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Filed Pursuant to Rule 424(b)(3)
File No. 333-84857
[SpectraSite Logo] [Westower Logo]
SPECTRASITE HOLDINGS, INC.
WESTOWER CORPORATION
PROXY STATEMENT / PROSPECTUS
The boards of directors of SpectraSite Holdings, Inc. and Westower
Corporation agreed on a merger which they believe will enhance SpectraSite's
construction capability as well as its West Coast and Canadian presence, and
integrate Westower into a large, geographically diverse network of owned and
leased communications towers.
If we complete the merger, a wholly-owned subsidiary of SpectraSite will
merge into Westower. Westower will be the surviving corporation and will retain
its separate corporate existence as a subsidiary of SpectraSite. Westower
stockholders will receive 1.81 shares of SpectraSite's common stock for each
share of Westower common stock, plus cash for any fractional shares. Based on
the number of Westower shares outstanding on July 20, 1999, we expect that
SpectraSite will issue approximately 15,425,155 shares of common stock in
connection with the merger.
Westower common stock is listed on the American Stock Exchange. Westower's
Amex symbol is "WTW". SpectraSite has applied to list its common stock on the
Nasdaq National Market System, and this listing is a condition to the merger.
SpectraSite's proposed Nasdaq symbol is "SITE".
This document serves two purposes. It is a proxy statement of Westower to
solicit approval of the merger from you, its stockholders. This is also a
prospectus for the shares of SpectraSite common stock to be issued in the
merger.
The merger cannot be completed unless approved by the Westower
stockholders. Westower has scheduled a special meeting for you to vote on the
merger. SpectraSite stockholder approval is not required.
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 agreed to vote in favor
of the merger. YOUR VOTE IS VERY IMPORTANT.
This proxy statement/prospectus provides you with detailed information
about SpectraSite, Westower and the proposed merger. You may also obtain
information about our companies from documents that we filed with the SEC. We
encourage you to read this entire document carefully.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROXY
STATEMENT/PROSPECTUS FOR A DESCRIPTION OF RISKS ASSOCIATED WITH APPROVAL OF THE
MERGER.
The date, time and place of the meeting for the Westower stockholders are
as follows:
10:00 a.m., September 2, 1999
at the
Rittenhouse Hotel
210 West Rittenhouse Square
Philadelphia, Pennsylvania 19103
Whether or not you plan to attend the meeting, please take the time to vote
by completing the enclosed proxy card and mailing it to us as soon as possible.
If you sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote in favor of the merger. If you fail
to return your card the effect will be a vote against the merger.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE COMMON
STOCK TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated August 11, 1999. This proxy
statement/prospectus is first being mailed to Westower stockholders on August
12, 1999.
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TABLE OF CONTENTS
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Summary..................................................... 1
Risk Factors................................................ 6
Risks Relating to the Merger........................... 6
Risks Relating to SpectraSite.......................... 7
Cautionary Statements Concerning Forward-Looking
Pronouncements........................................ 13
Comparative Per Share Information........................... 14
Stockholder Meetings........................................ 15
Special Meeting for Westower Stockholders.............. 15
Vote Required.......................................... 15
Record Date............................................ 15
Quorum................................................. 15
Proxies................................................ 15
Independent Accountants................................ 16
No Special Meeting Required for SpectraSite
Stockholders.......................................... 16
The Merger.................................................. 17
Background of the Merger............................... 17
SpectraSite's Reasons for the Merger................... 19
Westower's Reasons for the Merger...................... 19
Recommendation of the Westower Board................... 20
Opinion of Westower's Financial Advisor................ 20
Accounting Treatment................................... 28
Nasdaq National Market Listing; De-listing and
De-registration of Westower Common Stock from the
American Stock Exchange............................... 29
U.S. Federal and Canadian Securities Laws Consequences;
Stock Transfer Restriction Agreements................. 29
Material Federal Income Tax Consequences............... 29
Dissenters' Rights..................................... 31
Directors and Management of SpectraSite Following the
Merger.................................................... 33
Executive Officers and Directors....................... 33
Board of Directors..................................... 35
Committees of The Board of Directors................... 35
SpectraSite Executive Compensation..................... 36
Westower Chief Executive Officer Compensation.......... 37
Employment Agreements.................................. 38
1997 Stock Incentive Plan.............................. 39
1997 Stock Incentive Plan Tax Consequences............. 42
SpectraSite's Employee Stock Purchase Plan............. 43
Interests of Westower Directors and Executive Officers in
the Merger................................................ 44
Employment Agreements with SpectraSite................. 44
Interest of Michael Anderson........................... 44
Interests of Bruce E. Toll and Leonard M. Tannenbaum... 44
Vesting of Options..................................... 44
Indemnification and Insurance.......................... 44
The Merger Agreement........................................ 45
The Merger............................................. 45
Conversion of Shares................................... 45
Exchange of Stock Certificates......................... 45
Representations and Warranties......................... 46
Material Covenants..................................... 47
Conditions to Obligations to Effect the Merger......... 51
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Conditions to Obligations of Westower.................. 52
Washington Anti-Takeover Laws.......................... 53
Termination; Termination Fees and Expenses............. 53
Amendment and Waiver................................... 54
Other Agreements............................................ 55
Stockholder Voting Agreements.......................... 55
Agreement of Sale and Amendment to Purchase
Agreement............................................. 55
SpectraSite Board Seat................................. 55
Post-Closing Lock-up Letters........................... 56
Ownership of SpectraSite and Westower....................... 57
SpectraSite............................................ 57
Westower............................................... 59
Market Prices and Dividend Policy........................... 60
Market Price Data...................................... 60
Dividend Policy........................................ 60
Comparison of Stockholders' Rights.......................... 61
Capital Stock.......................................... 61
Mergers, Sales of Assets and Other Transactions........ 61
Dissenters' Rights..................................... 62
State Takeover Legislation............................. 62
Amendments to Charters................................. 64
Amendments to Bylaws................................... 65
Preemptive Rights...................................... 65
Dividends.............................................. 66
Duration of Proxies.................................... 66
Stockholder Action..................................... 66
Special Stockholders' Meeting.......................... 67
Number and Election of Directors....................... 68
Removal of Directors................................... 68
Vacancies.............................................. 69
Indemnification of Directors and Officers.............. 69
Limitation of Personal Liability of Directors.......... 70
Directors With Conflicting Interests................... 71
Description of SpectraSite's Capital Stock.................. 72
Authorized Capital Stock............................... 72
Exchange Agent and Registrar........................... 73
Stockholders' Agreement................................ 74
Registration Rights Agreement.......................... 76
Unaudited Pro Forma Financial Data.......................... 78
General................................................ 78
SpectraSite............................................ 78
Description of SpectraSite.................................. 96
Overview............................................... 96
Business Strategy...................................... 97
Competitive Strengths.................................. 98
The Nextel Tower Acquisition........................... 99
Tower Location......................................... 103
Our Services........................................... 103
Customers.............................................. 107
Sales and Marketing.................................... 107
Competition............................................ 107
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Employees.............................................. 108
Properties............................................. 108
Legal Proceedings...................................... 108
International.......................................... 108
Selected Historical Financial Information of SpectraSite.... 109
SpectraSite Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 111
Introduction........................................... 111
Recent Events.......................................... 111
Results of Operations.................................. 112
Liquidity and Capital Resources........................ 114
Recent Issued Accounting Pronouncements................ 116
Year 2000 Compliance................................... 116
Certain Transactions of SpectraSite......................... 117
Telesite and Metrosite Acquisition..................... 117
GlobalComm Acquisition................................. 117
Repurchase of Common Stock from Former Employee........ 117
The Preferred Stock Offerings.......................... 117
Transactions Related to the Nextel Tower Acquisition... 118
Purchase of Common Stock by Chief Executive Officer.... 118
Description of Westower..................................... 119
Introduction........................................... 119
Customers.............................................. 123
Competition............................................ 123
Brazilian Operations................................... 124
Employees.............................................. 124
Properties............................................. 124
Legal Proceedings...................................... 125
Selected Historical Financial Information of Westower....... 126
Westower Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 127
Introduction........................................... 127
Results of Operations.................................. 127
Liquidity and Capital Resources........................ 130
Year 2000 Compliance................................... 132
Accounting Standards................................... 132
Certain Transactions of Westower............................ 133
Acquisition of WTC Holdings, Inc....................... 133
Repayment of Loans from Payne and Jeffrey.............. 133
Loans to Related Company............................... 133
Regulatory and Environmental Matters........................ 134
Federal Regulations.................................... 134
State, Provincial and Local Regulations................ 135
Legal Matters............................................... 136
Experts..................................................... 136
Where You Can Find More Information......................... 136
APPENDIX I: Agreement and Plan of Merger
APPENDIX II: Opinion of BancBoston Robertson Stephens Inc.
APPENDIX III: Chapter 23B.13 of the Washington Business
Corporation Act -- Dissenters' Rights
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SUMMARY
This summary highlights selected information about SpectraSite, Westower
and the merger. It does not contain all of the information that is important to
you. To understand the merger fully and for a more complete description of the
legal terms of the merger, you should carefully read this entire document and
the documents attached as appendices. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
THE PARTIES TO THE MERGER
SPECTRASITE HOLDINGS, INC. (page 96)
8000 Regency Parkway, Ste. 570
Cary, North Carolina 27511
(919) 468-0112
SpectraSite is one of the largest independent owners and operators of
wireless communications towers in the United States. SpectraSite's strategy is
to use that position to take advantage of the growth opportunities inherent in
the rapidly expanding and highly fragmented communications site industry. After
giving effect to the merger, SpectraSite will operate approximately 2,700 towers
in 42 states and three Canadian provinces. Currently, SpectraSite operates
approximately 2,500 towers, of which 2,150 are owned and 350 are managed for
third-parties, and Westower owns approximately 190 towers.
SpectraSite has achieved its growth predominantly through acquisitions.
Most significantly, SpectraSite recently acquired 2,000 towers from Nextel
Communications, Inc. As part of this transaction, Nextel agreed to lease 1,700
additional sites on SpectraSite's towers as part of its national service
deployment. SpectraSite will continue to pursue strategic acquisitions,
including transactions with large wireless service providers seeking to sell
their towers.
SpectraSite's primary business is the leasing of antenna sites on
multi-tenant towers to a diverse range of wireless communications industries,
including personal communications services, cellular, emergency specialized
mobile radio and specialized mobile radio. SpectraSite also offers its customers
a broad range of network development services, including network design, site
acquisition, procurement of zoning and other regulatory approvals, tower
construction and antenna installation.
SpectraSite is geographically diversified with significant communications
tower networks throughout the United States. Its largest networks are in
California, Ohio and Michigan. SpectraSite has established full-service regional
offices in the New York, Atlanta, Chicago and San Francisco areas.
WESTOWER CORPORATION (page 119)
2001 6th Avenue
Suite 3302
Seattle, Washington 98121
(206) 441-0334
Westower is a leading provider of integrated tower services to the wireless
communications industry in North America. Westower offers turn-key
communications site development and tower construction services and also leases
antenna sites on towers that it owns. Historically, Westower generated
substantially all of its revenues through communications site development and
tower construction services.
Westower's recent corporate strategy includes using its construction and
development expertise and its relationships in the industry to increase its
tower ownership. Capitalizing on these strengths and the industry trend towards
outsourcing, Westower has increased its tower ownership to approximately 190
towers. Westower actively markets its tower construction and site development
abilities in seeking build-to-suit opportunities.
Westower owns towers located in 15 states and three Canadian provinces and
maintains 27 office locations throughout the United States and Canada.
OUR REASONS FOR THE MERGER
By combining the complementary strengths and resources of SpectraSite and
Westower, we believe we will be able to create a company that can offer a more
diversified and broader base of services than either of the companies,
individually, is able to offer at the present time. We believe that the
availability of a complete range of services on a national basis is important to
our existing and potential customers, most of whom are large national companies.
In particular, the combination of Westower's tower construction
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capability and SpectraSite's geographically diverse network of towers and
build-to-suit agreements will enhance our ability to compete with other
companies in the communications tower industry. The communications tower
industry is undergoing a dramatic change because of rapid consolidation. As a
consequence, it is likely to become increasingly competitive. We hope that the
greater strength of the combined company will enable us to better serve our
customers and to provide our equity owners with increased value. To review the
background and reasons for the merger in greater detail, see pages 17 through
20. To review the risks relating to the merger, see pages 6 through 13.
If we complete the merger, Westower will merge with a subsidiary of
SpectraSite and will become a wholly-owned subsidiary of SpectraSite. The merger
is subject to conditions and rights of termination described in this document
and in the merger agreement. We have attached the merger agreement as Appendix I
to this document. It is the legal document governing the merger. WE ENCOURAGE
YOU TO READ THE MERGER AGREEMENT.
WHAT WESTOWER STOCKHOLDERS WILL RECEIVE IN THE MERGER
If we complete the merger, you will receive 1.81 shares of SpectraSite
common stock for each share of Westower common stock you own. We sometimes refer
to this number of shares as the exchange ratio. SpectraSite will not issue
fractional shares. Instead, you will receive cash for any fractional share of
SpectraSite common stock owed to you.
Example:
- -If you currently own 100 shares of Westower common stock, you will receive 181
shares of SpectraSite common stock.
- -If you currently own 1 share of Westower common stock, you will receive 1 share
of SpectraSite common stock and a check for the fair market value of the 0.81
fractional share.
Following the merger, current Westower stockholders will own approximately 20%
of SpectraSite.
DETERMINATIONS OF BOARDS OF DIRECTORS
(pages 19 and 20)
SpectraSite. The SpectraSite board of directors has unanimously approved
the merger and the merger agreement.
Westower. The Westower board of directors has determined that the merger
is fair to the Westower stockholders and in their best interest and has
unanimously approved the merger and the merger agreement.
Westower's board of directors based this determination and approval on a
number of factors, including:
- a review of the business, operations, financial condition, earnings and
prospects of SpectraSite;
- consideration of potential alternatives, including remaining independent
and seeking a combination with other possible strategic partners;
- the anticipated enhanced liquidity of SpectraSite common stock for
Westower stockholders;
- the structure, terms and conditions of the merger; and
- the analysis, presentations and opinion of BancBoston Robertson Stephens
Inc., an independent financial advisor.
FAIRNESS OPINION OF FINANCIAL ADVISOR
(page 20)
In deciding to approve the merger, the Westower board of directors
considered the opinion of BancBoston Robertson Stephens Inc., Westower's
financial advisor. The financial advisor's opinion states that, as of May 14,
1999, the exchange ratio of 1.81 shares of SpectraSite common stock for every
one share of Westower common stock was fair, from a financial point of view, to
holders of Westower common stock. This opinion is based upon and subject to
assumptions made, the matters considered in the opinion and the limits of the
review undertaken by BancBoston Robertson Stephens Inc. We have attached a copy
of the opinion as Appendix II to this document. WE ENCOURAGE YOU TO READ THIS
OPINION CAREFULLY.
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STOCKHOLDER VOTES REQUIRED
SpectraSite. Holders of a majority of the outstanding shares of
SpectraSite voting stock have executed a written consent approving an increase
in SpectraSite's authorized common stock, which is required in connection with
the merger. No further vote of the SpectraSite stockholders is required.
Therefore, SpectraSite will not hold a stockholder meeting and will not solicit
any proxies.
Westower. Holders of two-thirds of Westower's common stock must approve
the merger proposal before we can consummate the merger.
FEDERAL INCOME TAX CONSIDERATIONS (page 29)
A condition of the merger is that each of Westower and SpectraSite must
receive an opinion from its outside counsel that the merger will be treated as a
reorganization within the meaning of Section 368(a) of the tax code. This
treatment means that the merger will be tax-free to the Westower stockholders
except to the extent of any cash received in lieu of fractional shares of
SpectraSite common stock or through the exercise of dissenters' rights.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER
APPLICABLE TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE
MERGER APPLICABLE TO YOU.
ACCOUNTING TREATMENT (page 28)
SpectraSite intends to treat the merger as a purchase for financial
reporting purposes. This means that the assets, liabilities and results of
operations of Westower will be included with those of SpectraSite only after the
merger is completed. It also means SpectraSite will value the assets acquired
and liabilities assumed of Westower at their fair market values.
REGULATORY APPROVALS
We are prohibited by U.S. antitrust laws, known as the Hart-Scott-Rodino
Act, from completing the merger until after we have furnished information and
materials to the Antitrust Division of the Department of Justice and to the
Federal Trade Commission and a required waiting period has ended. Westower and
SpectraSite have each filed the required notification and report forms and the
required waiting period has expired. However, even after such period the
regulatory agencies will continue to have the authority to challenge the merger
on antitrust grounds before or after it is completed.
Because a subsidiary of Westower holds licenses to use certain radio
frequencies, the FCC must approve the change of control of Westower resulting
from the merger. We have submitted an applications for approval to the FCC, and
expect to receive approval by the end of August, 1999.
We cannot predict whether we will obtain all required regulatory approvals
before we complete the merger, or whether any approvals will include conditions
that would be detrimental to SpectraSite.
CONDITIONS TO THE MERGER (page 51)
We will complete the merger only if Westower and SpectraSite satisfy, or in
some cases waive, several conditions that the parties agreed to in the merger
agreement.
TERMINATION OF THE MERGER AGREEMENT
(page 53)
The boards of directors of both companies can agree to terminate the merger
agreement at any time. Either company can terminate if, among other things:
- the merger is not consummated on or before December 31, 1999;
- a governmental authority permanently prohibits the merger; or
- the terminating party is not in material breach and the other party is in
material breach of the merger agreement or materially breaches its
representations or warranties resulting in its inability to satisfy a
condition to the completion of the merger.
Westower also has the right to terminate if it approves and concurrently
enters into an agreement for a superior proposal, as defined on page 25 in the
merger agreement, and pays SpectraSite a fee of $12.0 million, plus expenses.
If either Westower or SpectraSite terminates because Westower stockholders
do not vote in favor of the merger at a time when an alternative
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proposal has been proposed and not withdrawn, Westower must pay SpectraSite's
expenses upon termination. In addition, if Westower executes or consummates that
superior proposal or an alternative offer within twelve months after terminating
the merger agreement, Westower must pay SpectraSite a fee of $12.0 million.
LISTING OF SPECTRASITE COMMON STOCK AND DE-LISTING AND DE-REGISTERING OF
WESTOWER COMMON STOCK (page 29)
It is a condition to the merger that SpectraSite common stock trade on the
Nasdaq National Market. Westower common stock will no longer be traded on the
American Stock Exchange or otherwise be publicly traded.
DISSENTERS' RIGHTS (page 31)
SpectraSite is a Delaware corporation. Under Delaware corporate law,
SpectraSite stockholders have no appraisal rights.
Westower stockholders will be entitled to dissenters' rights of appraisal
under Washington law in connection with the merger.
COMPARATIVE RIGHTS OF HOLDERS OF WESTOWER COMMON STOCK AND SPECTRASITE COMMON
STOCK (page 61)
SpectraSite is a Delaware corporation and Westower is a Washington
corporation. Stockholders' rights under the Delaware General Corporation Law and
the Washington Business Corporation Act differ in many respects. You should read
"Comparison of Stockholders' Rights" for a discussion of how your rights as a
SpectraSite stockholder will vary from your rights as a Westower stockholder.
CONTROL OF SPECTRASITE FOLLOWING THE MERGER
Affiliates of Welsh, Carson, Anderson & Stowe, a private equity firm, have
the right to appoint a majority of the board of directors and proxies from other
stockholders to vote a majority of the voting power of SpectraSite's capital
stock under a stockholders' agreement. The stockholders' agreement will remain
in effect after the merger. For a description of this agreement see page 74.
INTERESTS OF WESTOWER EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (page 44)
Westower stockholders should note that certain members of senior management
or directors who are also stockholders of Westower have interests in the merger
that are different from, or in addition to, yours. Those interests include
becoming officers or a director of SpectraSite, vesting of options and being
entitled to the continuation of certain indemnification provisions.
