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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
(STATE 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
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11 1/4% Senior Discount Notes Due 2009.......... $347,546,477 $96,618
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f).
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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 on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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EXPLANATORY NOTE
This registration statement covers the registration of $586,800,000
aggregate principal amount at maturity of Series B 11 1/4% senior discount notes
due 2009 of SpectraSite Holdings, Inc. that may be exchanged for equal principal
amounts at maturity of SpectraSite's outstanding 11 1/4% senior discount notes
due 2009. This registration statement also covers the registration of the
registered notes for resale by CIBC World Markets Corp. in market-making
transactions. The complete prospectus relating to the exchange offer follows
immediately after this explanatory note. Following the exchange offer prospectus
are certain pages of the prospectus relating solely to such market-making
transactions, including an alternate front cover page and alternate sections
entitled "Use of Proceeds" and "Plan of Distribution." In addition, each
market-making prospectus will not include the following captions, or the
information set forth under such captions, included in the exchange offer
prospectus: "Risk Factors -- Lack of Public Market for the Notes -- You may not
be able to sell your notes," "Prospectus Summary -- Summary of the Exchange
Offer," "The Exchange Offer" and "Certain United States Federal Income Tax
Considerations -- Effect of Exchange of Outstanding Notes for Registered Notes."
All other sections of the exchange offer prospectus will be included in the
market-making prospectus.
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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 SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THEIR OFFER OR SALE IS NOT PERMITTED.
[SpectraSite Logo]
SUBJECT TO COMPLETION, DATED AUGUST 12, 1999
PROSPECTUS
$586,800,000
SPECTRASITE HOLDINGS, INC.
OFFER TO EXCHANGE SERIES B 11 1/4% SENIOR DISCOUNT NOTES DUE 2009 FOR ANY AND
ALL OUTSTANDING 11 1/4% SENIOR DISCOUNT NOTES DUE 2009.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, September 15, 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 United States 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.
August , 1999
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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 April 20, 1999, we completed the private offering of $586,800,000
aggregate principal amount at maturity of 11 1/4% senior discount notes due
2009. 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 October 20, 1999. This exchange offer allows you to exchange your
notes for registered notes with substantially identical terms. 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.
SPECTRASITE
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 antenna 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 antenna space on such towers to a variety of
wireless service providers, including personal communications service, cellular,
paging, specialized mobile radio and enhanced specialized mobile radio. 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 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 STRATEGY
Our strategic objective is to be one of the largest owners and operators of
communications towers and to be the premier build-to-suit provider of tower
networks in the United States. Our strategy involves the following elements:
- Maximize utilization of tower capacity.
- Partner with major wireless service providers and assume ownership of
their existing towers.
- Integrate the Nextel tower assets.
- Build towers in areas of increasing wireless demand.
- Acquire towers with substantial co-location opportunities.
- Capitalize on our strong relationships with major wireless service
providers.
- Leverage our site acquisition experience.
COMPETITIVE STRENGTHS
We believe that the following strengths will enable us to successfully
expand our business:
- National presence with over 2,500 communications towers.
- Build-to-suit focus.
- Capability to manage multiple projects.
- Standardized procedures and specifications.
- Integrated provider of site development services.
- Experienced management.
RECENT EVENTS
WESTOWER MERGER. On May 15, 1999, we agreed to acquire Westower
Corporation, a Washington corporation, in a merger transaction. In the merger,
holders of Westower common stock will receive 1.81 shares of Holdings' common
stock for each of their shares. The merger is subject to the approval of
Westower stockholders and other closing conditions. We cannot assure you when or
if the Westower merger will occur.
NEXTEL TOWER ACQUISITION. On April 20, 1999, we acquired 2,000
communications towers from Nextel Communications, Inc. in exchange for $560.0
million in cash and 14 million shares of Holdings' Series C preferred stock. As
part of this transaction, Nextel agreed to lease 1,700 additional sites on our
towers as part of its national service deployment.
SALE OF SERIES C PREFERRED STOCK. In connection with the Nextel tower
acquisition, we privately placed 46,286,795 shares of Holdings' Series C
preferred stock for an aggregate purchase price of $231.4 million. We used the
proceeds from this sale to partially fund the Nextel tower acquisition.
CREDIT FACILITY. We have entered into a $500.0 million seven-year credit
facility. We borrowed $150.0 million under this facility at the closing of the
Nextel tower acquisition.
AIRADIGM TOWER ACQUISITION. We acquired 40 towers from Airadigm
Communications, Inc. in 1998 and an additional five towers in 1999. The total
purchase price for all 45 towers was $11.25 million.
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SUMMARY OF THE EXCHANGE OFFER
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Registration Rights Agreement............. You have the right to exchange your 2009 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 11 1/4% senior discount
notes due 2009 which have been registered under the
Securities Act for each $1,000 principal amount at
maturity of Holdings' outstanding 11 1/4% senior
discount notes due 2009 which were issued in April 1999
in a private offering. In order to be exchanged, an
outstanding note must be properly tendered and accepted.
We will exchange all 2009 notes validly tendered and not
validly withdrawn.
As of this date there is $586,800,000 aggregate
principal amount at maturity of 2009 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 a broker-dealer receives registered notes for its own
account in exchange for outstanding notes which were
acquired by that broker-dealer as a result of
market-making or other trading activities, then that
broker-dealer 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 2009
notes on August 11, 1999.
Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, September 15, 1999, unless we decide to
extend the expiration date.
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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.
Procedures for Tendering Outstanding
Notes................................... Each holder of outstanding 2009 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 the documentation
listed above and your outstanding 2009 notes to 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 2009 notes in this manner,
you will be representing, among other things, that you
meet the three requirements set forth under "-- Resales"
above.
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
restrictions on transfer. Accordingly, the liquidity of
the market for such outstanding notes could be adversely
affected.
Special Procedures for Beneficial
Owners.................................. If you beneficially own outstanding 2009 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 the 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 2009 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 2009 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 according to the
procedures described in this prospectus under the
heading "The Exchange Offer -- Guaranteed Delivery
Procedures."
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Withdrawal Rights......................... You may withdraw the tender of your outstanding 2009
notes at any time prior to 5:00 p.m., New York City
time, on September 15, 1999.
Certain United States 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 in 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 2009 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. The registered notes will evidence the same debt as the
outstanding 2009 notes, and the same indenture will govern both the registered
notes and the outstanding notes.
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Registered Notes.......................... Series B 11 1/4% senior discount notes due 2009 of
SpectraSite Holdings, Inc.
Maturity.................................. April 15, 2009
Accreted Value and Interest............... The registered notes will accrete at a daily rate of
11 1/4% per year, compounded semiannually, to an
aggregate principal amount of $586,800,000 by April 15,
2004. Cash interest will begin to accrue on April 15,
2004, and we will pay cash interest on October 15, 2004,
and on each April 15 and October 15 thereafter, at a
rate of 11 1/4% per year.
Optional Redemption....................... After April 15, 2004, we may redeem all or a portion of
the 2009 notes at specified redemption prices, plus
accrued and unpaid interest, to the applicable
redemption date.
On any one or more occasions prior to April 20, 2002, we
may redeem up to 35% of the aggregate principal amount
at maturity of the 2009 notes with the net cash proceeds
from one or more equity offerings. The redemption price
would be 111.25% of the accreted value on the redemption
date.
You should refer to the heading "Description of Notes --
Optional Redemption" for further details.
Ranking................................... The 2009 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 December 31, 1998, after
giving effect to the offering of our 2009 notes and
initial borrowings under our credit facility, Holdings
would have had $472.7 million of debt outstanding, and
Holdings' subsidiaries had approximately $152.7 million
of indebtedness and other liabilities.
Certain Covenants......................... The indenture governing the 2009 notes contains a number
of 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;
- enter into transactions with affiliates;
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- 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 2009 notes, in whole or
in part, at a price equal to 101% of their accreted
value to the date of purchase prior to April 15, 2004 or
101% of their principal amount, plus accrued and unpaid
interest, if any, to the date of purchase on or after
April 15, 2004. We cannot assure you, 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. You should consider carefully the risk factors below, as well as
the other information in this prospectus, before making any investment decision
regarding the notes.
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:
- any market that may develop may not be liquid;
- the registered note holders may not be able to sell their notes; or
- the registered note holders may not be able to sell their notes at a
favorable price. 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 CIBC World Markets Corp. Credit
Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, BancBoston
Robertson Stephens Inc. and TD Securities (USA) Inc. presently intend to make a
market in the 2009 notes. However, they are not obligated to do so, and any
market-making activity with respect to the 2009 notes may be discontinued at any
time without notice. In addition, this 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. No active trading market may exist for
the 2009 notes and any trading market which does develop may not be liquid.
Notes that are not tendered or are tendered but not accepted will,
following the completion of the exchange offer, continue to be subject to
existing restrictions on transfer, and, upon completion of the exchange offer,
registration rights with respect to the outstanding 2009 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 2009 notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted outstanding 2009 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 in this exchange offer only after a timely
receipt of your outstanding 2009 notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if you want
to tender your outstanding 2009 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 2009 notes for
exchange.
OUR SUBSTANTIAL INDEBTEDNESS COULD INTERFERE WITH OUR FINANCIAL GROWTH.
SpectraSite is and will continue to be highly leveraged. As of March 31,
1999, after giving effect to the offering of our 2009 notes, initial borrowings
under our credit facility and the Westower merger, SpectraSite would have had
total consolidated indebtedness of approximately $628.9 million. Also, if
SpectraSite had sold the 2009 notes, borrowed under its credit facility to
acquire the Nextel towers and
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consummated the merger with Westower on January 1, 1998, SpectraSite's earnings
before interest and taxes would have been inadequate to service its fixed
charges by $97.8 million and $25.0 million for the year ended December 31, 1998
and the three months ended March 31, 1999, respectively. We expect that earnings
will continue to be inadequate to service fixed charges at least through fiscal
2000.
Our high level of indebtedness 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 relative to less leveraged
competitors.
IF WE DO NOT GENERATE SUFFICIENT CASH, WE WILL BE UNABLE TO SERVICE OUR
INDEBTEDNESS.
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. Our ability to generate sufficient cash
flow from operations is uncertain. In addition, we may not meet our anticipated
revenue growth targets, and our future debt service obligations could exceed
borrowing capacity or equity or debt financing availability. Further,
SpectraSite may not be able to effect any required refinancing of its
indebtedness on commercially reasonable terms or at all.
WE ARE A HOLDING COMPANY AND OUR ONLY SOURCE OF CASH TO PAY INTEREST ON AND THE
PRINCIPAL OF THE 2008 NOTES AND THE 2009 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, the subsidiaries may not generate sufficient cash flow to pay such
a dividend or distribute such funds to Holdings and applicable state law and
contractual restrictions, including negative covenants contained in the debt
instruments of those subsidiaries, may not permit such dividends or
distributions.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS EFFECTIVELY JUNIOR TO
SPECTRASITE'S EXISTING INDEBTEDNESS AND POSSIBLY ALL FUTURE BORROWINGS.
The 2008 notes and the 2009 notes rank equally in right of payment.
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 March 31, 1999, after giving effect to the Nextel tower acquisition and
the related financing transactions, SpectraSite's subsidiaries had approximately
$167.5 million of debt and other liabilities and the ability to borrow $350.0
million under the credit facility, all of which is structurally senior in right
of payment to the senior discount notes.
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THE CREDIT FACILITY RESTRICTS 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 2008 NOTES AND THE 2009 NOTES.
The credit facility, subject to certain limited exceptions, prohibits
dividends or other distributions by Holdings' subsidiaries to Holdings. In
addition, Holdings' subsidiaries are permitted under the terms of the indentures
governing the 2008 notes and the 2009 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 the subsidiaries' creditors are fully paid would any
remaining value of the subsidiaries' assets be available to Holdings or its
creditors, including the note holders.
The credit facility permits distributions to Holdings in an amount
sufficient to pay scheduled interest payments on the 2008 notes commencing in
2003 and on the 2009 notes commencing in 2004, provided that there is no default
or event of default outstanding under the credit facility, including under the
financial maintenance tests set forth in the credit facility. If Holdings'
subsidiaries are not able to make distributions to Holdings, we will have to
pursue other alternatives which may include refinancing the credit facility or
seeking other sources of debt or equity capital. For more information regarding
the credit facility, see "Description of Certain Indebtedness -- Credit
Facility."
REPAYMENT OF THE PRINCIPAL OF THE 2008 NOTES AND THE 2009 NOTES WILL REQUIRE
ADDITIONAL FINANCING AND WE ARE NOT CERTAIN OF THE SOURCE OR AVAILABILITY OF
FUTURE 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 indentures
governing the 2008 notes and the 2009 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.
Financing alternatives may not be available on satisfactory terms or terms that
would be permitted under the indentures governing the 2008 notes and the 2009
notes or any other debt instruments then in effect.
A GROUP OF STOCKHOLDERS CONTROLS THE VOTING POWER OF HOLDINGS AND THEIR
INTERESTS MAY BE DIFFERENT FROM YOURS.
Affiliates of Welsh, Carson, Anderson & Stowe own approximately 32 million
shares of Holdings' capital stock. They also have the right to appoint a
majority of the board of directors and proxies from certain of the other
stockholders to vote 51% of the voting power of Holdings' capital stock under a
stockholders' agreement. In addition, other Holdings stockholders have a right
to board representation under this agreement. Welsh, Carson and the other
parties to the stockholders' agreement may have interests that are different
from yours. See "Certain Transactions -- Stockholders' Agreement."
WE MAY BE UNABLE TO ACQUIRE TOWERS OR INCREASE OUR CONSTRUCTION ACTIVITIES AS
PROJECTED; FAILURE TO FULFILL THESE STRATEGIES MAY HARM OUR REVENUES.
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, FCC tower registration
procedures, 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. These regulatory and other barriers could
adversely affect our ability to complete towers in accordance with the
requirements of our customers.
Anchor tenant leases may contain penalty or forfeiture provisions in the
event the towers are not completed within specified time periods.
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<PAGE> 14
Our expansion plans call for a significant increase in construction
activity. We may not be able to overcome the barriers to new construction and we
may not complete the number of towers planned for construction. Our failure to
complete the necessary construction could have a material adverse effect on our
business, financial condition and results of operations.
With respect to the acquisition of towers, we compete with wireless service
providers, broadcasters, site developers and other independent tower owners and
operators for acquisitions of towers, and we expect 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, we may have trouble identifying towers or
tower companies to acquire in the future.
WE ANTICIPATE SIGNIFICANT CAPITAL EXPENDITURES AND MAY NEED ADDITIONAL FINANCING
WHICH MAY NOT BE AVAILABLE.
Our current plans call for at least $140.0 million of capital expenditures
through 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.
Additional financing may not be available and could be restricted by the terms
of the credit facility and the indentures governing our senior discount notes.
SUCCESS OF OUR BUSINESS STRATEGY REQUIRES US TO ACT QUICKLY, AND IMPLEMENTATION
OF OUR STRATEGY COULD STRAIN OUR RESOURCES.
We may not be able to identify, finance and complete future acquisitions on
acceptable terms or manage profitably and market available space on
SpectraSite's towers. Our business strategy depends on the construction or
acquisition of additional towers and the profitable operation of our tower
assets. Failure to execute our strategy 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 our 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.
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.
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<PAGE> 15
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.
Communications technologies which do not require ground-based sites or other
alternatives could reduce the demand for space on our towers. The extent to
which wireless service providers lease communications sites on our towers
depends on the level of demand for 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
communications licenses, changes in telecommunications regulations, the
propagation characteristics of each company's technology and geographic terrain.
In addition, wireless service providers frequently enter into agreements with
competitors allowing them to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
providers' services. These roaming agreements may be viewed by wireless service
providers as a superior alternative to leasing space for their own antennae on
communications sites we own. The proliferation of these roaming agreements could
have a material adverse effect on our business, financial condition or results
of operations.
The emergence of new technologies that do not require terrestrial antenna
sites and can be substituted for those that do also could have a negative impact
on our operations. For example, the FCC has granted license applications for
four low-earth orbiting satellite systems that are intended to provide mobile
voice and data services; one such system is currently operating. In addition,
the FCC has issued licenses for several low-earth orbiting satellite systems
that are intended to provide solely data services, and one of those systems is
operational. Although such systems are highly capital-intensive and have only
begun to be tested, mobile satellite systems could compete with land-based
wireless communications systems, thereby reducing the demand for the
infrastructure services we provide. Reduced demand for ground-based antenna
sites could have a material adverse effect on our business, financial condition
or results of operations.
WE COMPETE WITH COMPANIES WHICH 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, antenna space to other
providers;
- site acquisition companies which acquire antenna space on existing towers
for wireless service providers, manage new tower construction and provide
site acquisition services;
- owners of non-tower antenna sites including rooftops, water towers and
other alternate structures; and
- other 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.
WE MAY NOT BE ABLE TO INTEGRATE WESTOWER'S OPERATIONS AND REALIZE THE POTENTIAL
BENEFITS OF THE MERGER.
Integration of the operations of SpectraSite and Westower will present
significant challenges. In this regard, Westower has recently completed 13
acquisitions. The integration of managers from our companies will result in
changes affecting all employees and the operations of both companies.
Differences in management approach and corporate culture may strain employee
relations. The success of the merger will
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<PAGE> 16
also depend on our ability to integrate our business strategies. We may not
realize the anticipated benefits of the merger. If we are unable to integrate
our operations successfully, we may not achieve the anticipated financial
benefits of the merger.
SPECTRASITE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING NEXTEL'S TOWERS WITH OUR
OPERATIONS, WHICH MAY RESULT IN A FAILURE TO GENERATE EXPECTED REVENUES AND
DIVERT ITS MANAGEMENT.
In April 1999, we acquired 2,000 towers from Nextel. We have never
consummated a transaction as large as the Nextel tower acquisition and will
likely face significant challenges in integrating the 2,000 acquired towers into
our operations. We are in the process of upgrading our infrastructure to
successfully manage these towers. In addition, integration of these towers will
require substantial attention from our management team, which has had limited
experience in integrating an acquisition of this size. Diversion of management
attention from our existing business could have an adverse impact on our
revenues and operating results. We may not be able to integrate the 2,000 towers
into our operations successfully.
MOST OF OUR REVENUES AND TOWER CONSTRUCTION ACTIVITY WILL DEPEND ON NEXTEL.
Nextel accounts for a significant portion of our total revenues. On a pro
forma basis, for the three months ended March 31, 1999, Nextel represented 36.9%
of our revenues. If Nextel were to suffer financial difficulties or if Nextel
were unwilling or unable to perform its obligations under its arrangements with
us, our business, financial condition and results of operations could be
materially and adversely affected.
The financial data related to Nextel set forth in the unaudited pro forma
financial statements are estimated amounts provided by Nextel. Neither the
independent auditors of SpectraSite nor Nextel have separately audited such
financial data. We believe the estimated amounts are factually supportable and
based on reasonable assumptions. However, these amounts may not accurately
reflect the results of operations from the Nextel towers for the periods
presented or the operating results that we can expect from the Nextel towers in
the future.
Nextel has agreed to lease 1,700 additional sites on our towers as part of
its national service deployment. Under the terms of our agreements with Nextel,
we will be required to construct or purchase certain numbers of towers at
specified times. Our failure to construct or purchase such towers as agreed
could result in the cancellation of our right to construct or purchase
additional towers under these agreements. Such a cancellation could have a
material adverse effect on our business, financial condition or results of
operations and on our ability to implement or achieve our business objectives in
the future.
Under our agreements with Nextel, subject to limited exceptions, we will be
required to construct new towers in locations to be determined by Nextel. These
towers may have limited appeal to other providers of wireless communications
services, limiting our opportunities to attract additional tenants, which could
have a material adverse effect on our business, financial condition or results
of operations.
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, marking, and lighting of towers and may, depending
on the characteristics of the tower, require registration of tower facilities
with the FCC. Wireless communications devices operating on towers are separately
regulated and independently licensed by the FCC based upon the particular
frequency used and the services being provided. Any proposals to construct new
communications sites or modify existing communications sites that could affect
air traffic must be reviewed by the FAA to ensure that the proposals will not
present a hazard to aviation. Tower owners may have an obligation to paint their
towers 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
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<PAGE> 17
comply with applicable standards. Failure to comply with applicable requirements
may lead to civil penalties and tort liability.
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. Existing regulatory policies may adversely affect the timing
or cost of new tower construction and additional regulations may be adopted that
will increase such delays or result in additional costs to SpectraSite. Such
factors could have a material adverse 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.
As part of the Westower merger, we will acquire operations in Canada and an
interest in a Brazilian joint venture. As a result, we will be subject to
regulation in those jurisdictions. 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.
WE GENERALLY LEASE THE LAND UNDER OUR TOWERS AND MAY NOT BE ABLE TO MAINTAIN
THESE LEASES.
Our real property interests relating to towers primarily consist of
leasehold interests, private easements and licenses, easements and rights-of-way
granted by governmental entities. A loss of these interests would interfere with
our ability to conduct our business and generate revenues. 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.
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.
Following the Westower merger, we will be subject to similar Canadian
regulations. Under 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, the costs of compliance with
existing or future environmental laws and any related liability could have a
material adverse effect on our business, financial condition or results of
operations.
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.
PERCEIVED HEALTH RISKS OF RADIO FREQUENCY EMISSIONS.
The FCC requires tower owners subject to the agency's antenna structure
registration program to comply at the time of registration with federal
environmental rules which may restrict the siting of towers. Under these rules,
tower owners are required initially to identify whether proposed sites are in
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<PAGE> 18
environmentally sensitive locations. If so, the tower owners must prepare and
file environmental assessments, which must be reviewed by the FCC staff prior to
registration and construction of the particular towers. The wireless service
providers that utilize our towers are subject to FCC 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, our tenants and possibly 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.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING PRONOUNCEMENTS.
This prospectus contains forward-looking statements, including statements
concerning possible or assumed future results of operations of SpectraSite set
forth under "Description of SpectraSite" and those preceded by, followed by or
that include the words believes, expects, anticipates or similar expressions.
You should understand that the following important factors, in addition to those
discussed elsewhere in this document, could affect our future results and could
cause results to differ materially from those expressed in such forward-looking
statements:
- materially adverse changes in economic conditions in the markets we
serve;
- future regulatory actions and conditions in our operating areas;
- competition from others in the communications tower industry;
- the successful integration of the tower assets we recently acquired from
Nextel Communications, Inc.; and
- other risks and uncertainties as may be detailed from time to time in our
public announcements and SEC filings.
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<PAGE> 19
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 gross proceeds to SpectraSite from the original issuance of the
outstanding notes was approximately $340.0 million. SpectraSite used a portion
of the proceeds to partially fund the Nextel tower acquisition and to pay
related fees and expenses. We will use the remaining proceeds for general
corporate purposes, including construction of new towers and possible selective
acquisitions.
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<PAGE> 20
THE WESTOWER MERGER
On May 15, 1999, Holdings entered an agreement and plan of merger with
Westower Corporation, a Washington corporation. Westower common stock is listed
on the American Stock Exchange under the trading symbol "WTW." Under the merger
agreement, Westower stockholders would receive 1.81 shares of Holdings common
stock, plus cash for any fractional Westower shares, in exchange for each of
their shares of Westower common stock.
Approval of the merger requires the affirmative vote of holders of
two-thirds of Westower's outstanding common stock. Holders representing
approximately 49% of Westower's outstanding common stock have agreed to vote in
favor of the merger. Westower will hold a special meeting of its stockholders to
vote upon the proposed merger with SpectraSite.
THE MERGER AGREEMENT
According to the terms of the agreement, W Acquisition Corp., a Washington
corporation and wholly-owned subsidiary of Holdings, will merge with and into
Westower, which will then become a wholly-owned subsidiary of Holdings.
Completion of the merger is subject to conditions customary to that type of
transaction. The conditions to the parties' obligations to effect the merger
include:
- the requisite approval of Westower's stockholders;
- authorization to list Holdings' common stock on the Nasdaq National
Market;
- effectiveness of the registration statement on Form S-4 of Holdings of
which the proxy statement/ prospectus soliciting approval of the merger
by Westower's stockholders will be a part;
- Holdings' receipt of evidence showing exercise of certain stock purchase
warrants granting their holders the right to purchase shares of Westower
common stock;
- Holdings' receipt of all required authorizations, consents or approvals
of its lenders as required by the credit facility;
- FCC approval of the change of control of a Westower subsidiary that has
FCC licenses;
- surrender for payment and cancellation of Westower's $15.0 million
principal amount 7% convertible senior subordinated note due April 30,
2007;
- amendment of certain merger agreements to which Westower is a party,
stating that Holdings common stock may be substituted for any additional
shares of Westower common stock issuable under those agreements;
- execution and delivery of post-closing lock-up letters under which
several principal holders of Westower common stock covenant not to sell
the Holdings common stock they receive in the merger for a specified
period of time; and
- proper demands for appraisal by holders of Westower common stock not
exceeding 5% of all outstanding shares of Westower common stock.
Waiver or satisfaction of all conditions to the merger, including those
listed above, is required before the merger will be completed. We cannot assure
you whether all conditions to the merger will be satisfied or waived, or when
the Westower merger will be completed or if it will be completed at all.
Following the merger, Calvin J. Payne, Westower's Chief Executive Officer,
will become Executive Vice President -- Construction Operations and a director
of SpectraSite Holdings. Mr. Payne is currently Chairman of the Board and Chief
Executive Officer of Westower and has been a director of Westower. He is a
co-founder and has been the Chief Executive Officer and a director of Westower
or its predecessor since 1990. In addition, SpectraSite has agreed to elect Mr.
Payne to the Holdings board of directors at or prior to consummation of the
merger.
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WESTOWER CORPORATION
Westower is a leading provider of integrated tower services to the wireless
communications industry in North America, primarily the West Coast and Canada.
Westower offers turn-key communications site development and tower construction
services as well as leasing of antenna sites on towers it owns.
Westower had approximately 660 employees as of May 31, 1999. Westower owns
towers located in 15 states and three Canadian provinces and maintains 27 office
locations throughout the United States and Canada. Westower is also party to a
joint venture with Hi-Lite Construction, Ltd., a Canadian corporation. The joint
venture constructs communications towers in Brazil in the greater Sao Paulo area
for customers who are affiliates of Westower's North American customers. All
transactions of the joint venture are denominated in Canadian currency. The
joint venture employs 11 North Americans and 22 Brazilians.
As of May 31, 1999, Westower owned or had entered into binding agreements
to acquire 191 towers in the United States and Canada located as follows:
<TABLE>
<CAPTION>
NUMBER % OF
OF TOTAL
STATE TOWERS TOWERS
----- ------ ------
<S> <C> <C>
Louisiana................................................... 42 22.0%
Texas....................................................... 31 16.2
Arizona..................................................... 28 14.7
New Mexico.................................................. 25 13.1
California.................................................. 14 7.3
Alberta..................................................... 13 6.8
Other....................................................... 38 19.9
--- -----
Total............................................. 191 100.0%
=== =====
</TABLE>
In addition to the towers listed above, as of May 31, 1999, Westower had binding
site lease agreements and had started construction for 17 towers and had
non-binding mandates for approximately 300 towers.
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<PAGE> 22
THE NEXTEL TOWER ACQUISITION
On April 20, 1999, SpectraSite acquired 2,000 communications towers from
Nextel Communications, Inc. in a merger transaction. All the sites were then
leased back to Nextel under a master lease agreement. In addition, in connection
with this transaction, Nextel and its controlled affiliates agreed to offer
SpectraSite certain exclusive opportunities relating to the construction or
purchase of an additional 1,700 sites. Certain of these sites may in the future
be leased to Nextel Partners Operating Corp. instead of Nextel. Nextel Partners
is an entity in which Nextel has a minority equity interest. We paid $560.0
million in cash and issued 14 million shares of Series C preferred stock, valued
at $70.0 million, to Nextel.
The following table sets forth the sources and uses of funds for the Nextel
tower acquisition in thousands of dollars:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Credit facility........................................... $150,000
11 1/4% senior discount notes due 2009.................... 340,004
Series C preferred stock issued to Nextel................. 70,000
Series C preferred stock sold to the Series C investors... 231,434
--------
Total sources.......................................... $791,438
========
USES OF FUNDS:
Cash paid to Nextel....................................... $560,000
Series C preferred stock issued to Nextel................. 70,000
General corporate purposes................................ 127,688
Estimated fees and expenses............................... 33,750
--------
Total uses............................................. $791,438
========
</TABLE>
The merger agreement required that SpectraSite and Nextel and certain other
persons enter into several ancillary agreements. For a summary of the material
terms of the new stockholders' agreement and the new registration rights
agreement, see "Certain Transactions -- Stockholders' Agreement" and
"-- Registration Rights Agreement," respectively. The following is a summary of
the material terms of the other ancillary agreements.
MASTER SITE COMMITMENT AGREEMENT
Concurrently with the closing, SpectraSite and certain of Nextel's
subsidiaries entered into the master site commitment agreement. In accordance
with this agreement, Nextel and its controlled affiliates will offer SpectraSite
certain exclusive opportunities, under specified terms and conditions, relating
to the construction or purchase of, or co-location on, additional communications
sites which will then be leased by subsidiaries of Nextel under the terms of the
master site lease agreement. If the number of new sites leased, whether such
sites are purchased from Nextel, constructed at Nextel's request or otherwise
made available for co-location by Nextel, its affiliates and Nextel Partners, is
less than certain specified numbers as of certain specified dates, then
commencing with the 37th month after the closing, Nextel shall make certain
payments to SpectraSite. The master site commitment agreement will terminate on
the earlier of April 20, 2004 or the date on which the number of sites purchased
or constructed or made available for co-location under the master site
commitment agreement equals or exceeds 1,700. The master site commitment
agreement also gives SpectraSite a right of first refusal to acquire any towers
that Nextel or certain affiliates desire to sell.
The master site commitment agreement specifies that SpectraSite will not be
obligated to develop more than 566 new sites each year. SpectraSite has agreed
to abide by Nextel's deployment plan. To date, Nextel's plan has emphasized
filling gaps in current coverage to increase capacity and enhance signal
quality, as well as deploying sites in areas contiguous to Nextel's existing
markets and deploying sites in
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<PAGE> 23
new markets in a way which expands the Nextel network. These sites also include
sites operated or to be developed by Nextel Partners in their service areas.
This strategy contemplates expansion and deployment in most major metropolitan
areas of the contiguous United States, including highway corridors that connect
existing and planned markets, particularly in the eastern half of the United
States and along the west coast. SpectraSite is not obligated to develop sites
outside of Nextel's or Nextel Partner's currently delineated network deployment
area to the extent such sites account for more than 10% of the total sites
developed under this agreement.
The agreement may be terminated by either side, by written notice, under
certain conditions. SpectraSite may terminate the agreement if:
- Nextel or one of its subsidiaries that transferred assets to SpectraSite
becomes insolvent, or is unable to pay its debts as they become due; or
- Nextel or a transferring subsidiary is liquidated, voluntarily or
involuntarily, or a receiver or liquidator is appointed for such entity.
Nextel may terminate the agreement if:
- either Holdings or its subsidiary holding the Nextel towers becomes
insolvent, or is unable to pay its debts as they become due;
- either Holdings or such subsidiary is liquidated, voluntarily or
involuntarily, or a receiver or liquidator is appointed for such entity;
or
- at or after the end of any calendar year, Nextel has exercised its rights
to recover a penalty payment, as specified in the agreement, because, for
more than 10% of the total number of towers required to be developed by
SpectraSite during each year, SpectraSite has failed to complete
development of new towers during the time period allotted for such
development.
Either SpectraSite or Nextel may terminate the agreement if the other party is
in breach of an obligation to pay money or in breach of a material nonmonetary
obligation, if such breach is neither waived nor cured according to the methods
specified in the agreement.
MASTER SITE LEASE AGREEMENT
Concurrently with the closing, SpectraSite and Nextel entered into the
Nextel master site lease agreement. Under this agreement, SpectraSite will lease
to certain Nextel subsidiaries space on wireless communications towers or other
transmission space at the sites:
- transferred to SpectraSite as part of the Nextel tower acquisition;
- subsequently constructed or acquired by SpectraSite under the master site
commitment agreement; or
- other sites and related wireless communications towers or transmission
space owned, leased or licensed by SpectraSite.
In addition, an entity in which Nextel holds a minority equity interest,
Nextel Partners, may in the future enter into a master site lease agreement.
Under this agreement, SpectraSite will lease to Nextel Partners space on
wireless communications towers or other transmission space at some of the sites:
- transferred to SpectraSite as part of the Nextel tower acquisition;
- subsequently constructed or acquired by SpectraSite under the master site
commitment agreement; or
- other sites and related space on wireless communications towers or
transmission space owned, leased or licensed by SpectraSite.
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If Nextel Partners does not enter into a master site lease agreement with
SpectraSite in the future, any site that would otherwise have been leased to
Nextel Partners thereunder will instead be leased to Nextel's subsidiaries under
the Nextel master site lease agreement.
The Nextel master site lease agreement and, if executed, the Nextel
Partners master site lease agreement, will be supplemented from time to time to
provide for the lease of space on certain additional communications towers or
other transmission space at sites owned, constructed or acquired by SpectraSite.
Nextel and, if Nextel Partners executes a master site lease agreement, Nextel
Partners shall have a right of first refusal with respect to the sale of any
sites acquired by SpectraSite as part of the Nextel tower acquisition, or that
are constructed or acquired by SpectraSite under the master site commitment
agreement.
The master site lease agreements provide that within 15 days of the
commencement of the lease of a given site, and on the first day of each month
thereafter for the term of the lease, rental payments of $1,600 per month will
be due on each tower which it leases to any of the tenants who are parties to
the agreement. Monthly payments will be adjusted for partial months when
appropriate. On each annual anniversary of a given lease's commencement, the
rent owed under the lease will increase by 3%.
Other rental provisions include:
- an option for tenants to lease additional space, if such space is
available, on sites where the tenant already leases space; and
- a right allowing tenants to install, at their sole option and expense and
only when additional capacity exists at the rental site, microwave
antennae of various sizes and other equipment at additional rental rates
delineated in the agreement.
These provisions are subject to the same annual 3% rate increase as is the base
rent.
The agreement further provides that each tenant is responsible for any
portion of personal property taxes assessed on any site and directly
attributable to the tenant's property, franchise and similar taxes imposed on
the tenant's business and sales tax imposed upon payment or receipt of rents
payable under the agreement. The landlord is responsible for all other taxes.
Additionally, the agreement provides that the landlord will be responsible for
certain types of insurance. Each tenant also is responsible for certain other
types of insurance.
The term of each lease contracted under the agreement is at least five
years, with a right to extend for five successive five-year periods. In certain
cases, the initial lease term will be six, seven or eight years. The lease is
automatically renewed unless the tenant submits notification of its intent to
terminate the lease, when its current term expires, prior to such expiration.
The tenant has the right to trade the term of any given site for the term of any
other site, upon written notice to the landlord. However, such a trade is
limited to one time per site per term.
A tenant may terminate a lease for any site, at its sole discretion,
without further liability to the landlord, with 30 days prior written notice,
if:
- the tenant uses reasonable efforts and fails to obtain or maintain any
license, permit or other approval necessary for operation of its
communications equipment; or
- the tenant is unable to use the tower due to FCC action which is not a
result of any action by the tenant.
Either party may terminate a lease for any site with 60 days prior written
notice, if the other party breaches a nonmonetary obligation, subject to certain
cure provisions. Either party may terminate a lease for any site with 10 days
prior written notice, if the other party breaches a monetary obligation and that
breach is not cured within the 10-day period. In addition, if Nextel or Nextel
Partners, if Nextel Partners executes a master site lease agreement, defaults on
rental payments with respect to more than 10% of the sites covered by its
respective master site lease agreement and Nextel or Nextel Partners, as the
case
21
<PAGE> 25
may be, remains in default for 30 days following notice from SpectraSite,
SpectraSite may cancel the master site lease agreement of the defaulting party
as to all sites covered by such agreement.
SECURITY AND SUBORDINATION AGREEMENT
Concurrently with the closing, SpectraSite and Nextel entered into the
security and subordination agreement. Under this agreement, SpectraSite granted
to Nextel a continuing security interest in the assets acquired in the Nextel
tower acquisition or acquired or constructed under the master site commitment
agreement. This interest secures SpectraSite's obligations under the Nextel
master site lease agreement and, if applicable, the Nextel Partners master site
lease agreement. The terms of an intercreditor agreement render Nextel's lien
and the other rights and remedies of Nextel under the security and subordination
agreement subordinate and subject to the rights and remedies of the lenders
under the credit facility.
NEXTEL COMMUNICATIONS, INC.
Nextel provides a wide array of digital and analog wireless communications
services throughout the United States. Nextel offers a differentiated,
integrated package of digital wireless communications services under the Nextel
brand name, primarily to business users. Nextel's Digital Mobile Network
constitutes one of the largest integrated wireless communications systems
utilizing a single transmission technology in the United States. Nextel has
significant specialized mobile radio spectrum holdings in and around every major
business population center in the country, including all of the top 50
metropolitan statistical areas in the United States.
Nextel files periodic reports and other information with the SEC. For more
information about Nextel, you should read Nextel's SEC filings. However, we are
not incorporating any of Nextel's SEC filings by reference into this document.
22
<PAGE> 26
UNAUDITED PRO FORMA FINANCIAL DATA
GENERAL
The unaudited pro forma financial data are based on the historical
financial statements of SpectraSite and Westower and the adjustments described
in the accompanying notes. The unaudited pro forma financial data do not purport
to represent what SpectraSite's, Westower's or the combined entity's financial
position or results of operations would actually have been if the transactions
had in fact occurred on the dates indicated and are not necessarily
representative of SpectraSite's financial position or results of operations at
any future date or for any future period. The unaudited pro forma consolidated
financial data should be read in conjunction with "Selected Historical 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.
SPECTRASITE
The following unaudited pro forma consolidated financial data present the
post-merger unaudited pro forma consolidated balance sheet of SpectraSite as of
March 31, 1999 and both the pre-merger and post-merger unaudited pro forma
consolidated statements of operations of SpectraSite for the year ended December
31, 1998 and for the three months ended March 31, 1999. The SpectraSite pro
forma column and the Westower pro forma column presented in the post-merger
SpectraSite unaudited pro forma consolidated statements of operations for the
three months ended March 31, 1999 and for the twelve months ended December 31,
1998 are derived from the pre-merger SpectraSite and Westower pro forma
consolidated statements of operations for the corresponding periods. The
post-merger unaudited pro forma consolidated balance sheet data reflect the
following transactions as if they had occurred on March 31, 1999:
- the acquisition of 2,000 communications towers from Nextel and
SpectraSite's exclusive agreement to acquire or construct 1,700
additional sites for Nextel;
- the issuance and sale of SpectraSite's 11 1/4% senior discount notes due
2009;
- the issuance and sale of SpectraSite's Series C preferred stock;
- the issuance of two million shares of SpectraSite's common stock as
consideration for financing commitments related to the Nextel tower
acquisition;
- initial borrowings under SpectraSite's credit facility;
- the acquisition of one tower from Airadigm and the release of escrowed
funds to SpectraSite; and
- the consummation of the merger with Westower.
The unaudited pro forma consolidated statement of operations data give
effect to the transactions listed above, the issuance of SpectraSite's 12%
senior discount notes due 2008 and the acquisition of an additional 44 towers
from Airadigm as if they had occurred on January 1, 1998.
Certain of the data presented in the "Nextel" columns to the unaudited pro
forma statements of operations of SpectraSite are estimates provided by Nextel.
Neither SpectraSite's independent accountants nor Westower's independent
accountants have audited or otherwise tested this data. The unaudited pro forma
consolidated statements of operations do not include a one-time expense related
to the issuance of two million shares of SpectraSite common stock to various
parties as consideration for providing financing commitments related to the
Nextel tower acquisition that were not utilized. These shares were valued at
$9.0 million and will be included in SpectraSite's statement of operations as of
the date of the transaction.
The acquisition of tower assets from Nextel and the leaseback of antennae
space by Nextel are presented as if the purchase of assets had occurred on
January 1, 1998. Adjustments for revenue are based on the terms of the master
site lease agreement and on historical co-location revenues. Adjustments to
costs of operations consist of direct operating expenses, which include ground
lease payments, historical routine maintenance costs and property taxes
associated with the towers. Depreciation expense is straight-line depreciation
of the aggregate cost of the towers. Ground leases are non-cancelable operating
23
<PAGE> 27
leases, generally for terms of five years and include options for renewal, and
pro forma ground lease expense is based on executed ground leases. Nextel has
leased space on each of the 2,000 towers we acquired, primarily for five-year
terms with options for renewal. The pro forma minimum ground lease expenses and
minimum rental income for these leases assuming the transaction occurred and the
related leases commenced January 1, 1998 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE EXPENSE RENTAL INCOME
-------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998................................................. $ 17,648 $ 40,766
1999................................................. 17,648 40,766
2000................................................. 17,648 40,766
2001................................................. 17,648 40,766
2002................................................. 17,648 40,766
-------- --------
Total...................................... $ 88,240 $203,830
======== ========
</TABLE>
The acquisition of tower assets from Airadigm and the leaseback of antennae
space by Airadigm are presented as if the purchase of assets had occurred on
January 1, 1998. Adjustments for revenue are based on the executed tenant lease
terms for the Airadigm towers. Cost of revenues represents the cost of the
executed ground leases, historical routine maintenance costs and property taxes
associated with the towers. Depreciation expense is straight-line depreciation
of the aggregate cost of $11.25 million of the 45 towers. The Airadigm ground
leases are non-cancelable operating leases, generally for terms of five years
and include options for renewal, and pro forma ground lease expense is based on
executed ground leases. Airadigm has leased space on these towers for a
five-year term with options for renewal. The pro forma minimum ground lease
expenses and minimum rental income for these leases assuming the transaction
occurred and the related leases commenced January 1, 1998 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE EXPENSE RENTAL INCOME
-------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998................................................. $ 260 $1,007
1999................................................. 260 1,007
2000................................................. 260 1,007
2001................................................. 260 1,007
2002................................................. 260 1,007
------ ------
Total...................................... $1,300 $5,035
====== ======
</TABLE>
WESTOWER
The following unaudited pro forma consolidated financial data of Westower
present the unaudited pro forma consolidated statements of operations of
Westower for the twelve months ended December 31, 1998 and the three months
ended March 31, 1999. The unaudited consolidated statement of operations data
give effect to the following transactions as if they had occurred on January 1,
1998:
- the acquisition of Cord Communications, Inc.;
- the acquisition of Summit Communications, LLC; and
- the acquisition of communications towers from Koch Industries, Inc. and
its affiliates.
These statements include pro forma adjustments to reflect the results of
operations of Cord and Summit for the period from January 1, 1998 through the
date of acquisition, August 31, 1998 and November 11, 1998, respectively, and
give effect to the Koch tower acquisition, which occurred in February 1999, as
if such acquisition occurred on January 1, 1998. In addition to the above
acquisitions,
24
<PAGE> 28
from March 1, 1998 through March 31, 1999, Westower acquired Jovin
Communications, Inc., Acier Filteau, Inc., CNG Communications, Inc., Teletronics
Management Services, Inc., Cypress Real Estate Services, Inc. and
Telecommunications R. David. These acquisitions, which are included in the
historical financial statements of Westower, were not considered significant
transactions, individually or in the aggregate, and were therefore, not included
in the unaudited pro forma consolidated statement of operations of Westower.
The acquisition of tower assets from Koch and the leaseback of antennae
space by Koch are presented as if the purchase of assets had occurred on January
1, 1998. Adjustments for revenue are based on the executed tenant lease terms
for the Koch towers. Adjustments to costs of operations consist of direct
operating expenses, which include ground lease payments, estimated routine
maintenance costs, property taxes and insurance associated with the towers.
Depreciation expense is straight-line depreciation of the aggregate cost of
$17.0 million. The Koch ground leases are non-cancelable operating leases for a
term of 49 years, and pro forma ground lease expense is based on executed ground
leases. Koch has leased space on these towers for a ten-year term with options
for renewal. The pro forma minimum ground lease expenses and minimum rental
income for these leases assuming the transaction occurred and the related leases
commenced January 1, 1998 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE EXPENSE RENTAL INCOME
-------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998................................................. $ 439 $ 1,364
1999................................................. 439 1,364
2000................................................. 439 1,364
2001................................................. 439 1,364
2002................................................. 439 1,364
Thereafter........................................... 19,322 6,824
------- -------
Total...................................... $21,517 $13,644
======= =======
</TABLE>
25
<PAGE> 29
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NEXTEL AND POST-MERGER
SPECTRASITE WESTOWER AIRADIGM MERGER SPECTRASITE
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $111,079 $ 9,246 $127,688(a) $ (5,000)(j) $ 188,080
500(d) (4,500)(j)
(50,933)(h)
Accounts receivable...................... 3,144 16,711 -- (405)(k) 19,450
Earnings in excess of billings........... -- 4,263 -- -- 4,263
Inventory................................ -- 2,920 -- -- 2,920
Related party advances and receivables... -- 1,579 -- -- 1,579
Other current assets..................... 246 2,128 -- -- 2,374
-------- -------- -------- -------- ----------
Total current assets.............. 114,469 36,847 128,188 (60,838) 218,666
Property and equipment, net................ 32,340 30,529 585,250(b) (114)(k) 648,005
Intangible assets.......................... 8,020 33,739 -- 172,370(j) 214,129
Notes receivable........................... 246 -- -- -- 246
Deposits................................... 750 -- 45,000(c) -- 45,000
(750)(d)
Deferred debt issue costs.................. 4,517 2,364 30,300(a) (2,364)(i) 34,817
Other...................................... 370 3,183 -- 3,553
-------- -------- -------- -------- ----------
Total assets...................... $160,712 $106,662 $787,988 $109,054 $1,164,416
======== ======== ======== ======== ==========
Current liabilities:
Accounts payable......................... $ 850 $ 4,909 $ -- $ (405)(k) $ 5,354
Accrued and other current liabilities.... 900 1,366 -- -- 2,266
Billings in excess of costs and estimated
earnings............................... -- 1,112 -- -- 1,112
Income taxes payable..................... -- 2,690 -- -- 2,690
Deferred income taxes.................... -- 370 -- -- 370
Stockholder advances and notes payable to
related parties........................ -- 254 -- -- 254
Note payable............................. -- 68 -- -- 68
Current portion of long-term debt and
capital lease obligations.............. 15 1,630 -- -- 1,645
-------- -------- -------- -------- ----------
Total current liabilities......... 1,765 12,399 -- (405) 13,759
Other long-term liabilities................ 224 -- -- 224
Revolving credit facility and capital lease
obligations.............................. -- 46,437 150,000(a) (45,858)(h) 150,579
Deferred income taxes...................... -- 2,926 -- -- 2,926
2008 Notes................................. 136,651 -- -- -- 136,651
2009 Notes................................. -- -- 340,004(a) -- 340,004
-------- -------- -------- -------- ----------
Total liabilities................. 138,640 61,762 490,004 (46,263) 644,143
Redeemable preferred stock (Series A)...... 11,500 -- (11,500)(e) -- --
Redeemable preferred stock (Series B)...... 29,916 -- (29,916)(e) -- --
Stockholders' equity
Common stock............................. 1 84 2(f) (69)(j) 18
Preferred stock (Series A, B and C)...... -- -- 339,434(a)(e) -- 339,434
Additional paid-in-capital............... -- 39,488 8,998(f) 160,828(j) 209,280
(34)(g)
Accumulated other comprehensive income... -- (482) -- 482(j) --
Accumulated deficit...................... (19,345) 5,810 (9,000)(f) (5,810)(j) (28,459)
(114)(k)
-------- -------- -------- -------- ----------
Total stockholder's equity........ (19,344) 44,900 339,400 155,317 520,273
-------- -------- -------- -------- ----------
Total liabilities, preferred stock
and stockholders' equity........ $160,712 $106,662 $787,988 $109,054 $1,164,416
======== ======== ======== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
26
<PAGE> 30
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Reflects the sources and uses of funds to complete the Nextel tower
acquisition on April 20, 1999:
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
-----------------
<S> <C>
Credit facility........................................... $150,000
11 1/4% senior discount notes due 2009.................... 340,004
Series C preferred stock.................................. 301,434
--------
Total Sources........................................ $791,438
========
USES OF FUNDS:
--------------
Cash paid to Nextel....................................... $560,000
Series C preferred stock issued to Nextel................. 70,000
General corporate purposes*............................... 127,688
Estimated fees and expenses**............................. 33,750
--------
Total Uses........................................... $791,438
========
</TABLE>
- ---------------
* Represents the excess of the sources of funds over the specifically
identified uses of funds.
