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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-67043
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SPECTRASITE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATES OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4899
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
56-2027322
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
8000 REGENCY PARKWAY
SUITE 570
CARY, NORTH CAROLINA 27511
(919) 468-0112
(ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
DAVID P. TOMICK
SPECTRASITE HOLDINGS, INC.
8000 REGENCY PARKWAY
SUITE 570
CARY, NORTH CAROLINA 27511
(919) 468-0112
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE)
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Please address a copy of all communications to:
TIMOTHY J. KELLEY
THOMAS D. TWEDT
DOW, LOHNES & ALBERTSON, PLLC
1200 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20036
(202) 776-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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SpectraSite Logo
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS
$225,238,000
SPECTRASITE HOLDINGS, INC.
OFFER TO EXCHANGE SERIES B 12% SENIOR DISCOUNT NOTES DUE 2008 FOR ANY AND ALL
OUTSTANDING 12% SENIOR DISCOUNT NOTES DUE 2008.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless extended
- - All outstanding notes that are validly tendered and not withdrawn will be
exchanged
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer
- - The exchange of notes will not be a taxable exchange for U.S. Federal tax
purposes
- - We will not receive any proceeds from the exchange offer
- - The terms of the registered notes we will issue in the exchange offer are
substantially identical to the outstanding notes, except that certain transfer
restrictions and registration rights relating to the outstanding notes will
not apply to the registered notes
The notes are eligible for trading in The Portal(SM) Market, a subsidiary
of The Nasdaq Market, Inc. The notes also may be sold in the over-the-counter
market, in negotiated transactions or through a combination of such methods.
WE ARE NOT MAKING AN OFFER TO EXCHANGE NOTES IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" COMMENCING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this prospectus in its entirety. In this prospectus, "Holdings" refers
to SpectraSite Holdings, Inc., a Delaware corporation, and "SpectraSite" and
"we" or "our" each refers to Holdings, its subsidiaries and all predecessor
entities to Holdings and its subsidiaries collectively, unless the context
otherwise requires.
THE EXCHANGE OFFER
On June 26, 1998, we completed the private offering of $225,238,000
aggregate original principal amount at maturity of 12% Senior Discount Notes Due
2008. Holdings entered into a registration rights agreement with the initial
purchasers of the notes in the private offering in which we agreed, among other
things, to deliver to you this prospectus and to complete the exchange offer on
or prior to March 10, 1999. This exchange offer allows you to exchange your
notes for registered notes with substantially identical terms. If the exchange
offer is not completed on or prior to March 10, 1999, the interest rate on the
notes will be increased at a rate of 0.50% per annum until, among other things,
the completion of the exchange offer. You should read the discussions under the
heading "-- Summary of Terms of the Registered Notes" and "Description of the
Notes" for further information regarding the registered notes.
We believe that you may resell the notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, subject to certain conditions. You should read the
discussion under the headings "-- Summary of the Exchange Offer" and "The
Exchange Offer" for further information regarding the exchange offer and resale
of the registered notes.
THE COMPANY
We believe that SpectraSite is one of the leading full service providers of
tower related services in the U.S. wireless communications industry. SpectraSite
develops and manages build-to-suit tower networks and provides site acquisition
and site management services for major wireless communications companies. We are
capitalizing on the growing trend toward antennae co-location and independent
tower ownership, as leading wireless providers increasingly redirect their
capital outlays from tower development to subscriber acquisition activities and
local municipalities encourage multiple tenants on single towers. In addition,
we plan to expand our tower inventory through future acquisitions or partnerings
with major wireless communications service providers and by building or
acquiring selective tower assets in strategic geographic areas that will be
attractive to multiple tenants.
Our primary focus is the ownership of multi-tenant towers and the leasing,
under long-term contracts, of antennae space on such towers to a variety of
wireless service providers, including personal communications service, cellular,
paging, specialized mobile radio, enhanced specialized mobile radio and other
providers. Our build-to-suit programs provide a comprehensive solution to those
wireless service providers seeking to minimize their capital expenditures,
overhead and time associated with the build-out and ongoing maintenance of their
wireless network infrastructure. We also offer comprehensive site acquisition
services, including site location analysis; site acquisition; zoning and land
use permitting; FAA compliance analysis and filing; and contract, title and
building permit administration. In addition, we provide comprehensive site
management services for communications sites. We manage not only our own tower
sites, but also over 1,000 sites for carriers. Site acquisition and site
management allow us to offer a complete product line of tower services.
Our principal executive offices are located at 8000 Regency Parkway, Suite
570, Cary, North Carolina 27511, and our telephone number is (919) 468-0112.
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BUSINESS AND GROWTH STRATEGIES
Our strategic objective is to be one of the largest owners and operators of
communications towers and to become the premier build-to-suit provider of tower
networks in the United States. Our strategy involves the following elements:
- Build towers in areas of increasing wireless demand.
- Partner with major wireless service providers to acquire existing towers
and build-to-suit contracts.
- Acquire underutilized towers.
- Maximize co-location on towers.
- Capitalize on our strong relationships with major wireless service
providers.
- Leverage our site acquisition services to support and expand our
build-to-suit business and tower inventory.
COMPANY STRENGTHS
We believe that the following strengths will enable us to successfully
expand our business:
- Build-to-suit focus.
- Experienced management.
- Capability to manage multiple projects.
- Standardized procedures and specifications for tower construction.
- Integrated provider of site development services.
RECENT EVENTS
AIRADIGM ACQUISITION. We have acquired 40 towers from Airadigm
Communications, Inc., and we may purchase an additional seven towers. The total
purchase price for all 47 towers is $11.75 million. In connection with this
acquisition, we are negotiating with Airadigm for an exclusive multi-year
build-to-suit contract.
GLOBALCOMM ACQUISITION. In September 1998, we acquired GlobalComm, Inc., a
co-location marketing company, for approximately $2 million. GlobalComm's
founder and president, Michael Garrett, joined SpectraSite and is now
responsible for our co-location marketing efforts. See "Management" and "Certain
Transactions -- GlobalComm Acquisition."
AMICA ACQUISITION. In August 1998, we acquired 14 ground leases and two
towers in inventory for an aggregate purchase price of approximately $474,000
from Amica Wireless PhoneService, Inc.
H&K ACQUISITION. In June 1998, we acquired five towers for an aggregate
purchase price of $1.4 million.
CMS DISPOSITION. In May 1998, we sold our minority interest in
Communications Management Specialists, LLC for $375,000.
ISSUANCE OF SERIES B PREFERRED STOCK. In three separate transactions in
March, August and September of 1998, we sold 7,000,000 shares of our Series B
Redeemable Preferred Stock to a group of investors for an aggregate purchase
price of $28 million. See "Certain Transactions -- The Series A and Series B
Preferred Stock Offerings."
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SUMMARY OF THE EXCHANGE OFFER
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Registration Rights Agreement............. You have the right to exchange your notes for registered
notes with substantially identical terms. This exchange
offer is intended to satisfy these rights. After the
exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with
respect to your notes.
The Exchange Offer........................ We are offering to exchange $1,000 principal amount at
maturity of Holdings' Series B 12% Senior Discount Notes
Due 2008 which have been registered under the Securities
Act for each $1,000 principal amount at maturity of
Holdings' outstanding 12% Senior Discount Notes Due 2008
which were issued in June 1998 in a private offering. In
order to be exchanged, an outstanding note must be
properly tendered and accepted. We will exchange all
notes validly tendered and not validly withdrawn.
As of this date there is $225,238,000 aggregate
principal amount at maturity of notes outstanding.
We will issue registered notes on or promptly after the
expiration of the exchange offer.
Resales................................... We believe that the registered notes may be offered for
resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery
provisions of the Securities Act provided that:
- you acquire the registered notes issued in the
exchange offer in the ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the registered notes issued to you in the exchange
offer; and
- you are not an "affiliate," as defined under Rule 405
of the Securities Act, of ours.
If our belief is inaccurate and you transfer any
registered note issued to you in the exchange offer
without delivering a prospectus meeting the requirements
of the Securities Act or without an exemption from
registration of your registered notes from such
requirements, you may incur liability under the
Securities Act. We do not assume or indemnify you
against such liability. Each broker-dealer that is
issued registered notes for its own account in exchange
for outstanding notes which were acquired by such
broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the
registered notes. A broker-dealer may use this
prospectus for an offer to resell, resale or other
retransfer of the registered notes issued to it in the
exchange offer.
Record Date............................... We mailed this prospectus and the related exchange offer
documents to registered holders of outstanding notes on
, 1999.
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Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999, unless we decide to extend
the expiration date.
Conditions to the Exchange Offer.......... We may terminate or amend the exchange offer if:
- any legal proceeding, government action or other
adverse development materially impairs our ability to
complete the exchange offer;
- any SEC rule, regulation or interpretation materially
impairs the exchange offer; or
- we have not obtained any necessary governmental
approvals with respect to the exchange offer.
We may waive any or all of these conditions. At this
time, there are no adverse proceedings, actions or
developments pending or, to our knowledge, threatened
and no governmental approvals are necessary to complete
the exchange offer.
Procedures for Tendering Outstanding
Notes................................... Each holder of outstanding notes wishing to accept the
exchange offer must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof; or
- arrange for DTC to transmit certain required
information to the exchange agent in connection with a
book-entry transfer.
You must mail or otherwise deliver such documentation
and your outstanding notes to the United States Trust
Company of New York, as exchange agent, at the address
set forth under "The Exchange Offer -- Exchange Agent."
By tendering your outstanding notes in this manner, you
will be representing, among other things, that:
- you are acquiring the registered notes pursuant to the
exchange offer in the ordinary course of your
business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the registered notes issued to you in the exchange
offer; and
- you are not an affiliate of ours.
Untendered Outstanding Notes.............. If you are eligible to participate in the exchange offer
and you do not tender your outstanding notes, you will
not have any further registration or exchange rights and
your outstanding notes will continue to be subject to
certain restrictions on transfer. Accordingly, the
liquidity of the market for such outstanding notes could
be adversely affected.
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Special Procedures for Beneficial
Owners.................................. If you beneficially own outstanding notes registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender your
outstanding notes in the exchange offer, you should
contact such registered holder promptly and instruct it
to tender on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and executing
the letter of transmittal for the exchange offer and
delivering your outstanding notes, either arrange to
have your outstanding notes registered in your name or
obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time.
Guaranteed Delivery Procedures............ If you wish to tender your outstanding notes and time
will not permit your required documents to reach the
exchange agent by the expiration date of the exchange
offer, or you cannot complete the procedure for
book-entry transfer on time or you cannot deliver
certificates for your outstanding notes on time, you may
tender your outstanding notes pursuant to the procedures
described in this prospectus under the heading "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights......................... You may withdraw the tender of your outstanding notes at
any time prior to 5:00 p.m., New York City time, on
, 1999.
Certain U.S. Federal Tax Considerations... The exchange of notes will not be a taxable event for
United States federal income tax purposes.
Use of Proceeds........................... We will not receive any proceeds from the issuance of
registered notes pursuant to the exchange offer. We will
pay all our expenses incident to the exchange offer.
Exchange Agent............................ United States Trust Company of New York is serving as
the exchange agent in connection with the exchange
offer.
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SUMMARY OF TERMS OF THE REGISTERED NOTES
The form and terms of the registered notes are the same as the form and
terms of the outstanding notes except that the registered notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not be entitled to registration under the
Securities Act. In this regard, we use the term "notes" when describing
provisions that govern or otherwise pertain to both the outstanding notes and
the registered notes. The registered notes will evidence the same debt as the
outstanding notes, and the same indenture will govern both the registered notes
and the outstanding notes.
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Registered Notes.......................... Series B 12% Senior Discount Notes Due 2008 of
SpectraSite Holdings, Inc.
Maturity.................................. July 15, 2008
Accreted Value and Interest............... The initial accreted value of the registered notes will
be $554.97 per $1,000 principal amount at maturity. The
registered notes will accrete at a daily rate of 12% per
year, compounded semiannually, to an aggregate principal
amount of $225,238,000 by July 15, 2003. Cash interest
will begin to accrue on July 15, 2003, and we will pay
cash interest on January 15, 2004, and on each July 15
and January 15 thereafter, at a rate of 12% per year.
Optional Redemption....................... After July 15, 2003, we may redeem all or a portion of
the notes at specified redemption prices, plus accrued
and unpaid interest, to the applicable redemption date.
On any one or more occasions prior to July 15, 2001, we
may redeem up to 25% of the aggregate principal amount
at maturity of the notes with the net cash proceeds from
one or more equity offerings. The redemption price would
be 112% of the accreted value on the redemption date.
You should refer to the heading "Description of Notes --
Optional Redemption" for further details.
Ranking................................... The notes:
- are general unsecured obligations of Holdings;
- rank equal in right of payment with all existing and
future unsecured senior indebtedness of Holdings;
- are senior in right of payment to all future
subordinated indebtedness of Holdings; and
- are effectively subordinated to all indebtedness,
liabilities and other obligations of Holdings'
subsidiaries.
Holdings conducts all operations through its
subsidiaries, and Holdings' subsidiaries are not
guarantors of the notes. As of September 30, 1998,
Holdings had no outstanding liabilities other than the
notes, and Holdings' subsidiaries had approximately $3.0
million of indebtedness and other liabilities.
Certain Covenants......................... The indenture governing the notes contains certain
covenants for your benefit which, among other things and
subject to certain qualifications, restrict our ability
to:
- incur indebtedness;
- make certain payments;
- issue preferred stock;
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- enter into transactions with affiliates;
- create liens;
- sell assets; and
- consolidate, merge or sell substantially all of our assets.
Change of Control......................... Upon the occurrence of a change of control of Holdings, we will offer
to repurchase your notes, in whole or in part, at a price equal to
101% of their accreted value to the date of purchase prior to July
15, 2003 or 101% of their principal amount, plus accrued and unpaid
interest, if any, to the date of purchase on or after July 15, 2003.
There can be no assurance, however, that we will have sufficient
funds available to repurchase all of the notes which holders may
deliver in connection with a change of control repurchase offer.
Form of Registered Notes.................. The registered notes will be represented by one or more permanent
global securities in bearer form deposited with United States Trust
Company of New York, as book entry depositary, for the benefit of
DTC. You will not receive registered notes in registered form unless
one of the events set forth under the heading "Description of the
Registered Notes -- Book-Entry; Delivery and Form" occurs. Instead,
beneficial interests in the registered notes will be shown on, and
transfers of these will be effected only through, records maintained
in book-entry form by DTC with respect to its participants.
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RISK FACTORS
Ownership of the outstanding notes or the registered notes involves a high
degree of risk. Holders of the outstanding notes should consider carefully the
risk factors below, as well as the other information in this prospectus, before
tendering the outstanding notes in the exchange offer.
Some of the statements contained in this prospectus are forward-looking.
They include statements concerning:
- growth strategy;
- liquidity and capital expenditures;
- construction and acquisition activities;
- debt levels and ability to obtain financing and service debt;
- competitive conditions in the communications site and wireless carrier
industries;
- regulatory matters affecting the communications site and wireless carrier
industries;
- projected growth of the wireless communications and wireless carrier
industries; and
- general economic conditions.
Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed in
this section.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF SPECTRASITE.
SpectraSite is and will continue to be highly leveraged. As of September
30, 1998, SpectraSite had total consolidated indebtedness of approximately
$131.9 million, total redeemable preferred stock of $39.9 million and total
shareholders' deficiency of approximately $8.7 million. Also, SpectraSite's pro
forma earnings would have been inadequate to service its pro forma fixed charges
by $18.2 million for the year ended December 31, 1997 and $14.7 million for the
nine months ended September 30, 1998. We expect that earnings will continue to
be inadequate to service SpectraSite's fixed charges at least through fiscal
2000.
The degree to which SpectraSite will be leveraged could have important
consequences. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing;
- require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
our growth strategy, working capital, capital expenditures or other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- place us at a competitive disadvantage vis-a-vis less leveraged
competitors.
ABILITY TO SERVICE DEBT -- WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO
SERVICE OUR INDEBTEDNESS.
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make scheduled payments of principal of, or to pay interest
on, SpectraSite's debt obligations, and our ability to refinance any such debt
obligations, or to fund planned capital expenditures, will depend on
SpectraSite's future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. We anticipate
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substantial capital expenditures in connection with our planned tower build out
and acquisitions. After 1999 or in the event we exceed our budgeted capital
expenditures for 1998 and 1999, we will need to seek additional equity or debt
financing to fund our business plan. Failure to obtain any such financing could
require us to reduce significantly planned capital expenditures or scale back
the scope of build-to-suit activity or acquisitions, any of which could have a
material adverse effect on our business, financial condition or results of
operations. In addition, we may need to refinance all or a portion of
SpectraSite's indebtedness on or prior to its scheduled maturity. There can be
no assurance that we will generate sufficient cash flow from operations in the
future, that anticipated revenue growth will be realized or that future
borrowings or equity contributions will be available in amounts sufficient to
service SpectraSite's indebtedness and make anticipated capital expenditures. In
addition, there can be no assurance that SpectraSite will be able to effect any
required refinancing of its indebtedness on commercially reasonable terms or at
all.
HOLDING COMPANY STRUCTURE -- OUR ONLY SOURCE OF CASH TO PAY INTEREST ON AND THE
PRINCIPAL OF THE NOTES IS DISTRIBUTIONS FROM OUR SUBSIDIARIES.
Holdings is a holding company with no business operations of its own.
Holdings' only significant asset is and will be the outstanding capital stock of
its subsidiaries. Holdings conducts all of its business operations through its
subsidiaries. Accordingly, Holdings' only source of cash to pay interest on and
the principal of the notes is distributions with respect to its ownership
interest in its subsidiaries from the net earnings and cash flow generated by
such subsidiaries. We currently expect that Holdings' subsidiaries will retain
and use any earnings and cash flow to support their operations, including to
service their respective debt obligations. Even if we decided to pay a dividend
on or to make a distribution in respect of the capital stock of Holdings'
subsidiaries, there can be no assurance that the subsidiaries will generate
sufficient cash flow to pay such a dividend or distribute such funds to Holdings
or that applicable state law and contractual restrictions, including negative
covenants contained in the debt instruments of such subsidiaries, will permit
such dividends or distributions.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS EFFECTIVELY
JUNIOR TO SPECTRASITE'S EXISTING INDEBTEDNESS AND POSSIBLY ALL FUTURE
BORROWINGS.
Holdings' subsidiaries are not guarantors of the notes. As a result, all
indebtedness, including trade payables, of Holdings' subsidiaries, including any
borrowings under a new credit facility will be structurally senior to the notes.
As of September 30, 1998, SpectraSite's subsidiaries had approximately $3.0
million of liabilities, including trade payables, all of which will be
structurally senior in right of payment to the notes. For more information about
the terms contemplated under our potential credit facility, see "Description of
New Credit Facility."
WE EXPECT THAT OUR ANTICIPATED NEW CREDIT FACILITY WILL RESTRICT THE ABILITY OF
HOLDINGS' SUBSIDIARIES TO MAKE DISTRIBUTIONS TO HOLDINGS, WHICH MAY ADVERSELY
AFFECT OUR ABILITY TO PAY INTEREST ON OR THE PRINCIPAL OF THE NOTES.
This exchange offer is likely to close before our new credit facility is in
place. We expect that the new credit facility will, subject to certain limited
exceptions, prohibit dividends or other distributions by Holdings' subsidiaries
to Holdings. In addition, Holdings' subsidiaries will be permitted under the
terms of the indenture governing the notes to incur certain additional
indebtedness that may restrict or prohibit the subsidiaries from making
distributions, paying dividends or making loans to Holdings. If any or all of
Holdings' subsidiaries become subject to bankruptcy proceedings before payment
of the notes, we do not expect the note holders to have claims in such
proceedings. Only after such subsidiaries' creditors are fully paid would any
remaining value of the subsidiaries' assets be available to Holdings or its
creditors, including the note holders. See "-- Subordination."
We expect that the new credit facility will permit distributions to
Holdings in an amount sufficient to pay scheduled interest payments on the notes
commencing in 2004, provided that there is no default or event of default
outstanding under the new credit facility, including under the financial
maintenance tests
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the new credit facility will set forth. If Holdings' subsidiaries are not able
to make distributions to Holdings, we will have to pursue other alternatives
which may include refinancing the new credit facility, seeking other sources of
debt or equity capital. For more information regarding the new credit facility,
see "Description of New Credit Facility."
REPAYMENT UNCERTAINTY -- REPAYMENT OF THE PRINCIPAL OF THE NOTES LIKELY WILL
REQUIRE ADDITIONAL FINANCING. WE ARE NOT CERTAIN OF THE SOURCE OR AVAILABILITY
OF ANY SUCH FINANCING AT THIS TIME.
We currently anticipate that, in order to pay the principal of the notes or
to redeem or repurchase the notes upon a change of control under the indenture
governing the notes, we will be required to adopt one or more alternatives, such
as refinancing SpectraSite's indebtedness or selling its equity securities or
the equity securities or assets of its subsidiaries. There can be no assurance
that any of the foregoing actions could be effected on satisfactory terms, that
any of the foregoing actions would enable us to pay the principal of the notes
or that any of such actions would be permitted by the terms of the indenture
governing the notes or any other debt instruments then in effect.
WE CANNOT ASSURE YOU THAT MANDATES WILL YIELD BINDING AGREEMENTS.
As of September 30, 1998, we had non-binding requests from customers to
build up to 126 towers under build-to-suit programs. These non-binding requests
are commonly called "mandates." Although we believe that the substantial
majority of these mandates will result in long-term anchor leases for specific
communications towers, there are a number of steps that need to occur before any
such leases are executed. These steps include, in some cases, finalization of
build-out plans by the customers who have awarded the mandates, completion of
due diligence by us and our customers and finalization of other definitive
documents between the parties. In addition, consistent with industry practice,
mandates are typically verbal agreements. As a result, there can be no assurance
as to the percentage of current and future non-binding mandates that will
ultimately result in binding anchor tenant leases and constructed towers.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH CONSTRUCTION AND ACQUISITION OF
TOWERS.
Our growth strategy depends on our ability to construct, acquire and
operate towers in conjunction with the expansion by wireless service providers
of their tower network infrastructure. Our ability to construct new towers can
be affected by a number of factors beyond our control, including zoning and
local permitting requirements, FAA considerations, availability of tower
components and construction equipment, availability of skilled construction
personnel and weather conditions. In addition, because the concern over tower
proliferation has grown in recent years, certain communities now restrict new
tower construction or delay granting permits required for construction. There
can be no assurance:
- of the number of mandates that SpectraSite will be awarded or the number
of mandates that will result in towers;
- that we will be able to overcome regulatory or other barriers to new
construction;
- that the number of towers planned for construction will be completed in
accordance with the requirements of our customers; or
- that there will be significant need for the construction of new towers
once the wireless service providers complete their tower network
infrastructure build-out.
Anchor tenant leases may contain penalty or forfeiture provisions in the
event the towers are not completed within specified time periods.
Our expansion plans call for a significant increase in construction
activity. There can be no assurance that we will be able to overcome the
barriers to new construction or that the number of towers planned for
construction will be completed. The failure to complete the necessary
construction could have a material adverse effect on our business, financial
condition and results of operations.
10
<PAGE> 13
With respect to the acquisition of towers, we compete with certain wireless
service providers, broadcasters, site developers and other independent tower
owners and operators for acquisitions of towers, and we expect such competition
to increase. Increased competition for acquisitions may result in fewer
acquisition opportunities, as well as higher acquisition prices. We regularly
explore acquisition opportunities; however, there can be no assurance that we
will be able to identify towers or tower companies to acquire in the future.
WE ANTICIPATE SIGNIFICANT CAPITAL EXPENDITURES.
Our current plans call for at least $140 million of capital expenditures
through fiscal 1999 for the construction and acquisition of communication sites,
primarily towers. However, if acquisitions or other opportunities present
themselves more rapidly than we currently anticipate or if estimates prove
inaccurate, we may seek additional sources of debt or equity capital prior to
the end of 1999 or scale back the scope of tower construction activity. The
availability of additional financing cannot be assured and could be restricted
by the terms of a new credit facility contemplated by a commitment letter which
we have received from Credit Suisse First Boston and the indenture governing the
notes.
SUCCESS OF OUR BUSINESS PLAN REQUIRES US TO ACT QUICKLY AND IMPLEMENTATION OF
OUR STRATEGY COULD STRAIN OUR RESOURCES.
We cannot be certain that we will be able to identify, finance and complete
future acquisitions on acceptable terms or that we will be able to manage
profitably and market available space on SpectraSite's towers. Our business plan
depends on the construction or acquisition of additional towers and the
profitable operation of our tower assets. Failure to execute our business plan
will have a material adverse effect on SpectraSite's business, financial
condition or results of operations.
In addition, the time frame for completion of networks currently planned by
wireless communications service providers may be limited to the next few years,
and many personal communications services networks already have been
substantially completed in large markets. Failure to move quickly and
aggressively to obtain growth capital and capitalize on this infrastructure
development opportunity could have a material adverse effect on our business,
financial condition or results of operations with respect to both site
acquisition services and site leasing.
Implementation of our strategy to expand our site leasing business may
impose significant strains on our management, operating systems and financial
resources. In addition, we anticipate that operating expenses will increase
significantly as we build and acquire additional tower assets. Failure to manage
growth or unexpected difficulties encountered during expansion could have a
material adverse effect on our business, financial condition or results of
operations. The pursuit and integration of build-to-suit prospects,
acquisitions, investments, joint ventures and strategic alliances will require
substantial attention from the senior management, which will limit the amount of
time available to devote to the existing operations. Future acquisitions could
result in the incurrence of debt and contingent liabilities and an increase in
amortization expenses related to goodwill and other intangible assets, which
could have a material adverse effect upon our business, financial condition or
results of operations.
OUR BUSINESS DEPENDS ON DEMAND FOR WIRELESS COMMUNICATIONS.
Our business depends on demand for communications sites from wireless
service providers, which, in turn, depends on the demand for wireless services.
Success of SpectraSite's business model requires us to secure co-location
tenants, and securing co-location tenants depends upon the demand for
communications sites from a variety of service providers in a particular market.
Factors outside of SpectraSite's control affect the demand for wireless
communications services and competition for co-location tenants. A reduction in
demand for communications sites or increased competition for co-location tenants
could have a material adverse effect on SpectraSite's business, financial
condition or results of operations.
The wireless communications industry has undergone significant growth in
recent years. A slowdown in the growth of, or reduction in, demand in a
particular wireless segment could adversely affect the
11
<PAGE> 14
demand for communications sites. Moreover, wireless service providers often
operate with substantial leverage, and financial problems for SpectraSite's
customers could result in accounts receivable going uncollected, as well as the
loss of customers and the associated lease revenue. A slowdown in growth or
reduction in demand affecting the wireless communications industry could have a
material adverse effect on our business, financial condition or results of
operations.
COMPETING TECHNOLOGIES AND OTHER ALTERNATIVES COULD REDUCE THE DEMAND FOR OUR
SERVICES.
Most types of wireless services currently require ground-based network
facilities, including communications sites for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on a number of factors beyond our control, including the level of demand
for such wireless services, the financial condition and access to capital of
such providers, the strategy of providers with respect to owning or leasing
communications sites, government licensing of broadcast rights, changes in
telecommunications regulations and general economic conditions. In addition,
wireless service providers frequently enter into roaming agreements with
competitors allowing each other to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
provider's services. Such roaming agreements may be viewed by wireless service
providers as a superior alternative to leasing antenna space on communications
sites we own. The proliferation of such roaming agreements could have a material
adverse effect on our business, financial condition or results of operations.
The emergence of new technologies could also have a negative impact on our
operations. For example, the FCC has granted license applications for three
low-earth orbiting satellite systems that are intended to provide mobile voice
and data services. Although such systems are highly capital-intensive and
technologically untested, mobile satellite systems could compete with land-based
wireless communications systems, thereby reducing the demand for the
infrastructure services we provide. The occurrence of any of these factors could
have a material adverse effect on our business, financial condition or results
of operations.
WE COMPETE WITH COMPANIES WHO HAVE GREATER FINANCIAL RESOURCES.
SpectraSite competes for site leasing tenants with:
- wireless service providers that own and operate their own towers and
lease, or may in the future decide to lease, antennae space to other
providers;
- site acquisition companies which acquire antennae space on existing
towers for wireless service providers, manage new tower construction and
provide site acquisition services;
- other independent tower construction companies; and
- traditional local independent tower operators.
Wireless service providers that own and operate their own towers generally
are substantially larger and have greater financial resources than SpectraSite.
For example, AT&T Wireless and Sprint PCS are large companies that own and
operate their own tower networks. We believe that tower location and capacity,
price, quality of service and density within a geographic market historically
have been and will continue to be the most significant competitive factors
affecting the site leasing business.
We compete for acquisition and new tower construction opportunities
primarily with site developers and other independent tower companies. Some of
these competitors have or are expected to have greater financial resources than
SpectraSite has.
CUSTOMER CONCENTRATION -- OUR HISTORICAL REVENUES COME FROM A FEW CUSTOMERS.
We currently derive almost all of our revenues from site acquisition
activities, and a significant portion of such revenues from a small number of
customers. For example, five customers each accounted for over 10% of
SpectraSite's revenue during 1997, and those customers in the aggregate
represented over 90% of
12
<PAGE> 15
total revenue for the year ended December 31, 1997. For the nine months ended
September 30, 1998, only one customer accounted for over 10% of SpectraSite's
revenue, but that customer represented almost 60% of our revenue for such
period. Customers engage SpectraSite for site acquisition services on a
project-by-project basis, and a customer generally can terminate an assignment
at any time without penalty. In addition, a customer's need for site acquisition
services can decrease, and there can be no assurance that we will be successful
in establishing relationships with new clients. Moreover, there can be no
assurance that our existing customers will continue to engage SpectraSite for
additional projects. The loss of any significant site acquisition customer could
have a material adverse effect on our business, financial condition or results
of operations.
We currently have mandates from AT&T Wireless, Airadigm, Nextel and Sprint
PCS. Mandates awarded under a build-to-suit program can be decreased by the
carrier at any time, and a carrier generally can discontinue a build-to-suit
program in its entirety at any time. Furthermore, there can be no assurance that
current build-to-suit customers will award additional mandates to SpectraSite. A
material decrease in the number of mandates awarded by a significant customer or
the failure to secure additional mandates in the future could have a material
adverse effect on our business, financial condition or results of operations.
PROJECT RISKS -- ANY FAILURE TO MEET CUSTOMER EXPECTATIONS COULD REQUIRE
ADDITIONAL EXPENDITURES TO CORRECT AND ADVERSELY AFFECT FUTURE ORDERS.
Most of our site acquisition services and build-to-suit programs involve
projects which are critical to the operations of its customers' businesses. Any
failure to meet customer expectations in the performance of its services could
damage our reputation and adversely affect our ability to attract new business.
In addition, we could incur substantial costs and expend significant resources
correcting errors in SpectraSite's work and could become liable for damages
caused by such errors. When we bid on fixed-price contracts, SpectraSite could
incur losses with regard to such projects if the expenditures associated with
such projects exceed our estimate in making the bid pursuant to that contract.
To date, SpectraSite has not incurred any material liabilities for its failure
to perform or for cost overruns. However, we cannot assure you that errors will
occur in the future.
REGULATORY COMPLIANCE AND APPROVAL -- OUR OPERATIONS REQUIRE COMPLIANCE WITH AND
APPROVAL FROM FEDERAL AND STATE REGULATORY AUTHORITIES.
SpectraSite is subject to a variety of regulations, including those at the
federal, state and local levels. Both the FCC and the FAA regulate towers and
other sites used for wireless communications transmitters and receivers. Such
regulations control siting and marking of towers and may, depending on the
characteristics of the tower, require registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the regulation of the particular frequency
used. All proposals to construct new communications sites or to modify existing
communications sites are reviewed by both the FCC and the FAA to ensure that a
site will not present a hazard to aviation. Tower owners may have an obligation
to paint them or install lighting to conform to FCC and FAA standards, and to
maintain such painting or lighting. Tower owners also may bear the
responsibility for notifying the FAA of any tower lighting failure. SpectraSite
generally indemnifies its customers against any failure by SpectraSite to comply
with applicable standards. Failure to comply with applicable requirements may
lead to civil penalties.
Local regulations include city or other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local regulations can delay or prevent new tower construction or
site upgrade projects, thereby limiting our ability to respond to customers'
demands. In addition, such regulations increase the costs associated with new
tower construction. There can be no assurance that existing regulatory policies
will not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted that will increase such delays or
result in additional costs to SpectraSite. Such factors could have a material
adverse
13
<PAGE> 16
effect on SpectraSite's business, financial condition or results of operations
and on SpectraSite's ability to implement or achieve its business objectives in
the future.
Our customers also may become subject to new regulatory policies which
adversely affect the demand for communications sites. In addition, if we pursue
international opportunities, we will be subject to regulation in foreign
jurisdictions. However, we are not actively considering any international
opportunities at this time.
REAL PROPERTY -- WE DO NOT OWN THE LAND UNDER OUR TOWERS.
Our real property interests relating to towers consist of leasehold
interests, private easements and licenses, easements and rights-of-way granted
by governmental entities. Our ability to protect our rights against persons
claiming superior rights in towers depends on our ability to:
- recover under title policies, the policy limits of which may be less than
the purchase price of a particular tower;
- in the absence of title insurance coverage, realize on title warranties
given by tower sellers, which warranties often terminate after the
expiration of a specific period, typically one to three years; and
- realize on title covenants from landlords contained in lease agreements.
ENVIRONMENTAL MATTERS -- WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE
LIABILITY WITHOUT REGARD TO FAULT.
Our operations are subject to federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and nonhazardous substances, materials or wastes. Under
certain of these laws, SpectraSite could be held strictly, jointly and severally
liable for the remediation of hazardous substance contamination at its
facilities or at third-party waste disposal sites and also could be held liable
for any personal or property damage related to such contamination. Although we
believe that we are in substantial compliance with and have no material
liability under all applicable environmental laws, there can be no assurance
that the costs of compliance with existing or future environmental laws and
liability related thereto will not have a material adverse effect on our
business, financial condition or results of operations.
DAMAGED TOWERS -- OUR TOWERS ARE SUBJECT TO NATURAL DISASTERS.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We self-insure almost all of our towers
against such risks. A tower accident for which we are uninsured or underinsured,
or damage to a tower or group of towers, could have a material adverse effect on
our business, financial condition or results of operations.
RADIO FREQUENCY EMISSIONS -- PERCEIVED HEALTH RISKS.
SpectraSite and the wireless service providers that utilize our towers are
subject to government requirements and other guidelines relating to radio
frequency emissions. The potential connection between radio frequency emissions
and certain negative health effects, including some forms of cancer, has been
the subject of substantial study by the scientific community in recent years. To
date, the results of these studies have been inconclusive. If radio frequency
emissions were conclusively proved harmful, we could be subject to lawsuits
claiming damages from such emissions and demand for wireless services and new
towers would be adversely affected. Although we have not been subject to any
claims relating to radio frequency emissions, there can be no assurance that we
will not be subject to such claims in the future.
KEY PERSONNEL -- OUR SUCCESS DEPENDS ON CERTAIN KEY SENIOR EXECUTIVES.
SpectraSite's success depends to a significant extent upon the continued
services of Stephen H. Clark, its Chairman and Chief Executive Officer David P.
Tomick, its Chief Financial Officer. SpectraSite does not have an employment
agreement with Messrs. Clark or Tomick, and their compensation and other terms
of employment will be determined by the Board of Directors. Mr. Clark has,
however, entered into a
14
<PAGE> 17
Confidentiality and Non-Competition Agreement with SpectraSite. The loss of the
services of Messrs. Clark or Tomick could have a material adverse effect upon
our business, financial condition or results of operations.
SIGNIFICANT STOCKHOLDERS -- A GROUP OF AFFILIATED STOCKHOLDERS CONTROLS THE
VOTING POWER OF HOLDINGS.
Affiliates of J. H. Whitney & Co. own approximately 8.36 million shares of
Holdings' Series A preferred stock and Series B preferred stock representing
approximately 72% of the voting power of Holdings' capital stock on a
fully-diluted basis as of December 31, 1998. Whitney also has the right to
appoint up to five members of Holdings' Board of Directors. Accordingly, Whitney
is able to influence SpectraSite's management and operations. In addition,
action requiring the approval of Holdings' stockholders, such as mergers,
requires Whitney's consent. There can be no assurance that Whitney's interests
will not conflict with the interests of the note holders.
LACK OF PUBLIC MARKET FOR THE NOTES -- YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
The outstanding notes were not registered under the Securities Act or under
the securities laws of any state and may not be resold unless they are
subsequently registered or an exemption from the registration requirements of
the Securities Act and applicable state securities laws is available. The
registered notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
- the liquidity of any such market that may develop;
- the ability of registered note holders to sell their notes; or
- the price at which the registered note holders would be able to sell
their notes. If such a market were to exist, the registered notes may
trade at higher or lower prices than their principal amount or purchase
price, depending on many factors, including prevailing interest rates,
the market for similar debentures and the financial performance of
SpectraSite.
The notes are designated for trading among qualified institutional buyers
in The Portal(SM) Market. We understand that Credit Suisse First Boston
Corporation, Lehman Brothers Inc. and CIBC Oppenheimer Corp. presently intend to
make a market in the notes. However, they are not obligated to do so, and any
market-making activity with respect to the notes may be discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Securities Exchange Act of 1934,
and may be limited during the exchange offer or the pendency of an applicable
shelf registration statement. There can be no assurance that an active trading
market will exist for the notes or that such trading market will be liquid.
Notes that are not tendered or are tendered but not accepted will,
following the consummation of the exchange offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
exchange offer, certain registration rights with respect to the outstanding
notes will terminate. In addition, any outstanding note holder who tenders in
the exchange offer for the purpose of participating in a distribution of the
registered notes may be deemed to have received restricted securities, and if
so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent that outstanding notes are tendered and accepted in the exchange
offer, the trading market for untendered and tendered but unaccepted outstanding
notes could be adversely affected.
WE ARE NOT OBLIGATED TO NOTIFY YOU OF UNTIMELY OR DEFECTIVE TENDERS OF
OUTSTANDING NOTES.
We will issue registered notes pursuant to this exchange offer only after a
timely receipt of your outstanding notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if you want
to tender your outstanding notes, please allow sufficient time to ensure timely
delivery. We are under no duty to give notification of defects or irregularities
with respect to the tenders of outstanding notes for exchange.
15
<PAGE> 18
USE OF PROCEEDS
Holdings will not receive any cash proceeds from the issuance of the
registered notes in exchange for the outstanding notes. In consideration for
issuing the registered notes, Holdings will receive outstanding notes in like
original principal amount at maturity. Outstanding notes received in the
exchange offer will be cancelled.
The net proceeds to SpectraSite from the original issuance of the
outstanding notes, after deducting discount and estimated expenses, was
approximately $120 million. SpectraSite has deposited $11.75 million of such
proceeds into escrow for the acquisition of up to 47 towers from Airadigm.
Airadigm has received $10 million from escrow as payment for 40 towers and the
balance remains in escrow. In addition, SpectraSite used:
- approximately $500,000 to acquire 14 ground leases and two towers in
inventory from Amica;
- $1.9 million to acquire GlobalComm, Inc.; and
- $2.3 million to repay an outstanding note payable.
SpectraSite holds the remaining net proceeds in interest bearing accounts. We
intend to use the remaining proceeds for general corporate purposes, including
working capital, and may use all or a portion of such proceeds to acquire
additional tower assets or related businesses. SpectraSite is actively
considering, and intends to continue considering, opportunities to acquire
communication sites, tower assets and related businesses. However, we currently
have no binding commitments or agreements with respect to any material
acquisitions.
We issued the note payable repaid with outstanding note proceeds in
connection with the acquisition of Telesite and Metrosite in May 1997. The note
had a stated interest rate of 7%. See "Certain Transactions -- Telesite and
Metrosite Acquisition."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and capitalization of SpectraSite as of September 30, 1998 on a historical
basis. This table should be read in conjunction with SpectraSite's historical
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
ACTUAL
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and short term investments............................. $121,766
========
Long-term debt, including current maturities:
New credit facility(a).................................... --
12% Senior Discount Notes Due 2008........................ $128,916
Notes payable and other................................... 133
--------
Total long-term debt, including current maturities..... 129,049
Redeemable preferred stock:
Series A preferred stock(b)............................... 11,100
Series B preferred stock(b)............................... 28,796
Shareholders' deficiency:
Common stock.............................................. 1
Accumulated deficit....................................... (8,682)
--------
Total shareholders' deficiency......................... (8,681)
--------
Total capitalization.............................. $160,264
========
</TABLE>
- ---------------
(a) Credit Suisse First Boston has committed, subject to certain standard
conditions, to provide a seven year $50 million credit facility to
SpectraSite to fund the construction and acquisition of towers and to
provide for working capital. See "Description of New Credit Facility."
(b) Each share of Series A preferred stock and Series B preferred stock is
convertible into one share of common stock. Shares of Series A preferred
stock and Series B preferred stock accrue dividends at a rate of 8% per
annum, and must be redeemed by SpectraSite on December 15, 2008. Accrued
dividends are payable at redemption or upon liquidation, dissolution or
winding-up of Holdings.
17
<PAGE> 20
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data present the unaudited pro
forma consolidated balance sheet of SpectraSite as of September 30, 1998 and the
unaudited pro forma consolidated statements of operations of SpectraSite for the
year ended December 31, 1997 and the nine months ended September 30, 1998. The
unaudited pro forma consolidated balance sheet reflects the acquisition of 40
towers from Airadigm Communications, Inc. as if such acquisition had occurred on
September 30, 1998. The unaudited pro forma consolidated statements of
operations reflect the following adjustments as if the underlying transactions
had occurred on January 1, 1997:
- the disposition of Metrosite Management LLC;
- the acquisition of five towers from H&K Investments LLC;
- the disposition of a minority interest in CMS;
- the issuance of the outstanding notes;
- the acquisition of GlobalComm; and
- the acquisition of 40 towers from Airadigm.
The unaudited pro forma financial data are based on the historical
financial statements of SpectraSite and the adjustments described in the
accompanying notes. The unaudited pro forma financial data do not purport to
represent what would actually have been included in SpectraSite's financial
statements at such dates had the transactions occurred as of the dates assumed
or to project SpectraSite's financial position or results of operations at any
future date or for any future period. The unaudited pro forma financial data
should be read in conjunction with "Capitalization," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
18
<PAGE> 21
SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SPECTRASITE PENDING ASSET
HISTORICAL ACQUISITION PRO FORMA
----------- ---------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 76,204 $ -- $ 76,204
Investments......................................... 45,561 45,561
Accounts receivable................................. 1,467 -- 1,467
Prepaid expenses and other.......................... 257 -- 257
-------- -------- --------
Total current assets........................ 123,489 -- 123,489
Property and equipment, net........................... 14,818 10,000(a) 24,818
Goodwill, net......................................... 8,087 -- 8,087
Notes receivable...................................... 257 -- 257
Deposits.............................................. 11,750 (10,000)(a) 1,750
Debt issuance costs, net.............................. 4,596 4,596
Other................................................. 174 -- 174
-------- -------- --------
Total assets................................ $163,171 $ -- $163,171
======== ======== ========
Current liabilities:
Accounts payable.................................... $ 2,262 $ -- $ 2,262
Accrued and other expenses.......................... 645 -- 645
Current portion of long-term debt................... 128 -- 128
-------- -------- --------
Total current liabilities................... 3,035 -- 3,035
Long-term debt, less current portion.................. 5 -- 5
Senior notes due 2008................................. 128,916 128,916
-------- -------- --------
Total liabilities........................... 131,956 -- 131,956
Preferred Stock (Series A)............................ 11,100 -- 11,100
Preferred Stock (Series B)............................ 28,796 -- 28,796
Shareholders' deficiency:
Common stock........................................ 1 -- 1
Accumulated deficit................................. (8,682) -- (8,682)
-------- -------- --------
Total shareholder's deficit................. (8,681) -- (8,681)
-------- -------- --------
Total liabilities, preferred stock and
shareholders' deficiency.................. $163,171 $ -- $163,171
======== ======== ========
</TABLE>
19
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) SpectraSite has agreed to purchase up to 47 towers from Airadigm and has
deposited the aggregate purchase price of $11,750 into escrow. The
adjustment represents the asset acquisition of the 40 towers accepted by
SpectraSite for a total purchase price of $10,000 as if it had occurred on
September 30, 1998. The acquisition of the remaining 7 towers is subject to
additional due diligence by SpectraSite.