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SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
We present the following summary unaudited pro forma financial information
to give you a better picture of what the results of operations and financial
position of the combined businesses of SpectraSite and Westower may have been
for the year ended December 31, 1998 and the three months ended March 31, 1999
if the merger, the Nextel tower acquisition and other transactions described
under "Unaudited Pro Forma Financial Data" had occurred on January 1, 1998. We
prepared the unaudited pro forma statement of operations and balance sheet
information by adding or combining the historical pro forma results of each
company with adjustments. The companies may have performed differently if they
were actually combined. You should not rely on the unaudited pro forma
information as being indicative of the historical results that we would have had
or the future results we will experience after the merger. See "Unaudited Pro
Forma Financial Data" on page 78.
EBITDA consists of operating income (loss) before depreciation and
amortization expense and provisions for restructuring and other non-recurring
charges. 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 (loss) 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. Net debt is total debt less cash, cash equivalents and
short term investments. EBITDA and net debt are widely used in the
communications site industry as a measure of operating performance.
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POST-MERGER POST-MERGER
PRO FORMA PRO FORMA
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
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(DOLLARS IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $138,850 $ 33,481
Cost of operations.................................... 86,192 19,057
Selling, general and administrative expenses.......... 23,646 6,675
Depreciation and amortization......................... 56,902 14,441
Restructuring and non-recurring charges............... 404 600
Operating loss........................................ (28,294) (6,288)
OTHER DATA:
EBITDA................................................ $ 28,608 $ (7,292)
EBITDA margin......................................... 20.6% 21.4%
SELECTED OPERATING DATA:
Number of owned towers................................ 2,217 2,253
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and short term investments........................ $ 188,080
Total assets............................................................. 1,164,416
Total debt............................................................... 628,879
Net debt................................................................. 440,799
Stockholders' equity..................................................... 520,273
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RISK FACTORS
RISKS RELATING TO THE MERGER
WESTOWER STOCKHOLDERS WILL NOT BE ABLE TO ASCERTAIN THE VALUE OF THE SPECTRASITE
COMMON STOCK THEY WILL RECEIVE IN THE MERGER.
SpectraSite common stock is not currently publicly traded and will not be
publicly traded until consumation of the merger. Consequently, Westower
stockholders will not be able to readily determine the value of SpectraSite
shares. In the merger, each share of Westower common stock will convert into
1.81 shares of SpectraSite common stock. This is a fixed exchange ratio. It will
not be adjusted in the event of any increase or decrease in the price of
Westower common stock prior to the merger.
WE MAY NOT BE ABLE TO INTEGRATE OUR 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 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.
WESTOWER'S OBLIGATION TO PAY A TERMINATION FEE AND EXPENSES AND VOTING
AGREEMENTS SIGNED BY WESTOWER STOCKHOLDERS HOLDING 49% OF THE OUTSTANDING COMMON
STOCK MAY DETER COMPETING PROPOSALS.
Westower may terminate the merger agreement if it receives and accepts an
acquisition proposal which is superior to the proposed merger, but Westower must
then pay SpectraSite a termination fee of $12.0 million, plus SpectraSite's
expenses.
Also, if Westower stockholders vote against the merger when a third party
has announced or made an acquisition proposal, Westower will be required to pay
SpectraSite's expenses. If within one year, Westower consummates or enters into
an agreement with any third party that results in a change of control of
Westower, it must pay SpectraSite a $12.0 million termination fee.
The obligation to pay the amounts referred to in the two previous
paragraphs may deter third parties from making competing bids for Westower.
Westower stockholders holding approximately 49% of the outstanding common
stock agreed to vote in favor of the merger and against any other acquisition
proposal. Some of these agreements terminate upon termination of the merger
agreement. Calvin J. Payne and S. Roy Jeffrey agreed, however, that if the
merger agreement is terminated, for the nine months following such termination,
they will vote their shares, constituting approximately 25% of Westower's
outstanding common stock, against any acquisition proposal. The existence of
these agreements will make it more difficult for a third party to acquire
Westower and, therefore, may deter third parties from making competing bids for
Westower.
THERE ARE CONFLICTS OF INTEREST AND BENEFITS OF THE MERGER TO INSIDERS WHO
RECOMMEND YOU VOTE IN FAVOR OF THE MERGER.
As discussed below under "Interests of Westower Directors and Executive
Officers in the Merger," a number of executive officers and directors of
Westower have employment or severance agreements or other agreements that
provide them with interests in the merger that are different from, or in
addition to, your interests as stockholders.
- Two Westower executive officers, Calvin J. Payne and S. Roy Jeffrey, will
enter into employment agreements with SpectraSite. These employment
agreements provide Messrs. Payne and Jeffrey significant compensation and
benefits.
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- Options to purchase shares of Westower common stock held by Calvin J.
Payne, S. Roy Jeffrey and Peter Lucas will vest as a result of the
merger.
- Michael Anderson, a Westower executive officer and director, may
terminate his employment agreement with Westower upon the merger and
receive significant compensation.
- Bruce E. Toll, a Westower director, has a significant interest in BET
Associates L.P. In June 1998, Westower issued notes to BET Associates. It
is a condition to the merger that Westower retire these notes.
Stockholders should be aware of these potential conflicts of interest and the
benefits available to these executive officers and directors when considering
the determination of the Westower board of directors to approve the merger.
RISKS RELATING TO SPECTRASITE
A GROUP OF STOCKHOLDERS CONTROLS THE VOTING POWER OF SPECTRASITE AND THEIR
INTERESTS MAY BE DIFFERENT FROM YOURS.
Affiliates of Welsh, Carson, Anderson & Stowe own approximately 32 million
shares of SpectraSite 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 SpectraSite capital stock under
a stockholders' agreement. In addition, other SpectraSite stockholders have a
right to board representation under this agreement. The stockholders' agreement
will remain in place after the merger. Welsh, Carson and the other parties to
the stockholders' agreement may have interests that are different from yours.
See "Description of SpectraSite's Capital Stock -- Stockholders' Agreement."
SPECTRASITE PREFERRED STOCKHOLDERS HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE
OF COMMON STOCKHOLDERS.
SpectraSite has outstanding an aggregate of approximately 70.8 million
shares of preferred stock, and these shares will remain outstanding following
the merger. Holders of preferred stock vote on a share-for-share basis with the
common stock and also have special voting rights. In addition, preferred
stockholders have a liquidation preference over common stockholders in the event
of bankruptcy, liquidation or dissolution of SpectraSite. The preferred
stockholders and several current common stockholders are party to a
stockholders' agreement and a registration rights agreement. These agreements
provide opportunities to participate in registered distributions and other sales
of SpectraSite common stock that will not be available to common stockholders
generally. For a description of these agreements and the rights of preferred
stockholders, see "Description of SpectraSite's Capital Stock."
NO PRIOR TRADING MARKET IN SPECTRASITE STOCK.
The outstanding shares of SpectraSite common stock were not registered
under the Exchange Act or under the securities laws of any state and may not be
sold unless they are accepted for listing and quotation on the Nasdaq. This
proxy statement/prospectus is part of a registration statement which will
register the shares of SpectraSite common stock to be issued in the merger under
the Securities Act, and we will also register the SpectraSite common stock under
the Exchange Act. However, because the SpectraSite common stock to be issued in
the merger will constitute a new issue of securities with no established trading
market, we cannot assure you as to:
- the liquidity of any such market that may develop;
- the ability of stockholders to sell their shares; or
- the price at which the stockholders would be able to sell their shares.
SpectraSite has applied to list its common stock on the Nasdaq. However,
although it is a condition to the consummation of the merger, we cannot assure
you that SpectraSite will qualify for listing on the Nasdaq.
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<PAGE> 12
SPECTRASITE'S SUBSTANTIAL INDEBTEDNESS COULD INTERFERE WITH ITS FINANCIAL
GROWTH.
SpectraSite is and will continue to be highly leveraged. As of March 31,
1999, after giving effect to the offering of its 2009 notes, initial borrowings
under its new credit facility and the merger with Westower, SpectraSite would
have had total consolidated indebtedness of approximately $628.9 million. Also,
if SpectraSite had sold the 2009 notes and borrowed under its credit facility to
acquire the Nextel towers and had 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 2000.
SpectraSite's high level of indebtedness could have important consequences.
For example, it could:
- make it more difficult for us to satisfy our debt obligations;
- 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 SPECTRASITE DOES NOT GENERATE SUFFICIENT CASH, IT WILL BE UNABLE TO SERVICE
ITS INDEBTEDNESS.
SpectraSite's ability to make scheduled payments of principal of, or to pay
interest on, its debt obligations and its ability to refinance any such debt
obligations 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. SpectraSite's ability to generate
sufficient cash flow from operations is uncertain. In addition, SpectraSite may
not meet its anticipated revenue growth targets, and SpectraSite's 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.
SPECTRASITE MAY BE UNABLE TO ACQUIRE TOWERS OR INCREASE ITS CONSTRUCTION
ACTIVITIES AS PROJECTED; FAILURE TO FULFILL THESE STRATEGIES MAY HARM ITS
REVENUES.
SpectraSite's growth strategy depends on its ability to construct, acquire
and operate towers in conjunction with the expansion by wireless service
providers of their tower network infrastructure. SpectraSite's 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, some communities now restrict new tower construction or delay
granting permits required for construction. We cannot assure you:
- that we will be able to overcome regulatory or other barriers to new
construction;
- that the number of towers planned for construction will be completed in
accordance with the requirements of our customers; or
- that there will be significant need for the construction of new towers
once the wireless service providers complete their tower network
infrastructure build-out.
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<PAGE> 13
Anchor tenant leases may contain penalty or forfeiture provisions in the
event the towers are not completed within specified time periods.
SpectraSite's expansion plans call for a significant increase in
construction activity. We cannot assure you that we will be able to overcome the
barriers to new construction or that the number of towers planned for
construction will be completed. 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 such competition to
increase. Increased competition for acquisitions may result in fewer acquisition
opportunities, as well as higher acquisition prices. We regularly explore
acquisition opportunities; however, we cannot assure you that we will be able to
identify towers or tower companies to acquire in the future.
SPECTRASITE ANTICIPATES SIGNIFICANT CAPITAL EXPENDITURES AND MAY NEED ADDITIONAL
FINANCING WHICH MAY NOT BE AVAILABLE.
SpectraSite's 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 new credit facility and the indentures governing our senior discount
notes. In addition, equity financings could cause dilution to SpectraSite
stockholders.
SUCCESS OF SPECTRASITE'S BUSINESS STRATEGY REQUIRES IT TO ACT QUICKLY, AND
IMPLEMENTATION OF ITS STRATEGY COULD STRAIN ITS RESOURCES.
SpectraSite may not be able to identify, finance and complete future
acquisitions on acceptable terms or profitably and market available space on its
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.
SPECTRASITE'S BUSINESS DEPENDS ON DEMAND FOR WIRELESS COMMUNICATIONS.
SpectraSite's 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
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<PAGE> 14
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.
COMPETING TECHNOLOGIES AND OTHER ALTERNATIVES COULD REDUCE THE DEMAND FOR
SPECTRASITE'S 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 demand for space on SpectraSite's towers. The extent
to which wireless service providers lease such 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 services, 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 each other to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
provider's 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 services 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.
SPECTRASITE COMPETES 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.
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<PAGE> 15
SPECTRASITE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING NEXTEL'S TOWERS WITH ITS
OPERATIONS WHICH MAY RESULT IN A FAILURE TO GENERATE EXPECTED REVENUES AND
DIVERT ITS MANAGEMENT.
In April 1999, SpectraSite acquired 2,000 towers from Nextel. SpectraSite
has 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 its 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 SPECTRASITE'S REVENUES AND TOWER CONSTRUCTION ACTIVITY WILL DEPEND ON
NEXTEL.
Nextel accounts for a significant portion of SpectraSite's total revenues.
On a pro forma basis, for the three months ended March 31, 1999, Nextel
represented 36.9% of SpectraSite's 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
certain 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 certain 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.
SPECTRASITE'S 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 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 comply with
applicable standards. Failure to comply with applicable requirements may lead to
civil penalties and tort liability.
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<PAGE> 16
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 merger, SpectraSite will acquire operations in Canada and an
interest in a Brazilian joint venture. As a result, SpectraSite 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.
SPECTRASITE GENERALLY LEASES THE LAND UNDER ITS TOWERS AND MAY NOT BE ABLE TO
MAINTAIN THESE LEASES.
SpectraSite's real property interests relating to towers primarily consist
of leasehold interests, private easements and licenses, and 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
and the land on which they are built 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.
SPECTRASITE IS SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT
REGARD TO FAULT.
SpectraSite's operations are subject to federal, state and local
environmental laws and regulations regarding the use, storage, disposal,
emission, release and remediation of hazardous and nonhazardous substances,
materials or wastes. Following the merger, SpectraSite 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.
SPECTRASITE'S TOWERS ARE SUBJECT TO NATURAL DISASTERS.
SpectraSite's 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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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. In addition, such findings could have an affect on
the demand for wireless services generally, affecting our customers' demand for
our services. Although we have not been subject to any claims relating to radio
frequency emissions, we cannot assure you that we will not be subject to such
claims in the future.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING PRONOUNCEMENTS.
This proxy statement/prospectus contains forward-looking statements,
including statements concerning possible or assumed future results of operations
of Westower and SpectraSite set forth under "The Merger -- Westower's Reasons
for the Merger" and "The Merger -- SpectraSite's Reasons for the Merger" 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 the future results of Westower and SpectraSite, and could cause
those results to differ materially from those expressed in such forward-looking
statements:
- materially adverse changes in economic conditions in the markets served
by the companies;
- a significant delay in the expected closing of the merger;
- future regulatory actions and conditions in the companies' operating
areas;
- competition from others in the communications tower industry;
- the successful integration of the tower assets SpectraSite recently
acquired from Nextel Communications, Inc.;
- failure to realize fully expected benefits from the merger;
- greater than expected costs or difficulties related to the integration of
the businesses of SpectraSite and Westower; and
- other risks and uncertainties as may be detailed from time to time in
SpectraSite's or Westower's public announcements and SEC filings.
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COMPARATIVE PER SHARE INFORMATION
Westower's common stock is listed on the American Stock Exchange. On May
14, 1999, the last full trading day on the Amex prior to the public announcement
of the proposed merger, Westower's common stock closed at $30.00 per share. On
August 10, 1999, Westower's common stock closed at $24.375 per share.
SpectraSite's common stock is not currently, and has never been, publicly
traded.
We have set forth below selected:
- historical per share data of SpectraSite and Westower;
- pro forma per share data from continuing operations of those companies,
giving effect, in the case of SpectraSite, to the transactions described
under "Unaudited Pro Forma Financial Data"; and
- pro forma equivalent per share amounts giving effect to the pro forma
transactions, including the Nextel tower acquisition and the Westower
merger.
The pro forma equivalent information of Westower represents SpectraSite's pro
forma per share information multiplied by 1.81, the exchange ratio called for by
the merger agreement.
You should read the information set forth below in conjunction with the audited
and unaudited consolidated financial statements of SpectraSite and Westower and
the "Unaudited Pro Forma Financial Data."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------------- ---------------------------
WESTOWER SPECTRASITE WESTOWER SPECTRASITE
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
HISTORICAL
Book value per common share................. $ 5.17 $27.78 $ 5.32 $23.06
Net income (loss) per share................. 0.28 (9.49) 0.04 (4.72)
Number of common shares outstanding (in
thousands)................................ 8,254 957 8,435 957
PRO FORMA
Book value per common share................. $51.67 $28.55
Net income (loss) per share................. (2.48) (1.37)
Number of common shares outstanding (in
thousands)................................ 10,069 18,224
</TABLE>
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STOCKHOLDER MEETINGS
SPECIAL MEETING FOR WESTOWER STOCKHOLDERS
Westower's stockholders must approve the merger. Westower will hold a
special meeting for purposes of voting on the merger.
Date of the Meeting................... September 2, 1999
Time of the Meeting................... 10:00 a.m.
Place of the Meeting.................. Rittenhouse Hotel
210 West Rittenhouse Square
Philadelphia, Pennsylvania 19103
VOTE REQUIRED
- Holders of two-thirds of Westower's common stock must approve the merger
before we can consummate the merger.
- An abstention from voting on the merger or a broker non-vote will have
the effect of a vote AGAINST the merger because it is one less vote in
favor.
RECORD DATE
Westower fixed the close of business on July 20, 1999 as the record date.
Only holders of record of shares of Westower common stock on that date are
entitled to notice of and to vote at the special meeting. On the record date,
there were 8,522,185 shares of Westower common stock outstanding and entitled to
vote at the special meeting, held by 115 stockholders of record.
QUORUM
A majority of the outstanding shares entitled to vote represented in person
or by proxy will constitute a quorum at the special stockholders' meeting.
Abstentions and broker non-votes will be considered present at the special
meeting for the purpose of calculating a quorum.
PROXIES
- Completed Proxies. If you sign, complete and return your proxy card and
we receive the proxy card prior to or at the special meeting, your proxy
will be voted as you instructed.
- Proxies with No Instructions. If you sign and return a proxy card but
you do not provide instructions as to your vote, your proxy will be voted
FOR the merger proposal.
- Revocability of Proxies. If you sign and return a proxy card, you may
revoke your proxy at any time prior to its use, unless you are one of the
principal stockholders of Westower who is party to an agreement with
SpectraSite. See "Other Agreements -- Stockholder Voting Agreements." In
order to revoke your proxy, you must deliver a signed notice of
revocation to Westower's Secretary or you must deliver a later proxy
changing your vote. Alternatively, you may choose to attend the special
meeting and vote in person. However, simply attending the meeting will
not in itself constitute the revocation of your proxy if you do not cast
a vote at that time.
- Costs of Solicitation. Westower will pay the costs associated with
soliciting proxies from its stockholders.
- Dissenters' Rights. If you plan to assert your dissenter's rights,
please review "The Merger -- Dissenters' Rights" at page 31 and Appendix
III to learn how your proxy may affect your rights.
* PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR
PROXY CARD. WE WILL MAIL YOU A SEPARATE TRANSMITTAL
FORM WITH INSTRUCTIONS FOR THE SURRENDER OF YOUR
CERTIFICATES AS SOON AS PRACTICABLE AFTER THE
CONSUMMATION OF THE MERGER.
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP is Westower's independent accountants. A
representative of PricewaterhouseCoopers LLP is expected to be available to
answer appropriate questions at the special meeting.
NO SPECIAL MEETING REQUIRED FOR SPECTRASITE STOCKHOLDERS
On May 14, 1999, holders of a majority of SpectraSite's voting stock gave
their written consent to an amendment to SpectraSite's certificate of
incorporation to authorize the increase in common stock required to consummate
the merger. The consent of SpectraSite's stockholders to the merger is not
required by Delaware law.
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<PAGE> 21
THE MERGER
BACKGROUND OF THE MERGER
<TABLE>
<S> <C>
December 1998 Westower began evaluating a possible purchase of existing
communications towers of Nextel Communications, Inc. and a
possible build-to-suit agreement.
January 1999 Westower conducted due diligence on the Nextel towers and
submitted a proposal to Nextel to purchase existing towers
and to build and own future Nextel towers. Separately,
SpectraSite was in negotiations with Nextel concerning the
same matter.
February 1999 The SpectraSite board of directors began considering
possible strategic transactions.
February 11, 1999 Nextel and SpectraSite announced an agreement for the sale
of the Nextel towers to SpectraSite and an agreement for
SpectraSite to build and own future Nextel towers. Michael
J. Anderson, Senior Vice President and a director of
Westower, called Stephen H. Clark, Chief Executive Officer
and a director of SpectraSite, to discuss ways in which
Westower could assist SpectraSite to construct towers for
Nextel.
March 2, 1999 Stephen H. Clark met with Calvin J. Payne, Chief Executive
Officer and Chairman of the Board of Westower, and Michael
J. Anderson in New York to discuss possible business
relationships between the two companies.
March 1999 Calvin J. Payne met on three occasions with the chief
executive officer of another company to discuss a possible
business combination.
March 1999 SpectraSite management analyzed the impact of merging
SpectraSite and Westower and preliminarily determined that
the result would be positive.
March 22, 1999 Westower selected BancBoston Robertson Stephens Inc. as its
exclusive financial advisor in connection with a possible
transaction with SpectraSite.