** Includes $3,450 of estimated costs related to the Series C preferred
stock.
(b) Reflects the increase in property and equipment relating to the purchase of
2,000 towers from Nextel and the purchase of one tower from Airadigm for
$250.
(c) Reflects the amount of the $630,000 of total consideration paid to Nextel
allocated to an exclusive agreement to acquire or construct 1,700 new sites
for Nextel. As tower sites are identified and accepted in accordance with
the master site commitment agreement, a proportional amount of the recorded
cost will be capitalized as part of the tower cost. The capitalized costs
will be charged to depreciation expense over an estimated life of 15 years.
(d) Reflects the release from escrow of $250 paid to Airadigm in connection
with the purchase of one tower and an increase in cash of $500 released
from escrow back to SpectraSite.
(e) Reflects the issuance of the Series C preferred stock and the
reclassification of the Series A preferred stock and Series B preferred
stock to stockholders' equity, as they are no longer redeemable or accrue
dividends. In connection with the closing of the Nextel tower acquisition,
SpectraSite restated its certificate of incorporation and, as part of this
restatement, eliminated the mandatory redemption of, and cumulative
dividends on, the Series A and Series B preferred stock.
<TABLE>
<S> <C>
Series A preferred stock.................................. $ 11,500
Series B preferred stock.................................. 29,916
Series C preferred stock.................................. 301,434
--------
342,850
Less: accrued dividends as of March 31, 1999.............. (3,416)
--------
$339,434
========
</TABLE>
(f) Reflects the issuance of two million shares of SpectraSite's common stock
to various parties as consideration for providing financing commitments
related to the Nextel tower acquisition. The fair value of the common stock
issued reflects a 10% discount from the per share value of the Series C
preferred stock. This discount is attributable to the liquidation
preference and other rights held of Series C preferred stockholders.
27
<PAGE> 31
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(g) Reflects the net decrease to additional paid-in-capital due to the
elimination of previously accrued dividends on the Series A preferred stock
and the Series B preferred stock of $3,416, offset by the estimated costs
of issuance related to the Series C preferred stock of $3,450.
(h) Reflects the repayment of Westower's credit facility in the amount of
$31,500 and the $19,433 repayment of its $15,000 convertible note, with a
carrying value of $14,358. The final effect of this adjustment is an
increase in goodwill of SpectraSite. Subsequent to March 31, 1999, Westower
drew an additional $16,500 on its credit facility.
(i) Reflects the write-off of $2,364 of unamortized deferred financing costs
associated with Westower's credit facility and its $15,000 convertible
note. The final effect of this adjustment is an increase in goodwill of
SpectraSite.
(j) Reflects the allocation of $205,331 purchase price, Westower's payment of
$4,500 for transaction costs and the elimination of stockholders' equity in
the Westower merger. The purchase price consists of the issuance of
15,267,350 shares of SpectraSite common stock valued at $200,331, or $13.12
per share, and cash paid of $5,000 for transaction costs. The fair value of
SpectraSite's common stock is based on the price of Westower stock on June
1, 1999. Actual amounts will be calculated based on the average stock price
for the three days before closing and may be different from this amount.
(k) Reflects the elimination of accounts receivable and accounts payable
between SpectraSite and Westower as at March 31, 1999, and the elimination
of the gross profit recorded by Westower on intercompany site construction
revenues recorded for towers built for SpectraSite.
28
<PAGE> 32
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition.......................................... $ 2,383 $ -- $-- $ 2,383
Site leasing.............................................. 572 12,347(a) 12(f) 12,931
------- -------- ------ --------
Total revenues.............................................. 2,955 12,347 12 15,314
Cost of operations:
Site acquisition.......................................... 550 -- -- 550
Site leasing.............................................. 354 5,708(b) 1(f) 6,063
------- -------- ------ --------
904 5,708 1 6,613
Selling, general and administrative expenses................ 2,676 --(c) -- 2,676
Depreciation and amortization............................... 656 9,754(d) 10(f) 10,420
Restructuring and other non-recurring charges............... 600 -- -- 600
------- -------- ------ --------
Operating income (loss)..................................... (1,881) (3,115) 1 (4,995)
Other income (expense):
Interest income........................................... 1,268 -- -- 1,268
Interest expense.......................................... (3,905) (15,924)(e) -- (19,829)
Other expense............................................. -- -- -- --
------- -------- ------ --------
(2,637) (15,924) -- (18,561)
------- -------- ------ --------
Net income (loss)........................................... $(4,518) $(19,039) $ 1 $(23,556)
======= ======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
29
<PAGE> 33
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Consists of $2,155 of historical co-location revenues, which have been
provided by Nextel and are based on fixed payment lease terms, and $10,192
of additional revenues to be recognized by SpectraSite under the terms of
the Nextel master site lease agreement.
(b) Reflects certain direct operating expenses previously paid by Nextel,
primarily the cost of executed ground leases, historical routine maintenance
and property taxes associated with the towers.
(c) SpectraSite expects that it will incur incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
currently estimated to amount to approximately $875 per quarter. These
incremental operating expenses are based upon management's best estimates
rather than on any contractual obligation; as such, these amounts have not
been presented as adjustments in the accompanying pro forma financial
statements.
(d) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if the issuance of SpectraSite's
11 1/4% senior discount notes due 2009, as well as the Nextel tower
acquisition and related transactions, had occurred on January 1, 1998. The
table below outlines the adjustment:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE:
---------------------------
<S> <C>
Commitment fees on credit facility.................... $ 1,000
$150,000 of term loan at 8.50%........................ 3,188
$340,004 (gross proceeds) of 2009 notes at 11.25%..... 10,669
Amortization of debt issuance costs................... 1,067
-------
Total adjustment...................................... $15,924
=======
</TABLE>
(f) Reflects the acquisition of one tower from Airadigm and one month of
revenue and related expenses for each of the four Airadigm towers placed
into service on January 31, 1999.
30
<PAGE> 34
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL KOCH WESTOWER
WESTOWER ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Site leasing............................................. $ 288 $ 227(a) $ 515
Site construction........................................ 18,031 -- 18,031
------- ----- -------
Total revenues............................................. 18,319 227 18,546
Cost of operations:
Site leasing............................................. 67 123(b) 190
Site construction........................................ 12,519 -- 12,519
------- ----- -------
12,586 123 12,709
Selling, general and administrative expenses............... 3,999 -- 3,999
Depreciation and amortization.............................. 870 142(c) 1,012
Restructuring and other non-recurring charges.............. -- -- --
------- ----- -------
Operating income (loss).................................... 864 (38) 826
Other income (expense):
Interest income.......................................... 78 -- 78
Interest expense......................................... (551) (213)(d) (764)
Other expense............................................ 237 -- 237
------- ----- -------
(236) (213) (449)
------- ----- -------
Income before income taxes................................. 628 (251) 377
Provision for income taxes................................. 273 (100)(e) 173
------- ----- -------
Net income (loss).......................................... $ 355 $(151) $ 204
======= ===== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
31
<PAGE> 35
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Consists of additional revenues to be recognized by Westower in connection
with site lease agreements with Koch.
(b) Reflects certain direct operating expenses, primarily the cost of executed
ground leases, estimated routine maintenance, property taxes and insurance
associated with the towers.
(c) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 20 years.
(d) Reflects adjustment to interest expense related to additional borrowings
under Westower's credit facility to acquire the Koch towers, based on the
credit facility's interest rate of 7.5% at March 31, 1999.
(e) Reflects income tax benefit for the Koch tower operating results at
Westower's estimated tax rate of 40%.
32
<PAGE> 36
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-MERGER
SPECTRASITE WESTOWER MERGER SPECTRASITE
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition........................ $ 2,383 $ -- $ -- $ 2,383
Site leasing............................ 12,931 515 -- 13,446
Site construction....................... -- 18,031 (379)(a) 17,652
-------- ------- ------- --------
Total revenues............................ 15,314 18,546 (379) 33,481
Cost of operations:
Site acquisition........................ 550 -- -- 550
Site leasing............................ 6,063 190 -- 6,253
Site construction....................... -- 12,519 (265)(a) 12,254
-------- ------- ------- --------
6,613 12,709 (265) 19,057
Selling, general and administrative
expenses................................ 2,676 3,999 -- 6,675
Depreciation and amortization............. 10,420 1,012 3,325(b) 14,441
(316)(c)
Restructuring and other non-recurring..... 600 -- -- 600
-------- ------- ------- --------
Operating income (loss)................... (4,995) 826 (3,123) (7,292)
Other income (expense):
Interest income......................... 1,268 78 -- 1,346
Interest expense........................ (19,829) (764) 411(d) (20,182)
Other expense........................... -- 237 -- 237
-------- ------- ------- --------
(18,561) (449) 411 (18,599)
-------- ------- ------- --------
Income before income taxes................ (23,556) 377 (2,712) (25,891)
Provision for income taxes................ -- 173 (87)(e) 86
-------- ------- ------- --------
Net income (loss)......................... $(23,556) $ 204 $(2,625) $(25,977)
======== ======= ======= ========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
33
<PAGE> 37
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Reflects the elimination of intercompany site construction revenues and
costs of site construction for towers built by Westower for SpectraSite
during the three months ended March 31, 1999.
(b) Reflects amortization of goodwill as if the merger of Westower and
SpectraSite had occurred on January 1, 1998. Goodwill is amortized over a
useful life of 15 years.
(c) Reflects adjustments to eliminate amortization of historical goodwill of
Westower of $452 and to convert Westower tower depreciation from 20 years to
15 years, increasing expense by $136.
(d) Reflects adjustments to eliminate interest expense as if Westower's credit
facility and its $15,000 convertible note from BET Associates were paid in
full on January 1, 1998.
(e) Reflects a reduction of the tax provision based on the consolidated results
of post-merger SpectraSite.
34
<PAGE> 38
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition........................................ $ 8,142 $ -- $ -- $ 8,142
Site leasing............................................ 656 49,388(a) 1,007 51,051
------- -------- ------ --------
Total revenues............................................ 8,798 49,388 1,007 59,193
Cost of operations:
Site acquisition........................................ 2,492 -- -- 2,492
Site leasing............................................ 299 22,830(b) 326 23,455
------- -------- ------ --------
2,791 22,830 326 25,947
Selling, general and administrative expenses.............. 9,690 --(c) -- 9,690
Depreciation and amortization............................. 1,268 39,000(d) 750 41,018
------- -------- ------ --------
Operating income (loss)................................... (4,951) (12,442) (69) (17,462)
Other income (expense):
Interest income......................................... 3,569 -- -- 3,569
Interest expense........................................ (8,170) (67,865)(e) -- (76,035)
Other expense........................................... 473 -- -- 473
------- -------- ------ --------
(4,128) (67,865) -- (71,993)
------- -------- ------ --------
Net income (loss)......................................... $(9,079) $(80,307) $ (69) $(89,455)
======= ======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
35
<PAGE> 39
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Consists of $8,662 of historical co-location revenues, which have been
provided by Nextel and are based on fixed payment lease terms, and $40,766
of additional revenues to be recognized by SpectraSite under the terms of
the master site lease agreement.
(b) Reflects certain direct operating expenses previously paid by Nextel,
primarily ground lease payments, historical routine maintenance and
property taxes associated with the towers.
(c) SpectraSite expects that it will incur incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
currently estimated to amount to approximately $3,500 per year. These
incremental operating expenses are based upon management's best estimates
rather than on any contractual obligation; as such, these amounts have not
been presented as adjustments in the accompanying pro forma financial
statements.
(d) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if the issuance of SpectraSite's
12% senior discount notes due 2008 and its 11 1/4% senior discount notes
due 2009, as well as the Nextel tower acquisition and related financing
transactions, had occurred on January 1, 1998. The table below outlines the
adjustment:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE:
---------------------------
<S> <C>
Commitment fees on credit facility......................... $ 4,000
$150,000 of term loan at 8.50%............................. 12,750
$125,000 (gross proceeds) of 2008 notes at 12.00%.......... 15,450
$340,004 (gross proceeds) of 2009 notes at 11.25%.......... 39,326
Amortization of debt issuance costs........................ 4,272
Less: historical interest expense of 2008 notes............ (7,933)
-------
Total adjustment................................. $67,865
=======
</TABLE>
36
<PAGE> 40
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------------------- TOTAL -------------------
WESTOWER WESTOWER WESTOWER WESTOWER CORD SUMMIT
1/1/98 - 3/1/98 - 10/1/98 - 1/1/98- 1/1/98- 1/1/98- KOCH
2/28/98 9/30/98 12/31/98 12/31/98 8/31/98 11/11/98 ADJUSTMENTS
-------- -------- --------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Site leasing..................... $ 49 $ 170 $ 74 $ 293 $ -- $ -- $ 1,364(a)
Site construction................ 7,784 31,774 24,914 64,472 6,714 8,818 --
------ ------- ------- ------- ------- ------ -------
Total revenues..................... 7,833 31,944 24,988 64,765 6,714 8,818 1,364
Cost of operations:
Site leasing..................... 11 25 13 49 -- -- 738(b)
Site construction................ 5,971 23,833 18,131 47,935 6,219 6,707 --
------ ------- ------- ------- ------- ------ -------
5,982 23,858 18,144 47,984 6,219 6,707 738
Selling, general and administrative
expenses......................... 991 4,958 4,258 10,207 2,636 1,040 --
Depreciation and amortization...... 149 578 589 1,316 132 279 850(c)
Merger related expenses............ -- 327 77 404 -- -- --
------ ------- ------- ------- ------- ------ -------
Operating income (loss)............ 711 2,223 1,920 4,854 (2,273) 792 (224)
Other income (expense):
Interest income.................. 14 130 53 197 4 -- --
Interest expense................. (42) (771) (572) (1,385) (45) (93) (1,275)(d)
Other income..................... 128 (2) -- 126 17 30 --
------ ------- ------- ------- ------- ------ -------
100 (643) (519) (1,062) (24) (63) (1,275)
------ ------- ------- ------- ------- ------ -------
Income (loss) before income
taxes............................ 811 1,580 1,401 3,792 (2,297) 729 (1,499)
Provision for (benefit from) income
taxes............................ 556 351 610 1,517 (919) -- (600)(e)
------ ------- ------- ------- ------- ------ -------
Net income (loss).................. $ 255 $ 1,229 $ 791 $ 2,275 $(1,378) $ 729 $ (899)
====== ======= ======= ======= ======= ====== =======
<CAPTION>
TOTAL
OTHER WESTOWER
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
Revenues
Site leasing..................... $ -- $ 1,657
Site construction................ -- 80,004
------- -------
Total revenues..................... -- 81,661
Cost of operations:
Site leasing..................... -- 787
Site construction................ -- 60,861
------- -------
-- 61,648
Selling, general and administrative
expenses......................... 73(f) 13,956
Depreciation and amortization...... 673(g) 3,250
Merger related expenses............ -- 404
------- -------
Operating income (loss)............ (746) 2,403
Other income (expense):
Interest income.................. -- 201
Interest expense................. -- (2,798)
Other income..................... -- 173
------- -------
-- (2,424)
------- -------
Income (loss) before income
taxes............................ (746) (21)
Provision for (benefit from) income
taxes............................ 262(e) 260
------- -------
Net income (loss).................. $(1,008) $ (281)
======= =======
</TABLE>
See accompanying notes to unaudited proforma consolidated statement of
operations.
37
<PAGE> 41
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Consists of additional revenues to be recognized by Westower in connection
with site lease agreements with Koch.
(b) Reflects certain direct operating expenses, primarily ground lease
payments, estimated routine maintenance, property taxes and insurance
associated with the towers.
(c) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 20 years.
(d) Reflects adjustment to interest expense related to additional borrowings
under Westower's credit facility to acquire the Koch towers, based on the
credit facility's interest rate of 7.5% at March 31, 1999.
(e) Reflects a tax benefit for the Koch tower operating results and an increase
of the tax provision based on the pro forma operating results related to
the Cord and Summit acquisitions at Westower's estimated tax rate of 40%.
(f) Reflects adjustments in selling, general, and administrative expense
related to compensation of former owners of Cord and Summit.
(g) Reflects the amortization of goodwill as if the acquisitions of Cord and
Summit had each occurred on January 1, 1998. Goodwill is amortized over a
period of 20 years.
38
<PAGE> 42
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO POST-MERGER
PRO FORMA FORMA MERGER SPECTRASITE
SPECTRASITE WESTOWER ADJUSTMENTS PRO FORMA
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition................................... $ 8,142 $ -- $ -- $ 8,142
Site leasing....................................... 51,051 1,657 -- 52,708
Site construction.................................. -- 80,004 (2,004)(a) 78,000
-------- ------- -------- ---------
Total revenues....................................... 59,193 81,661 (2,004) 138,850
Cost of operations:
Site acquisition................................... 2,492 -- -- 2,492
Site leasing....................................... 23,455 787 -- 24,242
Site construction.................................. -- 60,861 (1,403)(a) 59,458
-------- ------- -------- ---------
25,947 61,648 (1,403) 86,192
Selling, general and administrative expenses......... 9,690 13,956 23,646
Depreciation and amortization........................ 41,018 3,250 13,299(b) 56,902
(665)(c)
Merger related expenses.............................. -- 404 -- 404
-------- ------- -------- ---------
Operating income (loss).............................. (17,462) 2,403 (13,235) (28,294)
Other income (expense):..............................
Interest income.................................... 3,569 201 -- 3,770
Interest expense................................... (76,035) (2,798) 1,034(d) (77,799)
Other expense...................................... 473 173 -- 646
-------- ------- -------- ---------
(71,993) (2,424) 1,034 (73,383)
-------- ------- -------- ---------
Income (loss) before income taxes.................... (89,455) (21) (12,201) (101,677)
Provision for income taxes........................... -- 260 (153)(e) 107
-------- ------- -------- ---------
Net income (loss).................................... $(89,455) $ (281) $(12,048) $(101,784)
======== ======= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma statement of operations.
39
<PAGE> 43
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Reflects the elimination of intercompany site construction revenues and
costs of site construction for towers built by Westower for SpectraSite for
the year ended December 31, 1998.
(b) Reflects amortization of goodwill as if the merger of Westower and
SpectraSite had occurred on January 1, 1998. Goodwill is amortized over a
useful life of 15 years.
(c) Reflects adjustments to eliminate amortization of historical and pro forma
goodwill of Westower of $979 and to convert Westower tower depreciation
from 20 years to 15 years, increasing expense by $314.
(d) Reflects adjustments to eliminate interest expense as if Westower's credit
facility and the $15,000 convertible note were paid in full on January 1,
1998.
(e) Reflects a reduction of the tax provision based on the consolidated results
of post-merger SpectraSite.
40
<PAGE> 44
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data derived
from the audited and unaudited financial statements included elsewhere in this
prospectus, as of and for:
- the year ended December 31, 1996;
- the period from January 1, 1997 to May 12, 1997;
- the period from SpectraSite's inception on April 25, 1997 to December 31,
1997;
- the year ended December 31, 1998;
- the three months ended March 31, 1998; and
- the three months ended March 31, 1999.
The data for the three months ended March 31, 1998 and 1999 were derived
from SpectraSite's unaudited financial statements for those periods. Data for
all other periods presented were derived from the audited financial statements
of SpectraSite and its predecessor, Telesite Services, LLC. SpectraSite prepared
the unaudited financial data on the same basis as the audited financial
statements and, in management's opinion, such data include all normal and
recurring adjustments necessary to fairly present the information. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results expected for the entire year.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
TELESITE (PREDECESSOR) SPECTRASITE YEAR ENDED DECEMBER 31, SPECTRASITE
------------------------------ -------------- --------------------------- ----------------
THREE MONTHS
JANUARY 1, APRIL 25, TELESITE & ENDED
YEAR ENDED 1997 - 1997 - SPECTRASITE MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED SPECTRASITE ----------------
1996 1997 1997 1997 1998 1998 1999
------------ --------------- -------------- ------------ ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Site acquisition............. $8,841 $1,926 $ 5,002 $ 6,928 $ 8,142 $2,319 $ 2,383
Site leasing................. -- -- -- -- 656 11 572
------ ------ ------- ------- -------- ------ -------
Total revenues................. 8,841 1,926 5,002 6,928 8,798
Costs of operations:
Site acquisition............. 2,255 595 1,120 1,715 2,492 708 550
Site leasing, exclusive of
depreciation............... -- -- -- -- 299 8 354
------ ------ ------- ------- -------- ------ -------
2,255 595 1,120 1,715 2,791 716 904
Selling, general and
administrative(a)............ 4,256 1,742 7,688 9,430 10,246 1,995 2,830
Depreciation expense........... 91 56 191 247 712 101 501
Restructuring charge........... -- -- -- -- -- -- 600
------ ------ ------- ------- -------- ------ -------
Operating income (loss)(a)..... $2,239 $ (467) $(3,997) $(4,464) $ (4,951) $ (482) $(1,880)
====== ====== ======= ======= ======== ====== =======
Net income(loss)............... 2,289 (503) (3,890) (4,393) (9,079) (252) (4,517)
Net income (loss)
applicable to common
shareholders................. 2,289 (503) (4,390) (4,893) (11,235) (483) (5,277)
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
TELESITE SPECTRASITE
-------------------------- ------------------
(PREDECESSOR) SPECTRASITE COMBINED SPECTRASITE THREE MONTHS
-------------------------- ------------ ------------ ------------ ENDED
YEAR ENDED JANUARY 1 - APRIL 25 - YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------
1996 1997 1997 1997 1998 1998 1999
------------ ----------- ------------ ------------ ------------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by (used in)
operating activities......... $1,109 $ (71) $ 223 $ 152 $ (2,347) $ (64) $ (278)
Net cash provided by (used in)
investing activities......... (853) (322) (7,178) (7,500) (45,002) (1,029) 12,062
Net cash provided by (used in)
financing activities......... (266) 390 9,189 9,579 144,663 16,118 (253)
EBITDA(b)...................... 2,330 (411) (3,508) (3,919) (3,683) (254) (4,621)
Adjusted EBITDA(c)............. 24,198 -- --
Depreciation and
amortization................. 91 56 489 545 1,268 228 656
Capital expenditures(d)........ 498 64 850 914 26,598 1,322 3,373
Cash interest expense.......... 64 31 64 95 216 27 --
Ratio of earnings to fixed
charges(e)................... 23.2x -- -- -- -- -- --
Deficiency of earnings to fixed
charges(f)................... -- 503 3,890 4,393 9,079 252 4,517
SELECTED OPERATING DATA (AT END
OF PERIOD):
Number of owned towers.................................................... 5 106 5 142
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash, cash equivalents and short term investments......................... $ 2,234 $114,962 $17,259 $ 11,079
Total assets.............................................................. 13,642 161,946 30,630 160,712
Total liabilities......................................................... 5,040 135,357 5,508 138,640
Stockholders' deficiency.................................................. (1,898) (14,067) (2,609) (19,344)
</TABLE>
42
<PAGE> 46
- ---------------
Notes to Selected Historical 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, which we refer to collectively as 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 year ended December 31, 1998, Adjusted EBITDA was computed as
follows:
<TABLE>
<S> <C>
EBITDA...................................................... $(3,683)
Less site leasing EBITDA.................................... (257)
-------
Adjusted EBITDA -- site acquisition.................... $(3,426)
=======
Pro forma revenue........................................... $12,773
Pro forma cost of site leasing revenue...................... 2,347
Pro forma selling, general and administrative............... 3,520
-------
Pro forma site leasing EBITDA for the three months ended
December 31, 1998......................................... 6,906
X 4
-------
Adjusted EBITDA -- site leasing........................ $27,624
=======
</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
43
<PAGE> 47
with the calculation under the indenture. Adjusted 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. 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) After giving effect to the Westower merger and the other transactions given
effect in the Unaudited Pro Forma Financial Data section, as if such
transactions had occurred on January 1, 1998, SpectraSite's deficiency of
earnings to fixed charges for the year ended December 31, 1998 and the three
months ended March 31, 1999 would have been $101,784 and $25,977,
respectively.
44
<PAGE> 48
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 of this prospectus,
SpectraSite Communications is a wholly-owned subsidiary of Holdings, and
substantially all of our operations are conducted through SpectraSite
Communications and its subsidiaries.
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 December 31, 1998, we
had 106 towers in service. As a result of our limited operating history and
primary focus on tower ownership and leasing, management believes that our
results of operations for the period ended December 31, 1997 and for the year
ended December 31, 1998 are not indicative of our results of operations in the
future.
RECENT EVENTS
During 1998, a group of investors purchased seven million shares of
Holdings' Series B preferred stock in a series of transactions for an aggregate
purchase price of $28.0 million. See "Certain Transactions -- The Series A and
Series B Preferred Stock Offerings."
In May 1998, SpectraSite sold its 33% interest in Communications Management
Specialists to the other owners for approximately $0.4 million. 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.
In June 1998, SpectraSite acquired all of the membership interests of H&K
Investments LLC, an independent tower owner, for an aggregate purchase price of
$1.4 million, and in December 1998, H&K was merged with SpectraSite. H&K owned
five towers; each of the towers has multiple tenants, and Sprint PCS is the
anchor tenant on all five towers.
In August 1998, SpectraSite and Airadigm, a regional provider of wireless
communications services, entered into an agreement covering our acquisition of
up to 47 communications towers and certain related assets from Airadigm for
$11.75 million. Airadigm is the anchor tenant on each tower. Under the
agreement, SpectraSite acquired 40 of the towers in 1998, four towers in January
1999 and one tower in April 1999. SpectraSite paid $11.25 million for the 45
towers, with the remaining $0.5 million released from escrow and returned to us
after we decided not to close on the purchase of the remaining two towers.
Airadigm has recently filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
In August 1998, SpectraSite acquired 14 ground leases and two towers in
inventory from Amica, a regional provider of wireless communications services,
for an aggregate cash purchase price of approximately $0.5 million. SpectraSite
has constructed towers on the sites. Amica is the anchor tenant on all 14
towers.
45
<PAGE> 49
In September 1998, SpectraSite acquired all of the shares of capital stock
of GlobalComm, Inc. for $2.0 million in cash, and as of December 30, 1998,
GlobalComm was merged into SpectraSite Communications. GlobalComm provides
co-location marketing services to BellSouth Mobility DCS and other wireless
communications providers in North Carolina, South Carolina and Tennessee. See
"Certain Transactions -- GlobalComm Acquisition."
In April 1999, SpectraSite acquired 2,000 communications towers from Nextel
for a combination of cash and stock.
In connection with the Nextel tower acquisition, SpectraSite privately
placed 46,286,795 shares of Holdings' Series C preferred stock for an aggregate
purchase price of $231.4 million. We used proceeds from this sale to partially
fund the Nextel tower acquisition.
On April 20, 1999, SpectraSite completed the private offering of $586.8
million aggregate principal amount at maturity of 11 1/4% senior discount notes
due 2009. We used a portion of the net proceeds from this offering to partially
fund the Nextel tower acquisition and to pay related fees and expenses. We will
use the remaining proceeds for general corporate purposes, including
construction of new towers and possible selective acquisitions.
SpectraSite has entered into a new $500.0 million seven-year credit
facility. We borrowed $150.0 million under this facility at the closing of the
Nextel tower acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1998.
Revenues from site acquisition services remained at $2.3 million for the
three months ended March 31, 1999 compared to the three months ended March 31,
1998. Revenues from site leasing increased to $0.6 million for the three months
ended March 31, 1999 from $11,000 for the three months ended March 31, 1998
primarily as a result of revenues derived from communications towers which
SpectraSite acquired or constructed in the second half of 1998.
Costs of operations increased to $0.9 million for the three months ended
March 31, 1999 from $0.7 million for the three months ended March 31, 1998. The
increase in costs was attributable to site leasing activity. Gross profit
increased to $2.1 million for the three months ended March 31, 1999 from $1.6
million for the three months ended March 31, 1998. As a percentage of total
revenues, gross profit increased to 69.4% for the three months ended March 31,
1999 from 69.3% for the three months ended March 31, 1998. As our site leasing
operations mature, additional tenants on a tower will generate
disproportionately larger increases in gross profit margin and cash flow due to
the low associated variable operating costs.
Selling, general and administrative expenses increased to $2.8 million for
the three months ended March 31, 1999 from $2.0 million for the three months
ended March 31, 1998. The increase is a result of expenses related to additional
corporate overhead and field operations to manage and operate the growth in the
ongoing activities of SpectraSite. Depreciation expense increased to $0.5
million for the three months ended March 31, 1999 from $0.1 million for the
three months ended March 31, 1998 as a result of the increased number of
communication towers we own.
In March 1999, SpectraSite announced that it would relocate its marketing
and administrative operations from Little Rock, Arkansas and Birmingham, Alabama
to its corporate headquarters in Cary, North Carolina. As a result, we recorded
a restructuring charge of $0.6 million in the quarter ended March 31, 1999 for
employee termination and other costs related to the relocation of these
activities.
As a result of the factors discussed above, our operating loss was $1.9
million for the three months ended March 31, 1999 compared to $0.5 million for
the three months ended March 31, 1998.
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SpectraSite's net interest expense increased to $2.6 million during the
three months ended March 31, 1999 from $27,000 for the three months ended March
31, 1998, reflecting additional interest expense due to the issuance of the 2008
notes in June 1998.
SpectraSite recorded other income of $0.3 million for the three months
ended March 31, 1998 resulting from a gain on the sale of assets in connection
with the disposal of Metrosite.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE COMBINED RESULTS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1997.
The following is a discussion of the financial condition and results of
operations of SpectraSite for the year ended December 31, 1998 and for the
period from April 25, 1997 through December 31, 1997, and Telesite's results of
operations for the period from January 1, 1997 through May 12, 1997.
Revenues increased to $8.8 million for the year ended December 31, 1998
from $6.9 million for the year ended December 31, 1997 due to the initiation of
site leasing activity and an increase in the number and size of site development
services projects.
Selling, general and administrative expenses, including depreciation
expense, increased to $11.0 million for the year ended December 31, 1998 from
$9.7 million for the year ended December 31, 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, relying primarily on its reputation in the industry and customer
referrals to generate revenues. To support our entry into tower development and
leasing, we have established a dedicated marketing effort which promotes tower
development and leasing as well as site acquisition services. Amortization of
goodwill increased to approximately $0.6 million in the year ended December 31,
1998 compared to approximately $0.3 million in the year ended December 31, 1997
as a result of acquisitions.
As a result of the factors discussed above, our operating loss was $5.0
million for the year ended December 31, 1998, compared to $4.5 million for the
year ended December 31, 1997.
Other income, which consists primarily of gain on sales of assets and
equity in earnings of affiliates, increased to approximately $0.5 million for
the year ended December 31, 1998 from approximately $0.1 million for the year
ended December 31, 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 approximately $0.5 million. During the year ended December 31, 1997, we
recognized approximately $0.2 million 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.
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 year ended December 31, 1998 and for the
period from April 25, 1997 through December 31, 1997, and Telesite's results of
operations for the period from January 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 had not yet
commenced construction of tower networks in their respective markets.
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Selling, general and administrative expenses increased to $9.7 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 $2.6 million as a result of the formation of
SpectraSite, amortization of goodwill of approximately $0.3 million 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 $4.5 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 primarily 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 of equity in earnings of affiliates,
was approximately $0.1 million for the twelve months ended December 31, 1997 and
for the twelve months ended December 31, 1996.
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 2008 notes and the
2009 notes is distributions from SpectraSite Communications. Prior to July 15,
2003, interest expense on the 2008 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 2008 notes will have accreted to
approximately $225.2 million and will require semi-annual cash interest payments
of $13.5 million. In addition, the notes mature on July 15, 2008. Similarly, the
2009 notes will not require cash interest payments prior to October 15, 2004 and
mature on April 15, 2009. After October 15, 2004, the 2009 notes will have
accreted to approximately $586.8 million and will require semi-annual cash
interest payments of $33.0 million. Furthermore, the new credit facility
provides for periodic principal and interest payments.
To complete the Nextel tower acquisition and pay related fees and expenses,
we used $150.0 million of borrowings under our credit facility, $340.0 million
of proceeds from the sale of the 2009 notes and $231.4 million from the sale of
Series C preferred stock. In addition, Nextel received shares of Series C
preferred stock valued at $70.0 million. We also issued two million shares of
common stock to various parties as consideration for providing financing
commitments related to the Nextel tower acquisition. We did not utilize these
commitments for the Nextel acquisition primarily because of the success of the
2009 notes offering. We currently have $350.0 million available under our credit
facility to fund new tower construction or acquisition activity. In addition,
our cash, cash equivalents and short-term investments are $241.9 million.
Under a registration rights agreement with the initial purchasers of the
2008 notes, Holdings agreed to complete an exchange offer for the privately
placed 2008 notes prior to March 10, 1999. Since we did not complete this
exchange offer prior to March 10, 1999, the interest rate on the 2008 notes
increased by 0.50% per year. This additional interest will accrue on the 2008
notes until we complete the exchange offer, and we will pay this interest in
cash on each July 15 and January 15 until we complete the exchange offer.
Similarly, under a registration rights agreement with the initial purchasers of
the 2009 notes, Holdings agreed to file a registration statement with the SEC
for an exchange offer of registered notes for the privately placed 2009 notes
before July 20, 1999. Since we did not file the 2009 notes exchange offer
registration statement before July 20, 1999, the interest rate on the 2009 notes
increased by 0.50% per year. This additional interest accrued on the 2009 notes
until we filed the exchange offer registration statement of which this
prospectus is a part, and we will pay this interest in cash on October 15, 1999.
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As a result of the issuance and sale of our Series B preferred stock and
the 2008 notes, we realized net proceeds of $147.7 million, after deducting fees
and expenses. SpectraSite used:
- $11.25 million to acquire 45 towers from Airadigm;
- approximately $0.5 million to acquire 14 ground leases and two towers in
inventory from Amica and to construct towers on the sites;
- $2.0 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.
Net cash used in operating activities during the year ended December 31,
1998 was $2.3 million compared to $0.2 million provided by operating activities
during the comparable period in 1997. The increase in cash used in operating
activities was primarily attributable to an increase in accounts receivable
resulting from the timing of billings related to site development services and
the net loss incurred during the year. Net cash used for investing for the year
ended December 31, 1998 was $45.0 million compared to $7.5 million for the year
ended December 31, 1997. The cash used for investing activities during the year
ended December 31, 1998 was primarily the result of the investment of unused
proceeds from the sale of the 2008 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
year ended December 31, 1997 primarily related to the acquisition of Telesite.
Net cash provided by financing activities for the year ended December 31, 1998
was $144.7 million compared to $9.6 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 2008 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 2008 notes and the 2009 notes, or to fund planned
capital expenditures, will depend on our future performance, which, to a certain
extent is subject to general 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 $241.9 million and anticipated available borrowings under
the credit facility will be sufficient to fund our capital expenditures of
approximately $140.0 million through fiscal 1999. Thereafter, however, or in the
event SpectraSite exceeds its currently anticipated capital expenditures for
fiscal 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 its 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.
Some 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 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133
requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial
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application of SFAS 133 will be reported as the effect of a change in accounting
principle. SFAS 133 is effective for all fiscal years beginning after June 15,
2000. We will adopt the requirements of SFAS 133 in our 1999 financial
statements. We have not yet determined the effect that the adoption of SFAS 133
will have on our consolidated financial statements.
YEAR 2000 COMPLIANCE
We have conducted 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. 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 our 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 you 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 we cannot assure you 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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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-
supporting or guyed model. There are two types of self-supporting 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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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 customer
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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>
1998-2002 1998-2008
ESTIMATED PROJECTED PROJECTED COMPOUNDED COMPOUNDED
1998 2002 2008 ANNUAL ANNUAL
SUBSCRIBERS SUBSCRIBERS SUBSCRIBERS GROWTH RATE GROWTH RATE
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular...................... 60.0 80.7 81.1 7.7% 3.1%
Personal communications
services.................... 7.2 46.0 86.6 59.1% 28.3%
Enhanced specialized mobile
radio....................... 2.8 10.1 17.0 37.4% 19.6%
</TABLE>
- ---------------
Source: Paul Kagan Associates, Inc. We cannot assure you 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 Personal Communications Industry Association
estimates that there were approximately 80,000 antenna sites in the United
States as of December 31, 1998. In January 1999, the Personal Communications
Industry Association estimated that the number of antenna sites in the United
States for cellular, personal communications services and enhanced mobile radio
providers will increase by an additional 66,000 communications sites through
2005 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. 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 antenna 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 antenna 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 usually
are 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 antenna 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 generally builds towers suited for multi-tenant use 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 the 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 our program management expertise and our established
relationships with highly experienced, pre-qualified third-party
engineers and construction firms that specialize in the wireless
communications industry.
Our primary focus is the ownership of multi-tenant towers and the leasing,
under long-term contracts, of antenna 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 revenues from co-location tenants to
result in disproportionately greater increases in tower cash flow. 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 tower proliferation.
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 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; 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.
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Management believes that the number of communication sites in use, which
include towers, rooftops and other structures, 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.
BUSINESS STRATEGY
Our strategic objective is to continue to be one of the largest owners and
operators of communications towers and to be the premier build-to-suit provider
of tower networks in the United States. SpectraSite's strategy involves the
following elements:
MAXIMIZE CO-LOCATION ON TOWERS. Our strategy for our 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 at least three
tenants. We have a dedicated sales force to market available co-location
opportunities to wireless communication providers, and we intend to leverage our
national tower presence to enable wireless providers to more quickly establish
wireless coverage in individual and multiple markets.
PARTNER WITH WIRELESS COMMUNICATIONS CARRIERS TO ASSUME OWNERSHIP OF THEIR
EXISTING TOWERS. Our acquisition of Nextel's towers provides us with a
nationwide network of more than 2,100 strategically located towers and a
commitment to construct, acquire or make available for co-location on our towers
an additional 1,700 sites to facilitate Nextel's national service deployment
over the next several years. In addition to our transaction with Nextel, we will
continue to seek partnerships and other strategic arrangements with other major
wireless communications carriers in order to assume ownership of their towers.
INTEGRATE THE NEXTEL TOWER ASSETS. In conjunction with the Nextel tower
acquisition, we are establishing four regional offices in the New York, Atlanta,
Chicago and San Francisco areas. Each office offers SpectraSite's full
complement of services, including site acquisition, zoning, project management,
construction, site operations and co-location marketing. A seasoned Regional
Vice President is in charge of each office. We intend to immediately begin site
acquisition and tower development for Nextel and to increase these activities
during 1999 as our regional offices become fully operational.
BUILD TOWERS IN AREAS OF INCREASING WIRELESS DEMAND. SpectraSite is well
positioned to capitalize on the trend of wireless service providers outsourcing
the ownership and management of communications sites. Our turn-key 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.
ACQUIRE TOWERS WITH SUBSTANTIAL CO-LOCATION OPPORTUNITIES. 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 small independent tower companies divest their tower
holdings. SpectraSite has strict valuation
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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.
CAPITALIZE ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS SERVICE
PROVIDERS. In addition to developing towers for Nextel, we will continue to
pursue build-to-suit contracts with other major wireless communications
providers. We have 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 is likely to result in SpectraSite continuing to be an
integral part of that customer's network deployment plans.
LEVERAGE SITE ACQUISITION SERVICES. Over the last six years, SpectraSite
has performed an array of site acquisition services covering approximately 4,000
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.
COMPETITIVE STRENGTHS
The leasing of antenna space on communications towers provides a recurring,
diversified, stable cash flow stream due to the long-term nature of the customer
contracts, the provision of services to multiple customers from different
wireless segments, and the significant costs existing tenants would incur to
relocate. Once a tower is built for an anchor tenant, co-location tenants
provide high incremental cash flow due to low, fixed tower maintenance expense.
To enhance our ability to secure additional tenants on our towers, in September
1998, we acquired GlobalComm, Inc., a leading co-location marketing company;
GlobalComm handled co-location marketing for over 750 towers owned by BellSouth
Mobility DCS. Towers can accommodate a broad array of wireless communications
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 25.3% as of December 31,
1998 and is expected to reach 60.6% by 2008, according to Paul Kagan Associates,
Inc. Since towers are a basic component of a wireless communications network, we
believe we are well positioned to benefit from the proliferation and increased
penetration of wireless communications services.
Management believes that the following strengths will enable SpectraSite to
successfully expand its business:
NATIONAL PRESENCE WITH OVER 2,500 COMMUNICATIONS TOWERS. As a result of
the Nextel tower acquisition, we are one of the largest independent owners and
operators of communications towers in the United States with over 2,500 towers
under management, including more than 2,100 owned towers. Furthermore, Nextel
has agreed to lease space on 1,700 additional towers we construct, acquire or
currently own. As a result, we believe we are well positioned to assist wireless
providers in initiating service in new markets both on a local and a national
basis, thereby better positioning us to capture additional co-location
opportunities.
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.
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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
- performing site acquisition services rather than finding third parties to
achieve the same task, which permits tower development mandates to be
fulfilled more rapidly than they would be otherwise.
EXPERIENCED MANAGEMENT. Our senior managers have acquired over 8,000
communication sites and built more than 1,000 towers. In addition, SpectraSite
provides tower management services to 2,500 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.
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TOWER LOCATIONS
The following chart shows the location of our owned towers as of May 31,
1999:
<TABLE>
<CAPTION>
NUMBER % OF
OF TOTAL
STATE TOWERS TOWERS
----- ------ ------
<S> <C> <C>
California.................................................. 379 17.7%
Michigan.................................................... 157 7.3
Ohio........................................................ 153 7.1
Florida..................................................... 142 6.6
Illinois.................................................... 142 6.6
Georgia..................................................... 133 6.2
North Carolina.............................................. 122 5.7
Texas....................................................... 102 4.8
Washington.................................................. 74 3.5
Wisconsin................................................... 71 3.3
Louisiana................................................... 55 2.6
Tennessee................................................... 55 2.6
South Carolina.............................................. 48 2.2
Missouri.................................................... 47 2.2
Indiana..................................................... 46 2.1
Massachusetts............................................... 40 1.9
Oklahoma.................................................... 39 1.8
Alabama..................................................... 38 1.8
Maryland.................................................... 33 1.5
Oregon...................................................... 31 1.4
Colorado.................................................... 30 1.4
Nevada...................................................... 28 1.3
Pennsylvania................................................ 26 1.2
Arizona..................................................... 18 0.8
Utah........................................................ 18 0.8
Virginia.................................................... 17 0.8
Minnesota................................................... 15 0.7
New Jersey.................................................. 14 0.7
New York.................................................... 14 0.7
Kansas...................................................... 13 0.6
Other....................................................... 46 2.1
----- -----
Total............................................. 2,146 100.0%
===== =====
</TABLE>
OUR SERVICES
SpectraSite's business is divided into three areas:
- tower operations, including leasing of tower space;
- tower development; 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 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
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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. SpectraSite hires
independent contractors locally 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.
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;
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- 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 other than the Nextel tower acquisition and the Westower Merger.
SpectraSite has no present agreement regarding the terms of any such
transaction. If and when 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 business and investment opportunities, the regulatory environment
for wireless communication properties, future developments relating to
SpectraSite, general economic conditions and other future developments.
SITE ACQUISITION. SpectraSite offers a full range of site acquisition
services. Site acquisition typically occurs 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 meet 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 under which the customer acquires fee title to the
property;
- a long-term ground or rooftop lease under 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 under which the customer acquires an easement over
the property; or
- an option to purchase or lease the property under 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.
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 in-house employees, 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
typically is closed and all permanent in-house 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. For the
year ended December 31, 1998, Powertel and Tritel accounted for 46.6% and 24.3%,
respectively, of SpectraSite's revenues. No other customer accounted for more
than 10% of SpectraSite's revenues during the year ended December 31, 1998.
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;
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- 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 it 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.
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 of its 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, Inc. See "Risk Factors -- We compete with companies which have
greater financial resources."
Towers are not the only kind of platform for radio transmitters. The FCC
has authorized numerous entities and is considering applications from many
others to provide fixed and mobile satellite services using various frequency
bands in a manner that may compete with terrestrial service providers. Iridium,
for example, has commenced space-borne provision of mobile satellite service,
and Teledesic plans to provide high-speed fixed satellite 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.
The FCC has decided to auction this spectrum in 200 MHz blocks for the provision
of communications services. 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 May 31, 1999, SpectraSite had 185 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 12,250 square feet of space. We are also establishing
full-service regional offices in the New York, Atlanta, Chicago and San
Francisco areas. In addition, we currently lease an office in Little Rock.
SpectraSite 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.
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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 its 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. As part of
the proposed merger with Westower, we will acquire an interest in certain tower
operations in Canada and Brazil. Currently, SpectraSite is not considering any
other significant international projects.
REGULATORY AND ENVIRONMENTAL MATTERS
FEDERAL REGULATIONS. Both the FCC and the FAA regulate towers used for
wireless communications transmitters and receivers. Such regulations control the
siting, marking and lighting of towers and may, depending on the characteristics
of particular towers, require registration of tower facilities. Wireless
communications antennae operating on towers are separately regulated and
independently licensed by the FCC based upon the particular frequency being used
and the service being provided. In addition to these regulations, SpectraSite
must comply with certain environmental laws and regulations. See "Risk
Factors -- We are subject to environmental laws that impose liability without
regard to fault" and "--Perceived health risks of radio frequency emissions."
Under 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 the proposed antenna structure, the relationship of the
structure to existing natural or man-made obstructions and the proximity of the
structure to runways and airports. Proposals to construct or modify existing
structures above certain heights or within certain proximity to airports are
reviewed by the FAA to ensure they will not present a hazard to aviation. The
FAA may condition its issuance of no-hazard determinations upon compliance with
specified lighting and marking requirements. The FCC will not license the
operation of wireless telecommunications antennae 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
received all necessary clearances from the FAA. The FCC also enforces special
lighting and painting requirements. Owners of towers on which wireless
communications antennae are located 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 failures. 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 and tort liability.