20
<PAGE> 23
SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
SPECTRASITE
TELESITE 4/25/97 ACQUISITION ACTIVITY
1/1/97 - (INCEPTION) - COMBINED ---------------------------------------
5/12/97 12/31/97 1997 ADJUSTMENTS AIRADIGM (E) H&K (F) GLOBALCOMM (G) SUBTOTAL
-------- ------------- -------- ----------- ------------ ------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Site acquisition.... $1,926 $ 5,002 $ 6,928 $ -- $ -- $ -- $1,902 $ 8,830
Site leasing........ -- -- -- -- 904 162 -- 1,066
------ ------- ------- ----- ----- ----- ------ -------
Total
revenues... 1,926 5,002 6,928 -- 904 162 1,902 9,896
Costs of operations:
Site acquisition.... 595 1,120 1,715 -- -- -- 163 1,878
Site leasing
(exclusive of
depreciation shown
separately
below)............ -- -- -- -- 289 39 -- 328
------ ------- ------- ----- ----- ----- ------ -------
Total costs
of
operations... 595 1,120 1,715 -- 289 39 163 2,206
Selling, general, &
administrative...... 1,742 5,659 7,401 (476)(a) -- -- 1,354 8,279
Depreciation and
amortization........ 56 489 545 190(b) 667 93 111 1,606
------ ------- ------- ----- ----- ----- ------ -------
Operating income
(loss).............. (467) (2,266) (2,733) 286 (52) 30 274 (2,195)
Other income
(expense):
Equity in earnings
(loss) of
affiliate........... (1) 205 204 (204)(d) -- -- -- --
Interest income....... 121 121 -- -- -- -- 121
Interest expense...... (36) (164) (200) -- -- -- -- (200)
Other expense......... (56) (56) -- -- -- -- (56)
------ ------- ------- ----- ----- ----- ------ -------
(37) 106 69 (204) -- -- -- (135)
------ ------- ------- ----- ----- ----- ------ -------
Net income (loss)..... $ (504) $(2,160) $(2,664) $ 82 $ (52) $ 30 $ 274 $(2,330)
====== ======= ======= ===== ===== ===== ====== =======
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENT (H) AS ADJUSTED
-------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues
Site acquisition.... $ -- $ 8,830
Site leasing........ -- 1,066
-------- --------
Total
revenues... -- 9,896
Costs of operations:
Site acquisition.... -- 1,878
Site leasing
(exclusive of
depreciation shown
separately
below)............ -- 328
-------- --------
Total costs
of
operations... -- 2,206
Selling, general, &
administrative...... -- 8,279
Depreciation and
amortization........ -- 1,606
-------- --------
Operating income
(loss).............. -- (2,195)
Other income
(expense):
Equity in earnings
(loss) of
affiliate........... -- --
Interest income....... -- 121
Interest expense...... (15,824) (16,024)
Other expense......... -- (56)
-------- --------
(15,824) (15,959)
-------- --------
Net income (loss)..... $(15,824) $(18,154)
======== ========
</TABLE>
21
<PAGE> 24
SPECTRASITE HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACQUISITION ACTIVITY
SPECTRASITE ---------------------------------------
HISTORICAL ADJUSTMENTS AIRADIGM (h) H&K (i) GLOBALCOMM (j) SUBTOTAL
----------- ----------- ------------ ------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Site acquisition................................ $ 5,154 $ -- $ -- $ -- $2,176 $ 7,330
Site leasing.................................... 211 -- 678 81 -- 970
------- ----- ---- ---- ------ -------
Total revenues........................... 5,365 -- 678 81 2,176 8,300
Costs of operations:
Site acquisition................................ 1,721 -- -- -- 128 1,849
Site leasing (exclusive
of depreciation shown separately
below)........................................ 142 -- 217 19 -- 378
------- ----- ---- ---- ------ -------
Total costs of operations................ 1,863 -- 217 19 128 2,227
Selling, general, & administrative................ 6,516 (35)(a) -- -- 866 7,347
Depreciation and amortization..................... 261 -- 500 47 83 891
------- ----- ---- ---- ------ -------
Operating income (loss)........................... (3,275) 35 (39) 15 1,099 (2,165)
Other income (expense): -- -- --
Interest income................................... 2,110 (13)(d) -- -- -- 2,097
Interest expense.................................. (4,335) -- -- -- -- (4,335)
Other expense..................................... 473 (446)(c) -- -- -- 27
------- ----- ---- ---- ------ -------
(1,752) (459) -- -- -- (2,211)
------- ----- ---- ---- ------ -------
Net income (loss)................................. $(5,027) $(424) $(39) $ 15 $1,099 $(4,376)
======= ===== ==== ==== ====== =======
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENT (k) AS ADJUSTED
-------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues
Site acquisition................................ $ -- $ 7,330
Site leasing.................................... -- 970
------- --------
Total revenues........................... -- 8,300
Costs of operations:
Site acquisition................................ -- 1,849
Site leasing (exclusive
of depreciation shown separately
below)........................................ -- 378
------- --------
Total costs of operations................ -- 2,227
Selling, general, & administrative................ 7,347
Depreciation and amortization..................... 891
------- --------
Operating income (loss)........................... -- (2,165)
Other income (expense):
Interest income................................... -- 2,097
Interest expense.................................. (9,134) (13,469)
Other expense..................................... -- 27
------- --------
(9,134) (11,345)
------- --------
Net income (loss)................................. $(9,134) $(13,510)
======= ========
</TABLE>
22
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1998
(a) Represents the reduction of historical selling, general and administrative
expenses of Metrosite as if the sale of Metrosite had occurred on January 1,
1997. There was no material historical revenue for Metrosite during the year
ended December 31, 1997 or during the nine months ended September 30, 1998.
(b) Represents an increase to amortization expense resulting from additional
straight-line amortization of the $7.2 million of goodwill resulting from
the acquisition of Telesite as if the acquisition of Telesite had occurred
on January 1, 1997. The terms of the purchase agreement provide for
additional consideration up to a maximum of 204,382 shares of SpectraSite's
common stock to be issued to the former owners of Telesite if certain
operating goals are met in 1998. If such operating goals are met in 1998,
these shares will be valued at the time they are issued and will be
accounted for as an additional cost of the acquisition. Such amounts are not
included in these pro forma financial statements.
(c) Represents the elimination of the historical gain of $257 on the sale of
Metrosite and the historical gain of $189 on the sale of Communications
Management Specialists as if the sale had occurred on January 1, 1997.
(d) Represents the elimination of the $204 of historical equity in earnings and
the elimination of $13 of historical interest income related to the note
receivable received as consideration on the sale of Communications
Management Specialists for the respective period as if the sale had occurred
on January 1, 1997.
(e) Represents the pending acquisition of assets from Airadigm and leaseback of
antennae space, as if the purchase of assets had occurred on January 1,
1997. Adjustments for revenue are based on the executed tenant lease terms
for the 40 Airadigm towers. Cost of revenues represents the cost of the
executed ground leases and the historical routine maintenance costs and real
estate taxes associated with the land underlying the towers. Depreciation
expense is straight-line depreciation of the aggregate cost of $10,000 of
the 40 towers. The Airadigm ground leases are non-cancelable operating
leases, generally for terms of five years and include options for renewal.
The pro forma minimum lease payments are based on the executed ground
leases. Airadigm has leased space on these towers for a five year term with
options for renewal. Five towers of the 40 towers had space leased to other
wireless service providers under non-cancelable operating leases, generally
with terms of five years and options for renewal. The pro forma future
minimum lease payments and minimum rental income for these leases assuming
the transaction occurred and the related leases commenced January 1, 1997
are as follows:
<TABLE>
<CAPTION>
LEASE PAYMENTS RENTAL INCOME
-------------- -------------
<S> <C> <C>
1997.............................................. $ 240 $ 904
1998.............................................. 240 904
1999.............................................. 240 904
2000.............................................. 240 904
2001.............................................. 240 904
------ ------
Total................................... $1,200 $4,520
====== ======
</TABLE>
(f) Represents the results of operations of H&K, as if the business combination
had occurred on January 1, 1997. Adjustments for revenue are based on the
executed tenant lease terms for the five H&K towers. Cost of revenues
represents the cost of the executed ground leases and the historical
routine maintenance costs and real estate taxes associated with the land
underlying the towers. Depreciation expense is computed using the
straight-line method based on the aggregate cost of $1,400 for the five
towers. The H&K ground leases are non-cancelable operating leases,
generally for terms of five years and include options for renewal. The pro
forma minimum lease payments are based on the executed ground leases. The
antennae space on the H&K multi-tenant towers are leased
23
<PAGE> 26
to a variety of wireless service providers under non-cancelable operating
leases. The tenant leases are generally for terms of five years and include
options for renewal. The pro forma future minimum lease payments and
minimum rental income for these leases assuming the transaction occurred
and the related leases commenced January 1, 1997 are as follows:
<TABLE>
<CAPTION>
LEASE PAYMENTS RENTAL INCOME
-------------- -------------
<S> <C> <C>
1997.............................................. $ 32 $162
1998.............................................. 32 162
1999.............................................. 32 162
2000.............................................. 32 162
2001.............................................. 32 162
---- ----
Total................................... $160 $810
==== ====
</TABLE>
(g) Represents the results of operations of GlobalComm as if the business
combination had occurred on January 1, 1997. The adjustments are based on
historical revenues, historical expenses and straight-line amortization of
$1,700 of goodwill attributable to the acquisition over 15 years.
(h) The adjustment for the year ended December 31, 1997 and the nine months
ended September 30, 1998, respectively, represents pro forma interest
expense at a rate of 12.0% per annum, compounded semiannually, applied to
the $125,000 gross proceeds received from the private sale of the notes of
$15,450 and $12,893, less the $3,916 of historical interest expense incurred
related to the notes in the nine months ended September 30, 1998, plus
straight-line amortization of $4,750 of debt issuance costs over 10 years of
$475 and $238, less $101 and $81 of historical interest expense incurred
related to the note payable issued to Joe L. Finley III in connection with
the acquisition of Telesite and Metrosite, as if the sale of the notes had
occurred on January 1, 1997. The note payable to Mr. Finley was repaid with
a portion of the proceeds from the sale of the notes.
24
<PAGE> 27
SELECTED FINANCIAL DATA
The following table sets forth summary historical financial data of
SpectraSite and its predecessor, Telesite, as derived from the audited financial
statements as of and for:
- the year ended December 31, 1996;
- the period from January 1, 1997 to May 12, 1997;
- the period from the SpectraSite's inception (April 25, 1997) to December
31, 1997; and
- the nine-month period ended September 30, 1998.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that you should expect for the entire
year.
The combined financial data presented below for the nine months ended
September 30, 1997 were derived from the audited financial statements of
Telesite for the period from January 1, 1997 to May 12, 1997 and the unaudited
financial statements of SpectraSite from April 25, 1997 to September 30, 1997.
We have prepared the unaudited financial data on the same basis as the audited
financial statements and, in our opinion, included all adjustments, consisting
only of normal recurring adjustments, necessary to present the included
information fairly.
<TABLE>
<CAPTION>
TELESITE TELESITE
-------------------------- -------------
(PREDECESSOR) SPECTRASITE COMBINED (PREDECESSOR) SPECTRASITE
-------------------------- ------------ ------------ ------------- -----------
YEAR ENDED JANUARY 1 - APRIL 25 - YEAR ENDED JANUARY 1 - APRIL 25 -
DECEMBER 31, MAY 12, DECEMBER 31, DECEMBER 31, MAY 12 SEPTEMBER
1996 1997 1997 1997 1997 30, 1997
------------ ----------- ------------ ------------ ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Site acquisition................ $8,841 $1,926 $ 5,002 $ 6,928 $1,926 $ 3,427
Site leasing.................... -- -- -- -- -- --
------ ------ ------- ------- ------ -------
Total revenues.................... 8,841 1,926 5,002 6,928 1,926 3,427
Costs of operations:
Site acquisition................ 2,255 595 1,120 1,715 595 978
Site leasing, exclusive of
depreciation.................. -- -- -- -- -- --
------ ------ ------- ------- ------ -------
Total costs of operations......... 2,255 595 1,120 1,715 595 978
Selling, general and
administrative(a)............... 4,347 1,798 6,148 7,946 1,798 3,522
------ ------ ------- ------- ------ -------
Operating income (loss)(a)........ 2,239 (467) (2,266) (2,733) (467) (1,073)
Net income(loss).................. 2,289 (503) (2,160) (2,663) (503) (1,128)
Net income (loss)
applicable to common
shareholders.................... 2,289 (503) (2,660) (2,163) (503) (628)
<CAPTION>
SPECTRASITE
-----------
COMBINED
----------- NINE
NINE MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1997 30, 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Revenues:
Site acquisition................ $ 5,353 $ 5,154
Site leasing.................... -- 211
------- ---------
Total revenues.................... 5,353 5,365
Costs of operations:
Site acquisition................ 1,573 1,721
Site leasing, exclusive of
depreciation.................. -- 142
------- ---------
Total costs of operations......... 1,573 1,863
Selling, general and
administrative(a)............... 5,320 6,777
------- ---------
Operating income (loss)(a)........ (1,540) (3,275)
Net income(loss).................. (1,631) (5,038)
Net income (loss)
applicable to common
shareholders.................... (1,131) (6,424)
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
TELESITE TELESITE
-------------------------- -------------
(PREDECESSOR) SPECTRASITE COMBINED (PREDECESSOR) SPECTRASITE
-------------------------- ------------ ------------ ------------- -----------
YEAR ENDED JANUARY 1 - APRIL 25 - YEAR ENDED JANUARY 1 - APRIL 25 -
DECEMBER 31, MAY 12, DECEMBER 31, DECEMBER 31, MAY 12 SEPTEMBER
1996 1997 1997 1997 1997 30, 1997
------------ ----------- ------------ ------------ ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by operating
activities...................... $1,109 $ (71) $ 223 $ 152 $ (71) $ 183
Net cash used in investing
activities...................... (853) (322) (7,178) (7,500) (322) (5,229)
Net cash provided by financing
activities...................... (266) 390 9,189 9,579 390 9,364
EBITDA(b)......................... 2,330 (411) (1,777) (2,188) (411) (857)
Adjusted EBITDA(c)
Site acquisition................ -- -- -- -- -- --
Site leasing.................... -- -- -- -- -- --
Depreciation and amortization..... 91 56 489 545 56 216
Capital expenditures(d)........... 498 64 850 914 64 156
Cash interest expense............. 64 31 64 95 31 40
Ratio of earnings to fixed
charges(e)...................... 23.2x -- -- -- -- --
Deficiency of earnings to fixed
charges......................... -- 503 2,160 2,663 503 1,128
SELECTED OPERATING DATA (AT END OF
PERIOD):
Number of owned towers....................................................................................................
Number of mandated towers(f)..............................................................................................
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and short term investments...........................................................................................
Total assets..............................................................................................................
Total liabilities.........................................................................................................
Preferred stock...........................................................................................................
Shareholders' deficiency..................................................................................................
<CAPTION>
SPECTRASITE
COMBINED -----------
----------- NINE
NINE MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1997 30, 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Net cash provided by operating
activities...................... $ 112 $ 340
Net cash used in investing
activities...................... (5,551) (71,348)
Net cash provided by financing
activities...................... 9,754 144,978
EBITDA(b)......................... (1,268) (2,495)
Adjusted EBITDA(c)
Site acquisition................ -- (2,328)
Site leasing.................... -- 225
Depreciation and amortization..... 272 780
Capital expenditures(d)........... 220 12,496
Cash interest expense............. 71 211
Ratio of earnings to fixed
charges(e)...................... -- --
Deficiency of earnings to fixed
charges......................... 1,631 5,027
SELECTED OPERATING DATA (AT END OF
PERIOD):
Number of owned towers............ 45 85
Number of mandated towers(f)...... 126 126
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and short term investments... $ 121,766
Total assets...................... 163,171
Total liabilities................. 131,956
Preferred stock................... 39,896
Shareholders' deficiency.......... (8,681)
</TABLE>
26
<PAGE> 29
- ---------------
Notes to Selected Financial Data
(a) Selling, general and administrative expense and operating income
attributable to site acquisition activities for the period April 25-December
31, 1997 were $2,706 and $1,110, respectively. In addition, selling, general
and administrative expense includes approximately $1,463 of non-recurring
charges primarily related to formation costs and the operations of
Metrosite.
(b) EBITDA consists of operating income (loss) before depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the industry. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity. EBITDA is not necessarily comparable with similarly
titled measures for other companies.
EBITDA is widely used in the communications site industry as a measure of a
company's operating performance. SpectraSite believes that EBITDA can assist
in comparing company performance on a consistent basis without regard to
depreciation and amortization, which may vary significantly depending on
accounting methods where acquisitions are involved or non-operating factors
such as historical cost bases. EBITDA presented in the table is consistent
with EBITDA calculated under the indenture governing the notes.
(c) Adjusted EBITDA for any stated period means the sum of the EBITDA of
SpectraSite for the fiscal quarters included within the stated period, less
SpectraSite's site leasing EBITDA for such stated period, plus the product
of the most recent quarter's site leasing EBITDA included within the stated
period and the total number of fiscal quarters within the stated period.
Site leasing EBITDA includes, for any stated period, the EBITDA directly
attributable to site rental revenue, license or management fees paid to
manage, lease or sublease space on communications sites owned, leased or
managed by SpectraSite (collectively, "site leasing revenues"). For the
purposes of calculating Adjusted EBITDA, the site leasing EBITDA for the
most recent quarter included in the stated period shall be determined on a
pro forma basis after giving effect to acquisitions or dispositions, new
contracts and rent increases as if these events had occurred at the
beginning of the fiscal quarter, and eliminating losses related to
individual lease or site management contracts. In allocating corporate,
general administrative and other operating expenses that are not allocated
to any particular line of business in the financial statements of
SpectraSite, such expense shall be allocated to SpectraSite's site leasing
business in proportion to its percentage of the total revenues for the
applicable period. Adjusted EBITDA for site leasing includes the acquisition
from Airadigm of certain towers without co-location tenants.
For the nine months ended September 30, 1998, Adjusted EBITDA was computed
as follows:
<TABLE>
<S> <C>
EBITDA for the nine months.................................. $(2,495)
Less site leasing EBITDA for the nine months................ (167)
-------
Adjusted EBITDA -- site acquisition.................... $(2,328)
=======
Pro forma revenue........................................... $ 472
Pro forma cost of site leasing revenue...................... 161
Pro forma selling, general and administrative............... 236
-------
Pro forma site leasing EBITDA for the three months ended
September 30, 1998........................................ 75
X 3
-------
Adjusted EBITDA -- site leasing........................ $ 225
=======
</TABLE>
Adjusted EBITDA is used in the communications tower industry as a measure of
a company's operating performance, and it is presented as additional
information because management believes that it serves as a useful financial
analysis tool for measuring and comparing companies in several areas, such
as liquidity, operating performance and leverage. In addition, Adjusted
EBITDA is a measure used in the indenture governing the notes, and the
measure reported in the table is consistent with the calculation under the
indenture. Adjusted EBITDA is not a measurement of financial
27
<PAGE> 30
performance under generally accepted accounting principles and should not be
considered an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity. Adjusted EBITDA is not necessarily
comparable with similarly titled measures for other companies.
(d) Capital expenditures for Telesite have been reduced for the periods ended
December 31, 1996 and May 12, 1997 by $340 and $258, respectively. These
expenditures were for land and construction in progress which were sold
prior to the closing of the acquisition of Telesite.
(e) The ratio of earnings to fixed charges is computed by dividing income (loss)
before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest charges, amortization of debt discount and debt issuance
costs, and that portion of rental expense of SpectraSite believes to be
representative of interest. Earnings were not sufficient to cover fixed
charges for all periods presented in the table, except for the year ended
December 31, 1996, and, therefore, the ratio is not meaningful for such
periods.
(f) Mandates are non-binding requests from customers to construct towers. See
"Risk Factors -- We cannot assure you that mandates will yield binding
agreements."
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Integrated Site Development, Inc., a Delaware corporation which has since
been renamed SpectraSite Holdings, Inc., was incorporated on April 25, 1997.
Integrated Site Development, U.S. Towers, Inc., Metrosite and Telesite were
combined to form SpectraSite through a series of transactions effected as of May
12, 1997. Following this transaction, U.S. Towers was renamed SpectraSite
Communications, Inc., and on October 31, 1997, Telesite was merged into
SpectraSite Communications. On February 27, 1998, we sold Metrosite to an
unaffiliated third party for approximately $299,000 in cash, plus the right to
certain royalty payments which continue for a period of six years. Metrosite
primarily provides site acquisition services to municipal governments. As a
result of the foregoing transactions and as of the date hereof, SpectraSite
Communications is a wholly owned subsidiary of Holdings, and substantially all
of our operations are conducted through SpectraSite Communications.
Holdings has operated the site acquisition services business for a limited
period of time and had no operations prior to May 12, 1997. The acquisitions
were accounted for as a purchase and, accordingly, the results of operations of
the respective former entities are included in the consolidated operations of
SpectraSite from the date of acquisition to, in Metrosite's case, the date of
disposition.
SpectraSite plans to continue to offer site acquisition services in the
future. However, its primary focus will be on the ownership of multi-tenant
towers and leasing of antenna space on such towers. As of September 30, 1998, we
had 45 towers in service. As a result of its limited operating history and
primary focus on tower ownership and leasing, management believes that its
results of operations for the period ended December 31, 1997 and for the nine
months ended September 30, 1998 are not indicative of our results of operations
in the future.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- --------------------
1997 1997
1996 (COMBINED) (COMBINED) 1998
------ ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................ $8,841 $ 6,928 $ 5,353 $ 5,365
Costs of operations............................. 2,255 1,715 1,573 1,863
Selling, general and administrative............. 4,347 7,946 5,320 6,777
------ ------- ------- -------
Operating income (loss)......................... 2,239 (2,733) (1,540) (3,275)
------ ------- ------- -------
Other income, net............................... 116 148 281 472
Interest expense, net........................... (66) (78) (142) (2,225)
------ ------- ------- -------
Net income (loss)............................... $2,289 $(2,663) $(1,401) $(5,028)
====== ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE COMBINED RESULTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
The following is a discussion of the financial condition and results of
operations of SpectraSite for the nine month period ended September 30, 1998 and
for the period from inception (April 25, 1997) through September 30, 1997, and
Telesite's results of operations for the period from January 1, 1997 through May
12, 1997.
29
<PAGE> 32
Costs of operations increased to $1.9 million for the nine months ended
September 30, 1998 from $1.6 million for the nine months ended September 30,
1997. Management believes that the decline in the volume of site acquisition
service projects is generally a result of more established personal
communications services licensees completing the first phase of construction in
their initial markets and not yet commencing secondary buildouts in such markets
or in additional markets, and the fact that holders of certain more recently
issued licenses have not yet commencing construction of tower networks in their
respective markets.
Selling, general and administrative expenses increased to $6.8 million for
the nine months ended September 30, 1998 from $5.3 million for the nine months
ended September 30, 1997. The increase is a result of expenses related to
additional corporate overhead to manage and operate the ongoing activities of
SpectraSite. Marketing expenses related to tower development activities as well
as the site acquisition operations also contributed to the increase in expenses.
Telesite did not actively market its services, but relied primarily on
reputation in the industry and customer referral to generate revenues. To
support our entry into tower development and leasing, a marketing effort has
been established which promotes both the tower development and leasing as well
as site acquisition services. Amortization of goodwill was $374,000 in the nine
months ended September 30, 1998 compared to $181,000 in the nine months ended
September 30, 1997.
Operating loss was $3.3 million for the nine months ended September 30,
1998, compared to $1.5 million for the nine months ended September 30, 1997.
Other income, which consists primarily of gain on sale of assets and equity
in earnings of affiliates, increased to $472,000 for the nine months ended
September 30, 1998 from $281,000 for the nine months ended September 30, 1997.
The increase is a result of a gain on the sale of assets in connection with the
disposal of Metrosite during the first quarter of 1998 of $472,000. During the
nine months ended September 30, 1997, we recognized $281,000 as equity earnings
of Communication Management Specialists. We disposed of our interest in
Communication Management Specialists during the second quarter of 1998 and did
not recognize any equity in the earnings of such affiliate during 1998. See
"Business -- Recent Events -- CMS Disposition."
COMBINED RESULTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
TELESITE'S RESULTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996.
The following is a discussion of the financial condition and results of
operations of SpectraSite for the nine month period ended September 30, 1998 and
for the period from inception (April 25, 1997) through September 30, 1997 and
through December 31, 1997, and Telesite's results of operations for the period
from January 1, 1997 through May 12, 1997, April 1, 1997 through May 12, 1997
and for the twelve month period ended December 31, 1996.
Total revenues decreased to $6.9 million for the twelve months ended
December 31, 1997 from $8.8 million for the twelve months ended December 31,
1996 due primarily to the decreased demand for site development services from
more established personal communications services licensees as a result of their
completing the first phase of construction in their initial markets and not yet
commencing secondary build-outs in such markets or in additional markets, and
the fact that holders of certain more recently issued licenses have not yet
commencing construction of tower networks in their respective markets.
Total costs of operations decreased to $1.7 million for the twelve months
ended December 31, 1997 from $2.3 million for the twelve months ended December
31, 1996, due primarily to decreased site acquisition revenues.
Selling, general and administrative expenses increased to $7.9 million for
the twelve months ended December 31, 1997 from $4.3 million for the twelve
months ended December 31, 1996. The increase is a result of the expenses related
to management of the ongoing activities of SpectraSite, expenses related to the
implementation of tower development and marketing activities, one-time non-cash
charges of approximately $869,000 as a result of the formation of SpectraSite,
amortization of goodwill of
30
<PAGE> 33
approximately $278,000 in connection with our acquisition of Telesite and
expenses incurred in connection with the operations of Metrosite. We sold our
interest in Metrosite during early 1998. We anticipate that in the future costs
related to tower development activities will be capitalized as part of the cost
of the towers.
Operating loss was $2.7 million for the twelve months ended December 31,
1997 compared to $2.2 million during the twelve months ended December 31, 1996.
The change is a result of the decline in revenues and the increase in selling,
general and administrative expenses attributable to the commencement of
operations of SpectraSite.
Other income, which consists primarily equity in earnings of affiliates,
increased to $148,000 for the twelve months ended December 31, 1997 from
$116,000 for the twelve months ended December 31, 1996. The increase is a result
of improved performance by such affiliates.
LIQUIDITY AND CAPITAL RESOURCES
Holdings is a holding company whose only significant asset is the
outstanding capital stock of its subsidiary, SpectraSite Communications. Our
only source of cash to pay interest on and principal of the notes is
distributions from SpectraSite Communications. Prior to July 15, 2003, interest
expense on the notes will consist solely of non-cash accretion of an original
issue discount and the notes will not require annual cash interest payments.
After such time, the notes will have accreted to approximately $225 million and
will require semi-annual cash interest payments of $13.5 million. In addition,
the notes mature on July 15, 2008. Furthermore, pursuant to the commitment
letter, the new credit facility is expected to provide for quarterly interest
payments commencing as soon as any funds are borrowed thereunder.
As a result of the issuance and sale of its Series B preferred stock and
the notes, we realized net proceeds of $147.8 million, after deducting fees and
expenses. SpectraSite has deposited $11.7 million of the proceeds in escrow
towards the acquisition of 47 towers from Airadigm and has used:
- approximately $474,000 to acquire 14 ground leases and two towers in
inventory from Amica and to construct towers on the sites;
- $1.9 million for the acquisition of GlobalComm; and
- $2.3 million to repay outstanding indebtedness.
The remaining proceeds will be used for the construction and acquisition of
towers and for general working capital purposes. As of September 30, 1998, we
had approximately $122 million of cash and short term investments.
Net cash provided by operations during the nine months ended September 30,
1998 was $340,000 compared to $184,000 having been provided by operations during
the comparable 1997 period. The increase in cash provided by operations was
primarily attributable to an increase in accounts payable, offset by the net
loss incurred during the period. The increase in accounts payable was primarily
the result of liabilities incurred in conjunction with tower construction. Net
cash used for investing for the nine months ended September 30, 1998 was $71.3
million compared to $5.2 million for the nine months ended September 30, 1997.
The cash used for investing activities during the nine months ended September
30, 1998 was primarily the result of the investment of unused proceeds from the
sale of the notes in short-term investments, costs associated with tower
construction, acquisition of towers from Airadigm and the acquisition of
GlobalComm. The cash used for investing activities during the nine months ended
September 30, 1997 primarily related to the acquisition of Telesite. Net cash
provided by financing activities for the nine months ended September 30, 1998
was $144.9 million compared to $9.4 million for the same period in 1997. The
increase in cash provided by financing activities was attributable to the
proceeds from the sales of Series B preferred stock and the notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, including the notes, or to fund planned capital expenditures, will
depend on our future performance, which, to a certain extent is subject to
general
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economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Our business strategy contemplates substantial capital
expenditures in connection with our planned tower buildout. Based on
SpectraSite's current operations and anticipated revenue growth, management
believes that cash flow from operations, available cash of approximately $122
million and anticipated available borrowings under the new credit facility will
be sufficient to fund our capital expenditures of approximately $140 million
through fiscal 1999. Thereafter, however, or in the event SpectraSite exceeds
its currently anticipated capital expenditures for fiscal 1998 or 1999,
SpectraSite anticipates that it will seek additional equity or debt financing to
fund its business plan. Failure to obtain any such financing could require
SpectraSite to significantly reduce its planned capital expenditures or scale
back the scope of its tower buildout or acquisition activities, any of which
could have a material adverse effect on our business, prospects, financial
condition or results of operations. There can be no assurance that we will
generate sufficient cash flow from operations in the future, that anticipated
revenue growth will be realized or that future borrowings or equity
contributions will be available in amounts sufficient to service our
indebtedness and make anticipated capital expenditures.
Certain of our expenses, such as those for marketing, wages and benefits
generally increase with inflation. However, we do not believe that our financial
results have been, or will be, adversely affected by inflation in a material
way.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for the reporting and
disclosure of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 changes the manner in which public
companies report segment information in annual reports and requires companies to
report selected segment information in interim financial reports. Both these
statements are effective for fiscal years beginning after December 15, 1997,
with reclassification of the financial statements for earlier periods required
for comparative purposes. SpectraSite has adopted these statements in 1998. SFAS
No. 130 did not have an impact on the SpectraSite's historical financial
statements, as it has no items of other comprehensive income. SFAS No. 131 does
not have a significant impact on SpectraSite's historical financial statements,
as SpectraSite conducts business in only one operating segment.
YEAR 2000 COMPLIANCE
We are in the process of conducting a comprehensive review of our computer
systems to identify which of our systems will have to be modified, upgraded or
converted to recognize and process dates after December 31, 1999, and developing
an implementation plan to resolve this issue. We believe that most, if not all,
of our computer software and systems are year 2000 compliant, because most of
our hardware and software has been purchased within the past 18 months. We
expect to incur internal staff costs, as well as other expenses, related to
testing and updating its systems to prepare for the millennium date change. We
presently believe that, with minor modifications and upgrades to existing
software and successful conversion to new software, the year 2000 issue will not
pose significant operational problems for our systems as so modified, upgraded
or converted. In fact, even if all of our computer systems and other equipment
vulnerable to the millennium date change failed, we could continue operations
uninterrupted after such failures. Like most other companies, SpectraSite is
dependent upon a variety of external suppliers including vendors providing
electrical power, telephony, water and other necessary commodities. SpectraSite
also relies upon the interstate banking system and related electronic
communications for functions such as transmitting financial data from field
offices. We are not aware currently of any material non-compliance by these
vendors that will materially affect our business operations; however, we do not
control these systems and cannot assure that they will be converted in a timely
fashion. Any delays or omissions by us or our customers, suppliers or
contractors to resolve the year 2000 issue could materially adversely affect our
business, financial condition or results of operations. We do not anticipate
material expenditures related to the year 2000 issue and incremental costs to
date have been negligible, but there can be no assurance that amounts to be
spent on addressing the year 2000 issue will not be material.
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INDUSTRY OVERVIEW
GENERAL
SpectraSite was formed in 1997 through the combination of three existing
companies in the tower development, site acquisition and site management
businesses to capitalize on the trend toward co-location and independent tower
ownership in the wireless communications industry and has grown into a leading
build-to-suit provider of tower networks. As wireless services and current
wireless technologies are used in more applications, the cost of wireless
services to consumers declines and new wireless technologies are developed.
Changes in U.S. federal regulatory policy, including the implementation of the
Telecommunications Act of 1996, have led to a significant number of competitors
in the industry through the auction of frequency spectrum for a wide range of
uses, most notably personal communications services. This competition, combined
with a growing reliance on wireless services by consumers, has led to an
increased demand for higher quality, uninterrupted service and improved
coverage, which, in turn, has led to increased demand for communication sites as
new providers build out their networks and existing providers upgrade and expand
their networks to maintain their competitiveness. We believe that, as the
wireless communications industry has become more competitive, wireless service
providers have sought operating and capital efficiencies by outsourcing certain
network services and build-out activities and by co-locating transmission
equipment with other providers on multi-tenant towers. The need for co-location
has also been driven by the growing trend by municipalities to slow the
proliferation of towers by requiring that towers accommodate multiple tenants.
All of these factors provide an opportunity for us to identify and acquire
communication sites, lease antennae space on such sites and provide related
network infrastructure and support services.
NETWORK AND TOWERS
Wireless service providers require wireless transmission "networks" in
order to provide service to their customers. Each of these networks is
configured specifically to meet the coverage requirements of the particular
provider and includes transmission equipment such as antennae placed at various
locations throughout the service area. These locations, or "communication
sites," are critical to the operation of a wireless network. A communication
site may have the capacity for multiple antennae installations, or "antennae
sites," depending on the size and type of the communication site. The potential
value of a tower generally depends on its location and the number of antennae
that it can support.
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<PAGE> 36
Set forth below is a diagram illustrating the basic functions of each of
the primary components of a wireless communication network.
[WIRELESS COMMUNICATIONS NETWORK DIAGRAM]
Communication sites consist of towers, rooftops and other structures upon
which antennae are placed. A typical tower includes a compound enclosing the
tower and an equipment shelter. The equipment shelter houses a variety of
transmitting, receiving and switching equipment. The tower can be either a
self-support or guyed model. There are two types of self-supported models: the
lattice and the monopole. A lattice model is usually tapered from the bottom up
and can have three or four sides of open-framed steel supports. A monopole is a
free standing tubular structure. Guyed towers gain their support capacity from a
series of guy cables attaching separate levels of the tower to anchor
foundations in the ground. Monopoles typically range in height from 50-200 feet,
lattice towers can reach up to 350 feet and guyed towers can reach 2000 feet or
more.
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<PAGE> 37
TYPES OF TOWERS
(DIAGRAM NOT TO SCALE)
[TYPES OF TOWERS DIAGRAM]
Rooftop sites are more common in urban areas where tall buildings are
generally available and multiple communication sites are required because of
high wireless traffic density. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such high
population density, neither height nor extended radius of coverage are as
important and the installation of a tower structure may prove to be impossible
because of zoning restrictions, land cost and land availability. Other
structures on which antennae have been installed include billboards, electric
transmission towers, silos, water tanks and smokestacks.
OPERATION OF TWO-WAY WIRELESS SYSTEMS. Wireless transmission networks use
a variety of radio frequencies to transmit voice and data. Wireless transmission
networks include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency. Although cellular
currently represents the largest segment of the wireless communications
industry, other wireless technologies are expected to grow significantly.
Two-way wireless service areas are divided into multiple regions called
"cells," each of which contains a base station consisting of a low-power
transmitter, a receiver and signaling equipment, typically located on a tower.
The cells are usually configured in a grid pattern, although terrain factors,
including natural and man-made obstructions, and signal coverage patterns may
result in irregularly shaped cells and overlaps or gaps in coverage. Cellular
system cells generally have a radius ranging from two miles to 25 miles and
personal communications services and other higher frequency services system
cells generally have a radius ranging from one-quarter mile to 12 miles,
depending on the technology being used, level of
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customer usage, installation, height and the terrain. Growing demand for cell
sites is one of the primary reasons for the expected growing demand for our
services. The base station in each cell is connected by microwave, fiber optic
cable or telephone wires to a switch, which uses computers and specially
developed software to control the operation of the wireless telephone system for
an entire service area. The switch controls the transfer of calls from cells
within the system and connects calls to the local landline telephone system or
to a long distance telephone carrier.
Each wireless transmission network is planned to meet a certain level of
subscriber density and traffic demand in addition to providing a certain
geographic coverage. Each transmission requires a certain amount of radio
frequency, so a system's capacity is limited by the amount of frequency that is
available. The same frequency can be reused by each separate transmitter,
subject to certain interference limitations. The design of each wireless system
involves the placement of transmission equipment in locations that will make
optimal use of available frequency based upon projected usage patterns, subject
to the availability of such locations and the ability to use them for wireless
transmission under applicable zoning requirements.
WIRELESS COMMUNICATIONS. The wireless communications industry now provides
a broad range of services, including cellular, personal communications services,
paging, specialized mobile radio and enhanced specialized mobile radio. The
industry has benefited in recent years from increasing demand for its services
and industry experts expect this demand to continue to increase. The following
table sets forth industry estimates regarding projected subscriber growth for
certain types of wireless communications services:
<TABLE>
<CAPTION>
1997-2002 1997-2007
ESTIMATED PROJECTED PROJECTED COMPOUNDED COMPOUNDED
1997 2002 2007 ANNUAL ANNUAL
SUBSCRIBERS SUBSCRIBERS SUBSCRIBERS GROWTH RATE GROWTH RATE
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular...................... 53.0 84.2 95.7 9.7% 6.1%
Personal Communications
Services.................... 2.9 33.8 55.8 63.9% 34.6%
Enhanced Specialized Mobile
Radio....................... 1.3 7.7 11.6 42.8% 24.5%
</TABLE>
- ---------------
Source: Paul Kagan Associates, Inc. There can be no assurance that these
projections will prove to be accurate.
We believe that more communication sites will be required in the future to
accommodate the expected increase in demand for wireless communications
services. Current emerging wireless communications systems, such as personal
communications services and enhanced specialized mobile radio, represent an
immediate and sizable market for providers of communication site services as
they build out large nationwide and regional networks. The development of higher
frequency technologies such as personal communications services offers us
opportunities as the reduced cell range of those technologies requires a more
concentrated network of towers. While several personal communications services
and enhanced specialized mobile radio providers have already built limited
networks in certain markets, these providers still need to fill in "dead zones"
and expand geographic coverage. The Cellular Telecommunications Industry
Association estimates that, as of June 30, 1997, there were 38,650 antennae
sites in the United States. In November 1997, the Personal Communications
Industry Association estimated that the number of antennae sites in the United
States for both cellular and personal communications services providers will
increase by an additional 100,000 antennae sites, more than one of which can be
located on a single communication site, over the next ten years as cellular
systems expand coverage and personal communications services systems are
deployed.
As a result of advances in digital technology, enhanced specialized mobile
radio operators have also begun to design and deploy digital mobile
telecommunications networks in competition with cellular providers. In response
to the increased competition, cellular operators are re-engineering their
networks by increasing the number of sites, locating sites within a smaller
radius, filling in "dead zones" and converting from analog to digital cellular
service in order to manage subscriber growth, extend geographic coverage
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and provide competitive services. The demand for communication sites is also
being stimulated by the development of new paging applications, such as e-mail
and voicemail notification and two-way paging, as well as other wireless data
applications.
Licenses are also being awarded, and technologies are being developed, for
numerous new wireless applications that will require networks of communication
sites. These potential applications include local multi-point distribution
services, such as wireless local loop, wireless cable television, data and
Internet access. Radio spectrum required for these technologies has, in many
cases, already been awarded and licensees have begun to build out and offer
services through local loop networks operated by Winstar and Teligent, through
new wireless cable networks operated by companies such as CellularVision, and
through data networks being constructed and operated by RAM Mobile Data, MTEL
and Ardis.
CHARACTERISTICS OF THE TOWER INDUSTRY
In addition to the increased demand for wireless services and the need to
develop and expand wireless communications networks, we believe that other
trends influencing the wireless communications industry have important
implications for independent tower operators. In this increasingly competitive
wireless industry environment, we believe that many providers are dedicating
their capital and operations primarily to those activities that directly
contribute to subscriber growth, such as marketing and distribution. Management
believes these providers, therefore, will seek to reduce costs and increase
efficiency through the outsourcing of infrastructure network functions such as
communication site ownership, construction, operation and maintenance. As a
result of Federal Communications Commission ("FCC") regulations mandating
deployment of digital television transmitters, broadcast industry trade
associations estimate that 66 percent of existing television broadcasters will
require new or upgraded towers, involving an estimated 1000 television towers.
As a result of the increased weight and windloading of digital television
facilities and other tower constraints, a number of FM broadcast stations that
have collocated their FM antennas on television towers will be forced to
relocate to other existing towers or to construct new transmission facilities.
The mandatory timetable for deploying digital television transmitters, which
will begin in 1999 and extend to 2003 for various categories of stations will
create a spike in demand. This is expected to drive the scarcity value of towers
upward but could entail scarcities in the supply of construction crews with
relevant training and experience. In order to speed new network deployment and
expansion and generate efficiencies, providers are increasingly co-locating
transmission equipment with that of other wireless service providers. The trend
towards co-location has been furthered by the "Not-In-My-Backyard" arguments
generated by local zoning and planning authorities in opposition to the
proliferation of towers.
Management believes that, in addition to the favorable growth and
outsourcing trends in the wireless communications industry and high barriers to
entry as a result of regulatory and local zoning restrictions associated with
new tower sites, tower operators benefit from several favorable characteristics.
The ability of tower operators to provide antennae sites to customers on
multiple tenant towers diversifies them against the specific technology, product
and market risks typically faced by an individual provider. The emergence of new
technologies, providers, products and markets may allow independent tower
operators to further diversify against such risks. We believe that independent
tower operators also benefit from the contract nature of the site leasing
business and the predictability and stability of these recurring revenues. In
addition, the site leasing business has low variable operating costs and
significant operating leverage. Towers generally are fixed cost assets with
minimal variable operating costs associated with additional tenants. A tower
operator can generally expect to experience increasing margins when new tenants
are added to existing towers.
The site leasing business typically experiences low customer churn rates as
a result of the high costs that would be incurred by a wireless service provider
were it to relocate an antennae to another site and consequently be forced to
re-engineer its network. Moving a single antenna may alter the pre-engineered
maximum signal coverage, requiring a reconfiguration of the network at
significant cost to maintain the same coverage. Municipal approvals are becoming
increasingly difficult to obtain and may also affect the provider's decision to
relocate. We believe that the costs associated with network reconfiguration and
municipal approval and the time required to complete these activities are
usually not justified by the potential savings in reduced site rental expense.