March 26, 1999 SpectraSite retained Goldman, Sachs & Co. to act as its
financial advisor.
SpectraSite and Westower executed letters providing for the
exchange of confidential information.
April 1, 1999 Stephen H. Clark met with management of a second company to
evaluate alternate combinations.
SpectraSite and Westower and their respective financial
advisors exchanged and evaluated financial and other
information concerning each other.
April 7, 1999 Stephen H. Clark and Calvin J. Payne discussed via
teleconference possible ways SpectraSite and Westower could
be combined.
April 1999 SpectraSite reviewed a possible transaction with a third
company as another alternative to Westower.
April 19, 1999 Calvin J. Payne, S. Roy Jeffrey, Chief Operating Officer and
a director, Peter Lucas, Chief Financial Officer and a
director, and Michael J. Anderson, all of Westower, together
with a representative of BancBoston Robertson Stephens met
in New York with Stephen H. Clark, David P. Tomick, Chief
Financial Officer, Lawrence B. Sorrel, Chairman of the
Board, and Rudolph E. Rupert, a director of SpectraSite, and
representatives of Goldman Sachs. Both companies presented
operations overviews, Goldman Sachs presented relative
valuation metrics, and the group discussed merger terms and
agreed to a preliminary relative valuation of Westower and
SpectraSite subject to the completion of due diligence.
</TABLE>
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<TABLE>
<S> <C>
April 22, 1999 The SpectraSite board of directors met and reviewed the
status of the due diligence and the strategic benefits of a
transaction with Westower, as well as potential alternative
transactions. Representatives of Goldman Sachs made a
preliminary presentation to SpectraSite's board of
directors. The board authorized management to proceed with
the Westower negotiations. The Westower board of directors
met via teleconference and Calvin J. Payne informed the
board of the potential transaction with SpectraSite.
Representatives of BancBoston Robertson Stephens made a
preliminary presentation to Westower's board of directors.
The board discussed the benefits of the transaction and
authorized Mr. Payne to continue negotiations and to execute
an engagement letter with BancBoston Robertson Stephens.
April 26, 1999 Representatives of SpectraSite and Goldman Sachs commenced
on-site due diligence of Westower in Surrey, British
Columbia, Canada. Representatives of Westower continued due
diligence of SpectraSite.
April 27, 1999 SpectraSite and Westower executed a letter providing for
exclusive negotiations with each other for a period ending
on May 5, 1999.
April 28, 1999 Westower issued a press release in response to increased
trading activity and rumors of a proposed transaction. The
press release stated that Westower was in discussions with
another company related to a possible business combination
but did not identify SpectraSite.
April 29, 1999 Westower commenced on-site due diligence of SpectraSite in
Cary, North Carolina. SpectraSite commenced additional due
diligence of Westower in West Palm Beach, Florida, Jackson,
Mississippi, Houston, Texas, Portland, Oregon and Seattle,
Washington.
May 3, 1999 The Westower board met via teleconference and discussed the
status of the transaction and approved continued
negotiations.
May 5, 1999 The Westower board of directors met. Independently, the
SpectraSite board of directors met via teleconference. The
two boards separately reviewed the progress to date and each
approved moving towards consummation of the transaction. A
representative of Morgan, Lewis & Bockius LLP presented a
summary of the transaction to the Westower board of
directors.
May 13, 1999 The Westower board of directors met. A representative of
Morgan, Lewis & Bockius LLP summarized the terms of the
transaction documents, including the proposed terms of the
Westower stockholder voting agreements, an agreement under
which Westower would purchase the Westower notes held by BET
Associates L.P. and the post-closing lock-up agreements.
BancBoston Robertson Stephens presented financial
information about the transaction.
May 14, 1999 The SpectraSite board of directors met via teleconference.
Stephen H. Clark and a representative of Ernst & Young LLP
updated the board of directors on the results of the due
diligence review of Westower. A representative of Goldman
Sachs reviewed its financial analysis of the merger,
including the assumptions and methodologies used to
determine the exchange ratio. A representative of Paul,
Weiss, Rifkind, Wharton & Garrison summarized the proposed
terms of the merger agreement and other transaction
documents. The SpectraSite board of directors approved and
adopted the merger agreement and approved the other
transaction documents. The Westower board of directors also
met. BancBoston Robertson Stephens delivered its opinion
that the exchange ratio is fair to the Westower stockholders
from a financial standpoint. The Westower board of directors
approved the merger and adopted the merger agreement, the
Westower stockholder voting agreements, under which
stockholders party to the agreements agreed to vote in favor
of the merger, and the agreement with BET Associates.
</TABLE>
18
<PAGE> 23
<TABLE>
<S> <C>
May 15, 1999 SpectraSite and Westower executed and delivered the merger
agreement. SpectraSite and several Westower stockholders
executed and delivered stockholder voting agreements.
Westower and BET Associates delivered an agreement for the
purchase of the Westower notes held by BET Associates.
</TABLE>
SPECTRASITE'S REASONS FOR THE MERGER
The SpectraSite board of directors believes that the terms of the merger
are in the best interest of SpectraSite and its stockholders. In approving the
merger agreement and the transactions it contemplates, the board of directors
consulted with SpectraSite's management and considered a number of factors,
including:
- the ability to offer antenna installation and related services;
- the potential for cost savings on the construction of new towers;
- the potential for increasing and accelerating SpectraSite's long-term
strategic objective of establishing a national tower network by combining
with a company that has a strong West Coast presence;
- consolidation benefits that will be available to the combined entity
after the merger, including cost savings that should arise from combining
the two companies, such as mitigating the risk of industry overbuild and
complementary management teams;
- synergistic benefits from the companies' complementary assets and
businesses;
- the benefits of being stockholders in a substantially larger and more
diversified company; and
- alternatives to the merger, including, among other things, pursuing an
initial public offering without any preceding business combinations and
seeking other business combinations, as well as the risks associated with
any such alternative transaction and the likelihood of any such
alternative transactions becoming available and being completed.
The SpectraSite board of directors viewed favorably the benefits to
SpectraSite of combining certain of the companies' administrative functions,
including finance and accounting, insurance and information technology and that
such combination could result in annual cost savings for the combined company.
The board of directors also considered the fact that the combined company would
have certain cost advantages over SpectraSite as a stand-alone company,
including in terms of sales and marketing and financial resources.
The SpectraSite board of directors also considered the terms of the merger
agreement, including the termination provisions, and considered the terms of the
Westower stockholder voting agreements and the post-closing lock-up agreements.
In determining that the merger is in the best interest of SpectraSite's
stockholders, SpectraSite's board of directors considered the above factors as a
whole and did not assign specific or relative weights to such factors. The board
of directors believes that the merger is an opportunity for SpectraSite's
stockholders to participate in a combined enterprise with substantially greater
business and financial resources and construction capacity than SpectraSite
would have absent the merger.
WESTOWER'S REASONS FOR THE MERGER
The Westower board of directors unanimously determined that the terms of
the merger are fair to Westower and the Westower stockholders and in the best
interest of Westower and its stockholders. In determining to adopt the merger
agreement and related transactions the Westower board of directors consulted
with management and other outside consultants including BancBoston Robertson
Stephens, Inc.,
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<PAGE> 24
its financial advisor, and Morgan, Lewis & Bockius LLP, its legal advisor, and
considered a number of factors including:
- the good fit between Westower and SpectraSite, which combines
SpectraSite's objective of increased tower ownership with Westower's
specialty in tower construction;
- the belief that the Nextel transaction, on which Westower bid and which
SpectraSite won, presents an excellent opportunity for growth of tower
ownership, as well as additional construction opportunities;
- SpectraSite's demonstrated ability to obtain necessary financing to
support growth;
- the strength and depth of the combined management team;
- the anticipated enhanced liquidity of the SpectraSite common stock which
Westower stockholders would receive in the merger;
- Westower's ability to continue as a stand-alone company and meet its
long-term objectives of tower ownership and increased tower construction;
- the terms of the merger proposal including the termination fee, the
stockholder agreements and the purchase by Westower of outstanding
Westower debt;
- the opinion of BancBoston Robertson Stephens that the exchange ratio is
fair from a financial point of view to the Westower stockholders; and
- the structure of the merger, which generally will result in no gain or
loss recognized for federal income tax purposes on the shares of Westower
exchanged in the merger.
As a result of the foregoing considerations, Westower's board determined
that the potential advantages of the merger outweighed the benefits of remaining
as a stand-alone company. The Westower board believes the combined company will
provide many benefits, including potential cost savings of combining
administrative functions, increased access to sales and marketing resources and
a broad base of tower ownership and tower construction opportunities.
In view of the variety of factors considered in connection with its
evaluation of the merger, the Westower board of directors did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. In addition,
individual members of the board of directors may have given different weights to
different factors and may have viewed the different factors as affecting the
determination of fairness differently.
RECOMMENDATION OF THE WESTOWER BOARD
The Westower board of directors has unanimously determined that the terms
of the merger are fair to, and in the best interest of, Westower and its
stockholders. The Westower board unanimously and unconditionally recommends that
the Westower stockholders vote FOR approval of the merger proposal.
OPINION OF WESTOWER'S FINANCIAL ADVISOR
On May 14, 1999, BancBoston Robertson Stephens delivered to the Westower
board its oral opinion, subsequently confirmed by delivery of its written
opinion, to the effect that, as of such date, the exchange ratio in the merger
agreement was fair to the stockholders of Westower from a financial point of
view. The Westower board imposed no limitations on BancBoston Robertson Stephens
with respect to the investigations made or procedures it followed in furnishing
its opinion. Westower's and SpectraSite's managements negotiated the exchange
ratio. Although BancBoston Robertson Stephens did assist the management of
Westower in those negotiations, Westower did not ask, and BancBoston Robertson
Stephens did not recommend to Westower that, any specific purchase price
constituted the appropriate consideration for the merger. BancBoston Robertson
Stephens was not requested to, and did not, solicit third parties regarding
alternatives to the merger.
20
<PAGE> 25
The full text of BancBoston Robertson Stephens' written opinion, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix III to this prospectus/proxy statement.
Westower stockholders are urged to read the opinion carefully and in its
entirety. BancBoston Robertson Stephens' opinion was prepared at the request and
for the use of the Westower Board in its consideration of the merger and does
not constitute a recommendation to any stockholder of Westower as to how that
stockholder should vote at the Westower special meeting with respect to the
merger. BancBoston Robertson Stephens' opinion is based on the assumption that
the merger will be a tax-free reorganization for federal income tax purposes and
does not take into account the particular tax status or position of any
stockholder of Westower. BancBoston Robertson Stephens' opinion does not
address:
- the value of any employee agreements or other arrangements entered into
in connection with the merger;
- the price at which the shares of SpectraSite issued in the merger may be
traded in the future; and
- the relative merits of the merger and any other business strategies that
the Westower board considered or may be considering or the decision of
the Westower Board to proceed with the merger.
In arriving at its opinion, BancBoston Robertson Stephens:
- reviewed financial information relating to Westower and SpectraSite
furnished to it by the respective companies, including internal financial
and operating analyses and forecasts prepared by the managements of
Westower and SpectraSite;
- reviewed publicly available information relating to Westower and
SpectraSite;
- held discussions with the managements of Westower and SpectraSite
concerning the businesses, past and current business operations,
financial condition and future prospects of both companies, independently
and combined, including discussions with the managements of Westower and
SpectraSite concerning cost savings and other synergies that are expected
to result from the merger as well as their views regarding the strategic
rationale for the merger;
- reviewed the financial terms and conditions set forth in the merger
agreement, including the draft merger agreement and the draft agreements
ancillary thereto, in substantially final form;
- reviewed the stock prices and trading histories of Westower;
- reviewed the contribution by each company to pro forma combined towers
owned and managed, revenue, tower cash flow and earnings before interest,
taxes, depreciation and amortization, more commonly known as EBITDA;
- reviewed the valuations of publicly-traded companies that it deemed
comparable to Westower and SpectraSite;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that it deemed
relevant;
- analyzed the pro forma impact of the merger on SpectraSite's EBITDA per
share and financial condition;
- prepared a discounted cash flow analysis of Westower;
- participated in discussions and negotiations among representatives of
Westower and SpectraSite and their financial and legal advisors; and
- made other studies and inquiries, and reviewed other data, as it deemed
relevant.
In connection with its review and analysis, and in arriving at its opinion,
BancBoston Robertson Stephens assumed and relied upon the accuracy and
completeness of all of the financial and other
21
<PAGE> 26
information provided to it or publicly available and neither attempted
independently to verify nor assumed responsibility for verifying any of this
information. BancBoston Robertson Stephens relied upon the assurances of the
managements of Westower and SpectraSite that they were not aware of any facts
that would make this information inaccurate or misleading. Furthermore,
BancBoston Robertson Stephens did not obtain or make, any independent evaluation
or appraisal of the properties or assets and liabilities, contingent or
otherwise, of Westower or SpectraSite, nor was BancBoston Robertson Stephens
furnished with any such evaluations or appraisals. In addition, BancBoston
Robertson Stephens did not conduct any physical inspection of the properties or
facilities of Westower or SpectraSite. In rendering its opinion, BancBoston
Robertson Stephens made various assumptions, including:
- with respect to the historical financial and operating analyses and
financial forecasts of Westower and SpectraSite:
- the assumptions and bases for such analyses and forecasts were
reasonably prepared in good faith on the basis of reasonable
assumptions;
- no synergies result from the merger;
- such forecasts reflected the best currently available estimates and
judgments of Westower and SpectraSite as to the future financial
condition and performance of Westower and SpectraSite, respectively,
and such forecasts will be realized in the amounts and in the time
periods currently estimated by the managements of Westower and
SpectraSite; and
- the historical financial statements of each of Westower and
SpectraSite that it reviewed were prepared and fairly presented in
accordance with United States generally accepted accounting
principles, consistently applied;
- the merger would be consummated upon the terms of the merger agreement
provided to it without material alteration;
- upon consummation of the merger:
- a public trading market will develop for the shares of SpectraSite
common stock that SpectraSite proposes to issue in accordance with
the merger; and
- the liquidity for such newly developed public trading market will be
substantially similar to the current public trading market for
Westower common stock.
BancBoston Robertson Stephens relied on the advice of counsel as to all
legal matters relevant to rendering its opinion.
BancBoston Robertson Stephens' opinion is necessarily based upon financial,
market, economic and other conditions that existed, and the information made
available to BancBoston Robertson Stephens as of May 14, 1999. It should be
understood that subsequent developments may affect the conclusion expressed in
its opinion and that BancBoston Robertson Stephens disclaims any undertaking or
obligation to advise any person of any change in any fact or matter affecting
its opinion which may come or be brought to BancBoston Robertson Stephens'
attention after the date of its opinion.
The following is a summary of the material analyses, performed by
BancBoston Robertson Stephens in arriving at its opinion, which were reviewed
with the Westower board.
STOCK TRADING HISTORY. BancBoston Robertson Stephens reviewed the stock
price performance and trading volume of Westower. Such review indicated that the
price for Westower common stock ranged from a 52-week low of $12.00 per share to
a 52-week high of $37.00 per share. Such review also indicated that the average
daily trading volume for Westower common stock, between May 7, 1998 and May 10,
1999, was 28,450 shares. BancBoston Robertson Stephens noted that, on April 23,
1999, the Yahoo! Message Board contained a rumor with respect to a possible
business combination involving Westower. This rumor affected the stock price and
trading activity of Westower stock. As a result, BancBoston Robertson Stephens
determined that it would be prudent to consider both the unaffected or pre-rumor
22
<PAGE> 27
stock price and the affected or post-rumor stock price of Westower as bases for
analysis and valuation. Given the inherent uncertainty as to the source, time
and initial impact of the Yahoo! Message Board rumor and the uncharacteristic
trading activity around the time of the release of that rumor, BancBoston
Robertson Stephens believes that the last unaffected stock price for Westower
stock is the closing price on April 21, 1999 of $26.63 per share. BancBoston
Robertson Stephens also reviewed the 10-day, 30-day, 60-day, 90-day and 180-day
trailing stock price moving averages for Westower common stock between May 7,
1998 and May 10, 1999 on both unaffected and affected bases.
PREMIUM OVER UNAFFECTED STOCK PRICE TRADING ANALYSIS. Using publicly
available information, BancBoston Robertson Stephens applied a control premium
range of 20% to 50% to the trading values below which resulted in the following
implied equity value ranges:
<TABLE>
<CAPTION>
CONTROL IMPLIED EQUITY
PREMIUM VALUE RANGES
TRADING RANGE (DOLLARS IN MILLIONS)
VALUE ------------ ----------------------
(DOLLARS IN MILLIONS) LOW HIGH LOW HIGH
--------------------- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Unaffected trading value on 04/21/99......... $271.5 20.0% 50.0% $325.8 $407.2
Unaffected 10-day trailing average trading
value...................................... $262.3 20.0% 50.0% $314.8 $393.5
Unaffected 30-day trailing average trading
value...................................... $261.6 20.0% 50.0% $313.9 $392.4
Unaffected 60-day trailing average trading
value...................................... $272.3 20.0% 50.0% $326.8 $408.4
</TABLE>
While BancBoston Robertson Stephens believes that the control premium range
is wide and therefore causes wide ranges of implied equity values, there can be
no assurance that the merger consideration offered will result in a control
premium within the applied range or at all.
COMPARABLE COMPANIES ANALYSIS. Using publicly available information,
including research analyst estimates and Westower's management projections,
BancBoston Robertson Stephens analyzed and compared financial information and
commonly used valuation measurements relating to Westower with publicly
available information from the following selected publicly-traded companies in
the following two industries:
<TABLE>
<CAPTION>
TOWER LEASING TELECOMMUNICATIONS CONSTRUCTION & SERVICES
------------- ------------------------------------------
<S> <C>
American Tower Corporation Integrated Electrical Services, Incorporated
Crown Castle International Corporation LCC International Incorporated
Pinnacle Holdings Incorporated Quanta Services Incorporated
</TABLE>
Such financial information and valuation measurements included, among other
things:
- equity market capitalization values as of May 10, 1999;
- net debt of Westower at March 31, 1999;
- operating performance statistics; and
- multiples of equity market capitalization plus net debt, commonly known
as total capitalization, to estimated calendar years 1999, 2000 and 2001
EBITDA.
All multiples were based on closing stock prices as of May 10, 1999, with
the exception of Westower's multiples in which case BancBoston Robertson
Stephens compared and analyzed both the unaffected and affected stock prices as
of the market close on April 21, 1999 and May 10, 1999, respectively. BancBoston
Robertson Stephens used research analyst estimates to calculate the relevant
23
<PAGE> 28
comparable companies' trading multiples and used Westower's management
projections to calculate the following multiples:
<TABLE>
<CAPTION>
MULTIPLES
--------------------------------------
COMPARABLE WESTOWER WESTOWER
DESCRIPTION OF MULTIPLE COMPANIES (UNAFFECTED) (AFFECTED)
----------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Total capitalization to estimated calendar year 1999
EBITDA............................................ 6.7x-35.0x 17.3x 19.3x
Total capitalization to estimated calendar year 2000
EBITDA............................................ 4.7x-22.4x 13.3x 14.9x
Total capitalization to estimated calendar year 2001
EBITDA............................................ 3.8x-17.4x 8.6x 9.6x
</TABLE>
While the multiple ranges for the comparable companies are wide, they
reflect the financial and operating differences between the tower leasing
business on the one hand and the telecommunications construction business on the
other. Applying the above ranges of multiples of the comparable companies to the
appropriate corresponding operating statistics of Westower yielded the following
implied equity value ranges:
<TABLE>
<CAPTION>
IMPLIED EQUITY
VALUE RANGES
(DOLLARS IN MILLIONS)
----------------------
DESCRIPTION OF MULTIPLE LOW HIGH
----------------------- --------- ---------
<S> <C> <C>
Total capitalization to estimated calendar year 1999
EBITDA.................................................... $ 92.5 $595.9
Total capitalization to estimated calendar year 2000
EBITDA.................................................... $ 81.7 $489.8
Total capitalization to estimated calendar year 2001
EBITDA.................................................... $109.1 $595.3
</TABLE>
The selected companies were chosen because they are publicly traded
companies with operations that, for purposes of analysis, may be considered
similar to Westower. BancBoston Robertson Stephens believes the analysis of both
tower leasing and telecommunications construction companies was relevant given
Westower's changing business from principally a tower engineering and
construction business currently to a tower leasing company in the future.
PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available information at
the time of the announcement of the following transactions and research analyst
estimates, BancBoston Robertson Stephens reviewed several proposed, pending and
completed merger or acquisition transactions involving companies in the
communications, communications tower and tower construction and services
industries. Of these transactions, BancBoston Robertson Stephens selected the
following for the precedent transaction analysis:
- American Tower Corporation's acquisition of OmniAmerica Incorporated
announced in November 1998;
- American Tower Corporation's acquisition of TeleCom Towers announced in
November 1998;
- Specialty Teleconstructors' acquisition of OmniAmerica Incorporated
announced in February 1998;
- American Tower Systems' acquisition of American Tower Corporation
announced in December 1997;
- American Tower Systems' acquisition of Gearon & Company announced in
November 1997; and
- Castle Tower Corporation's acquisition of Crown Corporation announced in
August 1997.
BancBoston Robertson Stephens compared and analyzed, among other things,
multiples of total capitalization of the acquired company to each of:
- last twelve months' revenue;
- next twelve months' revenue;
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<PAGE> 29
- last twelve months' EBITDA; and
- next twelve months' EBITDA.
Applying the above multiple ranges yields the following implied equity
value ranges:
<TABLE>
<CAPTION>
PRECEDENT IMPLIED EQUITY
TRANSACTIONS VALUE RANGES
MULTIPLE RANGES (DOLLARS IN MILLIONS)
--------------- ----------------------
DESCRIPTION OF MULTIPLE LOW HIGH LOW HIGH
----------------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
Total capitalization to last twelve months'
revenues........................................ 1.5x 5.4x $66.1 $316.4
Total capitalization to next twelve months'
revenues........................................ 1.2x 3.6x $126.2 $426.8
Total capitalization to last twelve months'
EBITDA.......................................... 8.3x 31.9x $21.3 $157.6
Total capitalization to next twelve months'
EBITDA.......................................... 8.8x 17.9x $130.2 $291.9
</TABLE>
PREMIUMS PAID ANALYSIS. BancBoston Robertson Stephens also reviewed eleven
selected precedent merger or acquisition transactions announced since October
1996 with total consideration greater than $100 million in the broader
communications industry for the purpose of conducting a premiums paid analysis.
The transactions reviewed included:
- Global Crossing Limited's acquisition of Frontier Corporation announced
in March 1999;
- Vodafone Group PLC's acquisition of Airtouch Communications Corporation
announced in January 1999;
- ALLTEL Corporation's acquisition of Aliant Communications Incorporated
announced in December 1998;
- Kensington Acquisition Sub's acquisition of Cellular Communications
International Corporation announced in December 1998;
- Clear Channel Communications Corporation's acquisition of Jacor
Communications Incorporated announced in October 1998;
- Chancellor Media Corporation's acquisition of Capstar Broadcasting
Corporation announced in August 1998;
- Teleport Communications Group's acquisition of ACC Corporation announced
in November 1997;
- Loral Space & Communications Corporation's acquisition of Orion Network
Systems Incorporated announced in October 1997;
- Metrocall Incorporated's acquisition of ProNet Incorporated announced in
August 1997;
- Jacor Communications Incorporated's acquisition of Premiere Radio
Networks Incorporated announced in June 1997; and
- Nextel Communications Incorporated's acquisition of Pittencrieff
Communications Corporation announced in October 1996.
According to publicly available information and information recorded by
Securities Data Corporation, the per share offer price for the target company
shares compared to the closing prices of the shares one day prior to, and
separately, one month prior to the announcement of the above mentioned
transactions represented premiums which ranged from 3.3% to 71.5%, with a mean
of 25.3%, and (7.3%) to 78.4%, with a mean of 33.4%, respectively. By
comparison, BancBoston Robertson Stephens observed that SpectraSite's offer
implies premium ranges for Westower stockholders of 10.5% to 38.1% over
Westower's unaffected stock price of $26.63 per share and 14.4% to 43.0% over
Westower's 30-day trailing average price of $25.65 per share.
BancBoston Robertson Stephens also separately reviewed the premiums offered
in two precedent transactions involving target companies it deemed particularly
similar in nature to Westower. Specifically,
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<PAGE> 30
the two transactions are Specialty Teleconstructors' acquisition of OmniAmerica
Incorporated, announced in February 1998, and American Tower Systems'
acquisition of Gearon & Company, announced in November 1997. The premiums
represented by the offer price versus the closing price one day prior to
announcement of these transactions ranged from 17.5% to 27.0%. The premiums
represented by the offer price versus the closing price one month prior to the
announcement of these transactions ranged from 21.0% to 57.6%.
BUSINESS SEGMENT ANALYSIS. Using publicly available information, research
analyst reports and information from Westower management projections, BancBoston
Robertson Stephens independently analyzed the two principal businesses of
Westower:
- tower leasing; and
- tower construction and services.
In analyzing the tower leasing business segment, BancBoston Robertson
Stephens considered comparable companies multiples of total capitalization to
each of:
- estimated calendar year 1999 tower cash flow;
- estimated calendar year 2000 tower cash flow;
- estimated calendar year 2001 tower cash flow;
- estimated calendar year 1999 EBITDA;
- estimated calendar year 2000 EBITDA; and
- estimated calendar year 2001 EBITDA.
Applying the above ranges of multiples from comparable companies to the
appropriate corresponding operating statistics of Westower yielded the following
implied equity value ranges:
<TABLE>
<CAPTION>
COMPARABLE
PUBLIC
COMPANY IMPLIED EQUITY
MULTIPLE VALUE RANGES
RANGES (DOLLARS IN MILLIONS)
------------- ----------------------
DESCRIPTION OF MULTIPLE LOW HIGH LOW HIGH
----------------------- ----- ----- -------- --------
<S> <C> <C> <C> <C>
Total capitalization to estimated calendar year 1999
tower cash flow................................... 21.9x 30.8x $ 78.1 $120.7
Total capitalization to estimated calendar year 2000
tower cash flow................................... 18.0x 21.4x $243.7 $294.8
Total capitalization to estimated calendar year 2001
tower cash flow................................... 15.7x 15.8x $438.6 $441.6
Total capitalization to estimated calendar year 1999
EBITDA............................................ 28.6x 35.0x $ 83.5 $108.2
Total capitalization to estimated calendar year 2000
EBITDA............................................ 22.4x 22.5x $260.4 $261.6
Total capitalization to estimated calendar year 2001
EBITDA............................................ 16.6x 19.1x $396.7 $460.4
</TABLE>
In analyzing the tower construction and services business segment,
BancBoston Robertson Stephens considered precedent transaction multiples of
total capitalization to each of:
- last twelve months' EBITDA; and
- next twelve months' EBITDA.
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<PAGE> 31
Applying the above ranges of multiples from precedent transactions to the
appropriate corresponding operating statistics of Westower yielded the following
implied equity value ranges:
<TABLE>
<CAPTION>
PRECEDENT
TRANSACTIONS IMPLIED EQUITY
MULTIPLE VALUE RANGES
RANGES (DOLLARS IN MILLIONS)
------------- ----------------------
DESCRIPTION OF MULTIPLE LOW HIGH LOW HIGH
----------------------- ----- ----- --------- ---------
<S> <C> <C> <C> <C>
Total capitalization to last twelve months' EBITDA..... 8.3x 10.2x $21.3 $32.0
Total capitalization to next twelve months' EBITDA..... 5.0x 7.0x $43.0 $70.1
</TABLE>
Aggregating the mean values of the above mentioned ranges produces an
implied equity value range for Westower as a whole of $282.3 million to $332.3
million.
DISCOUNTED CASH FLOW ANALYSIS. BancBoston Robertson Stephens performed a
discounted cash flow analysis to estimate the present value of the cash flows
provided by Westower's management projections. BancBoston Robertson Stephens
first discounted to the present the projected free cash flows for Westower
through September 30, 2003 using discount rates ranging from 12.0% to 14.0%.
BancBoston Robertson Stephens then estimated a terminal value and discounted
this value to the present using the same discount rate range. The terminal
values were computed by multiplying Westower's projected EBITDA for the fiscal
year ending September 30, 2003, by terminal value multiples ranging from 8.0x to
12.0x. Finally, BancBoston Robertson Stephens added the present values of the
free cash flows to the present value of the terminal value, deducted net debt,
and calculated the implied equity values for Westower. The discounted cash flow
analysis indicated implied equity values ranging from $175.0 million to $379.4
million.
PRO FORMA MERGER ANALYSIS. BancBoston Robertson Stephens analyzed pro
forma effects resulting from the merger, including, among other things, the
impact of the merger on pro forma estimated EBITDA per share of the combined
company for calendar years 2000, 2001 and 2002. Without taking into account cost
savings or synergies that the combined entity may realize in its operations, the
results of this analysis suggested that the merger could be 11.2%, 7.9% and 9.9%
accretive in the calendar years 2000, 2001 and 2002, respectively, to
SpectraSite's EBITDA per share. Typically, an analysis of this nature involves a
discussion of accretion/dilution with respect to earnings. However, in this
case, BancBoston Robertson Stephens used judgment in its decision to consider
EBITDA accretion/dilution since neither Westower nor SpectraSite has positive
earnings on which to base a meaningful earnings-based accretion/dilution
analysis. The actual results achieved by the combined entity may vary materially
from projected results put forth by Westower's and SpectraSite's managements.
RELATIVE CONTRIBUTION ANALYSIS. Using publicly available information and
information provided by Westower's and SpectraSite's managements, BancBoston
Robertson Stephens compared, among other things, the relative contributions of
Westower and SpectraSite to the pro forma combined tower cash flow, EBITDA and
total number of towers for the estimated calendar years 1999, 2000, 2001 and,
except for the number of towers, 2002. BancBoston Robertson Stephens calculated
the following:
<TABLE>
<CAPTION>
RELATIVE
CONTRIBUTION
PERCENTAGE
RANGES
---------------
LOW HIGH
---- ----
<S> <C> <C>
Tower cash flow............................................. 11.1% 25.6%
EBITDA...................................................... 25.9% 36.3%
Total number of towers at calendar year end................. 11.7% 19.0%
</TABLE>
No company or transaction used in the above analyses as a comparison is
directly comparable to Westower or SpectraSite or the contemplated merger.
Accordingly, any such analysis of the fairness of the exchange ratio from a
financial point of view to the stockholders of Westower involves complex
considerations and judgments concerning differences in the potential strategic,
financial and operating
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<PAGE> 32
characteristics between Westower, the comparable companies, the precedent
transactions, and other factors that could affect public trading and acquisition
values.
While this summary describes the material analyses and factors that
BancBoston Robertson Stephens considered in rendering its opinion to the
Westower board, it is not a complete description of all analyses and factors
considered by BancBoston Robertson Stephens. The preparation of a fairness
opinion is not readily susceptible to partial analysis or summary description.
BancBoston Robertson Stephens believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses and factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the evaluation process
underlying its opinion. BancBoston Robertson Stephens did not attribute any
particular weight or significance to any analysis or factor considered by it.
In performing its analyses, BancBoston Robertson Stephens made numerous
assumptions with respect to industry performance, general business and other
conditions and matters, many of which are beyond the control of Westower and
BancBoston Robertson Stephens. Any estimates contained in these analyses are
inherently subject to uncertainty and are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by these analyses. Accordingly,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which these businesses actually may be sold in the
future. BancBoston Robertson Stephens' opinion to the Westower board was one of
many factors considered by the Westower board in making its determination to
approve the merger agreement.
Westower selected BancBoston Robertson Stephens as financial advisor in
connection with this merger based on BancBoston Robertson Stephens' general
experience in mergers and acquisitions, its specific experience and reputation
in high-growth industries, as well as its prior commercial and investment
banking relationships with Westower. One of BancBoston Robertson Stephens'
affiliates acts as sole agent with respect to a senior credit facility arranged
for Westower.
Westower engaged BancBoston Robertson Stephens under a letter agreement
dated April 28, 1999. The agreement provides that, for its services, BancBoston
Robertson Stephens is entitled to be paid a transaction fee equal to $3.0
million contingent upon consummation of the merger. BancBoston Robertson
Stephens is also entitled to be paid $750,000, due upon delivery of its opinion,
which will be credited toward the transaction fee. Westower has also agreed to
reimburse BancBoston Robertson Stephens for its out-of-pocket expenses,
including reasonable attorney's fees, and to indemnify and hold harmless
BancBoston Robertson Stephens and its affiliates and any other person, director,
employee or agent of BancBoston Robertson Stephens or any of its affiliates, or
any person controlling BancBoston Robertson Stephens or any of its affiliates,
for losses, claims, damages, expenses and liabilities relating to or arising out
of services provided by BancBoston Robertson Stephens in its capacity as
financial advisor to Westower.
BancBoston Robertson Stephens is a nationally recognized investment banking
firm. As part of its investment banking business, BancBoston Robertson Stephens
is frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements, and other related activities.
In the ordinary course of business, BancBoston Robertson Stephens may actively
trade securities of Westower and SpectraSite for its own account and for the
accounts of its customers, and thus may at any time hold a long or short
position in these securities.
ACCOUNTING TREATMENT
SpectraSite will account for the merger as a purchase, as this term is used
under generally accepted accounting principles. Accordingly, from and after the
completion of the merger, Westower's consolidated results of operations will be
included in SpectraSite's consolidated results of operations. For purposes of
preparing consolidated financial statements, SpectraSite will establish a new
accounting basis for Westower's assets acquired and liabilities assumed based
upon their fair market values and Westower's
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<PAGE> 33
purchase price, including the amount of liabilities and obligations of Westower
at the time of the merger. Accordingly, the purchase accounting adjustments made
in connection with the development of the unaudited pro forma financial
information appearing elsewhere in this document are preliminary and have been
made solely for purposes of developing such pro forma financial information to
comply with disclosure requirements of the SEC. Although the final allocation
may differ, the pro forma consolidated financial information reflects
management's best estimate based upon currently available information. See
"Unaudited Pro Forma Financial Data."
NASDAQ NATIONAL MARKET LISTING; DE-LISTING AND DE-REGISTRATION OF WESTOWER
COMMON STOCK FROM THE AMERICAN STOCK EXCHANGE
SpectraSite has filed for listing of its common stock on the Nasdaq. It is
a condition to consummation of the merger that the shares of SpectraSite
issuable in the merger be approved for listing, subject to official notice of
issuance.
Following the merger, Westower common stock will be de-listed from the
Amex, where it is currently listed, and will be de-registered under the Exchange
Act.
U.S. FEDERAL AND CANADIAN SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER
RESTRICTION AGREEMENTS
Unless you are an affiliate of SpectraSite or Westower, the shares of
SpectraSite common stock you receive in the merger will be freely transferable
under the federal securities laws of the United States. Generally an affiliate
is someone who is controlled by or controls SpectraSite or Westower. Affiliates
generally include certain officers, directors and principal stockholders of
SpectraSite or Westower. The Securities Act and Rules 144 and 145 restrict the
ability of affiliates to resell their shares of SpectraSite common stock. The
merger agreement requires Westower to use reasonable efforts to obtain written
agreements with its affiliates to the effect that they will not sell or
otherwise dispose of their shares in violation of the Securities Act or the
rules.
This proxy statement/prospectus does not cover any resales of the
SpectraSite common stock to be received by the Westower stockholders upon
consummation of the merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any such resale.
Westower stockholders resident in Canada in the provinces of Quebec or
British Columbia who receive shares of SpectraSite common stock in the merger
will not be able to resell those shares under the securities laws of those
provinces unless the regulatory authorities in those provinces grant an order
permitting them to do so. SpectraSite has applied for these orders and expects
to receive them prior to the consummation of the merger, but cannot provide any
assurance when or if they will be granted.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
It is a condition to Westower's obligation to consummate the merger that
Westower receive an opinion from its tax counsel that the merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the tax code. It is a condition to SpectraSite's obligation to
consummate the merger that SpectraSite receive an opinion to the same effect
from its tax counsel.
Based upon the advice of their respective tax counsel, Westower and
SpectraSite expect that the merger will qualify as a reorganization under the
tax code. Assuming that the merger qualifies, no gain or loss will be recognized
by Westower, SpectraSite or W Acquisition Corp., a Washington corporation and
wholly-owned direct subsidiary of SpectraSite, as a result of the merger, and no
gain or loss will be recognized by a Westower stockholder as a result of the
merger for shares of SpectraSite common stock received. The effects of any cash
received by a Westower stockholder who exercises dissenters' rights or who
receives cash in lieu of a fractional share of SpectraSite common stock are
discussed below. The aggregate tax basis of the SpectraSite common stock
received by Westower stockholders in the merger will be the same, in each
instance, as the aggregate tax basis of the Westower common stock surrendered in
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<PAGE> 34
exchange after the merger, excluding any basis allocable to fractional shares of
SpectraSite common stock for which a Westower stockholder receives cash. In
addition, the holding period of the SpectraSite common stock received by a
Westower stockholder in the merger will include the period during which the
stockholder held the shares of Westower common stock surrendered in the
exchange, provided the stockholder held those shares of Westower common stock as
capital assets at the time of the merger.
CASH IN LIEU OF FRACTIONAL SHARES. A Westower stockholder who receives
cash in the merger in lieu of a fractional share of SpectraSite common stock
generally should be treated as first having received the fractional share and
then having sold such fractional share for the cash received. If a Westower
stockholder holds the Westower common stock as a capital asset at the time of
the merger, this sale will result in the recognition of capital gain or loss for
federal income tax purposes, measured by the difference between the amount of
cash received and the tax basis of the Westower common stock allocable to the
fractional share.
DISSENTERS' RIGHTS. A Westower stockholder who exercises dissenters'
rights and receives payment for the value of his or her Westower common stock in
cash will be treated as having received such payment in redemption of such
stock. This redemption will be subject to the rules set forth in Section 302 and
the attribution rules of Section 318 of the tax code. In general, if the
dissenting stockholder holds his or her Westower common stock as a capital asset
at the time of the merger, the stockholder will recognize capital gain or loss
measured by the difference between the amount of cash the stockholder receives
and the stockholder's tax basis in his or her Westower common stock.
Westower stockholders that are corporations and that recognize capital gain
either as a result of receiving cash in lieu of a fractional share of
SpectraSite common stock or as a result of exercising dissenters' rights
generally will be taxed on net capital gains at a maximum federal income tax
rate of 35%. Westower stockholders that are individuals generally will be taxed
on net capital gains at a maximum federal income tax rate of 39.6% for Westower
common stock held for 12 months or less, and 20% for Westower common stock held
more than 12 months. Special rules, and generally lower maximum rates, apply for
individuals in lower tax brackets. Any capital losses recognized by a Westower
stockholder that is a corporation generally may be used only to offset capital
gains. Any capital losses recognized by a Westower stockholder that is an
individual generally may be used only to offset capital gains plus $3,000 of
other income per year.
BACKUP WITHHOLDING. Noncorporate holders of Westower common stock may be
subject to backup withholding at a rate of 31% on cash payments received either
in lieu of a fractional share of SpectraSite common stock or as a result of
exercising dissenters' rights generally. Backup withholding will not apply,
however, to a stockholder who:
- furnishes a correct taxpayer identification number and certifies, under
penalties of perjury, that he or she is not subject to backup withholding
on a Form W-9;
- provides a certificate of foreign status on Form W-8; or
- is otherwise exempt from backup withholding.
A stockholder who fails to provide the correct taxpayer identification number on
Form W-9 may be subject to penalties imposed by the Internal Revenue Service. We
will provide a Form W-9 to you after the merger.
