Capital Advisors, Inc., as Investment Advisors,
Inc., as a Lender
By:
-------------------------------------
Title:
-----------------------------
KZH III LLC, as a Lender
By:
-------------------------------------
Title:
-----------------------------
KZH IV LLC, as a Lender
By:
-------------------------------------
Title:
-----------------------------
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO, as a Lender
By Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
-------------------------------------
Title:
-----------------------------
<PAGE>
MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME
STRATEGIES PORTFOLIO, as a Lender
By Merrill Lynch Asset Management, L.P., as Investment
Advisor
By:
-------------------------------------
Title:
-----------------------------
OCTAGON LOAN TRUST, by Octagon Credit Investors, as
Manager, as a Lender
By:
-------------------------------------
Title:
-----------------------------
PACIFICA PARTNERS I, L.P., as a Lender
By:
-------------------------------------
Title:
-----------------------------
SANKATY HIGH YIELD ASSET PARTNERS, L.P., as a Lender
By:
-------------------------------------
Title:
-----------------------------
<PAGE>
SENIOR HIGH INCOME PORTFOLIO, INC., as a Lender
By:
-------------------------------------
Title:
-----------------------------
UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
-------------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT
TO
ATS FACILITY A LOAN AGREEMENT
THIS FIRST AMENDMENT TO ATS FACILITY A LOAN AGREEMENT (this "Amendment"),
---------
dated as of the 30th day of October, 1998 (the "Amendment Date"), by and among
--------------
AMERICAN TOWER SYSTEMS, L.P., a Delaware limited partnership, and AMERICAN
TOWERS, INC. (formerly known as American Tower Systems (Delaware), Inc.), a
Delaware corporation (collectively, the "Borrower"), the FINANCIAL INSTITUTIONS
--------
SIGNATORY HERETO and TORONTO DOMINION (TEXAS), INC., as administrative agent
(the "Administrative Agent") for the Banks (as defined in the Loan Agreement
--------------------
defined below);
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Banks and the Administrative Agent are parties
to that certain ATS Facility A Loan Agreement dated as of June 16, 1998 (as
amended, modified, supplemented and restated from time to time, the "Loan
----
Agreement"); and
- ---------
WHEREAS, the Borrower has informed the Administrative Agent that it would
like to make investments (a) in entities with whom it has not signed an
acquisition agreement and (b) using assets, neither of which is currently
permitted under Section 7.6, Investments and Acquisitions, of the Loan
----------------------------
Agreement; and WHEREAS, the Borrower has requested that the Banks amend the Loan
Agreement to permit such investments; and
WHEREAS, the Borrower and the Banks have agreed to amend the Loan Agreement
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used herein shall have the
meanings ascribed thereto in the Loan Agreement, and further agree as follows:
<PAGE>
1. Amendments to Article 7.
-----------------------
(a) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby amended by deleting subsection (b) thereof in its entirety and by
substituting the following in lieu thereof:
"(b) so long as no Default then exists or would be caused thereby,
establish Unrestricted Subsidiaries and make Investments in such
Unrestricted Subsidiaries using (i) cash or, (ii)(A) that certain tower
located in Newton, Massachusetts (acquired from Intracoastal Broadcasting,
Inc.) and (B) with the consent of the Majority Banks, other assets, which,
in the aggregate for clauses (i) and (ii) hereof do not exceed, at any
time, (x) the sum of (i) $50,000,000 and (ii) equity proceeds (which may be
retained by the Borrowers under Section 2.7 hereof) not used to pay the
Separation Obligations or to make Investments permitted under Sections
7.6(c) and (d) hereof, minus (y) the aggregate value of the assets invested
-----
(valuing such assets at the time of Investment as may be agreed to by the
Administrative Agent), if any, in such Unrestricted Subsidiaries."