In 1995, the FCC adopted regulations making the owners of towers, rather
than communications 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. Communications 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 required 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. Historically, tower
locations were determined using area maps. The FCC has recognized that, with the
proliferation of inexpensive, satellite-based locating devices, such as Global
Positioning System receivers, structures can now be easily located with a higher
degree of accuracy. Accordingly, the FCC has told owners who determined that
tower registration information conflicted with previously issued licenses for
antennae on their towers to register their structures using the new data and to
seek new FAA determinations of no hazard as necessary under the FAA's rules. The
FCC also has instructed licensees or
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permittees who discovered that the coordinates on their authorizations differed
from those determined by more accurate means to submit corrective construction
permit applications. In February 1999, the FCC's Wireless Telecommunications
Bureau announced a new policy under which defective applications for wireless
authorizations and antenna structure registrations will be summarily dismissed,
without giving the applicants an opportunity to amend but requiring them to
correct and retender their applications. As part of the new policy, the Bureau
said that effective May 1, 1999, it will return and not process tower
registration applications including data that do not agree with information
listed on previously issued FAA determinations. The FCC also announced that
applications for FCC communications authorizations would be dismissed if a tower
registration number is not listed on the FCC application. Although the FCC
initially said the rule affecting communications applications would apply
beginning May 1, 1999, for applicants proposing antennae on existing structures,
and July 1, 1999, for applicants proposing to utilize new towers, the FCC in
late April 1999 extended these deadlines. For services, such as cellular,
paging, and personal communications services, which have already had their
records converted to the FCC's new Uniform Licensing System database, the new
tougher dismissal rule will apply effective July 1, 1999. For other
communications services that have not yet been converted to the Uniform
Licensing System, the FCC said the new processing rules would go into effect six
months after each service's incorporation into the Uniform Licensing System.
This new policy means that for towers to be of use to FCC applicants, it will be
necessary for tower owners to notify the FAA and obtain FCC tower registrations
well in advance of the date tenants will be filing FCC applications.
In December 1998, the FCC announced that a recent audit of existing antenna
structures revealed that over one quarter of the audited structures had not been
registered as required by the FCC's rules. In light of this finding and several
reported near misses of towers by aircraft, the FCC in January 1999 announced a
no-tolerance policy, requiring all owners of existing unregistered structures to
register them immediately or face monetary forfeitures or civil fines.
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 communications 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 communications towers may be subject to, and,
therefore, must comply with environmental laws. The FCC's decision to register a
proposed tower may be subject to environmental review under 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.
These 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.
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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 AND DIRECTORS
The executive officers, directors and key employees of SpectraSite are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen H. Clark................. 54 President and Chief Executive Officer and a
Director
David P. Tomick.................. 47 Executive Vice President, Chief Financial
Officer and Secretary
Richard J. Byrne................. 41 Executive Vice President -- Business
Development
Terry L. Armant.................. 50 Senior Vice President -- Operations
Daniel I. Hunt................... 35 Vice President -- Finance and Administration
Lawrence B. Sorrel............... 40 Chairman of the Board
Timothy M. Donahue............... 50 Director
Andrew R. Heyer.................. 41 Director
James R. Matthews................ 32 Director
Thomas E. McInerney.............. 57 Director
Michael J. Price................. 41 Director
Rudolph E. Rupert................ 33 Director
Steven M. Shindler............... 36 Director
Michael R. Stone................. 36 Director
</TABLE>
STEPHEN H. CLARK is President and Chief Executive Officer of SpectraSite
and a director of Holdings. He has been a director of SpectraSite since its
formation in May 1997. Mr. Clark has 22 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.
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.
RICHARD J. BYRNE is Executive Vice President -- Business Development. Prior
to joining SpectraSite in April 1999, Mr. Byrne served as the Director of
Business Development for Nextel. He has had primary responsibility for the tower
sale/lease-back and build-to-suit commitment. In addition, Mr. Byrne has been
responsible for all carrier-to-carrier co-location agreements. Before joining
Nextel in 1997, Mr. Byrne held positions of increasing responsibility in the
System Development Group of AT&T Wireless Services. Prior to entering the
wireless communications industry, Mr. Bryne spent 15 years in the real-estate
industry. His work centered on property management, ownership and brokerage of
investment properties.
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.
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DANIEL I. HUNT is Vice President -- Finance and Administration of
SpectraSite. Prior to joining SpectraSite in April 1999, Mr. Hunt served as
Director of Accounting and Financial Reporting at Wavetek Wandel & Goltermann,
Inc., a developer and manufacturer of communications test equipment based in
North Carolina and Eningen, Germany. Previously, Mr. Hunt was Controller for
Wandel & Goltermann Technologies, Inc. Before joining Wandel & Goltermann, Mr.
Hunt worked in the audit and business consulting practice of Arthur Anderson.
Mr. Hunt is a certified public accountant and a graduate of Wake Forest
University.
LAWRENCE B. SORREL has been Chairman of the Board since April 1999. Mr.
Sorrel joined Welsh, Carson, Anderson & Stowe in 1998 and is a managing member
or general partner of the respective sole general partners of WCAS VIII and
other associated investment partnerships. Prior to joining Welsh, Carson, Mr.
Sorrel spent 12 years at Morgan Stanley, where he was a Managing Director and
senior executive in Morgan Stanley's private equity group, Morgan Stanley
Capital Partners. Mr. Sorrel is a director of Select Medical Corp., Emmis
Communications, MedCath Inc. and Canterbury Healthcare Ltd.
TIMOTHY M. DONAHUE has been a director of Holdings since April 1999. Mr.
Donahue has served as President of Nextel since joining it on February 1, 1996
and as a director of Nextel since May 1996. On February 29, 1996, Mr. Donahue
was elected to the additional position of Chief Operating Officer of Nextel.
From 1986 to January 1996, Mr. Donahue held various senior management positions
with AT&T Wireless Services, Inc., including Regional President for the
Northeast. Mr. Donahue serves as a director of Nextel International.
ANDREW R. HEYER has been a director of Holdings since April 1999. Mr. Heyer
is a Managing Director at CIBC World Markets Corp., where he serves as co-head
of The High Yield Group. Prior to joining CIBC World Markets, Mr. Heyer was
founder and Managing Director of the Argosy Group L.P., which was acquired by
CIBC World Markets in 1995. Mr. Heyer is also Chairman of the Board of Directors
of the Hain Food Group, and is a director of Niagara Corporation, Hayes Lemmerz
International, Inc., Lancer Industries and Fairfield Manufacturing Company and
Millenium Digital Media Holdings, Inc.
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. Mr. Matthews is a director of ClearSource, Inc.
THOMAS E. MCINERNEY has been a director of Holdings since April 1999. Mr.
McInerney joined Welsh, Carson, Anderson & Stowe in 1986 and is a managing
member or general partner of the respective sole general partners of WCAS VIII
and other associated investment partnerships. Formerly, he co-founded and served
as President and Chief Executive Officer of Dama Telecommunications Corp., a
telecommunications services company. Earlier, he was Group Vice
President -- Financial Services at ADP and Senior Vice President -- Operations
at the American Stock Exchange. Mr. McInerney is a director of, among others,
Centennial Cellular Corp., Control Data Systems, Bridge Information Systems, The
BISYS Group, The Cerplex Group, Attachmate Corp., MedE America Corporation and
Global Knowledge Network.
MICHAEL J. PRICE has been a director of Holdings since April 1999. Mr.
Price is co-Chief Executive Officer of FirstMark Communications International
LLC, a broadband wireless telecommunications company. Prior to that, he worked
at Lazard Freres & Co. LLC, starting in 1987, serving first as a Vice President
and then as a Managing Director, where he led their global technology and
telecommunications practice.
RUDOLPH E. RUPERT has been a director of Holdings since April 1999. Mr.
Rupert joined Welsh, Carson, Anderson & Stowe in 1997 and is a managing member
or general partner of the respective sole general partners of WCAS VIII and
other associated investment partnerships. Previously he was at General Atlantic
Partners and Lazard Freres. Mr. Rupert is a director of Centennial Cellular and
Control Data Systems, Inc. and serves on the executive board of Amdocs Limited.
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<PAGE> 73
STEVEN M. SHINDLER has been a director of Holdings since April 1999. Mr.
Shindler joined Nextel in May 1996 and serves as Senior Vice President and Chief
Financial Officer. Between 1987 and 1996, Mr. Shindler was an officer with
Toronto Dominion Bank, where most recently he was a Managing Director in its
Communications Finance Group. Mr. Shindler serves as a director of Nextel
International.
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.
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
SUMMARY COMPENSATION TABLE
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
other executive officers whose salary and bonus exceeded $100,000 for the year
ended December 31, 1998. Amounts shown for 1997 include compensation paid by
Holdings to the named executive officers from April 25, 1997, the date of
Holdings' inception, through December 31, 1997. The amounts reported as All
Other Compensation for all years represent SpectraSite's contributions under its
401(k) plan.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark...................... 1998 168,000 68,000 300,000 2,400
Chief Executive Officer 1997 107,046 -- 425,000 --
David P. Tomick....................... 1998 140,000 56,000 50,000 2,178
Chief Financial Officer 1997 64,029 -- 225,000 --
Terry L. Armant(a).................... 1998 55,192 68,150 125,000 --
Senior Vice President
Joe L. Finley, III(b)................. 1998 350,000 -- -- 2,400
Executive Vice President 1997 248,548 -- -- 2,375
</TABLE>
- ---------------
(a) Mr. Armant joined SpectraSite in August 1998.
(b) Mr. Finley was an executive officer of SpectraSite in 1997 and 1998.
Effective January 1, 1999, Mr. Finley became a consultant to SpectraSite.
See " -- Employment Agreements."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
All options become exercisable immediately upon a change in control. Unless
a particular option grant provides otherwise, a change in control occurs upon a
merger, consolidation, reorganization or any transaction in which all or
substantially all of Holdings' assets are sold, leased or transferred. However,
a transaction in which the holders of Holdings' capital stock immediately prior
to the transaction continue to hold at least a majority of the voting power of
the surviving corporation does not constitute a change in control, and 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. Messrs.
Clark, Tomick and Armant have agreed that the Nextel tower acquisition and the
related financing transactions did not constitute a change
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<PAGE> 74
of control under their options. The shares of common stock issuable upon
exercise of the options are subject to certain rights of first refusal.
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 0.0%, volatility of 0.7, risk free interest rate of 6.0% and
expected option lives of seven years.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED 1998 PER SHARE DATE PRESENT VALUE
---- ------------ ------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark................. 300,000 36% $4.00 3/23/05 $178,500
David P. Tomick.................. 50,000 6 4.00 3/23/05 31,500
Terry L. Armant.................. 62,500 7 4.00 8/10/02 37,500
62,500 7 4.00 8/10/05 37,500
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT DECEMBER 31, 1998($)
AT DECEMBER 31, 1998 UNEXERCISABLE
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen H. Clark............................... 106,250 618,750 $117,938 $353,813
David P. Tomick................................ 56,250 218,750 62,438 187,313
Terry L. Armant................................ 0 125,000 0 0
</TABLE>
EMPLOYMENT AGREEMENTS
SpectraSite has entered into employment agreements with each of Messrs.
Clark, Tomick and Byrne effective April 20, 1999. The initial term of the
employment agreements is five years. The annual salaries for Messrs. Clark,
Tomick and Byrne are $225,000, $200,000 and $175,000, respectively, and they are
eligible to receive annual bonuses determined at the discretion of the board of
directors. Mr. Byrne also will receive a $40,000 bonus in connection with his
relocation to Cary, North Carolina. In the event their employment is terminated
as a result of their death, disability, or termination without cause Messrs.
Clark, Tomick and Byrne will be entitled to receive continued salary, bonus and
health benefits for a period of 24 months.
Under the employment agreements, Messrs. Clark, Tomick and Byrne will be
granted incentive stock options under the 1997 Stock Option Plan to purchase
775,000, 225,000 and 200,000 shares of common stock, respectively. The exercise
price for the options will be $5.00. Twenty percent of the stock options will
become exercisable each year over the five-year employment period. If
SpectraSite terminates the employment of Mr. Byrne without cause, or if he dies
or becomes disabled, then his stock options shall be fully exercisable. If
SpectraSite terminates the employment of Mr. Clark or Mr. Tomick without cause,
or if either of them dies or becomes disabled, then the stock options that they
held prior to entering into the employment agreement, but not those granted
under the employment agreement, shall be fully exercisable.
Messrs. Clark, Tomick and Byrne have agreed that for a period of 24 months
following the termination of their employment with SpectraSite they will not:
- engage in competition, own any interest in, or perform any services for
any business which engages in competition with SpectraSite;
- solicit management employees of SpectraSite or otherwise interfere with
the employment relationship between SpectraSite and its employees; or
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<PAGE> 75
- engage or work with any supplier, contractor or entity with a business
relationship with SpectraSite, if such action would have a material
adverse effect on SpectraSite.
In addition, in connection with his employment with SpectraSite, Mr. Byrne
purchased 50,000 shares of common stock for a nominal amount. Mr. Byrne's right
to retain these shares of common stock vests in equal 25% installments on each
of the first four anniversaries of his employment agreement. Vesting will
accelerate upon Mr. Byrne's termination without cause or if he dies or becomes
disabled. Mr. Byrne will also receive a bonus to pay income taxes incurred in
connection with this purchase of common stock.
On May 12, 1997, SpectraSite entered an employment agreement with Joe L.
Finley, III. The initial term of the employment agreement was May 12, 1997 to
May 31, 1999. SpectraSite and Mr. Finley terminated the employment agreement,
effective December 31, 1998. Although the employment agreement has been
terminated, Mr. Finley remains employed by SpectraSite. In connection with the
termination of his employment agreement, Mr. Finley agreed that:
- he will not use, divulge or otherwise transfer or convey any confidential
or proprietary information obtained as a result of his employment,
- for three years after his employment terminates, he will not engage in
any business related to certain of SpectraSite's activities in any state
where SpectraSite has done business at any time during the three years
prior to the termination of Mr. Finley's employment,
- for three years after his employment terminates he will not interfere
with the relationships between SpectraSite and any of its affiliates,
including employees and customers existing at any time during the two
years prior to Mr. Finley's departure, or suppliers existing at any time
during the three years prior to Mr. Finley's departure.
Effective January 1, 1999, SpectraSite and Finley & Company, Inc., an
Arkansas corporation, entered into a consulting agreement. The initial term of
this agreement ended on May 31, 1999, but it renews automatically from month to
month, subject to termination upon 15 days prior notice. Under the consulting
agreement, Finley & Company agrees to provide not less than 50 hours a month of
general business and strategic consultation, and SpectraSite agrees to provide
office space and part-time secretarial support. Mr. Finley is employed on an
independent contractor basis with no authority to bind SpectraSite or to incur
obligations on its behalf, and receives $9,000 a month as compensation. Under
the consulting agreement, Finley & Company agrees that it will not use, divulge
or otherwise transfer or convey any confidential or proprietary information
obtained as a result of consultation activities conducted for SpectraSite, and
assigns all rights, title and interest to any inventions, ideas, developments
and designs created while providing services under the consulting agreement.
Further, Finley & Company agrees not to provide or perform the same or
substantially similar services for any competing business which it provides to
SpectraSite or to any SpectraSite customer as it provides for such customers
under the consulting agreement. Finley & Company also agrees not to interfere
with the relationship between SpectraSite and any of its employees, or any of
its customers or suppliers existing during the term of the consulting agreement
or at the time of its termination. Finley & Company may not assign the
consulting agreement or delegate its duties thereunder without prior written
consent from SpectraSite.
1997 STOCK INCENTIVE PLAN
The SpectraSite Holdings, Inc. Stock Incentive Plan was originally
effective June 24, 1997 and was amended and restated effective August 5, 1999.
The plan has a term of ten years and provides for the issuance of incentive
stock options, non-qualified stock options and other stock-based awards to key
employees, directors, advisors and consultants of SpectraSite, as well as any
subsidiary of SpectraSite. An aggregate of 4,100,000 shares of common stock of
SpectraSite Holdings, Inc. have been reserved for issuance under the plan. 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
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<PAGE> 76
which expires, is terminated or canceled, or is repurchased by SpectraSite,
shall be available for future grants under the plan.
ADMINISTRATION. The 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 award
under the plan will be reflected in a written agreement. The committee
administering the plan has the discretion to determine which eligible
individuals will receive awards, the number of shares to be covered by the
awards, the exercise date of the awards, whether the options should be incentive
stock options or non-qualified stock options, and the terms and conditions of
the awards.
STOCK OPTIONS -- INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS.
Under the plan, the committee has the discretion to grant incentive stock
options qualifying for special tax treatment under Section 422 of the Internal
Revenue Code and nonqualified stock options that do not qualify for such
treatment. The exercise price of any incentive stock option 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 incentive stock option 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 participant 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 or
by delivering other shares. Only employees are eligible to receive incentive
stock options, and at the time an incentive stock option is granted, the fair
market value of the common stock for which the incentive stock option will
become exercisable in any year may not exceed $100,000.
The committee is authorized to award re-load options to participants in
order to enable the participant to use previously owned shares to pay the
exercise price of the stock options and/or to satisfy any tax withholding
requirements incident to the exercise of the underlying options, without
reducing the participant's overall ownership of shares. Re-load options are not
intended to be incentive stock options, become exercisable twelve months after
the date of grant, and must be exercised within the term of the original stock
option.
OTHER AWARDS. Under the plan, the committee has the discretion to grant
restricted stock, performance awards, dividend equivalents, deferred stock,
stock appreciation rights and other stock-based awards on terms and conditions
determined by the committee.
Restricted stock means shares that are subject to certain transfer
restrictions and/or risk of forfeiture. Except as specifically set forth in the
restricted stock award agreement, the participant will have all rights and
privileges of a stockholder as to his or her restricted stock, including the
rights to vote and to receive dividends.
Performance award means an award of the right to receive shares, cash or
other property upon the achievement of performance criteria determined by the
committee.
Dividend equivalent means the award of the right to the payment of amounts
equal to the value of dividends that may be paid with respect to shares in the
future. The committee may provide that dividend equivalents will be paid or
distributed when accrued or will be deemed to have been reinvested in additional
shares or awards, or otherwise reinvested.
Deferred Stock means an award of the right to receive shares upon
expiration of a deferral period subject to certain restrictions and the risk of
forfeiture as provided under the plan and the award agreement related to the
award. SpectraSite will deliver shares under a deferred stock award upon
expiration of the deferral period or other conditions specified by the committee
or, if permitted by the committee, as elected by the participant.
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Stock appreciation right means a right to receive an amount measured by the
appreciation in the fair market value of shares from the date of grant of the
stock appreciation right to the date of exercise of the right. A stock
appreciation right may be exercised at such times and in such manner as is
determined by the committee and, as determined by the committee, may be settled
in cash, shares or other property.
The committee may grant other stock-based awards purely as bonuses that are
not subject to any restrictions or conditions. Such awards will be denominated
or payable in, valued by reference to, or otherwise based on or related to,
shares.
RESTRICTIONS ON PERFORMANCE-BASED AWARDS. Performance awards,
performance-based restricted stock, and certain other stock-based awards subject
to performance criteria are intended to be "qualified performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
and will be paid solely on account of the attainment of one or more
preestablished, objective performance goals within the meaning of Code Section
162(m) and the regulations thereunder. As selected by the committee, the
performance goal will be the attainment of one or more preestablished amounts of
sales revenue, net income, operating income, cash flow, return on assets, return
on equity or total shareholder return of SpectraSite. No participant may be
granted any combination of performance awards, restricted stock or other
stock-based awards subject to performance criteria in any single year, the value
of which is based on more than 1,000,000 shares. The payout of any such award to
a participant may be reduced, but not increased, based on the degree of
attainment of other performance criteria or otherwise at the direction of the
committee.
VESTING AND EXERCISABILITY. Generally, SpectraSite expects the committee
to award options that vest and become exercisable according to a four-year
vesting schedule, whereby 25% of the total grant of shares becomes vested every
year for four consecutive years. 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 change in control, unless the options were to become
exercisable upon attainment of a performance milestone which has not been
achieved as of the date of the change in control.
VESTING AND EXERCISABILITY FOR INCENTIVE STOCK OPTIONS. Once vested, an
incentive stock option may remain exercisable until the earliest of:
- ten years from the date of grant or five years from the date of grant if
the participant 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 participant terminates employment
with SpectraSite; or
- if the participant's employment ceases by reason of his or her death or
disability, 12 months from the date on which the participant's employment
terminated.
In no event shall an incentive stock option be exercisable after one month
following the date an participant's employment with SpectraSite is terminated
for cause, as determined by the committee.
VESTING FOR RESTRICTED STOCK. Restricted stock awards will be subject to
the vesting schedules stated in the applicable award agreements. Any restricted
stock awards that are not vested or are subject to restrictions upon the
employee's termination of employment for any reason with SpectraSite will be
forfeited, provided that the committee may determine that a participant may
become vested in all or any portion of his award if his employment termination
constitutes a dismissal without cause and/or follows a change in control.
VESTING FOR DEFERRED STOCK. In general, any deferred stock that is subject
to deferral, other than deferral at the employee's election, will be forfeited
upon the employee's termination of employment for any reason during the deferral
period, subject to the committee's authority to waive such forfeiture
conditions.
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VESTING FOR OTHER STOCK BASED AWARDS. A participant's rights in other
awards will be subject to forfeiture in accordance with the terms and conditions
of the award as set forth in the award agreement related to the award.
RIGHT OF FIRST REFUSAL. Generally, SpectraSite expects the committee to
award options subject to a right of first refusal. When a participant proposes
to sell, pledge or otherwise transfer any shares acquired upon the exercise of
an option, SpectraSite would have the right to repurchase those 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 participant 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 participant's immediate family;
- that constitute a pledge to SpectraSite as security for a loan by
SpectraSite to the participant in connection with exercise of an option;
or
- that have 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 plan, or at such time as the
common stock is traded on a public market.
ASSIGNMENT OF INTEREST/NON-TRANSFERABILITY. Awards under the plan
generally are not assignable or transferable except by the laws of descent and
distribution. A participant's rights under the plan belong to the participant
alone and may not be sold, transferred, assigned or pledged to any other person
during his or her lifetime, provided the committee may permit an option or
restricted stock to be transferable to members of the participant's immediate
family or to a trust, partnership or other entity for the benefit of the
participant and/or member of the participant's immediate family to the extent
the shares underlying the options or restricted stock may be registered pursuant
to a Form S-8.
MAXIMUM NUMBER OF SHARES. The maximum number of shares with respect to
which options and awards may be granted to a participant in any single taxable
year of SpectraSite is 1,000,000.
COMPETITION. Notwithstanding any plan provisions to the contrary, the
committee may provide under the terms of any award agreement that all rights of
the participant in any award, to the extent such rights have not already expired
or been exercised, will terminate and be extinguished immediately if a
participant engages in competition, as defined in the applicable award
agreement, with SpectraSite or any of their subsidiaries, affiliates or
successors, whether during or after his or her employment. In the event that a
participant exercises an option or other award at a time when, without the
committee's knowledge or consent, he or she has already engaged in competition
with the committee, the committee may rescind and void such exercise, and the
participant will return upon demand by the committee such stock certificate(s)
representing the shares issued to him or her upon the exercise of the option or
award and still owned by the participant.
AMENDMENT OR TERMINATION OF PLAN. The 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 plan may not adversely affect the
rights of or obligations to the participants without such participants' consent.
The board must obtain stockholder approval for any change in the 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
plan; or
- materially modify the requirements as to eligibility for participation
under the plan.
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1997 STOCK INCENTIVE PLAN TAX CONSEQUENCES
STOCK OPTIONS. The grant of an option under the plan will not have any
immediate effect on the federal income tax liability of SpectraSite or the
participant. If the board grants a participant a non-qualified stock option,
then the participant will recognize ordinary income at the time he or she
exercises the non-qualified stock option equal to the difference between the
fair market value of the common stock and the exercise price paid by the
participant, and SpectraSite will receive a deduction for the same amount.
If the board grants a participant an incentive stock option, then the
participant generally will not recognize any taxable income at the time he or
she exercises the incentive stock option, 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 incentive stock option. Upon
sale of the common stock acquired upon exercise of the incentive stock option,
the participant will recognize income equal to the difference between the
exercise price paid by the participant 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
incentive stock option or as a result of either the participant's exercise of an
incentive stock option or the participant's sale of the common stock acquired
through exercise of an incentive stock option. However, if the participant sells
the common stock either within two years of the date of the grant to him or her
of the incentive stock option, or within one year of the date of the transfer to
him or her of the common stock following exercise of the incentive stock option,
then the option is treated for federal income tax purposes as if it were a
non-qualified stock option; the income recognized by the participant 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
participant.
AWARDS OF RESTRICTED STOCK. If the participant receives restricted Stock,
the participant will be taxed in accordance with Section 83 of the Code. In
general, under Section 83(a) a participant will not recognize ordinary income,
and SpectraSite will not receive a deduction, with respect to restricted stock
until such shares are no longer subject to risk of forfeiture or are
transferable. The amount included in ordinary income will be the fair market
value of the restricted stock determined as of the date the shares are no longer
subject to risk of forfeiture or are transferable. However, under Section 83(b)
of the Code, the participant may accelerate the recognition of ordinary income
to the time of the grant of the restricted stock award by filing an election
with the Internal Revenue Service and SpectraSite no later than 30 days after
the date of grant. In that case, the amount of ordinary income recognized by the
participant, and the amount of SpectraSite's deduction will be equal to the fair
market value of the restricted stock determined as of the date of grant of the
restricted stock award.
OTHER AWARDS. In general, there will be no tax consequences to the
participant upon the issuance of other awards under the plan, and the
participant will recognize ordinary income only at the time that cash, shares or
other property are received by the participant under the award. The amount of
ordinary income recognized by the participant will be equal to the cash received
by the participant and/or the fair market value of the shares or other property
received by the participant, determined as of the date of receipt.
The disclosure contained in this prospectus of the 1997 Stock Incentive
Plan will constitute approval of SpectraSite's adoption of the plan for purposes
of the stockholder approval requirements of SEC Rule 16b-3, which will exempt
certain transactions involving the plan from short-swing profit liability under
Section 16(b) of the Exchange Act.
SPECTRASITE'S EMPLOYEE STOCK PURCHASE PLAN
SpectraSite has adopted the SpectraSite Holdings, Inc. Employee Stock
Purchase Plan, effective as of January 1, 2000. The stock purchase plan is
administered by a committee designated by the board of directors. The board of
directors has reserved and authorized for issuance under the stock purchase plan
1,000,000 shares of common stock. SpectraSite intends to register the shares
reserved under the stock purchase plan with the SEC.
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<PAGE> 80
All individuals employed by SpectraSite as of a grant date who customarily
work at least 20 hours per week and five months per year will be eligible to
participate in the stock purchase plan. Each eligible employee will be given an
option to purchase a number of shares of common stock equal to the total dollar
amount contributed by the employee to his or her payroll deduction account
during each six month offering period, divided by the purchase price per share
under the option. In no event may an employee receive an option which would
permit him or her during any one calendar year to purchase shares which have a
fair market value on the grant date in excess of $25,000. The price of the
shares offered to employees under the stock purchase plan will be the lesser of:
(1) 85% of the fair market value of the common stock on the grant date, or (2)
85% of the fair market value of the common stock at the exercise date. Payment
of an eligible employee's subscription amount will be made through payroll
deductions, and an employee's participation in the stock purchase plan is
contingent on the employee providing SpectraSite with written authorization to
withhold from their pay an amount to be applied toward the purchase of shares of
common stock. An eligible employee is deemed to have exercised his or her option
granted under the stock purchase plan as of the exercise date.
Generally, the employee does not recognize taxable income, and SpectraSite
is not entitled to an income tax deduction, on the grant or exercise of an
option issued under the stock purchase plan. If the employee sells the shares
acquired upon exercise of his or her option at least one year after the date he
or she exercised the option and at least two years after the date the option was
granted to him or her, then the employee will recognize ordinary income equal to
the difference between the fair market value of the stock as of the date of
grant and the exercise price. Any additional appreciation realized on the sale
of the option stock will be treated as a capital gain. SpectraSite will be
entitled to an income tax deduction corresponding to the amount of ordinary
income recognized by the employee. If the employee sells the shares acquired
upon the exercise of his or her option at any time within (1) one year after the
date of exercise of the option, or (2) two years after the date the option was
granted, then the employee will recognize ordinary income in an amount equal to
the excess, if any, of (a) the lesser of the sale price or the fair market value
on the date of exercise, over (b) the exercise price of the option. SpectraSite
will generally be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the employee.
The stock purchase plan may be amended, suspended or terminated by the
board of directors at any time, provided no such amendment, suspension or
termination of the stock purchase plan may adversely affect the rights of or
obligations to the participants without such participants' consent, and any such
amendment, suspension or termination will be subject to the approval of
SpectraSite stockholders to the extent required by any federal or state law or
regulation of any stock exchange.
The disclosure contained in this prospectus of the stock purchase plan will
constitute approval of SpectraSite's adoption of the stock purchase plan for
purposes of the stockholder approval requirements of SEC Rule 16b-3, which will
exempt certain transactions involving the stock purchase plan from short-swing
profit liability under Section 16(b) of the Exchange Act.
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<PAGE> 81
CERTAIN TRANSACTIONS
TELESITE AND METROSITE ACQUISITION
On May 12, 1997, in connection with its formation, 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, 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.
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,
and in May 1999, SpectraSite repurchased an additional 137,828 shares for an
aggregate purchase price of $137.83. The remaining 66,554 shares of common stock
were released to Mr. Finley in May 1999.
Joe L. Finley, III, formerly 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 $2.0 million in cash. In connection
with this acquisition, Holdings granted Michael Garrett, the founder and
president of GlobalComm, 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 sell
125,000 shares of Holdings common stock to SpectraSite and to release
SpectraSite from any potential claims for an agreed upon price. In addition, the
agreement provided that stockholders 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 of such option by
November 15, 1998. On October 9, 1998, SpectraSite paid the former employee $0.5
million for his shares and the release under the agreement, and on February 5,
1999, David P. Tomick purchased the remaining 37,605 shares for an aggregate
purchase price of $150,240.
THE PREFERRED STOCK OFFERINGS
According to the terms of 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 $10.0 million in a
transaction exempt from registration under the Securities Act.
According to the terms of a stock purchase agreement, dated as of March 23,
1998, 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
Capital, L.L.C., The North Carolina Enterprise Fund, L.P., Finley Family
Partnership, William R. Gupton, Jack W. Jackman and Alton D. Eckert agreed to
purchase shares of Holdings' Series B preferred stock for an aggregate purchase
price of $28.0 million.
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.
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According to the terms of a stock purchase agreement, dated as of February
10, 1999, as amended on April 20, 1999, Welsh, Carson, Anderson & Stowe VIII,
L.P., WCAS Information Partners, L.P., Kenneth Melkus, Patrick J. Welsh, Russell
L. Carson, Bruce K. Anderson, Andrew M. Paul, Thomas E. McInerney, Laura M.
VanBuren, Robert A. Minicucci, Anthony J. de Nicola, Paul B. Queally, Lawrence
B. Sorrel, D. Scott Mackesy, Priscilla A. Newman, Rudolph E. Rupert, Trust under
an agreement dated 11/26/84 for the benefit of Eric Welsh, Trust under an
agreement dated 11/26/84 for the benefit of Randall Welsh, Trust under an
agreement dated 11/26/84 for the benefit of Jennifer Welsh, J.H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., CIBC WG Argosy Merchant Fund 2,
L.L.C., Co-Investment Merchant Fund 3, LLC, The North Carolina Enterprise Fund,
L.P., Waller-Sutton Media Partners, L.P., Kitty Hawk Capital Limited
Partnership, IV, Finley Family Limited Partnership, Eagle Creek Capital, L.L.C.,
David P. Tomick, Jack W. Jackman, Alton D. Eckert, William R. Gupton, The Price
Family Limited Partnership and Benake L.P. agreed to purchase 46,286,795 shares
of Holdings' Series C convertible preferred stock in connection with and
partially to fund the Nextel tower acquisition. The Series C investors paid an
aggregate purchase price of $231,433,975 on April 20, 1999 for the shares of
Holdings' Series C preferred stock in a transaction exempt from registration
under the Securities Act.
The Series C investors, including the holders of the Series A preferred
stock and the Series B preferred stock, and certain other stockholders of
Holdings are entitled to certain rights under the stockholders' agreement and
the registration rights agreement, described below.
TRANSACTIONS RELATED TO THE NEXTEL TOWER ACQUISITION
On April 20, 1999, in connection with the Nextel tower acquisition, Messrs.
Sorrel, Rupert, McInerney and Price purchased 50,000, 25,000, 262,973 and
100,000 shares of Holdings' Series C preferred stock for $5.00 per share. In
addition, Mr. Price purchased 100,000 shares of common stock and executed
promissory notes as payment for the common stock. The promissory notes mature on
April 20, 2009 and bear interest at 5.67% per year. Under the purchase agreement
for Mr. Price's shares, 25% of the shares of common stock vest each year, with
the first installment vesting on April 20, 2000. In addition, SpectraSite has
the right to repurchase half of the shares at their original cost to Mr. Price
at any time prior to April 20, 2000 and upon the date Mr. Price ceases to
perform services for SpectraSite. Each of Messrs. Sorrel, Rupert, McInerney and
Price are members of Holdings' board of directors. Messrs. Sorrel, Rupert and
McInerney are also affiliates of Welsh, Carson, Anderson & Stowe.
Affiliates of Welsh, Carson, Anderson & Stowe, J. H. Whitney & Co., and
Canadian Imperial Bank of Commerce received an aggregate of two million shares
of Holdings common stock as consideration for financing commitments made in
connection with the Nextel tower acquisition. Welsh Carson, J. H. Whitney and
Canadian Imperial Bank of Commerce are each significant stockholders of Holdings
and affiliates of each entity are members of Holdings' board of directors.
PURCHASE OF COMMON STOCK BY CHIEF EXECUTIVE OFFICER
In May 1997, Stephen H. Clark agreed to invest additional personal funds in
SpectraSite at the average per share price of Holdings Series A and Series B
preferred stock. In satisfaction of this commitment, Mr. Clark purchased 210,000
shares of Holdings common stock for an aggregate purchase price of $772,800 on
April 20, 1999.
STOCKHOLDERS' AGREEMENT
In connection with the closing of the Nextel tower acquisition, Holdings
and its stockholders entered into the third amended and restated stockholders'
agreement, which superceded and replaced the existing stockholders' agreement
among Holdings and its stockholders. The following is a summary of the material
terms of the new stockholders' agreement.
Under the stockholders' agreement, as long as Welsh, Carson, Anderson &
Stowe holds at least 30% of Holdings' capital stock, it shall have the right to
designate a majority of Holdings' directors. The chief executive officer shall
also be a director and certain of the other stockholders shall designate the
remaining directors. In addition, subject to certain exceptions, certain
stockholders will grant proxies to Welsh,
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<PAGE> 83
Carson so that Welsh, Carson will have the right to vote 51% of Holdings'
outstanding capital stock. The stockholders' agreement also provides:
(a) certain stockholders with preemptive rights;
(b) Welsh, Carson with the right to require that other stockholders
participate in a sale of Holdings stock;
(c) all other stockholders with the right to participate in sales of
Holdings stock by Welsh, Carson; and
(d) certain restrictions on transfers of Holdings stock.
Each of the rights described in clauses (a) through (d) is subject to
certain important qualifications and exceptions. In addition, SpectraSite shall
not:
- without the consent of Nextel, for a period of one year after the
closing, enter into any agreement for the sale or transfer of all or
substantially all of the assets of SpectraSite or for the merger of
Holdings that would result in the transfer of more than 50% of Holdings'
capital stock; or
- without the consent of Nextel, until the earliest of an initial public
offering, termination of the master site commitment agreement and the
third anniversary of the closing, (1) acquire assets or stock for
consideration in excess of $100.0 million, or enter into any
build-to-suit program for more than 250 towers, unless SpectraSite has
obtained financing commitments sufficient to permit it to accomplish such
acquisition or program without materially impairing SpectraSite's ability
to perform its obligations under the master site commitment agreement, or
(2) enter into certain transactions with any wireless communications
services provider having more than two million subscribers.
REGISTRATION RIGHTS AGREEMENT
In connection with the closing of the Nextel tower acquisition, Holdings,
Nextel, the Series A investors, the Series B investors, the Series C investors
and certain members of SpectraSite's management entered into a second amended
and restated registration rights agreement. The following is a summary of the
registration rights agreement.
The registration rights agreement provides that following Holdings' initial
public offering, or the third anniversary of the closing of the Nextel tower
acquisition if Holdings has not completed an initial public offering by that
date, the holders of at least 25% of Holdings' common stock shall have the
right, exercisable on no more than three occasions, to cause Holdings to
register their shares of its common stock, so long as the aggregate offering
price for the securities to be registered will equal or exceed $50.0 million. In
addition, any institutional stockholder or Nextel shall have the right, at any
time that Holdings is eligible to file a registration statement on SEC Form S-3,
to cause Holdings to effect a registration on Form S-3 of such stockholder's
common stock, so long as the aggregate offering price for securities to be
registered will equal or exceed $10.0 million and provided that Holdings shall
not be required to effect more than one such registration in any six-month
period. Finally, the registration rights agreement provides that if Holdings
proposes to register any of its common stock, then the parties to the
registration rights agreement shall have the right to cause Holdings to register
their shares of common stock as part of such registration, subject to certain
exceptions and limitations.
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<PAGE> 84
OWNERSHIP OF CAPITAL STOCK
The table below sets forth, as of May 31, 1999, information with respect to
the beneficial ownership of Holdings' capital stock by:
- each person who is known by Holdings 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.
The table also sets forth the total voting power for each of these persons and
groups as of May 31, 1999, before the merger, and as if the Westower merger had
occurred.
Each share of Series A preferred stock, each share of Series B preferred
stock and each share of Series C preferred stock is immediately convertible into
one share of common stock, subject to certain adjustments, and, therefore, the
holders of Series A preferred stock, Series B preferred stock and Series C
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>
PRE-MERGER POST-MERGER
PERCENTAGE OF PERCENTAGE OF
TOTAL VOTING TOTAL VOTING
NUMBER OF POWER OF POWER OF
SERIES A SERIES B SERIES C SHARES OF STOCK COMMON STOCK ON COMMON STOCK ON
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY A FULLY-DILUTED A FULLY-DILUTED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED BASIS BASIS
------------------------ ------ --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen H. Clark (a)...... 1,119,435 -- -- -- 1,119,435 1.5% 1.2%
David P. Tomick (b)....... 93,855 -- -- 12,395 106,250 * *
Terry L. Armant (c)....... -- -- -- -- -- --
Michael R. Stone (d)...... -- 3,203,118 5,161,219 4,000,000 12,364,337 16.7% 13.8%
James R. Matthews (d)..... -- 3,203,118 5,161,219 4,000,000 12,364,337 16.7% 13.8%
Lawrence B. Sorrel (e).... 1,375,000 -- -- 30,875,000 30,875,000 41.6% 34.4%
Andrew R. Heyer (f)....... -- -- -- 10,000,000 10,000,000 13.5% 11.2%
Thomas E. McInerney (e)... 1,375,000 -- -- 29,712,973 31,087,973 41.9% 34.7%
Michael J. Price (g)...... 100,000 -- -- 100,000 200,000 * *
Rudolph E. Rupert (e)..... 1,375,000 -- -- 30,850,000 30,850,000 41.6% 34.4%
Timothy M. Donahue (h).... -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Steven M. Shindler (h).... -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Nextel Communications,
Inc. (h)................ -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Welsh, Carson, Anderson &
Stowe VIII, L.P. (e).... -- -- -- 29,300,000 29,300,000 39.5% 32.7%
WCAS Information Partners,
L.P. (e)................ -- -- -- 150,000 150,000 * *
WCAS Capital Partners III,
L.P. (e)................ 1,375,000 -- -- -- 1,375,000 1.9% 1.5%
Whitney Equity Partners,
L.P. (d)................ -- 3,203,118 1,720,406 -- 4,923,524 6.6% 5.5%
J. H. Whitney Mezzanine
Fund, L.P. (d).......... 312,500 -- -- -- 312,500 * *
Canadian Imperial Bank of
Commerce (f)............ -- -- -- 10,000,000 10,000,000 13.5% 11.2%
Caravelle Investment Fund,
L.L.C. (i).............. 312,500 -- -- -- 312,500 * *
Whitney Strategic Partners
III, L.P. (d)........... -- -- 80,961 94,118 175,079 * *
J. H. Whitney III, L.P.
(d)..................... -- -- 3,359,852 3,905,882 7,265,734 9.8% 8.1%
Waller-Sutton Media
Partners, L.P. (j)...... -- -- 1,228,862 400,000 1,628,862 2.2% 1.8%
</TABLE>
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<PAGE> 85
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PERCENTAGE OF PERCENTAGE OF
TOTAL VOTING TOTAL VOTING
NUMBER OF POWER OF POWER OF
SERIES A SERIES B SERIES C SHARES OF STOCK COMMON STOCK ON COMMON STOCK ON
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY A FULLY-DILUTED A FULLY-DILUTED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED BASIS BASIS
------------------------ ------ --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kitty Hawk Capital Limited
Partnership, III (k).... 32,761 259,712 61,443 -- 353,916 * *
Kitty Hawk Capital Limited
Partnership, IV (k)..... -- -- 307,216 200,000 507,216 * *
All directors and
executive officers as a
group (14 persons)
(l)..................... 2,738,290 3,203,118 5,161,219 57,900,368 69,002,995 92.8% 76.7%
</TABLE>
- ---------------
* Less than 1%.
(a) Includes 172,500 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days. The business address for
Mr. Clark is 8000 Regency Parkway, Suite 570, Cary, North Carolina 27511.
(b) Includes 56,250 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(c) None of Mr. Armant's outstanding stock options are exercisable within 60
days.
(d) 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.
(e) Messrs. Sorrel, McInerney and Rupert are each general partners of Welsh,
Carson, Anderson & Stowe and will acquire directly 50,000, 262,973 and
25,000 shares of Series C preferred stock, respectively. Messrs. Sorrel,
McInerney and Rupert each disclaim beneficial ownership of the shares held
by the Welsh, Carson funds. The business address for Messrs. Sorrel,
McInerney and Rupert and the Welsh, Carson funds is 320 Park Avenue, Suite
2500, New York, New York 10022.
(f) Andrew R. Heyer, an employee of an affiliate of Canadian Imperial Bank of
Commerce, along with Jay R. Bloom and Dean C. Kehler, who are also
employees of an affiliate of Canadian Imperial Bank of Commerce, have
shared power to vote and dispose of the Series C preferred stock reported
in the table. The business address for Canadian Imperial Bank of Commerce
is 161 Bay Street, PP Box 500, M51258, Toronto, Canada, and the business
address for Mr. Heyer is 425 Lexington Avenue, 7th Floor, New York, New
York 10017.
(g) All of the Series C preferred shares reported as beneficially owned by Mr.
Price are held by The Price Family Limited Partnership. Mr. Price disclaims
beneficial ownership of all such shares.
(h) Messrs. Donahue and Shindler are executive officers of Nextel, own no
shares directly and disclaim beneficial ownership of the shares held by
Nextel. The business address for Messrs. Donahue and Shindler and Nextel is
2001 Edmund Halley Drive, Reston, Virginia 20191.
(i) The general partner and investment manager of Caravelle Investment Fund,
L.L.C. are affiliates of Canadian Imperial Bank of Commerce. The business
address for Caravelle is 425 Lexington Avenue, New York, New York 10017.
(j) The business address for Waller-Sutton Media Partners, L.P. is c/o
Waller-Sutton Management Group, Inc., 1 Rockefeller Plaza, New York, New
York 10020.
(k) The business address for Kitty Hawk III and Kitty Hawk IV is 2700 Coltsgate
Road, Suite 202, Charlotte, North Carolina 28211.
(l) Includes 228,750 shares of common stock issuable upon the exercise of
outstanding options 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' amended and restated certificate of
incorporation authorizes 95,000,000 shares of common stock, $0.001 par value per
share, and 70,749,625 shares of preferred stock, of which 3,462,830 shares have
been designated as Series A convertible preferred stock, 7,000,000 shares have
been designated as Series B convertible preferred stock and 60,286,795 shares
have been designated as Series C convertible preferred stock. SpectraSite's
stockholders have approved an increase in the authorized shares of common stock
to 120,000,000 in connection with the Westower merger and may consider further
increases prior to the merger. As of May 31, 1999, there were:
- 3,398,307 shares of common stock issued and outstanding;
- 3,462,830 shares of Series A preferred stock issued and outstanding;
- 7,000,000 shares of Series B preferred stock issued and outstanding; and
- 60,286,795 shares of Series C preferred stock issued and outstanding.
The 60,286,795 shares of Series C preferred stock were issued to the Series
C investors and Nextel in connection with the Nextel tower acquisition. In
addition:
- 979,600 shares of common stock are reserved for issuance upon exercise of
stock options available for future grant under the 1997 stock option
plan;
- 3,120,400 shares of common stock are reserved for issuance upon exercise
of stock options granted under the 1997 stock option plan; and
- 70,749,625 shares of common stock are reserved for issuance upon the
conversion of the preferred stock.
COMMON STOCK
Holdings has two classes of authorized common stock which are identical in
all respects except that one class is non-voting. If a Holdings stockholder is
deemed a regulated entity under the Bank Holding Company Act of 1956, as
amended, its shares of Holdings common stock over 5% of the total issued and
outstanding common stock will become non-voting until transferred to a
non-regulated entity. The voting 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." Subject to preferences
that may be applicable to the Series A, the Series B and Series C 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, the Series B and the Series C
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 at less than a specified price per share;
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- any issue of rights, options or warrants to subscribe for or purchase
shares of common stock at 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 at
less than a specified price per share; and
- 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 $150.0 million at an offering price per share
greater than or equal to $8.00.
DIVIDENDS. The holders of outstanding shares of preferred stock are not
entitled to receive dividends. However, when, as and if Holdings' board of
directors declares and pays a dividend on the common stock out of funds legally
available for that purpose, Holdings will declare and pay to each preferred
stock holder a dividend equal to the dividend that would have been payable to
such holder if his or her shares of preferred stock had been converted into
common stock on the date of determination of common stock holders entitled to
receive such dividend. 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 upon Holdings' liquidation, dissolution or winding-up.
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, the
Series B and the Series C 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, the
Series B and the Series C 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.
VOTING. Each of the Series A, the Series B and the Series C 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 60% of all issued shares of the Series A, the
Series B and the Series C preferred stock, voting as a single class:
- the consummation of any sale or transfer of all or substantially all of
Holdings' assets, or any consolidation or merger with or into any other
corporation or corporations;
- any amendment, restatement or modification of Holdings' certificate of
incorporation or bylaws which adversely affects the respective
preferences, qualifications, special or relative rights, or privileges of
preferred stock holders or which adversely affect the common stock or its
holders, provided, however, that any such change which adversely affects
the preferences, qualifications, special or relative rights or privileges
of any series of preferred stock but does not affect the other series of
preferred stock in a substantially similar manner shall require the prior
consent of the holders of a majority of the outstanding shares of the
affected series of preferred stock;
- Holdings' voluntary dissolution, liquidation or winding-up; or
- the authorization, creation or issuance of any shares of capital stock or
other securities which are ranked prior to or ratably with the preferred
stock, increase the authorized amount of the preferred stock, increase
the authorized amount of any additional class of shares of stock which
are ranked prior to or ratably with the preferred stock, or create or
authorize any obligation or security convertible into shares of preferred
stock or any other class of stock which is ranked prior to or ratably
with the preferred stock as to dividends and the distribution of assets
on Holdings' liquidation, dissolution or winding up.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
SpectraSite Communications, Inc., a wholly-owned subsidiary of Holdings,
entered into a credit agreement, dated as of April 20, 1999, with CIBC
Oppenheimer Corp., now known as CIBC World Markets Corp., and Credit Suisse
First Boston, New York Branch, and certain other lenders. This credit facility
provides a $500.0 million credit facility. The proceeds of the credit facility
will be used to consummate the Nextel tower acquisition, to finance the
construction and acquisition of additional towers and for working capital and
general corporate purposes.