REPORTING REQUIREMENTS. You will be required to attach a statement to your
tax returns for the taxable year in which the merger is completed that contains
the information set forth in Section 1.368-3(b) of the Department of Treasury
regulations. The statement must include your tax basis in the Westower common
stock surrendered and a description of the SpectraSite common stock received in
the merger.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL TAX CONSEQUENCES IS INTENDED
ONLY AS A SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND
IS NOT A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR WESTOWER STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS
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<PAGE> 35
AND STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF WESTOWER COMMON STOCK DUE TO THEIR
EXERCISE OF WESTOWER OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER,
THE TAX CONSEQUENCES TO HOLDERS OF WESTOWER OPTIONS ARE NOT DISCUSSED. THIS
DISCUSSION IS BASED UPON THE TAX CODE, TREASURY REGULATIONS, ADMINISTRATIVE
RULINGS AND COURT DECISIONS AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS,
ALL OF WHICH ARE SUBJECT TO CHANGE AT ANY TIME; ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. THE PARTIES WILL NOT REQUEST A RULING
FROM THE INTERNAL REVENUE SERVICE REGARDING ANY INCOME TAX CONSEQUENCES OF THE
MERGER. WE URGE WESTOWER STOCKHOLDERS TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER
TO THEM.
DISSENTERS' RIGHTS
SpectraSite stockholders do not have dissenters' rights under Delaware law.
The following is a brief summary of the rights of Westower stockholders who
dissent from the merger. Chapter 23B.13 of the Washington Business Corporation
Act governs these rights. We have attached Chapter 23B.13 as Appendix III. Under
the dissenters' rights statute, stockholders will be entitled to dissenters'
rights as a result of the merger.
A Westower stockholder will have the right to dissent with respect to the
merger and, subject to conditions, will be entitled to receive a cash payment
equal to the fair value of his or her Westower shares. Each stockholder
asserting dissenters' rights must assert his or her rights as to all Westower
shares of which such stockholder is the beneficial owner or over which he or she
has power to direct the vote. A record stockholder may assert dissenters' rights
as to fewer than all the shares registered in such stockholder's name only if
the stockholder dissents as to all shares beneficially owned by any one person
and notifies Westower in writing of the name and address of each person on whose
behalf such stockholder asserts dissenters' rights.
A dissenting stockholder must:
- deliver to Westower, before the vote on the merger is taken, written
notice of his or her intent to demand payment for his or her shares if
the merger is consummated; and
- not vote his or her shares in favor of the merger.
A VOTE AGAINST THE MERGER WILL NOT IN ITSELF SATISFY THE NOTICE REQUIREMENT, AND
FAILURE TO VOTE AGAINST THE MERGER WILL NOT IN ITSELF CONSTITUTE A WAIVER OF
DISSENTERS' RIGHTS WITH RESPECT TO SUCH SHARES. The notice should be delivered
to Westower at its principal executive offices at 2001 6th Avenue, Suite 3302,
Seattle, Washington 98121. A stockholder who does not satisfy both of these
requirements will not be entitled to dissenters' rights.
If the merger is approved by the Westower stockholders, Westower will send
written notice not later than 10 days after the consummation of the merger to
each of its dissenting stockholders meeting the above requirements:
- stating where such stockholder must send his or her written payment
demand;
- stating where and when certificates representing Westower shares must be
deposited;
- containing a form for demanding payment which requires that the
dissenting stockholder certify whether or not he or she acquired
beneficial ownership before the first public announcement of the merger
on May 17, 1999; and
- setting a date by which such written payment demand must be received.
A dissenting stockholder who demands payment must certify that such
stockholder acquired the shares on or before May 17, 1999 and deposit his or her
shares within the time provided by such notice or he or she will not be entitled
to dissenters' rights.
Westower will pay to each dissenting stockholder who complies with the
procedures described above within 30 days after the later of the consummation of
the merger and the date the payment demand is
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<PAGE> 36
received, the amount that Westower estimates to be the fair value of his or her
shares, plus accrued interest. Westower will provide information along with such
payment, including:
- certain financial information, including Westower's balance sheet, income
statement and statement of changes in stockholders' equity for its last
fiscal year and its latest available interim financial statements;
- an explanation of how Westower estimated the fair value of the shares;
and
- an explanation of how the accrued interest was calculated.
Note, however, that Westower may elect to withhold the payment from any
dissenting stockholder who was not the beneficial owner of the Westower shares
as to which dissenters' rights are asserted before May 17, 1999, the date of the
first public announcement of the merger. Instead, Westower may send a statement
to that dissenting stockholder setting forth its estimate of the fair value of
the stockholder's shares not owned on May 17, 1999 and offering to pay that
estimated amount, with interest, as a final settlement of such dissenting
stockholder's demand for payment. Any dissenting stockholder who is dissatisfied
with such payment or such offer may, within 30 days of such payment or offer for
payment, notify Westower in writing of such stockholder's estimate of the fair
value of his or her shares and the amount of interest due and demand payment
thereof.
If any dissenting stockholder's demand for payment is not settled within 60
days after Westower receives such stockholder's payment demand, the dissenters'
rights statute requires that Westower initiate a proceeding in King County
Superior Court and petition the court to determine the fair value of the shares
and accrued interest, naming as parties to the proceeding all the dissenting
stockholders whose demands remain unsettled. If Westower does not commence the
proceeding within 60 days after the demand is received, it shall pay each
unsettled dissenter the amount demanded. The court may appoint one or more
persons as appraisers to receive evidence and recommend the fair value of the
shares. The dissenting stockholders will be entitled to the same discovery
rights as parties in other civil actions. Each dissenting stockholder made a
party to the proceeding will be entitled to judgment for the amount, if any, by
which the court finds the fair value of his or her shares, plus interest,
exceeds the amount paid by Westower.
Westower stockholders should recognize that such a determination of fair
value could result in a price higher than, lower than or equal to the price
available to Westower's stockholders under the merger. Under the dissenters'
rights statute, a court may consider a variety of factors in determining fair
value. The dissenters' rights statute requires that the court consider all
relevant facts and circumstances in determining the fair value and that it not
give undue emphasis to any one factor.
Westower would be required to pay all court costs and appraisal fees,
except that the court may assess such costs against some or all of the
dissenting stockholders to the extent that the court finds that the dissenting
stockholders acted arbitrarily, vexatiously or not in good faith in demanding
payment. The court may also assess the fees and expenses of counsel and experts
of the respective parties in amounts that the court finds equitable:
- against Westower, if the court finds that it did not substantially comply
with certain provisions of the dissenters' rights statute; and
- against the dissenting stockholder or against Westower, if the court
finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith.
If the court finds that services of counsel for any dissenting stockholder were
of substantial benefit to other dissenting stockholders similarly situated, and
that the fees should not be assessed against Westower, the court may award to
such counsel reasonable fees to be paid out of the amounts awarded to dissenting
stockholders who benefited from the proceedings.
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DIRECTORS AND MANAGEMENT OF SPECTRASITE FOLLOWING THE MERGER
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of SpectraSite following the merger
will be 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
Calvin J. Payne.................. 46 Executive Vice President -- Construction
Operations and a Director
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 SpectraSite. 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 of
SpectraSite. 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.
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CALVIN J. PAYNE will become Executive Vice President -- Construction
Operations and a director of SpectraSite Holdings upon consummation of the
merger. Mr. Payne is currently Chairman of the Board and Chief Executive Officer
of Westower and has been a director of Westower or its predecessor since 1990.
He is a co-founder and has been the Chief Executive Officer of Westower since
1990. Prior to founding Westower, Mr. Payne acquired experience in all aspects
of the construction of steel communications towers. Mr. Payne, an award-winning
tower designer, has engineered over 600 towers. Mr. Payne is a graduate of the
University of British Columbia and the University of Western Australia.
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.
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 Andersen.
Mr. Hunt is a certified public accountant and a graduate of Wake Forest
University.
LAWRENCE B. SORREL has been Chairman of the Board of SpectraSite Holdings
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 SpectraSite 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 SpectraSite 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, Fairfield Manufacturing
Company and Millenium Digital Media Holdings L.L.C.
JAMES R. MATTHEWS has been a director of SpectraSite 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 SpectraSite 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
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Group, The Cerplex Group, Attachmate Corp., MedE America Corporation and Global
Knowledge Network.
MICHAEL J. PRICE has been a director of SpectraSite 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 SpectraSite 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.
STEVEN M. SHINDLER has been a director of SpectraSite 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 SpectraSite 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 SpectraSite's 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 "Description of SpectraSite's
Capital Stock -- Stockholders' Agreement."
COMMITTEES OF THE BOARD OF DIRECTORS
In connection with the merger, SpectraSite will form the following
committees:
- Audit Committee; and
- Compensation Committee.
AUDIT COMMITTEE. The board of directors intends that the audit committee
will perform the following functions:
- approve the selection of independent auditors for SpectraSite;
- review the scope and results of the annual audit;
- approve the services to be performed by the independent auditors;
- review the independence of the auditors;
- review the adequacy of the system of internal accounting controls;
- review the scope and results of internal auditing procedures; and
- review related party transactions.
COMPENSATION COMMITTEE. The board of directors intends that the
compensation committee will perform the following functions:
- adopt and oversee the administration of compensation plans for executive
officers and senior management of SpectraSite;
- determine awards granted to executive officers under such plans;
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<PAGE> 40
- approve the Chief Executive Officer's compensation; and
- review the reasonableness of such compensation.
SPECTRASITE 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 following the Westower merger whose salary and bonus
exceeded $100,000 for the year ended December 31, 1998. Amounts shown for 1997
include compensation paid by SpectraSite to the named executive officers from
April 25, 1997, the date of SpectraSite's inception, through December 31, 1997.
The amounts reported as All Other Compensation for all years represent
SpectraSite contributions under its 401(k) plan.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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
</TABLE>
- ---------------
(a) Mr. Armant joined SpectraSite in August 1998.
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 SpectraSite's assets are sold, leased or transferred.
However, a transaction in which the holders of SpectraSite's 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
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 a 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 $178,500
David P. Tomick.................. 50,000 6 4.00 3/23/05 31,500
Terry L. Armant.................. 62,500 7 4.00 8/10/02 37,500
62,500 7 4.00 8/10/05 37,500
</TABLE>
36
<PAGE> 41
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT DECEMBER 31, 1998($)
AT DECEMBER 31, 1998 UNEXERCISABLE
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen H. Clark............................... 106,250 618,750 $117,938 $353,813
David P. Tomick................................ 56,250 218,750 62,438 187,313
Terry L. Armant................................ 0 125,000 0 0
</TABLE>
WESTOWER CHIEF EXECUTIVE OFFICER COMPENSATION
The following table sets forth a summary of the compensation paid by
Westower for the transition period from March 1, 1998 to September 30, 1998 and
for its last three fiscal years ended February 28 of the years indicated to
Calvin J. Payne, who is Chief Executive Officer of Westower and will serve as a
director and an executive officer of SpectraSite following the merger.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------- -------------------
NUMBER OF SHARES
NAME AND POSITION PERIOD SALARY($) BONUS($) UNDERLYING OPTIONS
----------------- ----------------- --------- -------- -------------------
<S> <C> <C> <C> <C>
Calvin J. Payne Transition Period 43,750 -- --
Chief Executive
Officer 1998 Fiscal Year 75,000 -- 98,000
1997 Fiscal Year 75,000 437,780 --
1996 Fiscal Year 70,000 92,530 --
</TABLE>
OPTION GRANTS
The following table sets forth information regarding option grants in the
1998 fiscal year to Mr. Payne. Mr. Payne did not receive any option grants
during the transition period.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER PERCENT APPRECIATION FOR
OF SHARES OF TOTAL EXERCISE OPTION TERM
UNDERLYING OPTIONS GRANTED PRICE ---------------------
NAME AND POSITION OPTION GRANT TO EMPLOYEES $/SHARE EXPIRATION DATE 5%($) 10%($)
----------------- ------------ --------------- -------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Calvin J. Payne 54,000 9.12 8.25 June 11, 2002 123,082 277,982
44,000 7.43 8.25 October 15, 2002 100,289 221,615
</TABLE>
The following table sets forth information regarding exercised options and
the value of unexercised options held by Mr. Payne based upon the difference
between the exercise price of the option and the closing price of Westower
common stock on the American Stock Exchange at period end.
OPTION EXERCISES AND PERIOD-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT PERIOD END AT PERIOD END
NAME AND POSITION PERIOD EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE($)
----------------- ----------------- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Calvin J. Payne Transition Period -- -- 32,667/65,333 432,838/865,662
1998 Fiscal Year -- -- 32,667/65,333 408,338/816,667
</TABLE>
37
<PAGE> 42
EMPLOYMENT AGREEMENTS
SpectraSite will enter into employment agreements with each of Calvin J.
Payne and S. Roy Jeffrey, effective upon consummation of the merger. Mr. Jeffrey
is currently Chief Operating Officer of Westower and will become Vice
President -- Canadian Operations of SpectraSite following the merger. The
initial term of the employment agreements is three years. The annual salaries
for Messrs. Payne and Jeffrey are $165,000. In the event their employment is
terminated as a result of their death, disability, or termination without cause,
Messrs. Payne and Jeffrey will be entitled to receive continued salary and
health benefits for a period of 12 months. Messrs. Payne and Jeffrey have agreed
that for a period of 12 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
- 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.
SpectraSite has entered into employment agreements with each of Stephen H.
Clark, David P. Tomick and Richard J. 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 were
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 is $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,
among other things:
- 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
- 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 vest 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.
38
<PAGE> 43
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 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
39
<PAGE> 44
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.
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
40
<PAGE> 45
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.
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
41
<PAGE> 46
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.
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.
42
<PAGE> 47
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.
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.
43
<PAGE> 48
INTERESTS OF WESTOWER DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the Westower board with respect to the
merger, Westower stockholders should be aware that directors and executive
officers of Westower have interests in the merger that are different from, or in
addition to, the interests of Westower stockholders generally.
EMPLOYMENT AGREEMENTS WITH SPECTRASITE
Calvin J. Payne and S. Roy Jeffrey will enter into employment agreements
with SpectraSite. These employment agreements are described on page 38.
INTEREST OF MICHAEL ANDERSON
Michael Anderson is a director of Westower. Mr. Anderson is party to an
employment agreement with Westower. Mr. Anderson may terminate his employment
agreement upon the merger and receive:
- all accrued benefits and unreimbursed expenses; and
- his salary and benefits until May 31, 2000. Mr. Anderson's current salary
is $150,000 per year.
INTERESTS OF BRUCE E. TOLL AND LEONARD M. TANNENBAUM
Bruce E. Toll and Leonard M. Tannenbaum are directors of Westower. In June
1998, Westower issued $15.0 million principal amount of its 7% senior
subordinated convertible note to BET Associates. The general partner of BET
Associates is an entity controlled by Mr. Toll. Mr. Tannenbaum is Mr. Toll's
son-in-law and is a limited partner of BET Associates. Westower has agreed to
purchase, and BET Associates has agreed to sell, the note at the closing of the
merger for approximately $19.5 million in cash, plus accrued but unpaid interest
on the note to the time of closing. BET Associates also agreed to exercise, at
the time of the merger, on a cashless basis, warrants to purchase 40,000 shares
of Westower common stock. BET Associates will receive 11,702 shares of Westower
common stock, which will be exchanged for SpectraSite common stock in the
merger.
VESTING OF OPTIONS
Under the terms of the 1997 Westower stock option plan and under the terms
of option grant letters, options which have been granted to various parties will
automatically vest upon the merger. The following table identifies executive
officers and directors of Westower whose options will vest as a result of the
merger. If the merger does not occur, the unvested options will vest in January
2000. The values set forth in the table are based on the closing price of
Westower common stock on June 1, 1999 less the exercise price per share of the
options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF VALUE OF
NUMBER OF OPTIONS WHICH OPTIONS WHICH ALL OPTIONS
VESTED OPTIONS BECOME VESTED BECOME VESTED EXERCISABLE
AS OF AS A RESULT AS A RESULT AFTER THE MERGER'S
NAME JUNE 1, 1999 OF THE MERGER OF THE MERGER CONSUMMATION
---- -------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Calvin J. Payne....................... 65,333 32,667 $506,339 $1,519,000
S. Roy Jeffrey........................ 65,333 32,667 506,339 1,519,000
Peter Lucas........................... 30,000 15,000 243,750 731,250
</TABLE>
INDEMNIFICATION AND INSURANCE
SpectraSite will retain all indemnification now existing in favor of any of
Westower's employees, agents, directors or officers in full force and effect for
at least six years following the consummation of the merger. SpectraSite has
agreed to cause the corporation surviving the merger to maintain, for three
years after the merger is consummated, Westower's existing directors' and
officers' liability insurance, or comparable policies, as long as maintaining
such policies does not exceed specified costs.
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THE MERGER AGREEMENT
THE MERGER
The following is a summary of material terms of the merger agreement and is
not an exhaustive description. You should read the merger agreement carefully. A
copy of the agreement is attached as Appendix I to this proxy
statement/prospectus.
The respective boards of directors of each of SpectraSite and Westower have
determined that it is in the best interests of their respective stockholders to
combine the businesses of SpectraSite and Westower. The respective boards also
have determined that the merger of SpectraSite's wholly-owned subsidiary with
and into Westower is an effective method to accomplish this goal.
As a result of the merger, SpectraSite's merger subsidiary, W Acquisition
Corp., will cease its existence by merging into Westower. All shares of W
Acquisition Corp.'s stock will be converted into one share of common stock, par
value $.01, of Westower. Westower will be the surviving corporation. Westower
will retain its separate corporate existence and identity, except that it will
be a wholly-owned subsidiary of SpectraSite. Westower will remain a Washington
corporation. Immediately following the merger, SpectraSite will contribute the
stock of its new Westower subsidiary to SpectraSite Communications, Inc.,
another wholly-owned subsidiary of SpectraSite Holdings. The Westower subsidiary
will then be a wholly-owned subsidiary of SpectraSite Communications and an
indirect, wholly-owned subsidiary of SpectraSite Holdings.
CONVERSION OF SHARES
As a result of the merger, except for shares belonging to those of
Westower's stockholders who have exercised their right to dissent to the merger,
Westower, SpectraSite, W Acquisition Corp. or any of their respective
subsidiaries, each share of Westower's common stock issued and outstanding
immediately prior to the merger will be converted into the right to receive 1.81
shares of common stock, par value $0.001 per share, of SpectraSite. You may
exchange your shares of Westower common stock for shares of SpectraSite common
stock after the merger becomes effective. The exchange ratio of Westower's
shares for SpectraSite shares is subject to customary adjustment in the event of
a distribution, reclassification, stock split, including a reverse stock split,
stock dividend or distribution or other similar transaction. You will not be
entitled to preemptive rights in the event SpectraSite issues shares of its
capital stock for cash or in exchange for assets or other consideration. In
addition, we will make a cash payment to you for any fractional shares of
SpectraSite stock you would otherwise be entitled to receive.
When the merger becomes effective, we will cancel and retire all shares of
Westower's common stock issued and outstanding immediately prior to the merger
and they will cease to exist as anything other than a right to receive
SpectraSite common stock, plus any applicable cash payment in respect of
fractional shares, as described above.
Upon completion of the merger, options to purchase Westower common stock
will be converted automatically into options to purchase SpectraSite common
stock, adjusted for the merger exchange ratio.
EXCHANGE OF STOCK CERTIFICATES
When the merger becomes effective, we will mail you instructions explaining
how to exchange your canceled shares of Westower common stock for your new
shares of SpectraSite common stock. We have appointed BankBoston, N.A. as the
exchange agent who will handle all transactions concerning your submission of
canceled shares and receipt of SpectraSite common stock plus any applicable cash
payment.