(b) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby further amended by deleting subsection (d) thereof in its entirety and by
substituting the following in lieu thereof:
"(d) so long as no Default then exists or would be caused thereby and
subject to compliance with Section 5.13 hereof, make Investments in
communications sites and in related companies and related businesses using
cash in an aggregate amount not to exceed, at any time, the sum of (A)
$25,000,000 and (B) equity proceeds (which may be retained by the Borrowers
under Section 2.7 hereof) not used to pay the Separation Obligations or to
make Investments permitted under Sections 7.6(b) and (c); provided,
--------
however, that no more than $30,000,000 may be invested hereunder in the
-------
aggregate in any Persons with whom the Parent, either Borrower or any of
their Subsidiaries has not executed a binding acquisition or merger
agreement;"
2. Miscellaneous Amendments.
------------------------
(a) Article 1 of the Loan Agreement, Defined Terms is hereby amended as
-------------
follows:
(1) The term "Facility A Capital Raise Proceeds" is hereby amended
---------------------------------
by inserting the phrase "together with all proceeds of the equity offering by
the Parent prior to July 31, 1998," in part (2) of the proviso in section (a)(i)
of such definition immediately following the words "to pay the fees and other
costs and expenses associated with the Interim Financing,".
-2-
<PAGE>
(2) The term "Loan Documents" is hereby amended by inserting the
---------------
phrase "or any of their affiliates," immediately following the words "all
Interest Rate Hedge Agreements between either Borrower, on the one hand, and the
Administrative Agent and the Banks,".
(b) Article 2 of the Loan Agreement, Loans, is hereby amended by
-----
inserting in part (iv) of Section 2.2(e), Manner of Borrowing and Disbursement:
-------------------------------------
Disbursement, the phrase "or 'Required Lenders'" immediately following the
- ------------
words "shall not be counted as outstanding for purposes of determining
'Majority Banks'".
3. No Other Amendment or Waiver. Except for the amendments set forth
----------------------------
above, the text of the Loan Agreement and all other Loan Documents shall remain
unchanged and in full force and effect. No waiver by the Administrative Agent or
the Banks under the Loan Agreement or any other Loan Document is granted or
intended except as expressly set forth herein, and the Administrative Agent and
the Banks expressly reserve the right to require strict compliance in all other
respects (whether or not in connection with any Requests for Advance). Except as
set forth herein, the amendment agreed to herein shall not constitute a
modification of the Loan Agreement or any of the other Loan Documents, or a
course of dealing with the Administrative Agent and the Banks at variance with
the Loan Agreement or any of the other Loan Documents, such as to require
further notice by the Administrative Agent, the Banks or the Majority Banks to
require strict compliance with the terms of the Loan Agreement and the other
Loan Documents in the future.
4. Loan Documents. This document shall be deemed to be a Loan
--------------
Document for all purposes under the Loan Agreement and the other Loan Documents.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
6. Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of New York.
7. Severability. Any provision of this Amendment which is prohibited
------------
or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWERS: AMERICAN TOWER SYSTEMS, L.P.
By ATSC GP, INC., its General Partner
By:
-------------------------------
Title:
-----------------------
AMERICAN TOWER SYSTEMS (DELAWARE), INC.
By:
-------------------------------
Title:
-----------------------
ADMINISTRATIVE AGENT
AND BANKS: TORONTO DOMINION (TEXAS), INC., as
Administrative Agent for itself and
the Banks and as a Bank
By:
-------------------------------
Title:
-----------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
BANK OF MONTREAL, as a Bank
By:
-------------------------------
Title:
-----------------------
THE BANK OF NEW YORK, as a Bank
By:
-------------------------------
Title:
-----------------------
THE BANK OF NOVA SCOTIA, as a Bank
By:
-------------------------------
Title:
-----------------------
BANKBOSTON, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
BANKERS TRUST COMPANY, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
BARCLAYS BANK, PLC, as a Bank
By:
-------------------------------
Title:
-----------------------
THE CHASE MANHATTAN BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
THE CIT GROUP/EQUIPMENT FINANCING, INC., as a Bank
By:
-------------------------------
Title:
-----------------------
CITY NATIONAL BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
COBANK, ACB, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
CREDIT SUISSE FIRST BOSTON, as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
CRESTAR BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
FIRST NATIONAL BANK OF MARYLAND, as a Bank
By:
-------------------------------
Title:
-----------------------
FLEET NATIONAL BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