The following is a summary of the material terms of the credit facility.
This summary is qualified in its entirety by the final terms of the credit
facility.
The credit facility consists of:
- a $50.0 million revolving credit facility that may, subject to the
satisfaction of certain financial covenants, be drawn at any time after
the closing of the Nextel tower acquisition and from time to time
thereafter up to December 31, 2005, at which time all amounts drawn under
the revolving credit facility must be paid in full;
- a $300.0 million multiple draw term loan that may be drawn at any time
and from time to time from the closing of the Nextel tower acquisition
through March 31, 2002; the amount drawn must be repaid in quarterly
installments commencing on June 30, 2002 and ending on December 31, 2005;
and
- a $150.0 million term loan that was drawn in full at the closing of the
Nextel tower acquisition and that amortizes at a rate of 1.0% annually,
payable in quarterly installments beginning in 2002, $67.5 million on
March 31, 2006 with the balance due on June 30, 2006.
In addition, the credit facility contemplates borrowings to be funded by
affiliates of certain of Holdings' shareholders subject to the approval of a
majority of the lenders under the credit facility and the consent of such
affiliates.
The revolving credit loans and the multiple draw term loans will bear
interest, at SpectraSite Communications' option, at either:
- Canadian Imperial Bank of Commerce's base rate, plus an applicable margin
of 1.5% per annum initially, which margin after a period of time may
decrease based on a leverage ratio, or
- the reserve adjusted London interbank offered rate, plus an applicable
margin of 3.0% per annum initially, which margin after a period of time
may decrease based on a leverage ratio.
The term loan bears interest, at SpectraSite Communications' option, at
either:
- Canadian Imperial Bank of Commerce's base rate, plus 2.0% per annum,
which margin after a period of time may decrease based on a leverage
ratio, or
- the reserve adjusted London interbank offered rate, plus 3.5% per annum,
which margin after a period of time may decrease based on a leverage
ratio.
SpectraSite Communications will be required to pay a commitment fee of
between 1.25% and 0.50% per annum in respect of the undrawn portion of the
multiple draw term loan, depending on the amount undrawn. SpectraSite
Communications will be required to pay a commitment fee of 0.50% per annum in
respect of the undrawn portion of the revolving credit facility.
SpectraSite Communications may be required to prepay the 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 and the
generation of excess cash flow.
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Holdings and each of SpectraSite Communications' subsidiaries has
guaranteed SpectraSite Communications' obligations under the credit facility.
The credit facility is further secured by:
- substantially all the tangible and intangible assets of SpectraSite
Communications and its subsidiaries, and
- a pledge of all of the capital stock of SpectraSite Communications and of
all of its subsidiaries.
The credit facility contains a number of covenants that, among other
things, restrict the ability of Holdings, SpectraSite Communications and their
subsidiaries to:
- incur additional indebtedness,
- create liens on assets,
- make investments, make acquisitions, or engage in mergers or
consolidations,
- dispose of assets,
- enter into new lines of business,
- engage in certain transactions with affiliates, and
- pay dividends or make capital distributions.
SpectraSite Communications, however, will be permitted to pay dividends after
July 15, 2003, for the purpose of paying interest on the 2008 notes and the 2009
notes so long as no default under the credit facility then exists or would exist
after giving effect to such payment.
In addition, the credit facility requires compliance with certain financial
covenants, including requiring SpectraSite Communications and its subsidiaries,
on a consolidated basis, to maintain:
- a maximum ratio of total debt to annualized EBITDA;
- a minimum interest coverage ratio;
- a minimum fixed charge coverage ratio; and
- a minimum annualized EBITDA, for the first year only.
SpectraSite Communications does not expect that such covenants will materially
impact its ability and the ability of its subsidiaries to operate their
respective businesses.
The credit facility contains customary events of default.
12% SENIOR DISCOUNT NOTES DUE 2008
On June 26, 1998, Holdings issued $225.2 million in aggregate principal
amount at maturity of its 12% senior discount notes due 2008 under an indenture
between Holdings and the United States Trust Company of New York, as trustee.
The 2008 notes mature on July 15, 2008 and rank equally with the 2009 notes.
The 2008 notes were issued at a substantial discount to their principal
amount, and were sold to investors at a price that yielded gross proceeds to
Holdings of $125.0 million. The 2008 notes accrete daily at a rate of 12% per
year, compounded semiannually, to an aggregate principal amount of $225.2
million as of July 15, 2003. Cash interest will not accrue on the 2008 notes
prior to July 15, 2003. Commencing July 15, 2003, cash interest on the 2008
notes will accrue and be payable semiannually in arrears on each January 15 and
July 15, commencing January 15, 2004, at a rate of 12% per year.
Except as described below, the 2008 notes are not redeemable at Holdings'
option prior to July 15, 2003. Thereafter, the 2008 notes will be subject to
redemption at any time at the option of Holdings, in whole or in part, at the
redemption prices set forth in the indenture plus accrued and unpaid interest
thereon, if any, to the applicable redemption date. In addition, from time to
time prior to July 15, 2001, SpectraSite may on one or more occasions redeem up
to 25% of the aggregate principal amount at maturity of the 2008 notes issued at
a redemption price of 112% of their accreted value, to the redemption date, with
the net cash proceeds from one or more equity offerings; provided, however, that
at least 75% of the aggregate principal amount at maturity of 2008 notes
originally issued remains outstanding immediately after the occurrence of such
redemption.
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The 2008 notes are general unsecured obligations of Holdings, rank senior
in right of payment to any future indebtedness of Holdings which is made
expressly junior thereto, and rank equal in right of payment with all current
and future unsecured senior indebtedness of Holdings, including the 2009 notes.
All of the operations of Holdings are conducted through its subsidiaries, and
Holdings' subsidiaries did not guarantee the 2008 notes. Accordingly, the 2008
notes are effectively subordinated to all indebtedness and all other liabilities
or obligations of such subsidiaries, including borrowings under the $500.0
million new credit facility.
Upon the occurrence of a change of control, the holders of the 2008 notes
have the right to require Holdings to repurchase such holders' 2008 notes, in
whole or in part, at a price equal to 101% of the accreted value thereof to the
date of purchase prior to July 15, 2003 or 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase on or after
July 15, 2003.
The indenture governing the 2008 notes contains certain covenants that,
among other things, limit the ability of Holdings and its subsidiaries to:
- incur additional indebtedness and issue preferred stock;
- pay dividends or make certain other restricted payments;
- enter into transactions with affiliates;
- make certain asset dispositions;
- merge or consolidate with, or transfer substantially all its assets to,
another entity;
- create liens securing indebtedness; and
- permit subsidiaries to incur restrictions on their ability to pay
dividends to Holdings.
However, all of these limitations are subject to a number of important
qualifications.
On March 24, 1999, Holdings received consents from all holders of the 2008
notes to certain amendments to the indenture governing the 2008 notes. The
indenture amendments allowed for consummation of the Nextel tower acquisition
and the related financing transactions.
Holdings has filed a registration statement with the SEC with respect to a
registered offer to exchange the outstanding 2008 notes for registered 2008
notes, which will have terms substantially identical in all material respects to
the outstanding notes except that such notes will not contain terms with respect
to transfer restrictions. We will keep the registered exchange offer open for
not less than 30 days, or longer if required by applicable law, after the date
notice of the registered exchange offer is mailed to the holders of the
outstanding notes. The SEC declared the 2008 notes exchange offer registration
statement effective on August 11, 1999, and we expect to commence the exchange
offer on or before August 16, 1999. The 2008 notes began accruing additional
cash interest at the rate of 0.50% per year on March 10, 1999. This interest is
payable in addition to any other interest payable from time to time with respect
to the 2008 notes. Additional interest will be payable in cash on July 15 and
January 15 of each year, and this interest will stop accruing upon completion of
the exchange offer. This prospectus is not an offer to purchase or a
solicitation of an offer to purchase the 2008 notes or a solicitation to tender
the 2008 notes in the exchange offer. The exchange offer will only be made by
means of a prospectus which is part of the exchange offer registration statement
for the 2008 notes, and a copy of that prospectus will be mailed to all
registered holders of the 2008 notes as of the record date for the exchange
offer.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Holdings originally sold the outstanding notes to CIBC World Markets Corp.,
Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated,
BancBoston Robertson Stephens Inc. and TD Securities (USA) Inc. 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, under
which Holdings agreed, for the benefit of the outstanding note holders and 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 July 20, 1999. 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 in response 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 under 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. We do not assume or indemnify you against any such liability.
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.
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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;
- 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 not consummated within 180 days of April
20, 1999, 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 under 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 July 19, 1999. In the event that:
- by the 90th day after the exchange offer registration statement filing
date neither the exchange offer is consummated nor the shelf registration
statement is declared effective;
- by the 180th day after April 20, 1999, 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,
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the interest rate on the outstanding notes will increase by 0.50% per year 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 October 15 and April 15, commencing with the first such
date occurring after any such interest begins to accrue, until the registration
default is cured or the exchange offer is completed. After the date on which the
registration default is cured or the exchange offer is completed, the interest
rate on the outstanding notes will revert to 11 1/4% 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 in response 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, $586,800,000 aggregate original
principal amount at maturity of outstanding notes were outstanding. We have
fixed the close of business on August 11, 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.
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Holdings shall be deemed to have accepted validly tendered outstanding
notes when, as and if we give oral or written notice to that effect 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 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 in response 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 September 15, 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 United 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
DTC according 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.
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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.
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 according 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 thereto are tendered, respectively:
- 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 her 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
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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, 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 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 Holdings, 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 to that
effect 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 under 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:
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- 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
- that Holdings 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 September 15,
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;
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- 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 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.
Holdings 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. Holdings 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 reasonable 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>
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
Holdings 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 Holdings and its affiliates or its agents.
Holdings 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. Holdings, 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.
Holdings 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 Holdings' accounting
records on the date of exchange. Accordingly, Holdings 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 in
response 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 under 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 under
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
- under 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. Copies of the indenture, dated April 20, 1999,
between Holdings and United States Trust Company of New York, as trustee, has
been filed as exhibits 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 October 15,
2004. For a description of certain tax matters related to an investment in the
notes, see "Certain United States 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 April 15, 2009;
- have a maximum aggregate principal amount at maturity of $586.8 million;
and
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REDEMPTION
Terms of Optional Redemption
Prior to April 15, 2002 Holdings may redeem up to 35% 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 111.25% of the Accreted Value of the notes being redeemed, plus accrued
and unpaid interest, if any, to the redemption date. At least 65% of the
aggregate principal amount at maturity of the notes originally issued must
remain outstanding after each such redemption, excluding notes held by Holdings
or any of its subsidiaries, and each such redemption must occur within 90 days
after the date of closing of the related equity offering.
Holdings may redeem the notes at any time or from time to time on or after
April 15, 2004. Holdings shall pay accrued and unpaid interest, if any, on the
Accreted Value of the notes being redeemed to the redemption 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>
PERIOD REDEMPTION PRICE
COLUMN A COLUMN B
- -------- ----------------
<S> <C>
2004.................................................. 105.625%
2005.................................................. 103.750%
2006.................................................. 101.875%
2007 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.
Holdings 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. 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.
Mandatory Redemption
Holdings will not make mandatory redemption or sinking fund payments with
respect to the notes.
RANKING
The indebtedness evidenced by the notes:
- is unsecured indebtedness of Holdings;
- will rank ratably in right of payment with all existing and future
unsecured senior indebtedness of Holdings;
- will be senior in right of payment to all existing and future
subordinated obligations of Holdings; and
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- will be equal in right of payment with all existing and future senior
indebtedness of Notes.
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 and other liabilities of any of Holdings'
subsidiaries.
At December 31, 1998, after giving pro forma effect to this offering and
the transactions contemplated hereby, Holdings had no indebtedness outstanding
other than the 2008 notes and the 2009 notes, and Holdings' subsidiaries had
$152.7 million of debt and other liabilities and the ability to borrow at least
$350.0 million under the new credit facility. Although the indenture contains
limitations on the amount of additional indebtedness which Holdings may incur,
under certain circumstances the amount of indebtedness could be substantial and,
in any case, the 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 for that
purpose. 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 the 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 any 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, that limitation is subject
to a number of significant qualifications. Further, 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 note holder will have the
right to require Holdings to repurchase all or any part of that 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.
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 the 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;
- 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.
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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 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." These 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 those 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 Credit Facility:
- limits Holdings' access to its subsidiaries' cash flow and, therefore,
restricts Holdings' ability to purchase any note; and
- provides, 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'
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 any Credit Facility that prohibits such distribution, to allow
such distributions, or it could attempt to refinance the borrowings that contain
the prohibition against distributions. If Holdings does not 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 any such 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 Holdings 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 -- If we do not generate sufficient cash, we will be unable to service
our indebtedness" and "Risk Factors -- We are a holding company and our only
source of cash to pay interest on and the principal of the 2008 notes and the
2009 notes is distributions from our subsidiaries." We cannot assure you that
sufficient funds will be available when necessary for Holdings to make any
required purchases.
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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. Holdings may give pro forma effect 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. However, any subsequent issuance or transfer of any
capital stock, or any other event which results in the restricted
subsidiary ceasing to be a restricted subsidiary, or any
subsequent transfer of this type of indebtedness, except to
another restricted subsidiary, will be deemed to constitute
Holdings' incurrence of this type of 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 the greater of:
- $10.0 million and
- an amount equal to 3% of Holdings' Consolidated Tangible
Assets, at any one time outstanding, together with the amount
of any indebtedness then outstanding and incurred according to
the terms of clause (2)(f) of the "Limitation on Indebtedness
and preferred stock of Restricted Subsidiaries" covenant;
provided, that the indebtedness is incurred within 180 days after
the date of the acquisition, construction or improvement, and
does not exceed the fair market value of the acquired,
constructed or improved assets, as Holdings' board of directors
determines in good faith;
e. Refinancing Indebtedness, incurred in respect of any
indebtedness incurred according to the terms of paragraph (1)
above or according to the terms of clauses (2)(b) or (c) above
or this clause (2)(e);
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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. However, the
currency agreements exchange protection and interest rate
protection agreements must be 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 under the indenture;
h. indebtedness of any other person, existing at the time the other
person is merged with or into Holdings, and outstanding on, or
prior to, the date on which that 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 the person was merged
with or into Holdings. However, on the date of such a merger and
after giving it effect, Holdings either would be permitted to
incur at least $1.00 of additional indebtedness according to the
terms of paragraph (1) above or would have had an Indebtedness
to Adjusted EBITDA Ratio immediately after giving effect to the
merger no greater than the Indebtedness to Adjusted EBITDA Ratio
immediately prior to the merger;
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 sum of 100% of the aggregate Net Cash Proceeds and 50% of
the non-cash proceeds Holdings receives from the issue or sale
of capital stock, other than Disqualified Stock, subsequent to
the first day of the quarter in which the Issue Date occurs,
other than an issuance or sale to a Holdings' subsidiary or to
an employee stock ownership plan or a trust established by
Holdings or any of its restricted subsidiaries,
less
- the aggregate 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; and
k. other indebtedness, in an aggregate principal amount outstanding
at any time, not to exceed $15.0 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 the
new indebtedness shall:
a. be subordinated to the notes to at least the same extent as the
subordinated obligations being refinanced; and
b. have a Stated Maturity that is no earlier than the earlier of
the Stated Maturity of the notes or 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 that
indebtedness, and only be required to include the amount and
type of the 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 resulting net proceeds, the Indebtedness to
Adjusted EBITDA Ratio of Holdings 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 Credit Facilities, in an aggregate
principal amount outstanding at any time, not to exceed the
product of $200,000 times the number of Completed Towers on the
date of that incurrence;
b. indebtedness or preferred stock of a restricted subsidiary
issued to, and held by, Holdings or a restricted subsidiary.
However, 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 that
indebtedness or preferred stock, other than to Holdings or a
restricted subsidiary, shall be deemed to constitute an
incurrence of such indebtedness or preferred stock by the issuer
of such preferred stock or indebtedness;
c. indebtedness or preferred stock of a restricted subsidiary
incurred and outstanding on, or prior to, the date on which
Holdings acquired the restricted subsidiary, and indebtedness or
preferred stock of an entity merged into a restricted
subsidiary, other than, in either case, indebtedness or
preferred stock 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,
under which the restricted subsidiary became a restricted
subsidiary, Holdings acquired it or the entity was merged into
such restricted subsidiary. However, on the date of that
acquisition or merger and after giving it effect, either
Holdings must be permitted to incur at least $1.00 of additional
indebtedness pursuant to paragraph (1) above or Holdings must
have an Indebtedness to Adjusted EBITDA Ratio immediately after
giving effect to the merger or acquisition no greater than the
Indebtedness to Adjusted EBITDA Ratio immediately prior to the
transaction;
d. indebtedness or preferred stock outstanding on the Issue Date,
other than indebtedness described in clauses (2)(a), (b) or (c)
above;
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e. Refinancing Indebtedness incurred in respect of indebtedness or
preferred stock referred to in clauses (2)(c) and (d) above or
this clause (e). However, to the extent the Refinancing
Indebtedness directly or indirectly refinances a subsidiary's
indebtedness or preferred stock described in clause (2)(c)
above, only the subsidiary shall incur that 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 the
greater of $10.0 million and an amount equal to 3% of Holdings'
Consolidated Tangible Assets, together with the amount of any
indebtedness then outstanding and incurred according to the
terms of clause (2)(d) of the "Limitation on Indebtedness"
covenant. However, the subsidiary must incur the indebtedness
within 180 days after the date of the acquisition, construction
or improvement, and the indebtedness must not exceed the fair
market value of the 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. However,
the currency exchange protection agreements and interest rate
protection agreements must be directly related to indebtedness
which Holdings or any of its subsidiaries is permitted to
incur under the indenture;
h. indebtedness represented by guarantees, by a subsidiary, of
indebtedness which Holdings or another subsidiary is otherwise
permitted to incur under 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 according to the
terms of clause (2)(j) of the "Limitation on Indebtedness"
covenant,
1.5
times
- the sum of 100% of the aggregate Net Cash Proceeds and 50% of
the non-cash proceeds SpectraSite receives from the issue or
sale of capital stock, other than Disqualified Stock,
subsequent to the first day of the quarter in which the Issue
Date occurs, other than an issuance or sale to a Holdings
subsidiary or to an employee stock ownership plan or to a
trust established by Holdings or any of its restricted
subsidiaries,
less
- the amount of Net Cash Proceeds used to make Restricted
Payments according to clause (1)(c)(ii) of the "Limitation on
Restricted Payments" covenant, or applied according to clause
(2)(a)(ii)of the "Limitation on Restricted Payments"
covenant; and
j. other indebtedness and preferred stock, in an aggregate
principal and/or liquidation amount, not to exceed at any time
outstanding, $15.0 million, less the amount of any indebtedness
then outstanding and incurred according to clause (2)(k) of the
"Limitation on Indebtedness" covenant.
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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 that
indebtedness, and only be required to include the amount and
type of the 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 Holdings or the restricted subsidiary makes the
Restricted Payment:
a. a default or event of default will have occurred and be
continuing, or would result from the payment;
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 that Restricted Payment and all other
Restricted Payments, which amount, if other than in cash,
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 that EBITDA shall be
a deficit, minus that deficit, accrued subsequent to the
Issue Date to the most recent date for which financial
information is available to Holdings, 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 the Net Cash Proceeds used to incur indebtedness
according 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 of
these valuations calculated as of the sale date of the
capital stock received as consideration, in each case
received by Holdings from the issue or sale of capital
stock, other than Disqualified Stock, subsequent to the
first day of the quarter in which the Issue Date occurs,
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 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
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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 that
subsidiary, of the fair market value of the net assets of an
Unrestricted Subsidiary, at the time the 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
those 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 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 the 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.
However:
i. the 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
the 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. However:
i. the principal amount of the new indebtedness must 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. the new indebtedness must be 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. the new indebtedness must have 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. the new indebtedness must have 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 the date of declaration the dividend would have complied
with this covenant; and
d. purchases of outstanding shares of Holdings' capital stock from
former employees, in an amount not to exceed $5.0 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 a 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, under 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, under which the
restricted subsidiary became a subsidiary, or Holdings or a
restricted subsidiary acquired it, and outstanding on that date;
c. any encumbrance or restriction pursuant to an agreement effecting
a refinancing of indebtedness incurred, pursuant to an agreement
referred to in clause (a) or (b) above, or contained in any
amendment to an agreement referred to in clause (a) or (b) above.
However, the encumbrances and restrictions contained in any such
refinancing agreement or amendment, taken as a whole, with respect
to a restricted subsidiary, must be no less favorable to the
holders of notes than the encumbrances and restrictions with
respect to that restricted subsidiary contained in the predecessor
agreements, as 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 the encumbrance or restrictions restrict the transfer of
the property subject to the security agreements or mortgages;
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f. any restriction with respect to a restricted subsidiary, imposed
under an agreement entered into for the sale or disposition of all
or substantially all of the restricted subsidiary's capital stock
or assets, pending the closing of the 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 the 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 Holdings' board of directors determines in good
faith, of the shares and assets subject to the Asset Disposition;
and
b. except in the case of a Tower Asset Exchange, at least 75% of the
consideration Holdings or the 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 the Net Available Cash to:
a. prepay, repay, redeem or purchase indebtedness, other than
Disqualified Stock, of a wholly owned subsidiary of Holdings,
provided that the applicable restricted 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. make an offer with respect to the 2008 notes to the extent
required in the indenture governing the 2008 notes;
c. acquire all or substantially all of the assets of an entity
engaged in a Permitted Business;
d. acquire Voting Stock of an entity engaged in a Permitted Business
from a person that is not a Holdings subsidiary. However, after
giving effect to the acquisition, Holdings or its restricted
subsidiary must own a majority of the entity's Voting Stock, and
such acquisition otherwise is made in accordance with the
indenture, including, without limitation, the "Limitation on
Restricted Payments" covenant; or
e. 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 this Net Available Cash, after
application in accordance with clause (2)(a), (b), (c), (d), or (e)
above, Holdings shall make an offer to the holders to purchase notes
according to the terms of, and subject to, the conditions set forth in
paragraph (5) below.
3. Despite 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 is not
applied in accordance with this covenant exceeds $10.0 million.
Pending application of Net Available Cash according to this covenant,
the 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
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subsidiary's indebtedness and the release of Holdings or the
restricted subsidiary from all liability on that 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
c. the transferee's assumption of any of Holdings' or any restricted
subsidiary's liabilities, as shown on Holdings' or the 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 on the notes, 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
according to paragraph (1) of this covenant, Holdings will be
required to purchase notes tendered, in response 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 in response 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 under 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 $10.0 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 the transaction, taken as a whole, are no less
favorable to Holdings or the 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;
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b. in the event the affiliate transaction involves an aggregate
amount in excess of $5.0 million, the terms of the 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 the affiliate transaction, and that majority
determines that the affiliate transaction satisfies the criteria
in clause (1)(a) above; and
c. in the event the affiliate transaction involves an aggregate
amount in excess of $10.0 million, Holdings has received a
written opinion from a nationally recognized independent
investment banking firm that the 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 according to the
"Limitation on Restricted Payments" covenant;
b. any securities issuance, or other payments, awards or grants in
cash, securities or otherwise, under, 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, according 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
$5.0 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;
h. any transaction, consummated according to the terms of any
agreement described in Holdings' final offering memorandum dated
April 20, 1999, giving effect to any subsequent supplements,
amendments, modifications or alterations thereof that are
approved by the disinterested members of Holdings' board of
directors;
i. any transaction in the ordinary course of business between
Holdings or any restricted subsidiary and any Affiliate of
Holdings relating to the acquisition, management, construction,
leasing or licensing of towers. However, the transaction must be
on terms that are no less favorable, taken as a whole, to
Holdings or the relevant restricted subsidiary than those that
could have been obtained in a comparable transaction by Holdings
or the restricted subsidiary in an arm's-length transaction or
is otherwise on terms that, taken as a whole, Holdings has
determined to be fair to Holdings or the relevant restricted
subsidiary; and
j. any transaction between Holdings or any of its restricted
subsidiaries and any of its Affiliates involving ordinary course
investment banking, commercial banking or related activities.
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
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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. the transfer, conveyance, sale, lease, or other disposition is
of all of the capital stock of the restricted subsidiary, or a
majority of the issued and outstanding capital stock of the
restricted subsidiary. However, Holdings' minority equity
interest in that person, after giving effect to the disposition,
shall be deemed to constitute an Investment, by Holdings, in
that person; and
b. the Net Cash Proceeds from the transfer, conveyance, sale,
lease, or other disposition, must be 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.
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 the restricted subsidiary would be entitled to:
a. Incur indebtedness in an amount equal to the Attributable
Indebtedness with respect to the Sale/ Leaseback Transaction,
according to the "Limitation on Indebtedness" covenant; and
b. create a Lien on property securing the Attributable
Indebtedness, without equally and ratably securing the notes,
according to the "Limitation on Liens" covenant;
2. the Net Cash Proceeds received by Holdings or any restricted
subsidiary in connection with the Sale/ Leaseback Transaction are
at least equal to the fair value of the property, as Holdings'
board of directors determines in good faith; and
3. the transfer of the property is permitted by, and Holdings or the
restricted subsidiary applies the proceeds of the 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 the filing, and provide the
trustee and note holders with, the annual reports and the information, documents
and other reports 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).
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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 the 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
the transaction, as having been incurred by the Successor Issuer,
or the restricted subsidiary, at the time of such transaction, no
default or event of default will have occurred and be continuing;
3. except in the case of a merger of Holdings into a wholly owned
subsidiary, a merger Holdings enters into solely for the purpose of
reincorporating in another jurisdiction or a merger Holdings enters
into solely for the purpose of forming a holding company to hold
all of Holdings' outstanding capital stock immediately after giving
effect to the transaction on a pro forma basis, as if the
transaction had occurred at the beginning of the applicable
four-quarter period, Holdings, or the person formed by, or
surviving, the consolidation or merger, if other than Holdings, or
to which the conveyance, transfer, lease or other disposition shall
have been made either would have been permitted to incur at least
$1.00 of additional indebtedness according to paragraph (1) of the
"Limitation on Indebtedness" covenant above or would have had an
Indebtedness to Adjusted EBITDA Ratio immediately after giving
effect to the consolidation, merger, conveyance, transfer, lease or
other disposition no greater than the Indebtedness to Adjusted
EBITDA Ratio immediately prior to the transaction; and
4. Holdings will have delivered to the trustee an officer's
certificate and an opinion of counsel, each stating that the
consolidation, merger or transfer, and the 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 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;"
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
indebtedness by the holders thereof, because of a default, if the
total amount of such
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indebtedness, unpaid or accelerated, exceeds $10.0 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 of
$10.0 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 $10.0 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 that judgment or decree; or
b. the 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 that
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.
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
those 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:
- the 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;
- the 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.
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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 its signers 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 "-- Terms of
Optional Redemption;"
- make any note payable in money other than that stated in the note;
- 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, that 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.
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After an amendment under the indenture becomes effective, Holdings is
required to mail to the holders a notice briefly describing such amendment.
However, failure to give notice to all holders, or any defect in the notice
Holdings gives, 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 that connection. 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, 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".
Holdings may exercise its legal defeasance option despite 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 to that exercise. 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 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 that 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 the deposit and defeasance had not occurred and, in the case of legal
defeasance only, the opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law.
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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 these 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.
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 an amount per $1,000 principal amount at maturity of
the notes that is equal to:
(1) as of any date prior to April 15, 2004, the sum of:
(a) the initial offering price of each note and
(b) the portion of the excess of the principal amount at maturity
of each note over the initial offering price which shall have
been amortized through that date, the amount to be so amortized
on a daily basis and compounded semi-annually on each April 15
and October 15 at the rate of 11 1/4% per year from the Issue
Date through the date of determination, computed on the basis
of a 360-day year of twelve 30-day months; and
(2) as of any date after April 15, 2004, $1,000.
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 the date of determination, less Holdings' Tower
EBITDA for that four-quarter period;
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plus
2. the product of four times Holdings' 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 the 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 through, and including, the date of determination,
as if the new lease or Site Management Contract had been signed
at the beginning of the quarter, and Holdings or a restricted
subsidiary had received the rent required by the terms of such
lease or Site Management Contract for that 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 Holdings 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 that 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
the 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 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.
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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
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 $1.0
million;
- any transaction not prohibited by the covenant under "Limitation on
Restricted Payments" or that constitutes a Permitted Investment;
- 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 the indebtedness, or redemption, or similar payment
with respect to the preferred stock, times the amount of such
payment;
by
2. the sum of all such payments.
Change of Control means the occurrence of any of the following events:
1. prior to the first public offering of Holdings common stock, the
Permitted Holders cease to be the beneficial owners, 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 Holdings'
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.
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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 person has the right
to acquire, whether the 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. However, the
Permitted Holders must 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
the other person, and must not have the right or ability, by voting
power, contract, or otherwise, to elect, or designate for election,
a majority of Holdings' board of directors;
For purposes of this paragraph (2), the other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent entity,
if the 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 total voting power of the parent entity's Voting Stock than
the 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
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 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 the
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 according to that transaction those
securities are changed into or exchanged for, in addition to any
other consideration, securities of the surviving corporation that
represent immediately after the 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.
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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
not owned by Holdings or a restricted subsidiary, 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 the 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;
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, Holdings 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 that
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 for that
period, shall be included in Consolidated Net Income up to the
aggregate amount of cash actually distributed by such person
during the 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 the 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 the acquisition;
3. any restricted subsidiary's net income, if the restricted
subsidiary is subject to restrictions, other than any restrictions
permitted in the "Limitations on Restrictions on Distributions from
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Restricted Subsidiaries" covenant, 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 that period shall be included in Consolidated Net
Income up to the aggregate amount of cash actually distributed
by the restricted subsidiary during the 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 that period, shall be included in
determining 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 under any Sale/Leaseback Transaction, which are
not 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, unless
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 Holdings or a restricted subsidiary, to the extent such
dividends, repayments, or transfers increase the amount of Restricted Payments
permitted under that covenant, according to clause (1)(c)(iv).
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 Holdings and the
restricted subsidiaries, calculated on a consolidated basis in accordance with
GAAP.
Credit Facility means any debt or credit facility, commercial paper
facility providing for revolving credit loans, term loans, accounts receivable
financing, including through the sale of accounts receivable to such lenders or
to special purpose entities formed to borrow from such lenders against such
accounts receivable, or letters of credit, or other non-convertible debt
securities or other form of debt financing, in each case, as amended, restated,
supplemented, extended, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time, including any amendment, restatement,
supplement, extension, modification, renewal, refunding, replacement or
refinancing that increases the amount borrowable under any such facility or
alters the maturity of any such facility.
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 at the option of the holder for
indebtedness or Disqualified Stock; or
3. is redeemable at the option of the holder, 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 the right to require the person to repurchase
or redeem the capital stock, upon the occurrence of an asset sale
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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 that capital stock are not materially
more favorable taken as a whole to the holders of the 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 the 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.
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
the 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 paid to Holdings in the form of a dividend by the
restricted subsidiary without prior approval, that has not been obtained,
according to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to the restricted subsidiary or its stockholders, without in any
event giving effect to any restrictions or limitations permitted in the
"Limitations on Restrictions on Distributions from Restricted Subsidiaries"
covenant.
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. other statements by other entities 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 under 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 to Adjusted EBITDA Ratio as of any date of determination means
the ratio of:
- Consolidated Indebtedness as that date;
to
- Adjusted EBITDA.
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Investment in any person means any direct or indirect advance, loan, other
than advances to customers, lessees or licensees 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 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 its subsidiary of the fair market value of the
net assets of any of Holdings' subsidiaries at the time that the
subsidiary is designated an Unrestricted Subsidiary. However, that
upon a redesignation of the 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 the subsidiary at the time of the
redesignation;
less
b. the portion, proportionate to Holdings' equity interest in the
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 the
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 Notes are 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,
under 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 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 the Asset Disposition, in accordance with the
terms of any Lien upon, or other security arrangement of any kind
with respect to, those 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 the 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 the 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 the Asset Disposition,
and retained by Holdings or any restricted subsidiary after the
Asset Disposition; and
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5. any reserves established in respect of the sales price of the 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 the 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 the issuance or sale, and net of taxes paid
or payable as a result 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 debt holders
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 of that other Indebtedness 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, David P. Tomick,
Joe L. Finley, Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information
Partners, L.P., WCAS Capital Partners III, L.P., their respective general
partners, employees of Welsh, Carson, Anderson & Stowe, CIBC WG Argosy Merchant
Fund 2, L.L.C., Co-Investment Merchant Fund 3, LLC, Caravelle Investment Fund
L.L.C., Tower Parent Corp., Whitney Equity Partners, L.P., J.H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., J.H. Whitney Mezzanine Fund, L.P.,
Waller-Sutton Media Partners, L.P., Kitty Hawk Capital Limited Partnership, III,
Kitty Hawk Capital Limited Partnership, IV, Eagle Creek Capital, L.L.C., The
North Carolina Enterprise Fund, L.P., Finley Family Limited Partnership, and
their respective Affiliates.
Permitted Investment means any of Holdings' or a restricted subsidiary's
Investment in:
1. Holdings, a wholly owned subsidiary, or a person which will, upon
the making of that 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. However,
the primary business of the person in which any such Investment is
made must be a Permitted Business;
2. another person if, as a result of the Investment, the 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. However, that person's primary business must be 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. However,
those 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;
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6. loans or advances to employees made in the ordinary course of
business, consistent with the past practices of Holdings or the
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 the investment represents the
non-cash portion of the consideration received for an Asset
Disposition as permitted according 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 $2.0 million 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 $10.0 million and 7.5% 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;
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. However,
making any Permitted Investment according to this clause (14) must
not in any manner violate the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
and
15. Investments made out of the Net Cash Proceeds or Qualified
Proceeds of the issuance or sale, other than to a subsidiary of
Holdings, of capital stock of Holdings, other than Disqualified
Stock, to the extent that the Net Cash Proceeds or Qualified
Proceeds have not been applied to make a Restricted Payment or to
effect other transactions according to the covenant "Limitation on
Restricted Payments" or to the extent the Net Cash Proceeds or
Qualified Proceeds have not been used to incur indebtedness.
Permitted Liens means, with respect to any person:
1. pledges or deposits by that 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 that
person is a party, or deposits to secure public or statutory
obligations of that person, or deposits or cash or United States
government bonds to secure surety or appeal bonds to which that
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 that judgment shall not have been finally
terminated, or the period within which the proceedings may be
initiated shall not have expired;
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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, that
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 that 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 the 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 the 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, and Liens securing the
obligations, other than indebtedness, of Holdings or any of its
restricted subsidiaries under any such leases and subleases of real
property;
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. However:
a. the indebtedness secured by the Liens must be indebtedness which
the indenture otherwise permits to be incurred; and
b. the Liens shall not encumber any other of Holdings' or any of
its restricted subsidiaries' assets or property;
10. Liens on a restricted subsidiary's assets or property, existing at
the time the restricted subsidiary became a Holdings subsidiary,
and not incurred as a result of, in connection with, or in
anticipation of the restricted subsidiary becoming a Holdings
subsidiary. However:
a. any such Lien must not by its terms cover any property or assets
after the time the restricted subsidiary becomes a subsidiary,
which were not covered immediately prior to the transaction;
b. the indebtedness secured by the Liens is indebtedness which the
indenture otherwise permits to be incurred; and
c. the 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 a Credit Facility
and any other Liens securing indebtedness permitted under the
indenture to be incurred by a restricted subsidiary;
12. Liens extending, renewing or replacing, in whole or in part, a
Lien the indenture permits. However,
a. the Liens must not extend beyond the property subject to the
existing Lien, and improvements and construction on that
property; and
b. the indebtedness the Lien secures may not exceed the
indebtedness the existing Lien secured at the time;
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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 $10.0 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 property's use in the
operation of business by Holdings or the 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;
16. Liens on Unrestricted Subsidiaries' capital stock; and
17. the Liens to be granted under the terms of a security and
subordination agreement, as amended, modified or supplemented from
time to time, entered into according to the terms of the agreement
and plan of merger, dated as of February 10, 1999, among Holdings,
SpectraSite Communications, Inc., SHI Merger Sub, Inc., Nextel
Communications, Inc. and certain of its subsidiaries.
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. However:
1. the Refinancing Indebtedness must have a Stated Maturity no earlier
than the earlier of the Stated Maturity of the notes and the Stated
Maturity of the indebtedness being refinanced;
2. the Refinancing Indebtedness must have an Average Life, at the time
the Refinancing Indebtedness is incurred, that is equal to or
greater than the Average Life of the notes; and
3. the Refinancing Indebtedness must be 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
committed, plus fees and expenses, including any premium and
defeasance costs, under the indebtedness being refinanced. However,
Refinancing Indebtedness shall not include:
a. any of a subsidiary's indebtedness that refinances any of
Holdings 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
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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, other than the
exercise by Holdings of any option to convert or exchange any
capital stock into indebtedness so long as the indebtedness is
permitted to be incurred as of the date of the exercise under the
indenture, and 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.
Sale/Leaseback Transaction means an arrangement relating to property now
owned or acquired in the future, whereby Holdings or a restricted subsidiary
transfers the property to a person, and Holdings or a restricted subsidiary
leases it from such person.
Secured Indebtedness means any of Holdings' indebtedness secured by a Lien.
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 under 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 of the Tower Assets.
Stated Maturity means, with respect to any security, the date specified in
that security as the fixed date on which the payment of principal of the
security is due and payable, including according to any mandatory redemption
provision, but excluding any provision providing for the repurchase of the
security at the holder's option upon the happening of any contingency beyond
Holdings' control, unless the contingency has occurred.
Temporary Cash Investments means any of the following:
1. any investment in direct obligations of the United States or any of
its agencies, or obligations guaranteed by the United States or any
of its agencies;
2. investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of
acquisition, issued by a bank or trust company which is organized
under the laws of the United States, any State or any foreign
country recognized by the United States, having capital, surplus
and undivided profits aggregating in excess of $500.0 million, or
the foreign currency equivalent, 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 or any foreign country recognized by the United
States,
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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, or by any
political subdivision or taxing authority of the United States, 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 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 the exchange, is at least equal to the fair
market value of the assets disposed in the 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 that 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, those 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 the 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. However, either:
a. the subsidiary designated as an Unrestricted Subsidiary must
have total consolidated assets of $1,000 or less; or
b. if the subsidiary has consolidated assets greater than $1,000,
then the 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 that designation no default shall
have occurred and be continuing; and
- the designation shall be deemed to be an incurrence of indebtedness by
a restricted subsidiary of any outstanding indebtedness of the
Unrestricted Subsidiary and the designation shall only be permitted if
the indebtedness is permitted under the indenture.
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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 the designation, and an officer's certificate
certifying that the designation complied with the above provisions.
U.S. Government Obligations means direct obligations, or certificates
representing an ownership interest in those obligations, of the United States,
including any agency or instrumentality of the United States, for the payment of
which the full faith and credit of the United States is pledged and which are
not callable or redeemable at Holdings' option.
Voting Stock of a person means all classes of capital stock or other
interests, including partnership interests, of that person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of that person's directors, managers, or trustee.
BOOK-ENTRY; DELIVERY AND FORM
The registered notes will be issued in the form of Global Senior Notes. The
Global Senior Notes 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 Notes 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 Notes 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
Notes representing the principal amount at maturity of notes being transferred,
unless the Global Senior Notes have previously been exchanged for notes in
definitive form.
The Depository has advised Holdings 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 under the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions, including Euroclear
and CEDEL, that have accounts with the Depository (participants) and to
facilitate the clearance and settlement of securities transactions, among its
participants, in those 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.
Investors in the Global Senior Notes may hold their interests therein
directly through the Depository, if they are participants, or indirectly through
organizations, including Euroclear and CEDEL, which are participants. Investors
in the Regulation S Global Senior Note must initially hold their interests
through Euroclear or CEDEL, if they are accountholders in those systems, or
indirectly through organizations which are accountholders in those systems.
After the expiration of the restricted period, but not earlier, investors may
also hold interests in the Regulation S Global Senior Note through organizations
other than Euroclear and CEDEL that are participants in the Depository system.
Euroclear and CEDEL will hold interests in the Regulation S Global Senior Note
on behalf of their participants through their respective depositories, which in
turn will hold the interests in the Regulation S Global Senior Note customers'
securities accounts in their respective names on the books of the Depository.
The Chase Manhattan Bank, Brussels office, will initially act as depository for
Euroclear, and Citibank, N.A., will initially act as depository for CEDEL. All
interests in a Global Senior Note, including those held through Euroclear or
CEDEL, may be subject to the procedures and requirements of the Depository.
Those interests held through Euroclear or CEDEL may also be subject to the
procedures and requirements of that system.
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Upon the issuance of the Global Senior Notes, 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 Notes
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Senior Notes 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 by the participants, with respect to the owners of beneficial
interests in the Global Senior Notes 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
Notes.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Senior Notes, the Depository or its nominee, as the case may
be, will be considered the sole legal owner and holder of the related notes for
all purposes of the notes and the indenture. Except as set forth below, owners
of beneficial interests in the Global Senior Notes will not be entitled to have
the notes represented by the Global Senior Notes 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 Notes. Holdings understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Senior Notes desires to take any action that the Depository, as the holder of
the Global Senior Notes, is entitled to take, the Depository would authorize the
participants to take that action, and the participants would authorize
beneficial owners, owning through those participants, to take the action, or
would otherwise act upon the instructions of beneficial owners owning through
them.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Senior Notes will trade in the Depository's Same-Day
Funds Settlement System. Secondary market trading activity in these interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of the Depository and the participants.
Transfers between participants in the Depository will be effected in
accordance with the Depository's procedures and will be settled in same-day
funds. Transfers between accountholders in Euroclear and CEDEL will be effected
in the ordinary way in accordance with their respective rules and operating
procedures.
Cross-market transfers between the accountholders in the Depository, on the
one hand, and directly or indirectly through Euroclear or CEDEL accountholders,
on the other hand, will be effected through the Depository in accordance with
the Depository's rules on behalf of Euroclear or CEDEL, as the case may be, by
its respective depository; however, such cross-market transactions will require
delivery of instructions to Euroclear or CEDEL, as the case may be, by the
counterparty in the system in accordance with the rules and procedures and
within the established deadlines, Brussels time, of that system. Euroclear or
CEDEL, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Senior Note in the Depository, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to the Depository. Euroclear and CEDEL accountholders may not deliver
instructions directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL accountholder purchasing an interest in a Global Senior Note from an
accountholder in the Depository will be credited, and any such crediting will be
reported to the relevant Euroclear or CEDEL participant, during the securities
settlement processing day, which must be a business day for Euroclear or CEDEL,
immediately following the settlement date of the Depository. Cash received in
Euroclear or CEDEL as a result of sales of interests in a Global Senior Note by
or through a Euroclear or CEDEL accountholder to a Participant in the Depository
will be received with value on the Depository's settlement date but will be
available in
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the relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following the Depository's settlement date.
Payment of principal of, and interest on, notes represented by the Global
Senior Notes 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 Notes.
Holdings expects that the Depository, or its nominee, upon receipt of any
payment of principal of, or interest on, the Global Senior Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Senior
Notes as shown on the records of the Depository or its nominee. Holdings also
expects that payments by participants, to owners of beneficial interests in the
Global Senior Notes held through those participants, will be governed by
standing instructions and customary practices, and will be the responsibility of
the participants. Holdings 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 Notes for any Senior Note, or for
maintaining, supervising or reviewing any records relating to those beneficial
ownership interests, or for any other aspect of the relationship between the
Depository and its participants, or the relationship between the participants
and the owners of beneficial interests in the Global Senior Notes owning through
those participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the Global Senior Notes 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.
The information in this section concerning the Depository, Euroclear and
CEDEL and their book-entry systems has been obtained from sources that Holdings
believes to be reliable, but SpectraSite takes no responsibility for the
accuracy of the information it received.
Although the Depository Euroclear and CEDEL have agreed to the above
procedures in order to facilitate transfers of interests in the Global Senior
Notes among participants of the Depository and accountholders of Euroclear and
CEDEL, they are under no obligation to perform or continue to perform those
procedures, and the procedures may be discontinued at any time. Neither the
trustee nor Holdings will have any responsibility for the performance by the
Depository or its participants or indirect participants, or by Euroclear and
CEDEL and their accountholders or indirect accountholders, of their respective
obligations, under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the Global Senior Notes 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 Holdings that it is unwilling or unable to
continue as Depository of the Global Senior Notes, 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 Holdings within 90
days;
- Holdings in its discretion at any time determines not to have all of the
notes represented by the Global Senior Notes; or
- an event of default has occurred and is continuing.
Any Global Senior Note that is exchangeable according to the terms of 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 preceding sentence, the Global Senior Notes are not
exchangeable, except for a Global Senior Notes of the same aggregate
denomination to be registered in the name of the Depository or its nominee. In
addition, the certificates will bear the legend referred to under "Transfer
Restrictions," unless Holdings determines otherwise in accordance with
applicable law, subject, with respect to the certificated notes, to the
provisions of that legend.
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CERTAIN UNITED STATES 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 who 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 under 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 under 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 are being issued at a discount
from their stated redemption price at maturity, the notes will have original
issue discount for federal income tax purposes. The amount of original issue
discount generally will equal the excess of each note's stated redemption price
at maturity over its issue price. The notes' issue price will be the first price
at which a substantial amount of the notes are 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 will
be the sum of all cash payments to be made on that 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 October 15, 2004, none of the interest
payments on the notes constitute qualified stated interest; and, accordingly,
each note will bear 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 will be required to include original issue discount
in gross income, as ordinary interest income, periodically over the term of the
note before receipt of the cash or other payment attributable to that income,
regardless of the 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 the 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, Holdings 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 aggregate 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 the 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 and unpaid original issue discount and then as payments of
principal. Consequently, such payments will reduce a United States holder's
basis in the note, as described below under "-- United States Holders -- Sale,
Exchange or Redemption of the Notes."
Holdings does not intend to treat the possibility of:
- an optional redemption, as described under "Description of the
Notes -- Redemption;"
- a repurchase pursuant to a Change in Control, as described under
"Description of the Notes -- Change of Control;" or
- the additional interest that will accrue on the notes as a result of
Holdings' failure to cause the notes to be registered under the
Securities Act, as described under "Exchange Offer; Registration Rights;"
as affecting the determination of the yield to maturity of the notes, or as
giving rise to any additional accrual of original issue discount or recognition
of ordinary income upon the redemption, sale or exchange of a note. In the
unlikely event that the interest rate on the notes is increased, then such
increased interest may be treated as increasing the amount of original issue
discount on the notes includible by a United
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States holder in income as such original issue discount accrues, in advance of
the receipt of any cash payment therefor.