* PLEASE DO NOT SEND YOUR STOCK CERTIFICATES FOR CANCELED
WESTOWER SHARES TO EITHER SPECTRASITE OR WESTOWER. THE
EXCHANGE AGENT WILL MAIL YOU A SEPARATE TRANSMITTAL FORM WITH
INSTRUCTIONS FOR THE SURRENDER OF YOUR CERTIFICATES AS SOON AS
PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER. YOU WILL NOT
RECEIVE ANY CONSIDERATION FOR CERTIFICATES SENT TO WESTOWER OR
TO SPECTRASITE.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of Westower
customary for a transaction of this nature relating to, among other things:
- the corporate organization and qualification of Westower and its
subsidiaries;
- Westower's standing and power;
- Westower's capitalization;
- Westower's corporate authorization of the merger agreement and approval
by Westower's board of directors;
- any conflicts between the merger agreement and any of Westower's other
material contracts, any law, or any of Westower's charter or bylaw
provisions;
- required filings and consents;
- possession by Westower and each of its subsidiaries of governmental
permits necessary for Westower or any of its subsidiaries, respectively,
to conduct its current business and their compliance with applicable laws
and permits;
- the accuracy of Westower's financial statements and filings with the SEC
and Westower's submission of all required filings;
- Westower's conduct of its business in the ordinary course since September
30, 1998, and the absence of any material adverse effects on Westower or
any of its subsidiaries, or of any event reasonably likely to cause such
a material adverse effect;
- certain employee benefits and labor matters;
- certain tax matters;
- certain contracts and debt instruments of Westower and its subsidiaries;
- pending or threatened litigation;
- environmental matters;
- intellectual property used by Westower, and its year 2000 compliance;
- Westower's financial advisor's opinion to Westower's stockholders;
- certain property matters;
- brokers and finders which Westower has employed in connection with the
merger;
- applicable anti-takeover statutes;
- the accuracy of information which Westower supplied for inclusion in this
proxy statement/ prospectus and in the registration statement to which
this proxy statement/prospectus is a part; and
- the stockholder vote required for Westower's approval and adoption of the
merger agreement and the merger.
The merger agreement also includes representations and warranties by
SpectraSite and W Acquisition Corp. as to:
- the corporate organization and qualification of SpectraSite and its
subsidiaries, including W Acquisition Corp.;
- SpectraSite's standing and power;
- SpectraSite's and W Acquisition Corp.'s capitalization;
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<PAGE> 51
- the corporate authorization of the merger agreement;
- any conflicts between the merger agreement and any of SpectraSite's other
material contracts, any law, or any of SpectraSite's or W Acquisition
Corp.'s charter or bylaw provisions;
- required filings and consents;
- possession by SpectraSite and each of its subsidiaries of governmental
permits necessary for SpectraSite or any of its subsidiaries,
respectively, to conduct its current business and their compliance with
applicable laws;
- the accuracy of SpectraSite's prospectus contained in Amendment No. 3 to
its Registration Statement on Form S-4 concerning its 12% senior discount
notes due 2008;
- the accuracy of SpectraSite's financial statements;
- completion of the Nextel tower acquisition on April 20, 1999 and, since
that date, the absence of any material adverse effect on SpectraSite or
any of its subsidiaries, or of any event reasonably likely to cause such
a material adverse effect;
- certain employee benefit and labor matters;
- certain tax matters;
- certain contracts and debt instruments of SpectraSite and its
subsidiaries;
- pending or threatened litigation;
- environmental matters;
- brokers and finders which SpectraSite has employed in connection with the
merger;
- the accuracy of information which SpectraSite and W Acquisition Corp.
supplied for inclusion in this proxy statement/prospectus and in the
registration statement to which this proxy statement/ prospectus is a
part;
- the purpose and operations of W Acquisition Corp.; and
- certain property matters.
MATERIAL COVENANTS
The merger agreement contains various material covenants made by Westower,
W Acquisition Corp. and SpectraSite. Certain of those covenants are set forth
below.
CONDUCT OF WESTOWER'S BUSINESS. Westower made certain covenants concerning
the conduct of its business and that of its subsidiaries from the date of
execution of the merger agreement until the closing of the merger agreement,
including but not limited to requiring SpectraSite's written consent before:
- adopting any amendment to any of Westower's or any of its subsidiaries'
organizational documents;
- issuing Westower's or its subsidiaries' capital stock or other
securities;
- declaring dividends to any party other than Westower or a wholly-owned
subsidiary of Westower;
- engaging in specified transactions in Westower's capital stock or other
securities;
- making salary, wage and benefits increases outside the ordinary course of
business or under certain other specified circumstances;
- engaging in transactions outside the ordinary course of business, with
certain specified exceptions;
- incurring indebtedness or making investments outside the ordinary course
of business with certain specified exceptions;
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- terminating, cancelling or requesting material changes to Westower's or
any of its subsidiaries' material contracts;
- taking actions with respect to accounting policies or procedures outside
the ordinary course of business;
- waiving, releasing, assigning, settling or compromising any material
rights, claims or litigation; and
- making certain tax elections, settlements or compromises.
CERTAIN INTERIM OPERATIONS OF SPECTRASITE. SpectraSite covenants that it
will not, and will not cause its subsidiaries, without Westower's prior written
consent, to:
- directly or indirectly split, combine or reclassify SpectraSite's
outstanding common stock unless an appropriate adjustment to the exchange
ratio is made concurrently; or
- declare, set aside or pay any dividend or other distribution with respect
to its capital stock to any person other than SpectraSite or any of its
subsidiaries.
OTHER ACTIONS. Westower and SpectraSite covenant that they will not, and
will not permit their subsidiaries to, take any action that would result, or
that would reasonably be expected to result in non-satisfaction of any of the
merger conditions. See "The Merger Agreement -- Conditions to Obligations to
Effect the Merger." Further, both SpectraSite and Westower covenant to notify
each other promptly of:
- conditions likely to cause any representation or warranty to be untrue or
inaccurate, the non-satisfaction of any covenant, condition or agreement,
or a material adverse effect to the notifying party;
- material failure to comply with or satisfy any covenant, condition or
agreement;
- any notice or material communications from any governmental entity
concerning the transactions contemplated under the merger agreement; and
- commencement of any suit, action or proceeding seeking to prevent,
seeking damages in respect of, or otherwise relating to the consummation
of the transactions contemplated under the merger agreement.
PROXY STATEMENT. Westower and SpectraSite jointly prepared and filed this
proxy statement/ prospectus, and contemporaneously provided copies of this
document to the Amex and the Nasdaq. Both parties agreed to use their reasonable
best efforts to cause the registration statement of which this proxy
statement/prospectus is a part to become effective as quickly as practicable.
Prior to the effectiveness of the registration statement, SpectraSite covenanted
to take any and all actions required by law in connection with its issuance of
its common stock under the terms of the merger. SpectraSite and Westower agreed
to cause the proxy statement/prospectus to comply in all material respects with
applicable requirements of the federal securities laws, the rules and
regulations of the Amex and the Nasdaq and the Washington Business Corporation
Act. In addition, SpectraSite and Westower covenant they will not amend or
supplement the proxy statement/prospectus without the approval of both
SpectraSite and Westower, and each will provide the other with any notice of the
occurrence of material actions or events concerning the proxy
statement/prospectus. SpectraSite and Westower each warrant to the veracity of
the information it supplied for the proxy statement/prospectus at all relevant
times, as well as the compliance of all documents it files under applicable
requirements of the federal securities laws and the Washington Business
Corporation Act. After the registration statement is declared effective,
SpectraSite and Westower will take action necessary to mail the proxy
statement/prospectus to Westower's stockholders.
STOCKHOLDERS' MEETING. Westower covenants to call and hold the special
meeting of its stockholders as promptly as possible after the mailing of the
proxy statement/prospectus. Westower covenants to use its reasonable best
efforts to solicit from its stockholders proxies in favor of the adoption of the
merger agreement and to take all other action necessary and advisable to secure
the requisite stockholder vote,
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provided that it does not covenant to engage in any action which Westower's
board of directors determines in good faith, after receipt of advice from
independent legal counsel, would cause it to breach its fiduciary duties to the
stockholders.
ACCESS TO INFORMATION; CONFIDENTIALITY. Westower and SpectraSite each
covenants to provide the other reasonable access to its and its subsidiaries'
facilities, books and records and to furnish certain information to the other
upon reasonable request. Westower and SpectraSite each covenant to comply with
all of their respective obligations under a confidentiality agreement, dated as
of March 26, 1999 between Westower and SpectraSite.
NO SOLICITATION. Westower covenants not to:
- initiate, solicit or knowingly encourage any inquiries or proposals that
would constitute or reasonably be expected to lead to a competing
proposal for any business combination or sale of more than 20% of
Westower's assets or capital stock;
- engage in negotiations or discussions concerning a competing proposal; or
- approve or recommend any competing proposal.
This covenant does, however, expressly permit Westower to, prior to adoption of
the merger agreement by Westower's stockholders, enter into an agreement
concerning a competing proposal that is superior to the merger agreement. In
order for a competing proposal to be considered superior to the merger
agreement, a majority of Westower's board of directors must determine in their
good faith judgment, after consultation with a nationally recognized independent
financial advisor, and considering all material aspects of the competing
proposal, that the competing proposal is more favorable from a financial point
of view to Westower's stockholders than the merger agreement and that the person
making the proposal is likely to be able to finance it. In the event Westower
accepts a superior proposal it will be obligated to pay a termination fee of
$12.0 million plus SpectraSite's expenses. See "The Merger
Agreement -- Termination; Termination Fees and Expenses."
In addition, Westower covenants to notify SpectraSite promptly if it
receives any competing proposal or inquiries indicating that any person is
considering making a competing proposal.
Westower's board of directors will not withdraw or modify, or propose to
withdraw or modify, its recommendation of this merger except where Westower has
received a competing proposal considered superior, as described above.
EMPLOYEE BENEFIT MATTERS. If any of Westower's current employees transfers
to SpectraSite or any of its affiliates after the merger is consummated,
SpectraSite covenants to treat such employee, for purposes of the employee's
coverage under SpectraSite's employee benefit plans, as if the employee had been
employed by SpectraSite for the same period that he had been employed by
Westower. SpectraSite further agrees to take all reasonably necessary action to
cause shares of Westower's common stock options, converted into SpectraSite
stock options according to the terms of the merger agreement, to be registered
under the Securities Act of 1933, as amended, promptly following the
consummation of the merger.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. SpectraSite
covenants to retain all indemnification now existing in favor of any of
Westower's employees, agents, directors or officers in full force and effect for
at least six years following the consummation of the merger. SpectraSite further
covenants it shall cause the corporation surviving the merger to maintain, for
three years after the merger is consummated, Westower's existing directors' and
officers' liability insurance, or comparable policies, as long as maintaining
such policies does not exceed certain costs.
LETTERS OF ACCOUNTANTS. SpectraSite and Westower each covenant to use
reasonable best efforts to cause its independent public accountants to deliver
to the other comfort letters in relation to the transactions contemplated by the
merger agreement.
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REASONABLE BEST EFFORTS. SpectraSite, Westower and W Acquisition Corp.
each covenants to use its reasonable best efforts to take all actions necessary
or desirable to meet all of its obligations under the merger agreement in order
to ensure the merger's consummation.
CONSENTS; FILINGS; FURTHER ACTIONS. SpectraSite, Westower and W
Acquisition Corp. each covenants to use its reasonable best efforts to take all
actions necessary to consummate the merger, obtain all necessary governmental
consents and make all necessary filings. Each party will notify the others of
any material communication concerning the merger it receives from governmental
authorities and will endeavor in good faith to comply with any governmental or
other authority's request for additional information or documentation concerning
the transactions contemplated by the merger agreement.
PLAN OF REORGANIZATION. None of SpectraSite, Westower or W Acquisition
Corp. shall knowingly take or cause any action which would cause the merger to
fail to qualify as a reorganization under Section 368(a) of the Internal Revenue
Code, and each of the parties will use its reasonable best efforts to cause such
qualification to occur.
PUBLIC ANNOUNCEMENTS. Westower and SpectraSite covenant to issue a joint
press release as the initial press release concerning the merger, and thereafter
SpectraSite, Westower and W Acquisition Corp. agree to consult with each other
before issuing any press release or making any public statement concerning the
merger agreement or any of the transactions it contemplates, unless applicable
law or the requirements of the Amex or the Nasdaq require otherwise.
OBLIGATIONS OF W ACQUISITION CORP. SpectraSite covenants to take all
actions necessary to cause W Acquisition Corp. to perform its obligations under
the merger agreement and to consummate the merger on the terms and conditions
set forth in the merger agreement.
STOCK EXCHANGE LISTINGS AND DE-LISTINGS. SpectraSite covenants to use its
reasonable best efforts to cause its shares of common stock to be approved for
listing on the Nasdaq. SpectraSite, Westower and W Acquisition Corp. covenant to
use their reasonable best efforts to cause the surviving corporation to cause
Westower's common stock to be de-listed from the Amex and de-registered under
the Exchange Act. See "The Merger -- Nasdaq National Market Listing; De-listing
and De-registration of Westower Common Stock from American Stock Exchange."
EXPENSES. SpectraSite, Westower and W Acquisition Corp. each covenants to
pay its own expenses under the merger agreement, whether or not the merger
agreement is consummated, except as the merger agreement provides otherwise. See
"The Merger Agreement -- Termination; Termination Fees and Expenses." The
parties agree, however, that the expenses incurred in connection with the filing
fees for this proxy statement/prospectus and the appropriate filings under the
Hart-Scott-Rodino Act, and the expenses incurred for mailing this proxy
statement/prospectus shall be shared equally by SpectraSite and Westower.
TAKEOVER STATUTES. SpectraSite and Westower covenant that each one and its
respective board of directors will grant any approvals and take any actions
which would be necessary to effect prompt consummation of the merger and the
transactions contemplated by the merger agreement if any takeover statute is or
becomes applicable to the merger, and further agree to act as necessary to
eliminate or minimize the statute's effects on the merger transactions. See "The
Merger Agreement -- Washington Anti-Takeover Laws."
CONTROL OF WESTOWER'S AND SPECTRASITE'S OPERATIONS. The merger agreement
provides that neither SpectraSite nor Westower will have direct or indirect
rights to control or direct the other's operations prior to the consummation of
the merger.
AFFILIATES. Westower covenants that within 30 days after May 15, 1999, it
will deliver to SpectraSite a letter identifying all persons who may be deemed,
as of the record date for the special meeting, to be affiliates of Westower
under Rule 145 of the Securities Act. Westower also will advise the persons
identified within the Rule 145 letter it delivers to SpectraSite of any resale
restrictions imposed by
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applicable securities laws and will use commercially reasonable efforts to
obtain from each of them an affiliate agreement pertaining to those Rule 145
restrictions.
CORPORATE MATTERS. SpectraSite covenants it will enter into employment
agreements with Calvin J. Payne and S. Roy Jeffrey. Mr. Payne will hold the
position of Executive Vice President -- Construction Operations and Mr. Jeffrey
will hold the position of Vice President -- Canadian Region, respectively, of
SpectraSite.
THE JOVIN AGREEMENTS. Westower covenants to use its reasonable best
efforts to enter into agreements with each of the holders of Class B shares of
Westower Acquisitions Canada Inc., a Canadian subsidiary of Westower, to the
effect that a Canadian subsidiary of Westower other than Westower Acquisitions
Canada Inc. will have a call right concerning the Class B shares. The call right
will allow its holder to purchase any Class B shares tendered for conversion or
redemption by delivering to the Class B stockholder the same number and type of
securities which that certain Canadian subsidiary otherwise would have been
obligated to deliver in exchange for the Class B shares upon their surrender for
conversion or exchange. Further, Westower will cause the call right regarding
the Class B shares to be exercised if any of the Class B shares are tendered for
conversion prior to consummation of the merger.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The merger agreement contains various conditions to the parties'
obligations to effect the merger, including:
- the requisite approval of Westower's stockholders;
- authorization to list SpectraSite's common stock on the Nasdaq National
Market;
- the absence of any judicial or quasi-judicial action or litigation that
restrains, enjoins or prohibits consummation of the merger and the
related transactions or that, individually or in the aggregate, would
reasonably be expected to result in a material adverse effect on
SpectraSite or Westower, or any proceeding threatened or instituted by a
governmental entity seeking to prohibit the merger or which would create
a material adverse effect for the relevant party;
- effectiveness of the registration statement of which this proxy
statement/prospectus is a part;
- SpectraSite and Westower shall have received comfort letters from their
respective independent public accountants. See "The Merger
Agreement -- Material Covenants -- Letters of Accountants"; and
- SpectraSite and Westower shall have received all state securities and
blue sky permits and approvals they require in order to consummate the
merger and the related transactions.
CONDITIONS TO OBLIGATIONS OF SPECTRASITE AND W ACQUISITION CORP.
The merger agreement contains various conditions to the obligations of
SpectraSite and W Acquisition Corp. under the agreement, including:
- the accuracy in all material respects of the representations and
warranties made by Westower on the date of the agreement and on the date
of the closing, and delivery to SpectraSite of an officer's certificate
to that effect;
- Westower's performance in all material respects of all obligations it has
agreed, under the merger agreement, to perform prior to the closing, and
delivery to SpectraSite of an officer's certificate to that effect;
- the absence of any material adverse effect, as defined in the merger
agreement, on Westower and delivery to SpectraSite of an officer's
certificate to that effect;
- Westower's receipt of all material consents, approvals or waivers it
requires in order to consummate the transactions contemplated by the
merger agreement;
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- SpectraSite's receipt of an opinion stating the merger as contemplated in
the merger agreement will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the tax code;
- SpectraSite's receipt of evidence showing exercise of certain stock
purchase warrants granting their holders the right to purchase shares of
Westower's common stock;
- SpectraSite's receipt of all required authorizations, consents or
approvals of the lenders required by the Credit Agreement, dated as of
April 20, 1999, among SpectraSite Holdings, SpectraSite Communications,
an affiliate of Canadian Imperial Bank of Commerce, Credit Suisse First
Boston and the other parties thereto, to permit consummation of the
merger;
- all notices, reports and other filings which SpectraSite, Westower or any
of their respective subsidiaries are required to make with any
governmental entity to permit consummation of the merger will have been
obtained or made;
- Westower's $15.0 million principal amount 7% convertible senior
subordinated note due April 30, 2007 must have been surrendered for
payment and cancellation;
- SpectraSite's receipt of evidence of repayment of all loans and other
advances made by Westower to any of its employees, officers, directors or
stockholders which are not Westower subsidiaries;
- waiver by a named employee of his rights under an employment agreement,
dated August 31, 1998, between the employee and a company formerly known
as Standby Services, Inc., a subsidiary of Westower;
- amendment of certain merger agreements to which Westower is a party, to
state that shares of SpectraSite's common stock may be substituted for
any additional shares of Westower's common stock issuable under such
merger agreements, with terms for an appropriate adjustment to the number
of shares in question to reflect the exchange ratio in the merger;
- proper demands for appraisal by holders of Westower common stock not
exceeding 5% of all outstanding shares of Westower common stock;
- FCC approval of the change of control of a Westower subsidiary that has
FCC licenses;
- execution and delivery of each of the post-closing lock-up letters
entered into between SpectraSite and certain principal holders of
Westower common stock, under which the stockholders respectively covenant
not to sell the SpectraSite stock they receive in the merger for a
specified period of time;
- SpectraSite's receipt of all consents or approvals, if and to the extent
required, from the holders of its notes issued under an indenture, dated
as of June 26, 1998, as amended, between SpectraSite and United States
Trust Company of New York, as trustee, and an indenture, dated as of
April 20, 1999, between SpectraSite and United States Trust Company of
New York, as trustee, in each case to permit the transactions
contemplated by the merger agreement; and
- SpectraSite's receipt of an affiliate agreement from all parties deemed
to be Westower's affiliates, as defined under Rule 145 of the Securities
Act, as of the record date for the special meeting.
CONDITIONS TO OBLIGATIONS OF WESTOWER
The merger agreement contains various conditions to the obligations of
Westower under the agreement, including:
- the accuracy in all material respects of the representations and
warranties made by SpectraSite and W Acquisition Corp. on the date of the
agreement and on the date of the closing, and delivery to Westower of an
officer's certificate to that effect;
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- the performance, in all material respects, by SpectraSite and W
Acquisition Corp., respectively, of all obligations each has agreed,
under the merger agreement, to perform prior to the closing, and delivery
to Westower of an officer's certificate to that effect;
- the absence of any material adverse effect, as defined in the merger
agreement, on SpectraSite, and delivery to Westower of an officer's
certificate to that effect;
- Westower's receipt of an opinion stating the merger as contemplated in
the merger agreement will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the tax code; and
- receipt by certain executive officers of Westower of an agreement with
SpectraSite regarding SpectraSite's board of directors.
WASHINGTON ANTI-TAKEOVER LAWS
Washington law imposes restrictions on certain transactions between a
public corporation and certain significant stockholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a target corporation, with certain
exceptions, from engaging in certain significant business transactions with an
acquiring person, which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after the acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the time of acquisition.