THE HOWARD BANK, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
KEY CORPORATE CAPITAL INC., as a Bank
By:
-------------------------------
Title:
-----------------------
LEHMAN COMMERCIAL PAPER INC., as a Bank
By:
-------------------------------
Title:
-----------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., NEW YORK
BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
MELLON BANK, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
MERCANTILE BANK NATIONAL ASSOCIATION, as a Bank
By:
-------------------------------
Title:
-----------------------
MORGAN STANLEY SENIOR FUNDING, INC., as a Bank
By:
-------------------------------
Title:
-----------------------
NATIONAL BANK OF CANADA, as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
PNC BANK, NATIONAL ASSOCIATION, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
STATE STREET BANK AND TRUST COMPANY, as a Bank
By:
-------------------------------
Title:
-----------------------
UNION BANK OF CALIFORNIA, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
US TRUST, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT
TO
ATS FACILITY B LOAN AGREEMENT
THIS FIRST AMENDMENT TO ATS FACILITY B LOAN AGREEMENT (this "Amendment"),
---------
dated as of the 30th day of October, 1998 (the "Amendment Date"), by and among
--------------
AMERICAN TOWER SYSTEMS, L.P., a Delaware limited partnership, and AMERICAN
TOWERS, INC. (formerly known as American Tower Systems (Delaware), Inc.), a
Delaware corporation (collectively, the "Borrower"), the FINANCIAL INSTITUTIONS
--------
SIGNATORY HERETO and TORONTO DOMINION (TEXAS), INC., as administrative agent
(the "Administrative Agent") for the Banks (as defined in the Loan Agreement
--------------------
defined below);
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Banks and the Administrative Agent are parties
to that certain ATS Facility B Loan Agreement dated as of June 16, 1998 (as
amended, modified, supplemented and restated from time to time, the
"Loan Agreement"); and
- ----------------
WHEREAS, the Borrower has informed the Administrative Agent that it would
like to make investments (a) in entities with whom it has not signed an
acquisition agreement and (b) using assets, neither of which is currently
permitted under Section 7.6, Investments and Acquisitions, of the Loan
----------------------------
Agreement; and WHEREAS, the Borrower has requested that the Banks amend the
Loan Agreement to permit such investments; and
WHEREAS, the Borrower and the Banks have agreed to amend the Loan Agreement
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used herein shall have the
meanings ascribed thereto in the Loan Agreement, and further agree as follows:
<PAGE>
1. Amendments to Article 7.
-----------------------
(a) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby amended by deleting subsection (b) thereof in its entirety and by
substituting the following in lieu thereof:
"(b) so long as no Default then exists or would be caused thereby,
establish Unrestricted Subsidiaries and make Investments in such
Unrestricted Subsidiaries using (i) cash or, (ii)(A) that certain tower
located in Newton, Massachusetts (acquired from Intracoastal Broadcasting,
Inc.) and (B) with the consent of the Majority Banks, other assets, which,
in the aggregate for clauses (i) and (ii) hereof do not exceed, at any
time, (x) the sum of (i) $50,000,000 and (ii) equity proceeds (which may be
retained by the Borrowers under Section 2.7 hereof) not used to pay the
Separation Obligations or to make Investments permitted under Sections
7.6(c) and (d) hereof, minus (y) the aggregate value of the assets invested
-----
(valuing such assets at the time of investment as may be agreed to by the
Administrative Agent), if any, in such Unrestricted Subsidiaries."
(b) Section 7.6 of the Loan Agreement, Investments and Acquisitions, is
----------------------------
hereby further amended by deleting subsection (d) thereof in its entirety and by
substituting the following in lieu thereof:
"(d) so long as no Default then exists or would be caused thereby
and subject to compliance with Section 5.13 hereof, make Investments in
communications sites and in related companies and related businesses using
cash in an aggregate amount not to exceed, at any time, the sum of (A)
$25,000,000 and (B) equity proceeds (which may be retained by the Borrowers
under Section 2.7 hereof) not used to pay the Separation Obligations or to
make Investments permitted under Sections 7.6(b) and (c); provided,
--------
however, that no more than $30,000,000 may be invested hereunder in the
-------
aggregate in any Persons with whom the Parent, either Borrower or any of
their Subsidiaries has not executed a binding acquisition or merger
agreement;"
2. Miscellaneous Amendments.
------------------------
(a) Article 1 of the Loan Agreement, Defined Terms is hereby amended as
-------------
follows:
(1) The term "Facility A Capital Raise Proceeds" is hereby amended
---------------------------------
by inserting the phrase "together with all proceeds of the equity offering by
the Parent prior to July 31, 1998," in part (2) of the proviso in section (a)(i)
of such definition immediately following the words "to pay the fees and other
costs and expenses associated with the Interim Financing,".