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BUSINESS
OVERVIEW
SpectraSite is one of the leading full service providers of tower related
services in the U.S. wireless communications industry. We develop and manage
build-to-suit tower networks and provide site acquisition services for major
wireless communication companies such as AT&T Wireless, Nextel and Sprint PCS,
as well as numerous other entrepreneurial service providers. Our business enjoys
favorable unit economics which include stable and recurring revenues, low
operating costs, minimal post-construction capital requirements, high customer
retention levels and a diversified asset and customer base. We are capitalizing
on the growing trend toward antennae co-location and independent tower
ownership, as leading wireless providers increasingly redirect their capital
outlays from tower development to subscriber acquisition activities and local
municipalities encourage multiple tenants on single towers.
SpectraSite builds towers suited for multi-tenant use generally under
build-to-suit programs and typically does not start construction of a tower
until an anchor tenant has agreed to lease antenna space on such tower. We have
the capacity to develop a large number of towers as:
- a typical tower takes approximately two months to construct, once zoning
approval is obtained;
- we utilize a standard set of proprietary building specifications; and
- we capitalize on its program management expertise and its established
relationships with highly experienced, pre-qualified third-party
engineers and construction firms that specialize in the wireless
communications industry.
As of September 30, 1998, SpectraSite owned 45 towers and had an additional
100 towers either under construction or scheduled to be constructed for anchor
tenants during 1998. In addition, we plan to expand our tower inventory through
future acquisitions or partnerings with wireless service providers and by
building selective tower assets in strategic geographic areas that will be
attractive to and usable by multiple tenants. SpectraSite also assists in the
acquisition of antenna locations on behalf of cellular and personal
communications services carriers and has provided an array of site acquisition
services for major wireless service providers in 22 states, covering
approximately 3,700 sites. In addition, SpectraSite manages 1,030 communication
sites for carriers. Site acquisition and site management allow SpectraSite to
offer a complete product line of tower services and further allows us to access
customers in the early stages of their tower network development.
Our primary focus is the ownership of multi-tenant towers and the leasing,
under long-term contracts, of antennae space on such towers to a variety of
wireless service providers, including personal communications services,
cellular, paging, specialized mobile radio, enhanced specialized mobile radio
and other providers. Since a typical tower has and will have multiple antennae
positions that are leased to different wireless providers and the towers are
dispersed geographically, SpectraSite will benefit from a recurring revenue base
that is diversified in terms of customer mix, geographic presence and industry
segment. The relatively low, fixed costs associated with maintaining a tower
network allow for incremental leasing revenue from co-location tenants to result
in disproportionately greater increases in tower cash flow. Management believes
that tower cash flow margins will range from approximately 35% to 80% depending
upon the level of co-location. Additionally, the capital requirements beyond
initial construction are minimal. Assuming a conservative level of tenants per
tower, the payback period on construction investment is approximately five
years, while the usable life of the tower asset is estimated to be at least 15
years. The tower franchise is further enhanced by the high cost of antenna
relocation, which reduces customer turnover, and the high barriers to entry
resulting from local opposition to the proliferation of towers.
Under a build-to-suit program for an anchor wireless service provider,
SpectraSite is awarded non-binding mandates and undertakes all site development
activities and costs. In return, the anchor wireless service provider enters
into a long-term lease. SpectraSite retains ownership of the tower and has the
ability to co-locate additional tenants. Management believes that many wireless
service providers are using build-to-suit programs as an alternative to tower
ownership and that this outsourcing trend is likely to
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<PAGE> 41
continue. SpectraSite's build-to-suit programs provide a comprehensive solution
to those wireless service providers seeking to minimize their capital
expenditures, overhead and time associated with the build-out and on-going
maintenance of their wireless network infrastructure. We believe that our site
leasing business will continue to grow, particularly through greater acceptance
of build-to-suit programs.
SpectraSite also offers comprehensive site acquisition services, including
site location analysis; site acquisition; zoning and land use permitting;
Federal Aviation Administration ("FAA") compliance analysis and filing; and
contract, title and building permit administration. One of the three businesses
that combined to form SpectraSite in 1997 has been providing site acquisition
services since 1992 and has developed standard procedures for efficiently and
effectively identifying locations, obtaining compliance approvals and acquiring
sites. We are typically paid fees for site acquisition services on a project by
project basis and as of September 30, 1998, we had a backlog from third parties
to assist in the acquisition of approximately 1,170 sites.
Management believes that the number of communication sites, which include
towers, rooftops and other structures, in use will continue to increase with the
growth in demand for wireless services. This increase is the result of several
factors, including:
- the continuing build-out of higher frequency technologies, such as
personal communications services, which have a reduced cell range and
thus require a concentrated network of towers;
- the need to expand the capacity of existing networks;
- the issuance of new wireless network licenses requiring the construction
of new wireless networks; and
- the emergence of new wireless technologies.
In November 1997, the Personal Communications Industry Association
estimated that the number of antenna sites in the United States for both
cellular and personal communications services providers will increase by an
additional 100,000 antenna sites, more than one of which can be located on a
single communication site, over the next ten years as cellular systems expand
coverage and personal communications services systems are deployed. Management
believes that wireless service providers have begun to focus their capital and
operations primarily on activities that build subscriber growth, such as
marketing and customer services, and, therefore, will increasingly seek to
outsource communication site ownership, construction, management and
maintenance. SpectraSite believes that it will benefit from this trend.
RECENT EVENTS
AIRADIGM ACQUISITION. SpectraSite and Airadigm entered into an agreement,
dated August 14, 1998, covering our acquisition of up to 47 communications
towers and certain related assets from Airadigm. Airadigm is anchor tenant on
each tower. Pursuant to the agreement, SpectraSite has acquired 40 of the towers
and has identified seven towers as to which additional due diligence would be
required before SpectraSite would accept such towers. SpectraSite has deposited
the aggregate purchase price of $11.75 million in an escrow account. Airadigm
has received $10 million as payment for 40 towers and $1.75 million remains in
escrow pending resolution of the issues identified with respect to the other
seven towers. SpectraSite and Airadigm are also negotiating an exclusive
multi-year build-to-suit contract. The towers are located primarily in
Wisconsin, and Airadigm is or will be the anchor tenant on all towers purchased
or mandated in connection with this transaction.
GLOBALCOMM ACQUISITION. As of September 23, 1998, SpectraSite acquired all
of the shares of capital stock of GlobalComm, Inc. for approximately $2 million
in cash. GlobalComm provides co-location marketing services to Bell South
Mobility and other wireless communications providers in North Carolina, South
Carolina and eastern Tennessee. The founder and president of GlobalComm, Michael
Garrett, joined SpectraSite as Vice President -- Co-location Marketing and, in
this capacity, Mr. Garrett is responsible for marketing available antennae space
on all of SpectraSite's owned towers. See "Management" and "Certain
Transactions -- GlobalComm Acquisition."
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<PAGE> 42
AMICA ACQUISITION. As of August 20, 1998, the Company acquired 14 ground
leases and two towers in inventory from Amica for an aggregate cash purchase
price of $473,996. SpectraSite has begun constructing towers on the sites. Amica
will be the anchor tenant on all 14 towers.
H&K ACQUISITION. On June 29, 1998, SpectraSite acquired all of the
membership interests of H&K Investments LLC for an aggregate purchase price of
$1.4 million. H&K owned five towers; three of the towers are located in Kansas
and two are in Missouri. Each of the towers has multiple tenants, and Sprint PCS
is the anchor tenant on all five towers.
CMS DISPOSITION. In May 1998, SpectraSite sold its 33% interest in
Communications Management Specialists to the other owners for $375,000. As
payment SpectraSite received a note payable over 60 months and bearing interest
at 8.5% per annum. Communications Management Specialists provides construction
management services to telecommunications companies.
ISSUANCE OF SERIES B PREFERRED STOCK. Pursuant to a stock purchase
agreement, dated as of March 23, 1998, Whitney Equity Partners, L.P., Whitney
Strategic Partners III, L.P., J.H. Whitney III, L.P., Waller-Sutton Media
Partners, L.P., Kitty Hawk Capital Limited Partnership, III, Kitty Hawk Capital
Limited Partnership, IV, Eagle Creek, L.L.C., The North Carolina Enterprise
Fund, L.P. ("NCEF"), Finley Family Limited Partnership, William R. Gupton, Jack
W. Jackman and Alton D. Eckert agreed to purchase 7,000,000 shares of the Series
B preferred stock for an aggregate purchase price of $28 million. As of March
23, 1998, the Series B investors purchased the first installment of 4,250,000
shares of Series B preferred stock for $17 million and as of August 27, 1998,
the Series B investors (other than Whitney Equity Partners, L.P.) purchased
2,074,126 shares for an aggregate purchase price of $8,296,504, and as of
September 21, 1998, Whitney Equity Partners, L.P. purchased the remaining
675,874 shares of Series B preferred stock for an aggregate purchase price of
$2,703,496. See "Certain Transactions -- The Series A and Series B Preferred
Stock Offerings."
WHALEN AGREEMENT. In February 1998, SpectraSite entered into an agreement
with Whalen & Company, Inc. to jointly provide services for certain projects.
Management expects such joint projects to generate additional build-to-suit
opportunities. Whalen has been involved in program and project management since
1985 and has participated in the development of over 120 network systems and
10,000 sites in seven countries, including 42 states in the United States, for
various technologies including personal communications services, cellular and
enhanced specialized mobile radio. In addition to various projects that the
parties may pursue together, Whalen agreed to bring acquisition opportunities to
SpectraSite, and Whalen will receive a fee for any such acquisitions completed
by SpectraSite.
BUSINESS AND GROWTH STRATEGIES
Our strategic objective is to become the premier build-to-suit provider of
tower networks in the United States and to be one of the largest owners and
operators of communication towers. SpectraSite's strategy involves the following
elements:
BUILD TOWERS IN AREAS OF INCREASING WIRELESS DEMAND. SpectraSite is well
positioned to capitalize on the trend of wireless service providers outsourcing
their investment in, and ownership of, communications sites. Our turnkey
operation can develop and implement build-to-suit tower networks and then
provide efficient site management services for completed towers. Carriers value
our ability to serve all of their tower network development needs. In addition,
we selectively invest radio frequency engineering and site acquisition costs
into sites that management believes have higher than average co-location
opportunities.
PARTNER WITH MAJOR WIRELESS SERVICE PROVIDERS TO ACQUIRE EXISTING TOWERS
AND BUILD-TO-SUIT CONTRACTS. SpectraSite seeks to partner with major wireless
communications service providers in order to assume ownership of their existing
towers directly or through joint ventures. We also offer construction and
program management expertise to potential partners to facilitate timely and
efficient build-out of their tower networks. Our ability to offer end-to-end
tower development services position it well for partnering opportunities with
carriers seeking to outsource communication site ownership, construction and
management.
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ACQUIRE UNDERUTILIZED TOWERS. SpectraSite intends to continue to make
selective acquisitions in the fragmented tower owner and operator industry.
Management's strategy is to acquire towers that can service multiple tenants and
will be attractive to wireless providers based upon their location, height and
available capacity. Additionally, our strategy is to purchase under-utilized
towers with high future co-location potential. Management believes that there
are small and large acquisition candidates and that the number of available
towers will grow as large personal communications services and other
telecommunications providers divest their tower holdings. SpectraSite has strict
valuation criteria and believes that certain tower properties can be purchased
at reasonable price levels. SpectraSite regularly evaluates acquisition
opportunities, engages in negotiations and submits bids with respect to
acquisitions of individual towers, groups of towers and entities that own or
manage towers and related businesses, any of which may be material.
MAXIMIZE CO-LOCATION ON TOWERS. Our strategy for its owned and managed
towers is to maximize the number of tenants on each tower in order to rapidly
increase tower cash flow. Since most tower costs are fixed, leasing available
space on an existing tower results in minimal additional expenses and,
therefore, generates a disproportionately large increase in tower cash flow
margins. SpectraSite generally constructs towers to accommodate from three to
six tenants in addition to the anchor tenant. We have created a separate sales
force to market available co-location opportunities to wireless communication
providers.
CAPITALIZE ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS SERVICE
PROVIDERS. SpectraSite has established a reputation as a highly professional,
responsive build-to-suit and site acquisition provider. This has been achieved
through ongoing investment in the development of multi-level customer
relationships. Our sales force implements a dual marketing strategy that focuses
company resources on the client's decision maker at the local level while
solidifying relationships with the customer's senior management. Our experience
is that a high level of responsiveness and the rapid development of tower sites
for an existing customer ensures that SpectraSite will continue to be an
integral part of that customer's build-out plans. Additionally, management
believes that it will be able to build upon its existing relationships with
wireless service providers to source new build-to-suit customers.
LEVERAGE SITE ACQUISITION SERVICES. Over the last six years, SpectraSite
has performed an array of site acquisition services covering approximately 3,700
sites for major wireless service providers, including ALLTEL, BellSouth
Mobility, GTE Mobility, Horizon, Nextel and Powertel. SpectraSite has a broad
field organization that allows it to identify and participate in site
acquisition projects across the country. Knowledge of local markets and strong
customer relationships with wireless service providers are competitive strengths
that position SpectraSite to further capitalize on the site acquisition and
build-to-suit needs of the wireless communications industry. SpectraSite
anticipates that site acquisition customers will continue to account for a
significant portion of its build-to-suit mandates and as of September 30, 1998,
approximately 64% of such mandates were from service providers for which
SpectraSite has previously provided site acquisition services.
COMPANY STRENGTHS
The tower leasing business provides a diversified, stable, recurring cash
flow stream due to the long-term nature of the customer contracts, the
significant relocation costs for tower tenants and multiple customers from
different wireless segments. Once a tower is built for an anchor tenant,
co-location tenants provide high incremental cash flow margins due to low, fixed
tower maintenance expense. Leases are typically for an initial term of five
years with four or five additional five-year renewal periods and provide for
regular rent increases throughout their term. The term of the anchor tenant
lease is designed to match the term of the ground lease underlying the tower.
Towers can accommodate a broad array of wireless communication carriers and,
therefore, revenues are not dependent upon any specific wireless segment or
technology. Penetration of personal communications services, cellular and
enhanced specialized mobile radio was approximately 21% as of December 31, 1997
and is expected to reach 54% by 2007, according to Paul Kagan Associates, Inc.
Since towers are a basic component of a wireless communication network,
SpectraSite believes that it is well positioned to benefit from the
proliferation of wireless communication services.
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Management believes that the following strengths will enable SpectraSite to
successfully expand its business:
BUILD-TO-SUIT FOCUS. SpectraSite specializes in developing and building
tower networks to suit the needs of wireless communication carriers. Management
believes that its primary focus on and expertise in build-to-suit programs is
unique among its major competitors. SpectraSite has assembled the resources,
tools and proven personnel which combine to form the program management
organization needed for managing high-speed tower development projects. In
addition, SpectraSite offers professional site leasing and asset management
services for the towers it builds, as well as for towers owned by carriers.
EXPERIENCED MANAGEMENT. Our senior managers have acquired over 3,700
communication sites and built more than 1,000 towers. In addition, SpectraSite
provides tower management services to 1,075 sites, consisting of both
SpectraSite owned and carrier owned tower sites. Management believes that its
industry experience allows it to offer quality service and proven results to
wireless communication providers in their network build-outs.
CAPABILITY TO MANAGE MULTIPLE PROJECTS. We have been able to successfully
manage multiple site acquisition and tower development projects in various
locations at the same time. SpectraSite utilizes a pre-qualified pool of local
contractors and advisors to build its towers, which allows management to focus
its resources and capital on managing multiple construction projects
simultaneously. SpectraSite's diversified and outsourced labor pool provides
flexibility to handle varying numbers of build-to-suit programs in a variety of
local markets. Management believes that the ability to undertake concurrent
build-to-suit programs in multiple markets is attractive to wireless service
providers.
STANDARDIZED PROCEDURES AND SPECIFICATIONS. SpectraSite has developed
detailed site acquisition procedures and construction specifications and
procedures that allow it to rapidly construct tower networks. Wireless carriers
require aggressive network build-out schedules, and uniform procedures and
specifications allow for reduced employee training time, improved vendor
performance and quicker identification of potential tower sites. SpectraSite
uses a pre-qualified pool of architectural, engineering and construction
contractors that work within its standard guidelines and have a proven capacity
for multiple projects. In addition, we are organized to efficiently:
- plan the project;
- secure the sites by purchase or lease;
- obtain zoning approvals; and
- manage all site preparation and tower construction.
INTEGRATED PROVIDER OF SITE DEVELOPMENT SERVICES. SpectraSite benefits
from its integrated, comprehensive site development and program management
capabilities, as wireless service providers prefer the flexibility of a vendor
who can program manage all direct and subcontract functions related to real
estate, design, construction and on-going operations. SpectraSite's efficient
site acquisition business provides a competitive advantage by:
- maintaining a comprehensive project management database;
- allowing management to position SpectraSite with customers as an
end-to-end, full service provider of tower development services; and
- permitting tower development mandates to be fulfilled more rapidly by
performing site acquisition services rather than finding third parties to
achieve the same task.
SpectraSite has assisted in the acquisition of sites in 22 states and has a
solid customer base that includes Nextel, Sprint PCS and SBC Communications.
COMPANY SERVICES
SpectraSite's business is divided into three areas:
- tower development;
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- tower operations, including leasing of tower space; and
- site acquisition.
These services are centrally managed with proprietary documentation and
through a program and site management database which contains information on all
aspects of individual tower sites.
TOWER DEVELOPMENT. SpectraSite offers comprehensive build-to-suit program
management and also selectively builds towers in strategic geographic locations
for anchor tenant and co-location marketing opportunities. Under its
build-to-suit programs, SpectraSite generally constructs tower networks only
after having signed an antenna site lease agreement with an anchor tenant and
having made the determination that the initial or planned capital investment for
such tower network would not exceed a targeted multiple of tower cash flow after
a certain period of time. In selling its build-to-suit programs, SpectraSite's
representatives utilize their existing relationships in the wireless
communications industry to target wireless service providers interested in
outsourcing their network build-out. Proposals for build-to-suit towers are made
by SpectraSite's sales representatives in response to specific requests for
quotes or proposals from carriers. Although the terms vary from proposal to
proposal, SpectraSite typically offers a five-year lease agreement with four or
five additional five-year renewal periods. The term of the anchor tenant lease
is designed to match the term of the ground lease underlying the tower. While
the proposed monthly rent also varies, anchor tenants will generally pay lower
monthly rents than subsequent tenants.
Build-to-suit proposal requests typically require SpectraSite to offer a
fixed monthly lease rate for all towers included in the proposed network
build-out. To arrive at this average monthly rate, SpectraSite will analyze a
number of factors including projected construction cost, projected average
monthly ground lease rate, zoning and permitting issues and co-location
opportunities.
If a wireless provider accepts the terms of the proposal submitted by
SpectraSite, the provider will award SpectraSite a mandate:
- to pursue specific sites;
- to identify appropriate sites within specific search rings; or
- to build a tower network within a general area. These mandates are in the
form of non-binding agreements and either party may terminate the mandate
at any time.
Based on the status of the sites SpectraSite has been given a mandate to
pursue, SpectraSite will provide the site development activities required to:
secure and complete a ground lease; obtain zoning approval and other required
permits; design the network and construct all towers within the network. Prior
to starting construction on each site, SpectraSite will enter into an antenna
site lease agreement with a provider. Certain of the build-to-suit agreements
contain penalty provisions in the event the towers are not completed within
specified time periods.
SpectraSite invests resources in radio frequency engineering and site
acquisition of potential tower sites we believe have higher than average
co-location opportunities. SpectraSite does not commence tower construction
until an anchor tenant signs a lease.
SpectraSite also selectively pursues acquisitions of revenue-producing
communication sites. SpectraSite's goal is to acquire towers that have an
initial or planned capital investment not exceeding a targeted multiple of tower
cash flow after a certain period of time. Tower cash flow is determined by
subtracting from gross tenant revenues the direct expenses associated with
operating the communication site, such as ground lease payments, real estate
taxes, utilities, insurance and maintenance.
SpectraSite has had discussions with a number of wireless communication
providers regarding possible strategic partnerships and other investment
arrangements. SpectraSite has no present agreement regarding the terms of any
such transaction. If and when additional attractive opportunities become
available, SpectraSite contemplates pursuing such opportunities. Nonetheless,
there can be no assurance that any such future strategic business arrangement
will be entered into or the timing thereof. Specifically, any decision by
SpectraSite as to whether or not to pursue any such strategic partnership or
similar business arrangement will be based upon, among other things, the
relative attractiveness of available alternative
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business and investment opportunities, the regulatory environment for wireless
communication properties, future developments relating to SpectraSite, general
economic conditions and other future developments.
TOWER OPERATIONS. The tower operations business consists of the leasing of
antenna space on tower sites to wireless service providers, and the maintenance
and management of tower sites. These services are provided for our towers and
for carrier-owned towers. When SpectraSite provides site leasing services for
carrier-owned towers, SpectraSite receives a percentage of the revenues of the
leases it obtains on behalf of the carrier. When SpectraSite performs site
management services for carrier-owned towers, the carrier pays SpectraSite a
fixed monthly fee for each managed site. SpectraSite generally receives monthly
lease payments from customers payable under written antenna site leases. The
majority of SpectraSite's outstanding customer leases, and the new leases
typically entered into by SpectraSite, have original terms of five years, with
four or five renewal periods of five years each, and usually provide for
periodic price increases. Monthly lease pricing varies with the number and type
of antennae installed on a communication site.
Management believes that the site leasing portion of SpectraSite's business
has significant potential for growth, and SpectraSite intends to expand its site
leasing business through increasing activity from its build-to-suit programs and
selective acquisitions, such as the recent acquisition of GlobalComm.
Once acquired or constructed, SpectraSite maintains and manages its
communication sites through a combination of in-house personnel and independent
contractors. In-house personnel are responsible for oversight and supervision of
all aspects of site maintenance and management and are particularly responsible
for monitoring security access and lighting, radio frequency emission and
interference issues, signage, structural engineering and tower capacity, tenant
relations and supervision of independent contractors. Independent contractors
are hired locally by SpectraSite to perform routine maintenance functions, such
as landscaping, pest control, snow removal, site access and equipment
installation oversight. Independent contractors are engaged by SpectraSite on a
fixed fee or time and materials basis.
SITE ACQUISITION. SpectraSite offers a full range of site acquisition
services. Site acquisition typically occur in four phases:
- network pre-design;
- communication site selection;
- communication site acquisition; and
- local zoning and permitting.
SpectraSite offers each phase of its site acquisition services to its
customers.
During the initial phase, network pre-design, SpectraSite performs
pre-design analysis by investigating those areas of the Basic Trading Area that
are designated as a priority by the customer. SpectraSite will then identify, to
the extent possible, all sites which met the customer's radio frequency
requirements. Geographic Information Systems specialists create maps of the
sites, analyzing for a number of factors, including which areas may have the
most favorable zoning regulations and availability of co-location opportunities.
A preliminary zoning analysis is typically conducted, and SpectraSite will
determine those areas of the Basic Trading Area where zoning approval is likely,
along with a possible time frame for approval. These initial services are
intended to eliminate costly redesigns once a project is commenced which can
result in significant savings of both time and money.
In the second phase, site selection, SpectraSite determines which sites:
- most closely meet the radio frequency engineering requirements of the
customer;
- can be leased or purchased;
- have the potential to be zoned for site construction or co-location based
on the then current zoning requirements; and
- are suitable for the construction of a site.
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Geographic Information Systems specialists select the most suitable sites
based on demographics, traffic patterns and signal characteristics.
Typically, SpectraSite will identify two or three potential sites for each
location in the radio frequency engineering plan, with the intent of co-locating
on an existing site or constructing a new site on the location most advantageous
to the customer. FAA approval, when necessary, is also typically sought at this
time.
In the third phase, site acquisition, SpectraSite secures the right from
the property owner to construct a tower or co-locate on the site. Depending on
the type of interest in the property that SpectraSite believes will best suit
the needs of the customer, SpectraSite will negotiate and enter into on behalf
of the customer:
- a contract of sale pursuant to which the customer acquires fee title to
the property;
- a long-term ground or rooftop lease pursuant to which the customer
acquires a leasehold interest in the property, typically a five-year
lease with four or five renewal periods of five years each;
- an easement agreement pursuant to which the customer acquires an easement
over the property; or
- an option to purchase or lease the property pursuant to which the
customer has a future right to acquire fee title to the property or
acquire a leasehold interest.
It is during this phase of the site acquisition services that SpectraSite
generally obtains a title report on the site, conducts a survey of the site,
performs soil analysis of the site and obtains an environmental survey of the
site.
The final phase, local zoning and permitting, includes preparing all
appropriate zoning applications and providing representation at any zoning
hearings that may be conducted. SpectraSite also obtains all necessary
entitlement land use permits necessary to commence construction on the site or
install equipment on the site.
The headquarters of SpectraSite's site acquisition business is in Little
Rock. Other offices are in Atlanta, Chattanooga, Cincinnati, Louisville,
Memphis, Orlando and Raleigh. Once SpectraSite is hired on a site acquisition
project, a site acquisition team is dispatched to the project site. A temporary
field office is established for the duration of the project. The site
acquisition team is typically composed of permanent company employees and
supplemented with local hires employed only for that particular project. A team
leader is assigned to each phase of the site acquisition project and reports to
a project manager who oversees all team leaders. Upon the completion of a site
acquisition project, the field office is typically closed and all permanent
company employees are either relocated to another project or directed to return
to headquarters or one of the other division offices.
SpectraSite generally sets prices for each site acquisition service
separately. Customers are billed for these services on a fixed price or time and
materials basis and SpectraSite may negotiate fees on individual sites or for
groups of sites.
CUSTOMERS
SpectraSite has performed site acquisition, tower construction and site
leasing services for several of the largest wireless service providers. The
majority of SpectraSite's contracts have historically been for personal
communications services customers. SpectraSite also serves enhanced specialized
mobile radio, specialized mobile radio and cellular wireless providers. In both
its site acquisition and site leasing businesses, SpectraSite works with
national, local and regional operators. For the year ended December 31, 1997,
Powertel, Sprint PCS, GTE Mobility, Intercel and Horizon accounted for 38.9%,
18.8%, 14.7%, 13.0% and 11.2%, respectively, of SpectraSite's revenue, and for
the nine months ended September 30, 1998, Powertel accounted for 59.2% of
SpectraSite's revenue. No other customer accounted for more than 10% of
SpectraSite's revenue during the nine months ended September 30, 1998. See "Risk
Factors -- Customer Concentration."
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SALES AND MARKETING
SpectraSite's sales and marketing goals are:
- to further cultivate existing customers in order to obtain mandates for
build-to-suit programs and to maximize sales of site acquisition
services;
- to position SpectraSite to become a market leader in the site leasing
business;
- to use existing relationships and develop new relationships with wireless
service providers to lease antennae space on SpectraSite owned or managed
communication sites; and
- to form affiliations with select communications system vendors who
utilize end-to-end services, including those provided by SpectraSite,
which will enable SpectraSite to market its services and products through
additional channels of distribution.
Historically, SpectraSite has capitalized on the strength of its
experience, performance and relationships with wireless service providers to
obtain build-to-suit mandates, and expects to continue to enhance and leverage
these attributes to sell site acquisition services, build-to-suit programs and
antennae space on SpectraSite owned or managed communication sites.
SpectraSite currently has a sales force of three full-time representatives
supplemented by members of SpectraSite's executive management team. Maintaining
and cultivating relationships with wireless service providers is a main focus of
senior management. SpectraSite's strategy is to delegate sales efforts to those
company employees who have the best relationships with the wireless service
providers. The representatives are assigned specific accounts based on
historical experience with a provider and the quality of the relationship
between the SpectraSite representative and such provider. Most wireless service
providers have national corporate headquarters with regional offices.
SpectraSite believes that most decisions for site acquisition and site leasing
services are made by providers at the regional level with input from their
corporate headquarters. SpectraSite's sales representatives work with provider
representatives at the local level and at the national level when appropriate.
SpectraSite's sales staff compensation is heavily weighted to incentive-based
goals and measurements. In addition to its marketing and sales staff,
SpectraSite relies upon its executive and operations personnel on the national
and field office levels to identify sales opportunities within existing customer
accounts, as well as acquisition opportunities.
COMPETITION
SpectraSite's principal competitors include American Tower Corporation,
Crown Castle International Corp., Pinnacle Tower, SBA Communications
Corporation, and Unisite. See "Risk Factors -- We compete with companies who
have greater financial resources."
Towers are not the only kind of platform for radio transmitters. See "Risk
Factors -- Competing technologies and other alternatives could reduce the demand
for our services." Iridium, for example, will soon commence space-borne
provision of cellular telephone service, and Teledesic plans to provide high-
speed data services through low-earth-orbit satellites. In 1997, the FCC
allocated one gigahertz of spectrum in the 47 GHz band for any use consistent
with the spectrum allocation table. It is as yet unclear which of these new
technologies will be commercially feasible, and to what extent they will offer
significant competitive alternatives to terrestrial structures.
EMPLOYEES
As of September 30, 1998, SpectraSite had 100 employees, none of whom are
represented by a collective bargaining agreement. SpectraSite considers its
employee relations to be good. Due to the nature of the site acquisition
business of SpectraSite, it may experience increases and decreases in employees
as site acquisition contracts are completed.
PROPERTIES
SpectraSite is headquartered in Cary, North Carolina, where it currently
leases approximately 5,800 square feet of space. SpectraSite also leases offices
in Little Rock, Arkansas; Birmingham, Alabama; Atlanta, Georgia; Cincinnati,
Ohio; New Orleans, Louisiana; and Fond du Lac, Wisconsin. SpectraSite
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opens and closes project offices from time to time in connection with its site
acquisition business, which offices are generally leased for periods not
exceeding 18 months.
LEGAL PROCEEDINGS
From time to time, SpectraSite is involved in various legal proceedings
relating to claims arising in the ordinary course of business. SpectraSite is
not a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on our business, financial condition or results of operations.
INTERNATIONAL
SpectraSite's primary focus is on its domestic operations. From time to
time, however, SpectraSite may evaluate international opportunities and take
advantage of those that it feels may be profitable for SpectraSite. Currently,
SpectraSite is not considering any significant international projects.
REGULATORY AND ENVIRONMENTAL MATTERS
Federal Regulations. Both the FCC and FAA regulate towers used for
wireless communications transmitters and receivers. Such regulations control the
siting and marking of towers and may, depending on the characteristics of
particular towers, require registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the particular frequency used. In addition,
SpectraSite must comply with certain environmental laws and regulations. See
"Environmental Matters -- We are subject to environmental laws that impose
liability without regard to fault."
Pursuant to the requirements of the Communications Act of 1934, as amended,
the FCC, in conjunction with the FAA, has developed standards to consider
proposals for new or modified antennae. These standards mandate that the FCC and
the FAA consider the height of proposed antennae, the relationship of the
structure to existing natural or man-made obstructions and the proximity of the
antennae to runways and airports. Proposals to construct or to modify existing
antennae above certain heights are reviewed by the FAA to ensure the structure
will not present a hazard to aviation. The FAA may condition its issuance of
no-hazard determination upon compliance with specified lighting and marking
requirements. The FCC will not license the operation of wireless
telecommunications devices on towers unless the tower has been registered with
the FCC or a determination has been made that such registration is not
necessary. The FCC will not register a tower unless it has been cleared by the
FAA. The FCC may also enforce special lighting and painting requirements. Owners
of wireless transmissions towers may have an obligation to maintain painting and
lighting to conform to FCC standards. Tower owners may also bear the
responsibility of notifying the FAA of any tower lighting outage. SpectraSite
generally indemnifies its customers against any failure to comply with
applicable regulatory standards. Failure to comply with the applicable
requirements may lead to civil penalties.
In 1995, the FCC adopted regulations making the owners of towers, rather
than radio licensees, primarily responsible for compliance with antenna
structure painting and lighting requirements. These rule changes are based on
statutory amendments adopted by Congress in 1992 extending regulatory
jurisdiction to tower owners. Radio licensees are now secondarily responsible
for tower maintenance if the tower owners are unwilling or unable to perform
those duties. Currently, these requirements apply to antenna structures that are
more than 200 feet in height, or that may interfere with the approach or
departure space of a nearby airport runway.
The regulatory requirements adopted in 1995 require tower owners to
register existing structures by state, in accordance with filing windows, over a
two year period between July 1, 1996, and June 30, 1998. The FCC has recognized
that, with the proliferation of inexpensive, satellite-based locating devices
such as Global Positioning System receivers, some structures whose positions
were previously determined with area maps can now be easily located with a
higher degree of accuracy. Accordingly, the FCC has granted an amnesty when
tower owners submit location data differing slightly in longitude or latitude
from the site data previously submitted to the FCC by radio licensees. Under the
amnesty policy, the FCC will under some circumstances refrain from imposing
monetary penalties upon tower owners or the radio licensees
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that use their structures. For towers that do not conform with radio licensees'
construction permits, however, the FCC will determine on a case-by-case basis
whether and to what extent towers may need to be moved or modified.
The 1996 Telecom Act amended the Communications Act of 1934 by limiting
state and local zoning authorities' jurisdiction over the construction,
modification and placement of towers. The new law preserves local zoning
authority but prohibits any action that would discriminate between different
providers of wireless services or ban altogether the construction, modification
or placement of radio communication towers. The 1996 Telecom Act also requires
the federal government to help licensees for wireless communications services
gain access to preferred sites for their facilities. This may require that
federal agencies and departments work directly with licensees to make federal
property available for tower facilities.
Owners and operators of antennae may be subject to, and, therefore, must
comply with, Environmental Laws. The FCC's decision to license a proposed tower
may be subject to environmental review pursuant to the National Environmental
Policy Act of 1969, which requires federal agencies to evaluate the
environmental impacts of their decisions under certain circumstances. The FCC
has issued regulations implementing the National Environmental Policy Act. Such
regulations place responsibility on each applicant to investigate any potential
environmental effects of operations and to disclose any significant effects on
the environment in an environmental assessment prior to constructing a tower. In
the event the FCC determines the proposed tower would have a significant
environmental impact based on the standards the FCC has developed, the FCC would
be required to prepare an environmental impact statement. This process could
significantly delay the registration of a particular tower.
STATE AND LOCAL REGULATIONS. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, SpectraSite conducts
the site acquisition portions of its site acquisition services business through
licensed real estate brokers or agents, who may be employees of SpectraSite or
hired as independent contractors. Local regulations include city and other local
ordinances, zoning restrictions and restrictive covenants imposed by community
developers. These regulations vary greatly, but typically require tower owners
to obtain approval from local officials or community standards organizations
prior to tower construction. Local zoning authorities generally have been
hostile to construction of new transmission towers in their communities because
of the height and visibility of the towers. Companies owning or seeking to build
towers have encountered an array of obstacles arising from state and local
regulation of tower site and construction, including environmental assessments,
fall radius assessments, marketing/lighting requirements, and concerns with
interference to other electronic devices. The delays resulting from the
administration of such restrictions can last for several months, and when
appeals are involved, can take several years.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and key employees of SpectraSite are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen H. Clark................... 54 Chairman of the Board of Directors and Chief
Executive Officer
Joe L. Finley, III................. 49 Vice Chairman of the Board of Directors
David P. Tomick.................... 46 Chief Financial Officer and Secretary
Terry L. Armant.................... 50 Vice President -- Operations
Frank L. Marco..................... 39 Vice President -- Towers
John F. Ricci...................... 31 Vice President -- Marketing
Michael Garrett.................... 35 Vice President -- Co-location Marketing
Tracy E. Gill...................... 38 President -- Services Division
Cathy M. Antee..................... 40 Controller and Assistant Secretary
Michael R. Stone................... 36 Director
James R. Matthews.................. 31 Director
W. Chris Hegele.................... 48 Director
Andrew J. Armstrong, Jr............ 41 Director
</TABLE>
STEPHEN H. CLARK is Chairman of the Board of Directors and Chief Executive
Officer of SpectraSite. He has been a director of SpectraSite since its
formation in May 1997. Mr. Clark has 21 years of general management experience
in high growth, start-up companies in the communications, technology and
manufacturing sectors. In 1994, he co-founded PCX Corporation, a manufacturer of
electrical distribution systems. Prior to starting PCX, Mr. Clark co-founded and
served as Chairman and President of Margaux, a supplier of building automation
systems. Prior to starting Margaux, he worked at several technology based,
start-up companies. Mr. Clark has a BA in physics and an MBA from the University
of Colorado.
JOE L. "BUD" FINLEY, III is Vice Chairman of the Board of Directors. Mr.
Finley has 25 years experience in commercial real estate and mortgage finance.
He has been a director of SpectraSite since its formation in May 1997. He
founded the predecessor to Telesite in 1992 and has successfully managed the
rapid growth of that business during the past 6 years. Prior to founding
Telesite, Mr. Finley was a co-founder of CIERRA, Inc., an environmental
consulting firm. Mr. Finley is a graduate of the University of Arkansas.
DAVID P. TOMICK is Chief Financial Officer and Secretary of SpectraSite.
Mr. Tomick has extensive experience raising capital in both private and public
markets for high growth companies in the telecommunications industry. From 1994
to 1997, Mr. Tomick was Chief Financial Officer of Masada Security, Inc., a
company engaged in the security monitoring business. From 1988 to 1994, he was
Vice President -- Finance of Falcon Cable TV, a multiple system operator of
cable television systems, where he was responsible for debt management, mergers
and acquisitions, equity origination and investor relations. Prior to 1988, he
managed a team of corporate finance professionals focusing on the communications
industry for The First National Bank of Chicago. Mr. Tomick holds a Master of
Management degree from the Kellogg Graduate School of Management at Northwestern
University.
TERRY L. ARMANT is Vice President -- Operations of SpectraSite. Prior to
joining SpectraSite in August 1998, Mr. Armant was Director -- System
Implementation at AT&T Wireless Services. In this position, he was responsible
for site acquisition, construction, equipment installation and site management
for the Northeast region. Mr. Armant oversaw eight departments and a staff of
over 115.
FRANK L. MARCO is Vice President -- Towers of SpectraSite. From 1993 to
1997, Mr. Marco was a Project Director and a Regional Director for SBA
Communications Corporation. In 1997, he co-founded Princeton Towers, Inc., a
wireless communication site development company. Before joining SBA, Mr. Marco
was a customer service manager for McCaw Cellular Communications, Inc.
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JOHN F. RICCI is Vice President -- Marketing of SpectraSite. Prior to
joining SpectraSite in June 1998, Mr. Ricci was Director, Program management and
Due Diligence for SBA Communications Corporation, in which capacity he analyzed
build-to-suit, speculative construction and merger opportunities nationwide. Mr.
Ricci was instrumental in developing marketing and budget materials for SBA's
build-to-suit tower program.
MICHAEL GARRETT is Vice President -- Co-location Marketing of SpectraSite.
Prior to joining SpectraSite in September 1998, Mr. Garrett was president of
GlobalComm, which he founded in 1995.
TRACY E. GILL is President -- Services Division of SpectraSite. Mr. Gill
leads SpectraSite's real estate division and has worked with SpectraSite's
predecessor since 1993 in the acquisition and permitting of antenna sites. From
1985 to 1993, he managed the planning, site selection, site design, permitting,
site development, construction, and development of commercial buildings for New
England Security.
CATHY M. ANTEE is Controller and Assistant Secretary of SpectraSite. From
1995 to 1997, Ms. Antee was Controller of Masada Security, Inc. Prior to 1995,
Ms. Antee was employed by Parisian, Inc., a Birmingham-based retailer, most
recently as Treasury Director and Director of Investor Relations. She is a
certified public accountant.
MICHAEL R. STONE has been a director of Holdings since its formation in May
1997. Mr. Stone has been employed by J.H. Whitney & Co. since 1989 and has
served as a General Partner since 1992. Previously, he was with Bain & Company.
JAMES R. MATTHEWS has been a director of Holdings since August 1998. Mr.
Matthews has been employed by J.H. Whitney & Co. since 1994 and has served as a
Principal since 1998. Previously, he was with Gleacher & Co. Inc. and Salomon
Brothers Inc.
W. CHRIS HEGELE has been a director of Holdings since its formation in May
1997. Mr. Hegele has been employed by Kitty Hawk Capital since 1984 and has been
a General Partner since 1986. Previously, Mr. Hegele was employed by Arthur
Andersen & Co.
ANDREW J. ARMSTRONG, JR. has been a director of Holdings since March 31,
1998. Mr. Armstrong is a General Partner of Waller-Sutton Media Partners, L.P.
and President of Waller Capital Corporation, where he has been employed since
1985.
BOARD OF DIRECTORS
Each member of the Board of Directors holds office until the next annual
meeting of stockholders and until his or her successor has been duly elected and
qualified. For information regarding certain voting arrangements with respect to
the Board of Directors, see "Certain Transactions -- Stockholders'
Agreement -- Board of Directors."
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
or incurred on behalf of SpectraSite to its Chief Executive Officer and the only
other executive officer whose salary and bonus exceeded $100,000 for the year
ended December 31, 1997.
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<PAGE> 53
SUMMARY COMPENSATION TABLE
Amounts shown for 1997 include compensation paid by Holdings to the named
executive officers from April 25, 1997, the date of Holdings' inception, through
December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------------ SECURITIES
OTHER UNDERLYING OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ANNUAL($)(A) SARS(#)
--------------------------- ---- --------- -------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark............. 1997 107,046 -0- -- 425,000
Chairman and Chief
Executive Officer
Joe L. Finley, III........... 1997 248,548 -0- 2,576 -0-
Vice Chairman
</TABLE>
- ---------------
(a) The amount reported as Other Annual compensation for Mr. Finley is for an
automobile allowance. SpectraSite has not included the value of incidental
perquisites furnished or paid to Mr. Clark, since the value of such
perquisites did not exceed the lesser of 10% of salary and bonus reported
for 1997.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES PRICE PER EXPIRATION GRANT DATE
NAME GRANTED(A) IN 1997 SHARE DATE PRESENT VALUE(B)
---- ------------ ------------ --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark 265,000(c) 27% $2.89 06/24/02 0.87
160,000(d) 17% 2.89 06/24/07 0.87
</TABLE>
- ---------------
(a) All options become exercisable immediately upon a change in control;
provided, however, that no options become exercisable upon a change in
control as to which a performance milestone has not been achieved as of the
date of the change in control. The shares of common stock issuable upon
exercise of the options are subject to certain rights of first refusal. See
"-- 1997 Stock Option Plan."
(b) The present value of the options granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0%, volatility of .70, risk free interest rate of 6.0% and
expected option lives of seven years.
(c) The options are incentive stock options which vest in equal installments
over a period of four years.
(d) The options are non-qualified stock options which vest upon the first to
occur of the (i) seventh anniversary of the date of grant or (ii)
SpectraSite achieving certain performance goals based upon the number of
towers constructed.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS DECEMBER 31, 1997($)
AT DECEMBER 31, 1997 UNEXERCISABLE
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen H. Clark -0- 425,000 $0 $0
</TABLE>
51
<PAGE> 54
EMPLOYMENT AGREEMENTS
Mr. Finley has an employment agreement with SpectraSite for an initial term
expiring on May 31, 1999, and thereafter his employment is subject to automatic
renewal on a year-to-year basis. The agreement provides for a base salary of
$350,000 per year for this initial term. Base salary after the initial term
shall be determined by the Board of Directors. Mr. Finley is also entitled to
the other benefits afforded executive employees of SpectraSite. The agreement
can be terminated by either Mr. Finley or SpectraSite giving notice to the other
of an intention not to renew at least 90 days prior the last day of the initial
term. After the initial term, the agreement may be terminated at any time with
90 days prior notice to the other party. The agreement also may be terminated by
liquidation, dissolution or discontinuance of the business of SpectraSite, or by
"permanent disability" or "for cause," as such terms are defined in the
agreement. The agreement requires Mr. Finley to maintain the confidentiality of
certain proprietary information. In addition, Mr. Finley has agreed not to
compete with SpectraSite for up to three years following termination of
employment with SpectraSite.