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 the note at an acquisition premium. The
amount of original issue discount the holder must include in its gross income
with respect to that note for any taxable year is generally reduced by the
portion of the acquisition premium properly allocable to that year. The
information reported by Holdings 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 any 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 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 a note, subsequent to
its original issuance, 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 that 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 those instruments, and with respect to the deferral of
interest deductions on debt incurred or maintained to purchase or carry those
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
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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, under 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 the notes until amounts attributable to
the original issue discount are paid in cash.
Subject to otherwise applicable limitations, a corporate holder will be
entitled to a dividend received deduction with respect to the disqualified
portion of the accrued original issue discount if Holdings has sufficient
current or accumulated earnings and profits. To the extent that Holdings'
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 dividend received deduction will continue to be treated as
ordinary original issue discount income in accordance with the rules described
above in "Original Issue Discount."
Treatment of the 2009 Notes as AHYDOs will not disqualify interest or
original issue discount accruing with respect to the 2009 Notes from the
portfolio interest exception described below under "Certain U.S. Federal Tax
Considerations -- Non-United States Holders -- Interest;" provided that all
applicable requirements for the exception are otherwise satisfied.
Sale, Exchange or Redemption of the 2009 Notes. Generally, a sale,
exchange or redemption of the 2009 Notes will result in taxable gain or loss
equal to the difference between the amount of cash plus the fair market value of
other property received and the United States holder's adjusted tax basis in the
2009 Notes. A United States holder's adjusted tax basis for determining gain or
loss on the sale or other disposition of a 2009 Note will initially equal the
cost of the 2009 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.
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 2009 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.
Neither an exchange of the 2009 Notes for registered notes of Holdings with
terms identical to those of the 2009 Notes nor the filing of a registration
statement with respect to the resale of the 2009 Notes, as described under
"Exchange Offer; Registration Rights," should be a taxable event to United
States holders. Consequently, United States holders will not recognize any
taxable gain or loss or any interest income as a result of such an exchange or
such a filing, the holding period of the registered notes will include the
holding period of the 2009 Notes, and the basis of the registered notes will
equal the basis of the 2009 Notes immediately before the exchange.
NON-UNITED STATES HOLDERS
General. 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 2009 Notes by any beneficial
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owner of a 2009 Note that is not a United States holder. Resident alien
individuals are subject to United States federal income tax with respect to the
2009 Notes as if they were United States holders.
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 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
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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, 2000, 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 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
138
<PAGE> 142
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 States and the gain
from the sale or other disposition of the notes is attributable to such
office or other fixed place of business.
139
<PAGE> 143
Individual non-United States holders may also be subject to tax under
provisions of United States federal income tax law applicable to certain United
States expatriates, including certain former long-term residents of the United
States.
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
United States holders. In addition, a 31% backup withholding tax applies if a
non-corporate United States holders if such 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 furnished a correct taxpayer identification number
and has not been notified by the Internal Revenue Service that such
person is subject to backup withholding for failure properly to report
interest or 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 does 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.
SpectraSite must report annually to the Internal Revenue Service and to each
non-United States holder any interest, including original issue discount, that
is subject to withholding or that is exempt from withholding. Copies of these
information returns may also be made available to the tax authorities of the
country in which the non-United States holder resides.
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 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
140
<PAGE> 144
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.
141
<PAGE> 145
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes for its own account
through 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 November 14, 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 through 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.
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<PAGE> 146
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 year ended December 31, 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 this registration statement, 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.
Westower's consolidated financial statements as of September 30, 1998 and
for the seven months then ended and Summit's financial statements as of
September 30, 1998 and for the nine months then ended have been included in this
registration statement in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Westower's consolidated financial statements as of February 28, 1997 and
February 28, 1998 and for the three years ended February 28, 1998 and Cord's
financial statements as of June 30, 1998 and for the two years ended June 30,
1998 have been included in this prospectus in reliance on the report of Moss
Adams LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of MJA Communications Corp. as of December 31,
1996 and December 31, 1997 and for the three years ended December 31, 1997, have
been consolidated with those of Westower in this prospectus in reliance on the
report of Lamn, Krielow, Dytrych & Darling, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Summit Communications LLC as of December 31,
1997 and for the period from inception, May 24, 1997, to December 31, 1997 have
been included in this prospectus in reliance on the report of Shearer, Taylor &
Co., P.A., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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 as
the Exchange Act requires. 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.
143
<PAGE> 147
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 1997,
December 31, 1998 and March 31, 1999 (unaudited).......... F-4
Consolidated Statements of Operations for the period from
inception (April 25, 1997) to December 31, 1997, for the
year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited)................................ F-5
Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholders' Deficiency........................ F-6
Consolidated Statements of Cash Flows for the period from
inception (April 25, 1997) to December 31, 1997, for the
year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited)................................ F-7
Notes to Consolidated Financial Statements.................. F-8
TELESITE SERVICES, LLC
Report of Independent Auditors.............................. F-20
Consolidated Balance Sheet as of December 31, 1996.......... F-21
Consolidated Statements of Operations for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-22
Consolidated Statements of Members' Equity.................. F-23
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-24
Notes to Consolidated Financial Statements.................. F-25
WESTOWER CORPORATION AND SUBSIDIARIES
Reports of Independent Accountants.......................... F-29
Consolidated Balance Sheets as of February 28, 1997 and 1998
and September 30, 1998.................................... F-32
Consolidated Statements of Income for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-33
Consolidated Statements of Stockholders' Equity for the
years ended February 29, 1996, February 28, 1997 and 1998
and for the seven months ended September 30, 1998......... F-34
Consolidated Statements of Cash Flows for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-35
Notes to the Consolidated Financial Statements.............. F-36
Consolidated Balance Sheets as of September 30, 1998 and
March 31, 1999 (unaudited)................................ F-57
Unaudited Condensed Consolidated Statements of Income for
the three and six months ended March 31, 1998 and 1999.... F-58
Unaudited Condensed Consolidated Statements of Stockholders'
Equity for the six months ended March 31, 1999............ F-59
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 1998 and 1999.......... F-60
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-61
CORD COMMUNICATIONS, INC.
Report of Independent Auditors.............................. F-66
Balance Sheets as of June 30, 1998 and 1997................. F-67
Statements of Operations for the years ended June 30, 1998
and 1997.................................................. F-68
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended June 30, 1998 and 1997.................... F-69
Statements of Cash Flows for the years ended June 30, 1998
and 1997.................................................. F-70
Notes to Financial Statements............................... F-71
</TABLE>
F-1
<PAGE> 148
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMIT COMMUNICATIONS, LLC
Reports of Independent Accountants.......................... F-78
Balance Sheet as of December 31, 1997 and September 30,
1998...................................................... F-80
Statement of Income for the period from May 24, 1997
(Inception) to December 31, 1997 and for the nine months
ended September 30, 1998.................................. F-81
Statement of Members' Equity for the period from May 24,
1997 (Inception) to December 31, 1997 and for the nine
months ended September 30, 1998........................... F-82
Statement of Cash Flows for the period from May 24, 1997
(Inception) to December 31, 1997 and for the nine months
ended September 30, 1998.................................. F-83
Notes to Financial Statements............................... F-84
</TABLE>
F-2
<PAGE> 149
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 December 31, 1998 and
December 31, 1997, and the related consolidated statements of operations,
redeemable convertible preferred stock and shareholders' deficiency and cash
flows for the year ended December 31, 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 December 31, 1998 and December 31, 1997, and
the consolidated results of its operations and its cash flows for the year ended
December 31, 1998 and for the period from April 25, 1997 (inception) to December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 26, 1999
Raleigh, North Carolina
F-3
<PAGE> 150
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------- AS OF
1997 1998 MARCH 31, 1999
----------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,234,148 $ 99,548,234 $111,078,599
Short-term investments.................................... -- 15,414,048 --
Accounts receivable....................................... 1,610,039 3,352,970 3,144,381
Prepaid expenses and other................................ 34,019 252,798 246,218
----------- ------------ ------------
Total current assets........................................ 3,878,206 118,568,050 114,469,198
Property and equipment, net................................. 1,176,032 28,469,017 32,340,447
Goodwill, less accumulated amortization of $278,381,
$797,501 and $951,869, respectively....................... 6,791,663 8,165,171 8,020,250
Deposits.................................................... 1,300,000 1,750,000 750,000
Investment in affiliate..................................... 336,095 -- --
Note receivable............................................. -- 272,935 245,568
Debt issuance costs, less accumulated amortization of
$244,054 and $365,964..................................... -- 4,591,733 4,516,715
Other assets................................................ 159,957 129,106 369,877
----------- ------------ ------------
Total assets................................................ $13,641,953 $161,946,012 $160,712,055
=========== ============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS'
DEFICIENCY
Current liabilities:
Line of credit............................................ $ 628,561 $ -- $ --
Accounts payable.......................................... 1,049,157 1,635,039 850,169
Accrued and other expenses................................ 1,005,317 791,408 900,607
Current portion of long-term debt......................... 25,404 17,826 14,687
----------- ------------ ------------
Total current liabilities................................... 2,708,439 2,444,273 1,765,463
Long-term debt, less current portion........................ 19,376 -- --
Other long-term liabilities................................. -- 223,676 223,676
Note payable to shareholder................................. 2,312,000 -- --
Senior discount notes due 2008, net of unamortized discount
of $92,548,709 and $88,586,895............................ -- 132,689,291 136,651,105
----------- ------------ ------------
Total liabilities........................................... 5,039,815 135,357,240 138,640,244
Series A redeemable convertible preferred stock, $0.001 par,
3,462,830 shares authorized, 3,462,830 outstanding........ 10,500,000 11,300,000 11,500,000
Series B redeemable convertible preferred stock, $0.001 par,
7,000,000 shares authorized, 7,000,000 outstanding........ -- 29,355,781 29,915,783
Shareholders' deficiency:
Common stock, $0.001 par, 12,000,000 and 20,000,000
authorized, respectively, 931,753 and 956,753 issued and
outstanding, respectively............................... 932 957 957
Additional paid-in-capital................................ 1,991,652 -- --
Accumulated deficit....................................... (3,890,446) (14,067,966) (19,344,929)
----------- ------------ ------------
Total shareholders' deficiency.............................. (1,897,862) (14,067,009) (19,343,972)
----------- ------------ ------------
Total liabilities, redeemable preferred stock and
shareholders' deficiency.................................. $13,641,953 $161,946,012 $160,712,055
=========== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 151
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(APRIL 25, 1997) TO ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1998 1999
------------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Site acquisition............................ $ 5,001,668 $ 8,141,936 $2,318,476 $ 2,382,855
Site leasing................................ -- 656,191 11,125 572,440
----------- ------------ ---------- -----------
Total revenues................................ 5,001,668 8,798,127 2,329,601 2,955,295
Cost of operations:
Site acquisition............................ 1,119,608 2,492,264 708,283 549,757
Site leasing (exclusive of depreciation
presented separately below)............... -- 298,856 7,722 353,868
----------- ------------ ---------- -----------
1,119,608 2,791,120 716,005 903,625
Selling, general and administrative
expenses.................................... 7,687,892 10,246,081 1,994,583 2,829,921
Depreciation expense.......................... 191,077 711,862 101,431 501,694
Restructuring charge.......................... -- -- -- 600,000
----------- ------------ ---------- -----------
Operating loss................................ (3,996,909) (4,950,936) (482,418) (1,879,945)
Other income (expense):
Equity in earnings of affiliate............. 204,537 -- -- --
Interest income............................. 121,432 3,568,564 31,827 1,268,041
Interest expense............................ (163,555) (8,169,576) (58,998) (3,905,057)
Gain on sale of assets...................... -- 472,594 257,251 --
Other expense............................... (55,951) -- -- --
----------- ------------ ---------- -----------
106,463 (4,128,418) 230,080 (2,637,016)
----------- ------------ ---------- -----------
Net loss...................................... $(3,890,446) $ (9,079,354) $ (252,338) $(4,516,961)
=========== ============ ========== ===========
Loss applicable to common shareholders:
Net loss...................................... $(3,890,446) $ (9,079,354) $ (252,338) $(4,516,961)
Accretion of redemption value of preferred
stock....................................... (500,000) (2,155,781) (230,222) (760,002)
----------- ------------ ---------- -----------
Net loss applicable to common shareholders.... $(4,390,446) $(11,235,135) $ (482,560) $(5,276,963)
=========== ============ ========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 152
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' 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 2,281,043 -- 2,281,975
Issuance of warrants...... -- -- -- -- 390,000 390,000
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.................. -- -- -- -- -- (3,890,446) (3,890,446)
----------- ----------- ----------- ------ ---------- ------------ ------------
Balance at December 31,
1997...................... 10,500,000 -- 10,500,000 932 1,991,652 (3,890,446) (1,897,862)
Exercise of warrants...... -- -- -- 150 -- -- 150
Issuance of preferred
stock................... -- 28,000,000 28,000,000 -- -- -- --
Stock issuance costs...... -- -- -- -- (434,162) -- (434,162)
Accretion of redemption
value................... 800,000 1,355,781 2,155,781 -- (1,557,490) (598,291) (2,155,781)
Repurchase of common
stock................... -- -- -- (125) -- (499,875) (500,000)
Net loss.................. -- -- -- -- -- (9,079,354) (9,079,354)
----------- ----------- ----------- ------ ---------- ------------ ------------
Balance at December 31,
1998...................... 11,300,000 29,355,781 40,655,781 957 -- (14,067,966) (14,067,009)
Accretion of redemption
value................... 200,000 560,002 760,002 -- -- (760,002) (760,002)
Net loss.................. -- -- -- -- -- (4,516,961) (4,516,961)
----------- ----------- ----------- ------ ---------- ------------ ------------
Balance at March 31, 1999
(unaudited)............... $11,500,000 $29,915,783 $41,415,783 $ 957 $ -- $(19,344,929) $(19,343,972)
=========== =========== =========== ====== ========== ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 153
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION THREE MONTHS
(APRIL 25, 1997) TO YEAR ENDED ENDED MARCH 31,
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
--------------------- ------------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(3,890,446) $ (9,079,354) $ (252,338) $ (4,516,961)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation............................ 191,077 711,862 101,431 501,694
Amortization of goodwill and other
intangibles........................... 297,785 556,161 126,498 154,368
Amortization of debt issuance costs..... -- 244,054 -- 75,018
Loss (gain) on sale of assets........... 60,048 (472,594) (257,251) --
Equity in earnings of affiliate......... (204,537) -- -- --
Amortization of discount -- senior
discount notes........................ -- 7,688,958 -- 3,961,814
Non-cash charge (Note 1)................ 2,600,000 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable................... (288,773) (1,450,531) (820,895) 208,589
Interest receivable on short-term
investments......................... -- (758,860) -- --
Prepaid expenses and other............ 136,062 (164,308) (89,295) 13,230
Accounts payable...................... 316,674 590,594 877,590 (784,870)
Accrued and other expenses............ 1,005,317 (212,955) 250,117 109,199
----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities.............................. 223,207 (2,346,973) (64,143) (277,919)
INVESTING ACTIVITIES
Proceeds from note receivable............. -- 41,313 -- 20,717
Purchases of property and equipment....... (849,939) (26,597,612) (1,321,989) (3,373,124)
Distribution from affiliate............... -- 150,000 -- --
Purchases of investments.................. -- (30,005,188) -- --
Maturities of short-term investments...... -- 15,350,000 -- 15,414,048
Proceeds from sale of assets.............. -- 298,575 298,575 --
Repurchase of common stock................ -- (500,000) -- --
Acquisitions, net of cash acquired........ (5,028,541) (1,989,048) -- --
Deposits on acquisitions.................. (1,300,000) (1,750,000) (5,600) --
----------- ------------ ----------- ------------
Net cash provided by (used in) investing
activities.............................. (7,178,480) (45,001,960) (1,029,014) 12,061,641
FINANCING ACTIVITIES
Proceeds from issuance of preferred
stock................................... 10,000,000 28,000,000 17,000,000 --
Exercise of warrants...................... -- 150 -- --
Stock issuance costs...................... (179,391) (434,162) (248,010) --
Proceeds from issuance of senior discount
notes................................... -- 125,000,333 -- --
Debt issuance costs....................... -- (4,835,787) -- (250,218)
Net repayments on line of credit.......... (567,501) (628,561) (628,561) --
Repayment of note to shareholder and other
debt.................................... (63,687) (2,438,954) (5,400) (3,139)
----------- ------------ ----------- ------------
Net cash provided by financing
activities.............................. 9,189,421 144,663,019 16,118,029 (253,357)
----------- ------------ ----------- ------------
Net increase in cash and cash
equivalents............................. 2,234,148 97,314,086 15,024,872 11,530,365
Cash and cash equivalents at beginning of
period.................................. -- 2,234,148 2,234,148 99,548,234
----------- ------------ ----------- ------------
Cash and cash equivalents at end of
period.................................. $ 2,234,148 $ 99,548,234 $17,259,020 $111,078,599
=========== ============ =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for
interest................................ $ 63,989 $ 216,110 $ 26,713 $ --
=========== ============ =========== ============
Additional consideration (common stock)
for acquisition......................... $ -- $ 223,676 $ -- $ --
=========== ============ =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 154
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF COMPANY
SpectraSite Holdings, Inc. ("Holdings") and its wholly owned subsidiary
SpectraSite Communications, Inc. ("SCI") (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.
Holdings formerly known as Integrated Site Development, Inc. ("ISD"), was
incorporated in the State of Delaware on April 25, 1997. Holdings, 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"). Holdings' 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 minimal 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 $2,600,000, based on the estimated fair value of
the stock of $2.60 per share and the estimated fair value of the warrants of
$2.60 per warrant at the date of issuance. The warrants entitled the holder to
the right to purchase 150,000 shares of Holdings 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, Holdings 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 $177,200 and a $2,312,000 note payable.
Since Holdings had minimal operations prior to this acquisition, TeleSite is
considered Holdings' 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 TeleSite acquisition, Holdings will be required to
provide additional consideration of 55,919 shares of its common stock based upon
TeleSite achieving certain operating goals through the end of December 31, 1998,
pursuant to a provision in the TeleSite acquisition agreement. The Company
accounted for the obligation as an additional cost of the acquisition, recording
approximately $224,000 of goodwill and a related long-term liability based upon
the fair value of the Company's common stock at December 31, 1998. The
obligation will be subsequently relieved and $224,000 of additional paid-
in-capital will be recorded when the shares are issued.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Holdings and SCI. 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-8
<PAGE> 155
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.
SHORT-TERM INVESTMENTS
At December 31, 1998, the Company's short-term investments 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.
Approximately $109,700 and $176,350 of interest was capitalized for the year
ended December 31, 1998 and the three months ended March 31, 1999. 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 these notes.
INCOME TAXES
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. Although management is not aware of any factors that would
significantly affect the fair value of amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date. The estimated fair values of the Company's financial instruments, along
with the carrying amounts of the related assets (liabilities), are as follows:
F-9
<PAGE> 156
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, 1997 DECEMBER 31, 1998 (UNAUDITED)
------------------ --------------------- ---------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents......... $ 2,234 $ 2,234 $ 99,548 $ 99,548 $ 111,079 $ 111,079
Short-term
investments......... -- -- 15,414 15,414 -- --
Senior Discount
Notes............... -- -- (132,689) (114,871) (136,651) (141,337)
</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, a large majority 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 direct costs
incurred to provide the related services.
Costs of operations for site leasing services consist of 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. Two customers
accounted for 70.9% of the Company's 1998 revenue. Following is a list of
significant customers:
<TABLE>
<CAPTION>
PERCENT OF REVENUES PERCENTAGE OF
FOR THE PERIOD FROM PERCENT OF REVENUES PERCENT OF REVENUES
APRIL 25, 1997 PERCENT OF ACCOUNTS FOR THE YEAR ACCOUNTS FOR THE THREE
(INCEPTION) TO RECEIVABLE AT ENDED RECEIVABLE AT MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998 MARCH 31, 1998
------------------- ------------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Customer 1........... 38.9% 75.0% 46.6% 15.6% --
Customer 2........... 18.8% -- -- -- --
Customer 3........... 14.7% -- -- -- --
Customer 4........... 13.0% -- -- -- --
Customer 5........... 11.2% -- -- -- --
Customer 6........... -- -- 24.3% 45.0% 86.8%
Customer 7........... -- -- -- 22.7% --
<CAPTION>
PERCENT OF
REVENUES PERCENT OF
FOR THE THREE ACCOUNTS
MONTHS ENDED RECEIVABLE AT
MARCH 31, 1999 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Customer 1........... 13.6% 9.9%
Customer 2........... -- --
Customer 3........... -- --
Customer 4........... -- --
Customer 5........... -- --
Customer 6........... 40.0% 18.6%
Customer 7........... -- 25.6%
</TABLE>
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred, and totaled approximately
$131,000 and $135,000 for the period from April 25, 1997 (inception) to December
31, 1997 and for the year ended December 31, 1998, respectively.
F-10
<PAGE> 157
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
Accounting Standards 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 ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. SFAS 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 from inception (April 25, 1997) to December 31,
1997 and during the year ended December 31, 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 did not have a significant impact on the Company's financial
position at December 31, 1998 or its results of operations for the year ended
December 31, 1998 as the Company currently operates in only one segment.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 requires that derivative instruments be recognized as either
assets or liabilities in the consolidated balance sheet based on their fair
values. Changes in the fair values of such derivative instruments will be
recorded either in results of operations or in other comprehensive income,
depending on the intended use of the derivative instrument. The initial
application of SFAS 133 will be reported as the effect of a change in accounting
principle. SFAS 133 is effective for all fiscal years beginning after June 15,
1999. We will adopt the requirements of SFAS 133 in our 1999 financial
statements. We have not yet determined the effect that the adoption of SFAS 133
will have on our consolidated financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements include all adjustments
(consisting of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial position of the
Company as of March 31, 1999 and the results of operations and cash flows for
the three-month periods ended March 31, 1998 and 1999. Operating results for the
three months ended March 31,
F-11
<PAGE> 158
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
1999 are not necessarily indicative of the results to be expected for future
interim periods or the entire year. All interim financial data presented is
unaudited.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------- AS OF MARCH 31,
1997 1998 1999
------------ ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Towers......................................... $ 166,568 $24,780,130 $26,322,963
Equipment...................................... 465,758 822,604 930,785
Furniture and fixtures......................... 250,408 288,160 288,158
Vehicles....................................... 148,314 173,315 173,315
Other.......................................... -- 38,698 36,082
---------- ----------- -----------
Total.......................................... 1,031,048 26,102,907 27,751,303
Less accumulated depreciation.................. (160,824) (869,911) (1,371,599)
---------- ----------- -----------
870,224 25,232,996 26,379,704
Construction in progress....................... 305,808 3,236,021 5,960,743
---------- ----------- -----------
Property and equipment, net.................... $1,176,032 $28,469,017 $32,340,447
========== =========== ===========
</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 on 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 a 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 and issue preferred stock among other things. In the year ended
December 31, 1998 and the three months ended March 31, 1999, the Company
recorded amortization of debt discount of approximately $7,689,000 and
$3,962,000 related to the Senior Discount Notes as additional interest expense.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
1998 1999
------------------ ---------------
(UNAUDITED)
<S> <C> <C>
Senior Discount Notes................................. $225,238,000 $225,238,000
Unamortized discount.................................. (92,548,709) (88,586,895)
------------ ------------
Balance.......................................... $132,689,291 $136,651,105
============ ============
</TABLE>
F-12
<PAGE> 159
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT -- (CONTINUED)
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, 1997
was $628,561. The line of credit was repaid in full in March 1998.
OTHER LONG-TERM DEBT
Long-term debt, other than the Senior Discount Notes, consists of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------ AS OF MARCH 31,
1997 1998 1999
-------- ------- ---------------
<S> <C> <C> <C>
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 $17,826 $ 14,687
Less current portion............................... (25,404) 17,826 (14,687)
-------- ------- --------
Long-term debt, less current portion............... $ 19,376 $ -- $ --
======== ======= ========
</TABLE>
BANK CREDIT AGREEMENT
In January 1998, the Company signed a letter of intent with a bank for a
$50.0 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 year ended December 31,
1998 the Company incurred approximately $252,000 in commitment fees related to
the agreement. The agreement expired on 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 December 31, 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 December 31, 1998 are
$2,655,781. The Company is accreting the carrying value of the preferred stock
to reflect the accumulating dividends.
Contemporaneously with the closing of an underwritten public offering of
common stock resulting in gross proceeds of at least $30.0 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 automatically be redeemed at a
redemption price per share, in cash, equal to 100% of the original issue price
plus unpaid accumulated 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.
F-13
<PAGE> 160
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS'
EQUITY -- (CONTINUED)
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.
On October 9, 1998, the Company paid a former employee $500,000 under an
agreement to buy 125,000 shares of SpectraSite common stock from the former
employee for an agreed upon price and to release the Company from any potential
claims. 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. The shares were subsequently
purchased by a shareholder of the Company on February 5, 1999 for an aggregate
purchase price of $150,240.
STOCK OPTIONS
During 1997, the Company adopted a stock option plan which provides for the
purchase of 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 year ended December 31, 1998, option grants were solely to
employees.
The options without a performance acceleration feature which were granted
under the terms of the incentive stock option agreement and options granted
under the terms of 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 a performance acceleration feature which were granted
under the terms of 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 period ended December 31, 1997 and the year
ended December 31, 1998: dividend yield of 0.0%; volatility of .70; risk free
interest rate of 6.0% to 5.0%; 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 period ended December 31,
1997 and $9,274,354 for the year ended December 31, 1998.
F-14
<PAGE> 161
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 3.95 475,000 4.00
Options exercised.............................. -- -- -- --
Options canceled............................... (158,800) 2.92 -- --
-------- -------
Outstanding at December 31, 1998............... 932,900 3.30 635,000 3.72
Options granted................................ 15,000 4.00 --
Options exercised.............................. -- -- --
Options canceled............................... (8,000) 2.89 --
-------- -------
Outstanding at March 31, 1999 (unaudited)...... 939,900 3.31 635,000 3.72
======== =======
</TABLE>
At December 31, 1997, there were no options exercisable under the incentive
stock option plan. At December 31, 1998 there were 185,475 options exercisable
under the incentive stock option plan. There were no options exercisable under
the non-qualified option plan at December 31, 1997 or 1998.
At December 31, 1997 and 1998, the weighted average remaining contractual
life of the incentive stock options outstanding was 8.77 years and 8.90 years,
respectively.
At December 31, 1997 and 1998, the weighted average remaining contractual
life of the non-qualified stock options outstanding was 8.73 years and 9.09
years, respectively.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company had reserved shares of its authorized 20,000,000 shares of
common stock for future issuance as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Convertible preferred stock................................. 10,462,830 10,462,830
Outstanding stock options................................... 1,567,900 1,574,900
Possible future issuance under stock option plans........... 249,800 242,800
----------- ----------
Total....................................................... 12,280,530 12,280,530
=========== ==========
</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-15
<PAGE> 162
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES -- (CONTINUED)
the option of the Company. Rent expense was approximately $588,000 and $234,000
for the year ended December 31, 1998 and for the period from April 25, 1997
(inception) to December 31, 1997, respectively. The future minimum lease
payments for these leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,369,027
2000........................................................ 1,221,426
2001........................................................ 1,196,597
2002........................................................ 973,186
2003........................................................ 310,066
----------
Total....................................................... $5,070,302
==========
</TABLE>
ANTENNA SPACE LEASED TO OTHERS
The Company currently leases antenna 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 December 31,
1997, was $167,000 and $3,000, respectively, and at December 31, 1998, was
$24,780,000 and $517,000, respectively.
At December 31, 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........................................................ $2,074,635
2000........................................................ 2,085,046
2001........................................................ 2,065,295
2002........................................................ 1,963,056
2003........................................................ 1,378,538
----------
Total....................................................... $9,566,570
==========
</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 year ended December
31, 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 at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards.................................... $183,000 $4,057,000
======== ==========
Total gross deferred tax assets........................... 183,000 4,057,000
Valuation allowance....................................... (183,000) (4,057,000)
-------- ----------
Total net deferred tax assets............................. $ -- $ --
======== ==========
</TABLE>
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 $2.6 million that begins to expire in the year
2012. Also, the Company has state tax losses of $2.6 million that expire
F-16
<PAGE> 163
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
beginning in 2002. Based on the Company's history of losses to date, management
has provided a valuation allowance to fully offset the deferred assets related
to federal and state net operating loss carryforwards.
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 during the year ended December 31, 1998,
the Company incurred approximately $100,000 and $81,000 of interest expense
related to the note payable to shareholder, respectively. The balance of the
note payable at December 31, 1997 was $2,312,000. In June 1998, the note was
repaid in full.
During the period from April 25, 1997 (inception) to December 31, 1997 and
the year ended December 31, 1998, the Company paid approximately $60,000 and
$120,000 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 $31,000 for the
period from April 25, 1997 (inception) to December 31, 1997 and for the year
ended December 31, 1998, respectively.
9. SALE OF AFFILIATES
In February 1998, the Company entered into an 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 total amount due to the Company at December 31, 1998 is $333,687 of
which the current portion, $60,752, is included in prepaid expenses and other
current assets in the accompanying balance sheet. 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. The outstanding note payable was subsequently paid in
December 1998.
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. As of December 31, 1998, 40 towers have been placed
in service and the remaining 7 towers will be placed in service subject to
completion of pending due diligence. Of the total purchase price, $1,750,000
remains in escrow at December 31, 1998 and is recorded as a noncurrent deposit
in the accompanying balance sheet. Under the terms of the agreement, the Company
will lease antenna space on the towers to Airadigm.
F-17
<PAGE> 164
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITION ACTIVITY -- (CONTINUED)
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 related to 14 towers for approximately $474,000. The results of
operations of Amica are included in the Company's operations from the date of
acquisition.
In September 1998, the Company acquired all of the outstanding common stock
of GlobalComm, Inc. for $1,988,864 in cash in a transaction accounted for as a
purchase. The results of operations of GlobalComm are included in the Company's
operations from the date of acquisition. The Company recorded approximately
$1,669,000 of goodwill related to the transaction.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the GlobalComm and H&K acquisitions had been
consummated as of January 1, 1998. The pro forma information does not
necessarily reflect the actual results that would have been achieved, nor is it
necessarily indicative of future consolidated results for the Company.
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
YEAR ENDED
DECEMBER 31, 1998
-----------------
(IN THOUSANDS OF DOLLARS)
<S> <C>
Net revenues............................................ $11,055
Net loss................................................ (7,965)
</TABLE>
11. 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, 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.
12. SUBSEQUENT EVENTS (UNAUDITED)
In April 1999, the Company purchased 2,000 communications towers from
Nextel Communications, Inc. ("Nextel") for $560.0 million in cash and shares of
Series C preferred stock valued at $70.0 million. As part of the transaction,
Nextel has agreed to lease 1,700 additional sites on the Company's towers as
part of Nextel's national deployment.
In connection with the purchase, Nextel entered into a master lease
agreement to become the anchor tenant on each of the acquired towers and also
conveyed to the Company certain third-party co-location site leases associated
with the acquired assets. Nextel also transferred to the Company certain non-
cancelable ground leases, and the Company assumed all operating and other costs
associated with the acquired assets.
F-18
<PAGE> 165
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
The Company used $150.0 million of borrowings under a $500.0 million
committed credit facility, $340.0 million from the proceeds of a privately
placed high yield debt offering, and $231.4 million from the sale of new Series
C preferred stock, to fund the cash purchase price and to pay related fees and
expenses. As part of the acquisition, Nextel will receive approximately $70.0
million of SpectraSite Series C preferred stock resulting in Nextel obtaining an
equity position representing approximately 18% of all the Company's outstanding
stock on a fully-diluted basis.
In connection with the Nextel tower transaction, the Company also restated
its certificate of incorporation. The amended and restated certificate
authorized 85 million shares of common stock, $0.001 per value per share, and
70,599,625 shares of preferred stock, 3,462,830 shares were designated as Series
A convertible preferred stock, 7,000,000 shares designated as Series B
convertible preferred stock and 60,136,795 shares were designated as Series C
convertible preferred stock.
In May 1999, the board of directors of the Company and Westower Corporation
("Westower") entered into a definitive agreement under which Westower will merge
with SpectraSite. The merger provides for the issuance of 1.81 shares of
SpectraSite's common stock for each share of Westower's common stock. The merger
is subject to the approval of Westower's shareholders and the appropriate
regulatory agencies as well as other customary closing conditions.
F-19
<PAGE> 166
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-20
<PAGE> 167
TELESITE SERVICES, LLC
CONSOLIDATED BALANCE SHEET
AS OF 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-21
<PAGE> 168
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-22
<PAGE> 169
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-23
<PAGE> 170
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-24
<PAGE> 171
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.
F-25
<PAGE> 172
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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-26
<PAGE> 173
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 10.0%, 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.
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.
F-27
<PAGE> 174
4. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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-28
<PAGE> 175
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Westower Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Westower
Corporation and its subsidiaries at September 30, 1998, and the results of their
operations and their cash flows for the seven months ended September 30, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Westower Corporation for the three years in
the period ended February 28, 1998 were audited by other independent accountants
whose report dated April 14, 1998, except for the third paragraph in Note 3, as
to which the date is May 31, 1998 and the fourth paragraph in Note 3, as to
which the date is June 14, 1999, expressed an unqualified opinion on those
statements.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 4, 1999,
except for the fourth
paragraph in Note 3,
as to which the date
is June 17, 1999
F-29
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Westower Corporation
We have audited the accompanying consolidated balance sheets of Westower
Corporation and Subsidiaries as of February 28, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended February 28, 1998. 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 did not audit the financial statements of MJA Communications
Corporation, which are included in the financial statements of Westower
Corporation as discussed in Note 3 to the financial statements, and which
statements reflect total assets constituting 56% and 16% of consolidated total
assets as of February 28, 1997 and 1998 and total revenues constituting 22%, 57%
and 33% of consolidated total revenues for each of the three years in the period
ended February 28, 1998, respectively. Those statements were audited by other
auditors, whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for MJA Communications Corporation, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Westower Corporation
and Subsidiaries as of February 28, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1998 in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Bellingham, Washington
April 14, 1998, except for the third paragraph
in Note 3, as to which the date is
May 31, 1998, and the fourth paragraph in
Note 3, as to which the date is
June 14, 1999
F-30
<PAGE> 177
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
MJA Communications Corp.
Palm Beach Gardens, Florida
We have audited the balance sheet of MJA Communications Corp. as of
December 31, 1996 and 1997, and the related statements of income and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1997 (not separately presented herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MJA Communications Corp. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Lamn, Krielow, Dytrych & Darling
LAMN, KRIELOW, DYTRYCH & DARLING
Certified Public Accountants
February 11, 1998, except for Note 4, as to which the date is August 12, 1998
F-31
<PAGE> 178
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND 1998 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 7,131,000 $ 7,206,000 $ 9,331,000
Accounts receivable, net............................ 4,905,000 7,112,000 13,289,000
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 938,000 2,143,000 5,078,000
Inventory........................................... 201,000 1,140,000 2,151,000
Related party advances and receivables.............. -- 831,000 956,000
Income tax receivable............................... -- -- 220,000
Other current assets................................ 63,000 125,000 1,203,000
----------- ----------- -----------
Total current assets........................ 13,238,000 18,557,000 32,228,000
Property and equipment, net........................... 2,707,000 4,321,000 7,574,000
Intangible assets, net................................ -- 2,088,000 19,721,000
Other assets.......................................... 58,000 91,000 2,771,000
----------- ----------- -----------
Total assets.......................................... $16,003,000 $25,057,000 $62,294,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................. $ 4,980,000 $ 4,445,000 $ 7,053,000
Other current liabilities........................... 275,000 929,000 2,810,000
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 3,850,000 1,745,000 1,435,000
Income taxes payable................................ 155,000 1,652,000 2,116,000
Deferred income taxes............................... 580,000 534,000 428,000
Stockholder advances and notes payable to related
parties.......................................... 672,000 2,044,000 228,000
Note payable........................................ 208,000 147,000 1,089,000
Current portion of long-term debt and capital lease
obligations...................................... 610,000 502,000 2,419,000
----------- ----------- -----------
Total current liabilities................... 11,330,000 11,998,000 17,578,000
Long-term debt and capital lease obligations,
excluding current portion........................... 212,000 292,000 14,991,000
Deferred income taxes................................. 27,000 48,000 2,962,000
----------- ----------- -----------
Total liabilities........................... 11,569,000 12,338,000 35,531,000
Commitments and contingencies
Minority interest..................................... 40,000 -- --
----------- ----------- -----------
Redeemable preferred stock............................ 450,000 -- --
----------- ----------- -----------
Stockholders' equity
Common stock ($.01 par value, 10,000,000 shares
authorized, 4,776,000, 6,117,000 and 7,047,000
shares issued and outstanding at February 28,
1997 and 1998, and September 30, 1998,
respectively).................................... 48,000 61,000 70,000
Additional paid-in-capital.......................... (48,000) 8,672,000 22,610,00
Accumulated other comprehensive income (loss)....... 27,000 (67,000) (581,000)
Retained earnings................................... 3,917,000 4,053,000 4,664,000
----------- ----------- -----------
Total stockholders' equity.................. 3,944,000 12,719,000 26,763,000
----------- ----------- -----------
Total liabilities and stockholders' equity............ $16,003,000 $25,057,000 $62,294,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 179
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND 1998
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Contract and other revenues
earned............................ $14,775,000 $46,091,000 $41,662,000 $22,869,000 $31,944,000
Costs of revenues earned (exclusive
of depreciation and amortization
shown below)...................... 10,755,000 33,936,000 29,508,000 16,778,000 23,858,000
----------- ----------- ----------- ----------- -----------
Gross profit.................... 4,020,000 12,155,000 12,154,000 6,091,000 8,086,000
Selling, general and administrative
expenses.......................... 2,944,000 7,832,000 7,236,000 2,720,000 4,958,000
Depreciation and amortization....... 196,000 268,000 473,000 187,000 578,000
Merger related expenses............. -- -- -- -- 327,000
----------- ----------- ----------- ----------- -----------
Operating income.................... 880,000 4,055,000 4,445,000 3,184,000 2,223,000
Other income (expense)
Other income (expense).......... (24,000) 32,000 126,000 -- (2,000)
Interest income................. -- 70,000 127,000 41,000 130,000
Interest and financing
expense....................... (110,000) (72,000) (129,000) (32,000) (771,000)
----------- ----------- ----------- ----------- -----------
Total other income
(expense)................ (134,000) 30,000 124,000 9,000 (643,000)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
minority interest................. 746,000 4,085,000 4,569,000 3,193,000 1,580,000
Minority interest................... (6,000) (19,000) -- -- --
----------- ----------- ----------- ----------- -----------
Income before provision for income
taxes............................. 740,000 4,066,000 4,569,000 3,193,000 1,580,000
Provision for income taxes.......... 193,000 636,000 1,633,000 1,141,000 351,000
----------- ----------- ----------- ----------- -----------
Net income.......................... $ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
=========== =========== =========== =========== ===========
Earnings per share:
Basic............................... $ 0.11 $ 0.72 $ 0.56 $ 0.43 $ 0.19
=========== =========== =========== =========== ===========
Diluted............................. $ 0.11 $ 0.72 $ 0.52 $ 0.43 $ 0.16
=========== =========== =========== =========== ===========
Proforma earnings per share:
Basic............................... $ 0.11 $ 0.53 $ 0.53 $ 0.37 $ 0.12
=========== =========== =========== =========== ===========
Diluted............................. $ 0.11 $ 0.53 $ 0.50 $ 0.37 $ 0.10
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 180
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) INCOME TOTAL
--------- -------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, February 28, 1995....... 4,776,000 $48,000 $ (48,000) $ 362,000 $ 29,000 $ 391,000
Net income....................... 547,000 $ 547,000
Foreign currency translation
adjustment..................... -- -- -- -- -- -- --
----------
Total comprehensive income... $ 547,000 547,000
==========
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition.................... -- -- -- (39,000) -- (39,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, February 29, 1996....... 4,776,000 48,000 (48,000) 870,000 29,000 899,000
Net income....................... -- -- -- 3,430,000 -- $3,430,000
Foreign currency translation
adjustment..................... -- -- -- -- (2,000) (2,000)
----------
Total comprehensive income... $3,428,000 3,428,000
==========
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition.................... -- -- -- (383,000) -- (383,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, February 28, 1997....... 4,776,000 48,000 (48,000) 3,917,000 27,000 3,944,000
Net income....................... -- -- -- 2,936,000 -- $2,936,000
Foreign currency translation
adjustment..................... -- -- -- -- (94,000) (94,000)
----------
Total comprehensive income... $2,842,000 2,842,000
==========
Stock issuances.................. 1,341,000 13,000 8,699,000 -- -- 8,712,000
Stock compensation expense....... -- -- 21,000 -- -- 21,000
Distributions of earnings to S
corporation stockholders of
acquired subsidiary prior to
acquisition.................... -- -- -- (2,800,000) -- (2,800,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, February 28, 1998....... 6,117,000 61,000 8,672,000 4,053,000 (67,000) $12,719,000
Net income....................... -- -- -- 1,229,000 -- $1,229,000
Foreign currency translation
adjustment..................... -- -- -- -- (514,000) (514,000)
----------
Total comprehensive income... $ 715,000 715,000
==========
Adjustment to conform fiscal year
ends of acquired
subsidiaries................... -- -- -- 438,000 -- 438,000
Proceeds from warrants
exercised...................... 559,000 6,000 4,782,000 -- -- 4,788,000
Proceeds from stock options
exercised and related tax
benefit........................ 35,000 -- 556,000 -- -- 556,000
Stock issuances for business
acquisitions................... 336,000 3,000 8,097,000 -- -- 8,100,000
Value ascribed to conversion
feature and warrants of
convertible debt, net of
deferred taxes................. -- -- 468,000 -- -- 468,000
Stock compensation expense....... -- -- 35,000 -- -- 35,000
Distributions of earnings and for
taxes to stockholders of
acquired subsidiaries prior to
acquisition.................... -- -- -- (1,056,000) -- (1,056,000)
--------- ------- ----------- ----------- --------- -----------
BALANCE, September 30, 1998...... 7,047,000 $70,000 $22,610,000 $ 4,664,000 $(581,000) $26,763,000
========= ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 181
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 AND 1998
SEVEN MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND 1998
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization................. 196,000 268,000 473,000 187,000 578,000
Provision for bad debt........................ -- -- -- -- 221,000
Deferred income taxes......................... 96,000 433,000 (41,000) (209,000) 367,000
Non-cash interest and financing expense....... -- -- -- -- 264,000
Gain on sale of assets........................ -- -- (125,000) -- --
Stock-based compensation...................... -- -- 56,000 -- 35,000
Earnings from equity investment............... -- -- -- -- (46,000)
Minority interest............................. 6,000 19,000 -- (40,000) --
Changes in operating assets and liabilities, net
of effect of acquisitions
Accounts receivable........................... (2,570,000) (1,402,000) (1,484,000) (1,962,000) (1,603,000)
Costs and estimated earnings in excess of
billings on uncompleted contracts........... (284,000) (545,000) (1,200,000) (238,000) (1,350,000)
Inventory and other current assets............ (69,000) (143,000) (938,000) -- (990,000)
Other assets.................................. (32,000) (93,000) (5,000) (597,000) 135,000
Trade accounts payable........................ 1,163,000 3,387,000 (933,000) (810,000) (2,265,000)
Billings in excess of costs and estimated
earnings on uncompleted contracts........... 1,464,000 2,380,000 (2,105,000) (3,156,000) (963,000)
Other current liabilities..................... 56,000 79,000 648,000 (198,000) 6,000
Income taxes payable.......................... (44,000) 147,000 1,354,000 (155,000) 244,000
----------- ----------- ----------- ----------- -----------
Net cash flows (used) provided by
operating activities.................. 529,000 7,960,000 (1,364,000) (5,126,000) (4,138,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash
acquired.................................... -- -- (1,467,000) -- (6,348,000)
Sales of property and equipment............... 155,000 -- 444,000 -- --
Purchases of property and equipment........... (301,000) (1,245,000) (1,692,000) (455,000) (1,657,000)
----------- ----------- ----------- ----------- -----------
Net cash flows used by investing
activities............................ (146,000) (1,245,000) (2,715,000) (455,000) (8,005,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances, net............ -- -- 7,493,000 -- --
Proceeds from stock warrant and option
exercises, net.............................. -- -- -- -- 5,002,000
Redemption of preferred stock................. -- -- (450,000) (300,000) --
Principal payments on long-term debt.......... (583,000) (389,000) (326,000) (227,000) (392,000)
Distributions to stockholders................. (39,000) (383,000) (2,800,000) -- (1,056,000)
Advances to related parties................... -- -- (196,000) (384,000) (65,000)
Advances from related parties................. 481,000 -- 457,000 1,117,000 34,000
Repayments to related parties................. (17,000) (480,000) -- -- (1,816,000)
Borrowing (repayments) on line of credit,
net......................................... -- 207,000 (57,000) (85,000) (88,000)
Additions to financing costs.................. -- -- -- -- (2,368,000)
Proceeds from debt incurred................... 159,000 555,000 104,000 104,000 15,256,000
----------- ----------- ----------- ----------- -----------
Net cash flows provided (used) by
financing activities.................. 1,000 (490,000) 4,225,000 225,000 14,507,000
----------- ----------- ----------- ----------- -----------
EFFECT OF CHANGES IN EXCHANGE RATES............. -- -- (71,000) (27,000) (239,000)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH................. 384,000 6,225,000 75,000 (5,383,000) 2,125,000
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 522,000 906,000 7,131,000 7,131,000 7,206,000
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period........ $ 906,000 $ 7,131,000 $ 7,206,000 $ 1,748,000 $ 9,331,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 182
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Westower Corporation (the "Company") was incorporated in Washington state
in June 1997 for the purpose of acquiring Westower Holdings Ltd. and its
wholly-owned subsidiaries, Westower Communications Ltd. and Westower
Communications, Inc. In connection with an initial public offering on October
15, 1997, the Company raised approximately $7.5 million in net cash proceeds.
Proceeds have been used in part to acquire the assets and operations of other
businesses.
The Company is successor to operations begun in 1990 by Westower
Communication Ltd. It designs, builds and maintains wireless communication
transmitting and receiving facilities for providers of wireless communication
services. The Company also owns and leases wireless communication towers to
wireless communication providers. Principal operations are located in the
Pacific Northwest, including the Canadian provinces of British Columbia and
Alberta, and the Southeastern and Southwestern United States. Other operations
extend throughout the Western United States and into Eastern Canada.
On October 27, 1998, the Company changed its fiscal year-end from February
28 to September 30 resulting in a seven month reporting period from March 1,
1998 to September 30, 1998 (the "Transition Period").
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation -- The consolidated financial statements include the
accounts of Westower Corporation and its wholly owned domestic and Canadian
subsidiaries.
Investments in subsidiaries in which the Company exercises significant
influence but which it does not control are accounted for using the equity
method. At September 30, 1998, the Company has an equity investment in a joint
venture which engages in operations in Brazil that are similar to those of the
Company, in which it has an economic ownership interest of 60 percent. Revenues
and associated expenses are transacted in Canadian dollars. As of September 30,
1998, the Company's investment totaled $217,000, which has been included in
other assets, and the Company's equity earnings from this investment during the
Transition Period totaled $46,000, which has been included in contract and other
revenues earned.
All material intercompany accounts and transactions have been eliminated in
consolidation.