-2-
<PAGE>
(2) The term "Loan Documents" is hereby amended by inserting the
---------------
phrase "or any of their affiliates," immediately following the words "all
Interest Rate Hedge Agreements between either Borrower, on the one hand, and the
Administrative Agent and the Banks,".
(b) Article 2 of the Loan Agreement, Loans, is hereby amended by
-----
inserting in part (iv) of Section 2.2(e), Manner of Borrowing and Disbursement:
-------------------------------------
Disbursement, the phrase "or 'Required Lenders'" immediately following the
- ------------
words "shall not be counted as outstanding for purposes of determining
"'Majority Banks'".
3. No Other Amendment or Waiver. Except for the amendments set
----------------------------
forth above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect. No waiver by the Administrative
Agent or the Banks under the Loan Agreement or any other Loan Document is
granted or intended except as expressly set forth herein, and the Administrative
Agent and the Banks expressly reserve the right to require strict compliance in
all other respects (whether or not in connection with any Requests for Advance).
Except as set forth herein, the amendment agreed to herein shall not constitute
a modification of the Loan Agreement or any of the other Loan Documents, or a
course of dealing with the Administrative Agent and the Banks at variance with
the Loan Agreement or any of the other Loan Documents, such as to require
further notice by the Administrative Agent, the Banks or the Majority Banks to
require strict compliance with the terms of the Loan Agreement and the other
Loan Documents in the future.
4. Loan Documents. This document shall be deemed to be a Loan
--------------
Document for all purposes under the Loan Agreement and the other Loan Documents.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
6. Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of New York.
7. Severability. Any provision of this Amendment which is prohibited
------------
or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWERS: AMERICAN TOWER SYSTEMS, L.P.
By ATSC GP, INC., its General Partner
By:
-------------------------------
Title:
-----------------------
AMERICAN TOWER SYSTEMS (DELAWARE), INC.
By:
-------------------------------
Title:
-----------------------
ADMINISTRATIVE AGENT
AND BANKS: TORONTO DOMINION (TEXAS), INC., as Administrative Agent
for itself and the Banks and as a Bank
By:
-------------------------------
Title:
-----------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
BANK OF MONTREAL, as a Bank
By:
-------------------------------
Title:
-----------------------
THE BANK OF NEW YORK, as a Bank
By:
-------------------------------
Title:
-----------------------
THE BANK OF NOVA SCOTIA, as a Bank
By:
-------------------------------
Title:
-----------------------
BANKBOSTON, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
BANKERS TRUST COMPANY, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
BARCLAYS BANK, PLC, as a Bank
By:
-------------------------------
Title:
-----------------------
THE CHASE MANHATTAN BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
THE CIT GROUP/EQUIPMENT FINANCING, INC., as a Bank
By:
-------------------------------
Title:
-----------------------
CITY NATIONAL BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
COBANK, ACB, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
CREDIT SUISSE FIRST BOSTON, as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
CRESTAR BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
FIRST NATIONAL BANK OF MARYLAND, as a Bank
By:
-------------------------------
Title:
-----------------------
FLEET NATIONAL BANK, as a Bank
By:
-------------------------------
Title:
-----------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
THE HOWARD BANK, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
KEY CORPORATE CAPITAL INC., as a Bank
By:
-------------------------------
Title:
-----------------------
LEHMAN COMMERCIAL PAPER INC., as a Bank
By:
-------------------------------
Title:
-----------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., NEW YORK
BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
MELLON BANK, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
MERCANTILE BANK NATIONAL ASSOCIATION, as a Bank
By:
-------------------------------
Title:
-----------------------
MORGAN STANLEY SENIOR FUNDING, INC., as a Bank
By:
-------------------------------
Title:
-----------------------
NATIONAL BANK OF CANADA, as a Bank
By:
-------------------------------
Title:
-----------------------
By:
-------------------------------
Title:
-----------------------
PNC BANK, NATIONAL ASSOCIATION, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH, as a Bank
By:
-------------------------------
Title:
-----------------------
STATE STREET BANK AND TRUST COMPANY, as a Bank
By:
-------------------------------
Title:
-----------------------
UNION BANK OF CALIFORNIA, N.A., as a Bank
By:
-------------------------------
Title:
-----------------------
US TRUST, as a Bank
By:
-------------------------------
Title:
-----------------------
<PAGE>
EXHIBIT 10.22
April 13, 1998
Confidential (Via Federal Express)
Mr. Doug Wiest
18204 Lexington Farm Drive
Alpharetta, GA 30004
Dear Doug:
I've added my signature to yours on our "Offer Summary" to you. Option
documentation is in process. I've signed a PAN for $225,000 to start as of
April 1/1/. You should send T&E's to Boston from here on, and by a copy of
this letter I will make sure your salary is allocated to Corporate from April 1
on. I trust this is all satisfactory to you.