These prohibited transactions include, among others:
- mergers or consolidations with, dispositions of assets to, or issuances
or redemptions of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the
shares; or
- allowing the acquiring person to receive any disproportionate benefit as
a stockholder.
After the five-year period, a significant business transaction may occur, as
long as it complies with certain fair price provisions of the statute or is
approved by the target corporation's stockholders. A public corporation may not
opt out of this statute. Westower falls within the definition of a target
corporation and is subject to this statute. Westower's board of directors
approved the merger agreement and stockholder agreements prior to their
execution by the parties to those agreements, and therefore, the restrictions
described above will not apply to the merger.
TERMINATION; TERMINATION FEES AND EXPENSES
The merger agreement provides that the merger may be abandoned and the
merger agreement may be terminated prior to the merger's effectiveness, in
various ways including:
- by SpectraSite's and Westower's mutual written consent which has been
duly authorized by their respective boards of directors;
- by either SpectraSite or Westower if the merger is not consummated on or
before December 31, 1999, as long as the party requesting such
termination did not, by its failure to fulfill an obligation under the
merger agreement, cause the merger not to be consummated;
- by either SpectraSite or Westower if any court or governmental entity
with jurisdiction issues a final order, injunction or decree preventing
consummation of the merger;
- by either SpectraSite or Westower if a majority of Westower's
stockholders do not vote for approval and adoption of the merger
agreement and the merger;
- by either SpectraSite or Westower upon the other entity's breach of any
material representation, warranty, covenant or agreement included in the
merger agreement, whether inadvertent or not,
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resulting in the breaching party's inability to satisfy the conditions of
the relevant representation or warranty or causing a material adverse
effect, as defined in the merger agreement; or
- by Westower if it should receive another offer which is superior to the
offer SpectraSite is making under the merger agreement, and SpectraSite
fails to match the superior offer.
If the merger agreement is terminated, it becomes void and none of the
parties to the agreement has any liability or further rights or obligations
under the agreement other than the remedies described below. However, if any
party wilfully breaches any of its representations or warranties, or breaches
any of its covenants or agreements under the merger agreement, it remains fully
liable to the other parties for that breach.
If the merger agreement is terminated, each party is responsible for the
expenses it incurs, except that the parties must share the expenses relating to
the filing, printing and mailing of this proxy statement/ prospectus and the
appropriate filing fees under the Hart-Scott-Rodino Act.
However, if either SpectraSite or Westower terminates the agreement because
Westower fails to obtain the requisite stockholder approval for the merger,
Westower will reimburse SpectraSite for its documented expenses in connection
with the merger agreement and the related transactions if at the time of
Westower's special meeting, Westower has received a bona fide alternative offer,
or a third party has publicly announced its intention to make such an offer and
the offer or announcement has not been withdrawn prior to the special meeting.
In addition, if within twelve months after the agreement's termination, Westower
enters into or consummates a definitive agreement constituting a change of
control, as defined in the merger agreement, with any third party, Westower will
pay SpectraSite a termination fee of $12.0 million.
If Westower terminates the agreement because its board of directors
receives an offer they judge to be superior to the agreement contained in the
merger agreement which SpectraSite fails to match, Westower will pay SpectraSite
(1) a termination fee of $12.0 million, plus (2) an amount which covers all of
SpectraSite's documented expenses in connection with the merger agreement and
the related transactions.
If Westower owes a termination payment of expenses and/or a fee amount to
SpectraSite and fails to make prompt payment according to the terms of the
merger agreement, and SpectraSite receives a judgment in its favor concerning
the termination payment, Westower will pay interest on the termination payment
as well as SpectraSite's expenses incurred in obtaining the judgment against
Westower. If SpectraSite commences a suit for the termination payment but
judgment is made for Westower, SpectraSite must pay Westower's expenses incurred
in connection with the suit.
AMENDMENT AND WAIVER
The merger agreement may be amended by SpectraSite, Westower and W
Acquisition Corp. at any time prior to the merger's consummation provided their
respective boards of directors authorize the amendment. Any amendment must be in
writing signed by all the parties. Once Westower's stockholders have voted
approval of the merger and adoption of the merger agreement, however, no party
may make an amendment to the merger agreement which would reduce the amount or
change the type of consideration for which each share of Westower's common stock
will be exchanged.
Prior to the consummation of the merger, any party may:
- extend the time given for performance of any obligation or other act
incumbent on another party to the merger agreement;
- waive any inaccuracy contained in the representations and warranties to
the merger agreement or in any document delivered in accordance with the
merger agreement's terms; and
- waive compliance with any agreement or condition contained in the merger
agreement.
Waiver of certain conditions, or determination that certain conditions have been
satisfied, will only be effective if made in writing and signed by both Westower
and SpectraSite.
54
<PAGE> 59
OTHER AGREEMENTS
The current stockholders of SpectraSite are parties to a stockholders'
agreement and a registration rights agreement. For a description of these
agreements see "Description of SpectraSite's Capital Stock -- Stockholders'
Agreement" and "-- Registration Rights Agreement."
STOCKHOLDER VOTING AGREEMENTS
SpectraSite entered into agreements with the following Westower
stockholders who control approximately 49% of the outstanding voting shares of
Westower common stock:
- Calvin J. Payne, Patricia Boris, who is Mr. Payne's spouse, and the
Calvin J. Payne Family Trust;
- S. Roy Jeffrey, L. Sharleen Jeffrey and the S. Roy Jeffrey Family Trust;
- Tom T. Cunningham;
- Michael J. Anderson and Constance S. Anderson;
- Seth Buechley;
- Mark Buechley;
- Peter Jeffrey and the Peter Jeffrey Family Trust; and
- Bruce E. Toll.
These stockholders agreed to vote in favor of the merger and against any
matter that would impede or be inconsistent with the merger. The stockholder
voting agreements terminate upon termination of the merger agreement, except
that the agreements with Calvin J. Payne and S. Roy Jeffrey and their respective
spouses and family trusts, who hold approximately 25% of the outstanding voting
shares of Westower common stock, extend for an additional nine months. Except
for Tom T. Cunningham, stockholders may not sell or otherwise dispose of their
shares during the term of the stockholder agreement. Tom T. Cunningham may sell
up to 200,000 shares of Westower common stock prior to the consummation of the
merger.
AGREEMENT OF SALE AND AMENDMENT TO PURCHASE AGREEMENT
Westower and BET Associates, holder of Westower's $15.0 million principal
amount 7% convertible senior subordinated note due April 30, 2007, agreed that
on or before the closing of the merger Westower, or its assignee, will purchase
the notes for $19,483,444 plus accrued interest. In addition, BET Associates
agreed to exercise its warrants to purchase 40,000 shares of Westower common
stock. The exercise of the warrants will be on a cashless basis reflecting a
spread between the exercise price and $32.00 per share, resulting in 11,702
shares of Westower issuable to BET Associates. These shares of Westower will
convert into shares of SpectraSite common stock in the merger.
SPECTRASITE BOARD SEAT
SpectraSite has agreed to elect Calvin J. Payne to its board of directors
at or prior to consummation of the merger. If Mr. Payne is unable or unwilling
to serve, S. Roy Jeffrey or Mr. Jeffrey's designee will be so elected. In
addition, at each annual meeting following the merger, Mr. Payne, or if he is
unable or unwilling to serve, Mr. Jeffrey or Mr. Jeffrey's designee will be a
nominee for the SpectraSite board of directors. As long as Mr. Payne serves as a
SpectraSite director, Mr. Jeffrey or Mr. Jeffrey's designee may attend all
meetings of the board of directors. So long as Mr. Payne, Mr. Jeffrey or Mr.
Jeffrey's designee is serving as a director under this arrangement, such person
has the right to designate a person acceptable to SpectraSite to attend, as a
visitor, SpectraSite's board meetings. The arrangement terminates:
- at any time Mr. Payne, Mr. Jeffrey, their respective spouses and family
trusts, Michael Anderson and his spouse, Seth Buechley, Bruce Toll, Tom
Cunningham, Peter Jeffrey, Mike Jarvis, Mark Shapley, Al McCabe, Peter
Holland, Brent Wysocki, Val Rundans and Walter Freisen collectively
55
<PAGE> 60
hold less than 8% of SpectraSite's outstanding capital stock, Mr. Payne
is no longer Executive Vice President -- Construction Operations of
SpectraSite and Mr. Jeffrey is no longer Vice President -- Canadian
Operations of SpectraSite; or
- on the fifth anniversary of one or more firm commitment public offerings
of SpectraSite common stock with a per share offering price of at least
$8.00 and aggregate net proceeds to SpectraSite of $150.0 million.
POST-CLOSING LOCK-UP LETTERS
Upon, and as a condition to, the closing of the merger agreement, Calvin J.
Payne will enter into a lock-up letter under which he agrees to restrictions on
the sale of the SpectraSite stock he will receive in connection with the merger.
These restrictions are substantially the same as the transfer restrictions
agreed to by the parties to SpectraSite's third amended and restated
stockholders' agreement. See "Description of SpectraSite's Capital
Stock -- Stockholders' Agreement."
Upon, and as a condition to, the closing of the merger agreement, S. Roy
Jeffrey will enter into a lock-up letter similar to Mr. Payne's except that,
after the 180th day following the completion of a public offering of
SpectraSite's stock, he is permitted to sell up to 72,400 SpectraSite shares in
any 90-day period.
Upon, and as a condition to, the closing of the merger agreement, certain
other Westower stockholders will enter into lock-up letters under which each
agrees, during the first 180 days following the merger's consummation, not to
sell more than 10% of his or her stock in any thirty-day period, subject to an
aggregate amount not to exceed a lock-up cap. The lock-up cap is the lesser of
50% of the stockholder's total number of shares held on the merger agreement's
closing date and 181,000 shares. These stockholders will also agree, at the
request of the underwriter of a public offering of SpectraSite stock, to enter
into an additional lock-up commencing on the date a preliminary prospectus is
mailed and ending 180 days following the date of the final prospectus. This
additional lock-up will permit each stockholder to sell, following the 90th day
after the date of the final prospectus, up to 10% of his or her stock in any
thirty-day period, up to an aggregate amount not to exceed the lock-up cap.
56
<PAGE> 61
OWNERSHIP OF SPECTRASITE AND WESTOWER
SPECTRASITE
The table below sets forth, as of May 31, 1999, information with respect to
the beneficial ownership of SpectraSite's capital stock by:
- each person who is known by SpectraSite to be the beneficial owner of
more than 5% of any class or series of capital stock of SpectraSite;
- 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 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 * *
</TABLE>
57
<PAGE> 62
<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>
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%
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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<PAGE> 63
WESTOWER
The following table contains information as of May 31, 1999 about the
beneficial ownership of Westower common stock and SpectraSite common stock by:
- each person who is known by Westower to own beneficially more than 5% of
the outstanding shares of the Westower common stock;
- each director and executive officer of Westower;
- each director and the chief executive officer and four other most highly
compensated executive officers of Westower; and
- all directors and executive officers of Westower as a group.
The table also contains information regarding the beneficial ownership of
SpectraSite after giving effect to the merger by the persons identified above.
Unless otherwise indicated, to our knowledge all persons listed below have sole
voting and investment power over their shares of common stock unless they share
ownership with their spouse.
<TABLE>
<CAPTION>
PRO FORMA
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF WESTOWER OF SPECTRASITE
COMMON STOCK COMMON STOCK
------------------------------------------ -------------------------------------------------------
POST-MERGER
PERCENTAGE OF
TOTAL VOTING
POWER OF
COMMON STOCK
OPTIONS/ OPTIONS/ ON A
NAME OF BENEFICIAL OWNER SHARES WARRANTS TOTAL PERCENT SHARES WARRANTS TOTAL FULLY-DILUTED BASIS
------------------------ --------- -------- --------- ------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Michael J. Anderson (a).... 337,470 3,333 340,773 4.0% 610,821 6,033 616,854 *
Seth A. Buechley........... 70,651 -- 70,651 * 127,878 -- 127,878 *
Ronald P. Erickson......... 7,857 10,000 17,857 * 14,221 18,100 32,321 *
Donald A. Harris........... 9,357 10,000 19,357 * 16,936 18,100 35,036 *
S. Roy Jeffrey (b)......... 1,057,500 65,333 1,122,833 13.1% 1,914,075 118,253 2,032,328 2.3%
Peter Lucas................ -- 30,000 30,000 * -- 54,300 54,300 *
Calvin J. Payne (c)........ 1,057,500 65,333 1,122,833 13.1% 1,914,075 118,253 2,032,328 2.3%
Robert A. Shuey, III....... 118,557 10,000 128,557 1.5% 214,588 18,100 232,688 *
Leonard M. Tannenbaum...... 18,000 10,000 28,000 * 32,580 18,100 50,680 *
Bruce E. Toll (d).......... 166,000 21,702 187,702 2.2% 300,460 39,281 339,741 *
All directors and executive
officers as a group (10
persons)................. 2,842,892 225,701 3,068,593 34.8% 5,145,634 408,520 5,554,154 6.2%
OTHER 5% OWNERS
Gilder, Gagnon, Howe & Co.
(e)...................... 683,567 -- 683,567 8.0% 1,237,256 -- 1,237,256 1.4%
Peter Jeffrey (f).......... 835,000 42,667 877,667 10.2% 1,511,350 77,227 1,588,577 1.8%
Tom T. Cunningham.......... 543,590 -- 543,590 6.4% 984,550 -- 984,550 1.1%
</TABLE>
- ---------------
* Less than 1%
(a) Mr. Anderson and his spouse hold the shares as joint tenants.
(b) Includes the following shares, a monetary interest in which is disclaimed:
66,250 shares held by Mr. Jeffrey's spouse and 925,000 held by the S. Roy
Jeffrey Family Trust.
(c) Includes the following shares, a monetary interest in which is disclaimed:
66,250 shares held by Mr. Payne's spouse and 925,000 held by the Calvin J.
Payne Family Trust.
(d) Excludes 662,597 shares underlying the senior subordinated convertible notes
and warrants issued to BET Associates on June 1, 1998 because of the
agreement between Westower and BET Associates under which Westower will
purchase the notes for $19,483,444 and BET Associates will exercise the
warrants on a cashless basis in exchange for 11,702 shares of Westower
common stock. Includes 10,000 shares held by The Bruce E. and Robbi S. Toll
Foundation.
(e) Includes shares held in customer accounts over which partners and/or
employees of Gilder, Gagnon, Howe & Co. have discretionary power to sell
such shares.
(f) Includes the following shares, a monetary interest in which is disclaimed:
755,000 shares held by the Peter Jeffrey Family Trust.
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<PAGE> 64
MARKET PRICES AND DIVIDEND POLICY
MARKET PRICE DATA
Westower's common stock commenced separate public trading on November 13,
1997. On July 20, 1999 there were 115 holders of record of the common stock. The
following table sets forth the high and low sales prices of Westower common
stock, as reported by the American Stock Exchange for the periods indicated.
Note that in 1998 Westower changed its fiscal year from February 28 to September
30.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED FEBRUARY 28, 1998
3rd Quarter (beginning November 13, 1997 and ended November
30, 1997)................................................. $11.50 $ 8.25
4th Quarter (ended February 28, 1998)....................... $21.875 $11.125
TRANSITION PERIOD ENDED SEPTEMBER 30, 1998
1st Quarter (ended May 31, 1998)............................ $27.125 $20.125
Four months (ended September 30, 1998)...................... $35.00 $18.375
FISCAL YEAR 1999
1st Quarter (ended December 31, 1998)....................... $36.50 $13.00
2nd Quarter (ended March 31, 1999).......................... $35.00 $23.125
3rd Quarter (ended June 30, 1999)........................... $35.00 $24.25
4th Quarter (through August 10, 1999)....................... $25.625 $22.00
</TABLE>
On August 10, 1999, the closing price of Westower common stock on the Amex
was $24.375 per share.
There is currently no public market for SpectraSite's common stock. We have
applied for listing of SpectraSite common stock on the Nasdaq National Market
under the trading symbol "SITE".
DIVIDEND POLICY
Westower has never paid cash dividends with respect to its common stock and
retains any earnings to fund the growth of its business.
SpectraSite has not paid a dividend on any class of its common stock and
anticipates that it will retain future earnings, if any, to fund the development
and growth of its business and will not pay cash dividends on the SpectraSite
common stock in the foreseeable future. In addition, SpectraSite's credit
facility restricts our ability to pay cash dividends on any class of its capital
stock. Any future determination to pay dividends will be at the discretion of
the board of directors and is dependent upon our financial condition, results of
operations, capital requirements and such other factors as the board of
directors deems relevant. See "Description of SpectraSite's Capital
Stock -- Dividends" and "SpectraSite Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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<PAGE> 65
COMPARISON OF STOCKHOLDERS' RIGHTS
Westower is incorporated under the laws of the State of Washington and
SpectraSite is incorporated under the laws of the State of Delaware. If we
consummate the merger, Westower common stockholders will become SpectraSite
common stockholders. Westower's common stockholders' rights are currently
governed by the Washington Business Corporation Act and Westower's certificate
of incorporation and bylaws. Once you become a SpectraSite common stockholder,
your rights as such will be governed by the Delaware General Corporation Law and
by SpectraSite's certificate of incorporation and bylaws. The material
differences between the rights of Westower common stockholders and SpectraSite
common stockholders, resulting from differences in the respective governing
documents and the applicable state law, are summarized below.
You should not rely on this summary as an exhaustive list or a detailed
description of the provisions it discusses. This summary is qualified in its
entirety by the respective corporate governance documents of Westower and
SpectraSite and by applicable law. For information as to how you can obtain the
corporate governance documents of either company, please see "Where You Can Find
More Information" on page 136.
CAPITAL STOCK
Westower's articles of incorporation currently authorize 25,000,000 shares
of common stock and no shares of preferred stock.
SpectraSite's certificate of incorporation currently authorizes 95,000,000
shares of common stock and 70,749,625 shares of convertible preferred stock.
SpectraSite's stockholders have executed a written consent authorizing an
amendment to SpectraSite's certificate of incorporation to increase
SpectraSite's authorized capital stock to 120,000,000 shares, and they may
consider further increases in the authorized capital stock of SpectraSite prior
to the merger. This amendment will be filed prior to the merger.
The common stock is divided into two classes, which are identical in all
respects except that one class is non-voting. If a SpectraSite stockholder is
deemed a regulated entity under the Bank Holding Company Act of 1956, as
amended, its shares of SpectraSite stock over 5% of the total issued and
outstanding stock will become non-voting shares until transferred to a
non-regulated entity. Any other common stockholder holds fully voting common
stock. The preferred stock is divided into three series and is senior to the
common stock with respect to dividend rights and rights on liquidation,
dissolution or winding up of the company. For a discussion of the respective
rights of various classes of SpectraSite common stock and preferred stock, see
"Description of SpectraSite's Capital Stock."
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Under the Washington Business Corporation Act, a merger, share exchange,
sale of substantially all of a corporation's assets other than in the regular
course of business, or dissolution of a corporation must be approved by the
affirmative vote of a majority of directors when a quorum is present, and by
holders of two-thirds of the shares of each voting group which is entitled to
vote separately, unless another proportion, but not less than a majority of all
shares which are entitled to vote, is specified in the articles of
incorporation. The Washington Business Corporation Act requires separate voting
by voting groups on a plan of merger if the plan includes a provision that, if
included in a proposal to amend the articles of incorporation, would require
action by at least one separate voting group under the statute. Under the
statute, holders of an outstanding class of stock are entitled to vote as a
separate voting group on a proposed amendment that would change the designation,
rights, preferences or limitations of the shares of the class. Westower's
articles of incorporation do not specify a different voting level.
Under the Delaware General Corporation Law, a merger, consolidation or sale
of all, or substantially all, of a corporation's assets must be approved by the
board of directors and by a majority, unless the certificate of incorporation
requires a higher percentage, of the corporation's outstanding stock entitled to
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<PAGE> 66
vote. However, a constituent corporation surviving a merger, unless its
certificate of incorporation provides otherwise, does not require a
stockholders' vote if:
- the merger agreement does not amend the surviving corporation's
certificate of incorporation;
- each share of stock of the surviving corporation outstanding immediately
prior to the merger is to be an identical outstanding or treasury share
of the surviving corporation after the merger; and
- the number of shares the surviving corporation will issue in the merger
plus the number of shares initially issuable upon conversion of any other
shares, securities or obligations to be issued in the merger does not
exceed 20% of the shares outstanding immediately prior to the merger.