(b) 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
consolidated financial statements. Examples of estimates subject to possible
revision based upon the outcome of future events include costs and estimated
earnings on uncompleted contracts, depreciation of property and equipment,
accrued income tax liabilities, and purchase price allocations for acquisitions.
Actual results could differ from those estimates.
(c) Contract and Other Revenue and Cost Recognition -- Revenue from
fixed-price construction contracts is recognized using the
percentage-of-completion method based on cost incurred to total estimated cost.
Revenue from contracts based upon time and materials is recognized based upon
hours worked and materials consumed. Most of the Company's contracts are
short-term and are completed in two to three months. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues earned.
The Company owns wireless communication towers which it leases to third
parties. Revenues are recognized on a monthly basis over the term of the leasing
agreement. Revenues and cost of services of
F-36
<PAGE> 183
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
approximately $170,000 and $25,000, respectively, have been included in contract
and other revenues earned and cost of revenues earned, respectively, in the
Transition Period.
(d) Cash and Cash Equivalents -- Cash and cash equivalents consist of cash
in banks and money market investments on deposit with major Canadian and U.S.
financial institutions. Investments with maturities of three months or less when
purchased are considered cash equivalents.
(e) Inventory -- Inventory consists of construction parts and supplies and
is stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
(f) Property and Equipment -- Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives by major asset category are
as follows: buildings -- 10-25 years; furniture, fixtures and equipment -- 3 to
10 years; wireless communication towers -- 20 years; vehicles -- 5 years. Gains
or losses on the dispositions of assets are recorded at the time of disposition.
The costs of normal repairs and maintenance are charged to expense as incurred.
(g) Capitalized Software -- Purchased software is capitalized at cost and
amortized over its estimated useful life of 3 years.
(h) Intangible Assets -- Business acquisition costs are allocated to the
tangible and identifiable intangible assets that are acquired. Business
acquisition costs allocated to contracts to purchase wireless communication
towers are amortized over a 20 year period upon acquisition of the wireless
communication towers, and costs allocated to non-compete agreements are
amortized over the term of the agreements, which are generally 5 years. The
excess of the aggregate purchase price over the fair value of the net assets
acquired and identifiable intangible assets acquired is recorded as goodwill.
Goodwill is amortized over a 20 year period. The Company amortizes its
intangible assets using the straight line method.
(i) Financing Costs -- Direct costs associated with obtaining debt
financing are deferred and are amortized over the term of the debt using the
effective interest method. Direct costs of obtaining commitments for financing
are deferred and charged to expense over the term of the commitments. Direct
costs associated with obtaining equity financing are charged to additional
paid-in capital as the related funds are raised. Deferred financing costs
totaled $2.4 million at September 30, 1998, which has been included in other
assets. Accumulated amortization of deferred financing costs totaled $113,000 at
September 30, 1998.
(j) Valuation of Long-Lived Assets -- The Company periodically reviews its
long-lived assets and certain identifiable intangible assets, including
goodwill, whenever events or changes in circumstance indicate that the carrying
amount of an asset may be impaired and not recoverable. Adjustments are made if
the sum of the expected future undiscounted operating cash flows is less than
the carrying value of the asset.
(k) Income Taxes -- The Company accounts for income taxes under the
liability method. Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statement and income
tax purposes at the enacted tax rates. The significant differences relate
primarily to the timing and recognition of depreciation and amortization of
long-lived assets, profit on uncompleted contracts, amortization of financing
costs and bad debt expense. Deferred tax amounts represent the future tax
consequences of those differences, which will either be deductible or taxable
when the assets and liabilities are recovered or settled. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized. The Company files a consolidated federal income tax
return in the United States. The Company files separate tax returns for each of
its Canadian subsidiaries in Canada. Additionally, certain of the Company's
operations are subject to Provincial income taxes in Canada and state income
taxes in the United States.
(l) Foreign Currency Translation -- All asset and liability accounts of
Canadian operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the
F-37
<PAGE> 184
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
average exchange rate during the period. Foreign currency translation
adjustments are reported as a component of comprehensive income and
stockholders' equity in the consolidated balance sheet. Gains and losses
resulting from foreign currency transactions are included in income currently.
(m) Earnings Per Share and Change in Accounting Policy -- During fiscal
year ended February 28, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. The new standard
supersedes Accounting Principles Board (APB) No. 15, Earnings Per Share and
establishes standards for computing and presenting earnings per share. Prior
years have been restated to conform with the new requirements.
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the period after giving retroactive effect
to stock dividends and stock splits. Diluted earnings per share amounts are
computed by determining the number of additional shares that are deemed
outstanding from stock options and warrants, using the treasury stock method,
and convertible debentures.
(n) Segment Information -- In the Transition Period, the Company adopted
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 supersedes SFAS 14, Financial Reporting for Segments
of a Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 did not significantly affect
the disclosure of segment information previously reported (see "Segment
Information" note).
(o) New Accounting Standards -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Among other provisions, SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Gains and losses
resulting from changes in the fair values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This Statement becomes effective beginning June 15, 2000,
for the Company. The Company is currently assessing the impact, if any, to its
financial position or results of operations.
(p) Interim Financial Data (Unaudited) -- As discussed in Note 1, on
October 27, 1998 the Company changed its fiscal year end to September 30 from
February 28. The information presented for the seven months ended September 30,
1997 is unaudited. The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments necessary for a fair presentation of results of
the interim period have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the seven months
ended September 30, 1997 are not necessarily indicative of the results that were
reported for the entire fiscal year ending February 28, 1998.
NOTE 3 -- MERGERS AND ACQUISITIONS
MERGERS
Westower Holdings Ltd.
Concurrent with its incorporation in June 1997, the Company completed a
merger with Westower Holdings Ltd. by issuing 3,000,000 shares of common stock
in exchange for all outstanding common stock of Westower Holdings Ltd. Westower
Holdings Ltd. is a Wyoming corporation that owns all outstanding common stock of
Westower Communications Ltd. and Westower Communications, Inc. The merger
qualified as a tax-free exchange and is accounted for similar to a
pooling-of-interests.
F-38
<PAGE> 185
NOTE 3 -- MERGERS AND ACQUISITIONS -- (CONTINUED)
WTC Holdings, Inc. and Western Telecom Construction Ltd
Effective October 28, 1997, the Company completed a merger with WTC
Holdings, Inc. (formerly 411677 Alberta Ltd.) and its wholly owned subsidiary,
Western Telecom Construction Ltd., (collectively, "Western Telecom"). WTC
Holdings, Inc. was wholly-owned by a relative of a significant stockholder and a
director of Westower Corporation. WTC Holdings, Inc. is a Wyoming corporation,
and Western Telecom Construction Ltd. is a Canadian corporation. Western Telecom
engages in operations similar to those of the Company. The merger was effected
by exchanging 835,000 shares of common stock for all outstanding common stock of
Western Telecom. The merger qualified as a tax-free exchange and has been
accounted for using the pooling-of-interests method for business combinations.
Accordingly, the consolidated financial statements for the fiscal years ended
February 29, 1996 and February 28, 1997 and 1998 and the Transition Period have
been restated to include the combined financial position, results of operations,
and cash flows of Western Telecom.
MJA Communications Corporation
Effective May 31, 1998, the Company completed a merger with MJA
Communications Corporation ("MJA"). MJA is a Florida corporation which engages
in operations similar to those of the Company. In connection with the merger,
MJA's tax status was changed from an S corporation to a C corporation. The
merger was effected by exchanging 397,000 shares of common stock for all
outstanding common stock of MJA. The merger qualified as a tax-free exchange and
has been accounted for using the pooling-of-interests method for business
combinations. Accordingly, the consolidated financial statements for the fiscal
years ended February 29, 1996 and February 28, 1997 and 1998 and the Transition
Period have been restated to include the combined financial position, results of
operations, and cash flows of MJA.
Standby Services, Inc.
Effective August 31, 1998, the Company completed a merger with Standby
Services, Inc. ("Standby"). Standby is a Texas corporation which engages in
operations similar to those of the Company. In connection with the merger,
Standby's tax status was changed from an S corporation to a C corporation. The
merger was effected by exchanging 544,000 shares of common stock for all
outstanding common stock of Standby. The merger qualified as a tax-free exchange
and has been accounted for using the pooling-of-interests method for business
combinations. Accordingly, the consolidated financial statements for the fiscal
years ended February 29, 1996 and February 28, 1997 and 1998 and the Transition
Period have been restated to include the combined financial position, results of
operations, and cash flows of Standby.
Prior to the respective mergers, Western Telecom had a fiscal year-end of
January 31 and MJA and Standby had a fiscal year end of December 31. In
recording the business combinations, the fiscal years ended 1998 and 1997
financial statements have not been restated to conform with Westower
Corporation's previous fiscal year end of February 28, as the effect on the
consolidated financial statements is not material. As a result of Western
Telecom, MJA and Standby having a different fiscal year end and the change in
the Company's fiscal year end, Western Telecom and MJA and Standby's results of
operations for the respective one and two-month periods ended February 28, 1998
have been excluded from the reported results of operations in the Transition
Period and, therefore, have been presented as an adjustment to the Company's
consolidated statement of stockholders' equity for the Transition Period.
Aggregate revenues, expenses, income before extraordinary items and net income,
attributable to these mergers, which have been excluded from the Company's
reported results of operations in the Transition Period, were $3,302,000,
$2,864,000, $438,000 and $438,000, respectively, for the period from January 1,
1998 to February 28, 1998.
F-39
<PAGE> 186
NOTE 3 -- MERGERS AND ACQUISITIONS -- (CONTINUED)
Summarized results of operations for the separate companies and combined
amounts included in the consolidated financial statements, net of intercompany
transactions, are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Contract and other revenues
earned
Westower Corporation and
Subsidiaries, including
entities acquired........ $ 5,664,000 $10,415,000 $16,156,000 $ 8,652,000 $11,450,000
MJA......................... 3,305,000 26,164,000 13,929,000 8,418,000 10,824,000
Western Telecom............. 1,777,000 5,001,000 7,027,000 3,035,000 5,341,000
Standby..................... 4,029,000 4,511,000 4,550,000 2,764,000 4,329,000
----------- ----------- ----------- ----------- -----------
$14,775,000 $46,091,000 $41,662,000 $22,869,000 $31,944,000
=========== =========== =========== =========== ===========
Net income (loss)
Westower Corporation and
Subsidiaries, including
entities acquired........ $ 460,000 $ 815,000 $ 975,000 $ 784,000 $ (816,000)
MJA......................... (3,000) 2,617,000 527,000 195,000 513,000
Western Telecom............. (5,000) 364,000 1,475,000 442,000 387,000
Standby..................... 95,000 (366,000) (41,000) 631,000 1,145,000
----------- ----------- ----------- ----------- -----------
$ 547,000 $ 3,430,000 $ 2,936,000 $ 2,052,000 $ 1,229,000
=========== =========== =========== =========== ===========
</TABLE>
The following pro forma net income and basic diluted earnings per share are
presented as if the Company had been required to provide for income taxes that
were previously taxable to the former shareholders of the merged entities that
were previously S corporations.
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income as reported............ $547,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
Dividends on preferred shares... (39,000) -- -- -- --
Pro forma adjustment for income
taxes of acquired entities
previously filing as S
corporations................. 1,000 (890,000) (165,000) (281,000) (454,000)
-------- ---------- ---------- ---------- ----------
Pro forma net income.............. $509,000 $2,540,000 $2,771,000 $1,771,000 $ 775,000
======== ========== ========== ========== ==========
Pro forma basic earnings per share $ 0.11 $ 0.53 $ 0.53 $ 0.37 $ 0.12
======== ========== ========== ========== ==========
Pro forma diluted earnings per
share........................... $ 0.11 $ 0.53 $ 0.50 $ 0.37 $ 0.10
======== ========== ========== ========== ==========
</TABLE>
ACQUISITIONS
The following acquisitions have been accounted for using the purchase
method of accounting for business combinations and, accordingly, the operating
results of the acquired companies have been included in the Company's
consolidated financial statements from the date of acquisition.
F-40
<PAGE> 187
NOTE 3 -- MERGERS AND ACQUISITIONS -- (CONTINUED)
Acquisitions from November 1, 1997 to February 28, 1998
On dates ranging between November 1, 1997 and January 17, 1998, the Company
acquired all outstanding shares of common stock of National Tower Service Ltd.,
501053 B.C. Ltd., and the minority interest in WTC Leasing Ltd. which are
Canadian corporations with operations similar to those of the Company.
Additionally, on January 17, 1998 the Company acquired the assets, principally
communication towers, of Ralph's Radio, Inc. and 344813 Alberta Ltd. The
aggregate purchase price of these transactions totaled approximately $2.7
million which consisted of $1.5 million in cash and the issuance of 134,000
shares of common stock valued at approximately $1.2 million, based on the
publicly traded price.
Jovin Communications, Inc. and Acier Filteau, Inc.
On June 12, 1998 the Company completed the acquisitions of Jovin
Communications, Inc. ("Jovin") and Acier Filteau, Inc. ("Acier"), both Montreal,
Quebec (Canada) corporations which engage in operations similar to those of the
Company. The acquisitions were effected by exchanging shares of common stock of
the Company and shares of a separate class of common stock of an acquisition
subsidiary, with rights identical to those of the Company's common stock,
aggregating 118,000 shares in total and valued at approximately $2.8 million,
based on the publicly traded price, and the assumption of certain obligations of
Jovin and Acier, for all outstanding common shares of Jovin and Acier.
Cord Communications, Incorporated
On August 31, 1998 the Company completed the acquisition of Cord
Communications Incorporated ("Cord"), a California corporation which engages in
operations similar to those of the Company. The acquisition was effected by
exchanging 218,000 shares of common stock valued at approximately $5.2 million,
based on the publicly traded price, $5 million in cash and the assumption of
certain obligations of Cord for all outstanding common shares of Cord. The
former stockholders of Cord may also receive an additional 348,000 shares of
common stock, based on the attainment of certain performance measures of Cord
during the twelve month period following the date of acquisition. Additional
shares of common stock will be recorded as an adjustment of the purchase price
and will increase recorded goodwill.
CNG Communications, Inc.
On September 28, 1998, the Company completed the acquisition of CNG
Communications, Inc. ("CNG") for approximately $1.7 million in cash and the
assumption of certain obligations of CNG. The former shareholder of CNG may also
receive up to an additional $3 million in cash pending the successful
acquisition of certain wireless communication towers under an existing contract
held by CNG. As part of the acquisition, the Company assumed certain liabilities
of CNG, including convertible debentures, outstanding warrants and the
termination costs relating to a financing agreement with a third party
investment banker. The Company entered into a settlement agreement with the
above parties that resulted in an aggregate payment of $3.25 million to the
convertible debenture holders, which included principal and interest, and the
third party investment banker. On October 22, 1998, the Company exercised its
right to acquire the wireless communication towers under contract at an exercise
price of $9.2 million. The consummation of the acquisition is subject to
regulatory approval.
F-41
<PAGE> 188
NOTE 3 -- MERGERS AND ACQUISITIONS -- (CONTINUED)
The following is a summary of all consideration exchanged for acquisitions
that were accounted for as purchases:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Shares issued............................................... 134,000 336,000
Value of shares............................................. $1,184,000 $ 8,100,000
Cash........................................................ 1,467,000 6,672,000
---------- -----------
Total purchase price........................................ $2,651,000 $14,772,000
========== ===========
</TABLE>
The assets and liabilities of the acquired entities were recorded at their
estimated fair market values at the dates of acquisition. The initial
allocations of fair market values are preliminary subject to adjustments during
the first year following the acquisition. The initial allocations were as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Non-compete agreements..................................... $ -- $ 219,000
Tangible assets............................................ 1,437,000 11,034,000
Communication tower purchase contracts..................... -- 5,661,000
Goodwill................................................... 2,104,000 12,507,000
Liabilities assumed and deferred tax liabilities........... (890,000) (14,649,000)
---------- ------------
Total purchase price....................................... $2,651,000 $ 14,772,000
========== ============
</TABLE>
The results of operations of these businesses have been included in the
Company's consolidated financial statements from their respective acquisition
dates. The following summarizes the unaudited pro forma results of operations,
on a combined basis, as if the acquisitions had been consummated as of the
beginning of each of the periods presented, after including the impact of
certain adjustments such as amortization of intangible assets and income tax
effects:
<TABLE>
<CAPTION>
(UNAUDITED)
(UNAUDITED) SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Contract and other revenues earned......................... $72,720,000 $43,273,000
Pro forma net income....................................... $ 4,323,000 $ 140,000
Pro forma basic earnings per share......................... $0.82 $0.02
Pro forma diluted earnings per share....................... $0.77 $0.02
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisitions had been completed prior to the beginning of the periods presented.
In addition, they are not intended to be indicative of future results.
F-42
<PAGE> 189
NOTE 4 -- UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts.... $ 15,356,000 $ 12,111,000 $ 15,461,000
Estimated earnings......................... 3,516,000 5,084,000 3,212,000
Less billings to date...................... (21,784,000) (16,797,000) (15,030,000)
------------ ------------ ------------
Total...................................... $ (2,912,000) $ 398,000 $ 3,643,000
============ ============ ============
Presentation in the accompanying balance
sheet:
Costs and estimated earnings in excess of
billings on uncompleted contracts..... $ 938,000 $ 2,143,000 $ 5,078,000
Billings in excess of costs and estimated
earnings on uncompleted contracts..... (3,850,000) (1,745,000) (1,435,000)
------------ ------------ ------------
Total...................................... $ (2,912,000) $ 398,000 $ 3,643,000
============ ============ ============
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Buildings...................................... $ 550,000 $ 1,507,000 $ 1,795,000
Vehicles....................................... 737,000 1,497,000 2,540,000
Equipment...................................... 381,000 743,000 1,580,000
Communication towers........................... 387,000 620,000 1,401,000
Furniture and fixtures......................... 380,000 634,000 943,000
Leasehold improvements......................... 27,000 73,000 81,000
---------- ----------- -----------
2,462,000 5,074,000 8,340,000
Less accumulated depreciation.................. (688,000) (1,458,000) (1,562,000)
---------- ----------- -----------
1,774,000 3,616,000 6,778,000
Land........................................... 933,000 705,000 796,000
---------- ----------- -----------
$2,707,000 $ 4,321,000 $ 7,574,000
========== =========== ===========
</TABLE>
Depreciation expense on property and equipment in the fiscal years ended
February 29, 1996 and February 28, 1997 and 1998 and the Transition Period was
$196,000, $262,000, $457,000 and $396,000, respectively.
NOTE 6 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Goodwill.................................................... $2,104,000 $14,039,000
Communication tower purchase contracts...................... -- 5,661,000
Non-compete agreements...................................... -- 219,000
---------- -----------
2,104,000 19,919,000
Less accumulated amortization............................... (16,000) (198,000)
---------- -----------
$2,088,000 $19,721,000
========== ===========
</TABLE>
F-43
<PAGE> 190
NOTE 6 -- INTANGIBLE ASSETS -- (CONTINUED)
Amortization expense on intangible assets in the fiscal years ended
February 29, 1996, February 28, 1997 and 1998 and the Transition Period was
$0.00, $8,000, $16,000 and $182,000, respectively.
NOTE 7 -- NOTES PAYABLE
Note Payable to Finance Company
At September 30, 1998, through one of its acquired subsidiaries, the
Company had a $2.5 million line of credit facility with a finance company,
secured by accounts receivable, inventory, property and equipment, cash and cash
equivalents. At September 30, 1998 the outstanding balance was $1.09 million,
which was repaid in October 1998, and the line of credit was cancelled.
Notes Payable to Bank
At February 28, 1998 the Company had a line of credit facility with a
Canadian bank that allowed for borrowings at the bank's prime rate plus .75%.
The line was collateralized by essentially all assets of Western Telecom
Construction Ltd. and was cancelled in May 1998.
F-44
<PAGE> 191
NOTE 8 -- LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Convertible note, interest at 7%, due April 30,
2007, quarterly interest payments through April
2005, quarterly reductions thereafter, see
further description below...................... $ -- $ -- $14,154,000
Convertible notes of acquired subsidiary,
interest at rates ranging from 12% to 14%,
repaid in December 1998 (see Note 3)........... -- -- 1,882,000
Notes payable to various Canadian banks repaid in
full during the Transition Period and 1998, due
on demand or in aggregate monthly installments
of $8,200 including interest, collateralized by
assets and an assignment of lease revenue...... 480,000 263,000 --
Notes payable to various U.S. and Canadian Banks,
repaid in full during the transition period,
due in aggregate monthly installments of
$7,800, including interest at rates ranging
from 7.5% to 11.25% through June 2002,
collateralized by property, plant and
equipment...................................... 222,000 129,000 --
Vehicle purchase contracts and other notes
payable with U.S. and Canadian finance
corporations, aggregate monthly installments of
$30,000, including interest at rates up to
11.15%, payments due through December 2001,
collateralized by vehicles and real property... 86,000 192,000 781,000
Capital lease obligations to U.S. and Canadian
lessors, due in aggregate monthly installments
of $19,000 through August 2003, collateralized
by leased equipment............................ 34,000 210,000 593,000
--------- --------- -----------
Total debt....................................... 822,000 794,000 17,410,000
Less current portion............................. (610,000) (502,000) (2,419,000)
--------- --------- -----------
Long-term portion................................ $ 212,000 $ 292,000 $14,991,000
========= ========= ===========
</TABLE>
Long-term debt and capital lease obligations matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
1999...................................................... $ 2,419,000
2000...................................................... 452,000
2001...................................................... 225,000
2002...................................................... 98,000
2003...................................................... 62,000
Thereafter.................................................. 14,154,000
-----------
$17,410,000
===========
</TABLE>
F-45
<PAGE> 192
NOTE 8 -- LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
Convertible Note
In June 1998, the Company issued a private placement of $15.0 million of 7%
convertible senior subordinated note (the "Convertible Debt") and warrant to
purchase 40,000 shares of common stock in exchange for $14.85 million net cash
proceeds. The Convertible Debt was immediately convertible at a ratio of $25.03
per share of common stock and the warrant provides for purchase of shares at
$23.00 per share of common stock at the holder's option. The purchase agreement
provides for an adjustment of the conversion amount for the subordinated debt
and warrant exercise price for any stock dividends, splits and other changes as
defined in the respective agreements, so as to preserve the Convertible Debt
holder's relative rights. The conversion ratio and warrant exercise price per
common share were less than the fair value of the Company's common stock at the
date of issuance. The value of the conversion features was approximately
$124,000 and was immediately charged to interest expense and an increase in
additional paid-in capital. The value ascribed to the warrant of approximately
$723,000, was reflected as both a debt discount and an increase in additional
paid-in capital. The debt discount is accounted for as a component of interest
expense using the effective interest rate method.
The Convertible Debt requires quarterly interest payments through April 30,
2005, when the Company will be required to make principal payments of $3 million
each April 30 and October 31 thereafter through the final maturity date, April
30, 2007. The Company may begin making optional prepayments of the Convertible
Debt beginning May 30, 2000 subject to a certain minimum trading price of the
Company's common stock commencing on or after April 30, 2000. The Company is
subject to various affirmative and negative covenants contained in the
agreement, including minimum net worth and earnings requirements, and
limitations on additional indebtedness, asset disposals and asset additions. The
agreement required the holder of the Convertible Debt to consent to
subordination of the obligation to senior bank indebtedness discussed below. On
September 30, 1998, the Company was in compliance with all covenants with the
exception of the certain indebtedness covenant, which was cured subsequent to
year end. The Company has received a waiver from the note holder waiving the
right to demand repayment of the note as a result of the violation.
Credit Facility
Under terms of a revolving credit facility, dated June 9, 1998 and expiring
April 25, 2005, with a consortium of U.S. and non-U.S. banks, the Company may
borrow up to $75.0 million. The credit facility provides for interest only
payments through August 30, 2000, with escalating principal reductions each
three months from that date through maturity. Borrowings under the credit
facility bear interest at optional rates as specified in the agreement, subject
to the Company's election at the borrowing date. The Company is also required to
pay quarterly commitment fees of .5% on the average undrawn balance of the
credit facility, which is included as a component of interest expense. There
were no borrowings under the credit facility at September 30, 1998. Subsequent
to year end, the Company has drawn approximately $24.0 million on the credit
facility to finance business acquisitions, including the repayment of acquired
subsidiary debt, and to fund operations. Covenants of the credit facility
require the Company to maintain certain debt-to-earnings and interest coverage
ratios. Other provisions limit capital expenditures, subsidiary indebtedness and
require certain minimum levels of earnings and net worth. On September 30, 1998,
the Company was in compliance with all covenants with the exception of the
certain indebtedness covenant, which was cured subsequent to September 30, 1998.
The Company has received a waiver from the lenders waiving their right to demand
repayment of the credit facility as a result of this violation.
F-46
<PAGE> 193
NOTE 9 -- INCOME TAXES
The provision for income taxes is comprised by the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Current
U.S. federal and state........... $ 38,000 $133,000 $ 272,000 $ 98,000
Canadian federal and
provincial..................... 59,000 70,000 1,402,000 767,000
-------- -------- ---------- ---------
97,000 203,000 1,674,000 865,000
-------- -------- ---------- ---------
Deferred
U.S. federal and state........... $ -- $ (2,000) $ -- $ (20,000)
Canadian federal and
provincial..................... 96,000 435,000 (41,000) (494,000)
-------- -------- ---------- ---------
96,000 433,000 (41,000) (514,000)
-------- -------- ---------- ---------
Total....................... $193,000 $636,000 $1,633,000 $ 351,000
======== ======== ========== =========
</TABLE>
The total tax provision differs from the amount computed using the U.S.
federal statutory income tax rates as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Pretax net income.................... $ 740,000 $4,066,000 $4,569,000 $1,580,000
U.S. statutory rates................. 34% 34% 34% 34%
Tax at statutory rates............... 252,000 1,382,000 1,553,000 537,000
Income taxable to S Corporation
shareholders....................... 1,000 (890,000) (165,000) (454,000)
Effect of change in tax status....... -- 125,000 -- --
Non deductible expenses.............. -- -- -- 185,000
U.S. state income taxes, net of
federal tax benefit................ -- 8,000 -- 5,000
Effect of graduated rates............ (60,000) -- -- --
Excess income tax payable in foreign
jurisdictions...................... -- 11,000 245,000 78,000
---------- ---------- ---------- ----------
$ 193,000 $ 636,000 $1,633,000 $ 351,000
========== ========== ========== ==========
</TABLE>
Undistributed earnings of the Company's Canadian subsidiaries amounted to
approximately $5.7 million at September 30, 1998. Essentially all of those
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been provided thereon.
Upon distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes, net of foreign tax credits,
and withholding taxes payable in Canada.
F-47
<PAGE> 194
NOTE 9 -- INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Assets:
Allowance for doubtful accounts.............. $ -- $ -- $ (51,000)
Liabilities:
Deferred taxable income on uncompleted
contracts.................................. 580,000 534,000 479,000
-------- -------- ----------
$580,000 $534,000 $ 428,000
======== ======== ==========
Noncurrent
Liabilities:
Depreciation and amortization................ $ 27,000 $ 48,000 $2,626,000
Amortization of debt discount................ -- -- 322,000
Other........................................ -- -- 14,000
-------- -------- ----------
$ 27,000 $ 48,000 $2,962,000
======== ======== ==========
</TABLE>
NOTE 10 -- EARNINGS PER SHARE
The numerators and denominators of basic and fully diluted earnings per
share are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Numerator -- Net income as
reported...................... $ 547,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
Dividends on preferred
shares...................... (39,000) -- -- -- --
---------- ---------- ---------- ---------- ----------
$ 508,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
========== ========== ========== ========== ==========
Denominator -- Weighted average
number of shares outstanding
Basic weighted average number
of shares................... 4,776,000 4,776,000 5,263,000 4,776,000 6,531,000
Effect of dilutive stock
options and warrants........ -- -- 331,000 -- 1,105,000
---------- ---------- ---------- ---------- ----------
Diluted weighted average
number of shares........ 4,776,000 4,776,000 5,594,000 4,776,000 7,636,000
========== ========== ========== ========== ==========
</TABLE>
At September 30, 1998, 342,000 weighted-average shares associated with the
Convertible Debt discussed in Note 8 were excluded from the computation of
diluted earnings per share for the Transition Period because their inclusion
would have had an anti-dilutive effect on earnings per share. All other
potential common shares have been included in the diluted earnings per share
calculation. All potential common shares were included in the calculation of
diluted earnings per share for the years ended February 29, 1996 and February
28, 1997 and 1998.
NOTE 11 -- STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
During the year ended February 28, 1998, the Company merged with WTC
Holdings Ltd. and its wholly-owned subsidiary, Western Telecom Construction Ltd.
(collectively, "Western Telecom"). The merger was accounted for as a
pooling-of-interests and the February 28, 1997 financial statements have been
restated to include the accounts of Western Telecom. In February 1994, Western
Telecom issued 467
F-48
<PAGE> 195
NOTE 11 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
shares of Class A redeemable preferred stock. The preferred stock ranked in
priority to common stock in the event of liquidation, dissolution or winding up
of the affairs of Western Telecom. The shares also contain stated redemption
values and rights to 5% noncumulative dividends when declared by the Board of
Directors. There were no unpaid dividends at February 28, 1997 and 1998. The
preferred stock has no voting rights.
The shares have been reflected at their total redemption price of $450,000
in the February 28, 1997 balance sheet. During the year ended February 28, 1998,
the Company redeemed all outstanding shares.
Common Stock
The Company has a single class of $0.01 par value common stock. Authorized
shares total 10 million, of which 2,580,000 have been registered on Form SB-2
with the Securities and Exchange Commission under the 1933 Securities Act. A
total of 1,200,000 of the registered securities were sold in connection with an
initial public offering on October 15, 1997. Proceeds from the offering totaled
$7.5 million, net of $485,000 of underwriting costs.
As disclosed in Note 3, an additional 1,277,000 shares were issued in
connection with various business combinations during the Transition Period and
an additional 3,969,000 shares were issued in the fiscal year ended February 28,
1998. During the fiscal year ended February 28, 1998, a total of 7,000 shares
were issued as stock awards to employees of the Company and acquired businesses
as incentive to remain in the employ of the Company.
Stock Warrants
In connection with its initial public offering in October 1997, the Company
issued stock warrants to purchase 1,380,000 shares of common stock of the
Company with an exercise price of $9.00 per share. The warrants contained a
provision whereby the Company could call for redemption of the warrants if the
closing price of the Company's common stock equaled or exceeded $15.00 for ten
consecutive days. During the Transition Period 559,000 warrants to purchase
559,000 shares of common stock were tendered for exercise with aggregate
proceeds of $4.79 million to the Company, net of commissions and related
expenses of $243,000. On September 29, 1998, the Company exercised its right to
call the remaining warrants, with a redemption date of October 30, 1998.
Subsequent to September 30, 1998 and prior to the redemption date, 819,000
warrants were tendered for conversion with gross proceeds of $7.37 million,
resulting in the cancellation of the remaining warrants which were not tendered.
NOTE 12 -- STOCK OPTIONS
The Company has two stock option plans that provide for the granting of
stock options to certain officers, employees, directors and consultants of the
Company and its subsidiaries. These options generally vest over a period of
three years from the date of grant (as determined by the Company's Compensation
Committee) and have a maximum exercise term of ten years from the date of grant.
The 1998 Stock Incentive Compensation Plan (the "1998 Plan") is the only plan
with stock option awards currently available for grant; a prior plan has stock
options exercisable at September 30, 1998 to purchase up to 400,000 shares of
common stock. The Company is authorized to grant options for up to ten percent
of the
F-49
<PAGE> 196
NOTE 12 -- STOCK OPTIONS -- (CONTINUED)
issued shares of common stock under the 1998 Plan. A summary of awards granted
under the plans is as follows for the fiscal year ended February 28, 1998 and
the Transition Period:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
FEBRUARY 28, 1998 SEPTEMBER 30, 1998
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year.................................. -- -- 592,000 $ 7.78
Options granted......................... 592,000 $7.78 121,500 18.63
Options exercised....................... -- -- 37,000 7.80
Options forfeited....................... -- -- -- --
------- ----- ------- ------
Options outstanding at end of year...... 592,000 $7.78 676,500 $ 9.87
======= ===== ======= ======
Options exercisable at end of year...... 105,000 $8.07 125,500 $ 7.85
======= ===== ======= ======
</TABLE>
A summary of stock options outstanding as of September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE NUMBER WEIGHTED-
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL AVERAGE SEPTEMBER 30, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE EXERCISE PRICE 1998 PRICE
- ------------------------ -------------- ---------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$13.40 to 26.00........ 137,000 4.8 years $18.60 -- --
$ 7.50 to 8.25......... 525,000 3.6 years 7.24 123,300 $7.99
$ 1.00................. 4,500 3.4 years 1.00 1,500 1.00
$ .01................. 10,000 3.6 years 0.01 700 0.01
</TABLE>
The Company applies the accounting provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations for its
stock-based plans. Accordingly, costs for employee stock options or issuance of
shares is measured as the excess, if any, of the fair value of the Company's
common stock at the measurement date over the amount the employee must pay to
acquire the stock. The cost is recognized ratably by the Company as compensation
expense over the vesting period. The expense for the fiscal year ended February
28, 1998 and the Transition Period was $21,000 and $35,000 respectively.
The Company adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), which was effective as of January
1, 1996. The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model and the following assumptions:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Risk-free interest rate..................................... 6.38% 4.75%
Expected life............................................... 2.7 years 2.7 years
Expected volatility......................................... 29% 70%
Expected dividend yield..................................... 0% 0%
</TABLE>
F-50
<PAGE> 197
NOTE 12 -- STOCK OPTIONS -- (CONTINUED)
Had the Company elected to recognize compensation expense as provided for
by SFAS No. 123, the Company's net income amounts on a pro forma basis for the
year ended February 28, 1998 and the Transition Period would have been as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Pro forma net income adjusted............................... $2,721,000 $838,000
========== ========
Pro forma basic earnings per share.......................... $ 0.52 $ 0.13
========== ========
Pro forma diluted earning per share......................... $ 0.49 $ 0.11
========== ========
</TABLE>
The weighted average fair values per share at the date of grant for options
granted during the year ended February 28, 1998 and the Transition Period were
as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Options with exercise prices less than the fair value of the
stock at the date of grant................................ 39,500 19,100
-- weighted average fair value......................... $ 6.00 $ 12.00
Options with exercise prices equal to the fair value of the
stock at the date of grant................................ 311,500 102,400
-- weighted average fair value......................... $ 1.25 $ 9.00
Options with exercise prices greater than the fair value of
the stock at the date of grant............................ 241,000 --
-- weighted average fair value......................... $ 0.50 --
</TABLE>
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash paid for interest................ $ 91,000 $80,000 $ 107,000 $ 312,000
Cash paid for income taxes............ 128,000 77,000 177,000 280,000
Non-cash transactions
Stock issuances for business
acquisitions..................... -- -- 1,184,000 8,100,000
</TABLE>
NOTE 14 -- RETIREMENT PLAN
The Company's subsidiary, Westower Communications Inc., adopted a defined
contribution retirement plan, effective January 1, 1997. The plan contains
certain participation criteria and allows for both employee and employer
discretionary contributions. The total Company funded discretionary contribution
for the years ended February 29, 1996 and February 28, 1997 and 1998 was $0,
$46,000 and $52,000, respectively. There were no employer contributions during
the Transition Period.
NOTE 15 -- RELATED PARTY TRANSACTIONS
Advance to Related Parties
During the fiscal year ended February 28, 1998, the Company advanced
$119,000 to a Canadian corporation owned by certain stockholders of Westower
Corporation. Proceeds were used by the
F-51
<PAGE> 198
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
Corporation to purchase facilities leased by two of the Company's subsidiaries.
The advance was repaid during the Transition Period. The Company also advanced
$77,000 to several stockholders during the fiscal year ended February 28, 1998
which were repaid during the Transition Period. At September 30, 1998,
additional related party advances include $379,000 of unsecured non-interest
bearing shareholder loans made by subsidiaries, prior to acquisition, during the
Transition Period which are expected to be paid in full subsequent to September
30, 1998. At September 30, 1998, the Company has a $65,000 receivable from a
former shareholder of an acquired S corporation. The acquired S corporation made
a distribution to the shareholder, prior to the combination, in an amount to
meet the shareholder's current estimated tax obligation. Subsequent to the
combination it was determined that the tax liability was approximately $65,000
overestimated and a receivable for the excess distribution has been recorded.
The Company expects to collect this amount in full subsequent to September 30,
1998.
Note Receivable
At September 30, 1998, the Company had a note receivable for $495,000, plus
accrued interest of $17,000, from an organization with which they share a common
director. The note bears interest at 12% and is collateralized by warrants to
purchase shares of the Company's common stock, and is due on demand.
Management Services and Accounts Payable
In prior years the Company received consulting services from Westower
Consulting Ltd., a Canadian corporation owned by a stockholder of Westower
Corporation. Charges for these services were $94,000 and $126,000 in the fiscal
years ended February 28, 1997 and 1998, respectively. Included in trade accounts
payable at February 28, 1998 is $39,000 due to Westower Consulting Ltd. Fees
billed by related entities generally do not continue subsequent to acquisition
by the Company as the related services are performed by employees and officers
of the Company.
Notes and Advances Payable to Related Parties
Notes and advances payable to related parties consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Unsecured advances and notes payable to
stockholders and officers, paid in full
during the Transition Period................ $ -- $ 871,000 $ --
Unsecured advances payable to officers and
stockholders, in Canadian dollars, with no
stated interest rate and no specific
repayment terms, paid in full during the
Transition Period........................... -- 173,000 --
Unsecured advances payable to officers and
stockholders, with no stated interest rate,
and no specific repayment terms............. -- -- 228,000
Unsecured notes payable to officers and
stockholders, paid in full during the
transition period........................... 672,000 1,000,000 --
-------- ---------- --------
$672,000 $2,044,000 $228,000
======== ========== ========
</TABLE>
Facility Leases
Two subsidiaries acquired during the fiscal year ended February 28, 1998,
501053 B.C. Ltd. and National Tower Service Ltd., lease their operating
facilities, on a month-to-month basis, from Canadian
F-52
<PAGE> 199
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
corporations owned by certain stockholders of Westower Corporation. Lease
payments made during the Transition Period were $39,000 and there were no
significant lease payments made to the stockholders during the fiscal year ended
February 28, 1998.
NOTE 16 -- COMMITMENTS AND CONTINGENCY
The Company leases operating facilities, office equipment and vehicles
under noncancelable operating lease agreements. Future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
-------------------------
<S> <C>
1999........................................................ $ 607,000
2000........................................................ 348,000
2001........................................................ 203,000
2002........................................................ 67,000
2003........................................................ 63,000
Thereafter.................................................. 52,000
----------
Total....................................................... $1,340,000
==========
</TABLE>
Rent and lease expense was $29,000, $224,000, $259,000 and $632,000 for the
fiscal years ended February 29, 1996 and February 28, 1997 and 1998 and the
Transition Period, respectively.
LITIGATION
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
NOTE 17 -- CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash, cash equivalents and trade
accounts receivable. The Company places its temporary cash investments with a
major financial institution. At times, deposits with any one institution may
exceed federally insured limits. The Company extends credit to customers based
on evaluation of customer's financial condition and credit history. Collateral
is generally not required. Customers include large Canadian and U.S. companies
concentrated in the telecommunications industry.
Contract revenues from two customers accounted for 29% of revenues during
the fiscal year ended February 28, 1998, and one customer accounted for 56% of
revenues during the fiscal year ended February 28, 1997. Accounts receivable
from two customers comprise 48% of accounts receivable at February 28, 1998 and
one customer accounted for 39% of account receivable at February 28, 1997. There
were no customers who accounted for greater than 10% of sales for the Transition
Period and there were no customers with accounts receivable representing 10% or
more of the total accounts receivable at September 30, 1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes the Company's financial results depend in significant part upon the
success of these customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have an adverse effect on the Company's
business, financial condition and results of operations.
F-53
<PAGE> 200
NOTE 18 -- SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, as these entities and
its existing operations exhibit similar financial performance and have similar
economic characteristics, they have been aggregated as one segment.
The following table summarizes contract and other revenues and long-lived
assets related to the respective countries in which the Company operates.
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $14,775,000 $ 8,897,000 $ 5,878,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $46,091,000 $39,177,000 $ 6,914,000
Long-lived assets............................. $ 2,707,000 $ 1,000,000 $ 1,707,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $41,662,000 $22,160,000 $19,502,000
Long-lived assets............................. $ 4,321,000 $ 1,196,000 $ 3,125,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $31,944,000 $19,982,000 $11,962,000
Long-lived assets............................. $ 7,574,000 $ 3,729,000 $ 3,845,000
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
excludes intangible assets.
NOTE 19 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, trade accounts receivable and
payable, and other current liabilities approximate their carrying amounts. The
fair values of advances to and from related parties approximate their fair value
due to the short term nature of the instruments. The fair values of long-term
debt, which are based on the present values of the underlying cash flows
discounted at the Company's incremental borrowing rates, are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Long-term debt................................... $822,000 $794,000 $19,446,000
</TABLE>
NOTE 20 -- SUBSEQUENT EVENTS
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The merger was effected
by exchanging 200,000 shares of common stock valued at approximately $4.1
million, based on the publicly traded price, $4.4 million in cash, and the
assumption of certain liabilities, for all membership interests in Summit. The
former members of Summit may also receive an additional 100,000 shares of common
stock, based on certain performance criteria during the three years following
the date of acquisition. The acquisition was accounted for using the purchase
method for business combinations resulting in goodwill of approximately $8.0
million.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging 188,000 shares of common stock valued at approximately $4 million,
based on the publicly traded price, $1 million in cash, and the assumption of
F-54
<PAGE> 201
NOTE 20 -- SUBSEQUENT EVENTS -- (CONTINUED)
certain liabilities including distributions payable to former shareholders in
the amount of $800,000, for all outstanding shares of Teletronics. The
acquisition was accounted for using the purchase method for business
combinations resulting in goodwill of approximately $5.0 million.
The Company is currently in negotiations with certain tower construction
companies concerning acquisition by Westower. The Company is also in
negotiations with certain third parties concerning the acquisition of wireless
communication towers, and with a financial institution to arrange financing for
the wireless communication tower purchases, should the negotiations conclude
successfully. None of the negotiations are finalized and there is no assurance
that the Company will be successful in concluding these negotiations, or if the
Company is successful, that the acquisitions will not be dilutive to existing
shareholders.
F-55
<PAGE> 202
[Page Intentionally Left Blank.]
F-56
<PAGE> 203
WESTOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND MARCH 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,331,000 $ 9,246,000
Accounts receivable, net.................................. 13,289,000 16,711,000
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 5,078,000 4,263,000
Inventory................................................. 2,151,000 2,920,000
Related party advances and receivables.................... 956,000 1,579,000
Income tax receivable..................................... 220,000 220,000
Other current assets...................................... 1,203,000 1,908,000
----------- ------------
Total current assets.............................. 32,228,000 36,847,000
Property and equipment, net................................. 7,574,000 30,529,000
Intangible assets, net...................................... 19,721,000 33,739,000
Other assets................................................ 2,771,000 5,547,000
----------- ------------
Total assets...................................... $62,294,000 $106,662,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 7,053,000 $ 4,909,000
Other current liabilities................................. 2,810,000 1,366,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,435,000 1,112,000
Income taxes payable...................................... 2,116,000 2,690,000
Deferred income taxes..................................... 428,000 370,000
Stockholder advances and notes payable to related
parties................................................ 228,000 254,000
Note payable.............................................. 1,089,000 68,000
Current portion of long-term debt and capital lease
obligations............................................ 2,419,000 1,630,000
----------- ------------
Total current liabilities......................... 17,578,000 12,399,000
Long-term debt and capital lease obligations, excluding
current portion........................................... 14,991,000 46,437,000
Deferred income taxes....................................... 2,962,000 2,926,000
----------- ------------
Total liabilities................................. 35,531,000 61,762,000
Commitments and contingencies
Stockholders' equity
Common stock ($.01 par value, 10,000,000 and 25,000,000
shares authorized, 7,047,000 and 8,435,000 shares
issued and outstanding at September 30, 1998 and March
31, 1999, respectively)................................ 70,000 84,000
Additional paid-in-capital................................ 22,610,000 39,488,000
Accumulated other comprehensive income (loss)............. (581,000) (482,000)
Retained earnings......................................... 4,664,000 5,810,000
----------- ------------
Total stockholders' equity........................ 26,763,000 44,900,000
----------- ------------
Total liabilities and stockholders' equity........ $62,294,000 $106,662,000
=========== ============
</TABLE>
See accompanying notes to these financial statements.
F-57
<PAGE> 204
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1999 1998 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Contract and other revenues earned........ $11,401,000 $18,319,000 $23,358,000 $43,271,000
Costs of revenues earned (exclusive of
depreciation shown below)............... 8,294,000 12,586,000 17,050,000 30,730,000
----------- ----------- ----------- -----------
Gross profit......................... 3,107,000 5,733,000 6,308,000 12,541,000
Selling, general and administrative
expenses................................ 1,467,000 3,999,000 3,187,000 8,257,000
Depreciation and amortization............. 190,000 870,000 261,000 1,459,000
Merger related expenses................... -- -- -- 77,000
----------- ----------- ----------- -----------
Operating income.......................... 1,450,000 864,000 2,860,000 2,748,000
Other income (expense)
Other income(expense)................ 122,000 237,000 116,000 273,000
Interest income...................... 64,000 78,000 112,000 131,000
Interest and financing expense....... (46,000) (551,000) (72,000) (1,123,000)
----------- ----------- ----------- -----------
Total other income (expense).... 140,000 (236,000) 156,000 (719,000)
----------- ----------- ----------- -----------
Income before provision for income
taxes................................... 1,590,000 628,000 3,016,000 2,029,000
Provision for income taxes................ 557,000 273,000 1,057,000 883,000
----------- ----------- ----------- -----------
Net income................................ $ 1,033,000 $ 355,000 $ 1,959,000 $ 1,146,000
=========== =========== =========== ===========
Earnings per share:
Basic earnings............................ $ 0.17 $ 0.04 $ 0.33 $ 0.14
=========== =========== =========== ===========
Diluted earnings.......................... $ 0.15 $ 0.04 $ 0.29 $ 0.13
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-58
<PAGE> 205
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) INCOME TOTAL
--------- -------- ----------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1998... 7,047,000 $70,000 $22,610,000 $4,664,000 $(581,000) $26,763,000
Net income.................... -- -- -- 1,146,000 -- $1,146,000
Foreign currency translation
adjustment.................. -- -- -- -- 99,000 99,000
----------
Total comprehensive
income.............. $1,245,000 1,245,000
==========
Proceeds from warrants and
options exercised, net...... 985,000 10,000 8,558,000 -- -- 8,568,000
Stock issuances for business
acquisitions................ 403,000 4,000 8,280,000 -- -- 8,284,000
Stock compensation expense.... -- -- 40,000 -- -- 40,000
--------- ------- ----------- ---------- --------- -----------
BALANCE, March 31, 1999....... 8,435,000 $84,000 $39,488,000 $5,810,000 $(482,000) $44,900,000
========= ======= =========== ========== ========= ===========
</TABLE>
See accompanying notes to these financial statements.