I also hereby confirm the following:
. In the event of termination (except for cause) anytime during the next five
years, we agree that you would be paid a lump sum in cash of $350,000 or
1.5 times your annual income, whichever is higher.
. In the event that the company is sold anytime during the next five
years/2/ and you should decide not to stay on, your options would vest
fully, and would probably vest even if you did decide to stay on.
. We will work with you to make your move to Boston both comfortable and
affordable. We would do this by making available to you a low interest rate
(3%) loan in an amount up to $300,000, and by increasing, if appropriate,
your $25,000 moving allowance. In addition, we will provide, or arrange
for, bridge financing at nominal cost in the event that you end up carrying
two houses for a period of time. (The only caveat here is that you price
your current "home in progress" reasonably.) Finally, to ease your mind a
bit further, I hereby confirm that your salary in 1999 commencing in
January, will be set at a level of not less than $275,000. Taken as a
whole, I believe this package should be very responsive to your needs. By
the way, I don't think the housing differential is nearly 100%. It depends
on where you choose to live.
- ------
/1/ We're carrying Alan at full salary until May 1 on the theory that you are
sharing responsibilities through April.
/2/ We do not anticipate that it will be.
<PAGE>
Mr. Doug Wiest
April 13, 1998
Page 2
. We will pay for temporary housing and commuting costs between now and
September 1, 1998, and we will want to make sure you are nicely situated.
Kathy is working on this. For your part, please make every effort to book
flights in advance to save money.
As to being excited, I think you have the stuff to be the best COO I've ever
worked with, which means I can look forward to sleeping better! That's exciting.
If the preceding is acceptable, please so indicate by signing below.
Thanks, Doug. It should be a fun ride.
Warm regards,
Steven B. Dodge
Chairman
Chief Executive Officer
AGREED AND ACCEPTED:
- -----------------------
Doug Wiest
Cc: Joe Winn
Justin Benincasa
Michael Milsom
P.S. Enclosed are some materials prepared by a broker from Hunneman's Manchester
office. No need to sign the form that I can see.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF AMERICAN TOWER CORPORATION
------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Subsidiary Jurisdiction of Incorporation
or Organization
- -----------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------
American Towers, Inc. Delaware
- -----------------------------------------------------------------------------
ATC Operating Inc. Delaware
- -----------------------------------------------------------------------------
ATC LP Inc. Delaware
- -----------------------------------------------------------------------------
ATC GP Inc. Delaware
- -----------------------------------------------------------------------------
ATC Holding Inc. Delaware
- -----------------------------------------------------------------------------
ATC Merger Corporation Delaware
- -----------------------------------------------------------------------------
American Tower Rental Holding Corporation Delaware
- -----------------------------------------------------------------------------
American Tower Rental, Inc. Delaware
- -----------------------------------------------------------------------------
National Telecommunication Advisors, LLC Massachusetts
- -----------------------------------------------------------------------------
ATC Tower Corp. Delaware
- -----------------------------------------------------------------------------
US Sitelease, Inc. Kansas
- -----------------------------------------------------------------------------
HHR, Inc. Kansas
- -----------------------------------------------------------------------------
Westark Towers, Incorporated Arkansas
- -----------------------------------------------------------------------------
Gritz Tower Maintenance Company Texas
- -----------------------------------------------------------------------------
ATC-Prime I, LLC Delaware
- -----------------------------------------------------------------------------
ATC-Prime II, LLC Delaware
- -----------------------------------------------------------------------------
American Tower, L.P. Delaware
- -----------------------------------------------------------------------------
ATS Needham, LLC* Delaware
- -----------------------------------------------------------------------------
ATS/PCS, LLC** Delaware
- -----------------------------------------------------------------------------
</TABLE>
- ---------------------
* ATC owns a 50.1% interest in this entity.