SpectraSite does not have an employment agreement with Mr. Clark. However,
Mr. Clark and SpectraSite have entered into a Confidentiality and
Non-Competition Agreement, dated as of May 12, 1997, pursuant to which Mr. Clark
agreed:
- to treat as confidential certain information he receives about
SpectraSite or its business, operations or properties;
- not to compete with SpectraSite for three years after the termination of
his employment with SpectraSite; and
- to assign to SpectraSite all of his interest in certain intellectual
property conceived or developed by him while employed by SpectraSite.
1997 STOCK OPTION PLAN
SpectraSite established the SpectraSite Holdings, Inc. Stock Option Plan
effective June 24, 1997. The 1997 option plan has a term of ten years and
provides for the issuance of incentive stock options ("ISOs") and non-qualified
stock options ("NQSOs") to key employees, directors, advisors and consultants of
SpectraSite, as well as any subsidiary of SpectraSite. An aggregate of 1,817,700
shares of common stock have been reserved for issuance under the 1997 option
plan, of which options to purchase 1,573,900 shares have been granted and remain
outstanding as of October 31, 1998. The number of shares available for grant as
options may be adjusted in the event of a stock split, stock dividend,
combination of shares, spin-off, spin-out or other similar change, exchange or
reclassification of the common stock at the discretion of the Board, and shares
subject to an option which expires, is terminated or canceled, or is repurchased
by SpectraSite, shall be available for future grants under the 1997 option plan.
The 1997 option plan may be administered by the Board or by a duly
appointed committee having powers specified by the Board. Once SpectraSite
becomes subject to the reporting requirements of the Exchange Act, this
committee shall consist solely of directors who are "non-employee" directors,
for purposes of Section 16 of the Exchange Act, and "outside" directors, for
purposes of Section 162(m) of the Internal Revenue Code. The specific terms of
any option awarded under the 1997 option plan will be reflected in a stock
option agreement executed by SpectraSite and the optionee.
The committee administering the 1997 option plan has the discretion to
determine which eligible individuals will receive options, the number of shares
to be covered by the options, the exercise date of the options, whether the
options should be ISOs or NQSOs, and the terms and conditions of the options.
The exercise price of any ISO may not be less than the fair market value of the
stock on the date the option is granted, provided the exercise price of any ISO
shall be not less than 110% of the fair market value of a share of stock on the
date the option is granted in the event the optionee owns stock possessing more
than 10% of the total combined voting power of all classes of stock of
SpectraSite. Payment of the option price is to be made in cash, by check, in
cash equivalent or by any other form permitted by the committee, including by
promissory note to SpectraSite. Only employees are eligible to receive ISOs, and
at the time
52
<PAGE> 55
an ISO is granted, the fair market value of the common stock for which the ISO
will vest in any year may not exceed $100,000. Options awarded under the 1997
option plan generally are not assignable or transferable except by the laws of
descent and distribution.
Generally, SpectraSite expects the committee to award options that vest and
become exercisable either according to a four year vesting schedule, whereby 25%
of the total grant of shares becomes vested every year for four consecutive
years, or upon the seventh anniversary of the grant date, subject to
acceleration based on the optionee's successful achievement of performance
milestones. In the event of a merger, consolidation, corporate reorganization,
or any transaction in which all or substantially all of the assets of
SpectraSite are sold, leased, transferred or otherwise disposed of, all
outstanding options shall immediately vest and become exercisable as of a date
prior to the transfer of control, as determined by the Board. Notwithstanding
the foregoing, no options will become exercisable upon a transfer of control as
to which a performance milestone has not been achieved as of the date of the
change in control.
Once vested, an option may remain exercisable until the earliest of:
- ten years from the date of grant, five years from the date of grant in
the event the optionee owns stock possessing more than 10% of the total
combined voting power of all classes of stock of SpectraSite;
- three months from the date on which the optionee terminates employment
with SpectraSite; or
- if the optionee's employment ceases by reason of his or her death or
disability, 12 months from the date on which the optionee's employment
terminated.
In no event shall an ISO be exercisable after one month following the date
an optionee's employment with SpectraSite is terminated for cause, as determined
by the committee.
Generally, SpectraSite expects the committee to award options subject to a
right of first refusal. When an optionee proposes to sell, pledge or otherwise
transfer any shares acquired upon the exercise of an option, SpectraSite would
have the right to repurchase those transfer shares under a right of first
refusal, in accordance with the terms set forth in the individual option
agreements. If SpectraSite fails to exercise the right of first refusal, the
optionee may conclude the proposed transfer, but the subsequent transferee would
be required, as a condition of such transfer, to hold the shares subject to
SpectraSite's right of first refusal with respect to any subsequent transfer.
SpectraSite's right of first refusal would not apply to transfers of shares:
- in connection with a change in control;
- to one or more members of the optionee's immediate family;
- which constitutes a pledge to SpectraSite as security for a loan by
SpectraSite to the optionee in connection with exercise of an option; or
- which has been approved by the Board.
In addition, SpectraSite's right of first refusal would terminate upon a change
in control, unless the successor assumes the 1997 option plan, or the common
stock is traded on a public market.
The 1997 option plan may be amended, suspended or terminated by the Board
in whole or in part at any time, provided that no such amendment, suspension or
termination of the 1997 option plan may adversely affect the rights of or
obligations to the optionees without such optionees' consent. The Board must
obtain stockholder approval for any change in the 1997 option plan that would:
- extend the period during which options may be granted beyond June 24,
2007;
- materially increase the number of shares which may be issued under the
1997 option plan; or
- materially modify the requirements as to eligibility for participation
under the 1997 option plan.
53
<PAGE> 56
The grant of an option under the 1997 option plan will not have any
immediate effect on the federal income tax liability of SpectraSite or the
optionee. If the Board grants an optionee a NQSO, then the optionee will
recognize ordinary income at the time he or she exercises the NQSO equal to the
difference between the fair market value of the common stock and the exercise
price paid by the optionee, and SpectraSite will receive a deduction for the
same amount.
If the Board grants an optionee an ISO, then the optionee generally will
not recognize any taxable income at the time he or she exercises the ISO, other
than potential liability for alternative minimum tax, but will recognize income
only at the time he or she sells the common stock acquired by exercise of the
ISO. Upon sale of the common stock acquired upon exercise of the ISO, the
optionee will recognize income equal to the difference between the exercise
price paid by the optionee and the amount received upon sale, and such income
generally will be eligible for capital gain treatment. SpectraSite generally is
not entitled to an income tax deduction for the grant of an ISO or as a result
of either the optionee's exercise of an ISO or the optionee's sale of the common
stock acquired through exercise of an ISO. However, if the optionee sells the
common stock either within two years of the date of the grant to him or her of
the ISO, or within one year of the date of the transfer to him or her of the
common stock following exercise of the ISO, then the option is treated for
federal income tax purposes as if it were a NQSO; the income recognized by the
optionee will not be eligible for capital gain treatment and SpectraSite will be
entitled to a federal income tax deduction equal to the amount of income
recognized by the optionee.
CERTAIN TRANSACTIONS
TELESITE AND METROSITE ACQUISITION
On May 12, 1997, in connection with the formation of SpectraSite,
SpectraSite purchased the outstanding membership units of Telesite and Metrosite
for an aggregate purchase price of $7,233,125 which included 81,753 shares of
common stock valued at $71,125 in the aggregate. In addition, as part of the
acquisition consideration, 408,764 shares of common stock were issued into
escrow and are to be released upon the acquired business achieving certain
operating goals. The escrow arrangement provides that SpectraSite may repurchase
the shares held in escrow if the acquired business does not achieve the
specified operating goals, and in May 1998, SpectraSite exercised its option to
repurchase 204,382 shares of the common stock held in escrow for an aggregate
repurchase price of $204.38.
Joe L. Finley, III, the Vice Chairman of Holdings' Board of Directors,
members of Mr. Finley's family and entities controlled by Mr. Finley received
all of the aggregate purchase price, which amount included a note payable to Mr.
Finley in the original principal amount of $2,312,000, and all of the common
stock issued in connection with the acquisitions. SpectraSite used $2,331,953 of
the proceeds from the sale of the outstanding notes to pay the outstanding
principal amount of and accrued interest on the note payable to Mr. Finley.
GLOBALCOMM ACQUISITION
As of September 23, 1998, SpectraSite acquired all of the shares of capital
stock of GlobalComm, Inc. for approximately $2 million in cash. In connection
with this acquisition, the founder and president of GlobalComm, Michael Garrett,
joined SpectraSite as Vice President -- Co-location Marketing, and Holdings
granted Mr. Garrett an option to purchase 100,000 shares of its common stock for
a nominal price per share. This option vests in equal installments over a
three-year period, with the first installment vesting on June 30, 1999.
REPURCHASE OF COMMON STOCK FROM FORMER EMPLOYEE
In an agreement dated September 15, 1998, a former employee agreed to
release SpectraSite from any potential claims and to sell 125,000 shares of
Holdings common stock to SpectraSite for an agreed upon price. In addition, the
agreement provided that shareholders of Holdings would have an option to
purchase the former employee's remaining 37,605 shares of Holdings common stock
for the same price per share, provided that SpectraSite advise the former
employee in writing of the exercise of all or any portion
54
<PAGE> 57
of such option by November 15, 1998. On October 9, 1998, SpectraSite paid the
former employee $500,000 for his shares and the release under the agreement.
THE SERIES A AND SERIES B PREFERRED STOCK OFFERINGS
Pursuant to a stock purchase agreement, dated as of May 12, 1997, the
Whitney Equity Partners, L.P. and Kitty Hawk Capital Limited Partnership, III
purchased an aggregate of 3,462,830 shares of Holdings' Series A preferred stock
for an aggregate purchase price of $10 million in a transaction exempt from
registration under the Securities Act. Each share of Series A preferred stock
currently is convertible into one share of common stock, subject to adjustment
upon the happening of certain events, accrues dividends at a rate of 8% per
annum and entitles the holder to certain voting rights. See "Description of
Capital Stock."
Pursuant to the Series B stock purchase agreement, the Series B investors
agreed to purchase shares of Holdings' Series B preferred stock for an aggregate
purchase price of $28 million. Each share of Series B preferred stock is
currently convertible into one share of common stock, subject to adjustment upon
the happening of certain events, accrues dividends at a rate of 8% per annum and
entitles the holder to certain voting rights. See "Description of Capital
Stock." In addition, Holdings is obligated under the Series A agreement and the
Series B agreement to pay the Whitney funds a monitoring fee of $10,000 in the
aggregate per month until Holdings completes an initial public offering of its
common stock.
The Series B investors, including the holders of the Series A preferred
stock and certain other stockholders of Holdings, are entitled to certain rights
under the Stockholders' Agreement and the Amended and Restated Registration
Rights Agreement, each as described below.
STOCKHOLDERS' AGREEMENT
As of March 23, 1998, Holdings and all of its stockholders and warrant
holders (collectively, the "Stockholders") entered into the Second Amended and
Restated Stockholders' Agreement (the "Stockholders' Agreement"), which sets
forth certain agreements relating to issuances and transfers of Holdings'
capital stock and to the governance of Holdings. The following is a summary of
the material terms of the Stockholders' Agreement.
PREEMPTIVE RIGHTS. If Holdings wishes to issue any of its common stock or
any securities exercisable for, convertible into or exchangeable for common
stock, it shall so notify the Stockholders, and each Stockholder will have the
right, subject to certain exceptions, to acquire its pro rata share of the
offered securities and of any offered securities not purchased by the other
Stockholders. Without the consent of the Whitney funds, Holdings may not issue
or sell any capital stock or any securities exercisable for, convertible into or
exchangeable for capital stock unless the purchaser agrees to become a party to
the Stockholders' Agreement, but in any event such purchaser will not be
entitled to the preemptive rights provided in the Stockholders' Agreement.
RIGHTS OF FIRST REFUSAL. With the exception of the Whitney funds, if a
Stockholder desires to sell or otherwise dispose of its stock to a third party,
other than to certain permitted transferees, it must first offer such stock
either to Holdings and then to the other Stockholders, or just to certain
Stockholders, depending on the identity of the selling Stockholder, on the same
terms and conditions that the third party has offered to buy such stock. If
Holdings and such other Stockholders do not agree to buy all of the offered
stock, the selling Stockholder may either sell the remaining stock not agreed to
be bought by such other Stockholders to the third party, or choose not to sell
any of the offered stock to the third party or the other Stockholders. If any
stock is sold to the third party, it must agree to become a party to the
Stockholders' Agreement.
BRING-ALONG RIGHTS. If the Whitney funds propose to sell or otherwise
dispose of all, but not less than all, of their stock to a third party, other
than certain permitted transferees, the Whitney funds may require the other
Stockholders to sell their stock to the third party for a purchase price equal
to the fair market value thereof, as determined by a nationally recognized
investment bank or appraisal firm, and otherwise on the terms of the Whitney
funds' sale to the third party.
55
<PAGE> 58
BOARD OF DIRECTORS. The Stockholders' Agreement provides that the
Stockholders will nominate to Holdings' seven member Board of Directors:
- three nominees designated by the Whitney funds;
- one nominee designated by Waller-Sutton;
- two nominees designated by the management of Holdings; and
- one independent nominee acceptable to the Whitney funds, Waller-Sutton,
Kitty Hawk III, Kitty Hawk IV and SpectraSite management.
In addition, the Stockholders have agreed to elect two nominees of the Whitney
funds and one nominee of management to Holdings' audit committee and
compensation committee. As long as the preferred stock owned by the Whitney
funds exceeds a specified amount, the Whitney funds also have the right to cause
the size of Holdings' board of directors to be increased to nine and to appoint
two additional directors. However, if the preferred stock owned by the Whitney
funds drops below a specified amount, then the Whitney funds will only be
permitted to appoint one director. The rights of the Whitney funds and Waller-
Sutton to appoint directors terminate when the preferred stock owned by such
stockholders drops below a specified level.
In a separate letter agreement, the Whitney funds have agreed to nominate
W. Chris Hegele as one of their three nominees under the Stockholders' Agreement
to serve as a member of the Board of Directors; provided, however, that Mr.
Hegele has agreed to promptly resign from the Board upon the written request of
the Whitney funds. In addition, SpectraSite has agreed that, if a representative
of Kitty Hawk IV is not serving as a member of the Board of Directors, Kitty
Hawk IV will have the right to designate a representative who may consult with
management on significant business issues and attend meetings of the Board of
Directors except in certain limited circumstances.
CO-SALE RIGHTS. If any of the Whitney funds desires to sell any of its
Series B preferred stock or any shares of common stock issued upon conversion of
any of its Series B preferred stock, to a third party, it shall notify
Waller-Sutton, Kitty Hawk IV or Eagle Creek (the "Co-Sale Parties"), and each
Co-Sale Party shall have the right to sell its pro rata share of Series B
preferred stock, or any shares of common stock issued upon conversion of any of
its Series B preferred stock, to the third party, on the same terms and
conditions that the third party has offered to buy such stock from the Whitney
Funds. If any of the Co-Sale Parties desires to sell any of its Series B
preferred stock, or any shares of common stock issued upon conversion of any of
its Series B preferred stock, to a third party, it shall notify the Whitney
Funds, and each of the Whitney Funds shall have the right to sell its pro rata
share of Series B preferred stock, or any shares of common stock issued upon
conversion of any of its Series B preferred stock, to the third party, on the
same terms and conditions that the third party has offered to buy such stock
from such Co-Sale Party. If any stock is sold to any such third party, it must
agree to become a party to the Stockholders' Agreement.
CONSENT RIGHTS. So long as the Whitney funds and Waller-Sutton own a
specified amount of preferred stock, Holdings may not take any of the following
actions without the prior consent of the Whitney funds and Waller-Sutton:
- engage in any business other than its business or the business of its
subsidiaries as of the date of the Stockholders' Agreement;
- amend its Certificate of Incorporation in any way adverse to the holders
of the Series B preferred stock;
- enter into any agreement or make any payment to a holder of Series A
preferred stock that would be to the advantage of such holder to the
detriment of the holders of the Series B preferred stock;
- liquidate or dissolve; or
- file a petition in bankruptcy.
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<PAGE> 59
REGISTRATION RIGHTS AGREEMENT
As of March 23, 1998, Holdings, the Series A investors, the Series B
investors and certain members of SpectraSite's management entered into the
Amended and Restated Registration Rights Agreement, which sets forth certain
agreements relating to registration of Holdings' capital stock under the
Securities Act. The following is a summary of the material terms of this
registration rights agreement.
Any one or more of the Whitney funds, Waller-Sutton, Eagle Creek, Kitty
Hawk IV, Kitty Hawk III and NCEF (collectively, the "Institutional Investors"),
holding at least 75% of the preferred stock may at any time after May 12, 1998,
request SpectraSite to register under the Securities Act all or any portion of
the common stock issued upon conversion of the preferred stock; provided,
however, that at the time of the request, the Institutional Investors making
such request must own in the aggregate 5% or more of the total shares of such
restricted stock on a diluted basis. However, no request may be made within 360
days of the effective date of an under-written public offering of Holdings'
securities in which holders of restricted stock were entitled to join. Holdings
will use its best efforts to cause the restricted stock held by such requesting
Institutional Investors, as well as any restricted stock or other common stock
requested to be included, to be registered, subject to certain limitations.
If Holdings at any time proposes to register any of its securities under
the Securities Act for sale to the public, other than on a Form S-4, S-8 or
other form of registration statement not available for registering the
restricted stock for sale to the public, Holdings will give written notice to
all holders of restricted stock and to Stephen H. Clark, Robert M. Long and
Finley LP (collectively, the "Registration Stockholders") of Holdings' intention
to register its securities. Holdings will use its best efforts, to the extent
requested by the holders of the restricted stock or the Registration
Stockholders to cause the restricted stock and the common stock held by the
Registration Stockholders to be included in the proposed registration to be
filed by Holdings, subject to certain limitations. In addition, Institutional
Investors have a right to require Holdings to file a registration statement on
Form S-3 provided that the anticipated aggregate offering price of such
registration shall be equal to or greater than $1 million.
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<PAGE> 60
OWNERSHIP OF CAPITAL STOCK
The table below sets forth, as of December 31, 1998, certain information
with respect to the beneficial ownership of Holdings' capital stock by:
- each person who is known by SpectraSite to be the beneficial owner of
more than 5% of any class or series of capital stock of Holdings;
- each of the directors and named executive officers individually; and
- all directors and executive officers as a group.
At December 31, 1998, Holdings had outstanding the following shares of capital
stock: common stock -- 1,161,135 shares; Series A preferred stock -- 3,462,830
shares; and Series B preferred stock -- 7,000,000 shares.
Each share of Series A preferred stock and each share of Series B preferred
stock is immediately convertible into one share of the common stock, subject to
certain adjustments, and, therefore, the holders of Series A preferred stock and
Series B preferred stock are deemed to be the beneficial owners of the shares of
common stock into which their preferred stock can be converted. The amounts and
percentages of common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial ownership of
securities. Under the rules of the SEC, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which includes
the power to vote or to direct the voting of such security, or "investment
power," which includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed to be a
beneficial owner of securities as to which such person has an economic interest.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF
SHARES OF TOTAL VOTING
COMMON POWER OF
SERIES A SERIES B STOCK BENEFICIALLY
COMMON PREFERRED PREFERRED BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK OWNED COMMON STOCK
------------------------ --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark(a)................. 843,185 -- -- 843,185 7.2%
Joe L. Finley(b).................... 286,135 -- 50,000 336,135 2.9%
Michael R. Stone(c)................. -- 3,203,118 5,161,219 8,364,337 72.3%
James R. Matthews(c)................ -- 3,203,118 5,161,219 8,364,337 72.3%
W. Chris Hegele(d).................. 32,761 259,712 368,659 661,132 5.7%
Andrew J. Armstrong, Jr.(e)......... -- -- 1,228,862 1,228,862 10.6%
Whitney Equity Partners, L.P.(c).... -- 3,203,118 1,720,406 4,923,524 42.5%
Whitney Strategic Partners III,
L.P.(c)........................... -- -- 80,961 80,961 0.7%
J. H. Whitney III, L.P.(c).......... -- -- 3,359,852 3,359,852 29.0%
Waller-Sutton Media Partners,
L.P.(e)........................... -- -- 1,228,862 1,228,862 10.6%
Kitty Hawk Capital Limited
Partnership, III(d)............... 32,761 259,712 61,443 353,916 3.1%
Kitty Hawk Capital Limited
Partnership, IV(d)................ -- -- 307,216 307,216 2.7%
All directors and executive officers
as a group (13 persons)(f)........ 1,228,806 3,462,830 6,808,740 11,500,376 97.3%
</TABLE>
58
<PAGE> 61
- ---------------
(a) Includes 106,250 shares of common stock issuable upon the exercise of
options and excludes 618,750 shares issuable upon the exercise of
outstanding options which are not exercisable within 60 days. The business
address for Mr. Clark is 8000 Regency Parkway, Suite 570, Cary, North
Carolina 27511.
(b) Of the shares reported as beneficially owned by Mr. Finley, 81,753 shares
are held by Finley Family Limited Partnership and 204,382 are held in
escrow. Mr. Finley disclaims beneficial ownership of all such shares, and
the shares held in escrow are not considered issued and outstanding for
financial reporting purposes in accordance with generally accepted
accounting principles. The address for Mr. Finley and Finley Family Limited
Partnership is 11 Corporate Hill Drive, Little Rock, Arkansas 72205.
(c) Mr. Stone is a managing member of each of the general partners of each of
the Whitney funds, and Mr. Matthews is a Principal of the Whitney funds.
Messrs. Stone and Matthews own no shares directly and disclaim beneficial
ownership of the shares held by such entities. The business address for Mr.
Stone, Mr. Matthews and the Whitney funds is 177 Broad Street, Stamford,
Connecticut 06901.
(d) Mr. Hegele is a general partner of Kitty Hawk Partners Limited Partnership,
III, the general partner of Kitty Hawk Capital Limited Partners III, and a
managing member of Kitty Hawk Partners Limited Liability Company, IV, the
general partner of Kitty Hawk Capital Limited Partners IV. Mr. Hegele owns
no shares directly and disclaims beneficial ownership of the shares held by
Kitty Hawk Capital Limited Partners III and Kitty Hawk Capital Limited
Partners IV. The business address for Mr. Hegele, Kitty Hawk Capital Limited
Partners III and Kitty Hawk Capital Limited Partners IV is 2700 Coltsgate
Road, Suite 202, Charlotte, North Carolina 28211.
(e) Mr. Armstrong is a principal of Waller-Sutton Management, Inc., which is the
general partner of Waller-Sutton Media Partners, L.P. Mr. Armstrong owns no
shares directly and disclaims beneficial ownership of the shares held by
such entity. The business address for Mr. Armstrong and Waller-Sutton Media
Partners, L.P. is c/o Waller-Sutton Management Group, Inc., 1 Rockefeller
Plaza, New York, New York 10020.
(f) Includes 172,975 shares of common stock issuable upon the exercise of
options, but excludes 1,243,925 shares of common stock issuable upon the
exercise of options which are not exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms and provisions of
Holdings' capital stock. Holdings' Certificate of Incorporation, as amended,
authorizes 20,000,000 shares of common stock, $0.001 par value per share, and
10,462,830 shares of preferred stock, of which 3,462,830 shares have been
designated as 8% Series A Cumulative Convertible Redeemable Preferred Stock and
7,000,000 shares have been designated as 8% Series B Cumulative Convertible
Redeemable Preferred Stock. As of December 31, 1998, there were:
- 1,161,135 shares of common stock issued and outstanding;
- 3,462,830 shares of Series A preferred stock issued and outstanding; and
- 7,000,000 shares of Series B preferred stock issued and outstanding.
In addition:
- 243,800 shares of common stock are reserved for issuance upon exercise of
stock options available for future grant under the 1997 Option Plan;
- 1,546,900 shares of common stock are reserved for issuance upon exercise
of outstanding stock options granted under the 1997 Option Plan;
- 10,462,830 shares of common stock are reserved for issuance upon the
conversion of the preferred stock; and
- 204,382 shares of common stock are held in escrow. See "Certain
Transactions -- Telesite and Metrosite Acquisition."
COMMON STOCK
Holdings has one class of authorized common stock. The common stock is
entitled to one vote per share. All outstanding shares of common stock are
validly issued, fully paid and nonassessable. The common stock holders have no
cumulative rights, subscription, redemption, sinking fund or conversion rights
and preferences. There are no preemptive rights other than those granted under
the Stockholders' Agreement. See "Certain Transactions -- Stockholders'
Agreement -- Preemptive Rights." Subject to preferences that may be applicable
to the Series A and the Series B preferred stock or any preferred stock which
Holdings may issue in the future, the common stock holders will be entitled to
receive such dividends as the board of directors may declare out of funds
legally available for that purpose. The rights and preferences of the common
stock holders are subject to the rights of the preferred stock holders and will
be subject to the rights of any series of preferred stock which Holdings may
issue in the future.
PREFERRED STOCK
CONVERSION. Each holder of the Series A and the Series B preferred stock
has the right to convert his or her shares at any time. Currently each share of
preferred stock is convertible into one share of common stock, subject to
adjustment in the event of:
- any dividend or distribution made in shares of common stock;
- subdivision, combination or reclassification of Holdings' outstanding
common stock;
- any issue of common stock less than a specified price per share;
- any issue of rights, options or warrants to subscribe for or purchase
shares of common stock less than a specified price per share;
- any issue of rights for the purchase of shares of common stock or other
securities convertible or exchangeable into shares of common stock less
than a specified price per share; and
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- any Holdings distribution, to the common stock holders, of any shares of
its capital stock, other than common stock, or evidence of indebtedness,
cash or other assets.
The preferred stock will automatically convert into common stock upon
Holdings' completion of a firm commitment underwritten initial public offering
raising gross proceeds of at least $30 million at an offering price per share
greater than or equal to $4.47.
DIVIDENDS. The holders of outstanding shares of preferred stock are
entitled, in preference to the holders of any and all other classes of Holdings'
capital stock, to receive, out of funds legally available for that purpose,
cumulative dividends on the preferred stock, in cash, at a rate per annum of 8%
of the original issue price subject to proration for partial years. The original
issue price equals $2.89 per share for the Series A preferred stock and $4.00
per share for the Series B preferred stock, and dividends begin to accrue, for
each of the Series A and the Series B preferred stock, upon the original issue
date of such series. No dividends will be paid on the common stock until all
accumulated and unpaid dividends have been paid on the preferred stock, or with
the prior written consent of 75% of the holders of outstanding preferred stock
voting as a single class. Accrued and unpaid dividends on the preferred stock
will be payable only upon Holdings' liquidation, dissolution or winding-up, or
upon redemption of the preferred stock.
LIQUIDATION. In the event of any liquidation, dissolution or winding-up of
Holdings, either voluntary or involuntary, before any distribution or payment to
holders of common stock or other capital stock, other than the Series A and the
Series B preferred stock, the preferred stock holders shall be entitled to
receive an amount equal to the applicable liquidation preference. The
liquidation preference, for this purpose, is equal to the original issue price
plus all unpaid accrued and accumulated dividends on the Series A and the Series
B preferred stock. If Holdings' assets are insufficient to permit payment in
full to all the preferred stock holders, the assets shall be distributed ratably
among them. Any remaining assets available for distribution shall be distributed
to the common stock holders.
REDEMPTION RIGHTS. On December 15, 2008, Holdings is obligated to redeem
all of the outstanding shares of the Series A and the Series B preferred stock
at the then applicable liquidation preference to the extent it may do so under
applicable law. If Holdings is unable to redeem fully all of the outstanding
shares of preferred stock, it must take all actions necessary to eliminate any
restrictions on its ability to so redeem the shares. Dividends shall continue to
accrue and cumulate on any unredeemed shares.
VOTING. Each of the Series A and the Series B preferred stock holders is
entitled to such number of votes equal to the whole number of shares of common
stock into which such holder's preferred stock is convertible immediately after
the close of business on the record date of the meeting.
SPECIAL REQUIRED APPROVAL
Holdings may not take the following actions without approval by vote or
written consent of the holders of 75% of all issued shares of the Series A and
the Series B preferred stock, voting as a single class:
- the consummation of any sale or lease of all or substantially all of
Holdings' assets, or any merger, consolidation, refinancing or
recapitalization, subject to certain conditions, through May 11, 2007;
- any amendment, restatement or modification of Holdings' Certificate of
Incorporation, By-Laws or other government documents which adversely
affects the rights of preferred stock holders;
- any declaration of a dividend or any distribution with respect to the
common stock or any other capital stock, other than the preferred stock;
- the purchase, redemption or retirement of any shares of capital stock or
other equity securities;
- the authorization, creation or issuance of any shares of capital stock or
other securities which would adversely affect, or are ranked prior to or
ratably with, the preferred stock;
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- engaging in any business in which Holdings was not engaged as of the date
of the Certificate of Incorporation;
- Holdings' voluntary dissolution, liquidation or winding-up;
- the sale of Holdings' assets having a fair market value in excess of
$250,000; or
- entering into any transaction or agreement with any Holdings affiliate,
or amending or terminating any existing agreement with a Holdings
affiliate.
DESCRIPTION OF NEW CREDIT FACILITY
SpectraSite Communications, Inc., Holdings' wholly owned subsidiary,
received a commitment letter from Credit Suisse First Boston Corporation on
December 22, 1997, and it has been renewed through March 31, 1999. The letter
provides that Credit Suisse First Boston will commit to a full $50 million for a
credit facility, but has the right to arrange a syndicate to provide any portion
of that amount. This exchange offer, however, is not contingent on the execution
of this new credit facility, and we expect that SpectraSite Communications will
not enter into the new credit facility prior to the exchange offer closing. The
following is a summary of the material terms of the commitment letter. This
summary is qualified in its entirety by the final terms of the new credit
facility, which may differ from the provisions contained in the commitment
letter and described in this summary. In addition, the commitment letter is
subject to various conditions, and there can be no assurances that SpectraSite
Communications will be able to enter into a definitive credit agreement
implementing the terms and conditions of the commitment letter.
We expect the new credit facility to provide for revolving credit loans of
$50 million to finance the construction and acquisition of towers, and for
working capital and general corporate purposes. We expect the new credit
facility to mature seven years after its closing, with reductions to the amount
of the commitment commencing after two years. In addition, SpectraSite
Communications may be required to prepay the new credit facility in part upon
the occurrence of certain events, such as a sale of assets, the incurrence of
certain additional indebtedness, the issuance of equity, the receipt of
insurance proceeds and the generation of excess cash flow. During any period for
which SpectraSite Communications, Holdings and SpectraSite Communications'
subsidiaries have earnings before interest, taxes, depreciation and amortization
("EBITDA") of less than $8 million on an annualized basis, the amount that
SpectraSite Communications may borrow or have outstanding will be limited to a
specified percentage of the construction or acquisition cost of certain of
SpectraSite Communications' towers.
We expect Holdings and each of SpectraSite Communications' subsidiaries to
guarantee SpectraSite Communications' obligations under the new credit facility,
which will be secured by:
- substantially all the tangible and intangible assets of SpectraSite
Communications, Holdings and all of their direct and indirect
subsidiaries; and
- a pledge of all of SpectraSite Communications' capital stock and all of
SpectraSite Communications' and Holdings' direct and indirect
subsidiaries' capital stock.
We anticipate that SpectraSite Communications will need to pay, quarterly,
a commitment fee of 0.50% per annum on the unused portion of the new credit
facility, which fee will be reduced to 0.375% when the ratio of SpectraSite
Communications' total debt to EBITDA is reduced below a specified level.
We anticipate that the loans under the new credit facility will bear
interest, at SpectraSite Communications' option, at either:
- Credit Suisse First Boston's base rate, plus an applicable margin of 1.5%
per annum initially; or
- the reserve adjusted London Interbank Offered Rate, plus an applicable
margin of 2.5% per annum initially.
In either case, the margin, after a period of time, may decrease based on a
leverage ratio.
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We expect the new credit facility to contain a number of covenants that,
among other things, may restrict the ability of Holdings, SpectraSite
Communications and their respective subsidiaries to:
- dispose of assets;
- incur additional indebtedness or guaranty obligations;
- pay dividends or make capital distributions;
- create liens on assets;
- make investments or acquisitions;
- engage in mergers, consolidations or certain transactions with
subsidiaries and affiliates; and
- otherwise restrict corporate activities.
In addition, we expect the new credit facility to require compliance with
certain financial covenants, including requiring Holdings, SpectraSite
Communications and their respective subsidiaries, on a consolidated basis, to
maintain:
- a maximum ratio of total debt to adjusted EBITDA;
- a minimum interest coverage ratio; and
- a minimum nontower cash flow.
We also anticipate a requirement that the average remaining term on eligible
tower leases shall not at any time be less than three years. Holdings does not
expect that such covenants will impact materially SpectraSite Communications'
and its subsidiaries's ability to operate their respective businesses.
The commitment letter states that the new credit facility will contain a
general limitation on capital distributions and dividends, but the terms of the
limitation have not been negotiated. We anticipate that, as long as there is no
default under the new credit facility, SpectraSite Communications will be
permitted to distribute to Holdings sufficient amounts to permit Holdings to
make interest payments on the notes when due.
We expect the new credit facility to contain customary events of default,
including:
- the failure to pay principal when due, or any interest or other amount
that becomes due within a period of time after the due date thereof;
- any representation or warranty SpectraSite Communications makes that is
incorrect in any material respect on or as of the date made;
- a default in the performance of any negative covenants, or a default in
the performance of certain other covenants or agreements for a specified
period;
- default in certain other indebtedness;
- certain insolvency events;
- certain change of control events; and
- a default under the indenture governing the notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Holdings originally sold the outstanding notes to Credit Suisse First
Boston Corporation, Lehman Brothers, Inc. and CIBC Oppenheimer Corp. These
initial purchasers subsequently placed the outstanding notes with:
- qualified institutional buyers in reliance on Rule 144A under the
Securities Act; and
- qualified buyers outside the United States in reliance on Regulation S
under the Securities Act.
Holdings entered into a registration rights agreement with the initial
purchasers, as a condition to their purchase of the outstanding notes, pursuant
to which Holdings has agreed, for the benefit of the outstanding note holders,
at its own expense, to file a registration statement for this exchange offer, of
which this prospectus is a part, with the SEC no later than November 15, 1998.
When the exchange offer registration statement is declared effective, Holdings
will offer the registered notes in exchange for tender of the outstanding notes.
For each outstanding note tendered to Holdings pursuant to the exchange offer,
the holder of such outstanding note will receive a registered note having an
original principal amount at maturity equal to that of the tendered outstanding
note.
Based upon interpretations by the SEC staff set forth in certain no-action
letters to third parties (including Exxon Capital Holdings Corp., SEC No-Action
Letter (April 13, 1989); Morgan Stanley & Co. Inc., SEC No-Action Letter (June
5, 1991); and Shearman & Sterling, SEC No-Action Letter (July 2, 1993)),
SpectraSite believes that the registered notes issued pursuant to this exchange
offer in exchange for the outstanding notes in general, will be freely tradeable
after the exchange offer, without compliance with the registration and
prospectus delivery requirements of the Securities Act. However, any purchaser
of outstanding notes who is a SpectraSite "affiliate," within the meaning of
Rule 405 under the Securities Act, who does not acquire the registered notes in
the ordinary course of business, or who tenders in the exchange offer for the
purpose of participating in a distribution of the registered notes, could not
rely on the SEC staff position enunciated in such no-action letters and, in the
absence of an applicable exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. A holder's failure to comply with those requirements in such
an instance may result in that holder incurring liability under the Securities
Act which we will not indemnify.
As the above mentioned no-action letters and the registration rights
agreement contemplate, each holder accepting the exchange offer is required to
represent to us, in a letter of transmittal, that:
- the holder or the person receiving the registered notes, whether or not
such person is the holder, will acquire those registered notes in the
ordinary course of business;
- the holder or any other acquiror is not engaging in a distribution of the
registered notes;
- the holder or any other acquiror has no arrangement or understanding with
any person to participate in a distribution of the registered notes;
- neither the holder nor any other acquiror is a Holdings affiliate within
the meaning of Rule 405 under the Securities Act; and
- the holder or any other acquiror acknowledges that if that holder or
other acquiror participates in the exchange offer for the purpose of
distributing the registered notes, it must comply with the registration
and prospectus delivery requirements of the Securities Act in connection
with any such resale and cannot rely on the above mentioned no-action
letters.
As indicated above, each broker-dealer that receives for its own account a
registered note in exchange for outstanding notes must acknowledge that it:
- acquired the outstanding notes for its own account as a result of
market-making activities or other trading activities;
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- has not entered into any arrangement or understanding with Holdings or
any Holdings "affiliate" to distribute the registered notes; and
- will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of the registered notes.
For a description of the procedures for resales by participating broker-dealers,
see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the SEC staff do not permit Holdings to effect this exchange offer, or if for
any other reason the exchange offer is commenced and not consummated within 120
days of November 10, 1998, SpectraSite will:
- file a shelf registration statement covering resales of the outstanding
notes;
- use reasonable best efforts to cause the shelf registration statement to
be declared effective under the Securities Act; and
- use reasonable best efforts to keep effective the shelf registration
statement until the earlier of two years after the outstanding notes'
original issuance date, subject to extension under certain circumstances,
or such time as all of the applicable outstanding notes have been sold.
Holdings will, if and when it files the shelf registration statement,
provide to each applicable holder of the outstanding notes copies of the
prospectus which is a part of the shelf registration statement. A holder that
sells the outstanding notes pursuant to the shelf registration statement
generally:
- must be named as a selling security holder in the related prospectus;
- must deliver a prospectus to purchasers;
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales; and
- will be bound by the provisions of the registration rights agreement
which are applicable to that holder, including certain indemnification
obligations.
In addition, each of the outstanding note holders must deliver information to
Holdings, to be used in connection with the shelf registration statement, in
order to have his or her outstanding notes included in the shelf registration
statement and to benefit from the provisions set forth in the foregoing
paragraph.
The registration rights agreement covering the outstanding notes provides
that Holdings will file an exchange offer registration statement with the SEC no
later than November 15, 1998. We filed the exchange offer registration statement
on November 10, 1998. In the event that:
- by the 120th day after the exchange offer registration statement filing
date neither the exchange offer is consummated nor the shelf registration
statement is declared effective; or
- after either the exchange offer registration statement or shelf
registration statement is declared effective, such registration statement
thereafter ceases to be effective or usable, subject to certain
exceptions, including an exception for a period not to exceed 60 days in
any 12-month period during which SpectraSite effects a material corporate
transaction, in connection with resales of the outstanding notes or
registered notes in accordance with and during the periods specified in
the registration rights agreement.
The interest rate on the outstanding notes will increase by 0.50% per annum from
and including the date on which any such registration default occurred, but
excluding the date on which all registration defaults are cured. The sole remedy
available to the outstanding note holders will be the immediate assessment of
cash interest on the outstanding notes, whether or not cash interest is then
payable on the outstanding notes under the indenture. All interest payable
because a registration default occurred will be payable to the outstanding notes
holders in cash on each January 15 and July 15, commencing with the first such
date occurring after any such interest begins to accrue, until the registration
default is cured. After the
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date on which the registration default is cured, the interest rate on the
outstanding notes will revert to 12% per annum.
Outstanding note holders must:
- make certain representations to us in order to participate in the
exchange offer;
- deliver information to be used in connection with the shelf registration
statement, if required; and
- provide comments on the shelf registration statement within the time
periods set forth in the registration rights agreement,
in order to have their outstanding notes included in the shelf registration
statement and to benefit from the provisions regarding additional interest
payable because a registration default occurred, as set forth above.
The preceding summary of the material provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the registration rights agreement, a copy
of which is filed as an exhibit to the exchange offer registration statement of
which this prospectus is a part.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal for the exchange offer, we will accept any and
all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the expiration date. See "-- Expiration Date; Extensions;
Amendments." Holdings will issue $1,000 original principal amount at maturity of
registered notes in exchange for each $1,000 original principal amount at
maturity of outstanding notes accepted in the exchange offer. Holders may tender
some or all of their outstanding notes pursuant to the exchange offer. However,
outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the registered notes are the same as the form and
terms of the outstanding notes except that:
- the registered notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer; and
- the registered note holders will not be entitled to certain rights under
the registration rights agreement covering the outstanding notes,
including the provisions providing for an increase in the interest rate
on the outstanding notes in certain circumstances relating to the timing
of the exchange offer, all of which rights will terminate when the
exchange offer is terminated.
The registered notes will evidence the same debt as the outstanding notes
and will be entitled to the benefits of the indenture governing the outstanding
notes. As of the date of this prospectus, $225,238,000 aggregate original
principal amount at maturity of outstanding notes were outstanding. We have
fixed the close of business on , 1999 as the record date for the
exchange offer for purposes of determining the persons to whom this prospectus
and the letter of transmittal will be mailed initially.
Outstanding note holders do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC related to such offers.
Holdings shall be deemed to have accepted validly tendered outstanding
notes when, as and if we give oral or written notice to United States Trust
Company of New York, which is the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from Holdings.
If any tendered outstanding notes are not accepted for exchange either
because of an invalid tender, the occurrence of certain other events set forth
herein, or otherwise, the certificates for the unaccepted
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outstanding notes will be returned, without expense, to the tendering holder as
promptly as practicable after the exchange offer's expiration date.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
We shall keep the exchange offer open for at least 30 days, or longer if
required by applicable law, including in connection with any material
modification or waiver of the terms or conditions of the exchange offer that
requires such extension, after the date that notice of the exchange offer is
mailed to outstanding note holders. The expiration date shall be 5:00 p.m., New
York City time, on , 1999, unless we, in our sole discretion, extend
the exchange offer, in which case the expiration date shall be the latest date
and time to which we extend the exchange offer.
If we decide to extend the exchange offer, we will notify United States
Trust Company of New York, which is the exchange agent, of the extension by oral
or written notice, and will mail an announcement of the extension to the
registered holders prior to 10:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
SpectraSite reserves the right, in its sole discretion:
- to delay accepting any outstanding notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth below
under "-- Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent; or
- to amend the terms of the exchange offer in any manner.
We will give oral or written notice of any delay in acceptance, extension,
termination or amendment to the registered holders as promptly as practicable.
PROCEDURES FOR TENDERING
Only an outstanding note holder may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if the letter of transmittal so requires, or transmit an
agent's message in connection with a book-entry transfer, and mail or otherwise
deliver the letter of transmittal or facsimile, or agent's message, together
with the outstanding notes and any other required documents, to Unites States
Trust Company of New York, which is the exchange agent, prior to 5:00 p.m., New
York City time, on the expiration date. In addition, either:
- the exchange agent must receive the letter of transmittal and
certificates for the outstanding notes prior to the expiration date;
- the exchange agent must receive a timely confirmation of a book-entry
transfer of the outstanding notes into the exchange agent's account at
The Depository Trust Company ("DTC") pursuant to the procedure for
book-entry transfer described below, prior to the expiration date; or
- the holder must comply with the guaranteed delivery procedures described
below.