F-59
<PAGE> 206
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income................................................ $ 1,959,000 $ 1,146,000
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization............................. 261,000 1,459,000
Gain on sale of assets.................................... (125,000) --
Non-cash interest and financing expense................... -- 239,000
Earnings from equity investment........................... -- (225,000)
Stock compensation expense................................ 35,000 40,000
Changes in operating assets and liabilities, net of effect
of acquisitions
Accounts receivable....................................... 859,000 186,000
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. (962,000) 815,000
Inventory and other current assets........................ (460,000) (1,316,000)
Other assets.............................................. 335,000 --
Trade accounts payable.................................... (348,000) (2,818,000)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 587,000 (323,000)
Other current liabilities................................. 146,000 (1,782,000)
Current and deferred income taxes......................... 1,619,000 480,000
----------- ------------
Net cash flows provided by (used in) operating
activities..................................... 3,906,000 (2,099,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired.......... (1,474,000) (6,583,000)
Increase in other assets.................................. -- (3,225,000)
Purchases of property and equipment....................... (1,192,000) (22,658,000)
Proceeds from sale of assets.............................. 302,000 --
----------- ------------
Net cash flows used in investing activities....... (2,364,000) (32,466,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances, net........................ 7,493,000 7,574,000
Proceeds from long-term debt.............................. 837,000 807,000
Repayments to related parties............................. (1,101,000) (1,980,000)
Repayments from (advances to) related parties............. (637,000) 526,000
Borrowings (repayments) on line of credit, net............ (404,000) (1,871,000)
Proceeds from credit facility............................. -- 31,500,000
Distributions to stockholders of acquired subsidiaries
prior to acquisition................................... (2,738,000) --
Repayments of long-term debt.............................. (325,000) (2,086,000)
----------- ------------
Net cash flows from financing activities.......... 3,125,000 34,470,000
----------- ------------
EFFECT OF EXCHANGE RATES.................................... (6,000) 10,000
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 4,661,000 (85,000)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,748,000 9,331,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 6,409,000 $ 9,246,000
=========== ============
</TABLE>
See accompanying notes to these financial statements.
F-60
<PAGE> 207
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
Westower Corporation (the "Company") designs builds and maintains wireless
communications transmitting and receiving facilities for providers of wireless
communications services. The Company also owns and leases communications towers.
The Company operates throughout the U.S. and Canada.
The unaudited condensed consolidated financial statements and notes thereto
at March 31, 1999 and September 30, 1998 (audited), and for the three and six
months ended March 31, 1999 and 1998, reflect the October 28, 1997 merger with
Western Telecom Construction Ltd., an Alberta corporation, the May 29, 1998
merger with MJA Communications Corp., a Florida corporation, and the August 31,
1998 merger with Standby Services, Inc., a Texas corporation. All companies
design, fabricate and construct wireless transmitting and receiving facilities
and shelters for communications providers. The Company issued 835,000 shares of
its common stock for all the common shares of Western Telecom Construction Ltd.,
397,000 shares of its common stock for all of the common shares of MJA
Communications Corp., and 544,000 shares of its common stock for all of the
common shares of Standby Services, Inc. All of these mergers were accounted for
as or similar to a pooling-of-interests.
On October 27, 1998, the Company changed its fiscal year-end from February
28 to September 30. All prior information has been restated to conform with a
September 30 year end.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements or those normally
reflected in the Company's Annual Report on Form 10-KSB. The financial
information included herein reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of results for interim periods. Results of interim periods are
not necessarily indicative of the results to be expected for a full year. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements for the seven-month
Transition Period ended September 30, 1998 and the notes thereto included in the
Company's Form 10-KSB.
Consolidation -- The consolidated financial statements include the accounts
of the Company and its wholly owned domestic and Canadian subsidiaries.
Investments in subsidiaries in which the Company exercises significant influence
but which it does not control are accounted for using the equity method.
Investment in a 60% owned affiliated company is accounted for on the equity
method of accounting. The Company's equity earnings from this investment during
the three and six months ended March 31, 1999 were $189,000 and $225,000,
respectively, which has been included in other income. All material intercompany
accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation -- All asset and liability accounts of
Canadian operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the average exchange rate during the
period. Foreign currency translation adjustments are reported as a component of
comprehensive income and stockholders' equity in the consolidated balance sheet.
Exchange gains and losses from foreign currency transactions are included in
income currently.
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 unaudited
condensed consolidated financial statements. Examples of estimates subject to
possible revision based upon the outcome of future events include costs and
estimated earnings on uncompleted contracts, depreciation of property and
equipment, accrued income tax liabilities, and purchase price allocations for
acquisitions. Actual results could differ from those estimates.
F-61
<PAGE> 208
NOTE 1 -- BASIS OF PRESENTATION -- (CONTINUED)
Reclassification -- Certain prior year amounts have been reclassified to
conform to the current year presentation and did not impact previously reported
stockholders' equity or cash flow.
NOTE 2 -- INVENTORY
Inventory is stated at the lower of cost and estimated net realizable value
using the first-in, first-out method. Inventory consists of materials purchased
for future construction not associated with specific jobs.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- -----------
<S> <C> <C>
Buildings.................................................. $ 1,795,000 $ 1,806,000
Vehicles................................................... 2,540,000 3,796,000
Equipment.................................................. 1,580,000 2,361,000
Communications towers...................................... 1,401,000 20,174,000
Furniture and fixtures..................................... 943,000 1,668,000
Leasehold improvements..................................... 81,000 150,000
Construction in progress................................... -- 1,616,000
----------- -----------
8,340,000 31,571,000
Less accumulated depreciation and amortization............. (1,562,000) (2,358,000)
----------- -----------
6,778,000 29,213,000
Land....................................................... 796,000 1,316,000
----------- -----------
$ 7,574,000 $30,529,000
=========== ===========
</TABLE>
In February 1999, the Company completed the acquisition of certain
communications towers under contract in December 1998, at an aggregate cost of
approximately $17 million.
NOTE 4 -- ACQUISITIONS
During the six months ended March 31, 1999, the Company consummated the
following transactions which were accounted for under the purchase method of
accounting, and accordingly, the operating results of the acquired entities have
been included in the consolidated operating results since the date of
acquisition.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging approximately 188,000 shares of common stock valued at approximately
$3.8 million, based on the publicly traded price, $1.8 million in cash,
including distributions payable to former shareholders in the amount of
$800,000, and the assumption of certain liabilities, for all outstanding shares
of Teletronics. The acquisition was accounted for using the purchase method for
business combinations resulting in goodwill of approximately $5.0 million.
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The acquisition was
effected by exchanging approximately 200,000 shares of common stock valued at
approximately $4.1 million, based on the publicly traded price, $4.4 million in
cash, and the assumption of certain liabilities, for all membership interests in
Summit. The former members of Summit may also receive an additional 100,000
shares of common stock, based on certain performance criteria during the three
years following the date of acquisition. The acquisition was accounted for using
the purchase method for business combinations resulting in goodwill of
approximately $8.0 million.
F-62
<PAGE> 209
NOTE 4 -- ACQUISITIONS -- (CONTINUED)
On February 4, 1999 the Company completed the acquisition of Cypress Real
Estate Services, Inc. ("Cypress"), a Florida corporation. The acquisition was
effected by exchanging approximately 15,000 shares of common stock valued at
approximately $424,000, based on the publicly traded price, for all outstanding
shares of Cypress. The former shareholder of Cypress may also receive additional
shares of common stock, based on the number of towers, not to exceed 1,000
towers, acquired or constructed by the Company, subject to certain limitations
and restrictions. The acquisition was accounted for using the purchase method
for business combinations with substantially all of the purchase price allocated
to goodwill.
On February 26, 1999 the Company completed the acquisition of
Telecommunications R. David ("R. David"), a Quebec, Canada company which engages
in operations similar to those of the Company. The acquisition was effected by
exchanging approximately $330,000 in cash, and the assumption of certain
liabilities, for all outstanding shares of R. David. The acquisition was
accounted for using the purchase method for business combinations resulting in
goodwill of approximately $350,000.
The following is a summary of all consideration exchanged for acquisitions
that were accounted for as purchases:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1999
-----------
<S> <C>
Shares issued............................................... 403,000
Value of shares............................................. $ 8,284,000
Cash........................................................ 6,583,000
-----------
Total purchase price........................................ $14,867,000
===========
</TABLE>
The assets and liabilities of the acquired entities were recorded at their
estimated fair market values at the dates of acquisition. The initial
allocations of fair market values are preliminary and are subject to adjustments
during the first year following the acquisition. The initial allocations were as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
Non-compete agreements...................................... $ 136,000
Tangible assets............................................. 5,084,000
Goodwill.................................................... 13,825,000
Liabilities assumed and deferred tax liabilities............ (4,178,000)
-----------
Total purchase price........................................ $14,867,000
===========
</TABLE>
Included in the operating results for the three and six months ended March
31, 1999 are revenues of $4,384,000 and $9,279,000, respectively, and operating
income of $426,000 and $1,360,000, respectively, from the dates of acquisition.
Goodwill is generally amortized over a 20 year period.
F-63
<PAGE> 210
NOTE 5 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- -----------
<S> <C> <C>
Goodwill................................................... $14,039,000 $27,864,000
Communications tower purchase contract..................... 5,661,000 6,381,000
Non-compete agreements..................................... 219,000 355,000
----------- -----------
19,919,000 34,600,000
Less accumulated amortization.............................. (198,000) (861,000)
----------- -----------
$19,721,000 $33,739,000
=========== ===========
</TABLE>
During May 1999, the Company completed the acquisition of certain wireless
communications towers under contract at an aggregate cost of $9.2 million, which
is in addition to the amount ascribed in the contract above.
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ----------
<S> <C> <C>
Deposits on tower purchase contracts........................ $ -- $ 781,000
Equity investment in joint venture.......................... 217,000 1,210,000
Deposit on business purchase................................ -- 662,000
Other noncurrent assets, net................................ 2,554,000 2,894,000
---------- ----------
$2,771,000 $5,547,000
========== ==========
</TABLE>
During the six months ended March 31, 1999, the Company paid $781,000 as a
deposit to acquire additional towers. Equity investment in joint venture
represents the Company's cash investment and the Company's equity earnings from
this investment. Deposits on business purchases represent deposits on purchases
of businesses that the Company is currently negotiating. There can be no
assurance that the Company will be successful in completing these negotiations,
in which case the deposits are refundable.
NOTE 7 -- LONG-TERM DEBT
During the six months ended March 31, 1999, the Company borrowed an
aggregate $31.5 million under its credit facility with Bank Boston N.A. As of
March 31, 1999, the effective interest rate on borrowings under the facility was
approximately 7.5%.
NOTE 8 -- COMMON STOCK
On October 15, 1997, the Company issued 1,200,000 shares of common stock
and 1,380,000 warrants to purchase common stock in a public offering. The
Company received proceeds, net of costs, of $7,493,000 from its public offering.
During the six months ended March 31, 1999, the Company received net proceeds of
$7,291,000 on the exercise of 819,000 warrants, at $9.00 per share of common
stock. In addition to the warrants noted above, during the six months ended
March 31, 1999, the Company's underwriters exercised warrants, issued in
connection with the Company's initial public offering, resulting in the Company
receiving $996,000 on the exercise of warrants to purchase 111,000 shares of
common stock at $9 per share. At March 31, 1999, the Company has a receivable
from the underwriters of $996,000 included in related party advances and
receivables for which the Company received cash proceeds in April and May 1999.
At March 31, 1999, there were unexercised warrants to purchase approximately
130,000 shares of common stock held by underwriters.
F-64
<PAGE> 211
NOTE 9 -- EARNINGS PER SHARE
The numerators and denominators of basic and fully diluted earnings per
share are as follows:
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator -- Net income as reported... $1,033,000 $ 355,000 $1,959,000 $1,146,000
========== ========== ========== ==========
Denominator -- Weighted average number
of shares outstanding:
Basic weighted average number of
shares........................... 6,110,000 8,343,000 5,980,000 8,088,000
Effect of dilutive stock options and
warrants......................... 958,000 491,000 873,000 599,000
---------- ---------- ---------- ----------
Diluted weighted average number
of shares................... 7,068,000 8,834,000 6,853,000 8,687,000
========== ========== ========== ==========
</TABLE>
For the three and six months ended March 31, 1998 and 1999, shares
associated with convertible debt were excluded from the computation of diluted
earnings per share because inclusion would have had an anti-dilutive effect on
earnings per share. All other potential common shares have been included in the
diluted earnings per share calculation. All potential common shares were
included in the calculation of diluted earnings per share for the three and six
months ended March 31, 1998.
NOTE 10 -- SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, as these entities and
its existing operations exhibit similar financial performance and have similar
economic characteristics, they have been aggregated as one segment.
The following table summarizes contract and other revenues and long-lived
assets related to the respective countries in which the Company operates.
<TABLE>
<CAPTION>
AS AT AND FOR THE
SIX MONTHS ENDED MARCH 31, 1998
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $23,358,000 $12,495,000 $10,863,000
Long-lived assets............................. $ 4,366,000 $ 1,235,000 $ 3,131,000
</TABLE>
<TABLE>
<CAPTION>
AS AT AND FOR THE
SIX MONTHS ENDED MARCH 31, 1999
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $43,271,000 $32,823,000 $10,448,000
Long-lived assets............................. $30,529,000 $24,485,000 $ 6,044,000
</TABLE>
Long-lived assets are comprised of property and equipment and exclude
intangible assets.
NOTE 11 -- MERGER OF THE COMPANY
On May 15, 1999, the Company entered into a definitive agreement with
Spectrasite Holdings, Inc. (Spectrasite), under which Westower will merge with a
subsidiary of Spectrasite. Under the terms of the agreement, Westower
shareholders will receive 1.81 shares of Spectrasite common stock for each
Westower share. The merger is subject to the approval of Westower's shareholders
and the appropriate regulatory agencies as well as other customary closing
conditions. There can be no assurance that the merger will be consummated. In
the event the merger is not completed, the Company may be obligated to pay a
$12.0 million termination fee plus SpectraSite's expenses.
F-65
<PAGE> 212
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
CORD Communications, Inc.
We have audited the accompanying balance sheets of CORD Communications,
Inc. as of June 30, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial position of CORD Communications, Inc. as
of June 30, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As described in note 13 to the financial statements, the Company was sold
subsequent to June 30, 1998.
/s/ Moss Adams LLP
Beaverton, Oregon
October 21, 1998
F-66
<PAGE> 213
CORD COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 27,730 $ 913,514
Accounts receivable -- trade, (net of allowance).......... 1,951,901 2,452,205
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 151,817 735,634
Unbilled amounts on completed contracts................... 175,209 394,502
Accrued interest receivable............................... 14,410 7,744
Employee advances......................................... 1,471 5,961
Refundable income taxes................................... 440,320 --
Prepaid expenses.......................................... 43,392 11,069
---------- ----------
Total current assets........................................ 2,806,250 4,520,629
Property and equipment, net of accumulated depreciation..... 401,834 399,218
Other assets................................................ 42,949 39,749
---------- ----------
Total assets................................................ $3,251,033 $4,959,596
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable -- trade................................. $1,459,981 $1,247,921
Note payable.............................................. 500,000 155,000
Notes payable -- stockholder and related party............ -- 87,402
Current portion, long-term debt and capital lease
obligations............................................ 38,897 48,474
Accrued wages and payroll taxes........................... 243,426 193,051
Other accrued liabilities................................. 83,562 17,832
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 443,185 69,352
Income taxes payable...................................... -- 547,000
Deferred income taxes..................................... 194,800 841,478
---------- ----------
Total current liabilities................................... 2,963,851 3,207,510
---------- ----------
Long-term debt and capital lease obligations................ 53,766 86,121
---------- ----------
Deferred income taxes....................................... 260,700 --
---------- ----------
Stockholders' equity (deficit):
Common stock, $1 par value, 1,000,000 shares authorized,
2,000 shares issued, 873 shares outstanding............ 873 873
Additional paid-in-capital................................ 350,878 350,878
Retained earnings (deficit)............................... (318,437) 1,374,812
Note receivable -- stock subscription..................... (60,598) (60,598)
---------- ----------
Total stockholders' equity (deficit)........................ (27,284) 1,665,965
---------- ----------
Total liabilities and stockholders' equity.................. $3,251,033 $4,959,596
========== ==========
</TABLE>
See accompanying notes.
F-67
<PAGE> 214
CORD COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CONTRACT REVENUES........................................... $11,010,207 $15,902,768
COST OF CONTRACTS:
Subcontractors............................................ 3,642,346 3,522,513
Labor..................................................... 2,754,248 3,672,345
Materials and supplies.................................... 1,532,546 2,008,403
Equipment costs and rental................................ 615,980 867,399
Other..................................................... 805,431 875,529
----------- -----------
Total cost of contracts..................................... 9,350,551 10,946,189
GROSS PROFIT................................................ 1,659,656 4,956,579
GENERAL AND ADMINISTRATIVE EXPENSES......................... 4,157,468 1,916,076
----------- -----------
OPERATING INCOME (LOSS)..................................... (2,497,812) 3,040,503
OTHER INCOME (EXPENSES):
Interest income........................................... 10,887 8,044
Interest expense.......................................... (41,521) (100,982)
Other..................................................... 37,088 18,826
----------- -----------
Total other income (expenses)............................... 6,454 (74,112)
INCOME (LOSS) BEFORE INCOME TAXES........................... (2,491,358) 2,966,391
PROVISION FOR INCOME TAXES.................................. (798,109) 1,339,829
----------- -----------
NET (LOSS) INCOME........................................... $(1,693,249) $ 1,626,562
=========== ===========
</TABLE>
See accompanying notes.
F-68
<PAGE> 215
CORD COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
--------------- PAID-IN EARNINGS STOCK
SHARES AMOUNT CAPITAL (DEFICIT) SUBSCRIPTION TOTAL
------ ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996........ 873 $873 $350,878 $ (251,750) $(80,207) $ 19,794
Receipts on note receivable
stock subscription.......... -- -- -- -- 19,609 19,609
Net income for the year....... -- -- -- 1,626,562 -- 1,626,562
--- ---- -------- ----------- -------- -----------
Balance, June 30, 1997........ 873 873 350,878 1,374,812 (60,598) 1,665,965
--- ---- -------- ----------- -------- -----------
Loss for the year............. -- -- -- (1,693,249) -- (1,693,249)
--- ---- -------- ----------- -------- -----------
Balance, June 30, 1998........ 873 $873 $350,878 $ (318,437) $(60,598) $ (27,284)
=== ==== ======== =========== ======== ===========
</TABLE>
See accompanying notes.
F-69
<PAGE> 216
CORD COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $(1,693,249) $ 1,626,562
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization............................. 131,561 73,507
Deferred income taxes..................................... (385,978) 780,000
Gain (loss) on sale of fixed assets....................... 10,436 (4,284)
Changes in certain operating assets and liabilities:
Accounts receivable -- trade........................... 500,304 (1,716,878)
Costs and estimated earnings in excess of billings..... 583,817 (662,048)
Unbilled amounts on completed contracts................ 219,293 (394,502)
Accrued interest receivable............................ (6,666) 3,466
Employee advances...................................... 4,490 (4,976)
Refundable income taxes................................ (440,320) --
Prepaid expenses....................................... (32,323) (16)
Other assets........................................... (3,200) (26,074)
Accounts payable -- trade.............................. 212,060 875,528
Accrued wages and payroll taxes........................ 50,375 143,130
Other accrued liabilities.............................. 65,730 (1,702)
Billings in excess of costs and estimated earnings..... 373,833 (65,560)
Income taxes payable................................... (547,000) 542,654
----------- -----------
Net cash (used in) from operating activities...... (956,837) 1,168,807
----------- -----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Decrease (increase) in note receivable -- stock
subscription.............................................. -- 19,609
Proceeds from sale of equipment............................. 2,800 --
Purchase of property and equipment.......................... (147,413) (290,046)
----------- -----------
Net cash used in investing activities............. (144,613) (270,437)
----------- -----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and capital lease
obligations............................................... 8,000 123,620
Principal payments on long-term debt and capital lease
obligations............................................... (49,932) (60,481)
Proceeds from stockholder loans............................. -- 6,767
Principal payments on stockholder loans..................... (87,402) --
Net change in notes payable................................. 345,000 (110,000)
----------- -----------
Net cash from (used in) financing activities...... 215,666 (40,094)
----------- -----------
NET (DECREASE) INCREASE IN CASH............................. (885,784) 858,276
CASH AND CASH EQUIVALENTS, beginning of year................ 913,514 55,238
----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 27,730 $ 913,514
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 41,521 $ 100,982
=========== ===========
Interest received........................................... $ 4,221 $ 11,510
=========== ===========
Income taxes paid........................................... $ 575,188 $ 505
=========== ===========
</TABLE>
See accompanying notes.
F-70
<PAGE> 217
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
CORD Communications, Inc. was incorporated in July 1994 in the state of
California. The Company constructs cellular communication sites, underground and
overhead telephone and utility lines, and commercial tenant improvements. In
addition, they perform site acquisition and lease negotiations, and provide land
use planning services. The Company operates primarily in California, Washington,
and Oregon.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. At June 30, 1997, cash and cash
equivalents that exceeded the FDIC insurance limits were $711,410.
ACCOUNTS RECEIVABLE
In the normal course of business, the Company extends credit to customers,
principally with customers located in California, Washington, and Oregon.
Collectibility of accounts receivable is periodically assessed by management.
This assessment provides the basis for any allowance for doubtful accounts and
related bad debt expense. An allowance of $83,000 was considered necessary by
management at June 30, 1998. No allowance for doubtful accounts was considered
necessary by management as of June, 30 1997. A concentration of credit risk
exists in connection with the Company's trade customers due to the proximity of
location and services provided. As of June 30, 1998 and 1997, the Company had
accounts receivable balances of $1,951,901 and $2,452,205, which were exposed to
the concentration of credit risk. Credit risk related to contract receivables is
minimized by the Company's rights under lien laws on contracts subject to those
laws.
REVENUE AND COST RECOGNITION
Revenues from fixed-price construction contracts are recognized on the
percentage of completion method, measured on the basis of cost incurred to date
to total estimated cost for each contract. Because of inherent uncertainties in
estimating cost to complete, it is at least reasonably possible that the
estimates used will change in the near term.
Contract costs include all direct material, equipment and labor costs,
subcontract costs and those indirect costs related to contract performance, such
as supplies, travel and per diem costs. General and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability, including those
arising from final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Claims are generally included in contract revenues when settled.
The asset, "Cost and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in advance of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in advance of revenues recognized.
F-71
<PAGE> 218
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets.
<TABLE>
<S> <C>
Vehicles.................................................... 5 years
Office furniture and equipment.............................. 3 to 7 years
Construction equipment...................................... 5 to 7 years
Leasehold improvements...................................... 3 years
</TABLE>
Property and equipment consisted of the following at June 30, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Vehicles.................................................... $ 342,782 $ 275,864
Office furniture and equipment.............................. 183,760 137,735
Construction equipment...................................... 119,028 112,648
Leasehold improvements...................................... 19,361 19,361
--------- ---------
664,931 545,608
Less accumulated depreciation............................... (263,097) (146,390)
--------- ---------
$ 401,834 $ 399,218
========= =========
</TABLE>
The cost and related accumulated depreciation of assets sold or disposed
are removed from the accounts, and any resulting gain or loss is included in
operations. Repairs and maintenance expenditures are expensed as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements, and consist of taxes currently due plus deferred taxes
related primarily to different methods of accounting for depreciation and the
use of the cash method for income tax purposes. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates used in preparing these financial statements include
estimated costs to complete which have a direct effect on gross profit.
VALUATION OF LONG LIVED ASSETS AND CHANGE IN ACCOUNTING POLICY
The Company periodically reviews long-lived assets and certain identifiable
intangibles whenever events of changes in circumstance indicate that the
carrying amount of an asset may not be recoverable. There will be no provisions
for impairment during 1998 or 1997.
2. NOTE PAYABLE
The Company has a line of credit with South Umpqua State Bank, which bears
interest at the Wall Street Journal's published prime rate plus 1%. The Company
may borrow up to $1,000,000 under the terms of the line of credit. The note is
collateralized by equipment, intangible assets, chattel paper accounts,
equipment, and general intangibles. The note payable is also personally
guaranteed by the
F-72
<PAGE> 219
2. NOTE PAYABLE -- (CONTINUED)
stockholders of the Company. Borrowing on the line is limited to 70% of
receivables less than 90 days old, less retainage receivables. The line of
credit was scheduled to expire on February 1, 1999, however, the note was paid
off on September 1, 1998 (see note 13).
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Notes payable to Ford Motor Credit Corp. with interest from
9.75% to 10.25%, payable in monthly installments of
$1,149, including interest, maturing from 1999 through
2001, collateralized by vehicles.......................... $ 25,798 $ 36,431
Notes payable to South Umpqua State Bank with interest from
8.48% to 10.75%, payable in monthly installments of
$1,950, including interest, maturing from 1998 through
2001, collateralized by vehicles.......................... 21,968 36,074
Note payable to Damerow Ford with interest at 8.65%, payable
in monthly installments of $646, including interest,
maturing in 2001, collateralized by a vehicle............. 21,349 26,950
Note payable on equipment with interest from 1.9%, to 11.5%
payable in monthly installments of $1,716, including
interest, maturing in 1998 through 2001, collateralized by
equipment................................................. 11,518 28,068
Capital lease obligations for equipment, payable in monthly
installments of $608, including interest, inputed from
15.29% to 20.92%, maturing in 1999 through 2001,
collateralized by equipment............................... 12,030 7,072
-------- --------
92,663 134,595
Less current portion........................................ (38,897) (48,474)
-------- --------
Long-term portion........................................... $ 53,766 $ 86,121
======== ========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
JUNE 30, MATURING
----------- --------
<S> <C>
1999........................................................ $38,897
2000........................................................ 27,571
2001........................................................ 22,396
2002........................................................ 3,743
2003........................................................ 56
-------
$92,663
=======
</TABLE>
4. OPERATING LEASE COMMITMENTS
The Company leases office and storage space, vehicles, and communication
analyzing equipment under non-cancelable operating leases expiring on various
dates through February 2000. Total rental payments amounted to $229,482 and
$109,964 for the years ended June 30, 1998 and 1997, respectively.
F-73
<PAGE> 220
4. OPERATING LEASE COMMITMENTS -- (CONTINUED)
Future minimum rental commitments under non-cancelable leases payable over
the remaining lives of the leases are:
<TABLE>
<CAPTION>
MINIMUM
LEASE
YEAR ENDING JUNE 30, PAYMENTS
-------------------- --------
<S> <C>
1999........................................................ $73,793
2000........................................................ 7,098
-------
$80,891
=======
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
The Company has recorded the following costs and estimated earnings on
contracts in progress:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Costs incurred on contracts in progress.................... $ 1,506,191 $ 1,563,604
Estimated earnings......................................... 402,937 807,434
----------- -----------
Revenue recognized to date............................... 1,909,128 2,371,038
Less billings to date.................................... (2,200,496) (1,704,756)
----------- -----------
$ (291,368) $ 666,282
=========== ===========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
--------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
contracts
in progress............................................... $ 151,817 $735,634
Billings in excess of costs and estimated earnings on
contracts
in progress............................................... (443,185) (69,352)
--------- --------
$(291,368) $666,282
========= ========
</TABLE>
6. CONTRACT BACKLOG
The following schedule summarizes changes in backlog on contracts during
the year ended June 30, 1998 and 1997. Backlog represents the amount of gross
revenue the Company expects to realize from work to be performed on contracts in
progress at year-end.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Backlog balance, beginning of year....................... $ 1,279,115 $ 2,568,957
New contracts during the year............................ 10,571,539 14,612,926
------------ ------------
11,850,654 17,181,883
Less: contract revenue earned during the year............ (11,010,207) (15,902,768)
------------ ------------
Backlog balance, end of year............................. $ 840,447 $ 1,279,115
============ ============
</TABLE>
F-74
<PAGE> 221
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
Current
Federal................................................... $(404,249) $ 426,013
State..................................................... (7,883) 133,816
--------- ----------
(412,132) 559,829
--------- ----------
Deferred
Federal................................................... (308,781) 624,000
State..................................................... (77,196) 156,000
--------- ----------
(385,977) 780,000
--------- ----------
$(798,109) $1,339,829
========= ==========
</TABLE>
The difference between the actual income tax provision (benefit) and the
tax provision (benefit) computed by applying the statutory federal rate to
income (loss) before taxes is attributable to the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT % AMOUNT %
--------- ----- ---------- ----
<S> <C> <C> <C> <C>
Federal statutory income tax provision
(benefit).................................. $(847,062) (34.0)% $1,008,573 34.0%
State statutory income tax provision
(benefit).................................. (211,766) (8.5)% 252,143 8.5%
Carryback of net operating losses (NOL) in
years with rates different than statutory
rates...................................... 13,300 0.5% -- --
Change in valuation allowance for deferred
taxes...................................... 283,370 11.4% -- --
Other........................................ (35,951) (1.4)% 79,113 2.7%
--------- ----- ---------- ----
Actual income tax provision (benefit)........ $(798,109) (32.0)% $1,339,829 45.2%
========= ===== ========== ====
</TABLE>
The composition of the deferred income tax assets and liabilities at June
30, 1998 and 1997 are:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1997
--------- -----------
<S> <C> <C>
Current deferred tax assets
Differences in basis in assets due to cash method used for
income taxes........................................... $ -- $ 751,789
Bad debts, vacation accrual and other..................... 115,100 --
Tax benefit of net operating loss carryforwards........... 283,370 --
Valuation allowance....................................... (283,370) --
--------- -----------
115,100 751,789
--------- -----------
Current deferred tax liabilities
Differences in basis in liabilities due to cash method
used for income taxes.................................. -- (1,593,267)
Difference in revenue recognized on uncompleted
contracts.............................................. (171,300) --
Deferral of taxes from conversion from cash to accrual
completed contract..................................... (134,500) --
Other..................................................... (4,100) --
--------- -----------
(309,900) (1,593,267)
--------- -----------
</TABLE>
F-75
<PAGE> 222
7. INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1997
--------- -----------
<S> <C> <C>
Net current deferred tax liabilities........................ $(194,800) $ (841,478)
========= ===========
Non-current deferred tax assets
Capitalization differences between financial and tax
accounting............................................. $ 9,000 $ 1,266
Other..................................................... 19,300 --
--------- -----------
28,300 1,266
--------- -----------
Non-current deferred tax liabilities
Deferral of taxes from conversion from cash to accrual
completed contract..................................... (269,000) --
Depreciation differences between financial and tax
accounting............................................. (20,000) (1,266)
--------- -----------
(289,000) (1,266)
--------- -----------
Net non-current deferred tax liabilities.................... $(260,700) $ --
========= ===========
</TABLE>
The Company's net operating loss carryforward will expire in 2013.
8. BOND GUARANTEES
Most of the Company's business activities are performed under contract
agreements with customers which require bond guarantees from an independent
surety company. As is customary in the construction industry, the Company has
pledged all of its assets in order to indemnify the surety company against
losses under these bond guarantees.
9. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1996, the Company bought back 418 shares of
its stock which was owned by a principal stockholder. The buy-back of stock was
accomplished by providing an unsecured promissory note for $138,063 payable upon
demand, which accrued interest at the rate of 10% per annum. During the year
ended June 30, 1998, the Company paid the remaining principal balance
outstanding at June 30, 1997 of $87,402.
The Company leases equipment from a principal stockholder. Lease payments
for the years ended June 30, 1998 and 1997 were $57,600 and $78,920,
respectively. Amounts included in accounts payable that were due to the
stockholder for equipment rental were $0 and $22,200 at June 30, 1998 and 1997,
respectively.
On June 30, 1995, the Company had an outstanding unsecured note receivable
from a stockholder, which it had received in exchange for the issuance of common
stock. The note is payable upon demand and accrues interest at the rate of 10%
per annum. The Company received payments of principal and interest of $0 and
$30,820 at June 30, 1998 and 1997, respectively. The remaining principal balance
owed the Company at June 30, 1998 and 1997 was $60,598. The Company's accrued
interest balance at June 30, 1998 and 1997 was $14,410 and $7,744, respectively.
10. DEFINED CONTRIBUTION PENSION PLAN
Effective January 1997, the Company adopted a 401(k) retirement plan that
covers all employees who have completed one year of service and are at least 21
years of age. The Company's contributions, which are discretionary, are
allocated to participants based on a percentage of wages. Participants may also
make elective contributions. Employer pension expense for the year ended June
30, 1998 and 1997 totaled $28,409 and $0, respectively.
F-76
<PAGE> 223
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, accounts receivable, accounts payable, and other current
liabilities -- At June 30, 1998, carrying amounts of these financial instruments
approximate fair value because of their short maturities.
Long term debt and capital lease obligations -- At June 30, 1998, estimated
fair value of long-term debt approximates the carrying amount of $92,663, based
on current rates offered for similar debt.
12. YEAR 2000 COMPLIANCE
The Company is conducting a review of its computer and other systems to
identify those areas that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company is currently
working with consultants who believe, with modifications to existing software
and converting to new software and hardware, the Year 2000 problem will not pose
significant operational problems and is not anticipated to be material to its
financial position or results of operations in any given year.
13. SUBSEQUENT EVENTS
On September 1, 1998, the Company's line of credit was paid in full and
canceled.
On August 31, 1998, the stockholders of CORD Communications sold all of the
outstanding shares of stock to Westower Corporation in exchange for $5,000,000
in cash and 217,389 shares of Westower stock. The stockholders can receive
347,826 additional shares contingent on the performance of CORD Communications
during the twelve months following the purchase. The purchase agreement also
provides that Westower will support CORD's need for additional working capital
during the twelve months following the purchase. Westower is a larger cellular
tower contractor and operator, and is planning to bring its additional
marketing, operational and capital resources to CORD Communications in order to
grow and enhance the Company's business activities.
F-77
<PAGE> 224
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
In our opinion, the accompanying balance sheet and the related statements
of income, members' equity and cash flows present fairly, in all material
respects, the financial position of Summit Communications, LLC at September 30,
1998, and the results of its operations and its cash flows for the nine months
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Summit Communications, LLC for the Period of
Inception (May 24, 1997) to December 31, 1997 were audited by other independent
accountants whose report dated March 5, 1998 expressed an unqualified opinion on
those statements.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
May 21, 1999
F-78
<PAGE> 225
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
Ridgeland, Mississippi
We have audited the accompanying balance sheet of Summit Communications,
LLC, as of December 31, 1997 and the related statements of income, members'
equity and cash flows for the Period of Inception (May 24, 1997) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Communications, LLC
as of December 31, 1997, the results of its operations and its cash flows for
the Period of Inception (May 24, 1997) to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Shearer, Taylor & Co., P.A.
March 5, 1998
Jackson, Mississippi
F-79
<PAGE> 226
SUMMIT COMMUNICATIONS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 541,850
Accounts receivable....................................... $1,142,771 2,791,203
Costs and estimated earnings in excess of billings on
uncompleted
contracts.............................................. 117,648 411,766
Note receivable from member............................... 155,000
Other current assets...................................... 60,949 98,088
---------- ----------
Total current assets........................................ 1,321,368 3,997,907
---------- ----------
Property and equipment
Machinery and equipment................................... 479,459 568,336
Vehicles.................................................. 398,916 529,734
Furniture and fixtures.................................... 17,292 24,104
---------- ----------
895,667 1,122,174
Less: Accumulated depreciation............................ (196,346) (384,547)
---------- ----------
Property and equipment, net............................ 699,321 737,627
---------- ----------
Other assets................................................ 19,671 18,421
---------- ----------
$2,040,360 $4,753,955
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Current liabilities
Book overdraft......................................... $ 118,249
Accounts payable....................................... 183,876 $1,361,357
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 265,520 532,608
Accrued expenses and other liabilities................. 84,266 225,356
Line of credit......................................... 116,537 442,144
Note payable to member................................. 388,938
Current portion of capital lease obligations........... 14,917 65,630
Current portion of long-term debt...................... 52,041 125,802
---------- ----------
Total current liabilities................................... 1,224,344 2,752,897
Capital lease obligations, less current portion............. 18,881 126,697
Long-term debt, less current portion........................ 231,053 469,989
---------- ----------
Total liabilities........................................... 1,474,278 3,349,583
---------- ----------
Commitments and contingencies
Members' equity............................................. 566,082 1,404,372
---------- ----------
$2,040,360 $4,753,955
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 227
SUMMIT COMMUNICATIONS, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
--------------- -------------
<S> <C> <C>
Contract revenues earned.................................... $5,477,770 $8,334,650
---------- ----------
Cost of contract revenues (exclusive of depreciation and
amortization shown below)
Materials, supplies and contract services................. 2,519,761 3,992,685
Direct labor.............................................. 867,387 1,261,849
Other direct costs........................................ 726,241 1,031,938
---------- ----------
Total cost of contract revenues............................. 4,113,389 6,286,472
---------- ----------
Gross margin................................................ 1,364,381 2,048,178
---------- ----------
Selling, general and administrative expenses................ 645,953 922,198
Depreciation and amortization............................... 197,061 196,616
---------- ----------
Income from operations...................................... 521,367 929,364
Other income (expense)
Other income, net......................................... 1,533
Interest expense.......................................... (45,285) (92,607)
---------- ----------
Net income.................................................. $ 476,082 $ 838,290
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 228
SUMMIT COMMUNICATIONS, LLC
STATEMENT OF MEMBERS' EQUITY
<TABLE>
<S> <C>
Capital contributions (May 24, 1997)........................ $ 100,000
Net income.................................................. 476,082
Distributions to members.................................... (10,000)
----------
December 31, 1997........................................... 566,082
Net income.................................................. 838,290
September 30, 1998.......................................... $1,404,372
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 229
SUMMIT COMMUNICATIONS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 476,082 $ 838,290
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Depreciation and amortization.......................... 197,061 196,616
Loss on disposal of assets............................. 15,520
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF
EFFECT OF ACQUISITION:
Accounts receivable.................................. (1,142,771) (1,648,432)
Cost and estimated earnings in excess of billings on
uncompleted contracts............................... (117,648) (294,118)
Other current assets................................. (37,189) (37,139)
Accounts payable..................................... 183,876 1,177,481
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 265,520 267,088
Accrued expenses and other liabilities............... 6,253 141,090
----------- -----------
Net cash (used in) provided by operating activities......... (168,816) 656,396
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition................................. (512,207)
Purchases of property and equipment....................... (13,865) (577,476)
Proceeds from disposals of property and equipment......... 501,670
----------- -----------
Net cash used in investing activities....................... (526,072) (75,806)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to member........................................ (155,000)
Proceeds from line of credit, net......................... 116,537 325,607
Proceeds from note payable to member...................... 400,000
Repayments of note payable to member...................... (11,062) (10,741)
Repayments of capital lease obligations................... (301,930) (14,857)
Proceeds from long-term debt.............................. 300,174 500,000
Repayments of long-term debt.............................. (17,080) (565,500)
Increase (decrease) in book overdraft..................... 118,249 (118,249)
Capital contributions..................................... 100,000
Distributions to members.................................. (10,000)
----------- -----------
Net cash provided by (used in) financing activities......... 694,888 (38,740)
----------- -----------
Net increase in cash........................................ 541,850
Cash at beginning of period.................................
----------- -----------
Cash at end of period....................................... $ -- $ 541,850
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 230
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD OF INCEPTION (MAY 24, 1997) TO DECEMBER 31, 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Summit Communications LLC (the "Company") is incorporated under the laws of
the state of Mississippi as a limited liability company (LLC). The Company
constructs communications towers for use by the radio, television, telephone and
other industries in the continental United States.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Examples of estimates subject to possible revision based upon
the outcome of future events include costs and estimated earnings on uncompleted
contracts and depreciation on property and equipment. Actual results could
differ from those estimates.
REVENUE AND COST RECOGNITION
Revenues from fixed-priced and modified fixed-price construction contracts
are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to total estimated costs to complete each
contract. Most of the Company's contracts are short-term and are completed in
two to three months.
Contract costs include all direct material and labor costs and those direct
costs related to contract performance, such as supplies, tools and repairs.
Selling, general and administrative costs, including indirect costs on
contracts, are charged to expense as incurred. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues earned.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives by major asset category are as follows: machinery and
equipment -- 2 to 10 years; vehicles -- 3 to 5 years; furniture and
fixtures -- 3 to 7 years. Gains or losses on the dispositions of assets are
recorded at the time of disposition and are included in other income. The costs
of normal repairs and maintenance are charged to expense as incurred.
INCOME TAXES
Income of the Company is taxed directly to its members for Federal income
tax purposes. As a result, no provision for Federal income taxes has been
reflected in the accompanying financial statements.
F-84
<PAGE> 231
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform
with current year presentation. These reclassifications had no effect on
previously reported results of operations, net assets, cash flows or members'
equity.
2. UNCOMPLETED CONTRACTS
The following is a summary of costs, estimated earnings and billings on
uncompleted contracts:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $1,143,511 $2,471,585
Estimated earnings.......................................... 495,683 888,087
---------- ----------
1,639,194 3,359,672
Less: Billings to date...................................... 1,787,066 3,480,514
---------- ----------
$ (147,872) $ (120,842)
========== ==========
Presentation in the accompanying balance sheet:
Cost and estimated earnings in excess of billings on
uncompleted contracts.................................. $ 117,648 $ 411,766
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (265,520) (532,608)
========== ==========
$ (147,872) $ (120,842)
========== ==========
</TABLE>
3. LINE OF CREDIT
Line of credit consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Line of credit for $600,000 payable to commercial bank;
interest at the lender's prime rate (8.5% at December 31,
1997) plus 0.5%; principal and interest payable January 1,
1998; collateralized by inventory, property and equipment,
and accounts receivable................................... $ 57,593
Line of credit for $750,000 payable to commercial bank;
interest at the lender's prime rate, (8.5% at December 31,
1997) plus 0.5%; principal and interest payable July 1,
1998; collateralized by inventory, property and equipment,
and accounts receivable................................... 58,944
Line of credit for $750,000 payable to commercial bank;
interest at the lender's prime rate (8.25% at September
30, 1998) plus 0.25%; principal payable April 30, 1999,
interest payable monthly; collateralized by inventory,
property and equipment and accounts receivable; amended on
October 16, 1998 increasing the line of credit available
to $1,000,000 and interest to the 90 day LIBOR rate plus
2.25%..................................................... $442,144
-------- --------
$116,537 $442,144
======== ========
</TABLE>
F-85
<PAGE> 232
4. NOTE PAYABLE TO MEMBER
Note payable to member consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to member; interest at a specified commercial
bank's prime rate, 8.5% at December 31, 1997; principal
payable on July 18, 1998 and interest payable
quarterly.
$388,938
========
</TABLE>
The net proceeds of the note were used to acquire the net assets in Note
11. In April 1998, the Company refinanced the note with a note payable to a
commercial bank (see Note 5).
Interest paid to the member was approximately $17,000 and $11,000 for the
Period of Inception (May 24, 1997) to December 31, 1997 and the nine months
ended September 30, 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Note payable to commercial bank at an interest rate of
8.5%; payable in monthly installments of $6,176,
including interest, through September 25, 2002;
collateralized by property and equipment and accounts
receivable............................................. $283,094 $ 249,221
Note payable to commercial bank at an interest rate of
8.75%; payable in monthly installments of $8,207,
including interest, through April 5, 2003;
collateralized by property and equipment and accounts
receivable............................................. 346,570
-------- ---------
283,094 595,791
Less: Current portion..................................... (52,041) (125,802)
-------- ---------
Long-term debt, less current portion...................... $231,053 $ 469,989
======== =========
</TABLE>
The following is a summary of the future aggregate amounts of principal
payments for long-term debt at September 30, 1998:
<TABLE>
<S> <C>
Three months ending December 31, 1998....................... $ 30,443
1999........................................................ 128,542
2000........................................................ 140,099
2001........................................................ 152,696
2002........................................................ 144,011
---------
595,791
Less: Current portion....................................... (125,802)
---------
$ 469,989
=========
</TABLE>
F-86
<PAGE> 233
6. CAPITAL LEASE OBLIGATIONS
The following is a summary of future minimum lease payments under capital
lease agreements at September 30, 1998:
<TABLE>
<S> <C>
Three months ending December 31, 1998....................... $ 22,933
1999........................................................ 70,699
2000........................................................ 65,529
2001........................................................ 62,712
--------
Total minimum lease payments.............................. 221,873
Less: Amount representing interest.......................... (29,546)
--------
$192,327
========
</TABLE>
The following is a summary of assets and accumulated depreciation of assets
under capital lease agreements as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Vehicles.................................................... $54,397 $138,697
Machinery................................................... 92,473
------- --------
54,397 231,170
Less: Accumulated depreciation.............................. (6,802) (21,463)
------- --------
$47,595 $209,707
======= ========
</TABLE>
Depreciation expense includes amortization of assets under capital leases
of $6,802 and $18,811 for the Period of Inception (May 24, 1997) to December 31,
1997 and for the nine months ended September 30, 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan, which is the
401(k) Profit Sharing Plan and Trust. Employees become eligible for
participation in the plan after one year of service. Employees may contribute a
percentage of their gross compensation not to exceed certain limits.
Contributions by the Company are made at the discretion of the members. There
were no contributions made by the Company related to this plan for the Period of
Inception (May 24, 1997) to December 31, 1997 and for the nine months ended
September 30, 1998.
8. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE
At September 30, 1998, the Company had a note receivable for $155,000 from
one of its members. The note bears interest at the same rate as the line of
credit, is payable on demand, and is uncollateralized. The note was subsequently
repaid in full.
SALE OF BUILDINGS
In February 1998, the Company acquired a building from one of the members
for $500,000. In July 1998 the building was sold to the members resulting in a
loss of approximately $12,000.
FACILITY LEASES
The Company leases space in two buildings owned by the members of the
Company under a month to month operating lease. For the nine months ended
September 30, 1998, total rent paid to the members was approximately $9,300.
F-87
<PAGE> 234
9. CONTINGENCIES
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
10. CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash and accounts receivable. The
Company deposits its cash with a major financial institution. At times, deposits
may exceed federally insured limits. The Company extends credit to customers
based on evaluation of the customer's financial condition and credit history.
Collateral is generally not required. Customers include large U.S. companies
concentrated in the telecommunications industry.
Contract revenues earned from three customers accounted for 54% of revenues
for the Period of Inception (May 24, 1997) to December 31, 1997. Accounts
receivable from these three customers comprise 53% of accounts receivable at
December 31, 1997. Contract revenues earned from two customers accounted for 58%
of revenues for the nine months ended September 30, 1998. Accounts receivable
from these two customers comprise 57% of accounts receivable at September 30,
1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes that financial results depend in significant part upon the success of
these customers. Although the composition of the group comprising the Company's
largest customers may vary from period to period, the loss of a significant
customer or reduction in orders by any significant customers, including
reductions due to market, economic or competitive conditions in the wireless
communications industry, may have an adverse effect on the Company's business,
financial condition and results of operations.