** ATC owns a 80.0% interest in this entity.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Registration Statement, relating to the OmniAmerica
merger, of American Tower Corporation on Form S-4 of the following reports
appearing in the Prospectus, which is part of this Registration Statement:
(1) Our report dated March 6, 1998 (except for Note 4, as to which the date is
March 27, 1998) on the consolidated financial statements of American Tower
Systems Corporation and subsidiaries, a wholly owned subsidiary of American
Radio Systems Corporation;
(2) Our report dated October 31, 1997 on the combined financial statements of
Meridian communications.
(3) Our report dated February 27, 1998 on the financial statements of Gearon &
Co., Inc.;
(4) Our report dated March 2, 1998 on the financial statements of OPM-USA-
INC.; and
(5) Our report dated November 4, 1997 on the financial statements of Diablo
Communications, Inc.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Our audits of the financial statements of American Tower Systems Corporation
and subsidiaries referred to in our aforementioned report also included the
financial statement schedules of American Tower Systems Corporation and
subsidiaries. These financial statement schedules are the responsibility of the
management of American Tower Systems Corporation and subsidiaries. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth herein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 15, 1999
1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report and to all references to our Firm included in or made part of this
registration statement.
/s/ Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
January 14, 1999
1
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of American Tower
Corporation on Form S-4 of our report dated February 7, 1997 and October 9,
1997 as to note 9 to the financial statements (relating to the financial
statements of Diablo Communications of Southern California, Inc.) appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
ROONEY, IDA, NOLT & AHERN
Certified Public Accountants
Oakland, California
January 13, 1999
1
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 19, 1998, with respect to the financial
statements of Telecom Towers, L.L.C. at December 31, 1997 and for the three
months then ended, and the financial statements of Telecom Southwest Towers
Limited Partnership, Telecom Towers Mid-Atlantic Limited Partnership, and
Telecom Towers of the West, L.P. at December 31, 1997 and for the years then
ended included in the Registration Statement on Form S-4 and related
Information Statement/Prospectus of American Tower Company for the registration
of 17,737,500 shares of its common stock relating to the merger with
OmniAmerica, Inc.
/s/ Ernst & Young LLP
Vienna, Virginia
January 14, 1999
1
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Tower Corporation
We consent to the use of our report dated January 23, 1998, related to the
consolidated financial statements of American Tower Corporation and
subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three year period ended December 31, 1997, included herein and the reference to
our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
Houston, Texas
January 15, 1999
1
<PAGE>
EXHIBIT 23.6
CONSENT OF BILL MITTS, INC.
I consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 of American Tower Corporation for the
registration of approximately 17,737,500 shares of its common stock and to the
inclusion therein of our report dated May 8, 1997 with respect to the
statements of earnings, changes in stockholders' equity and cash flows of Novak
& Lackey Construction Co., Inc. as of October 31, 1996.
/s/ BILL MITTS, INC.
Oklahoma City, Oklahoma
January 14, 1999
1
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 14, 1999
1
<PAGE>
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports with respect to the financial statements of Telecom
Southwest Towers Limited Partnership, Telecom Towers Mid-Atlantic Limited
Partnership, and Telecom Towers of the West, L.P. included in the Registration
Statement and related Information Statement/Prospectus of American Tower
Corporation for the registration of 17,737,500 shares of its common stock
relating to the merger with OmniAmerica, Inc.
/s/ Gollob, Morgan, Peddy & Co.,
P.C.
-------------------------------------
GOLLOB, MORGAN, PEDDY & CO., P.C.
Tyler, Texas
January 14, 1999
1
<PAGE>
EXHIBIT 23.9
CONSENT OF MENDLOWITZ WEITSEN, LLP
We consent to the reference to our firm under the caption "Experts" in the Form
S-4 Registration Statement of American Tower Corporation for the registration
of approximately 17,737,500 shares of its common stock and to the inclusion
therein of our report dated March 3, 1998 with respect to the balance sheets of
Miller Transmission Tower Company, LTD as of December 31, 1997 and 1996 and the
related statements of operations, changes in partners' deficiency and cash
flows for the years then ended.