For effective tender, the exchange agent must receive the outstanding notes
or book-entry confirmation, as the case may be, the letter of transmittal, and
other required documents, at the address set forth below under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration date. DELIVERY
OF DOCUMENTS TO THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS
PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
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DTC has authorized DTC participants that hold outstanding notes on behalf
of the outstanding notes' beneficial owners to tender their outstanding notes as
if they were holders. To effect a tender of outstanding notes, DTC participants
should either:
- complete and sign the letter of transmittal, or a manually signed
facsimile thereof, have the signature guaranteed if required by the
instructions, and mail or deliver the letter of transmittal, or the
manually signed facsimile, to the exchange agent pursuant to the
procedure set forth in "Procedures for Tendering;" or
- transmit their acceptance to DTC through the DTC automated tender offer
program for which the transaction will be eligible and follow the
procedure for book-entry transfer set forth in "-- Book-Entry Transfer."
By executing the letter of transmittal or an agent's message, each holder
will make to SpectraSite the representations set forth above in the third
paragraph under the heading "-- Purpose and Effect of the Exchange Offer."
Each holder's tender, and Holdings' acceptance, will constitute agreement
between such holder and Holdings in accordance with the terms, and subject to
the conditions, set forth herein and in the letter of transmittal or agent's
message.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE, AND ALL OTHER REQUIRED DOCUMENTS, TO THE EXCHANGE AGENT IS AT
THE HOLDER'S ELECTION AND SOLE RISK. AS AN ALTERNATIVE TO MAIL DELIVERY, HOLDERS
MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS
SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO
SPECTRASITE. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the letter of transmittal.
A member of the Medallion System must guarantee signatures on a letter of
transmittal or a notice of withdrawal, as the case may be, unless the
outstanding notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of a Medallion System member.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, must be guaranteed, such guarantee must be by a
Medallion System member.
If a person other than the registered holder of any outstanding notes
listed therein signs the accompanying letter of transmittal, the outstanding
notes must be endorsed or accompanied by a properly completed bond power, signed
by the registered holder as his or name appears on the outstanding notes, with
the signature guaranteed by a Medallion System member.
If trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations, or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or bond powers,
such persons should so indicate when signing, and they must submit evidence
satisfactory to SpectraSite of their authority to so act, with the letter of
transmittal.
SpectraSite will determine, in its sole discretion, all questions as to the
validity, form, eligibility, including time of receipt, and acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding
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notes not properly tendered, or any outstanding notes, Holdings' acceptance of
which would, in the opinion of SpectraSite's counsel, be unlawful. We also
reserve the right, in our sole discretion, to waive any defects, irregularities
or conditions of tender as to particular outstanding notes. Our interpretation
of the terms and conditions of the exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within such time as we shall determine. Although we intend
to notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither SpectraSite, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. If the exchange agent receives any
outstanding notes that are not properly tendered, and as to which the defects or
irregularities have not been cured or waived, the exchange agent will return
them to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF REGISTERED NOTES
For each outstanding note Holdings accepts for exchange, the holder will
receive a registered note having a principal amount at maturity equal to that of
the surrendered outstanding note. For purposes of the exchange offer, Holdings
shall be deemed to have accepted properly tendered outstanding notes for
exchange when, as and if Holdings has given oral or written notice thereof to
United States Trust Company of New York, as exchange agent.
In all cases, Holdings will issue registered notes for outstanding notes
that are accepted for exchange pursuant to the exchange offer only after the
exchange agent's timely receipt of certificates for such outstanding notes, or a
timely book-entry confirmation of the outstanding notes into the exchange
agent's account at the book-entry transfer facility, plus a properly completed
and duly executed letter of transmittal or agent's message and all other
required documents. If Holdings does not accept any tendered outstanding notes
for any reason set forth in the terms and conditions of the exchange offer, we
will return the unaccepted or non-exchanged outstanding notes without expense to
the tendering holder, or, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account, the non-exchanged
outstanding notes will be credited to an account maintained with the book-entry
transfer facility, as promptly as practicable after the expiration date.
BOOK-ENTRY TRANSFER
United States Trust Company of New York, as exchange agent, will establish
a new account or utilize an existing account at DTC for the outstanding notes
promptly after the date of this prospectus, and any financial institution that
is a participant in DTC and whose name appears on a security position listing as
the owner of outstanding notes may make a book-entry tender of outstanding notes
by causing DTC to transfer such outstanding notes into the exchange agent's
account in accordance with DTC's procedures for such transfer. However, the
exchange agent must receive, at its address set forth below under the caption
"Exchange Agent," on or prior to the expiration date, or the holders must comply
with the guaranteed delivery procedures described below to submit, the letter of
transmittal, or a manually signed facsimile thereof, properly completed and
validly executed, with any required signature guarantees, or an agent's message,
and any other required documents. Document delivery to DTC in accordance with
DTC's procedures does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent, forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the DTC
participant tendering the outstanding notes, stating:
- the aggregate principal amount of outstanding notes which have been
tendered by such participant;
- that such participant has received and agrees to be bound by the terms of
the letter of transmittal; and
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- that SpectraSite may enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and:
- whose outstanding notes are not immediately available;
- who cannot deliver their outstanding notes, the letter of transmittal or
any other required documents, to United States Trust Company of New York,
which is the exchange agent; or
- who cannot complete the procedures for book-entry transfer, prior to the
expiration date,
may effect a tender if:
(a) the tender is made through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States;
(b) prior to the expiration date, the exchange agent receives from an
institution listed in clause (a) above a properly completed and duly
executed Notice of Guaranteed Delivery, by facsimile transmission, mail or
hand delivery, setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days
after the expiration date, the letter of transmittal, or facsimile thereof,
or an agent's message, together with the certificate(s) representing the
outstanding notes, or a confirmation of book-entry transfer of the notes
into the exchange agent's account at the book-entry transfer facility, and
any other documents required by the letter of transmittal, will be
deposited by the institution with the exchange agent; and
(c) the exchange agent receives, no later than five New York Stock
Exchange trading days after the expiration date, the certificate(s)
representing all tendered outstanding notes in proper form for transfer, or
a confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at the book-entry transfer facility, together with
a letter of transmittal, or facsimile thereof, properly completed and duly
executed, with any required signature guarantees, or an agent's message,
and all other documents required by the letter of transmittal.
Holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above may request that the exchange
agent send them a Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on ,
1999; otherwise such tenders are irrevocable.
To withdraw a tender of outstanding notes in the exchange offer United
States Trust Company of New York, which is the exchange agent, must receive a
telegram, telex, letter or facsimile transmission notice of withdrawal at its
address set forth herein prior to 5:00 p.m., New York City time, on the
expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number(s) and principal amount of such outstanding notes, or, in the case
of outstanding notes transferred by book-entry transfer, the name and
number of the account at the book-entry transfer facility to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding
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notes register the transfer of such outstanding notes into the name of the
person withdrawing the tender; and
- specify the name in which to register the outstanding notes, if different
from that of the depositor.
SpectraSite will determine all questions as to the validity, form and
eligibility, including time of receipt, of the notices. This determination shall
be final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no registered notes will be issued with respect thereto unless the outstanding
notes so withdrawn are validly retendered. SpectraSite will return to the holder
any outstanding notes which have been tendered but which are not accepted for
exchange without expense to the holder, as soon as practicable after withdrawal,
rejection of tender, or termination of the exchange offer. Holders may retender
properly withdrawn outstanding notes by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or offer registered notes for, any outstanding
notes, and may terminate or amend the exchange offer as provided herein before
the acceptance of the outstanding notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the exchange offer
which, in our judgment, might impair materially our ability to proceed with
the exchange offer, or any material adverse development has occurred in any
existing action or proceeding with respect to Holdings or any of its
subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the SEC
staff is proposed, adopted or enacted, which, in our judgment, might impair
materially our ability to proceed with the exchange offer, or impair
materially our contemplated benefits from the exchange offer; or
(c) any governmental approval has not been obtained, which approval we
shall, in our discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
If we determine in our discretion that any of the conditions are not
satisfied, we may:
- refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject, however, to the
holders' rights to withdraw the outstanding notes; or
- waive the unsatisfied conditions and accept all properly tendered
outstanding notes which have not been withdrawn.
We shall keep the exchange offer open for at least 30 days, or longer if
applicable law so requires, including, in connection with any material
modification or waiver of the terms or conditions of the exchange offer that
requires such extension under applicable law, after the date we mail notice of
the exchange offer to outstanding note holders.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for this exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of
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the letter of transmittal, and requests for notice of guaranteed delivery should
be directed to the exchange agent, addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway, 13th floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attn: Corporate Trust Window
Attn: Corporate Trust Services
By Hand: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level
Corporate Trust Window Confirm by Telephone:
New York, New York 10006 (800)548-6565
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
SpectraSite will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of SpectraSite and its affiliates or its agents.
SpectraSite has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the exchange offer. SpectraSite, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of pocket expenses in connection with the exchange
offer.
SpectraSite will pay the cash expenses incurred in connection with the
exchange offer. Such expenses include the exchange agent's and the trustee's
fees and expenses, accounting and legal fees, and printing costs, among others.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in SpectraSite's accounting
records on the date of exchange. Accordingly, SpectraSite will not recognize any
gain or loss for accounting purposes. The exchange offer expenses will be
expensed over the term of the registered notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The outstanding notes that are not exchanged for registered notes pursuant
to the exchange offer will remain restricted securities. Accordingly, such
outstanding notes may be resold only:
- to Holdings, upon redemption thereof or otherwise;
- so long as the outstanding notes are eligible for resale pursuant to Rule
144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule
144A under the Securities Act in a transaction meeting the requirements
of Rule 144A, in accordance with Rule 144 under the Securities Act, or
pursuant to another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to us;
- outside the United States to a foreign person in a transaction meeting
the requirements of Regulation S under the Securities Act; or
- pursuant to an effective registration statement under the Securities Act.
Any resale of outstanding notes must comply with any applicable securities
laws of any state of the United States.
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DESCRIPTION OF THE NOTES
The registered notes have the same form and terms as the outstanding notes,
which they replace, with two exceptions. First, because the issuance of the
registered notes has been registered under the Securities Act, the registered
notes will not bear legends restricting their transfer. Second, the holders of
registered notes will not be entitled to rights under the registration rights
agreement, since the primary provision of that agreement will terminate when the
exchange offer is consummated. A copy of the Indenture, dated June 26, 1998,
between Holdings and United States Trust Company of New York, as trustee, has
been filed as an exhibit to the exchange offer registration statement of which
this prospectus forms a part.
The following is a summary of the material terms of the Indenture. This
summary does not include all the provisions of the Indenture, nor does it
include certain terms made a part of the Indenture by the Trust Indenture Act of
1939, as amended. You can find definitions of certain capitalized terms used in
the following summary under the subheading "-- Certain Definitions." Certain
terms contained in this summary but not capitalized in this summary or defined
under the subheading "-- Certain Definitions" are defined in the Indenture. You
should carefully read the Indenture before participating in the exchange offer.
GENERAL
Methods of Payment
The principal of, premium, if any, and interest on the notes will be
payable, and the notes may be exchanged or transferred, at the office or agency
of SpectraSite in the Borough of Manhattan, The City of New York. The initial
office for transfers is the corporate trust office of the trustee, at 114 West
47th Street, 25th Floor, New York, New York 10036. However, at Holdings' option,
interest payments may be made by check, mailed to the registered holders of the
notes at their registered addresses.
Methods of Issuance
Holdings will issue the registered notes only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
No service charge will be made for any registration of a transfer or an exchange
of notes, but SpectraSite may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
Federal Tax Issues
For United States federal income tax purposes, a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
registered holder of notes as such discount is amortized from the Issue Date.
However, holders will not receive any payments on the notes until January 15,
2004. For a description of certain tax matters related to an investment in the
notes, see "Certain U.S. Federal Tax Considerations."
TERMS OF THE NOTES
The notes:
- are unsecured, senior obligations of Holdings;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of Holdings;
- are senior in right of payment to any future subordinated Indebtedness of
Holdings;
- mature on July 15, 2008;
- have a maximum aggregate principal amount at maturity of $225.2 million;
and
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- will accrue interest at a rate of 12% per annum, which will be compounded
semi-annually on each semi-annual accrual date, but will not be payable
in cash, except that interest on the Accreted Value of each note as of
July 15, 2003 will continue to accrue at 12% per annum, but will be paid
semi-annually commencing January 15, 2004 and continuing on each July 15
and January 15 thereafter to holders of record at the close of business
on the first day of the month during which the interest payment will be
made; interest to be paid on a 360-day year, twelve 30-day month basis.
REDEMPTION
Terms of Optional Redemption
Prior to July 15, 2001, Holdings may redeem up to 25% of the principal
amount at maturity of the notes at any time and from time to time but only from
the proceeds of Equity Offerings. The redemption price for any such redemption
will be 112% of the Accreted Value of the notes being redeemed, plus accrued and
unpaid interest, if any, to the redemption date, subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date. At least 75% of the aggregate principal amount at
maturity of the notes must remain outstanding after each such redemption,
excluding notes held by Holdings or any of its subsidiaries, and each such
redemption must occur within 60 days after the date of closing of the related
Equity Offering.
Between July 15, 2001, and July 15, 2003, Holdings may not redeem the
notes.
Holdings may redeem the notes at any time or from time to time on or after
July 15, 2003. Holdings shall pay accrued and unpaid interest, if any, on the
Accreted Value of the notes being redeemed to the redemption date, subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date. For any notes being redeemed in any
period in Column A below, Holdings shall pay a redemption price equal to the
percentage of the Accreted Value of the notes being redeemed set forth opposite
such period in Column B below.
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PERIOD REDEMPTION PRICE
-------- ----------------
<S> <C>
July 15, 2003, through July 14, 2004........................ 106.000%
July 15, 2004, through July 14, 2005........................ 104.000%
July 15, 2005, through July 14, 2006........................ 102.000%
July 15, 2006 and thereafter................................ 100.000%
</TABLE>
Partial Redemption: Selection and Notice
In the case of any partial redemption, the trustee will select the notes
for redemption:
- in compliance with the requirements of the principal national securities
exchange, if any, on which the notes are listed; or,
- if the notes are not so listed, on a pro rata basis, by lot or by such
other method as the trustee in its sole discretion shall deem to be fair
and appropriate. However, no note of $1,000 or less, in original
principal amount, will be redeemed in part.
SpectraSite will send notice by first class mail at least 30, but not more
than 60, days before the redemption date, to each note holder, to be redeemed at
its registered address. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
notes, or portions of notes, called for redemption. If any note is to be
redeemed in part only, the notice of redemption relating to such note shall
state the portion of the principal amount thereof to be redeemed. A new note, in
principal amount equal to the unredeemed portion of the partially redeemed note,
will be issued in the name of the holder thereof upon cancellation of the
original note.
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Mandatory Redemption
SpectraSite will not make mandatory redemption or sinking fund payments
with respect to the notes.
RANKING
The Indebtedness evidenced by the notes:
- is unsecured Senior Indebtedness of Holdings;
- will rank ratably in right of payment with all existing and future Senior
Indebtedness of Holdings; and
- will be senior in right of payment to all existing and future
Subordinated Obligations of Holdings.
Also, the notes will be effectively subordinated to all existing and future
Secured Indebtedness of Holdings to the extent of the value of the assets
securing such Indebtedness, and will be structurally subordinated to all
existing and future Indebtedness of any of Holdings' subsidiaries.
At September 30, 1998, Holdings had no Indebtedness outstanding other than
the notes, and Holdings' subsidiaries had approximately $3.0 million of
liabilities, including trade payables. Although the Indenture contains
limitations on the amount of additional Indebtedness which Holdings may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness or Secured
Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness."
Holdings conducts all of its operations through subsidiaries and,
therefore, Holdings depends upon the cash flow of its subsidiaries to meet its
obligations, including its obligations under the notes. Holdings' subsidiaries
will not be guarantors of the notes and are separate entities, with no
obligation to make payments on the notes, or to make funds available therefor.
Generally, with respect to the assets and earnings of such subsidiaries,
priority will be given to claims of the subsidiaries' creditors, including trade
creditors, secured creditors, creditors holding indebtedness and guarantees
issued by the subsidiaries, and claims of preferred stockholders, if any, of the
subsidiaries over the claims of Holdings' creditors, including holders of our
notes. The notes, therefore, will be effectively subordinated to all
Indebtedness, preferred stock, if any, and other liabilities and commitments of
Holdings' subsidiaries. Holdings expects that the provisions of the New Credit
Facility will contain substantial restrictions on the ability of its
subsidiaries to transfer cash or assets to Holdings, by dividend or
distribution. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of Holdings' subsidiaries, such limitation is subject
to a number of significant qualifications. Moreover, the Indenture does not
impose any limitation on the subsidiaries' incurrence of liabilities that are
not considered Indebtedness or preferred stock under the Indenture. See
"-- Certain Covenants -- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries."
As of the date of the Indenture, all of Holdings' subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, Holdings may
designate current or future subsidiaries as Unrestricted Subsidiaries, which
will not be subject to many of the restrictive covenants set forth in the
Indenture.
CHANGE OF CONTROL
If a Change of Control occurs, each registered holder of notes will have
the right to require Holdings to repurchase all or any part of such holder's
notes, at a purchase price in cash equal to 101% of the Accreted Value as of the
repurchase date, plus accrued and unpaid interest, if any, to the repurchase
date, subject to the right of holders of record on the relevant record date to
receive interest due on the related interest payment date.
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Within 30 days following any Change of Control, Holdings shall mail a
notice to each holder, with a copy to the trustee, stating:
- that a Change of Control has occurred and that each holder has the right
to require Holdings to purchase such holder's notes at a purchase price
in cash equal to 101% of the Accreted Value as of the repurchase date,
plus accrued and unpaid interest, if any, to the repurchase date, subject
to the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date;
- the circumstances and relevant facts regarding such Change of Control,
including information with respect to pro forma historical income, cash
flow, and capitalization, after giving effect to the Change of Control;
- the repurchase date, which shall be no earlier than 30 days, nor later
than 60 days, from the date such notice is mailed; and
- the instructions Holdings determines, consistent with this covenant, that
a holder must follow in order to have its notes purchased.
The definition of "Change of Control" includes the phrase "all or
substantially all," as used with respect to a sale of assets. The meaning of
"substantially all" varies according to the facts and circumstances of the
subject transaction. There is no clearly established meaning of "substantially
all" under New York law, the law governing the Indenture, and the phrase thus is
subject to judicial interpretation. Accordingly, in certain circumstances, there
may be uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of a person,
and therefore it may be unclear whether a Change of Control has occurred.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, Holdings will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under this covenant by virtue of its compliance with the law.
The Change of Control purchase feature is a result of negotiations between
Holdings and the initial purchasers of the outstanding notes. Subject to the
limitations discussed below, Holdings could enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of Indebtedness outstanding at such time or otherwise affect Holdings'
capital structure or credit rating. Restrictions on Holdings' ability to incur
additional Indebtedness are contained in the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries." Such restrictions
can be waived only with the consent of the holders of a majority, in principal
amount at maturity, of the notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture does not contain any
covenants or provisions that afford holders of notes protection in the event of
a highly leveraged transaction.
The New Credit Facility is expected to:
- limit Holdings' access to its subsidiaries' cash flow and, therefore,
restrict SpectraSite's ability to purchase any notes.
- provide, with respect to Holdings, that the occurrence of certain events
similar to those included in the definition of the term "Change of
Control" will constitute a default.
In the event that a Change of Control occurs at a time when Holdings's
subsidiaries are prohibited from making distributions to Holdings to allow it to
purchase notes, Holdings could cause its subsidiaries to seek the consent of the
lenders under the New Credit Facility, to allow such distributions, or it could
attempt to refinance the borrowings that contain the prohibition against
distributions. If Holdings does not
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obtain such a consent or repay such borrowings, Holdings will remain prohibited
from purchasing notes. In that case, Holdings' failure to purchase tendered
notes would constitute an Event of Default under the Indenture which would, in
turn, constitute a default under the New Credit Facility.
Future Indebtedness of Holdings and its subsidiaries may contain
prohibitions against the occurrence of certain events that would constitute a
Change of Control, or require such Indebtedness to be purchased upon a Change of
Control. Moreover, the holders' exercise of their right to require Holdings to
purchase the notes could cause a default under such Indebtedness, even if the
Change of Control itself does not cause a default, due to the financial effect
on SpectraSite of such a notes purchase.
Holdings' ability to pay cash to the holders following the occurrence of a
Change of Control may be limited by Holdings' then existing financial resources,
including its ability to access its subsidiaries' cash flow. See "Risk Factors
- -- Repayment Uncertainty" and "Risk Factors -- Holding Company Structure." There
can be no assurance that sufficient funds will be available when necessary for
Holdings to make any required purchases.
The Indenture provisions relative to Holdings' obligation to make an offer
to repurchase the notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority, in principal
amount at maturity, of the notes.
Holdings will not be required to make an offer, pursuant to this section of
the Indenture, upon a Change of Control, if a third party, in compliance with
the requirements set forth in the Indenture applicable to Holdings' Change of
Control, makes an offer to purchase, and purchases, all notes validly tendered
and not withdrawn under such offer.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
1. Holdings cannot have an Indebtedness to Adjusted EBITDA Ratio of more than
7.00:1. SpectraSite may give pro forma affect to the incurrence of
Indebtedness and the application of proceeds from such incurrence when
determining compliance with the ratio. Accrual of interest, accretion, or
amortization of original issue discount, and the payment of interest in the
form of additional Indebtedness, will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
2. Despite the limitations described in paragraph (1), and regardless of the
amount of Holdings' outstanding Indebtedness, Holdings may incur any or all
of the following Indebtedness:
a. Indebtedness of Holdings owing to and held by any Restricted Subsidiary;
provided, however, that any subsequent issuance or transfer of any
capital stock, or any other event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, or any subsequent
transfer of any such Indebtedness, except to another Restricted
Subsidiary, will be deemed to constitute Holdings' incurrence of such
Indebtedness;
b. Indebtedness represented by the notes;
c. Any of Holdings' Indebtedness outstanding on the Issue Date, other than
the Indebtedness described in clauses (2) (a) or (b) above;
d. Indebtedness, including capital lease obligations, which Holdings incurs
to finance the acquisition, construction or improvement of fixed or
capital assets, in an aggregate principal amount, not to exceed $5.0
million, at any one time outstanding, together with the amount of any
Indebtedness then outstanding and incurred pursuant to clause (2)(f) of
the "Limitation on Indebtedness and preferred stock of Restricted
Subsidiaries" covenant; provided, that such Indebtedness is incurred
within 180 days after the date of such acquisition, construction or
improvement, and does not
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exceed the fair market value of such acquired, constructed or improved assets,
as Holdings' Board of Directors determines in good faith;
e. Refinancing Indebtedness, incurred in respect of any Indebtedness
incurred pursuant to paragraph (1) above or pursuant to clauses (2)(b)
or (c) above or this clause (2)(e);
f. Indebtedness which is:
- in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds provided by Holdings in the ordinary
course of its business, which do not secure other Indebtedness; and
- incurred under currency exchange protection agreements and interest
rate protection agreements which, at the time of incurrence, are in
the ordinary course of business; provided, however, that the currency
agreements exchange protection and interest rate protection agreements
are directly related to Indebtedness which Holdings is permitted to
incur pursuant to the Indenture;
g. Indebtedness represented by guarantees, by Holdings, of Indebtedness
which Holdings or any of its Subsidiaries otherwise is permitted to
incur pursuant to the Indenture;
h. Indebtedness of any other person, existing at the time such other person
is merged with or into Holdings, and outstanding on, or prior to, the
date on which such person was merged with or into Holdings, other than
Indebtedness incurred in connection with, or to provide all, or any
portion, of the funds or credit support utilized, to consummate the
transaction, or series of related transactions, pursuant to which such
person was merged with or into Holdings; provided, however, that on the
date of such merger and after giving it effect, Holdings would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
paragraph (1) above;
i. Indebtedness incurred by Holdings' subsidiaries, which the terms of the
Indenture do not otherwise prohibit;
j. incurrence by Holdings of Indebtedness not to exceed, at any one time
outstanding, together with the amount of any Indebtedness then
outstanding and incurred pursuant to clause (2)(i) of the "Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries" covenant,
- 1.5
times
- the aggregate Net Cash Proceeds Holdings receives from the issue or
sale of capital stock, other than Disqualified Stock, subsequent to
the Issue Date,
less
- the amount of such Net Cash Proceeds used to make Restricted Payments
pursuant to clause (1)(c)(ii), or applied pursuant to clause
(2)(a)(ii), of the "Limitation on Restricted Payments" covenant;
however, immediately prior to the consummation of each such capital stock
issuance or sale, Holdings must be able to incur at least $1.00 of
additional Indebtedness pursuant to paragraph (1) above; for purposes of
calculating the amount in the second bullet point of clause 2(j) above,
the issuance or sale of capital stock to a Holdings Subsidiary or to an
employee stock ownership plan or a trust established by Holdings or any
of its Restricted Subsidiaries shall not be included; and
k. other Indebtedness, in an aggregate principal amount outstanding at any
time, not to exceed $5.0 million, together with the amount of any
Indebtedness and preferred stock then outstanding and incurred pursuant
to clause (2)(j) of the "Limitation on Indebtedness and Preferred Stock
of Restricted Subsidiaries" covenant.
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3. Holdings shall not incur any Indebtedness pursuant to the foregoing
paragraph (2) if it uses the proceeds thereof, directly or indirectly, to
refinance any Subordinated Obligations, unless such new Indebtedness shall:
a. be subordinated to the notes to at least the same extent as such
Subordinated Obligations being refinanced; and
b. have a Stated Maturity that is no earlier than the Stated Maturity of
the Subordinated Obligations being refinanced.
4. For purposes of determining compliance with this covenant:
a. in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, Holdings, in its
sole discretion, will classify such Indebtedness, and only be required
to include the amount and type of such Indebtedness in one of the above
clauses; and
b. an item of Indebtedness may be divided and classified into more than one
of the types of Indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries
1. Holdings shall not permit any Restricted Subsidiary to incur, directly or
indirectly, any Indebtedness or preferred stock unless, on the date of, and
after giving effect to, such incurrence and the application of the net
proceeds therefrom, Holdings' Indebtedness to Adjusted EBITDA Ratio would be
less than 7.00:1. Accrual of interest, accretion or amortization of original
issue discount, and the payment of interest in the form of additional
Indebtedness, will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
2. Despite the above paragraph (1), and regardless of the amount of the
Restricted Subsidiaries' outstanding Indebtedness, any Restricted Subsidiary
may incur any or all of the following Indebtedness:
a. Indebtedness incurred under the New Credit Facility, in an aggregate
principal amount outstanding at any time, not to exceed the greater of:
i. $50.0 million; and
ii. the product of
- $200,000
times
- the number of Completed Towers on the date of such incurrence, less
the aggregate amount of all proceeds from all Asset Dispositions of
Holdings' Tower Assets that have been applied, since the Issue
Date, to permanently reduce the outstanding amount of such
Indebtedness, pursuant to the "Limitation on Sale of Assets and
Subsidiary Stock" covenant;
b. Indebtedness or preferred stock of a Restricted Subsidiary issued to,
and held by, Holdings or a Restricted Subsidiary; provided, however,
that any subsequent issuance or transfer of any capital stock which
results in any Restricted Subsidiary ceasing to be a Restricted
Subsidiary, or any subsequent transfer of such Indebtedness or preferred
stock, other than to Holdings or a Restricted Subsidiary, shall be
deemed to constitute an incurrence, by Holdings, of such Indebtedness or
preferred stock;
c. Indebtedness or preferred stock of a Restricted Subsidiary incurred and
outstanding on, or prior to, the date on which Holdings acquired such
Restricted Subsidiary, other than Indebtedness or preferred stock
incurred in connection with, or to provide all, or any portion of, the
funds or credit
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support utilized to consummate, the transaction, or series of related
transactions, pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or Holdings acquired it; provided, however, that
on the date of such acquisition and after giving effect thereto,
Holdings would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to paragraph (1) of the "Limitation on
Indebtedness" covenant above;
d. Indebtedness or preferred stock outstanding on the Issue Date, other
than Indebtedness described in clauses (2)(a), (b) or (c) above;
e. Refinancing Indebtedness incurred in respect of Indebtedness or
preferred stock referred to in clauses (2)(c) and (d) above or this
clause (e); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly refinances a Subsidiary's
Indebtedness or preferred stock described in clause (2)(c) above, only
the Subsidiary shall incur such refinancing Indebtedness;
f. Indebtedness, including capital lease obligations, which a subsidiary
incurs to finance the acquisition, construction or improvement of fixed
or capital assets, in an aggregate principal amount at any one time
outstanding, not to exceed $5.0 million, together with the amount of any
Indebtedness then outstanding and incurred pursuant to clause (2)(d) of
the "Limitation on Indebtedness" covenant; provided, that such
subsidiary incurs such Indebtedness within 180 days after the date of
such acquisition, construction or improvement, and that such
Indebtedness does not exceed the fair market value of such acquired,
constructed or improved assets, as Holdings' Board of Directors
determines in good faith;
g. Indebtedness which is:
i. in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds provided in the ordinary course of
its business, which do not secure other Indebtedness; and
ii. incurred under currency exchange protection agreements and interest
rate protection agreements which, at the time of incurrence, are in
the ordinary course of business; provided, however, that the
currency exchange protection agreements and interest rate protection
agreements are directly related to Indebtedness which Holdings or
any of its subsidiaries is permitted to incur pursuant to the
Indenture;
h. Indebtedness represented by guarantees, by a subsidiary, of Indebtedness
which Holdings or another subsidiary is otherwise permitted to incur
pursuant to the Indenture;
i. A subsidiary's incurrence of Indebtedness, not to exceed at any one time
outstanding together with the amount of any Indebtedness then
outstanding and incurred pursuant to clause (2)(j) of the "Limitation on
Indebtedness" covenant,
- 1.5
times
- the aggregate Net Cash Proceeds SpectraSite receives from the issue or
sale of capital stock, other than Disqualified Stock, subsequent to
the Issue Date, other than an issuance or sale to a Holdings
subsidiary and other than an issuance or sale to an employee stock
ownership plan, or to a trust established by Holdings or any of its
Restricted Subsidiaries,
less
- the amount of such Net Cash Proceeds used to make Restricted Payments
pursuant to clause (1)(c)(ii) of the "Limitation on Restricted
Payments" covenant, or applied pursuant to clause (2)(a)(ii)of the
"Limitation on Restricted Payments" covenant;
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however, immediately prior to the consummation of each such capital stock
issuance or sale, Holdings would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to paragraph (1) of the "Limitation on
Indebtedness" covenant; and
j. other Indebtedness and preferred stock, in an aggregate principal and/or
liquidation amount, not to exceed at any time outstanding, $5.0 million,
less the amount of any Indebtedness then outstanding and incurred
pursuant to clause (2)(k) of the "Limitation on Indebtedness" covenant.
3. For purposes of determining compliance with this covenant:
a. in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, Holdings, in its
sole discretion, will classify such Indebtedness, and only be required
to include the amount and type of such Indebtedness in one of the above
clauses; and
b. an item of Indebtedness may be divided and classified into more than one
of the types of Indebtedness described above.
Holdings will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments
1. Holdings will not make, and will not permit any Restricted Subsidiary to
make, directly or indirectly, any Restricted Payment, if at the time
SpectraSite or the Restricted Subsidiary makes the Restricted Payment:
a. a Default or Event of Default will have occurred and be continuing, or
would result therefrom;
b. Holdings could not incur at least $1.00 of additional Indebtedness under
paragraph (1) of the "Limitation on Indebtedness" covenant; or
c. the aggregate amount of such Restricted Payment and all other Restricted
Payments, which amount, if other than in cash, the Holdings Board of
Directors will determine in good faith, and will evidence such
determination by a Board of Directors resolution, declared or made
subsequent to the Issue Date, would exceed the sum of:
i. the aggregate EBITDA (or, in the event such EBITDA shall be a
deficit, minus such deficit) accrued subsequent to the Issue Date to
the most recent date for which financial information is available to
SpectraSite, taken as one accounting period, less 1.4 times
Consolidated Interest Expense for the same period;
plus
ii. 100% of the aggregate Net Cash Proceeds, less the aggregate amount
of such Net Cash Proceeds used to incur Indebtedness pursuant to
clause (2)(j) of the "Limitation on Indebtedness" covenant and
clause (2)(i) of the "Limitation on Indebtedness and Preferred Stock
of Restricted Subsidiaries" covenant, plus 70% of the GAAP purchase
accounting valuation of Qualified Proceeds, with each such valuation
calculated as of the sale date of the capital stock received as
consideration therefor, in each case received by Holdings from the
issue or sale of capital stock, other than Disqualified Stock,
subsequent to the Issue Date, other than an issuance or sale to one
of Holdings' subsidiaries, and other than an issuance or sale to an
employee stock ownership plan, or to a trust established by Holdings
or any of its Restricted Subsidiaries;
plus
iii. the amount by which Holdings' Indebtedness is reduced on Holdings'
balance sheet, upon conversion or exchange, other than by a
Restricted Subsidiary, subsequent to the Issue Date of any Holdings
Indebtedness which is convertible or exchangeable for Holdings'
capital
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stock, other than Disqualified Stock, less the amount of any cash, or the fair
value of any other property, distributed by Holdings upon such conversion or
exchange;
plus
iv. an amount equal to the sum of the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances, or other transfers of assets to Holdings or any
Restricted Subsidiary from Unrestricted Subsidiaries, plus the
portion, proportionate to Holdings' equity interest in such
subsidiary, of the fair market value of the net assets of an
Unrestricted Subsidiary, at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
plus
v. dividends and distributions Holdings receives, subsequent to the
Issue Date, from Unrestricted Subsidiaries, to the extent such
dividends and distributions are not otherwise included in calculating
EBITDA;
plus
vi. Net Cash Proceeds Holdings receives, subsequent to the Issue Date,
from Investments that are not Permitted Investments, to the extent
not otherwise included in calculating EBITDA.
The sum in this clause (iv) above shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments Holdings or any
Restricted Subsidiary previously made in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments.
2. The provisions of paragraph (1) of this covenant will not prohibit:
a. any purchase, redemption, defeasance or other acquisition of Holdings'
capital stock or Subordinated Obligations made by exchange for, or out
of the net proceeds of the substantially concurrent sale of, Holdings'
capital stock, other than Disqualified Stock and other than capital
stock issued or sold to a Holdings subsidiary, or an employee stock
ownership plan, or a trust established by Holdings or any of its
subsidiaries; provided, however, that:
i. such purchase, redemption, defeasance or other acquisition will be
excluded in the calculation of the amount of Restricted Payments; and
ii. to the extent applied toward any such purchase, redemption,
defeasance or other acquisition, the Net Cash Proceeds from such
sale will be excluded from clause (1)(c)(ii) above, clause (2)(j) of
the "Limitation on Indebtedness" covenant and clause (2)(i) of the
"Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant;
b. any purchase, redemption, defeasance or other acquisition of
Subordinated Obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Holdings' Subordinated
Obligations; provided, however, that:
i. the principal amount of such new Indebtedness does not exceed the
principal amount of the Subordinated Obligations being so redeemed,
repurchased, acquired or retired for value, plus the amount of any
premium required to be paid under the terms of the instrument
governing the Subordinated Obligations being so redeemed,
repurchased, acquired or retired;
ii. such new Indebtedness is subordinated to the notes at least to the
same extent as the Subordinated Obligations so purchased, exchanged,
redeemed, repurchased, acquired or retired for value;
iii. such new Indebtedness has a final scheduled maturity date later
than the earlier of the final scheduled maturity date of the
Subordinated Obligations being so redeemed, repurchased, acquired
or retired, and the final scheduled maturity date of the notes; and
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iv. such new Indebtedness has an Average Life equal to or greater than
the Average Life of the notes;
Any purchase redemption, defeasance or other acquisition consistent with
clause 2(b) above will be excluded in the calculation of the amount of
Restricted Payments;
c. dividends paid within 60 days after the date of their declaration, if at
such date of declaration such dividend would have complied with this
covenant; and
d. purchases of outstanding shares of SpectraSite's capital stock from
deceased stockholders, in an amount not to exceed $1.0 million in the
aggregate;
Any dividend or purchase consistent with 2(c) and 2(d), respectively,
above will be included in the calculation of Restricted Payments.
The Restricted Payments described in clauses (2)(a), (b) and (d) above shall not
be permitted if at the time of, and after giving effect to, such Restricted
Payments, a default or an Event of Default shall have occurred and be
continuing.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
Holdings will not, and will not permit any Restricted Subsidiary to,
create, or otherwise cause or permit to exist or become effective, any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
1. pay dividends or make any other distributions on its capital stock, to
Holdings or to a Restricted Subsidiary, or pay any Indebtedness or other
obligation owed to Holdings;
2. make any loans or advances to Holdings; or
3. transfer any of its property or assets to Holdings or any Restricted
Subsidiary, except:
a. any encumbrance or restriction pursuant to the New Credit Facility or
any agreement in effect at, or entered into, on the Issue Date;
b. any encumbrance or restriction, with respect to a Restricted Subsidiary,
pursuant to an agreement relating to any Indebtedness it incurred on, or
prior to, the date on which Holdings or a Restricted Subsidiary acquired
it, other than Indebtedness incurred as consideration in, or to provide
all, or any portion, of the funds or credit support utilized, to
consummate the transaction, or series of related transactions, pursuant
to which such Restricted Subsidiary became a subsidiary, or Holdings or
a Restricted Subsidiary acquired it, and outstanding on such date;
c. any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness incurred, pursuant to an agreement referred
to in clause (3)(a) or (b) above, or contained in any amendment to an
agreement referred to in clause (3)(a) or (b) above; provided, however,
that the encumbrances and restrictions contained in any such refinancing
agreement or amendment, taken as a whole, with respect to a Restricted
Subsidiary, are no less favorable to the holders of notes than the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such predecessor agreements, as the Holdings Board of
Directors determines in good faith;
d. in the case of paragraph (3), any encumbrance or restriction that
restricts, in a customary manner, the subletting, assignment or transfer
of any property or asset that is subject to a lease, license or other
contract;
e. in the case of paragraph (3), contained in security agreements or
mortgages securing a Restricted Subsidiary's Indebtedness, to the extent
such encumbrance or restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
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f. any restriction with respect to a Restricted Subsidiary, imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all of such Restricted Subsidiary's capital stock or
assets, pending the closing of such sale or disposition; and
g. customary provisions with respect to the disposition or distribution of
assets or property in joint venture and other similar agreements.
Limitation on Sales of Assets and Subsidiary Stock
1. Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
a. Holdings or such Restricted Subsidiary receives consideration, at the
time of such Asset Disposition, at least equal to the fair market value,
including as to the value of all non-cash consideration, as the Holdings
Board of Directors determines in good faith, of the shares and assets
subject to such Asset Disposition; and
b. except in the case of a Tower Asset Exchange, at least 75% of the
consideration Holdings or such Restricted Subsidiary receives is in the
form of cash or cash equivalents.
2. Within 365 days after the receipt of any Net Available Cash from an Asset
Disposition, Holdings or the applicable Restricted Subsidiary may apply such
Net Available Cash to:
a. prepay, repay, redeem or purchase Indebtedness, other than Disqualified
Stock, of a Holdings wholly owned subsidiary, provided, that the
applicable Restricted Subsidiary, whether or not a wholly owned
subsidiary, also may prepay, repay, redeem or purchase its own
outstanding Indebtedness, or Senior Indebtedness, in each case other
than Indebtedness owed to Holdings or an Affiliate of Holdings;
b. acquire all or substantially all of the assets of an entity engaged in a
Permitted Business;
c. acquire Voting Stock of an entity engaged in a Permitted Business from a
person that is not a Holdings subsidiary; provided, that after giving
effect thereto, Holdings or its Restricted Subsidiary owns a majority of
such Voting Stock, and such acquisition otherwise is made in accordance
with the Indenture, including, without limitation, the "Limitation on
Restricted Payments" covenant; or
d. make a capital expenditure or acquire other long-term assets that are
used or useful in a Permitted Business.
To the extent of the balance of such Net Available Cash, after
application in accordance with clause (2)(a), (b), (c) or (d) above,
Holdings shall make an offer to the holders to purchase notes pursuant
to, and subject to, the conditions set forth in paragraph (5) below.
3. Notwithstanding the foregoing provisions, Holdings and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in
accordance with this covenant, except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in
accordance with this covenant, exceeds $2.5 million. Pending application of
Net Available Cash pursuant to this covenant, such Net Available Cash shall
be invested in Permitted Investments.
4. For the purposes of this covenant, the following are deemed to be cash:
a. the transferee's assumption of Holdings' Indebtedness, other than
Holdings' Disqualified Stock, and other than Indebtedness that is
subordinated to the notes, or any Restricted Subsidiary's Indebtedness
and the release of Holdings or the Restricted Subsidiary from all
liability on such Indebtedness in connection with the Asset Disposition;
b. securities that Holdings or any Restricted Subsidiary receives from the
transferee, that Holdings or the Restricted Subsidiary converts into
cash within 20 days of the applicable Asset Disposition, to the extent
of the cash received; and
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c. the transferee's assumption of any of Holdings' or any Restricted
Subsidiary's liabilities, as shown on Holdings' or such Restricted
Subsidiary's most recent balance sheet, other than contingent
liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee thereof, of any such assets, pursuant to a
customary novation agreement that releases Holdings or the Restricted
Subsidiary from further liability.
5. In the event of an Asset Disposition that requires a notes purchase pursuant
to paragraph (1) of this covenant, Holdings will be required to purchase
notes tendered, pursuant to Holdings' offer for the notes, at a purchase
price of:
- 100% of their Accreted Value as of the purchase date, without premium,
plus
- accrued and unpaid interest to the purchase date, in accordance with the
procedures, including prorating in the event of oversubscription, set
forth in the Indenture.
If the aggregate purchase price for notes tendered pursuant to the Offer is
less than the Net Available Cash allotted to the notes purchase, Holdings
may use any remaining Net Available Cash for general corporate purposes not
otherwise prohibited by the Indenture.
If the aggregate purchase price for notes tendered pursuant to the offer is
greater than the Net Available Cash allotted to the notes purchase, the
trustee will select the notes to be purchased on the basis set forth under
"-- Redemption -- Partial Redemption -- Selection and Notice" above. Upon
completion of any required offer to the holders, the amount of Net
Available Cash will be reset at zero. Holdings shall not be required to
make an offer for notes pursuant to this covenant if the Net Available Cash
available therefor, after application of the proceeds as provided in
paragraph (2) of this covenant, is less than $5.0 million for all Asset
Dispositions, which lesser amounts shall be carried forward, for purposes
of determining whether an offer is required, with respect to the Net
Available Cash, from any subsequent Asset Disposition.
6. Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with a notes repurchase pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations
conflict with provisions of this covenant, Holdings will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this covenant by virtue of its compliance
with the law.
7. The provisions of this covenant shall not apply to any transaction that is
permitted under the provisions of the covenant described under "-- Merger
and Consolidation."
Limitation on Transactions with Affiliates
1. Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or conduct any transaction, or series of
transactions, including the purchase, sale, lease or exchange of any
property, employee compensation arrangements, or the rendering of any
service, with any Holdings Affiliate unless:
a. the terms of such transaction, taken as a whole, are no less favorable
to Holdings or such Restricted Subsidiary, as the case may be, than
those that could be obtained, at the time of such transaction, in
arm's-length dealings with a person who is not an Affiliate;
b. in the event such affiliate transaction involves an aggregate amount in
excess of $1.0 million, the terms of such transaction are set forth in
writing and shall have been approved by a majority of the members of the
Board of Directors having no personal stake in such affiliate
transaction, and such majority determines that the affiliate transaction
satisfies the criteria in clause (1)(a) above; and
c. in the event such affiliate transaction involves an aggregate amount in
excess of $5.0 million, Holdings has received a written opinion from a
nationally recognized independent investment
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banking firm that such affiliate transaction is fair to Holdings and its
Restricted Subsidiaries from a financial point of view.