11. ACQUISITION
On May 24, 1997, the Company acquired certain assets and assumed certain
liabilities of Summit Communications, Inc. (SCI), an unrelated third party, in a
purchase transaction. The following is a summary of assets acquired and
liabilities assumed in the SCI transaction:
<TABLE>
<S> <C>
Assets acquired
Other current assets...................................... $ 23,760
Property and equipment.................................... 855,896
Other assets.............................................. 20,386
--------
900,042
Liabilities assumed
Long-term debt............................................ 293,634
Capital lease obligations................................. 16,188
Accrued expenses and other liabilities.................... 78,013
--------
387,835
--------
Cash paid.............................................. $512,207
========
</TABLE>
F-88
<PAGE> 235
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
Interest paid............................................. $42,644 $ 95,248
Non-cash investing and financing activities:
Vehicles and machinery acquired under capital leases.... $25,905 $173,386
Note payable to member refinanced with commercial
bank................................................. $378,197
</TABLE>
13. SUBSEQUENT EVENTS
On November 10, 1998 the members sold all of their outstanding ownership
interest in the Company to Westower Corporation (Westower), a publicly traded
company, in exchange for approximately 200,000 shares of Westower and $4.4
million in cash. The members may also receive an additional 100,000 shares of
Westower common stock based upon certain performance criteria during the three
years subsequent to the date of acquisition. The purchase agreement also
provides that Westower will supply the Company's need for additional working
capital following the purchase.
On May 15, 1999, Westower entered into a definitive agreement with
Spectrasite Holdings, Inc. (Spectrasite), under which Westower will merge with a
subsidiary of Spectrasite. Under the terms of the agreement, Westower
shareholders will receive 1.81 shares of Spectrasite common stock for each
Westower share and Westower will become a wholly owned subsidiary of
Spectrasite. The merger is subject to the approval of Westower's shareholders
and the appropriate regulatory agencies as well as other customary closing
conditions. There can be no assurance that the merger will be consummated.
F-89
<PAGE> 236
- ------------------------------------------------------
- ------------------------------------------------------
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
The Westower Merger................... 17
The Nextel Tower Acquisition.......... 19
Unaudited Pro Forma Consolidated
Financial Data...................... 23
Selected Historical Financial Data.... 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 45
Industry Overview..................... 51
Business.............................. 56
Management............................ 68
Certain Transactions.................. 78
Ownership of Capital Stock............ 81
Description of Capital Stock.......... 83
Description of Certain Indebtedness... 85
The Exchange Offer.................... 88
Description of the Notes.............. 97
Certain U.S. Federal Tax
Considerations...................... 133
Plan of Distribution.................. 142
Legal Matters......................... 143
Experts............................... 143
Where You Can Fnd More Information.... 143
Index to Financial Statements......... F-1
</TABLE>
UNTIL NOVEMBER 14, 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$586,800,000
SPECTRASITE HOLDINGS, INC.
EXCHANGE OFFER FOR
11 1/4% SENIOR DISCOUNT NOTES DUE 2009
-------------------------------------
PROSPECTUS
-------------------------------------
[SPECTRASITE LOGO]
AUGUST , 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 237
[SpectraSite Logo]
Alternate Cover Page
PROSPECTUS
[DATE OF EFFECTIVENESS]
$586,800,000
SPECTRASITE HOLDINGS, INC.
11 1/4% SENIOR DISCOUNT NOTES DUE 2009
CIBC World Markets Corp. will use this prospectus in connection with offers
and sales of the notes related to market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. SpectraSite Holdings, Inc. will not receive any of the
proceeds of such sales. CIBC World Markets Corp. may act as principle or agent
in such transactions. The closing of the exchange offer, which constituted the
delivery of the registered notes in place of the old notes, occurred on
, 1999. See "Plan of Distribution."
SPECTRASITE:
- - We develop and manage build-to-suit communications tower networks and provide
site acquisition and site management services for major wireless
communications service providers.
- - SpectraSite Holdings, Inc. 8000 Regency Parkway, Suite 570 Cary, North
Carolina 27511 (919) 468-0112
TRADING FORMAT:
- - The PORTAL market, in the over-the-counter market, negotiated transactions or
through a combination of such methods.
THE NOTES:
- - Maturity Date: April 15, 2009.
- - Accretion and Interest: the notes accrete daily at a rate of 11 1/4% per year,
compounded semiannually, to an aggregate principal amount of $586,800,000 by
April 15, 2004. Cash interest will begin to accrue on April 15, 2004, and we
will pay cash interest on October 15, 2004 and on each April 15 and October 15
thereafter until maturity.
- - Redemption: We may redeem the notes on or after April 15, 2004. We may redeem
up to 35% of the notes prior to April 15, 2002 with net proceeds from one or
more public equity offerings.
- - Ranking: The notes are general, unsecured obligations of SpectraSite Holdings,
Inc. and:
- rank equally in right of payment to all existing and future senior
indebtedness of Holdings; and
- are effectively subordinated to all existing and future indebtedness and
other liabilities of Holdings' subsidiaries.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC WORLD MARKETS CORP.
<PAGE> 238
ALTERNATE USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the exchange
notes by CIBC World Markets Corp. in market-making transactions. SpectraSite
will not receive any of the proceeds from such transactions.
<PAGE> 239
ALTERNATE PLAN OF DISTRIBUTION
This prospectus is to be used by CIBC World Markets Corp. in connection
with offers and sales of the notes in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. CIBC World Markets Corp. may act as principal or agent in
such transactions, has no obligation to make a market in the notes and may
discontinue its market-making activities at any time without notice, at its sole
discretion. There is currently no trading market for the 2009 notes. No
assurances can be given as to the development or liquidity of any trading market
for the 2009 notes.
We have agreed to indemnify jointly and severally CIBC World Markets Corp.
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that CIBC World Markets Corp. may be required to make
in that regard.
Affiliates of CIBC World Markets Corp. beneficially own approximately
% of Holdings' capital stock on a fully-diluted basis. In addition, Andrew
R. Heyer, a Managing Director of CIBC World Markets Corp., serves on Holdings'
board of directors.
CIBC World Markets Corp. and its affiliates have provided investment
banking and other financial services to us in the past and may do so in the
future. In addition, CIBC World Markets Corp. and an affiliate are lenders and
an agent under our new credit facility and have received customary fees for
acting in such capacities.
<PAGE> 240
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>
*2.1 Agreement and Plan of Merger, dated as of February 10, 1999,
among Nextel Communications, Inc., Tower Parent Corp., Tower
Merger Vehicle, Inc., Tower Asset Sub Inc., SpectraSite
Holdings, Inc., SpectraSite Communications, Inc. and SHI
Merger Sub, Inc. (the "Nextel Merger Agreement")
*2.2 Amendment No. 1 to the Nextel Merger Agreement
*2.3 Agreement and Plan of Merger among Westower Corporation,
SpectraSite Holdings, Inc. and W. Acquisition Corp., dated
as of May 15, 1999
*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 Integrated Site Development, Inc. ("ISD"), dated
as of April 25, 1997
</TABLE>
II-1
<PAGE> 241
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*3.9 Amended and Restated Certificate of Incorporation of the
Registrant
*4.1 Indenture, dated as of June 26, 1998, between the Registrant
and United States Trust Company of New York, as trustee
*4.2 First Supplemental Indenture, dated as of March 25, 1999,
between the Registrant and United States Trust Company of
New York, as trustee
*4.3 Indenture, dated as of April 20, 1999, between the
Registrant and United States Trust Company of New York, as
trustee.
5.1 Opinion of Dow Lohnes & Albertson, PLLC
*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 Second Amended and Restated Registration Rights Agreement,
dated as of April 20, 1999, by and among the Registrant,
Whitney Equity, Whitney III, Whitney Strategic,
Waller-Sutton, Kitty Hawk III, Kitty Hawk IV, Eagle Creek,
NCEF, Finley LP, certain affiliates of CIBC Oppenheimer
Corp. (the "CIBC Purchasers"), certain affiliates and
employees of Welsh Carson Anderson & Stowe (the "WCAS
Purchasers"), Tower Parent Corp., Gupton, Eckert, Stephen H.
Clark ("Clark") and David P. Tomick ("Tomick")
*10.6 Third Amended and Restated Stockholders' Agreement, dated as
of April 20, 1999, by and among the Registrant, Whitney
Equity, Whitney III, Whitney Strategic, Waller-Sutton, Kitty
Hawk III, Kitty Hawk IV, Eagle Creek, Clark, Tomick, Finely
LP, NCEF, the CIBC Purchasers, the WCAS Purchasers, Tower
Parent Corp., Edward Lutkewich ("Lutkewich"), Jackman,
Eckert, and Gupton
*10.7 Employment Agreement with Stephen H. Clark
*10.8 Employment Agreement with David P. Tomick
*10.9 Employment Agreement with Richard J. Byrne
*10.10 Consulting Agreement with Finley & Co.
*10.11 Credit Agreement, dated as of April 20, 1999, by and among
the Registrant, SCI, CIBC Oppenheimer Corp., Credit Suisse
First Boston Corporation and the other parties thereto
*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
</TABLE>
II-2
<PAGE> 242
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.16 SpectraSite Holdings, Inc. Stock Incentive Plan
*10.17 SpectraSite Holdings, Inc. Employee Stock Purchase Plan
*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
*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
*10.30 Preferred Stock Purchase Agreement (Series C Preferred
Stock), dated as of February 10, 1999, by and among
SpectraSite Holdings, Inc., the WCAS Purchasers, the Whitney
Purchasers, the CIBC Purchasers and the Additional
Purchasers.
*10.31 First Amendment to Preferred Stock Purchase Agreement
(Series C Preferred Stock)
*10.32 Security & Subordination Agreement, dated as of April 20,
1999
*10.33 Master Site Commitment Agreement, dated as of April 20, 1999
*10.34 Master Site Lease Agreement, dated as of April 20, 1999
*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
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Moss Adams LLP
23.5 Consent of Lamn, Krielow, Dytrych & Co. (formerly, Lamn,
Krielow, Dytrych & Darling)
23.6 Consent of Shearer, Taylor & Co., P.A.
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.
II-3
<PAGE> 243
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.
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
II-4
<PAGE> 244
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-5
<PAGE> 245
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
SPECTRASITE HOLDINGS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF CARY, STATE OF NORTH CAROLINA, ON AUGUST 11, 1999.
SPECTRASITE HOLDINGS, INC.
By: /s/ STEPHEN H. CLARK
------------------------------------
Stephen H. Clark
President, Chief Executive Officer
and Director
SPECTRASITE HOLDINGS, INC., A DELAWARE CORPORATION, AND EACH PERSON WHOSE
SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS STEPHEN H. CLARK AND DAVID P.
TOMICK, AND EITHER OF THEM, WITH FULL POWER TO ACT WITHOUT THE OTHERS, SUCH
PERSON'S TRUE AND LAWFUL ATTORNEYS-IN-FACT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN THIS REGISTRATION STATEMENT, AND ANY AND ALL AMENDMENTS
THERETO (INCLUDING, WITHOUT LIMITATION, POST-EFFECTIVE AMENDMENTS AND ANY
SUBSEQUENT REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(b) OR RULE 462(d)
UNDER THE SECURITIES ACT OF 1933, AS AMENDED), AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING NECESSARY OR DESIRABLE TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY AND TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT, OR
EITHER OF THEM, OR THEIR SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO
BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED 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>
/s/ STEPHEN H. CLARK President, Chief Executive Officer and August 11, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Stephen H. Clark
/s/ DAVID P. TOMICK Executive Vice President, Chief August 11, 1999
- ------------------------------------------ Financial Officer and Secretary
David P. Tomick (Principal Financial Officer)
/s/ DANIEL I. HUNT Vice President -- Finance and August 11, 1999
- ------------------------------------------ Administration
Daniel I. Hunt (Principal Accounting Officer)
/s/ LAWRENCE B. SORREL Chairman of the Board of Directors August 11, 1999
- ------------------------------------------
Lawrence B. Sorrel
/s/ TIMOTHY M. DONAHUE Director August 11, 1999
- ------------------------------------------
Timothy M. Donahue
/s/ ANDREW R. HEYER Director August 11, 1999
- ------------------------------------------
Andrew R. Heyer
/s/ JAMES R. MATTHEWS Director August 11, 1999
- ------------------------------------------
James R. Matthews
/s/ THOMAS E. McINERNEY Director August 11, 1999
- ------------------------------------------
Thomas E. McInerney
/s/ MICHAEL J. PRICE Director August 11, 1999
- ------------------------------------------
Michael J. Price
</TABLE>
II-6
<PAGE> 246
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RUDOLPH E. RUPERT Director August 11, 1999
- ------------------------------------------
Rudolph E. Rupert
/s/ STEVEN M. SHINDLER Director August 11, 1999
- ------------------------------------------
Steven M. Shindler
/s/ MICHAEL R. STONE Director August 11, 1999
- ------------------------------------------
Michael R. Stone
</TABLE>
II-7
<PAGE> 247
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
5.1 Opinion of Dow, Lohnes & Albertson, PLLC
23.2 Consent of Ernst & Young LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Moss Adams LLP
23.5 Consent of Lamn, Krielow, Dytrych & Co. (formerly, Lamn,
Krielow, Dytrych & Darling)
23.6 Consent of Shearer, Taylor & Co., P.A.
25.1 Form T-1 (Statement of Eligibility of Trustee)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[DOW, LOHNES & ALBERTSON, PLLC LETTERHEAD]
August 11, 1999
SpectraSite Holdings, Inc.
8000 Regency Parkway, Suite 750
Cary, North Carolina 27511
Ladies and Gentlemen:
We are acting as special counsel to SpectraSite Holdings, Inc., a Delaware
corporation (the "Issuer"), in connection with its registration statement on
Form S-4 (the "Registration Statement") filed 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
11 1/4% Senior Discount Notes Due 2009 (the "Exchange Notes"), to be offered in
exchange (the "Exchange Offer") for the Issuer's outstanding 11 1/4% Senior
Discount Notes Due 2009 (the "Old Notes"). The Old Notes were issued under, and
the Exchange Notes are to be issued under, an Indenture, dated as of April 20,
1999, 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 April 20, 1999
(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 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.
<PAGE> 2
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) and that the enforceability thereof may be 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.
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
-2-
<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 February 26, 1999 in the Registration Statement
(Form S-4; No. 333- ) of SpectraSite Holdings, Inc., for the offer to
exchange its 11 1/4% Senior Notes due 2009, with respect to the consolidated
financial statements of SpectraSite Holdings, Inc. as of December 31, 1997 and
December 31, 1998 and for the period from inception (April 25, 1997) to December
31, 1997 and for the year ended December 31, 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
August 11, 1999
<PAGE> 1
EXHIBIT 23.3
Consent of PricewaterhouseCoopers LLP
We hereby consent to the use in this Registration Statement on Form S-4 of
SpectraSite Holdings, Inc., relating to the 11 1/4% Senior Notes due 2009, of
(i) our report dated February 4, 1999, except for the fourth paragraph in
Note 3, as to which the date is June 17, 1999, relating to the consolidated
financial statements of Westower Corporation as of September 30, 1998 and for
the seven months ended September 30, 1998 and (ii) our report dated May 21, 1999
relating to the financial statements of Summit Communications, LLC as of
September 30, 1998 and for the nine months ended September 30, 1998, which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
August 9, 1999
<PAGE> 1
EXHIBIT 23.4
Consent of Moss Adams LLP
We consent to (a) the inclusion in the Registration Statement of
SpectraSite Holdings, Inc. on Form S-4 of (i) our report dated April 14, 1998,
except for the third paragraph in Note 3, as to which the date is May 31, 1998
and the fourth paragraph in Note 3, as to which the date is June 14, 1999,
relating to the consolidated financial statements of Westower Corporation and
Subsidiaries as of February 28, 1997 and 1998 and the three years in the period
ended February 28, 1998 and (ii) our report dated October 21, 1998 on our audit
of the consolidated financial statements of CORD Communications, Inc. as of
June 30, 1997 and 1998 and for the years then ended and (b) the reference to
our firm in the prospectus under the caption "Experts".
/s/ Moss Adams LLP
Bellingham, Washington
August 11, 1999
<PAGE> 1
EXHIBIT 23.5
Consent of Lamn, Krielow, Dytrych & Co.
We consent to the inclusion in the Registration Statement of SpectraSite
Holdings, Inc. on Form S-4 (File No. 333-67043) of our report dated February 11,
1998, except for Note 4, as to which the date is August 12, 1998, relating to
the financial statements of MJA Communications Corp. and to the references to
our firm in the prospectus.
/s/ LAMN, KRIELOW, DYTRYCH & CO.
(Formerly known as Lamn, Krielow, Dytrych & Darling)
Certified Public Accountants
June 29, 1999
<PAGE> 1
EXHIBIT 23.6
Consent of Shearer, Taylor & Co., P.A.
We consent to the inclusion in the Registration Statement of SpectraSite
Holdings, Inc. on Form S-4 of our report dated March 5, 1998, on our audit of
the financial statements of Summit Communications, LLC as of December 31, 1997
and the period from May 24, 1997 (inception) to December 31, 1997, and to the
reference to our firm in the prospectus under the caption "Experts."
/s/ Shearer, Taylor & Co., P.A.
August 11, 1999
<PAGE> 1
EXHIBIT 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
=====================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
=====================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
NEW YORK 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036-1532
(Address of principal (Zip Code)
executive offices)
NONE
(Name, address and telephone number of agent for service)
========================
SPECTRASITE HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 56-2027322
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
8000 REGENCY PARKWAY
SUITE 570
CARY, NORTH CAROLINA 27511
(Address of principal executive offices) (Zip Code)
$586,800,000, 11 /4% SENIOR DISCOUNT NOTES DUE 2009
(Title of the indenture securities)
<PAGE> 2
- 2 -
GENERAL
1. General Information
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
FEDERAL RESERVE BANK OF NEW YORK (2ND DISTRICT), NEW YORK, NEW YORK
(BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM)
FEDERAL DEPOSIT INSURANCE CORPORATION, WASHINGTON, D.C.
NEW YORK STATE BANKING DEPARTMENT, ALBANY, NEW YORK
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
THE TRUSTEE IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
2. Affiliations with the Obligor
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
NONE
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 AND 15:
THE OBLIGOR IS CURRENTLY NOT IN DEFAULT UNDER ANY OF ITS OUTSTANDING
SECURITIES FOR WHICH UNITED STATES TRUST COMPANY OF NEW YORK IS TRUSTEE.
ACCORDINGLY, RESPONSES TO ITEMS 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 AND
15 OF FORM T-1 ARE NOT REQUIRED UNDER GENERAL INSTRUCTION B.
16. List of Exhibits
T-1.1 -- ORGANIZATION CERTIFICATE, AS AMENDED, ISSUED BY THE
STATE OF NEW YORK BANKING DEPARTMENT TO TRANSACT BUSINESS
AS A TRUST COMPANY, IS INCORPORATED BY REFERENCE TO
EXHIBIT T-1.1 TO FORM T-1 FILED ON SEPTEMBER 15, 1995 WITH
THE COMMISSION PURSUANT TO THE TRUST INDENTURE ACT OF
1939, AS AMENDED BY THE TRUST INDENTURE REFORM ACT OF 1990
(REGISTRATION NO. 33-97056).
T-1.2 -- INCLUDED IN EXHIBIT T-1.1.
T-1.3 -- INCLUDED IN EXHIBIT T-1.1.
<PAGE> 3
- 3 -
16. List of Exhibits
(CONT'D)
T-1.4 -- THE BY-LAWS OF UNITED STATES TRUST COMPANY OF NEW YORK,
AS AMENDED, IS INCORPORATED BY REFERENCE TO EXHIBIT T-1.4
TO FORM T-1 FILED ON SEPTEMBER 15, 1995 WITH THE
COMMISSION PURSUANT TO THE TRUST INDENTURE ACT OF 1939, AS
AMENDED BY THE TRUST INDENTURE REFORM ACT OF 1990
(REGISTRATION NO. 33-97056).
T-1.6 -- THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939, AS AMENDED BY THE
TRUST INDENTURE REFORM ACT OF 1990.
T-1.7 -- A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR
EXAMINING AUTHORITY.
NOTE
AS OF AUGUST 11, 1999, THE TRUSTEE HAD 2,999,020 SHARES OF COMMON STOCK
OUTSTANDING, ALL OF WHICH ARE OWNED BY ITS PARENT COMPANY, U.S. TRUST
CORPORATION. THE TERM "TRUSTEE" IN ITEM 2, REFERS TO EACH OF UNITED STATES TRUST
COMPANY OF NEW YORK AND ITS PARENT COMPANY, U. S. TRUST CORPORATION.
IN ANSWERING ITEM 2 IN THIS STATEMENT OF ELIGIBILITY AS TO MATTERS PECULIARLY
WITHIN THE KNOWLEDGE OF THE OBLIGOR OR ITS DIRECTORS, THE TRUSTEE HAS RELIED
UPON INFORMATION FURNISHED TO IT BY THE OBLIGOR AND WILL RELY ON INFORMATION TO
BE FURNISHED BY THE OBLIGOR AND THE TRUSTEE DISCLAIMS RESPONSIBILITY FOR THE
ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
------------------
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE,
UNITED STATES TRUST COMPANY OF NEW YORK, A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF NEW YORK, HAS DULY CAUSED THIS STATEMENT OF
ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, ALL IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON THE 11TH OF
AUGUST 1999.
UNITED STATES TRUST COMPANY
, OF NEW YORK, TRUSTEE
BY:
GERARD F. GANEY
SENIOR VICE PRESIDENT
Exhibit T-1.6
<PAGE> 4
THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT.
UNITED STATES TRUST COMPANY OF NEW YORK
114 WEST 47TH STREET
NEW YORK, NY 10036
AUGUST, 11, 1999
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, DC 20549
GENTLEMEN:
PURSUANT TO THE PROVISIONS OF SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939,
AS AMENDED BY THE TRUST INDENTURE REFORM ACT OF 1990, AND SUBJECT TO THE
LIMITATIONS SET FORTH THEREIN, UNITED STATES TRUST COMPANY OF NEW YORK ("U.S.
TRUST") HEREBY CONSENTS THAT REPORTS OF EXAMINATIONS OF U.S. TRUST BY FEDERAL,
STATE, TERRITORIAL OR DISTRICT AUTHORITIES MAY BE FURNISHED BY SUCH AUTHORITIES
TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST THEREFOR.
VERY TRULY YOURS,
UNITED STATES TRUST COMPANY
OF NEW YORK
BY: /S/GERARD F. GANEY
SENIOR VICE PRESIDENT
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1999
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CASH AND DUE FROM BANKS $ 139,755
SHORT-TERM INVESTMENTS 85,326
SECURITIES, AVAILABLE FOR SALE 528,160
LOANS 2,081,103
LESS: ALLOWANCE FOR CREDIT LOSSES 17,114
-----------
NET LOANS 2,063,989
PREMISES AND EQUIPMENT 57,765
OTHER ASSETS 125,780
-----------
Total Assets $3,000,775
===========
LIABILITIES
DEPOSITS:
NON-INTEREST BEARING $ 623,046
INTEREST BEARING 1,875,364
-----------
TOTAL DEPOSITS 2,498,410
SHORT-TERM CREDIT FACILITIES 184,281
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 126,652
-----------
Total Liabilities $2,809,343
===========
STOCKHOLDER'S EQUITY
COMMON STOCK 14,995
CAPITAL SURPLUS 53,041
RETAINED EARNINGS 121,759
UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE FOR SALE, NET OF TAXES 1,637
--------------
Total Stockholder's Equity 191,432
-----------
Total Liabilities and
Stockholder's Equity $3,000,775
===========
</TABLE>
I, RICHARD E. BRINKMANN, MANAGING DIRECTOR & COMPTROLLER OF THE NAMED BANK DO
HEREBY DECLARE THAT THIS STATEMENT OF CONDITION HAS BEEN PREPARED IN CONFORMANCE
WITH THE INSTRUCTIONS ISSUED BY THE APPROPRIATE REGULATORY AUTHORITY AND IS TRUE
TO THE BEST OF MY KNOWLEDGE AND BELIEF.
RICHARD E. BRINKMANN, MANAGING DIRECTOR & COMPTROLLER
MAY 18, 1999
<PAGE> 1
PURSUANT TO THE PROSPECTUS DATED AUGUST , 1999, THE EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 15, 1999, UNLESS EXTENDED
(THE EXPIRATION DATE).
SPECTRASITE HOLDINGS, INC.
LETTER OF TRANSMITTAL
11 1/4% SENIOR DISCOUNT NOTES DUE 2009
TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <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 OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned acknowledges receipt of the prospectus, dated August ,
1999 of SpectraSite Holdings, Inc. (the "Issuer") and the related letter of
transmittal, which together describe the Issuer's offer to exchange $1,000
principal amount at maturity of its 11 1/4% senior discount notes due 2009,
which have been registered under the Securities Act of 1933, as amended, under a
registration statement, for each $1,000 principal amount at maturity of its
outstanding 11 1/4% senior discount notes due 2009, of which $586,800,000
original principal amount at maturity is outstanding. The term expiration date
means 5:00 p.m., New York City time, on September 15, 1999, unless the Issuer,
in its sole discretion, extends the exchange offer, in which case the term shall
mean the latest date and time to which the Issuer extends the exchange offer.
The term holder with respect to the exchange offer means any person: (i) in
whose name outstanding notes are registered on the books of the Issuer or any
other person who has obtained a properly completed bond power from the
registered holder; or (ii) whose outstanding notes are held of record by The
Depository Trust Company and who desires to deliver those outstanding notes by
book-entry transfer at DTC.
<PAGE> 2
This letter of transmittal is to be used by holders if: (i) certificates
representing outstanding notes are to be physically delivered to the exchange
agent herewith by holders; (ii) tender of outstanding notes is to be made by
book-entry transfer to the exchange agent's account at DTC pursuant to the
procedures set forth in the prospectus under "The Exchange Offer -- Procedures
for Tendering" by any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of outstanding
notes (such participants, acting on behalf of holders, are referred to herein as
"Acting Holders"); or (iii) tender of outstanding notes is to be made according
to the guaranteed delivery procedures described in the prospectus under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction
2 below. Delivery of documents to DTC does not constitute delivery to the
exchange agent.
The undersigned has completed, executed and delivered this letter of
transmittal to indicate the action the undersigned desires to take with respect
to the exchange offer. Holders who wish to tender their outstanding notes must
complete this letter of transmittal in its entirety.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:____________________________________________
DTC Book-Entry Account No.:_______________________________________________
Transaction Code No.:_____________________________________________________
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTION 2):
Name of Registered or Acting Holder(s):___________________________________
Window Ticket No. (if any):_______________________________________________
Date of Execution of Notice of Guaranteed Delivery:_______________________
Name of Eligible Institution
that Guaranteed Delivery:_________________________________________________
If Delivered by Book-Entry Transfer,
DTC Book-Entry Account No.:_______________________________________________
Transaction Code Number:__________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE ISSUER HAS AGREED THAT, 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, THE ISSUER WILL MAKE
COPIES OF THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR
USE IN CONNECTION WITH RESALES OF THE REGISTERED NOTES (PROVIDED THAT SUCH
BROKER-DEALER REQUESTS COPIES OF THE PROSPECTUS).
Name:_____________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________________
Attention:________________________________________________________________
2
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List below the outstanding notes to which this letter of transmittal
relates. If the space provided below is inadequate, the certificate numbers and
principal amount at maturity of outstanding notes should be listed on a separate
signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF 11 1/4% SENIOR DISCOUNT NOTES DUE 2009 (OUTSTANDING NOTES)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT AT MATURITY TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)** AT MATURITY (MUST BE IN
REPRESENTED BY INTEGRAL MULTIPLE
CERTIFICATE(S) OF $1,000)*
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by holders who wish to tender with respect to all outstanding notes listed. See Instruction
4.
If the space provided above is inadequate, list the certificate numbers and principal amounts at maturity on a
separate signed schedule and affix the list to this letter of transmittal.
** Need not be completed by holders tendering by book-entry transfer.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for outstanding notes in a principal
amount at maturity not tendered, or registered notes issued in exchange for
outstanding notes accepted for exchange, are to be issued in a name other than
the name appearing in Box 1 above.
Issue Certificate(s) to:
Name:__________________________________________________________________________
(PLEASE PRINT)
Address:_______________________________________________________________________
_______________________________________________________________________
(INCLUDE ZIP CODE)
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for outstanding notes in a principal
amount at maturity not tendered, or registered notes issued in exchange for
outstanding notes accepted for exchange, are to be sent to an address other than
the address appearing in Box 1 above, or if Box 2 is filled in, to an address
other than the address appearing in Box 2.
Deliver Certificate(s) to:
Name:__________________________________________________________________________
(PLEASE PRINT)
Address:_______________________________________________________________________
_______________________________________________________________________
(INCLUDE ZIP CODE)
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
BOX 4
BROKER-DEALER STATUS
[ ] Check this box if the beneficial owner of the outstanding notes is a
participating broker-dealer and such participating broker-dealer acquired
the outstanding notes for its own account as a result of market-making
activities or other trading activities.
4
<PAGE> 5
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the exchange offer, the undersigned
hereby tenders to SpectraSite Holdings, Inc. (the "Issuer") the principal amount
at maturity of outstanding notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount at maturity of outstanding notes tendered in accordance with this letter
of transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Issuer all right, title and interest in and to the outstanding
notes tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the exchange agent its agent and attorney-in-fact (with full knowledge
that the exchange agent also acts as the agent of the Issuer) with respect to
the tendered outstanding notes with the full power of substitution to (i)
present such outstanding notes and all evidences of transfer and authenticity
to, or transfer ownership of, such outstanding notes on the account books
maintained by DTC to, or upon, the order of, the Issuer, (ii) deliver
certificates for such outstanding notes to the Issuer and deliver all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Issuer and (iii) present such outstanding notes for transfer on the books of
the Issuer and receive all benefits and otherwise exercise all rights of
beneficial ownership of such outstanding notes, all in accordance with the terms
of the exchange offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the outstanding
notes tendered hereby and that the Issuer will acquire good, valid and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claims, when the same are
acquired by the Issuer. The undersigned hereby further represents that (i) the
registered notes are to be acquired by the holder or the person receiving such
registered notes, whether or not such person is the holder, in the ordinary
course of business, (ii) the holder or any such other person is not engaging and
does not intend to engage in the distribution of the registered notes, (iii) the
holder or any such other person has no arrangement or understanding with any
person to participate in the distribution of the registered notes, and (iv)
neither the holder nor any such other person is an "affiliate" of the Issuer
within the meaning of Rule 405 under the Securities Act. As indicated above,
each participating broker-dealer that receives a registered note for its own
account in exchange for outstanding notes must acknowledge that it (i) acquired
the outstanding notes for its own account as a result of market-making
activities or other trading activities, (ii) has not entered into any
arrangement or understanding with the Issuer or any "affiliate" of the Issuer
(within the meaning of Rule 405 under the Securities Act) to distribute the
registered notes to be received in the exchange offer and (iii) will deliver a
prospectus in connection with any resale of such registered notes; however, by
so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. If applicable, the undersigned shall use its reasonable best efforts to
notify the Issuer when it is no longer subject to such prospectus delivery
requirements. Unless otherwise notified in accordance with the instructions set
forth herein in Box 4 under "Broker-Dealer Status," the Issuer will assume that
the undersigned is not a participating broker-dealer. If the undersigned is not
a broker-dealer, the undersigned represents that it is not engaged in and does
not intend to engage in, a distribution of registered notes.
For purposes of the exchange offer, the Issuer shall be deemed to have
accepted validly tendered outstanding notes when, as and if the Issuer has given
oral or written notice thereof to the exchange agent.
If any outstanding notes tendered herewith are not accepted for exchange
pursuant to the exchange offer for any reason, certificates for any such
unaccepted outstanding notes will be returned (except as noted below with
respect to tenders through DTC), without expense, to the undersigned at the
address shown below or to a different address as may be indicated herein in Box
3 under "Special Delivery Instructions" as promptly as practicable after the
expiration date.
5
<PAGE> 6
All authority conferred or agreed to be conferred by this letter of
transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this letter of
transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of outstanding notes pursuant to
the procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuer upon the terms and
subject to the conditions of the exchange offer, subject only to withdrawal of
such tenders on the terms set forth in the prospectus under the caption "The
Exchange Offer -- Withdrawal of Tenders."
Unless otherwise indicated in Box 2 under "Special Registration
Instructions," please issue the certificates representing the registered notes
issued in exchange for the outstanding notes accepted for exchange and any
certificates for outstanding notes not tendered or not exchanged, in the name(s)
of the registered holder of the outstanding notes appearing in Box 1 above (or
in such event in the case of outstanding notes tendered by DTC, by credit to the
account of DTC). Similarly, unless otherwise indicated in Box 3 under "Special
Delivery Instructions," please send the certificates, if any, representing the
registered notes issued in exchange for the outstanding notes accepted for
exchange and any certificates for outstanding notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below in the undersigned's signature(s), unless tender is being
made through DTC. In the event that the box entitled "Special Registration
Instructions" and the box entitled "Special Delivery Instructions" both are
completed, please issue the certificates representing the registered notes
issued in exchange for the outstanding notes accepted for exchange in the
name(s) of, and return any certificates for outstanding notes not tendered or
not exchanged to, the person(s) so indicated. The undersigned understands that
the Issuer has no obligation pursuant to the "Special Registration Instructions"
and "Special Delivery Instructions" to transfer any outstanding notes from the
name of the registered holder(s) thereof if the Issuer does not accept for
exchange any of the outstanding notes so tendered.
Holders who wish to tender their outstanding notes and (i) whose
outstanding notes are not immediately available or (ii) who cannot deliver the
outstanding notes, this letter of transmittal or any other documents required
hereby to the exchange agent prior to the expiration date, may tender their
outstanding notes according to the guaranteed delivery procedures set forth in
the prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 2.
6
<PAGE> 7
The lines below must be signed by the registered holder(s) exactly as their
name(s) appear(s) on the outstanding notes or, if tendered by a participant in
DTC, exactly as such participant's name appears on a security position listing
as the owner of outstanding notes, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this letter of transmittal.
If outstanding notes to which this letter of transmittal relate are held of
record by two or more joint holders, then all such holders must sign this letter
of transmittal.
PLEASE SIGN HERE WHETHER OR NOT
OUTSTANDING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
x
- ------------------------------------------------------------ -------------------
DATE
- ------------------------------------------------------------ -------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
</TABLE>
Area Code and Telephone Number:
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, then such person must (i) set forth his or her full
title below and (ii) submit evidence satisfactory to the Issuer of such person's
authority so to act. See Instruction 5.
Name(s):
(PLEASE TYPE OR PRINT)
Capacity:
Address:
(INCLUDE ZIP CODE)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
Signature(s) Guaranteed by an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated: , 1999
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates for Outstanding
Notes or Book-Entry Confirmations. Certificates representing the tendered
outstanding notes (or a confirmation of book-entry transfer of such outstanding
notes into the exchange agent's account with DTC), as well as a properly
completed and duly executed copy of this letter of transmittal (or facsimile
thereof) (or, in the case of a book-entry transfer, an agent's message), a
Substitute Form W-9 (or facsimile thereof) and any other documents required by
this letter of transmittal must be received by the exchange agent at its address
set forth herein prior to the expiration date. The method of delivery of
certificates for outstanding notes and all other required documents is at the
election and sole risk of the tendering holder and delivery will be deemed made
only when actually received by the exchange agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
As an alternative to delivery by mail, the holder may wish to use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. Neither the Issuer nor the exchange agent is under an
obligation to notify any tendering holder of the Issuer's acceptance of tendered
outstanding notes prior to the completion of the exchange offer.
2. Guaranteed Delivery Procedures. Holders who wish to tender their
outstanding notes but whose outstanding notes are not immediately available and
who cannot deliver their certificates for outstanding notes (or comply with the
procedures for book-entry transfer prior to the expiration date), the letter of
transmittal and any other documents required by the letter of transmittal to the
exchange agent prior to the expiration date must tender their outstanding notes
according to the guaranteed delivery procedures set forth below. Pursuant to
such procedures:
(i) such tender must be made by or 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 (an
"Eligible Institution");
(ii) prior to the expiration date, the exchange agent must have
received from the holder and the Eligible Institution 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 or numbers of the
tendered outstanding notes, and the principal amount of tendered
outstanding notes and 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, in the case of a book-entry transfer, an
agent's message), together with the tendered outstanding notes (or a
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account with DTC) and any other required documents
will be deposited by the Eligible Institution with the exchange agent;
and
(iii) the certificates representing the 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
with DTC), together with the letter of transmittal (or facsimile
thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an
agent's message) and all other documents required by the letter of
transmittal must be received by the exchange agent within five New
York Stock Exchange trading days after the expiration date.
Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any letter of
transmittal form properly completed and executed by a holder who attempted to
use the guaranteed delivery procedure.
3. Tender by Holder. Only a holder or acting holder of outstanding notes
may tender such outstanding notes in the exchange offer. Any beneficial owner of
outstanding notes who is not the registered holder and who wishes to tender
should arrange with such holder to execute and deliver this letter of
transmittal on such owner's behalf or must, prior to completing and executing
this letter of transmittal and delivering such
8
<PAGE> 9
outstanding notes, either make appropriate arrangements to register ownership of
the outstanding notes in such owner's name or obtain a properly completed bond
power from the registered holder.
4. Partial Tenders. Tenders of outstanding notes will be accepted only in
integral multiples of $1,000 principal amount at maturity. If less than the
entire principal amount at maturity of outstanding notes is tendered, the
tendering holder should fill in the principal amount at maturity tendered in the
column labeled "Principal Amount at Maturity Tendered" of the box entitled
"Description of Outstanding Notes" (Box 1) above. The entire principal amount at
maturity of outstanding notes delivered to the exchange agent will be deemed to
have been tendered unless otherwise indicated. If the entire principal amount at
maturity of outstanding notes is not tendered, outstanding notes for the
principal amount at maturity of outstanding notes not tendered and registered
notes exchanged for any outstanding notes tendered will be sent to the holder at
his or her registered address, unless a different address is provided in the
appropriate box on this letter of transmittal or unless tender is made through
DTC, as soon as practicable following the expiration date.
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signature. If this letter of transmittal is signed by
the registered holder(s) of the outstanding notes tendered herewith, the
signatures must correspond with the name(s) as written on the face of the
tendered outstanding notes without alteration, enlargement, or any change
whatsoever.
If any of the tendered outstanding notes are owned of record by two or more
joint owners, all such owners must sign this letter of transmittal. If any
tendered outstanding notes are held in different names on several outstanding
notes, it will be necessary to complete, sign, and submit as many separate
copies of the letter of transmittal documents as there are names in which
tendered outstanding notes are held.
If this letter of transmittal is signed by the registered holder, and
registered notes are to be issued and any untendered or unaccepted principal
amount at maturity of outstanding notes are to be reissued or returned to the
registered holder, then the registered holder need not and should not endorse
any tendered outstanding notes nor provide a separate bond power. In any other
case, the registered holder must either properly endorse the outstanding notes
tendered or transmit a properly completed separate bond power with this letter
of transmittal (executed exactly as the name(s) of the registered holder(s)
appear(s) on such outstanding notes), with the signature(s) on the endorsement
or bond power guaranteed by an Eligible Institution unless such certificates or
bond powers are signed by an Eligible Institution.
If this letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and evidence satisfactory
to the Issuer of their authority to so act must be submitted with this letter of
transmittal.
No medallion signature guarantee is required if (i) this letter of
transmittal is signed by the registered holder(s) of the outstanding notes
tendered herewith and the issuance of registered notes (and any outstanding
notes not tendered or not accepted) are to be issued directly to such registered
Holder(s) and neither the "Special Registration Instructions" (Box 2) nor the
"Special Delivery Instructions" (Box 3) has been completed. In all other cases,
all signatures on this letter of transmittal must be guaranteed by an Eligible
Institution.
6. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box, the name and address in which the
registered notes and/or substitute outstanding notes for principal amounts at
maturity not tendered or not accepted for exchange are to be sent, if different
from the name and address or account of the person signing this letter of
transmittal. In the case of issuance in a different name, the employer
identification number or social security number of the person named must also be
indicated and the indicated and the tendering holders should complete the
applicable box.
If no such instructions are given, the registered notes (and any
outstanding notes not tendered or not accepted) will be issued in the name of
and sent to the registered holder of the outstanding notes.
7. Transfer Taxes. The Issuer will pay all transfer taxes, if any,
applicable to the sale and transfer of outstanding notes to the Issuer or its
order pursuant to the exchange offer. If, however, a transfer tax is
9
<PAGE> 10
imposed for any reason other than the transfer and sale of outstanding notes to
the Issuer or its order pursuant to the exchange offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or on any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption from such taxes is not submitted with this
letter of transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the outstanding notes listed in this letter
of transmittal.
8. Tax Identification Number. Under the federal income tax laws, payments
that may be made by the Issuer on account of registered notes issued pursuant to
the exchange offer may be subject to backup withholding at the rate of 31%. In
order to avoid such backup withholding, each tendering holder should complete
and sign the Substitute Form W-9 included in this letter of transmittal and
either (a) provide the correct taxpayer identification number ("TIN") and
certify, under penalties of perjury, that the TIN provided is correct and that
(i) the holder has not been notified by the Internal Revenue Service that the
holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the Internal Revenue Service has notified the
holder that the holder is no longer subject to backup withholding; or (b)
provide an adequate basis for exemption. If the tendering holder has not been
issued a TIN and has applied for one, or intends to apply for one in the near
future, such holder should write "Applied For" in the space provided for the TIN
in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and
sign the Certificate of Payee Awaiting Taxpayer Identification Number. If
"Applied For" is written in Part I, the Issuer (or the exchange agent with
respect to the registered notes or a broker or custodian) may still withhold 31%
of the amount of any payments made on account of the registered notes until the
holder furnishes the Issuer or the exchange agent with respect to the registered
notes, broker or custodian with its TIN. In general, if a holder is an
individual, the taxpayer identification number is the Social Security number of
such individual. If the exchange agent or the Issuer are not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such holder must submit a statement (generally, Internal
Revenue Service Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the exchange
agent.
Failure to complete the Substitute Form W-9 will not, by itself, cause
outstanding notes to be deemed invalidly tendered, but may require the Issuer or
the exchange agent with respect to the registered notes, broker or custodian to
withhold 31% of the amount of any payments made on account of the registered
notes. Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered outstanding
notes will be determined by the Issuer, in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to reject
any and all outstanding notes not validly tendered or any outstanding notes, the
Issuer's acceptance of which would, in the opinion of the Issuer or its counsel,
be unlawful. The Issuer also reserves the right to waive any conditions of the
exchange offer or defects or irregularities in tenders of notes as to any
ineligibility of any holder who seeks to tender outstanding notes in the
exchange offer. The interpretation of the terms and conditions of the exchange
offer (including this letter of transmittal and the instructions hereto) by the
Issuer shall 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 the Issuer shall determine. The Issuer will use reasonable
efforts to give notification of defects or irregularities with respect to
tenders of outstanding notes, but shall not incur any liability for failure to
give such notification.
10. Waiver of Conditions. The Issuer reserves the absolute right to amend,
waive, or modify specified conditions in the exchange offer in the case of any
tendered outstanding notes.
10
<PAGE> 11
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of outstanding notes will be accepted.
12. Mutilated, Lost, Stolen, or Destroyed Outstanding Notes. Any tendering
holder whose outstanding notes have been mutilated, lost, stolen, or destroyed
should contact the exchange agent at the address indicated above for further
instructions.
13. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the prospectus may be
directed to the exchange agent at the address set forth on the first page of
this letter of transmittal. Holders may also contact their broker, dealer,
commercial bank, trust company, or other nominee for assistance concerning the
exchange offer.
14. Acceptance of Tendered Outstanding Notes and Issuance of Registered
Notes; Return of Outstanding Notes. Subject to the terms and conditions of the
exchange offer, the Issuer will accept for exchange all validly tendered
outstanding notes as soon as practicable after the expiration date and will
issue registered notes therefor as soon as practicable thereafter. For purposes
of the exchange offer, the Issuer shall be deemed to have accepted tendered
outstanding notes when, as and if the Issuer has given written and oral notice
thereof to the exchange agent. If any tendered outstanding notes are not
exchanged pursuant to the exchange offer for any reason, such unexchanged
outstanding notes will be returned, without expense, to the undersigned at the
address shown above or at a different address as may be indicated under "Special
Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
=========================================================================================
CERTIFICATE OUTSTANDING NOTES OUTSTANDING NOTES
SURRENDERED TENDERED ACCEPTED
<S> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
=========================================================================================
</TABLE>
Delivery Prepared By: ________ Checked By: ________ Date: ________
11
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: SPECTRASITE HOLDINGS, INC.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Name (if joint names, list first and circle the name of the person or entity whose number you
enter in Part 1 below. See instructions if your name has changed.)
----------------------------------------------------------------------------------------------
Address
----------------------------------------------------------------------------------------------
SUBSTITUTE City, State and ZIP Code
FORM W-9
----------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 1 -- PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUM- Social Security
BER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND Number or TIN
INTERNAL REVENUE SERVICE DATING BELOW
----------------------------------------------------------------------------------------------
PART 2 -- Check the box if you are NOT subject to backup withholding under the
provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have
not been notified that you are subject to backup withholding as a result of failure
to report all interest or dividends or (2) the Internal Revenue Service has notified
you that you are no longer subject to backup withholding. [ ]
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY PART 3 --
THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT Awaiting TIN [ ]
AND COMPLETE.
Signature: _____________________ Date: ____________________
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administrative Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number by the time of the
exchange, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature:_____________________________________ Date:__________________________
12
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
11 1/4% SENIOR DISCOUNT NOTES DUE 2009
OF
SPECTRASITE HOLDINGS, INC.
This form or one substantially equivalent hereto must be used to accept the
exchange offer of SpectraSite Holdings, Inc. (the "Issuer") made pursuant to the
prospectus dated August , 1999 if holders of certificates for the 11 1/4%
senior discount notes due 2009 who wish to tender their outstanding notes but
whose outstanding notes are not immediately available and who cannot deliver
their certificates for outstanding notes (or comply with the procedures for
book-entry transfer prior to the expiration date), the letter of transmittal and
any other documents required by the letter of transmittal to the exchange agent
prior to 5:00 P.M., New York City time, on the expiration date (as defined in
the prospectus). Such form may be delivered by hand or transmitted by facsimile
transmission, overnight courier or mail to the exchange agent.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <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 OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
letter of transmittal to be used to tender outstanding notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the letter
of transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and subject to
the conditions set forth in the prospectus and the letter of transmittal (which
together constitute the exchange offer), receipt of which is hereby
acknowledged, (number of outstanding notes) outstanding notes pursuant
to the guaranteed delivery procedures set forth in Instruction 2 of the letter
of transmittal.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Certificate No(s). for Outstanding Notes (if Name(s) of Record Holder(s)
available)
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
PLEASE PRINT OR TYPE
Address
--------------------------------------------
Telephone. No. ( )_
Signature(s)
--------------------------------------------
Dated:
</TABLE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm 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 or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby (a) represents that the
above named person(s) own(s) the outstanding notes tendered hereby and (b)
guarantees that delivery to the exchange agent of certificates for the
outstanding notes tendered hereby, in proper form for transfer, with delivery of
a properly completed and duly executed letter of transmittal (or manually signed
facsimile thereof) with any required signature and any other required documents,
will be received by the exchange agent at one of its addresses set forth above
within five business days after the expiration date.
Name of Firm
Authorized Signature
Name
PLEASE PRINT OR TYPE
Title
Address
Zip Code
Telephone. No. ( )_
Dated: , 1999
NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS FORM; OUTSTANDING NOTES SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE
AGENT WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE.