/s/ MENDOLWITZ WEITSEN, LLP
East Brunswick, New Jersey
January 14, 1999
1
<PAGE>
EXHIBIT 23.10
CONSENT OF DERRICK, STUBBS & STITH, LLP, INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-4 of
American Tower Corporation for the registration of approximately 17,737,500
shares of its common stock of our report, dated December 9, 1997, relating to
the financial statements of Kline Iron & Steel Co., Inc. as of September 30,
1997 and 1996 and for the years then ended. We also consent to the reference to
our firm under the caption "Experts" and "Selected Financial Data" in the
Prospectus.
/s/ Derrick, Stubbs & Stith, LLP
Columbia, South Carolina
January 13, 1999
1
<PAGE>
EXHIBIT 23.11
ACCOUNTANTS' CONSENT
The Board of Directors
RCC Consultants, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the information statement/prospectus.
/s/ KPMG LLP
Princeton, New Jersey
January 13, 1999
1
<PAGE>
EXHIBIT 23.11A
The Board of Directors
American Tower Corporation:
We consent to the use of our report dated August 29, 1997, related to the
consolidated financial statements of OmniAmerica Inc. and subsidiaries
(formerly Specialty Teleconstructors, Inc.) as of June 30, 1997 and for each of
the years in the two year period ended June 30, 1997, included herein and to
the reference to our firm under the heading "Experts" in the information
statement/prospectus.
/s/ KPMG LLP
Alburquerque, New Mexico
January 14, 1999
2
<PAGE>
EXHIBIT 23.11B
The Board of Directors
American Tower Corporation:
We consent to the use of our report dated March 19, 1998, related to the
financial statements of TowerCom, Limited as of December 31, 1997 and 1996 and
for the years then ended, included herein and to the reference to our firm
under the heading "Experts" in the information statement/prospectus.
/s/ KPMG LLP
Albuquerque, New Mexico
January 14, 1999
3
<PAGE>
EXHIBIT 23.12
Consent of Ernst & Young LLP , Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statements on Form S-4 of American Tower Corporation relating to
the merger transactions with OmniAmerica, Inc. and Telecom Towers L.L.C. for
the registration of shares of its common stock and to the inclusion therein of
the following reports:
<TABLE>
<CAPTION>
With respect to Report Date
- --------------- ------------------
<S> <C>
the consolidated financial statements of OmniAmerica, Inc. September 16, 1998
(formerly Specialty Teleconstructors, Inc.) for the year
ended June 30, 1998
the consolidated financial statements of OmniAmerica February 20, 1998
Holdings Corporation for the period from inception (October
15, 1997) through December 31, 1997
the statement of assets sold by HSW Associates, Inc. at March 31, 1998
December 31, 1997 and related statements of revenue and
direct operating expenses of assets sold by HSW Associates,
Inc. for each of the two years in the period then ended.
</TABLE>
/s/ Ernst & Young LLP
-------------------------------------
Dallas, Texas
January 12, 1999
1
<PAGE>
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the reference to me as a Director Nominee of American Tower
Corporation in its Registration Statement on Form S-4 (including all
amendments, post-effective amendments and any related registration statement
pursuant to Rule 462(b) of the Securities Act of 1933).
/s/ Jack D. Furst
___________________________________
Jack D. Furst
<PAGE>
EXHIBIT 99.2
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the reference to me as a Director Nominee of American Tower
Corporation in its Registration Statement on Form S-4 (including all
amendments, post-effective amendments and any related registration statement
pursuant to Rule 462(b) of the Securities Act of 1933).
/s/ Dean H. Eisner
___________________________________
Dean H. Eisner
<PAGE>
EXHIBIT 99.3
CONSENT OF BT WOLFENSOHN
We hereby consent to (i) the inclusion of our opinion letter, dated November
16, 1998, to the Board of Directors of OmniAmerica, Inc. as Appendix III to the
Information Statement/Prospectus forming part of this Registration Statement on
Form S-4, and (ii) references made to our firm and such opinion in such
Information Statement/Prospectus under the captions entitled "Questions and
Answers About the OmniAmerica Merger--Has someone determined that the merger is
fair to the OmniAmerica stockholders?"; "Summary--Determinations of Boards of
Directors,--Fairness Opinion of Financial Advisor"; "The OmniAmerica Merger--
Background to the Merger,--Opinion of Financial Advisor to OmniAmerica". In
giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, and we
do not admit that we are experts with respect to any part of the Registration
Statement on Form S-4 within the meaning of the term "expert" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker-dealer and member of the
New York Stock Exchange.
BT Wolfensohn
January 15, 1999