2. The provisions of paragraph (1) above shall not prohibit:
a. any Restricted Payment permitted to be made pursuant to the "Limitation
on Restricted Payments" covenant;
b. any securities issuance, or other payments, awards or grants in cash,
securities or otherwise, pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors, or any arrangements relating thereto;
c. the grant of stock options or similar rights to Holdings employees and
directors, pursuant to plans approved by the Board of Directors;
d. loans or advances to employees, in the ordinary course of business, in
accordance with Holdings' or its Restricted Subsidiaries' past
practices, but in any event not to exceed $1.0 million in the aggregate
outstanding at any one time;
e. the payment of reasonable fees to directors of Holdings and its
Restricted Subsidiaries who are not employees of Holdings or its
Restricted Subsidiaries;
f. any transaction between Holdings and a Restricted Subsidiary or between
Restricted Subsidiaries;
g. the issuance or sale of any Holdings capital stock, other than
Disqualified Stock; and
h. any transaction, consummated pursuant to the terms of any agreement
described in Holdings' final offering circular dated June 23, 1998, to
which Holdings is a party, in each case as such agreement is in effect
on the Issue Date and without giving any effect to any subsequent
amendments, modifications or alterations thereof.
Limitation on Liens
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, or permit to exist, any Lien on any of its
property or assets, including capital stock, whether owned on the Issue Date or
thereafter acquired, securing any obligation, other than Permitted Liens, unless
effective provision is made contemporaneously to secure the notes equally and
ratably with or, in the case of Subordinated Obligations, on a senior basis to,
such obligation, for so long as the obligation is so secured.
Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries
Holdings:
1. will not, and will not permit any Restricted Subsidiary to, transfer,
convey, sell, lease, or otherwise dispose of any Restricted Subsidiary's
capital stock, to any person, other than to Holdings or to a wholly owned
subsidiary of Holdings, unless:
a. such transfer, conveyance, sale, lease, or other disposition is of all
of the capital stock of such Restricted Subsidiary, or a majority of the
issued and outstanding capital stock, of the Restricted Subsidiary;
provided, however, that Holdings' minority equity interest in such
person, after giving effect to any such disposition, shall be deemed to
constitute an Investment, by Holdings, in such person; and
b. the net cash proceeds from such transfer, conveyance, sale, lease, or
other disposition, are applied in accordance with the "Limitation on
Sales of Assets and Subsidiary Stock" covenant; and
2. will not permit any Restricted Subsidiary to issue any of its capital stock
to any person, other than to Holdings or a wholly owned subsidiary of
Holdings, and other than shares of its capital stock constituting directors'
qualifying shares or the ownership by foreign nationals of capital stock of
any Restricted Subsidiary, to the extent necessary or mandated by applicable
law.
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Limitation on Sale/Leaseback Transactions
Holdings will not, and will not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless:
1. Holdings or such Restricted Subsidiary would be entitled to:
a. incur Indebtedness in an amount equal to the Attributable Indebtedness
with respect to such Sale/ Leaseback Transaction, pursuant to the
"Limitation on Indebtedness" covenant; and
b. create a Lien on such property securing such Attributable Indebtedness,
without equally and ratably securing the notes, pursuant to the
"Limitation on Liens" covenant;
2. the net cash proceeds received by Holdings or any Restricted Subsidiary in
connection with such Sale/ Leaseback Transaction are at least equal to the
fair value of such property, as the Holdings Board of Directors determines
in good faith; and
3. the transfer of such property is permitted by, and Holdings or such
Restricted Subsidiary applies the proceeds of such transaction in compliance
with, the "Limitation on Sales of Assets and Subsidiary Stock" covenant.
SEC Reports
Notwithstanding that Holdings may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings will
file with the SEC, unless the SEC does not permit such filing, and provide the
trustee and note holders with, the annual reports and such information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act. Holdings also will comply with the other provisions of the Trust
Indenture Act Section 314(a).
MERGER AND CONSOLIDATION
Holdings will not, in one transaction or a series of transactions,
consolidate with or merge with or into, or convey, transfer, or lease, all or
substantially all its assets to, any person, unless:
1. the resulting, surviving or transferee person (the "Successor Issuer") will
be a person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia, and the Successor
Issuer, if not Holdings, will expressly assume, by supplemental indenture,
executed and delivered to the trustee, in form satisfactory to the trustee,
all Holdings' obligations under the notes and the Indenture;
2. immediately after giving effect to such transaction on a pro forma basis,
and treating any Indebtedness which becomes an obligation of the Successor
Issuer, or any Restricted Subsidiary, as a result of such transaction, as
having been incurred by the Successor Issuer, or such Restricted Subsidiary,
at the time of such transaction, no Default or Event of Default will have
occurred and be continuing;
3. in the case of a merger of Holdings into a wholly owned subsidiary, or a
merger Holdings enters into solely for the purpose of reincorporating in
another jurisdiction, immediately after giving effect to such transaction on
a pro forma basis, as if such transaction had occurred at the beginning of
the applicable four quarter period, Holdings, or the person formed by, or
surviving, any such consolidation or merger, if other than Holdings, or to
which such conveyance, transfer, lease or other disposition shall have been
made, would have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to paragraph (1) of the "Limitation on Indebtedness"
covenant above;
4. Holdings will have delivered to the trustee an Officer's Certificate and an
opinion of counsel, each stating that such consolidation, merger or
transfer, and such supplemental indenture, if any, comply with the
Indenture, as set forth in the Indenture.
The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of Holdings, under the Indenture, and the
predecessor issuer, in the case of a conveyance, transfer or lease
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of all or substantially all its assets, will be released from the obligations
under the Indenture and the notes, including, without limitation, the obligation
to pay the principal of and interest on the notes.
DEFAULTS
An Event of Default is defined in the Indenture as:
1. a default in any interest payment, when due, on any note, continued for 30
days;
2. a default in the payment of principal, when due, of any note at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
3. Holdings' failure to comply with its obligations under "-- Merger and
Consolidation;"
4. Holdings' failure to comply, for 30 days after notice, with any of its
obligations under the covenants described under "-- Change of Control" or
"-- Certain Covenants," in each case, other than a failure to purchase
notes;
5. Holdings' failure to comply, for 60 days after notice, with its other
agreements contained in the Indenture;
6. Holdings' failure, or the failure of any of Holdings' Significant
Subsidiaries, to pay any Indebtedness within any applicable grace period,
after final maturity, or the acceleration of any such Indebtedness by the
holders thereof, because of a default, if the total amount of such
Indebtedness, unpaid or accelerated, exceeds $5.0 million or its foreign
currency equivalent (the "cross acceleration provision");
7. certain events of bankruptcy, insolvency or reorganization of Holdings or
any of Holdings' Significant Subsidiaries (the "bankruptcy provisions"); or
8. any final judgment or decree, for the payment of money in excess $5.0
million, is rendered against Holdings or any of Holdings' Significant
Subsidiaries, net of any amounts with respect to which a creditworthy
insurance company has acknowledged full liability, subject to any deductible
amounts of less than $5.0 million required to be paid by Holdings in
accordance with the applicable insurance policy, and either:
a. an enforcement proceeding has been commenced by any creditor upon such
judgment or decree; or
b. such judgment or decree remains outstanding for a period of 60 days
following the judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default, and whether it is voluntary or involuntary, or is
effected by operation of law, or pursuant to any judgment, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body.
However, a default under clauses (4), (5) and (8) above will not constitute
an Event of Default until the trustee or the holders of 25%, in aggregate
principal amount at maturity, of the outstanding notes, notify Holdings, as
provided in the Indenture, of the default and Holdings does not cure such
default within the time specified in clauses (4) and (5) above, after it
receives notice.
If an Event of Default occurs and is continuing, the trustee or the holders
of at least 25%, in aggregate principal amount at maturity, of the outstanding
notes, by notice to Holdings, may declare the Accreted Value of, and accrued but
unpaid interest on, all the notes to be due and payable. Upon such a
declaration, such Accreted Value and interest will be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of Holdings occurs and is continuing, the Accreted
Value of, and accrued interest on, all the notes automatically will become due
and payable immediately, without any declaration or other act on the part of the
trustee or any holders. Under certain circumstances, the holders of a majority,
in aggregate principal amount at maturity, of the outstanding notes may rescind
any such acceleration, with respect to the notes, and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture, at the request or direction of any of the holders of notes, unless
such holders shall have offered to the trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder may
pursue any remedy with respect to the Indenture or the notes unless:
- such holder shall have previously given the trustee notice that an Event
of Default is continuing;
- holders of at least 25%, in aggregate principal amount at maturity, of
the outstanding notes shall have requested the trustee to pursue the
remedy;
- such holders shall have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
- the trustee shall not have complied with such request, within 60 days
after the receipt of the request and the offer of security or indemnity;
and
- the holders of a majority, in principal amount at maturity, of the
outstanding notes shall not have given the trustee a direction
inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority, in principal
amount at maturity, of the outstanding notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee, or of exercising any trust or power conferred on the trustee. The
trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture, or that the trustee determines is unduly prejudicial to the
rights of any other holder of notes, or that would involve the trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing, and is
known to the trustee, the trustee must mail to each holder notice of the
Default, within the earlier of 90 days after it occurs, or 30 days after it is
known to a Trust Officer or written notice of it is received by the trustee.
Except in the case of a default in the payment of principal of, premium, if any,
or interest on any note, the trustee may withhold notice, if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is not opposed to the interests of the note holders. In addition, Holdings is
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. Holdings also is required to deliver to
the trustee, within 30 days after its knowledge of the occurrence of such event,
written notice of any event which would constitute certain Defaults, their
status, and what action Holdings is taking, or proposes to take, in respect of
such event.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended, and any past
default or compliance with any provisions may be waived, with the consent of the
holders of a majority, in principal amount at maturity, of the notes then
outstanding, including consents obtained in connection with a tender offer or
exchange for the notes. However, without the consent of each holder of an
outstanding note affected, no amendment may, among other things:
- reduce the amount of notes whose holders must consent to an amendment;
- reduce the rate of, or extend the time for, payment of interest on any
note;
- reduce the principal of, or extend the Stated Maturity of, any note;
- reduce the premium payable upon the redemption of any note, or change the
time at which any note may be redeemed, as described under "-- Optional
Redemption;"
- make any note payable in money other than that stated in the note;
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- impair the right of any holder to receive payment of principal of, and
interest on, such holder's notes on or after the due dates therefor, or
to institute suit for the enforcement of any payment on, or with respect
to, such holder's notes; or
- make any change in the amendment provisions which require each holder's
consent, or in the waiver provisions.
Without the consent of any holder, Holdings and the trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of Holdings' obligations under the
Indenture, to provide for uncertificated notes in addition to, or in place of,
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal Revenue Code, or
in a manner such that the uncertificated notes are as described in Section
163(f)(2)(B) of the Internal Revenue Code, to add guarantees with respect to the
notes, to secure the notes, to add to Holdings' covenants for the benefit of the
note holders, or to surrender any right or power, conferred upon Holdings, to
make any change that does not materially adversely affect the rights of any
holder, and to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The holders' consent is not necessary, under the Indenture, to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, Holdings is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the Indenture.
Upon any transfer or exchange, the registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents, and Holdings may require a holder to pay any taxes required by law or
permitted by the Indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. Holdings is not required to
transfer or exchange any note selected for redemption, or to transfer or
exchange any note for a period of 15 days prior to a selection of notes to be
redeemed. The notes will be issued in registered form, and the registered holder
of a note will be treated as the owner of such note for all purposes.
DEFEASANCE
Holdings at any time may terminate all its obligations under the notes and
the Indenture ("legal defeasance"), except for certain obligations, including:
- those respecting the defeasance trust, and obligations to register the
transfer or exchange of the notes;
- the obligation to replace mutilated, destroyed, lost or stolen notes; and
- maintenance of a registrar and paying agent in respect of the notes.
Holdings at any time may terminate its obligations under:
- the covenants described under "-- Certain Covenants," other than the
covenant described under "Merger and Consolidation";
- the operation of the cross acceleration provision;
- the bankruptcy provisions with respect to Significant Subsidiaries and
the judgment default provision described under "-- Defaults;" and
- the limitations contained in clause (3) under "-- Merger and
Consolidation" ("covenant defeasance").
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Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the notes may not be accelerated because of an
Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default as specified in clauses (4), (5), (6), (7), with respect to
Significant Subsidiaries only, or (8) under "-- Defaults," or because of
SpectraSite's failure to comply with clause (3) under "-- Merger and
Consolidation."
In order to exercise either defeasance option, Holdings must deposit, or
cause to be deposited, irrevocably, in trust (the "defeasance trust") with the
trustee, money or U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof, in accordance with their
terms, will provide cash at such times and in such amounts as will be sufficient
to pay principal and interest, when due, on all the notes, except lost, stolen
or destroyed notes which have been replaced or repaid, to maturity or
redemption, as the case may be. Holdings must comply with certain other
conditions, including delivery to the trustee, of an opinion of counsel to the
effect that the note holders will not recognize income, gain or loss, for
federal income tax purposes, as a result of such deposit and defeasance, and
will be subject to federal income tax on the same amounts, in the same manner,
and at the same times as would have been the case if such deposit and defeasance
had not occurred and, in the case of legal defeasance only, such opinion of
counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No Holdings director, officer, employee, incorporator or stockholder, as
such, shall have any liability for any of Holdings' obligations under the notes
or the Indenture, or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each note holder, by accepting a note,
waives and releases all such liability. This waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal or state securities law, and it is the view
of the SEC that such a waiver is against public policy.
CONCERNING THE TRUSTEE
United States Trust Company of New York is the trustee under the Indenture,
and Holdings has appointed it as registrar and paying agent with regard to the
notes.
The holders of a majority, in principal amount at maturity, of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding, for exercising any remedy available to the trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs and is not cured, the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in the conduct of
his or her own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any note holder, unless such holder shall have offered to the trustee
security and indemnity satisfactory to it, against any loss, liability or
expense, and then only to the extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the notes are governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms.
"Accreted Value" means, as of any date, with respect to each $1,000
principal amount at maturity of notes:
1. if the specified date is one of the following semi-annual accrual dates, the
Accreted Value will equal the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------ --------------
<S> <C>
June 26, 1998.......................................... $ 554.97
January 15, 1999....................................... 591.90
July 15, 1999.......................................... 627.41
January 15, 2000....................................... 665.06
July 15, 2000.......................................... 704.96
January 15, 2001....................................... 747.26
July 15, 2001.......................................... 792.09
January 15, 2002....................................... 839.62
July 15, 2002.......................................... 890.00
January 15, 2003....................................... 943.40
July 15, 2003.......................................... 1,000.00
</TABLE>
2. if the specified date occurs between two semi-annual accrual dates, the
Accreted Value will equal the sum of:
a. the Accreted Value for the semi-annual accrual date immediately
preceding such specified date;
plus
b. an amount equal to the product of
- the Accreted Value for the immediately following semi-annual accrual
date, less the Accreted Value for the immediately preceding semi-annual
accrual date,
times
- a fraction, the numerator of which is the number of days elapsed from the
immediately preceding semi-annual accrual date to the specified date,
using a 360-day year of twelve 30-day months, and the denominator of
which is 180; or
3. if the specified date occurs after the last semi-annual accrual date, the
Accreted Value will equal $1,000.00.
"Adjusted EBITDA" as of any date of determination, means the sum of:
1. Holdings' EBITDA for the four most recent full fiscal quarters ending prior
to such date, less Holdings' Tower EBITDA for such four-quarter period; plus
2. the product of four times SpectraSite's Tower EBITDA for the most recent
quarterly period. The Tower EBITDA for the most recent quarterly period
shall be determined on a pro forma basis after giving effect to:
a. all acquisitions or dispositions of assets Holdings and its subsidiaries
make, from the beginning of such quarter through, and including, the
date of determination, including any related financing transactions, as
if the acquisitions and dispositions had occurred at the beginning of
the quarter;
b. any new lease or Site Management Contract Holdings or any Restricted
Subsidiary enters into in the ordinary course of business, with respect
to Tower Assets, from the beginning of the quarter
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through, and including, such date of determination, as if such new lease or Site
Management Contract had been signed at the beginning of the quarter, and
SpectraSite or a Restricted Subsidiary had received the rent required by the
terms of such lease or Site Management Contract for such quarter during
the quarter;
c. the loss from the beginning of the quarter through, and including, the
date of determination of any lease or Site Management Contract
SpectraSite or a Restricted Subsidiary has entered into, with respect to
any Tower Assets, that was in effect on the first day of the quarter, as
if the lease or Site Management Contract had not been in effect during
such quarter, and no rent under the lease had been received during the
quarter; and
d. any rent increases Holdings or any Restricted Subsidiary receives, from
the beginning of the quarter through, and including, the date of
determination related to leases or Site Management Contracts on Tower
Assets, as if the increased rental rate had been in effect at the
beginning of the quarter and Holdings or a Restricted Subsidiary had
received the increased amount of rent during such quarter.
For purposes of making the computation referred to above:
i. acquisitions that Holdings or any of its Restricted Subsidiaries
has made, including through mergers or consolidations, and
including any related financing transactions, during the reference
period, or subsequent to such reference period, and on or prior to
the date of determination, shall be deemed to have occurred on the
first day of the reference period, and EBITDA for the reference
period shall be calculated without giving effect to clause (2) of
the proviso set forth in the definition of Consolidated Net
Income; and
ii. the EBITDA attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of
prior to the date of determination, shall be excluded.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by, or under direct or indirect common
control with, such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract, or otherwise, and the terms
"controlling" and "controlled" have correlative meanings. For purposes of the
covenants in the Indenture, Affiliate shall also mean any beneficial owner of
capital stock representing 10% or more of the total voting power of Holdings'
Voting Stock, on a fully diluted basis, or of rights or warrants to purchase
such capital stock, whether or not currently exercisable, and any person who
would be an Affiliate of any such beneficial owner, pursuant to the first
sentence in this definition.
"Asset Disposition" means any sale, lease, transfer, or other disposition,
or series of related sales, leases, transfers, or dispositions, by Holdings or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction, of:
1. any shares of a Restricted Subsidiary's capital stock, other than directors'
qualifying shares, or shares required, by applicable law, to be held by a
Person other than Holdings or a Restricted Subsidiary;
2. all or substantially all the assets of any of Holdings' or any Restricted
Subsidiary's division or line of business; or
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3. any other of Holdings' or any Restricted Subsidiary's assets outside of the
ordinary course of business;
other than in the case of clauses (1), (2) and (3) above:
- a disposition by a Restricted Subsidiary, to Holdings, or by Holdings or
a Restricted Subsidiary, to a wholly owned subsidiary:
- only for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock", a
disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments";
- a disposition of assets with a fair market value of less than $500,000;
- grants of leases or licenses in the ordinary course of business; and
- disposals of cash equivalents.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded annually, of the total obligations
of the lessee, for rental payments during the remaining term of the lease
included in the Sale/Leaseback Transaction, including any period for which the
lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or preferred stock, the quotient obtained by dividing:
1. the sum of the product of the numbers of years, from the date of
determination to the dates of each successive scheduled principal payment,
of such Indebtedness, or redemption, or similar payment with respect to such
preferred stock, times the amount of such payment;
by
2. the sum of all such payments.
"Board of Directors" means Holdings' Board of Directors, or any committee
thereof duly authorized to act on behalf of the Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Change of Control" means the occurrence of any of the following events:
1. prior to the first public offering of SpectraSite common stock, the
Permitted Holders cease to be the "beneficial owner", as defined in Exchange
Act Rules 13d-3 and 13d-5, directly or indirectly, of a majority, in the
aggregate, of the total voting power of SpectraSite's Voting Stock, whether
as a result of:
- Holdings' issuance of any securities;
- any merger or consolidation of Holdings;
- any liquidation or dissolution of Holdings;
- any direct or indirect transfer of securities, by Holdings or otherwise.
For purposes of this paragraph (1) and paragraph (2) below, the Permitted
Holders shall be deemed to beneficially own any Voting Stock of an entity
(the "specified entity") held by any other entity (the "parent entity"), so
long as the Permitted Holders beneficially own, directly or indirectly, in
the aggregate, a majority of the voting power of the parent entity's Voting
Stock;
2. subsequent to the first public offering of Holdings common stock, any
"person," as such term is used in Exchange Act Sections 13(d) and 14(d),
other than one or more Permitted Holders, is or becomes the beneficial
owner, as defined in paragraph (1) above, except that for purposes of this
paragraph (2) such person shall be deemed to have "beneficial ownership" of
all shares that such person has the
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right to acquire, whether such right is exercisable immediately or only
after the passage of time, directly or indirectly, of more than 35% of the
total voting power of Holdings' Voting Stock; provided, however, that the
Permitted Holders beneficially own, as defined in paragraph (1) above,
directly or indirectly, in the aggregate, a lesser percentage of the total
voting power of Holdings' Voting Stock than such other person, and do not
have the right or ability, by voting power, contract, or otherwise, to
elect, or designate for election, a majority of the Holdings Board of
Directors.
For purposes of this paragraph (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner, as defined in this
paragraph (2), directly or indirectly, of more than 35% of the voting power
of the parent entity's Voting Stock, and the Permitted Holders beneficially
own, as defined in paragraph (1) above, directly or indirectly, in the
aggregate, a lesser percentage of the voting power of the parent entity's
Voting Stock, and do not have the right or ability, by voting power,
contract, or otherwise, to elect, or designate for election, a majority of
the parent entity's board of directors;
3. during any period of two consecutive years, or, in the case this event
occurs within the first two years after the Issue Date, such shorter period
as shall have begun on the Issue Date, individuals who at the beginning of
such period constituted Holdings' Board of Directors, together with any new
directors whose election by Holdings' Board of Directors or whose nomination
for election by Holdings' shareholders was approved by a vote of a majority
of Holdings' directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Holdings Board of Directors then in office;
4. Holdings' merger or consolidation with or into another person or the merger
of another person with or into Holdings, if Holdings' securities that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of Holdings' Voting Stock are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation; and
5. the sale of all or substantially all of Holdings' assets to another person,
other than a Permitted Holder or a person that is controlled by the
Permitted Holders.
"Completed Tower" means a wireless transmission tower with, as of any date
of determination:
- at least one anchor tenant that has executed a definitive lease with
Holdings or any of its Restricted Subsidiaries; and
- capacity for at least three tenants.
"Consolidated Indebtedness" as of any date of determination means, without
duplication:
- the total amount of Indebtedness of Holdings and its Restricted
Subsidiaries;
- the total amount of Indebtedness of any other person, to the extent that
such Indebtedness has been guaranteed by Holdings or one or more of its
Restricted Subsidiaries; and
- the aggregate liquidation value of all of Holdings' Disqualified Stock
and all preferred stock of Holdings' Restricted Subsidiaries, in each
case determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by Holdings or its Restricted Subsidiaries, without duplication:
1. interest expense attributable to capital leases and to leases constituting
part of a Sale/Leaseback Transaction;
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2. amortization of debt discount and debt issuance cost;
3. capitalized interest;
4. non-cash interest expense;
5. commissions, discounts, and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
6. net costs associated with hedging obligations, including amortization of
fees;
7. preferred stock dividends paid in respect of all of Holdings' and its
subsidiaries' preferred stock, held by persons other than Holdings or a
wholly owned subsidiary of Holdings;
8. interest incurred in connection with Investments in discontinued operations;
9. interest accruing on any Indebtedness of any other person, to the extent
such Indebtedness is guaranteed by, or secured by the assets of, SpectraSite
or any Restricted Subsidiary; and
10. the cash contributions to any employee stock ownership plan or similar
trust, to the extent such contributions are used by such plan or trust to
pay interest or fees to any person, other than Holdings, in connection with
Indebtedness incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income or loss of
Holdings and its consolidated Subsidiaries. The following, however, shall not be
included in such Consolidated Net Income:
1. any net income or loss of any person, other than Holdings, if such person is
not a Restricted Subsidiary, except that:
a. subject to the exclusion contained in clause (4) below, Holdings' equity
in the net income of any such person, other than an Unrestricted
Subsidiary, for such period, shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
person during such period, to Holdings or a Restricted Subsidiary, as a
dividend or other distribution, subject, in the case of a dividend or
other distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (3) below; and
b. solely for purposes of calculating the Indebtedness to Adjusted EBITDA
Ratio, Holdings' equity in a net loss of any such person, other than an
Unrestricted Subsidiary, for such period, shall be included in
determining such Consolidated Net Income;
2. any net income or loss of any person, acquired by Holdings or a subsidiary,
in a pooling of interests transaction for any period prior to the date of
such acquisition;
3. any Restricted Subsidiary's net income, if the Restricted Subsidiary is
subject to restrictions, other than any restrictions contained in the New
Credit Facility, directly or indirectly, on the payment of dividends or the
making of distributions, directly or indirectly, to Holdings, except that:
a. subject to the exclusion contained in clause (4) below, Holdings' equity
in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by the Restricted Subsidiary during
such period to Holdings or another Restricted Subsidiary as a dividend
or other distribution, subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause; and
b. solely for purposes of calculating the Indebtedness to Adjusted EBITDA
Ratio, Holdings' equity in a net loss of any such Restricted Subsidiary,
for such period, shall be included in determining such Consolidated Net
Income;
4. any gain or loss realized upon the sale or other disposition of any assets
of Holdings, its consolidated subsidiaries, or any other person, including
pursuant to any Sale/Leaseback Transaction, which are not
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sold or otherwise disposed of in the ordinary course of business, and any gain
or loss realized upon the sale or other disposition of any capital stock of any
person;
5. any Unrestricted Subsidiary's net income or loss, whether or not distributed
to Holdings or one of its subsidiaries;
6. any extraordinary gain or loss; and
7. the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, only for the purposes of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
there shall be excluded from Consolidated Net Income, any dividends, repayments
of loans or advances, or other transfers of assets, from Unrestricted
Subsidiaries, to SpectraSite or a Restricted Subsidiary, to the extent such
dividends, repayments, or transfers increase the amount of Restricted Payments
permitted under such covenant, pursuant to clause (1)(c)(iv) thereof.
"Consolidated Tangible Assets" means, with respect to Holdings, the total
consolidated tangible assets of Holdings and its Restricted Subsidiaries, as
shown on the most recent internal consolidated balance sheet of SpectraSite and
the Restricted Subsidiaries, calculated on a consolidated basis in accordance
with GAAP.
"Disqualified Stock" means, with respect to any person, any capital stock
which, by its terms, or by the terms of any security into which it is
convertible, or for which it is exchangeable, or upon the happening of any
event:
1. matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise;
2. is convertible or exchangeable for Indebtedness or Disqualified Stock; or
3. is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the 91st day after the Stated Maturity of the
notes.
Capital stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such person to
repurchase or redeem such capital stock, upon the occurrence of an "asset sale"
or "change of control" occurring prior to the 91st day after the Stated Maturity
of the notes, shall not constitute Disqualified Stock, if the "asset sale" or
"change of control" provisions applicable to such capital stock are not more
favorable to the holders of such capital stock than the provisions described
under "-- Change of Control," and " -- Certain Covenants -- Limitation on Sales
of Assets and Subsidiary Stock."
"EBITDA" for any period, means the sum of Consolidated Net Income, plus the
following, to the extent deducted in calculating such Consolidated Net Income:
1. Consolidated Interest Expense;
2. all income tax expense of Holdings and its consolidated Restricted
Subsidiaries;
3. depreciation expense of Holdings and its consolidated Restricted
Subsidiaries;
4. amortization expense of Holdings and its consolidated Restricted
Subsidiaries, excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period;
5. all other non-cash charges of Holdings and its consolidated Restricted
Subsidiaries, excluding any such non-cash charge to the extent that it
represents an accrual of, or reserve for, cash expenditures in any future
period; and
6. any premium or penalty paid in connection with repurchasing, redeeming,
retiring, defeasing or acquiring any Indebtedness prior to maturity, to the
extent deducted in calculating Consolidated Net Income, in each case, for
such period.
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Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary, shall be added to Consolidated Net Income to compute
EBITDA only to the extent, and in the same proportion, that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income,
and only if a corresponding amount would be permitted, at the date of
determination, to be dividended to Holdings by the Restricted Subsidiary without
prior approval, that has not been obtained, pursuant to the terms of its charter
and all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders, without in any event giving effect to any restrictions or
limitations contained in the New Credit Facility.
"Equity Offering" means a public or private issuance by Holdings of its
common stock for cash.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
1. the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants;
2. statements and pronouncements of the Financial Accounting Standards Board;
3. such other statements by such other entity as approved by a significant
segment of the accounting profession; and
4. the rules and regulations of the SEC governing the inclusion of financial
statements, including pro forma financial statements, in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC.
"Indebtedness" means, with respect to any person on any date of
determination, without duplication:
1. the principal in respect of:
a. indebtedness of such person for money borrowed; and
b. indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such person is responsible or
liable, including, in each case, any premium on such indebtedness, to
the extent such premium has become due and payable;
2. all capital lease obligations of such person, and all Attributable Debt in
respect of Sale/Leaseback Transactions entered into by such person;
3. all obligations of such person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such person and all
obligations of such person under any title retention agreement, but
excluding trade accounts payable, arising in the ordinary course of
business;
4. all obligations of such person, for the reimbursement of any obligor, on any
letter of credit, banker's acceptance or similar credit transaction, other
than obligations with respect to letters of credit and other contingent
liabilities, but only to the extent such contingent liabilities are not
reflected as liabilities on the consolidated balance sheet of such person,
securing obligations, other than obligations described in clauses (1)
through (3) above, entered into in the ordinary course of business of such
person, to the extent such letters of credit are not drawn upon, or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit;
5. the amount of all obligations of such person with respect to the redemption,
repayment, or other repurchase of any Disqualified Stock, or, with respect
to any subsidiary of such person, the liquidation preference with respect to
any preferred stock, but excluding, in each case, any accrued dividends;
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6. all obligations of the type referred to in clauses (1) through (5) above, of
other persons, and all dividends of other persons for the payment of which,
in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
7. all obligations of the type referred to in clauses (1) through (6)above, of
other persons, secured by any Lien on any property or asset of such person,
whether or not such obligation is assumed by such person, the amount of such
obligation being deemed to be the lesser of the value of such property or
assets, or the amount of the obligation so secured; and
8. to the extent not otherwise included in this definition, hedging obligations
of such person.
The amount of Indebtedness of any person at any date shall be the
outstanding balance, at such date, of all unconditional obligations, as
described above, or the accreted value of such Indebtedness, in the case of
Indebtedness issued with original issue discount and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
"Indebtedness to Adjusted EBITDA Ratio" as of any date of determination
means the ratio of:
- Consolidated Indebtedness as of such date;
to
- Adjusted EBITDA.
"Investment" in any person means any direct or indirect advance, loan,
other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such person, or other
extension of credit, including by way of guarantee or similar arrangement, or
capital contribution to, by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of others,
or any purchase or acquisition of, capital stock, Indebtedness or other similar
instruments issued by such person. For purposes of the definitions of
"Unrestricted Subsidiary" and "Restricted Payment," and the "Limitation on
Restricted Payments" covenant:
1. "Investment" shall include the portion, proportionate to Holdings' equity
interest in such subsidiary of the fair market value of the net assets of
any of Holdings' subsidiaries at the time that such subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of
such subsidiary as a Restricted Subsidiary, Holdings shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary of
an amount, if positive, equal to:
a. Holdings' "Investment" in such subsidiary at the time of such
redesignation; less
b. the portion, proportionate to Holdings' equity interest in such
subsidiary, of the fair market value of the net assets of the subsidiary
at the time the subsidiary is so re-designated a Restricted Subsidiary;
and
2. any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case
as the Board of Directors determines in good faith, and evidenced by a Board
of Directors resolution.
"Issue Date" means the date on which the outstanding notes were originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including any conditional sale or other title retention
agreement, or lease in the nature thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal, pursuant to a note or installment receivable or otherwise and
proceeds from the sale, or other disposition, of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by
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the acquiring person, of Indebtedness or other obligations relating to such
properties or assets, or received in any other non-cash form, from such Asset
Disposition, in each case net of:
1. all legal, title, accounting, investment banking and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition;
2. all payments made on any Indebtedness, which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon, or other security arrangement of any kind with respect to, such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
3. all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or joint ventures as a result of
such Asset Disposition;
4. the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition, and retained by
SpectraSite or any Restricted Subsidiary after such Asset Disposition; and
5. any reserves established in respect of the sales price of such asset for
post-closing adjustments, indemnification purposes or employee termination
expenses.
"Net Cash Proceeds", with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale, net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees and expenses
actually incurred in connection with such issuance or sale, and net of taxes
paid or payable as a result thereof.
"New Credit Facility" means that certain credit facility, to be entered
into by Holdings' wholly owned subsidiary, SpectraSite Communications, Inc.,
pursuant to a commitment letter from Credit Suisse First Boston to SpectraSite
Communications dated December 22, 1997, which has been renewed through March 31,
1999, including any collateral documents, instruments and agreements executed in
connection therewith; the term New Credit Facility also shall include any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof and any credit facilities that replace, refund or refinance
any part of the loans, other credit facilities or commitments thereunder,
including any such replacement, refunding or refinancing facility that increases
the amount borrowable thereunder or alters the maturity thereof.
"Non-Recourse Debt" means Indebtedness:
1. as to which neither Holdings nor any Restricted Subsidiary:
a. provides any guarantee or credit support of any kind, including any
undertaking, guarantee, indemnity, agreement or instrument that would
constitute Indebtedness; or
b. is directly or indirectly liable, as a guarantor or otherwise; and
2. as to which no default, including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary, would
permit, upon notice, lapse of time or both, any holder of any other of
Holdings' or any Restricted Subsidiary's Indebtedness, to declare a default
under such other Indebtedness, or cause the payment thereof to be accelerated
or payable prior to its stated maturity.
"Permitted Business" means any business Holdings and its Restricted
Subsidiaries conducted on the Issue Date and any other business related,
ancillary or complementary to any such business.
"Permitted Holders" means any or all of Stephen H. Clark, Joe L. Finley,
Whitney Equity Partners, L.P., J.H. Whitney III, L.P., Whitney Strategic
Partners III, L.P., Waller-Sutton Media Partners, L.P., Kitty Hawk Capital
Limited Partnership, III, Kitty Hawk Capital Limited Partnership, IV, Eagle
Creek
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Capital, L.L.C., The North Carolina Enterprise Fund, L.P., Finley Family Limited
Partnership, and their respective Affiliates.
"Permitted Investment" means any of by Holdings' or a Restricted
Subsidiary's Investment in:
1. Holdings, a wholly owned subsidiary, or a person which will, upon the making
of such Investment, become a wholly owned subsidiary, but a loan or other
extension of credit by Holdings or a Restricted Subsidiary, to a Restricted
Subsidiary that is not a wholly owned subsidiary, also will constitute a
"Permitted Investment"; and provided, however, that the primary business of
the person in which any such Investment is made is a Permitted Business; and
2. another person if, as a result of such Investment, such other person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary;
provided, however, that such person's primary business is a Permitted
Business;
3. Temporary Cash Investments;
4. receivables owing to Holdings or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade
terms may include concessionary trade terms which Holdings or any such
Restricted Subsidiary deems reasonable under the circumstances;
5. payroll, travel and similar advances to cover matters that are expected, at
the time of such advances, ultimately to be treated as expenses for
accounting purposes, and that are made in the ordinary course of business;
6. loans or advances to employees made in the ordinary course of business,
consistent with the past practices of Holdings or such Restricted
Subsidiary, but in any event not to exceed $2.0 million in the aggregate
outstanding at any one time;
7. stock, obligations, or securities, received in settlement of debts created
in the ordinary course of business and owing to Holdings or any Restricted
Subsidiary, or in satisfaction of judgments;
8. any person, to the extent such investment represents the non-cash portion of
the consideration received for an Asset Disposition as permitted pursuant to
the covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock";
9. Holdings' or any Restricted Subsidiary's capital stock, purchased, redeemed
or otherwise acquired or retired for value from members of Holdings'
management or employees, but in any event not to exceed $500,000 in the
aggregate in any twelve-month period;
10. other Investments in Permitted Businesses not to exceed, at any one time
outstanding, each such Investment being measured as of the date made and
without giving effect to subsequent changes in value, the greater of:
a. $5.0 million; and
b. 5% of Holdings' Consolidated Tangible Assets;
11. any interest rate protection agreement or currency exchange protection
agreement;
12. any acquisition of assets solely in exchange for the issuance of Holdings'
capital stock, other than Disqualified Stock;
13. prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits;
and
14. deposits of proceeds from Asset Dispositions with a "qualified
intermediary," "qualified trustee" or similar person for purposes of
facilitating a "like-kind" exchange made in accordance with the applicable
provisions of the Internal Revenue Code; provided, however, that the making
of any
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Permitted Investment pursuant to this clause (14) will not in any manner violate
the covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any person:
1. pledges or deposits by such person, under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts, other than for the payment of
Indebtedness, or leases to which such person is a party, or deposits to
secure public or statutory obligations of such person, or deposits or cash
or United States government bonds to secure surety or appeal bonds to which
such person is a party, or deposits as security for contested taxes or
import duties, or for the payment of rent, in each case incurred in the
ordinary course of business;
2. Liens imposed by law, such as carriers' warehousemen's, landlords' and
mechanics' Liens, in each case for sums not yet due, or being contested in
good faith by appropriate proceeding, or judgment Liens not giving rise to
an Event of Default so long as any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated, or the period within which such proceedings may be
initiated shall not have expired;
3. Liens for property taxes not yet subject to penalties for non-payment, or
which are being contested in good faith by appropriate proceedings;
4. Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of, and for the account of, such person in the
ordinary course of its business;
5. minor survey exceptions, minor encumbrances, easements or reservations of,
or rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties, or Liens incidental to the
conduct of the business of such person, or to the ownership of its
properties, which were not incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such person;
6. Liens securing hedging obligations, so long as the related Indebtedness is,
and the Indenture permits it to be, secured by a Lien on the same property
securing such hedging obligations;
7. leases and subleases of real property which do not interfere with Holdings'
or any of its Restricted Subsidiaries' ordinary conduct of business, and
which are made on customary and usual terms applicable to similar
properties;
8. Liens existing as of the date on which the notes are originally issued, and
Liens which the Indenture created;
9. Liens created solely for the purpose of securing the payment of all, or a
part of, the purchase price of assets or property acquired or constructed in
the ordinary course of business, after the date on which the notes are
originally issued; provided, however, that:
a. the aggregate principal amount of Indebtedness secured by such Liens
shall not exceed the aggregate purchase price of the assets or property
so acquired or constructed;
b. the Indebtedness secured by such Liens is Indebtedness which the
Indenture otherwise permits to be incurred; and
c. such Liens shall not encumber any other of Holdings' or any of its
Restricted Subsidiaries' assets or property, and shall attach to such
assets or property within 90 days of the construction or acquisition of
such assets or property;
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10. Liens on a Restricted Subsidiary's assets or property, existing at the time
such Restricted Subsidiary became a Holdings subsidiary, and not incurred as
a result of, in connection with, or in anticipation of such Restricted
Subsidiary becoming a Holdings subsidiary; provided, however, that:
a. any such Lien does not by its terms cover any property or assets after
the time such Restricted Subsidiary becomes a subsidiary, which were not
covered immediately prior to such transaction;
b. the Indebtedness secured by such Liens is Indebtedness which the
Indenture otherwise permits to be incurred; and
c. such Liens do not extend to or cover any other property or assets of
Holdings or any of its Restricted Subsidiaries;
11. Liens securing Indebtedness outstanding under the New Credit Facility;
12. Liens extending, renewing or replacing, in whole or in part, a Lien the
Indenture permits; provided, however, that:
a. such Liens do not extend beyond the property subject to the existing
Lien, and improvements and construction on such property; and
b. the Indebtedness the Lien secures may not exceed the Indebtedness the
existing Lien secured at the time;
13. Liens incurred in the ordinary course of business, by Holdings or any
Restricted Subsidiary of Holdings, with respect to obligations that do not
exceed $5.0 million at any one time outstanding, and that:
a. are not incurred in connection with the borrowing of money or the
obtaining of advances of credit, other than trade credit in the ordinary
course of business; and
b. do not, in the aggregate, materially detract from the value of the
property, or materially impair the use thereof in the operation of
business by Holdings or such Restricted Subsidiary;
14. Liens in favor of Holdings or a wholly owned subsidiary of Holdings;
15. any interest in or title of a lessor to any property subject to a capital
lease obligation the Indenture permits to be incurred; and
16. Liens on Unrestricted Subsidiaries' capital stock.
"Principal" of a note means the principal of the note plus the premium, if
any, payable on the note, which is due or overdue or is to become due at the
relevant time.
"Qualified Proceeds" means assets that are used or useful in, or capital
stock of any person engaged in, a Permitted Business.
"Refinancing Indebtedness" means Indebtedness that Refinances any of
Holdings' or any Restricted Subsidiary's Indebtedness existing on the date of
the Indenture, or incurred in compliance with the Indenture, including any of
Holdings' Indebtedness that refinances any Restricted Subsidiary's Indebtedness,
and any Restricted Subsidiary's Indebtedness that refinances another Restricted
Subsidiary's Indebtedness, including Indebtedness that refinances Refinancing
Indebtedness; provided, however, that:
1. the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced;
2. the Refinancing Indebtedness has an Average Life, at the time such
Refinancing Indebtedness is incurred, that is equal to or greater than the
Average Life of the Indebtedness being refinanced; and
3. such Refinancing Indebtedness is incurred in an aggregate principal amount,
or if issued with original issue discount, an aggregate issue price, that is
equal to or less than the sum of the aggregate principal amount, or if
issued with original issue discount, the aggregate Accreted Value, then
outstanding or
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committed, plus fees and expenses, including any premium and defeasance costs,
under the Indebtedness being refinanced; provided, however, that Refinancing
Indebtedness shall not include:
a. any of a Subsidiary's Indebtedness that refinances any of SpectraSite's
Indebtedness; or
b. any of Holdings' or a subsidiary's Indebtedness that refinances an
Unrestricted Subsidiary's Indebtedness.
"Restricted Payment" with respect to any Person means:
1. the declaration or payment of any dividends or any other distributions of
any sort in respect of its capital stock, or similar payment to the direct
or indirect holders of its capital stock, other than dividends or
distributions payable solely in its capital stock, other than Disqualified
Stock, and dividends or distributions payable solely to Holdings or a
Restricted Subsidiary, and other than pro rata dividends or other
distributions, made by a subsidiary that is not a wholly owned subsidiary of
Holdings, to minority stockholders, or owners of an equivalent interest, in
the case of a subsidiary that is an entity other than a corporation;
2. the purchase, redemption or other acquisition or retirement for value of any
of Holdings' capital stock held by any person, or of any of a Restricted
Subsidiary's capital stock held by any person, other than Holdings or a
Restricted Subsidiary, including the exercise of any option to exchange any
capital stock, other than into Holdings' capital stock that is not
Disqualified Stock, other than as permitted by clause (9) of the definition
of "Permitted Investments";
3. the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of, any Subordinated Obligations, other than
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition; or
4. the making of any Investment in any person, other than a Permitted
Investment.
"Restricted Subsidiary" means any subsidiary of Holdings that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired, whereby Holdings or a Restricted Subsidiary
transfers such property to a person, and SpectraSite or a Restricted Subsidiary
leases it from such person.
"Secured Indebtedness" means any of Holdings' Indebtedness secured by a
Lien.
"Senior Indebtedness" means:
1. any of Holdings' Indebtedness, whether outstanding on the Issue Date or
thereafter incurred; and
2. accrued and unpaid interest, including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
Holdings, to the extent post-filing interest is allowed in such proceeding,
in respect of:
a. Indebtedness for money Holdings borrowed; and
b. Indebtedness evidenced by notes, debentures, bonds or other similar
instruments which Holdings is responsible or liable to make payment for,
unless, in the case of clauses (1) and (2) above, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the notes.
Senior Indebtedness shall not include:
- any obligation Holdings has to any subsidiary;
- any liability for Federal, state, local or other taxes Holdings owed or
owes;
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- any accounts payable or other liability to trade creditors arising in the
ordinary course of business, including guarantees thereof or instruments
evidencing such liabilities;
- any of Holdings' Indebtedness, and any accrued and unpaid interest in
respect thereof, which is subordinate or junior in any respect to any
other of Holdings' Indebtedness or other obligation; or
- that portion of any Indebtedness which, at the time of incurrence, is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Site Management Contract" means any agreement pursuant to which Holdings,
or any of its Restricted Subsidiaries, has the right to substantially control
Tower Assets and the revenues derived from the rental or use thereof.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision, but excluding any provision providing for the repurchase of such
security at the holder's option upon the happening of any contingency beyond
Holdings' control, unless such contingency has occurred.
"Subordinated Obligation" means any of Holdings' Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, which is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
"Temporary Cash Investments" means any of the following:
1. any investment in direct obligations of the United States of America or any
agency thereof, or obligations guaranteed by the United States of America or
any agency thereof;
2. investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof,
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States of America, having capital, surplus and
undivided profits aggregating in excess of $500 million, or the foreign
currency equivalent thereof, and whose long-term debt is rated "A," or such
similar equivalent rating or higher by at least one nationally recognized
statistical rating organization, as defined in Rule 436 under the Securities
Act, or any money market fund sponsored by a registered broker dealer or
mutual fund distributor;
3. repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (1) above, entered into with a
bank, meeting the qualifications described in clause (2) above;
4. investments in commercial paper, maturing not more than 90 days after the
date of acquisition, issued by a corporation, other than a Holdings
Affiliate, organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America,
with a rating at the time of investment of at least "P-1" according to
Moody's Investors Service, Inc. or at least "A-1" according to Standard &
Poor's Ratings Group; and
5. investments in securities with maturities of six months or less from the
date of acquisition, issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard
& Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
The "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the date of the Indenture.
"Tower Asset Exchange" means any transaction in which Holdings or a
Restricted Subsidiary exchanges assets for Tower Assets, or Tower Assets and
cash or cash equivalents, where the fair market
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value, evidenced by a Board of Directors resolution, set forth in an Officer's
Certificate delivered to the trustee, of the Tower Assets and cash or cash
equivalents which Holdings and its Restricted Subsidiaries received in such
exchange, is at least equal to the fair market value of the assets disposed in
such exchange.
"Tower Assets" means wireless communication transmission towers and related
assets that are located on the site of a transmission tower.
"Tower EBITDA" means, for any period, the EBITDA of Holdings and its
Restricted Subsidiaries for such period that is directly attributable to site
rental revenue or license or management fees, paid to manage, lease or sublease
space on communication sites owned, leased or managed by Holdings (collectively,
"site leasing revenues"), all determined on a consolidated basis and in
accordance with GAAP. Tower EBITDA will not include revenue derived from the
sale of assets. In allocating corporate, general, administrative and other
operating expenses that are not allocated to any particular line of business in
Holdings' financial statements, such expenses shall be allocated to Holdings'
site leasing business in proportion to the percentage of Holdings' total
revenues, for the applicable period, that were site leasing revenues.
"Unrestricted Subsidiary" means:
1. any Holdings subsidiary that, at the time of determination, shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
2. any subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Holdings subsidiary, including any
newly acquired or newly formed Holdings subsidiary, to be an Unrestricted
Subsidiary unless such subsidiary, or any of its subsidiaries, owns any
capital stock or Indebtedness of, or owns or holds any Lien on any property
of, Holdings or any other Holdings Restricted Subsidiary, that is not a
subsidiary of the subsidiary to be so designated; provided, however, that
either:
a. the subsidiary designated as an Unrestricted Subsidiary has total
consolidated assets of $1,000 or less; or
b. if such subsidiary has consolidated assets greater than $1,000, then
such designation would be permitted under "Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, as long as, immediately after giving effect to such
designation:
- Holdings would have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to paragraph (1) of the "Limitation on
Indebtedness" covenant above; and
- no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the trustee by promptly
filing with the trustee a copy of the Board of Directors resolution
giving effect to such designation, and an Officer's Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality of the United States, for the
payment of which the full faith and credit of the United States of America is
pledged and which are not callable or redeemable at SpectraSite's option.
"Voting Stock" of a person means all classes of capital stock or other
interests, including partnership interests, of such person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of directors, managers, or trustee thereof.
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BOOK-ENTRY; DELIVERY AND FORM
The registered notes will be issued in the form of a Global Senior Note.
The Global Senior Note will be deposited with, or on behalf of, the Depository
and registered in the name of the Depository or its nominee. Except as set forth
below, the Global Senior Note may be transferred, in whole and not in part, only
to the Depository or another nominee of the Depository. Investors may hold their
beneficial interests in the Global Senior Note directly through the Depository
if they have an account with the Depository, or indirectly through organizations
which have accounts with the Depository.
Notes that are issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of a Senior Note in definitive
form, such Senior Note will be exchanged for an interest in the Global Senior
Note representing the principal amount at maturity of notes being transferred,
unless the Global Senior Note has previously been exchanged for notes in
definitive form.
The Depository has advised SpectraSite as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions, among its participants, in such
securities, through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to the Depository's book-entry system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, whether directly or
indirectly.
Upon the issuance of the Global Senior Note, the Depository will credit, on
its book-entry registration and transfer system, the principal amount, at
maturity, of the notes represented by such Global Senior Note, to the accounts
of participants. The accounts to be credited shall be designated by the notes'
Initial Purchasers. Ownership of beneficial interests in the Global Senior Note
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Senior Note will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository, with respect to participants'
interest, and such participants, with respect to the owners of beneficial
interests in the Global Senior Note other than participants. The laws of some
jurisdictions may require that certain securities purchasers take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Senior
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Senior Note, the Depository or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related notes for
all purposes of such notes and the Indenture. Except as set forth below, owners
of beneficial interests in the Global Senior Note will not be entitled to have
the notes represented by the Global Senior Note registered in their names, will
not receive or be entitled to receive physical delivery of certificated notes in
definitive form, and will not be considered to be the owners or holders of any
notes under the Global Senior Note. SpectraSite understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Senior Note desires to take any action that the Depository, as the holder of the
Global Senior Note, is entitled to take, the Depository would authorize the
participants to take such action, and the participants would authorize
beneficial owners, owning through such participants, to take such action, or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of, and interest on, notes represented by the Global
Senior Note registered in the name of and held by, the Depository or its
nominee, will be made to the Depository, or its nominee, as the case may be, as
the registered owner and holder of the Global Senior Note.
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SpectraSite expects that the Depository, or its nominee, upon receipt of
any payment of principal of, or interest on, the Global Senior Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Senior
Note as shown on the records of the Depository or its nominee. SpectraSite also
expects that payments by participants, to owners of beneficial interests in the
Global Senior Note held through such participants, will be governed by standing
instructions and customary practices, and will be the responsibility of such
participants. SpectraSite will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Senior Note for any Senior Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between the
Depository and its participants, or the relationship between such participants
and the owners of beneficial interests in the Global Senior Note owning through
such participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the Global Senior Note may not be transferred, except as a
whole, by the Depository to a nominee of such Depository, or by a nominee of
such Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Senior Note among participants
of the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor SpectraSite will have any responsibility for the performance by
the Depository or its participants or indirect participants, of their respective
obligations, under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the Global Senior Note are exchangeable for
certificated notes, in definitive form of like tenor as such notes, in
denominations of U.S. $1,000 and integral multiples thereof if:
- the Depository notifies SpectraSite that it is unwilling or unable to
continue as Depository of the Global Senior Note, or if at any time the
Depository ceases to be a clearing agency registered under the Exchange
Act and a successor Depository is not appointed by SpectraSite within 90
days;
- SpectraSite in its discretion at any time determines not to have all of
the notes represented by the Global Senior Note; or
- an Event of Default has occurred and is continuing. Any Senior Note that
is exchangeable pursuant to the preceding sentence, is exchangeable for
certificated notes, issuable in authorized denominations and registered
in such names as the Depository shall direct. Subject to the foregoing,
the Global Senior Note is not exchangeable, except for a Global Senior
Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee. In addition, such certificates will bear
the legend referred to under "Transfer Restrictions," unless SpectraSite
determines otherwise in accordance with applicable law, subject, with
respect to such notes, to the provisions of such legend.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
GENERAL
The following is a summary of the material United States federal income,
estate and gift tax consequences of the purchase, ownership and disposition of
the notes, but is not purported to be a complete analysis of all potential tax
effects. This summary is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive or prospective. Unless otherwise specifically noted, this summary
applies only to those persons that hold the notes as capital assets within the
meaning of Section 1221 of the Internal Revenue Code. This discussion assumes
that the notes will be treated as indebtedness for United States federal income
tax purposes.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES, SUCH AS FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, S CORPORATIONS,
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, BROKER-DEALERS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND PERSONS THAT WILL HOLD THE
NOTES AS PART OF A POSITION IN A "STRADDLE" OR AS PART OF A "CONSTRUCTIVE SALE"
OR A "HEDGING" OR "CONVERSION" TRANSACTION, OR ADDRESS ASPECTS OF FEDERAL
TAXATION THAT MIGHT BE RELEVANT TO A PROSPECTIVE INVESTOR BASED UPON SUCH
INVESTOR'S PARTICULAR TAX SITUATION. THIS SUMMARY DOES NOT ADDRESS ANY TAX
CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER
TAXING JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND
DISPOSING OF THE NOTES, INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES
HOLDER OR A NON-UNITED STATES HOLDER, AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION.
EFFECT OF EXCHANGE OF OUTSTANDING NOTES FOR REGISTERED NOTES
SpectraSite believes that the exchange of outstanding notes for registered
notes pursuant to the registered exchange offer will not be treated as an
"exchange" for federal income tax purposes because the registered notes will not
be considered to differ materially in kind or extent from the outstanding notes.
Rather, the registered notes received by a holder will be treated as a
continuation of the outstanding notes in the hands of such holder. As a result,
holders will not recognize any taxable gain or loss or any interest income as a
result of exchanging outstanding notes for registered notes pursuant to the
exchange offer, the holding period of the registered notes will include the
holding period of the outstanding notes, and the basis of the registered notes
will equal the basis of the outstanding notes immediately before the exchange.
UNITED STATES HOLDERS
GENERAL. The following is a general discussion of certain United States
federal income tax consequences of the ownership and sale or other disposition
of the notes by a beneficial owner that, for United States federal income tax
purposes, is a "United States person". For purposes of this discussion, a
"United States person" means a citizen or individual resident, as defined in
Section 7701(b) of the Internal Revenue Code, of the United States; a
corporation or partnership, including any entity treated as a corporation or
partnership for United States federal income tax purposes, created or organized
under the laws of the United States, any State thereof or the District of
Columbia unless, in the case of a partnership, otherwise provided by regulation;
an estate the income of which is subject to United States federal income tax
without regard to its source; or 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. Notwithstanding the preceding sentence, certain trusts
in existence on August 20, 1996, and treated as United States persons prior to
such date that elect to continue to be so treated shall also be considered to be
United States persons.
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ORIGINAL ISSUE DISCOUNT. Because the notes were issued at a discount from
their stated redemption price at maturity, the notes have original issue
discount for federal income tax purposes. For federal income tax purposes, the
amount of original issue discount generally equals the excess of the note's
stated redemption price at maturity over its issue price. The note's issue price
is the first price at which a substantial amount of the notes is sold, excluding
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters or wholesalers. The note's stated redemption price at
maturity is the sum of all cash payments to be made on such note, whether
denominated as principal or interest, other than payments of qualified stated
interest. Qualified stated interest is stated interest that is unconditionally
payable at least annually at a single fixed rate that appropriately takes into
account the length of the interval between payments. Because there will be no
required payment of interest on the notes prior to January 15, 2004, none of the
interest payments on the notes constitute qualified stated interest; and,
accordingly, each note bears original issue discount in an amount equal to the
excess of the sum of its principal amount and all stated interest payments, over
its issue price.
A United States holder is required to include original issue discount in
gross income periodically over the term of a note before receipt of the cash or
other payment attributable to such income, regardless of such holder's method of
tax accounting. The amount to be included for any taxable year is the sum of the
daily portions of original issue discount with respect to the note for each day
during the taxable year or portion of a taxable year during which such holder
holds the note. The daily portion is determined by allocating to each day of any
accrual period within a taxable year a pro rata portion of an amount equal to
the note's adjusted issue price at the beginning of the accrual period
multiplied by the note's yield to maturity. For purposes of computing original
issue discount, SpectraSite will use six-month accrual periods that end on the
days in the calendar year corresponding to the maturity date of the notes and
the date six months prior to such maturity date, with the exception of an
initial short accrual period. A United States holder is permitted to use
different accrual periods; provided that each accrual period is no longer than
one year, and each scheduled payment of interest or principal occurs on either
the first or last day of an accrual period. The adjusted issue price of a note
at the beginning of any accrual period is its issue price increased by the
amount of original issue discount previously includible in the gross income of
the holder and decreased by any payments previously made on the note. The note's
yield to maturity is the discount rate that, when used in computing the present
value of all payments of principal and interest to be made on a note, produces
an amount equal to the issue price of the note. Under these rules, United States
holders are required to include in gross income increasingly greater amounts of
original issue discount in each successive accrual period. Payments of stated
interest on a note will not be separately included in income, but rather will be
treated first as payments of previously accrued original issue discount and then
as payments of principal and, consequently, will reduce a United States holder's
basis in a note as described below under "-- United States Holders -- Sale,
Exchange or Redemption of the Notes."
SpectraSite intends to treat the possibility of an optional redemption, as
described under "Description of the Notes -- Optional Redemption," and a
repurchase pursuant to a change in control, as described under "Description of
the Notes -- Change of Control," as not affecting the determination of the yield
to maturity of the notes, or giving rise to any additional accrual of original
issue discount or recognition of ordinary income upon the redemption, sale or
exchange of a note.
ACQUISITION PREMIUM. A United States holder that purchases a note for an
amount that is greater than its adjusted issue price as of the purchase date
will be considered to have purchased such note at an acquisition premium. The
amount of original issue discount that such holder must include in its gross
income with respect to such note for any taxable year is generally reduced by
the portion of such acquisition premium properly allocable to such year. The
information reported by SpectraSite to the record holders of the notes on an
annual basis will not account for an offset against original issue discount for
any portion of the acquisition premium. Accordingly, each United States holder
should consult its own tax advisor as to the determination of the acquisition
premium amount and the resulting adjustments to the amount of reportable
original issue discount.
AMORTIZABLE BOND PREMIUM. A United States holder that purchases a note for
an amount in excess of its principal amount will be considered to have purchased
the note at a premium and may elect to
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amortize such premium, using a constant yield method, over the remaining term of
the note, or, if a smaller amortization allowance would result, by computing
such allowance with reference to the amount payable on an earlier call date and
amortizing such allowance over the shorter period to such call date. The amount
amortized in any year will be treated as a reduction of the United States
holder's interest income from the note. Bond premium on a note held by a United
States holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the note. The election
to amortize bond premium on a constant yield method, once made, applies to all
debt obligations held or subsequently acquired by the electing United States
holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service.
MARKET DISCOUNT. If a United States holder purchases, subsequent to its
original issuance, a note for an amount that is less than its revised issue
price as of the purchase date, the amount of the difference generally will be
treated as market discount, unless such difference is less than a specified de
minimis amount. The Internal Revenue Code provides that the revised issue price
of a note equals its issue price plus the amount of original issue discount
includable in the income of all holders for periods prior to the purchase date,
disregarding any deduction for acquisition premium, reduced by the amount of all
prior cash payments on the note. Subject to a de minimis exception, a United
States holder will be required to treat any gain recognized on the sale,
exchange, redemption, retirement or other disposition of the note as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. In addition, the United States holder may be required to
defer, until the maturity date of the note or its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the United
States holder elects to accrue market discount on a constant interest method. A
United States holder of a note may elect to include market discount in income
currently as it accrues, under either the ratable or constant interest method.
This election to include currently, once made, applies to all market discount
obligations acquired in or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service. If the United States holder of a note makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such instruments, and with respect to the deferral of
interest deductions on debt incurred or maintained to purchase or carry such
debt instruments, would not apply.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. A United States
holder of a note may elect, subject to certain limitations, to include all
interest that accrues on a note in gross income on a constant yield basis. For
purposes of this election, interest includes stated interest, original issue
discount, market discount, de minimis original issue discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. Special rules and limitations apply to taxpayers who make
this election; therefore, United States holders should consult their tax
advisors as to whether they should make this election.
THE AHYDO RULE. The notes constitute applicable high yield discount
obligations ("AHYDOs"). Accordingly, pursuant to Sections 163(e) and 163(i) of
the Internal Revenue Code, SpectraSite is not entitled to deduct original issue
discount that accrues with respect to such notes until amounts attributable to
such original issue discount are paid in cash. In addition, to the extent that
the yield to maturity of the notes exceeds the sum of the applicable federal
rate for the month in which the notes were issued (5.93%) plus 6 percentage
points (the "Excess Yield"), the disqualified portion of the original issue
discount accruing on the notes will be disallowed permanently and characterized
as a nondeductible dividend with respect to SpectraSite and also will be treated
as a dividend distribution, to the extent of available current and accumulated
earnings and profits, solely for purposes of the dividends received deductions
of
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Sections 243, 246 and 246A of the Internal Revenue Code with respect to holders
of notes that are U.S. corporations. The disqualified portion for any accrual
period will equal the product of:
- a percentage determined by dividing the Excess Yield by the yield to
maturity,
times
- the original issue discount for the accrual period.
Subject to otherwise applicable limitations, such a corporate holder will be
entitled to a dividend received deduction with respect to the disqualified
portion if SpectraSite has sufficient current or accumulated earnings and
profits. To the extent that SpectraSite's earnings and profits are insufficient,
any portion of the original issue discount that otherwise would have been
recharacterized as a dividend for purposes of the dividends received deduction
will continue to be treated as ordinary original issue discount income in
accordance with the rules described above under "-- United States
Holders -- Original Issue Discount." Treatment of the notes as AHYDOs will not
disqualify interest or original issue discount with respect to notes from the
portfolio interest exception described below under " -- Foreign
Holders -- Interest;" provided that all applicable requirements for the
exception are otherwise satisfied.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES. Generally, a sale, exchange or
redemption of the notes will result in taxable gain or loss equal to the
difference between the amount of cash or other property received and the United
States holder's adjusted tax basis in the notes. A United States holder's
adjusted tax basis for determining gain or loss on the sale or other disposition
of a note will initially equal the cost of the note to such holder and will be
increased by:
- any amounts included in income as original issue discount, and
- any market discount previously included in income by such holder,
and decreased by:
- any principal and stated interest payments received by such holder, and
- any amortized premium previously deducted from income by such holder.
Except as described above with respect to market discount, such gain or
loss will be capital gain or loss. Capital gain or loss will be long-term gain
or loss if the note is held by the United States holder for more than one year,
otherwise such gain or loss will be short-term.
United States holders that are corporations generally will be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States holders that
are individuals generally will be taxed on net capital gains at a maximum rate
of 39.6% for property held for 12 months or less, and 20% for property held more
than 12 months. Special rules, and generally lower maximum rates, apply for
individuals in lower tax brackets. Any capital losses realized by a United
States holder that is a corporation generally may be used only to offset capital
gains. Any capital losses realized by a United States holder that is an
individual generally may be used only to offset capital gains plus $3,000 of
other income per year.
FOREIGN HOLDERS
The following is a general discussion of certain United States federal
income, estate and gift tax consequences of the ownership and sale or other
disposition of the notes by any beneficial owner of a note that is not a United
States holder. Resident alien individuals are subject to United States federal
income tax with respect to the notes as if they were United States holders.
INTEREST. Under current United States federal income tax law, and subject
to the discussion of backup withholding below, interest, including original
issue discount, paid on the notes to a non-United States holder will not be
subject to the normal 30% United States federal withholding tax; provided that
(i) the interest is "effectively connected with the conduct of a trade or
business in the United States" by the non-United States holder and the
non-United States holder timely furnishes SpectraSite with two duly executed
copies of Internal Revenue Service Form 4224, or any successor form, or (ii) all
of the following conditions of the portfolio interest exception are met: (A) the
non-United States holder does not, actually
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or constructively, own 10% or more of the total combined voting power of all
classes of stock of SpectraSite entitled to vote, (B) the non-United States
holder is not a controlled foreign corporation that is related, directly or
indirectly, to SpectraSite through stock ownership, (C) the non-United States
holder is not a bank receiving interest (including original issue discount)
pursuant to a loan agreement entered into in the ordinary course of its trade or
business, and (D) either (1) the non-United States holder certifies to
SpectraSite or its agent, under penalties of perjury, that it is a non-United
States holder and provides its name and address, or (2) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business, and holds the notes
in such capacity, certifies to SpectraSite or its agent, under penalties of
perjury, that such statement has been received from the beneficial owner of the
notes by it or by any other financial institution between it and the beneficial
owner and furnishes SpectraSite or its agent with a copy thereof. The foregoing
certification may be provided by the non-United States holder on Internal
Revenue Service Form W-8, or any successor form. Such certificate is effective
with respect to payments of interest, including original issue discount, made
after the issuance of the certificate in the calendar year of its issuance and
the two immediately succeeding calendar years.
On October 14, 1997, final regulations were published in the Federal
Register that affect the United States federal income taxation of non-United
States holders. The 1997 regulations are effective for payments after December
31, 1999, regardless of the issue date of the instrument with respect to which
such payments are made, subject to certain transition rules discussed below. The
discussion under this heading and under "-- Backup Withholding Tax and
Information Reporting," below, is not intended to be a complete discussion of
the provisions of the 1997 regulations. Prospective holders of the notes are
urged to consult their tax advisors concerning the tax consequences of their
investment in light of the 1997 regulations.
The 1997 regulations provide documentation procedures designed to simplify
compliance by withholding agents. The 1997 regulations generally do not affect
the documentation rules described above, but add other certification options.
Under one such option, a withholding agent will be allowed to rely on an
intermediary withholding certificate furnished by a "qualified intermediary" on
behalf of one or more beneficial owners, or other intermediaries, without having
to obtain the beneficial owner certificate described above. Qualified
intermediaries include:
- foreign financial institutions or foreign clearing organizations, other
than a United States branch or United States office of such institution
or organization, or
- foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations,
which have entered into withholding agreements with the Internal Revenue
Service.
In addition to certain other requirements, qualified intermediaries must
obtain withholding certificates, such as revised Internal Revenue Service Form
W-8, from each beneficial owner. Under another option, an authorized foreign
agent of a United States withholding agent will be permitted to act on behalf of
the United States withholding agent, including the receipt of withholding
certificates, the payment of amounts of income subject to withholding and the
deposit of tax withheld; provided that certain conditions are met.
For purposes of the certification requirements, the 1997 regulations
generally treat as the beneficial owners of payments on a note those persons
that, under United States federal income tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally must provide the required certifications to
qualify for the withholding tax exemption described above, unless the
partnership has entered into a special agreement with the Internal Revenue
Service. A payment to a United States partnership, however, is treated for these
purposes as payment to a United States payee, even if the partnership has one or
more foreign partners. The 1997 regulations provide certain presumptions with
respect to withholding for holders of notes not furnishing the required
certifications to qualify for the
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withholding tax exemption described above. In addition, the 1997 regulations
will replace a number of current tax certification forms, including Internal
Revenue Service Form W-8, with a single, revised Internal Revenue Service Form
W-8, which, in certain circumstances, requires information in addition to that
previously required. Under the 1997 regulations, this revised Form W-8 will
remain valid until the last day of the third calendar year following the year in
which the certificate is signed.
The 1997 regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1999 will generally remain valid
until the earlier of December 31, 2000 or the date of their expiration. Existing
certificates that expire in 1999 will not be effective after their expiration.
Certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
In the event that the interest, including original issue discount, paid on
the notes is effectively connected with the conduct of a trade or business
within the United States of the non-United States holder, the non-United States
holder will generally be taxed on a net income basis (that is, after allowance
for applicable deductions) at the graduated rates that are applicable to United
States holders in essentially the same manner as if the notes were held by a
United States holder, as discussed above. In the case of a non-United States
holder that is a corporation, such income may also be subject to the United
States federal branch profits tax, which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits, at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the non-United States holder
is a qualified resident of the treaty country.
If the interest on the notes is not "effectively connected" and does not
qualify for the portfolio interest exception described above in "-- Foreign
Holders -- Interest", then the interest will be subject to United States federal
withholding tax at a flat rate of 30%, or a lower applicable income tax treaty
rate upon delivery of Internal Revenue Service Form 1001, or any successor form,
certifying eligibility for treaty benefits.
GAIN ON SALE OR OTHER DISPOSITION. Subject to special rules applicable to
individuals as described below, a non-United States holder generally will not be
subject to regular United States federal income or withholding tax on gain
recognized on a sale or other disposition of the notes, unless the gain is
effectively connected with the conduct of a trade or business within the United
States of the non-United States holder or of a partnership, trust or estate in
which such non-United States holder is a partner or beneficiary.
Gains realized by a non-United States holder that are effectively connected
with the conduct of a trade or business within the United States of the
non-United States holder generally will be taxed on a net income basis at the
graduated rates that are applicable to United States holders, as described
above, unless exempt by an applicable income tax treaty. In the case of a
non-United States holder that is a corporation, such income may also be subject
to the United States federal branch profits tax, which is generally imposed on a
foreign corporation upon the deemed repatriation from the United States of
effectively connected earnings and profits, at a 30% rate, unless the rate is
reduced or eliminated by an applicable income tax treaty and the non-United
States holder is a qualified resident of the treaty country.
In addition to being subject to the rules described above, an individual
non-United States holder who holds the notes as a capital asset generally will
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such notes if:
- such gain is not effectively connected with the conduct of a trade or
business within the United States of the non-United States holder;
- such individual is present in the United States for 183 days or more in
the taxable year of the sale or other disposition; and
- either (A) has a "tax home" in the United States, as specially defined
for purposes of the United States federal income tax, or (B) maintains an
office or other fixed place of business in the United
114
<PAGE> 117
States and the gain from the sale or other disposition of the notes is
attributable to such office or other fixed place of business.
Individual non-United States holders may also be subject to tax pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates, including certain former long-term residents of the United
States.
Under the 1997 regulations, described above in "-- Foreign
Holders -- Interest", withholding of United States federal income tax may apply
to payments on a taxable sale or other disposition of the notes by a non-United
States holder who does not provide appropriate certification to the withholding
agent with respect to such transaction.
FEDERAL ESTATE AND GIFT TAXES. A note beneficially owned by an individual
who is neither a United States citizen nor a domiciliary of the United States at
the time of death will not be subject to United States federal estate tax as a
result of such individual's death; provided that any interest thereon would have
been eligible for the portfolio interest exception described above in
"-- Foreign Holders -- Interest," if such interest had been received by the
individual at the time of death.
An individual who is not a United States citizen will not be subject to
United States federal gift tax on a transfer of notes, unless such person is a
domiciliary of the United States or such person is subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates, including certain former long-term residents of the United States.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest, including original issue discount, paid to, and
to the proceeds of sales or other dispositions before maturity by, certain
non-corporate persons. In addition, a 31% backup withholding tax applies if a
non-corporate person:
- fails to furnish such person's taxpayer identification number, which, for
an individual, is his or her Social Security Number, to the payor in the
manner required;
- furnishes an incorrect taxpayer identification number and the payor is so
notified by the Internal Revenue Service;
- is notified by the Internal Revenue Service that such person has failed
properly to report payments of interest and dividends; or
- in certain circumstances, fails to certify, under penalties of perjury,
that such person has not been notified by the Internal Revenue Service
that such person is subject to backup withholding for failure properly to
report interest and dividend payments.
Backup withholding does not apply to payments made to certain exempt recipients,
such as corporations and tax-exempt organizations.
In the case of a non-United States holder, under current United States
federal income tax law, backup withholding and information reporting do not
apply to payments of interest, including original issue discount, with respect
to a note, or to payments on the sale or other disposition of a note, if such
holder has provided to SpectraSite or its paying agent the certification
described in clause (ii)(D) of "-- Foreign Holders -- Interest" or has otherwise
established an exemption.
Under current United States federal income tax law, (i) interest payments,
including original issue discount, with respect to a note collected outside the
United States by a foreign office of a custodian, nominee or broker acting on
behalf of a beneficial owner of a note, and (ii) payments on the sale or other
disposition of a note to or through a foreign office of a broker generally are
not subject to backup withholding or information reporting. However, if such
custodian, nominee or broker is a "United States person," as defined in Section
7701(a)(30) of the Internal Revenue Code, a controlled foreign corporation for
United States tax purposes or a foreign person 50% of more of whose gross income
is effectively connected with the conduct of a United States trade or business
for a specified three-year period (a "U.S. Related Person"), such custodian,
nominee or broker may be subject to certain information reporting, but
115
<PAGE> 118
not backup withholding, requirements with respect to such payments, unless such
custodian, nominee or broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain conditions are met or
the beneficial owner otherwise establishes an exemption. Backup withholding may
apply to any payment that such custodian, nominee or broker is required to
report if such person has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the holder
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
The 1997 regulations, described above in "-- Foreign Holders -- Interest,"
modify certain of the certification requirements for backup withholding and
expand the group of U.S. Related Persons. It is possible that SpectraSite or its
paying agent may request new withholding exemption forms from holders of notes
in order to qualify for continued exemption from backup withholding when the
1997 regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a holder of notes under the backup withholding rules
are allowed as a refund or a credit against such holder's United States federal
income tax; provided that the required information is furnished to the Internal
Revenue Service.
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes for its own account
pursuant to the exchange offer, where its outstanding notes were acquired by
such broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such registered notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of registered notes received in exchange for outstanding notes
where such outstanding notes were acquired as a result of market making or other
trading activities. Until , 1999 (90 days after the commencement of
the exchange offer), all dealers effecting transactions in the registered notes
may be required to deliver a prospectus.
SpectraSite will not receive any proceeds from any sales of the registered
notes by participating broker-dealers. Registered notes received by
participating broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the registered notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
participating broker-dealer that resells the registered notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
for the exchange offer states that, by acknowledging that it will deliver, and
by delivering, a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, or until all
broker-dealers who exchange outstanding notes which were acquired as a result of
market making activities for registered notes have sold all registered notes
held by them, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. Holdings has agreed to pay all
expenses incident to the exchange offer. SpectraSite will indemnify the holders
of the registered notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
The registered notes will not be listed on any stock exchange. The notes
are designated for trading in The Portal Market.
116
<PAGE> 119
LEGAL MATTERS
Dow, Lohnes & Albertson, PLLC, Washington, D.C., will pass upon the
validity of the registered notes.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the period from inception (April 25, 1997) to December
31, 1997 and the nine months ended September 30, 1998 and the consolidated
financial statements of our predecessor, Telesite Services, LLC, for the year
ended December 31, 1996 and for the period from January 1, 1997 to May 12, 1997
included in our registration statement Form on Form S-4, as set forth in their
reports appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Holdings filed a registration statement on Form S-4 with the SEC covering
the registered notes, and this prospectus is part of our registration statement.
For further information on SpectraSite and the notes, you should refer to our
registration statement and its exhibits. This prospectus summarizes material
provisions of contracts and other documents that we refer you to. Since the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
Following the exchange offer, Holdings will file reports with the SEC
pursuant to the Exchange Act. In addition, the indenture governing the notes
requires that we file Exchange Act reports with the SEC and provide those
reports to the indenture trustee and holders of notes. Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York and Chicago. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges.
117
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997, and
September 30, 1998........................................ F-3
Consolidated Statements of Operations for the period from
inception (April 25, 1997) to December 31, 1997 and for
the nine months ended September 30, 1998.................. F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholder's Deficiency........................ F-5
Consolidated Statements of Cash Flows for the period from
inception (April 25, 1997) to December 31, 1997 and for
the nine months ended September 30, 1998.................. F-6
Notes to Consolidated Financial Statements.................. F-7
TELESITE SERVICES, LLC
Report of Independent Auditors.............................. F-19
Consolidated Balance Sheet as of December 31, 1996.......... F-20
Consolidated Statements of Operations for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-21
Consolidated Statements of Members' Equity.................. F-22
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-23
Notes to Consolidated Financial Statements.................. F-24
</TABLE>
F-1
<PAGE> 121
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SpectraSite Holdings, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of SpectraSite
Holdings, Inc. (the "Company") and subsidiary as of September 30, 1998 and
December 31, 1997, and the related consolidated statements of operations,
redeemable convertible preferred stock and shareholders' deficiency and cash
flows for the nine months ended September 30, 1998 and for the period from April
25, 1997 (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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of SpectraSite
Holdings, Inc. and subsidiary at September 30, 1998 and December 31, 1997, and
the consolidated results of its operations and its cash flows for the nine
months ended September 30, 1998 and for the period from April 25, 1997
(inception) to December 31, 1997 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
October 23, 1998
Raleigh, North Carolina
F-2
<PAGE> 122
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,234,148 $ 76,204,475
Investments............................................... -- 45,561,147
Accounts receivable....................................... 1,610,039 1,466,338
Prepaid expenses and other................................ 34,019 257,115
----------- ------------
Total current assets........................................ 3,878,206 123,489,075
Property and equipment, net................................. 1,176,032 14,818,309
Goodwill, less accumulated amortization of $278,381 and
$652,012, respectively.................................... 6,791,663 8,086,801
Deposits.................................................... 1,300,000 11,750,000
Investment in affiliate..................................... 336,095 --
Note receivable............................................. -- 257,130
Debt issuance costs, less accumulated amortization of
$115,362.................................................. -- 4,595,516
Other assets................................................ 159,957 174,166
----------- ------------
Total assets................................................ $13,641,953 $163,170,997
=========== ============
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Line of credit............................................ $ 628,561 $ --
Accounts payable.......................................... 1,049,157 2,261,599
Accrued and other expenses................................ 1,005,317 645,336
Current portion of long-term debt......................... 25,404 128,044
----------- ------------
Total current liabilities................................... 2,708,439 3,034,979
Long-term debt, less current portion........................ 19,376 4,929
Note payable to shareholder................................. 2,312,000 --
Senior discount notes due 2008, net of unamortized discount
of $96,321,863............................................ -- 128,916,137
----------- ------------
Total liabilities........................................... 5,039,815 131,956,045
Series A redeemable convertible preferred stock, $0.001 par,
3,462,830 shares authorized, 3,462,830 outstanding........ 10,500,000 11,100,000
Series B redeemable convertible preferred stock, $0.001 par,
7,000,000 shares authorized, 7,000,000 outstanding........ -- 28,796,158
Shareholders' deficiency:
Common stock, $0.001 par, 12,000,000 and 20,000,000
authorized, respectively, 931,753 and 1,032,213 issued
and outstanding, respectively.......................... 932 1,032
Additional paid-in-capital................................ 260,802 --
Accumulated deficit....................................... (2,159,596) (8,682,238)
----------- ------------
Total shareholders' deficiency.............................. (1,897,862) (8,681,206)
----------- ------------
Total liabilities, redeemable preferred stock and
shareholders' deficiency.................................. $13,641,953 $163,170,997
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 123
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(APRIL 25, 1997) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------------- -------------
<S> <C> <C>
Revenues:
Site acquisition.......................................... $ 5,001,668 $ 5,154,265
Site leasing.............................................. -- 210,910
----------- -----------
Total revenue............................................... 5,001,668 5,365,175
Costs of operations:
Site acquisition.......................................... 1,119,608 1,721,349
Site leasing (exclusive of depreciation shown separately
below)................................................. -- 142,495
----------- -----------
Total costs of operations................................... 1,119,608 1,863,844
Selling, general and administrative expenses................ 5,957,042 6,515,595
Depreciation expense........................................ 191,077 261,086
----------- -----------
Operating loss.............................................. (2,266,059) (3,275,350)
Other income (expense):
Equity in earnings of affiliate........................... 204,537 --
Interest income........................................... 121,432 2,110,243
Interest expense.......................................... (163,555) (4,335,285)
Gain on sale of assets.................................... -- 472,594
Other expense............................................. (55,951) --
----------- -----------
106,463 (1,752,448)
----------- -----------
Net loss.................................................... $(2,159,596) $(5,027,798)
=========== ===========
Loss applicable to common shareholders:
Net Loss.................................................... $(2,159,596) $(5,027,798)
Accretion of redemption value of preferred stock............ (500,000) (1,396,158)
----------- -----------
Net loss applicable to common shareholders.................. $(2,659,596) $(6,423,956)
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 124
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDER'S DEFICIENCY
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK SHAREHOLDERS' DEFICIENCY
--------------------------------------- -----------------------------------------------
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SERIES A SERIES B TOTAL STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ------ ---------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <S>
Balance at April 25, 1997
(inception)............... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................... -- -- -- 932 809,693 -- 810,625
Issuance of warrants...... -- -- -- -- 130,500 130,500
Issuance of preferred
stock................... 10,000,000 -- 10,000,000 -- -- -- --
Stock issuance cost....... -- -- -- -- (179,391) -- (179,391)
Accretion of redemption
value................... 500,000 -- 500,000 -- (500,000) -- (500,000)
Net loss.................. -- -- -- -- -- (2,159,596) (2,159,596)
----------- ----------- ----------- ------ ---------- ----------- -----------
Balance at December 31,
1997...................... 10,500,000 -- 10,500,000 932 260,802 (2,159,596) (1,897,862)
Exercise of warrants...... -- -- -- 100 -- -- 100
Issuance of preferred
stock................... -- 28,000,000 28,000,000 -- -- -- --
Stock issuance cost....... -- -- -- -- (260,802) (98,686) (359,488)
Accretion of redemption
value................... 600,000 796,158 1,396,158 -- -- (1,396,158) (1,396,158)
Net loss.................. -- -- -- -- -- (5,027,798) (5,027,798)
----------- ----------- ----------- ------ ---------- ----------- -----------
Balance at September 30,
1998...................... $11,100,000 $28,796,158 $39,896,158 $1,032 $ -- $(8,682,238) $(8,681,206)
=========== =========== =========== ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 125
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(APRIL 25, 1997) TO NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
--------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(2,159,596) $(5,027,798)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................ 191,077 261,086
Amortization............................................ 297,785 519,220
Loss (gain) on sale of assets........................... 60,048 (472,594)
Equity in earnings of affiliate......................... (204,537) --
Amortization of discount -- senior discount notes....... -- 3,915,803
Non cash charge (Note 1)................................ 869,150 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (288,773) 436,101
Prepaid expenses and other........................... 136,062 (105,348)
Other assets......................................... -- (44,406)
Accounts payable..................................... 316,674 1,217,154
Accrued and other expenses........................... 1,005,317 (359,027)
----------- -----------
Net cash provided by operating activities................. 223,207 340,191
INVESTING ACTIVITIES
Purchases of property and equipment....................... (849,939) (12,496,128)
Distribution from affiliate............................... -- 150,000
Purchases of investments.................................. -- (45,561,147)
Proceeds from sale of assets.............................. -- 298,575
Acquisitions, net of cash acquired........................ (5,028,541) (1,988,864)
Deposits on acquisitions.................................. (1,300,000) (11,750,000)
----------- -----------
Net cash used by investing activities..................... (7,178,480) (71,347,564)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................. 10,000,000 28,000,000
Exercise of warrants...................................... -- 100
Stock issuance costs...................................... (179,391) (359,488)
Proceeds from issuance of senior discount notes........... -- 125,000,333
Debt issuance costs....................................... -- (4,710,878)
Net repayments on line of credit.......................... (567,501) (628,561)
Repayment of long-term debt............................... (63,687) (2,323,806)
----------- -----------
Net cash provided by financing activities................. 9,189,421 144,977,700
----------- -----------
Net increase in cash and cash equivalents................. 2,234,148 73,970,327
Cash and cash equivalents at beginning of period.......... -- 2,234,148
----------- -----------
Cash and cash equivalents at end of period................ $ 2,234,148 $76,204,475
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................. $ 63,989 $ 211,232
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 126
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF COMPANY
SpectraSite Holdings, Inc. (the "Issuer") formerly known as Integrated Site
Development, Inc. ("ISD"), was incorporated in the State of Delaware on April
25, 1997. The Issuer, on May 12, 1997, issued 850,000 shares of its common stock
and common stock warrants for 150,000 shares in exchange for the 850,000 issued
and outstanding shares of common stock and common stock warrants for 150,000
shares of US Towers, Inc. ("UST"). The Issuer's chief executive officer was the
principal shareholder of UST prior to this transaction. One of the primary
purposes of the exchange of shares was the hiring of the chief executive
officer. Since UST had de minimus assets and operations, this transaction was
compensatory in nature, rather than a business combination or an asset
acquisition. Accordingly, this transaction resulted in a non-cash compensation
charge of $869,150, based on the estimated fair value of the stock of $.87 per
share and the estimated fair value of the warrants of $.87 per warrant at the
date of issuance. The warrants entitled the holder the right to purchase 150,000
shares of the Issuers common stock at a price of $0.001 per share, through 2001.
In September and October 1998, all of the warrants were exercised. See Note 4.
On May 12, 1997, the Issuer acquired all of the outstanding membership
interests of TeleSite Services, LLC ("TeleSite") and its subsidiary, MetroSite
Management, LLC ("MetroSite"), for consideration including $4,850,000 in cash,
81,753 shares of common stock valued at $71,125 and a $2,312,000 note payable.
Since the Company had minimal operations prior to this acquisition, TeleSite is
considered the Issuer's predecessor for financial reporting purposes. In October
1997, TeleSite was merged into UST, and UST changed its name to SpectraSite
Communications, Inc. The acquisition was accounted for as a purchase in
accordance with the provisions of APB 16 and, accordingly, the results of
operations of TeleSite are included in the consolidated operations of the Issuer
from the date of acquisition.
In connection with the acquisition of TeleSite, the Issuer may be required
to provide additional consideration in the form of common stock that is
contingent upon the acquired businesses achieving certain operating goals
through fiscal 1998. The maximum amount of remaining contingent shares of common
stock that could be issued as additional consideration at September 30, 1998 is
204,382 shares. Any additional consideration will be accounted for as an
additional cost of the acquisition.
The Issuer, its wholly owned subsidiary SpectraSite Communications, Inc.
("SCI") and the wholly owned subsidiaries of SCI, H&K Investments, LLC ("H&K")
and GlobalComm, Inc. ("GlobalComm") (collectively referred to as the "Company"
throughout), are principally engaged in providing services to companies
operating in the telecommunications industry including site development
services, transmission tower construction and leasing antenna tower sites.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Issuer, SCI, H&K and GlobalComm. All significant intercompany transactions
and balances have been eliminated in consolidation.
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 could differ from those estimates.
F-7
<PAGE> 127
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVESTMENTS
The Company accounts for investments in accordance with the provisions of
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". At September 30, 1998, the Company's
available for sale securities consisted of commercial paper and certificates of
deposit with maturities of less than one year. The carrying amount of these
investments approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment, including towers, are stated at cost. The Company
is capitalizing costs incurred in bringing towers to an operational state.
Direct costs related to the development and construction of towers, including
interest, are capitalized and are included in construction in progress in Note
2. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from three to fifteen years.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
net assets acquired in purchase transactions. Goodwill is being amortized on a
straight-line basis over fifteen years.
DEBT ISSUANCE COSTS
The Company capitalized costs relating to the issuance of the 12% Senior
Discount Notes Due 2008 (the "Senior Discount Notes") (Note 3). The costs are
amortized using the straight-line method over the term of the these notes.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes, ("SFAS
109"). Under SFAS 109, the liability method is used in accounting for income
taxes and deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and investments
approximates fair value for these instruments. The estimated fair value of the
Senior Discount Notes (see Note 3) is based on the quoted market price in the
private market. The estimated fair values of the Company's financial
instruments, along with the carrying amounts of the related assets
(liabilities), are as follows:
F-8
<PAGE> 128
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- --------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 2,234 $ 2,234 $ 76,204 $ 76,204
Investments.................................. -- -- 45,561 45,561
Senior Discount Notes........................ -- -- (128,916) (108,114)
</TABLE>
REVENUE RECOGNITION
Revenue from site acquisition services is recognized when services are
rendered. Revenue from site leasing contracts, which include scheduled rent
increases, are recognized ratably, on a straight-line basis, over the term of
the contracts. To date, substantially all of the Company's revenues have been
generated by providing site acquisition services.
COSTS OF OPERATIONS
Costs of operations for site acquisition services consist of the direct
costs incurred to provide the related services.
Costs of operations for site leasing services consist of the direct costs
incurred to provide the related services including ground lease cost, tower
maintenance and related real estate taxes. Costs of operations for site leasing
services does not include depreciation expense of the related leased assets.
SIGNIFICANT CONCENTRATIONS
The Company's customer base consists of businesses operating in the
wireless telecommunications industry. The Company's exposure to credit risk
consists primarily of unsecured accounts receivable from these customers. Five
customers accounted for 96.6% of the Company's 1997 revenue. One customer
accounted for 59.2% of the Company's 1998 revenue. Following is a list of
significant customers:
<TABLE>
<CAPTION>
PERCENT OF REVENUE
FOR THE PERIOD FROM PERCENT OF REVENUES PERCENT OF
APRIL 25, 1997 PERCENT OF ACCOUNTS FOR THE NINE ACCOUNTS
(INCEPTION) TO RECEIVABLE AT MONTHS ENDED RECEIVABLE AT
DECEMBER 31, 1997 DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Customer 1........... 38.9% 75.0% 59.2% 16.5%
Customer 2........... 18.8% -- -- 14.2%
Customer 3........... 14.7% -- -- --
Customer 4........... 13.0% -- -- --
Customer 5........... 11.2% -- -- --
Customer 6........... -- -- -- 10.4%
Customer 7........... -- -- -- 21.5%
Customer 8........... -- -- -- 25.6%
</TABLE>
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred, and totaled approximately
$131,000 and $70,000 for the period from April 25, 1997 (inception) to December
31, 1997 and for the nine months ended September 30, 1998, respectively.
F-9
<PAGE> 129
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
STOCK OPTIONS
The Company has elected under the provisions of Statement of Financial
Standard's No. 123, Accounting for Stock Based Compensation ("SFAS 123") to
account for its employee stock options in accordance with Accounting Principle
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
Companies that account for stock based compensation arrangements for its
employees under APB No. 25 are required by SFAS 123 to disclose the pro forma
effect on net income (loss) as if the fair value based method prescribed by SFAS
123 had been applied. The Company plans to continue to account for stock based
compensation using the provisions of APB 25 and has adopted the disclosure
requirements of SFAS 123. Under APB 25, no compensation expense has been
recognized for stock options granted to its employees since the exercise price
of the options has equaled or exceeded the estimated fair value of the
underlying stock on the date of grant. Option grants to advisors and consultants
will be accounted for using the fair value method prescribed by SFAS 123.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("Statement No. 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Statement No. 130 only
impacts financial statement presentation as opposed to actual amounts recorded.
Other comprehensive income includes all nonowner changes in equity that are
excluded from net income. This Statement has no financial statement impact for
an enterprise that has no items of other comprehensive income in any period
presented. During the period form inception (April 25, 1997) to December 31,
1997 and during the nine months ended September 30, 1998, the Company had no
items of other comprehensive income.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). 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 statements to
shareholders, SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The application of
the new rules does not have a significant impact on the Company's financial
position at September 30, 1998 or its results of operations for the nine months
ended September 30, 1998 as the Company currently only operates in one operating
segment.
F-10
<PAGE> 130
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER, 30
1997 1998
------------ -------------
<S> <C> <C>
Towers...................................................... $ 166,568 $ 8,538,653
Equipment................................................... 465,758 640,828
Furniture and fixtures...................................... 250,408 267,078
Vehicles.................................................... 148,314 173,315
Other....................................................... -- 42,020
---------- -----------
Total....................................................... 1,031,048 9,661,894
Less accumulated depreciation............................... (160,824) (395,186)
---------- -----------
870,224 9,266,708
Construction in progress.................................... 305,808 5,551,601
---------- -----------
Property and equipment, net................................. $1,176,032 $14,818,309
========== ===========
</TABLE>
3. DEBT
12% SENIOR DISCOUNT NOTES DUE 2008
In June 1998, the Company issued $225,238,000 aggregate principal amount at
maturity of Senior Discount Notes with gross proceeds of $125,000,333. The
Senior Discount Notes accrete daily at a rate of 12% per annum, compounded
semiannually, to an aggregate principal amount of $225,238,000 by July 15, 2003.
Cash interest will not accrue on the Senior Discount Notes prior to July 15,
2003. Commencing July 15, 2003, cash interest will accrue and be payable
semiannually in arrears on each January 15 and July 15, commencing January 15,
2004, at rate of 12% per annum. After July 15, 2003 the Company may redeem all
or a portion of the Senior Discount Notes at specified redemption prices, plus
accrued and unpaid interest, to the applicable redemption date. On one or more
occasions prior to July 15, 2001, the Company may redeem up to 25% of the
aggregate principal amount at maturity of the Senior Discount Notes issued with
the net cash proceeds from one or more equity offerings. The redemption price
would be 112% of the accreted value on the redemption date. The Company is
required to comply with certain covenants under the terms of the Senior Discount
Notes that restrict the Company's ability to incur indebtedness, make certain
payments, issue preferred stock among other things. In the nine-month period
ended September 30, 1998, the Company incurred amortization discount recorded as
interest expense of approximately $3,916,000 related to the Senior Discount
Notes.
<TABLE>
<S> <C>
Senior Discount Notes....................................... $225,238,000
Unamortized discount........................................ (96,321,863)
------------
$128,916,137
============
</TABLE>
LINE OF CREDIT
During 1997, the Company maintained a $1.5 million line of credit with a
bank, which bore interest at prime plus 0.5%. The balance at December 31, was
$628,561. The line of credit was repaid in full in March, 1998.
F-11
<PAGE> 131
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT -- (CONTINUED)
OTHER LONG-TERM DEBT
Long-term debt, other than the Senior Discount Notes, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Note payable, interest at 9%, maturing May 29, 1999,
interest payable quarterly................................ $ -- $ 100,000
Installment notes payable to a bank, bearing interest at
rates ranging from 8.75% to 10.2%, maturing from October
1998 to December 1999, monthly payments of principal and
interest, collateralized by vehicles...................... 44,780 32,973
-------- ---------
44,780 132,973
Less current portion........................................ (25,404) (128,044)
-------- ---------
Long-term debt, less current portion........................ $ 19,376 $ 4,929
======== =========
</TABLE>
Maturities of long-term debt at September 30, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $128,044
2000........................................................ 4,929
--------
Total....................................................... $132,973
========
</TABLE>
BANK CREDIT AGREEMENT
In January, 1998 the Company signed a letter of intent with a bank for a
$50 million revolving credit facility for the purpose of financing the
construction and/or the acquisition of telecommunication towers for PCS or other
wireless communication services and other permitted acquisitions as defined by
the agreement, contingent upon certain events. In the nine months ended
September 30, 1998 the Company incurred approximately $190,000 in commitment
fees related to the agreement. The agreement expires December 31, 1998.
4. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS' EQUITY
REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK
The Company's mandatorily redeemable convertible preferred stock consists
of Series A and Series B cumulative redeemable convertible preferred stock,
$.001 par value, 10,462,830 shares authorized in the aggregate and 3,462,830 and
7,000,000 shares issued and outstanding at September 30, 1998, respectively.
Dividends accumulate at a rate of 8% per annum per share and are payable when
declared in cash and are subject to certain restrictions. Voting rights for
preferred stock are equal to the voting rights of the largest number of common
shares into which the preferred stock are convertible. Accumulated dividends for
Series A and B cumulative redeemable preferred stock at September 30, 1998 are
$1,896,158.
Contemporaneously with the closing of an underwritten public offering of
common stock resulting in gross proceeds of at least $30 million at a per share
price of $4.47 or greater the outstanding shares of Series A and Series B
Preferred Stock shall automatically convert to common stock.
The Series A and Series B preferred stock is convertible into common stock
based on a share for share basis and can be adjusted upon the occurrence of
certain transactions defined in the Issuer's articles of incorporation. In
December, 2008 each share of Series A and Series B preferred stock shall
F-12
<PAGE> 132
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS'
EQUITY -- (CONTINUED)
automatically be redeemed at a redemption price per share, in cash, equal to
100% of the original issue price plus unpaid dividends. The Company has reserved
a sufficient number of its authorized shares of common stock for the purpose of
effecting the future conversion of the preferred stock.
WARRANTS
During September and October, 1998, 150,000 shares of common stock were
issued in connection with the exercise of common stock warrants at a price of
$0.001 per share.
STOCK OPTIONS
During 1997, the Company adopted a stock option plan which provides for the
purchase of the common stock by key employees, directors, advisors and
consultants of the Company. The maximum number of shares for which options may
be granted under the plans shall not exceed 1,817,700 shares. Stock options are
granted under various stock option agreements. Each stock option agreement
contains specific terms. During the period from inception (April 25, 1997) to
December 31, 1997 and the nine months ended September 30, 1998, option grants
were solely to employees.
The options without performance acceleration under the incentive stock
option agreement and options issued the non qualified stock option agreement
vest and become exercisable ratably over a four year period, commencing one year
after date of grant.
The options with performance acceleration under the incentive stock option
agreement and the non qualified stock option agreement vest and become
exercisable upon the seventh anniversary of the grant date. Vesting, however,
can be accelerated upon the achievement of certain milestones defined in each
agreement.
In accordance with SFAS 123, the fair value of each option grant was
determined by using the Black-Scholes option pricing model with the following
weighted average assumptions for the year ended December 31, 1997 and the nine
months ended September 30, 1998: dividend yield of 0.0%; volatility of .70; risk
free interest rate of 6.0%; and expected option lives of 7 years. Had
compensation cost for the Company's stock options been determined based on the
fair value at the date of grant consistent with the provisions of SFAS 123, the
Company's net loss would have been $2,167,196 for the year ended December 31,
1997 and $5,219,798 for the nine months ended September 30, 1998.
F-13
<PAGE> 133
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS'
EQUITY -- (CONTINUED)
Option activity under the Company's plans is summarized below:
<TABLE>
<CAPTION>
INCENTIVE STOCK NON QUALIFIED STOCK
OPTION PLAN OPTION PLAN
------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of April 25, 1997..... -- -- -- --
Options granted................................ 724,700 $2.89 160,000 $2.89
Options exercised.............................. -- -- -- --
Options canceled............................... -- -- -- --
-------- ----- ------- -----
Outstanding at December 31, 1997............... 724,700 $2.89 160,000 2.89
======== ===== ======= =====
Options granted................................ 367,000 3.56 450,000 3.11
Options exercised.............................. -- -- -- --
Options canceled............................... (125,800) 2.89 -- --
-------- ----- ------- -----
Outstanding at September 30, 1998.............. 965,900 $3.15 610,000 $3.05
======== ===== ======= =====
</TABLE>
At December 31, 1997, there were no options exercisable under the incentive
stock option plan. At September 30, 1998 there were 162,500 options exercisable
under the incentive stock option plan. There were no options exercisable under
the non qualified option plan at December 31, 1997 or September 30, 1998.
At December 31, 1997 and September 30, 1998, the weighted average remaining
contractual life of the incentive stock options outstanding were 8.77 years and
9.14 years, respectively.
At December 31, 1997 and September 30, 1998, the weighted average remaining
contractual life of the non qualified stock options outstanding were 8.73 years
and 9.24 years, respectively.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At September 30, 1998 the Company had reserved a total of 12,534,452 of its
authorized 20,000,000 shares of common stock for future issuance as follows:
<TABLE>
<S> <C>
Convertible preferred stock................................. 10,462,830
Outstanding stock options................................... 1,575,900
Outstanding warrants........................................ 49,540
Contingent purchase price consideration..................... 204,382
Possible future issuance under stock option plan............ 241,800
----------
12,534,452
==========
</TABLE>
5. LEASES
OPERATING LEASES FROM OTHERS
The Company leases land (ground leases), office space and certain office
equipment under noncancelable operating leases. Ground leases are generally for
terms of five years and are renewable at
F-14
<PAGE> 134
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES -- (CONTINUED)
the option of the Company. The future minimum lease payments for these leases at
September 30, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,059,376
2000........................................................ 909,539
2001........................................................ 863,029
2002........................................................ 589,784
2003........................................................ 283,093
----------
Total....................................................... $3,704,821
==========
</TABLE>
Rent expense was approximately $234,000 and $456,000 for the period from
April 25, 1997 (inception) to December 31, 1997 and for the nine months ended
September 30, 1998, respectively.
ANTENNAE SPACE LEASED TO OTHERS
The Company currently leases antennae space on multi-tenant towers to a
variety of wireless service providers under non cancelable operating leases. The
tenant leases are generally for terms of five years and include options for
renewal. Cost and accumulated depreciation of the leased towers at September 30,
1998, was $8,539,000 and 128,000, respectively, and at December 31, 1997, was
$167,000 and $3,000, respectively.
At September 30, 1998, the approximate future minimum rental income under
operating leases that have initial or remaining non cancelable terms in excess
of one year are as follows:
<TABLE>
<CAPTION>
RENTAL INCOME
-------------
<S> <C>
1999........................................................ $ 820,992
2000........................................................ 820,992
2001........................................................ 764,525
2002........................................................ 637,121
2003........................................................ 81,482
----------
Total....................................................... $3,125,112
==========
</TABLE>
6. INCOME TAXES
The Company did not recognize any income tax expense for the period from
April 25, 1997 (inception) to December 31, 1997 and for the nine months ended
September 30, 1998 as the Company incurred a net loss for the periods and the
resulting deferred tax assets were fully reserved.
The components of net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Deferred tax assets
Tax loss carryforwards...................................... $183,000 $2,370,000
======== ==========
Total gross deferred tax assets............................. 183,000 2,370,000
Valuation allowance......................................... (183,000) (2,370,000)
-------- ----------
$ -- $ --
======== ==========
</TABLE>
F-15
<PAGE> 135
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
Deferred tax assets result primarily from differences between book and tax
treatment of net operating losses. The Company has a federal net operating loss
carryforward of approximately $6.0 million that expires in the year 2012. Also,
the Company has state tax losses of $6.0 million that expire in 2002. Deferred
tax assets were fully reserved as of December 31, 1997 and September 30, 1998.
Based on the Company's history of losses to date, management has provided a
valuation allowance to offset the deferred assets related to federal and state
net operating losses.
7. RELATED PARTY TRANSACTION
In conjunction with the acquisition of TeleSite, the Company issued a
$2,312,000 note payable to a shareholder. In the period from April 25, 1997
(inception) to December 31, 1997 and the nine months ended September 30, 1998,
the Company incurred approximately $100,000 and $81,000 of interest expense
related to the note payable to shareholder, respectively. The balance at
December 31, 1997 was $2,312,000. In June, 1998, the note was paid in full.
During the period from April 25, 1997 (inception) to December 31, 1997 and
the nine months ended September 30, 1998, the Company paid approximately $60,000
and $90,000 to a related party for management fees.
During the period from April 25, 1997 (inception) to December 31, 1997, the
Company paid approximately $57,000 to a related party for rent expense for an
office facility. In September 1997, the lease with the related party was
terminated.
8. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) plan for the benefit of all its employees
meeting specified eligibility requirements. The Company's contributions to the
plan are discretionary and totaled approximately $11,000 and $20,000 for the
period from April 25, 1997 (inception) to December 31, 1997 and for the nine
months ended September 30, 1998, respectively.
9. SALE OF AFFILIATES
In February, 1998 the Company entered into a purchase and sale agreement
under which it sold its wholly-owned subsidiary, MetroSite, for $298,575. The
Company recognized a gain on the sale of $257,251.
In May, 1998, the Company sold its ownership interest in Communication
Management Specialists, LLC ("CMS") for $375,000, in exchange for a note
receivable bearing interest at 8.5% per annum, payable to the Company over 60
months. The Company recognized a gain on the sale of approximately $189,000.
Prior to the sale, the Company's ownership interest in CMS was accounted for
using the equity method.
10. ACQUISITION ACTIVITY
In June 1998, the Company entered into an agreement under which it acquired
all of the membership interests of H&K Investments, LLC for $1,400,000 in a
transaction accounted for as a purchase. The results of operations of H&K are
included in the Company's operations from the date of acquisition. The Company
paid $1,300,000 in cash and recorded notes payable for $100,000 in conjunction
with the acquisition.
In August 1998, the Company entered into an asset purchase agreement with
Airadigm Communications, Inc. ("Airadigm") for the purchase of 47 towers for
approximately $11,750,000. The
F-16
<PAGE> 136
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITION ACTIVITY -- (CONTINUED)
Company paid the entire amount to an escrow account pending completion of due
diligence review terms included in the agreement. Accordingly, the Company
recorded the estimated purchase price as a non-current deposit. Under the terms
of the agreement, the Company will lease antenna space on the towers to
Airadigm.
In August 1998, the Company entered into an asset purchase agreement with
Amica Wireless Phone Service, Inc. for the purchase of the construction in
progress of 14 towers for approximately $474,000.
In September 1998, the Company acquired all of the outstanding common stock
of GlobalComm, Inc. for $1,988,864 cash in a transaction accounted for as a
purchase. The Company recorded approximately $1,669,000 of goodwill related to
the transaction.
11. SUBSEQUENT EVENTS
On October 9, 1998, the Company paid a former employee $500,000 under an
agreement to release the Company from any potential claims and to buy 125,000
shares of SpectraSite common stock from the former employee for an agreed upon
price. In addition, the agreement provided that shareholders of SpectraSite
would have an option to purchase the former employee's remaining 37,605 shares
of SpectraSite common stock for the same price per share, provided that the
Company advise the former employee in writing of the exercise of all or any
portion of such option by November 15, 1998.
12. YEAR 2000 ISSUE (UNAUDITED)
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming changes in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major aspects
of its business, including the financial systems (such as general ledger,
accounts payable and payroll modules), customer services, infrastructure,
embedded computer chips, networks and telecommunications equipment and products.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as customers, suppliers, creditors, financial
organizations and of governmental entities, both domestic and international, for
accurate exchange of data. The Company's current estimate is that the costs
associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on the results of operations or financial position of the Company in any
given year. However, despite the Company's efforts to address the year 2000
impact on its internal systems, the Company has not fully identified such impact
or whether such impact can be resolved without disruption of its business and
without incurring significant expense. In addition, even if the internal systems
of the Company are not materially affected by the year 2000 issue, the Company
could be affected through disruption in the operation of the enterprises with
which the Company interacts.
F-17
<PAGE> 137
REPORT OF INDEPENDENT AUDITORS
The Members
TeleSite Services, LLC
We have audited the accompanying consolidated balance sheet of TeleSite
Services, LLC (the "Company") as of December 31, 1996 and the related
consolidated statements of operations and members' equity and cash flows for the
year ended December 31, 1996 and for the period from January 1, 1997 through May
12, 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 consolidated 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 consolidated financial position of TeleSite
Services, LLC at December 31, 1996 and the consolidated results of its
operations and its cash flows for the year ended December 31, 1996 and for the
period from January 1, 1997 through May 12, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
March 27, 1998
F-18
<PAGE> 138
TELESITE SERVICES, LLC
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,854
Accounts receivable:
Trade.................................................. 1,777,611
Other.................................................. 37,107
Prepaid expenses and other................................ 39,964
----------
Total current assets........................................ 1,859,536
Property and equipment, net................................. 931,291
Investment in affiliate..................................... 131,459
----------
Total assets................................................ $2,922,286
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Line of credit............................................ $ 946,724
Accounts payable.......................................... 688,180
Accrued expenses.......................................... 33,092
Current portion of long-term debt......................... 295,711
----------
Total current liabilities................................... 1,963,707
Long-term debt, less current portion........................ 81,106
----------
Total liabilities........................................... 2,044,813
Members' equity............................................. 877,473
----------
Total liabilities and members' equity....................... $2,922,286
==========
</TABLE>
See accompanying notes.
F-19
<PAGE> 139
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ---------------
<S> <C> <C>
Revenues.................................................... $8,840,869 $1,925,985
Costs of operations......................................... 2,254,777 594,683
Selling, general and administrative expenses................ 4,255,840 1,741,856
Depreciation expense........................................ 91,133 55,870
---------- ----------
Operating income (loss)..................................... 2,239,119 (466,424)
Interest expense............................................ (66,505) (35,695)
Equity in earnings (loss) of affiliate...................... 116,459 (1,087)
---------- ----------
Net income (loss)........................................... $2,289,073 $ (503,206)
========== ==========
Pro forma income data (unaudited):
Net income (loss) as reported............................. $2,289,073 $ (503,206)
Pro forma provision for income taxes...................... 892,783 --
---------- ----------
Pro forma net income (loss)............................... $1,396,290 $ (503,206)
========== ==========
</TABLE>
See accompanying notes.
F-20
<PAGE> 140
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
Members' deficiency at January 1, 1996...................... $ (445,584)
Distributions to members.................................. (966,016)
Net income................................................ 2,289,073
----------
Members' equity at December 31, 1996........................ $ 877,473
Contribution to capital................................... 100
Distributions to members.................................. (211,256)
Net loss.................................................. (503,206)
----------
Members' equity at May 12, 1997............................. $ 163,111
==========
</TABLE>
See accompanying notes.
F-21
<PAGE> 141
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 2,289,073 $(503,206)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 91,133 55,870
Equity in (earnings) loss of affiliate.................... (116,459) 1,087
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (1,314,087) 456,345
Other accounts receivable.............................. (34,072) (76,610)
Prepaid expenses and other............................. (35,827) (17,487)
Accounts payable....................................... 197,702 (42,534)
Accrued expenses....................................... 31,568 55,593
----------- ---------
Net cash provided by (used in) operating activities......... 1,109,031 (70,942)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (837,808) (321,788)
Investment in affiliate..................................... (15,000) --
----------- ---------
Net cash used in investing activities....................... (852,808) (321,788)
FINANCING ACTIVITIES
Net proceeds from line of credit............................ 368,724 249,338
Net proceeds from long-term debt............................ 556,391 293,785
Repayment of long-term debt................................. (224,923) --
Proceeds from capital contribution.......................... -- 100
Distribution to members..................................... (966,016) (153,499)
----------- ---------
Net cash (used in) provided by financing activities......... (265,824) 389,724
----------- ---------
Net decrease in cash........................................ (9,601) (3,006)
Cash at beginning of period................................. 14,455 4,854
----------- ---------
Cash at end of period....................................... $ 4,854 $ 1,848
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 64,000 $ 30,695
=========== =========
</TABLE>
See accompanying notes.
F-22
<PAGE> 142
TELESITE SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
TeleSite Services, LLC (the "Company") was formed on August 1, 1995, for
the purpose of providing site development services, as agent, to companies
operating in the telecommunications industry. TeleSite's clients are located
primarily in the southeastern and south central regions of the United States.
Metrosite Management, LLC ("Metrosite") was formed on February 28, 1997 by
the contribution of $99 by the Company and $1 by a member of the Company for the
99% and 1% ownership of Metrosite, respectively. Metrosite was formed for the
purpose of negotiating agreements with municipalities to lease certain locations
to PCS providers (e.g., water towers, etc.) in return for a percentage of the
monthly rental amounts charged by the municipalities to the PCS providers.
PRINCIPLES OF CONSOLIDATION
The accompanying 1997 consolidated financial statements include the
accounts of TeleSite, LLC and MetroSite Management, LLC from the date of
MetroSite's formation. All significant intercompany transactions and balances
have been eliminated in consolidation. Minority interest related to the
membership interest not owned by the Company is insignificant.
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. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets ranging from three to seven years.
REVENUE RECOGNITION
Revenue from projects is recognized when site selection services are
rendered.
COST OF REVENUES
Cost of revenues consist of the direct costs incurred to provide the
related services.
SIGNIFICANT CONCENTRATIONS
The Company's customer base consists of companies operating in the
telecommunications industry. The Company's exposure to credit risk consists
primarily of unsecured accounts receivable from these
F-23
<PAGE> 143
TELESITE SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
customers. Following is information concerning revenue and accounts receivable
concentrations of the Company's major customers:
<TABLE>
<CAPTION>
% OF REVENUES
--------------------------------------
PERIOD FROM
JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ------------------
<S> <C> <C>
Customer 1................................... 21% 34%
Customer 2................................... 63% 30%
Customer 3................................... -- 12%
</TABLE>
<TABLE>
<CAPTION>
% OF ACCOUNTS RECEIVABLE AT
--------------------------------------
DECEMBER 31, 1996 MAY 12, 1997
----------------- ------------
<S> <C> <C>
Customer 1................................... 11% 37%
Customer 2................................... 67% 24%
</TABLE>
INVESTMENT IN AFFILIATE
The Company's 33% ownership interest in Communication Management
Specialists, LLC, ("CMS") a company that provides construction management
services to telecommunications companies, is accounted for using the equity
method.
Summary financial information of CMS is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR
THE
PERIOD FROM
AS OF AND FOR THE JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Current Assets................................ $1,110,500 $810,200
Non-current Assets............................ 16,300 17,800
Current Liabilities........................... 747,400 452,000
Non-current Liabilities....................... -- --
Members' equity............................... 379,400 376,000
Net Sales..................................... 2,404,866 650,000
Gross Profit.................................. 553,164 179,500
Net income.................................... 352,900 (3,300)
</TABLE>
INCOME TAXES
The Company is organized as a limited liability company and is therefore
not subject to income taxes. All taxable income or loss is reported by the
members on their respective income tax returns. Therefore the accompanying
Consolidated Statement of Operations and Members' Equity does not include any
provision for income tax expense.
F-24
<PAGE> 144
TELESITE SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land........................................................ $ 297,600
Equipment................................................... 304,148
Furniture and fixtures...................................... 143,199
Vehicles.................................................... 200,240
Leasehold improvements...................................... 53,448
Construction in progress.................................... 42,259
----------
Total....................................................... 1,040,894
Less accumulated depreciation............................... (109,603)
----------
Property and equipment, net................................. $ 931,291
==========
</TABLE>
3. LINE OF CREDIT AND LONG-TERM DEBT
The Company has a maximum $1,500,000 line of credit with a bank, with an
outstanding balance of $946,724 at December 31, 1996. The line of credit bears
interest at a variable rate, not to exceed 10%, with interest payable monthly
and principal due May 31, 1997. The rate of interest at December 31, 1996 was
8.5%. The line of credit is collateralized by substantially all assets of the
Company.
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable to a bank, bearing interest at 8.5%, maturing
April 4, 1997, monthly payments of interest of $1,780,
collateralized by land.................................... $ 250,000
Installment notes payable to a bank, bearing interest at
rates ranging from 8.75% to 10.2%, maturing from October
20, 1998 to December 9, 1999, monthly payments of
principal and interest of $4,614, collateralized by
vehicles.................................................. 126,817
---------
Total....................................................... 376,817
Less current maturities..................................... (295,711)
---------
Long-term debt.............................................. $ 81,106
=========
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
1997........................................................ $295,711
1998........................................................ 46,815
1999........................................................ 34,291
--------
Total....................................................... $376,817
========
</TABLE>
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of December 31,
1996.
F-25
<PAGE> 145
TELESITE SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTY TRANSACTIONS
The company is affiliated with other organizations by common ownership
and/or control. During the year ended December 31, 1996 and the period from
January 1, 1997 to May 12, 1997, the Company paid approximately $66,000 and
$22,000, respectively, to an affiliated organization for rent expense.
On May 9, 1997, a member of the Company assumed the Company's construction
line of credit with a bank of $562,135, in exchange for land and construction in
progress with carrying values of $297,600 and $322,292, respectively. The
Company recorded a non-cash shareholder's distribution of $57,757 associated
with this transaction.
5. LEASES
The Company leases office space and certain office equipment under
noncancelable operating leases. The future minimum lease payments under such
leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $164,597
1998........................................................ 136,409
1999........................................................ 93,696
2000........................................................ 66,429
2001........................................................ 27,500
--------
Total....................................................... $488,631
========
</TABLE>
Rent expense under operating leases was approximately $110,000 and $57,000
for the year ended December 31, 1996 and for the period from January 1, 1997 to
May 12, 1997, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) plan for the benefit of its employees meeting
specified eligibility requirements. The Company's contributions to the plan are
discretionary and totaled $15,205 in 1996 and $12,342 for the period from
January 1, 1997 to May 12, 1997.
7. PRO FORMA INCOME DATA (UNAUDITED)
The pro forma provision for income taxes is based upon the statutory income
tax rates in effect during the year ended December 31, 1996. No provision was
provided in the period from January 1 to May 12, 1997 due to the net operating
loss.
8. SUBSEQUENT EVENT
On May 12, 1997, 100% of the members' interests of the Company and its
subsidiary, Metrosite, were acquired by SpectraSite Holdings, Inc., a Delaware
corporation.
F-26
<PAGE> 146
================================================================================
No dealer, salesperson or other person is authorized to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell or to buy only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------------------------
TABLE OF CONTENTS
------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 8
Use of Proceeds........................ 16
Capitalization......................... 17
Unaudited Pro Forma Financial Data..... 18
Selected Financial Data................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
Industry Review........................ 33
Business............................... 38
Management............................. 49
Certain Transactions................... 54
Ownership of Capital Stock............. 58
Description of Capital Stock........... 60
Description of New Credit Facility..... 62
The Exchange Offer..................... 64
Description of the Notes............... 73
Certain U.S. Federal Tax
Considerations....................... 109
Plan of Distribution................... 116
Legal Matters.......................... 117
Experts................................ 117
Where You Can Find More Information.... 117
Index to Financial Statements.......... F-1
</TABLE>
UNTIL , 1999 (90TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
$225,238,000
SPECTRASITE HOLDINGS, INC.
EXCHANGE OFFER FOR
12% SENIOR DISCOUNT NOTES DUE 2008
-------------------------------------
PROSPECTUS
-------------------------------------
[SPECTRASITE LOGO]
, 1999
================================================================================
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation (in its original certificate of
incorporation or amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise of perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. The Registrant's Certificate
of Incorporation, as amended, limits the liability of directors thereof to the
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*3.1 Certificate of Incorporation of Integrated Site Development
("ISD"), dated and filed as of April 25, 1997
*3.2 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of May 11, 1997 (authorizing Series A
Preferred Stock) and filed May 12, 1997
*3.3 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of August 14, 1997 (changing name to
SpectraSite Communications, Inc. ("SCI")) and filed August
15, 1997
*3.4 Certificate of Amendment of the Certificate of Incorporation
of SCI, dated and filed as of October 29, 1997 (changing
name to SpectraSite Holdings, Inc. (the "Registrant"))
*3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated and filed as of March 23, 1998
(authorizing Series B Preferred Stock)
*3.6 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of May 29, 1998 and filed June
2, 1998
*3.7 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of August 18, 1998 and filed
August 19, 1998
*3.8 Bylaws of ISD, dated as of April 25, 1997
*4.1 Indenture, dated as of June 26, 1998, between the Registrant
and United States Trust Company of New York, as trustee
5.1 Opinion of Dow Lohnes & Albertson, PLLC
</TABLE>
II-1
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.1 Stock Purchase Agreement (Series A Preferred Stock), dated
as of May 12, 1997, by and among U.S. Towers, Inc. ("UST"),
TeleSite Services, LLC ("TeleSite"), Metrosite Management,
LLC ("Metrosite"), Whitney Equity Partners, L.P. ("Whitney
Equity"), Kitty Hawk Capital Limited Partnership, L.P., III
("Kitty Hawk III"), and ISD
*10.2 Stock Purchase Agreement (Series B Preferred Stock), dated
as of March 23, 1998, by and among the Registrant, Whitney
Equity, J. H. Whitney, III, L.P. ("Whitney III"), Whitney
Strategic Partners III, L.P. ("Whitney Strategic"),
Waller-Sutton Media Partners, L.P. ("Waller-Sutton"), Kitty
Hawk III, Kitty Hawk Capital Limited Partnership, IV ("Kitty
Hawk IV"), Eagle Creek Capital, L.L.C. ("Eagle Creek"), The
North Carolina Enterprise Fund, L.P. ("NCEF"), Finley Family
Limited Partnership ("Finley LP"), William R. Gupton
("Gupton"), Jack W. Jackman ("Jackman") and Alton D. Eckert
("Eckert")
*10.3 First Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of May 29, 1998
*10.4 Second Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of August 27, 1998
*10.5 Amended and Restated Registration Rights Agreement, dated as
of March 23, 1998, by and among the Registrant, Whitney
Equity, Whitney III, Whitney Strategic, Waller-Sutton, Kitty
Hawk III, Kitty Hawk IV, Eagle Creek, NCEF, Finley LP,
Gupton, Eckert, Stephen H. Clark ("Clark") and Robert M.
Long ("Long")
*10.6 Second Amended and Restated Stockholders' Agreement, dated
as of March 23, 1998, by and among the Registrant, Whitney
Equity, Whitney III, Whitney Strategic, Waller-Sutton, Kitty
Hawk III, Kitty Hawk IV, Eagle Creek, Clark, Long, Finely
LP, NCEF, Edward Lutkewich ("Lutkewich"), Jackman, Eckert,
and Gupton
*10.7 First Amendment to Second Amended and Restated Stockholders'
Agreement, dated as of May 29, 1998
*10.8 Executive Employment Agreement, dated as of May 12, 1997, by
ISD and Joe Finley, III ("Finley")
*10.9 Assignment and Amendment of Employment Agreement, dated as
of October 31, 1997, by and between the Registrant, SCI and
Finley
*10.10 Employment Agreement, dated as of May 12, 1997, by ISD and
Tracy Gill
*10.11 Confidentiality and Non-Competition Agreement, dated as of
May 12, 1997, by and between ISD and Clark
*10.12 Membership Interests Purchase Agreement, dated as of
December 31, 1997, by and among SCI, Jeffrey Hawkins, Edwin
Keuck and H&K Investments LLC
*10.13 First Amendment to the Membership Interests Purchase
Agreement, dated May 29, 1998
*10.14 Purchase and Sale Agreement, dated as of February 20, 1998,
by and among the Registrant, Metrosite and Apex Site
Management, L.P.
*10.15 Letter Agreement, dated as of February 6, 1998, by and
between SCI and Whalen
*10.16 Stock Option Plan of the Registrant, effective as of June
24, 1997
*10.17 Management Rights Letter Agreement, dated as of March 23,
1998, by and between the Registrant and Kitty Hawk IV
*10.18 Escrow Agreement, dated as of May 12, 1997, by and among
ISD, Finley LP, and Morrison Cohen Singer & Weinstein, LLP
("Morrison Cohen")
*10.19 Option Escrow Agreement, dated as of May 12, 1997, by and
among Whitney LP, Kitty Hawk III and Morrison Cohen
*10.20 Release and Settlement Agreement, dated as of May 12, 1997,
by and among PCX Corporation ("PCX"), NCEF, Kitty Hawk III,
Eckert, Gupton, Jackman, Lutkewich, UST, Long and Clark
</TABLE>
II-2
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.21 Stock Restriction Agreement, dated as of May 12, 1997, by
and between ISD and Finley LP
*10.22 Agreement, dated September 15, 1998, by and between Robert
M. Long and the Registrant
*10.23 Asset Purchase Agreement, dated as of August 14, 1998 by and
among Airadigm Communications, Inc. ("Airadigm") and SCI
*10.24 Form of Master Tower Attachment Lease Agreement by and
between Airadigm and SCI
*10.25 Asset Purchase, dated as of August 20, 1998, by and among
Amica Wireless PhoneService, Inc. ("Amica") and SCI
*10.26 Form of Master Design Build Lease Agreement by and between
Amica and SCI
*10.27 Stock Contribution Agreement, dated as of May 12, 1997, by
and among ISD, Clark, Long and UST
*10.28 Membership Interests Contribution Agreement, dated as of May
12, 1997, by and among ISD, Finley, Caroline Finley, Finley
LP, the Central Arkansas Opportunity Foundation, TeleSite
and MetroSite
*10.29 Agreement and Plan of Merger, dated as of October 31, 1997,
by and between UST and SCI
*12.1 Computation of Ratio of Earnings to Fixed Charges
*21.1 Subsidiaries of the Registrant
23.1 Consent of Dow, Lohnes & Albertson, PLLC (contained in
Exhibit 5.1)
*23.2 Consent of Ernst & Young LLP
*25.1 Form T-1 (Statement of Eligibility of Trustee)
*27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules.
None.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-3
<PAGE> 150
2. That, for the purpose of determining any liability under the
Securities Act, 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.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the provisions, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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
Registrants 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 policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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 issues undertake that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
the reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
Every prospectus: (i) that is filed pursuant to the immediately preceding
paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of
the 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 Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to 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 subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 151
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
SPECTRASITE HOLDINGS, INC. HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CARY, STATE OF NORTH CAROLINA, ON FEBRUARY 4,
1999.
SPECTRASITE HOLDINGS, INC.
By: /s/ DAVID P. TOMICK
------------------------------------
David P. Tomick
Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and Chairman of February 4, 1999
- ------------------------------------------ the Board of Directors (Principal
Stephen H. Clark Executive Officer)
/s/ DAVID P. TOMICK Chief Financial Officer and Secretary February 4, 1999
- ------------------------------------------ (Principal Financial Officer)
David P. Tomick
/s/ CATHY M. ANTEE Controller and Assistant Secretary February 4, 1999
- ------------------------------------------ (Principal Accounting Officer)
Cathy M. Antee
* Vice Chairman of the Board of Directors February 4, 1999
- ------------------------------------------
Joe L. Finley, III
* Director February 4, 1999
- ------------------------------------------
Michael R. Stone
* Director February 4, 1999
- ------------------------------------------
James R. Matthews
* Director February 4, 1999
- ------------------------------------------
W. Chris Hegele
* Director February 4, 1999
- ------------------------------------------
Andrew J. Armstrong
</TABLE>
* POWER OF ATTORNEY
David P. Tomick, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
By: /s/ DAVID P. TOMICK
------------------------------------
(David P. Tomick
Attorney-In-Fact)
II-5
<PAGE> 1
EXHIBTI 5.1
[DL&A Letterhead]
February 4, 1999
SpectraSite Holdings, Inc.
8000 Regency Parkway, Suite 750
Cary, North Carolina 27511
Re: SpectraSite Holdings, Inc.
Registration Statement on Form S-4
(Registration No. 333-67043)
Ladies and Gentlemen:
We refer to the above-referenced Registration Statement (the "Registration
Statement") on Form S-4, filed on November 10, 1998, by SpectraSite Holdings,
Inc. (the "Issuer"), with the Securities and Exchange Commission (the
"Commission"), for the purpose of registering under the Securities Act of 1933,
as amended (the "Securities Act"), the Issuer's Series B 12% Senior Discount
Notes Due 2008 (the "Exchange Notes"), to be offered in exchange (the "Exchange
Offer") for the Issuer's outstanding 12% Senior Discount Notes Due 2008 (the
"Old Notes"). The Old Notes were issued under, and the Exchange Notes are to be
issued under, an Indenture, dated as of June 26, 1998, between the Issuer and
United States Trust Company of New York, as Trustee (the "Indenture").
In connection with the foregoing registration, we have acted as special
counsel for the Issuer and have examined originals or copies of (i) the
Indenture, (ii) the Registration Rights Agreement, dated as of June 26, 1998
(the "Registration Rights Agreement"), by and among the Issuer, Credit Suisse
First Boston Corporation, Lehman Brothers Inc. and CIBC Oppenheimer Corp., and
(iii) the Registration Statement. We have also examined all such records of the
Issuer and all such agreements, certificates of public officials, certificates
of officers or representatives of the Issuer and others, and such other
documents, certificates and corporate or other records as we have deemed
necessary or appropriate as a basis for the opinion set forth herein. In our
examination we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all
<PAGE> 2
SpectraSite Holdings, Inc.
Page 2
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts relevant
to the opinion expressed herein, we have relied upon statements and
representations of officers and other representatives of the Issuer and others
(all of which we assume to be true, complete and accurate in all respects).
As to matters of law set forth below, our opinion is limited to matters of
law under the laws of the District of Columbia, the laws of the State of New
York to the extent that the Indenture, the Old Notes and the Exchange Notes are
governed thereby, the laws of the United States to the extent applicable hereto,
and the Delaware General Corporation Law, and we express no opinion as to
conflicts of law rules, or the laws of any states or jurisdictions other than as
specified above.
Based upon the foregoing and subject to the other qualifications,
assumptions and limitations stated herein, we are of the opinion that the
Exchange Notes have been duly authorized and when executed by the proper
officers of the Issuer, duly authenticated by the Trustee, and issued by the
Issuer in accordance with the provisions of the Indenture, against surrender and
cancellation of a like aggregate principal amount at maturity of Old Notes
pursuant to the Exchange Offer as contemplated in the Registration Rights
Agreement, will constitute the legal, valid and binding obligations of the
Issuer enforceable against the Issuer in accordance with their terms, except to
the extent that (a) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium (whether general or specific), fraudulent
conveyance or other laws now or hereafter in effect affecting the enforcement of
creditors' rights and remedies generally, and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be limited by
equitable defenses and the discretion of the court before which any proceeding
therefor may be brought (whether such proceeding is at law or in equity or in a
bankruptcy proceeding) or limited by other equitable principles of general
applicability, including without limitation concepts of materiality,
reasonableness, good faith, and fair dealing and the power of a court to declare
the waiver as to usury, stay or extension laws to be unenforceable.
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SpectraSite Holdings, Inc.
Page 3
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as a part thereof. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
Dow, Lohnes & Albertson, PLLC
By: /s/ Timothy J. Kelley
---------------------------
Timothy J. Kelley
Member
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 23, 1998 in Amendment 1 to the Registration
Statement (Form S-4; file no. 333-67043) of SpectraSite Holdings, Inc., for the
offer to exchange its 12% Senior Notes due 2008, with respect to the
consolidated financial statements of SpectraSite Holdings, Inc. as of December
31, 1997 and September 30, 1998 and for the period from inception (April 25,
1997) to December 31, 1997 and for the nine months ended September 30, 1998 and
our report dated March 27, 1998, with respect to the consolidated financial
statements of the Company's predecessor, TeleSite Services, LLC, as of December
31, 1996 and for the year ended December 31, 1996 and the period from January
1, 1997 to May 12, 1997.
/s/ Ernst & Young LLP
Raleigh, North Carolina
January 8, 1999