SpectraSite's certificate of incorporation specifies that any such merger or
sale requires the approval of 60% of its preferred stockholders. See
"Description of SpectraSite's Capital Stock -- Special Required Approval."
DISSENTERS' RIGHTS
Under the Washington Business Corporation Act, a stockholder is entitled to
dissent from and, upon perfection of the stockholder's appraisal right, to
obtain the fair value of his or her shares in the event of certain corporate
actions, including certain mergers, share exchanges, sales of substantially all
of the corporation's assets, and certain amendments to the corporation's
articles of incorporation that materially and adversely affect stockholder
rights. For a description of the dissenters' rights of Westower common
stockholders, see "Dissenters' Rights."
Under the Delaware General Corporation Law, except as it provides
otherwise, stockholders have the right to demand and receive payment of the fair
value of their stock in the event of a merger or consolidation. However, except
as the Delaware General Corporation Law provides otherwise, stockholders do not
have appraisal rights if, among other things, the consideration they receive for
their shares consists of:
- shares of stock of the corporation surviving or resulting from such
merger or consolidation;
- shares of stock of any other corporation which, at the record date fixed
to determine stockholders entitled to vote on the merger or
consolidation, were either listed on a national securities exchange or
designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc.
or were held of record by more than 2,000 stockholders;
- cash in lieu of fractional shares of the corporations described in the
above two clauses; or
- any combination of shares of stock and cash in lieu of fractional shares
of the corporations described in the above three clauses.
STATE TAKEOVER LEGISLATION
The Washington Business Corporation Act prohibits a target corporation,
with certain exceptions, from engaging in certain significant business
transactions with a person or group of persons beneficially owning 10% or more
of the target corporation's voting securities for a period of five years after
the acquisition unless a majority of the members of the target corporation's
board of directors approve the transaction or share acquisition prior to the
acquisition date. Significant business transactions include, among others:
- mergers or consolidations with, dispositions of assets to, or issuances
or redemptions of stock to or from, the acquiring person;
- termination of 5% or more of the target corporation's employees employed
in Washington State, occurring as a result of the acquiring person's
acquisition of 10% or more of the shares; or
- allowing the acquiring person to receive any disproportionate benefit as
a stockholder.
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Target corporations include all domestic corporations with principal executive
offices in Washington and either a majority or more than 1,000 of their
employees resident in Washington. Westower believes it currently meets these
standards and is subject to the statute. A public corporation may not opt out of
this statute.
Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in a business combination with an interested
stockholder for three years following the time such person becomes an interested
stockholder. With certain exceptions, an interested stockholder is a person or
group:
- owning 15% or more of the corporation's outstanding voting stock either
by:
- owning such stock outright,
- possessing rights to vote such stock, or
- possessing rights to acquire such stock through any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, warrants, options or otherwise;
- which is an affiliate or associate of the corporation and was the owner
of 15% or more of such voting stock at any time within the previous three
years; or
- which is an affiliate of a person or group described in the immediately
preceding clause.
For purposes of Section 203, the term business combination is defined broadly to
include:
- mergers with or caused by the interested stockholder;
- sales or other dispositions to the interested stockholder, except
proportionately with the corporation's other stockholders, of the
corporation's or a subsidiary's assets equal to 10% or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock;
- the corporation's or its subsidiary's issuance or transfer of its
respective stock to the interested stockholder, except for certain
transfers in a conversion or exchange or a proportionate distribution or
certain other transactions, none of which increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock; or
- the interested stockholder's receipt, directly or indirectly, of any
loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary, except when all
stockholders receive the benefits proportionately.
The three-year moratorium which Section 203 imposes on business
combinations does not apply if:
- prior to the date at which the stockholder became an interested
stockholder the corporation's board of directors approved either the
business combination or the transaction which resulted in the person
becoming an interested stockholder;
- the interested stockholder owned 85% of the corporation's voting stock
upon consummation of the transaction which made him or her an interested
stockholder. Calculation of the 85% figure excludes shares owned by
directors who are also officers of the target corporation and shares held
by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer; or
- on or after the date such person becomes an interested stockholder, the
board approves the business combination, which is also approved at a
stockholder meeting by two-thirds of the voting stock not owned by the
interested stockholder.
Section 203 does not apply at all to certain proposed transactions in certain
circumstances. The proposed transactions which may not require application of
Section 203 are limited to:
- a merger or consolidation of the corporation, unless under Section 251(f)
no stockholder vote is required to authorize the merger;
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- a sale, lease, exchange, mortgage, pledge, transfer or other disposition,
whether occurring in one or a series of transactions and whether as part
of the corporation's dissolution or not, of the corporation's or its
subsidiary's assets. Such disposition must be to an entity which is not
the corporation's directly or indirectly wholly-owned subsidiary. The
assets which the corporation is transferring must have an aggregate
market value equal to 50% or more of either:
- all of the corporation's assets, determined on a consolidated basis, or
- the aggregate market value of all of the corporation's outstanding
stock; or
- a proposed tender or exchange offer for 50% or more of the corporation's
outstanding stock.
Section 203 will not apply to a proposed transaction of the type listed above
if:
- the business combination is proposed:
- prior to the consummation or abandonment of the proposed transaction,
and
- subsequent to the earlier of a public announcement or notice of the
proposed transaction made according to the requirements of Section 203;
and
- the proposed transaction is with or by a person who either:
- was not an interested stockholder during the previous three years,
- became an interested stockholder with the board's approval, or
- became an interested stockholder at a time when Section 203 did not
apply due to an appropriate provision in the corporation's certificate
of incorporation or bylaws or because the corporation's voting stock was
neither publicly listed or traded nor held by more than 2,000
stockholders prior to the interested stockholder's involvement; and
- the business combination is approved, or not opposed, by a majority of
the corporation's directors who were elected prior to any person's
becoming an interested stockholder during the previous three years, or
are the chosen successors of such directors.
A Delaware corporation may elect to opt out of, and not be governed by,
Section 203 through a provision in its original certificate of incorporation or
an amendment to its certificate of incorporation or bylaws, if the amendment is
approved by the vote of a majority of the shares entitled to vote. With a
limited exception, such an amendment would not become effective until 12 months
following its adoption. SpectraSite has not opted out of Section 203.
AMENDMENTS TO CHARTERS
Under the Washington Business Corporation Act, unless the articles of
incorporation provide otherwise, a corporation's board of directors can make
various administrative changes to the corporation's articles of incorporation,
including, among others, changes of corporate name, changes to the number of
outstanding shares in order to effectuate a stock split or stock dividend in the
corporation's shares, and changes to or elimination of provisions with respect
to the stock's par value. Other amendments to a corporation's articles of
incorporation must be recommended to the stockholders by the board of directors,
unless the board determines that because of a conflict of interest or other
special circumstances, it should make no recommendation and communicates the
basis for its determination, with the amendment, to the stockholders. Amendments
to the articles of incorporation must be approved by a majority of all the
shares entitled to vote by each voting group that has a right to vote on the
amendment unless a corporation's articles of incorporation specify a higher
proportion. Westower's articles of incorporation do not specify a higher
proportion.
Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation provides otherwise, a proposed amendment requires
an affirmative vote of a majority of all shares entitled to vote on the matter.
If any such amendment would adversely affect the rights of any stockholders of a
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particular class or series of stock, the vote of the majority of all outstanding
shares of that class or series, voting as a class, is also necessary to
authorize the amendment. SpectraSite's certificate of incorporation requires a
supermajority vote with respect to certain corporate activities. See
"Description of SpectraSite's Capital Stock -- Special Required Approval."
AMENDMENTS TO BYLAWS
The Washington Business Corporation Act grants both the stockholders and
the board of directors the power to amend or repeal a corporation's bylaws.
However, the board may not amend or repeal bylaws if:
- the articles of incorporation grant such power exclusively to the
stockholders; or
- the stockholders, in amending or repealing a particular bylaw, provide
expressly that the board of directors may not amend or repeal that bylaw.
Westower's articles of incorporation do not grant the stockholders the exclusive
right to amend or repeal the bylaws.
Under the Delaware General Corporation Law, the power to adopt, alter and
repeal the bylaws is vested in the stockholders, except to the extent that the
certificate of incorporation vests concurrent power in the board of directors.
SpectraSite's certificate of incorporation grants such concurrent power to the
board of directors, except to the extent such grant is inconsistent with a
specific provision of the bylaws. SpectraSite's bylaws provide that the board
may amend or repeal the bylaws upon the affirmative vote of a majority of the
directors then holding office. However, the board may not adopt a bylaw that:
- changes the statutory requirement
- of a quorum of directors,
- for action by directors,
- of a quorum of stockholders, or
- for action by stockholders;
- provides for the management of the corporation by other than the board of
directors or its committees;
- increases or decreases the number of directors; or
- classifies the board of directors or staggers the election of directors.
PREEMPTIVE RIGHTS
Under the Washington Business Corporation Act, unless a corporation's
articles of incorporation provide otherwise and with certain exceptions,
stockholders automatically have preemptive rights to acquire unissued shares of
the corporation when the board of directors decides to issue such shares.
Westower's articles of incorporation provide that stockholders do not have
preemptive rights to acquire either unissued shares or securities convertible
into, or carrying a right to subscribe for or acquire, shares.
Under the Delaware General Corporation Law, stockholders do not possess
preemptive rights unless the corporation's certificate of incorporation
specifically grants such rights. SpectraSite's certificate of incorporation does
not grant general preemptive rights to common stockholders, but does grant
preemptive rights to its preferred stockholders on the terms set forth in the
Third Amended and Restated Stockholders' Agreement, dated as of April 20, 1999.
SpectraSite's certificate of incorporation also grants the board of directors
the right to authorize, in writing, other preemptive rights to certain holders
of SpectraSite capital stock. For a description of the Third Amended and
Restated Stockholders' Agreement, see "Description of SpectraSite's Capital
Stock -- Stockholders' Agreement."
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DIVIDENDS
Under the Washington Business Corporation Act, the corporation may make a
distribution, in cash or in property, to its stockholders upon authorization by
its board of directors unless, after giving effect to such distribution:
- the corporation would be unable to pay its debts as they become due in
the usual course of business; or
- the corporation's total assets would be less than:
- the sum of its total liabilities,
plus, unless the articles of incorporation permit otherwise,
- the amount that the corporation would need, if it were to be dissolved
at the time of the distribution, to satisfy the preferential rights of
stockholders whose preferential rights are superior to those receiving
the distribution.
Under the Delaware General Corporation Law, a corporation's board of
directors may authorize it to make distributions to its stockholders, subject to
any restrictions in its certificate of incorporation, either:
- out of surplus; or
- if there is no surplus, out of net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
However, the corporation may not make a distribution out of net profits if its
capital is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets, until such deficiency has been repaired. In addition, the Delaware
General Corporation Law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not impair the
corporation's capital. SpectraSite's certificate of incorporation grants senior
rights to dividends to the preferred stockholders, but does not otherwise modify
the Delaware General Corporation Law provisions regarding the payment of
dividends.
DURATION OF PROXIES
The Washington Business Corporation Act provides that no proxy is valid
more than 11 months after its date unless the proxy itself provides for a longer
period. Irrevocable proxies may be created for:
- a pledgee;
- a person who has purchased or agreed to purchase the shares to which the
proxy applies;
- a creditor of the corporation who extends credit to the corporation in
consideration of the proxy;
- an employee of the corporation whose employment contract requires the
proxy; or
- a party to a written voting agreement.
An irrevocable proxy is revoked when the interest to which it is related is
extinguished.
Under the Delaware General Corporation Law, no proxy is valid more than
three years after its date unless the proxy itself provides otherwise. A proxy
is irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an interest in the
corporation generally.
STOCKHOLDER ACTION
Under the Washington Business Corporation Act, stockholder action that may
be taken at a stockholders' meeting may be taken without a meeting if written
consents describing such action are
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signed by all stockholders entitled to vote on the action. Westower's bylaws
modify the Washington Business Corporation Act by requiring any stockholder
action taken without a meeting to be approved unanimously in writing and signed
by all stockholders of record.
Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation provides otherwise, any action required or
permitted to be taken at a stockholders' meeting may be taken without a meeting,
without prior notice and without a vote if a written consent, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote upon such action
were present and voted. SpectraSite's bylaws permit stockholder action to be
taken without a meeting, without prior notice and without a vote if a consent in
writing, setting forth the action taken, is signed by the holders of record of
shares of common stock having not less than the minimum number of votes
necessary to authorize or take such action at a meeting at which the holders of
record of all shares of common stock entitled to vote were present and voted.
SPECIAL STOCKHOLDERS' MEETINGS
The Washington Business Corporation Act provides that a special
stockholders' meeting may be called by:
- the board of directors;
- holders of at least 10% of all the shares entitled to vote on any issue
proposed for consideration at the meeting; or
- other persons authorized to do so by the corporation's articles of
incorporation or bylaws.
However, the Washington Business Corporation Act allows a public corporation's
articles of incorporation to limit or deny entirely the stockholders' right to
call a special meeting. Only business within the purpose described in the notice
of the special meeting may be conducted at the meeting. Westower's bylaws
provide that the following persons may call a special meeting:
- the president;
- a majority of the board of directors; or
- holders of at least 30% of all the shares entitled to vote on any issue
proposed for consideration at the meeting.
Westower's bylaws also echo the Washington Business Corporation Act provision by
stating that only business which is related to the purposes of the special
meeting, as set forth in the notice calling the meeting, may be transacted at
the meeting.
The Delaware General Corporation Law provides that a special stockholders'
meeting may be called by the corporation's board of directors or by such person
or persons as the certificate of incorporation or the bylaws may authorize.
SpectraSite's bylaws provide that the following persons may call a special
meeting:
- the president;
- the secretary;
- the board of directors; or
- any stockholder at the written request of the holders of not less than
one-tenth of all the shares entitled to vote at the meeting.
SpectraSite's bylaws further specify that only business which is related to the
purposes of the special meeting, as set forth in the notice calling the meeting,
may be transacted at the meeting.
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NUMBER AND ELECTION OF DIRECTORS
The Washington Business Corporation Act allows a corporation to specify the
number of directors on the board in its articles of incorporation or bylaws.
Directors are elected at the annual stockholders' meeting. If the articles of
incorporation authorize dividing its shares into series or classes, the articles
also may authorize the election of all, or a specified number, of the directors
by holders of one or more classes or series of stock. Each class, classes or
series entitled to elect one or more directors is a separate voting group for
purposes of board elections. Westower's articles of incorporation provide that
the bylaws shall fix the number of directors. Westower's bylaws set the number
of directors at not less than three or more than twelve.
The Delaware General Corporation Law permits a corporation's certificate of
incorporation or bylaws to contain provisions governing the number and terms of
directors. However, if the certificate of incorporation contains provisions
fixing the number of directors, such number may be changed only by an amendment
to the certificate of incorporation. Directors may be elected at the annual
stockholders' meeting, or at a different stockholders' meeting if the
corporation's bylaws so provide. Stockholders also may elect directors by
written consent in lieu of a stockholders' meeting. If the stockholders' written
consent electing the directors is not unanimous, the consent may substitute for
the meeting only if every position on the board available to be filled at that
time is vacant, and the consent fills all the vacant positions. SpectraSite's
certificate of incorporation provides that the bylaws shall set forth the number
of directors. SpectraSite's bylaws provide that the number of directors shall be
no less than five and no more than fifteen.
REMOVAL OF DIRECTORS
Under the Washington Business Corporation Act, stockholders may remove one
or more directors with or without cause, unless the articles of incorporation
permit for cause removals only. Directors elected by holders of one or more
classes or series of stock may be removed only by a vote of those same classes
or series of stock. If the corporation allows cumulative voting and the
stockholders are voting to remove less than the entire board, no director may be
removed if the number of votes sufficient to elect him or her under cumulative
voting is voted against such director's removal. If a corporation does not allow
cumulative voting, a director may be removed only if the number of votes in
favor of removal exceeds the number of votes against removal. Removal of a
director may occur only at a special stockholders' meeting called for that
purpose. Notice of the meeting must state as one of the meeting's purposes the
removal of the director. Westower's bylaws provide that one or more directors
may be removed, with or without cause, by a vote of the holders of a majority of
shares entitled to vote at an election of such directors. Westower's articles of
incorporation do not allow cumulative voting.
The Delaware General Corporation Law provides that a director or directors
may be removed with or without cause by the holders of a majority of the shares
then entitled to vote at an election of directors, except that:
- members of a classified board may be removed only for cause, unless the
certificate of incorporation provides otherwise; and
- in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause
if the votes cast against his or her removal would be sufficient, if
cumulatively voted, to elect such director at an election of the entire
board of directors or of the class of directors to which such director
belongs.
SpectraSite's bylaws provide that a director or directors may be removed with or
without cause by a vote of stockholders holding a majority of the outstanding
shares entitled to vote at an election of directors. SpectraSite's bylaws limit
this power of removal, however, by specifying that if a director is elected by a
voting group, only the stockholders of that voting group may participate in the
director's removal vote.
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VACANCIES
Under the Washington Business Corporation Act, unless the articles of
incorporation provide otherwise, board vacancies, including those created by
increasing the number of directors, may be filled:
- by the stockholders;
- by the board of directors; or
- if the remaining directors constitute less than a quorum of the board, by
an affirmative vote of the majority of the remaining directors.
If a vacancy was held by a director elected by one or more classes or series of
stock, only those classes or series may fill the vacancy. If a vacancy will
occur in the future due to a director's resignation at a later date, it may be
filled before the vacancy occurs, but the new director may not be installed
until the vacancy occurs.
Under the Delaware General Corporation Law, unless the corporation's
certificate of incorporation or bylaws provides otherwise, vacancies on the
board of directors and newly created directorships resulting from an increase in
the authorized number of directors may be filled by:
- a majority of the directors then in office, although less than a quorum;
or
- by the sole remaining director.
However, in the case of a classified board, vacancies and newly created
directorships may be filled by a majority of the directors elected by such
class, or by the sole remaining director so elected. If the board is classified,
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class to which they belong, and until
their successors have been duly elected and qualified. In addition, if,
immediately prior to the filling of any such vacancy or newly created
directorship, the directors in office constitute less than a majority of the
whole board, the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for such directors, summarily order an
election to fill any such vacancy or newly created directorship, or replace the
directors chosen by the directors then in office.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Washington Business Corporation Act, if authorized by the
articles of incorporation, a bylaw adopted or ratified by stockholders or a
resolution adopted or ratified, before or after the event, by the stockholders,
a corporation has the power to indemnify a director, officer or employee made a
party to a proceeding, or advance or reimburse expenses incurred in a
proceeding, under any circumstances. However, no such indemnification is allowed
for:
- acts or omissions of a director, officer or employee finally found to
have engaged in intentional misconduct or a knowing violation of the law;
- conduct of a director, officer or employee finally found to be an
unlawful distribution; or
- any transaction if such director, officer or employee is finally found to
have personally received a benefit in money, property or services to
which he or she was not legally entitled.
Written commentary by the Washington Business Corporation Act's drafters, which
has the status of legislative history, suggests that a corporation may indemnify
any of its directors and officers for amounts paid in settlement of derivative
actions, provided that his or her conduct does not fall within one of the
categories set forth above. Westower's articles of incorporation and bylaws
require Westower to indemnify its directors and officers to the fullest extent
permitted by the Washington Business Corporation Act, provided that, in the case
of official conduct, the director or officer acted in good faith and reasonably
believed that the action was in Westower's best interests or, in all other
cases, the director's or officer's action was not opposed to Westower's best
interests and is fairly and reasonably entitled to indemnification
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in light of the circumstances. Westower's articles of incorporation also require
Westower to advance expenses to an indemnifiable party, provided that he or she
gives Westower:
- a written agreement to repay the advance if and to the extent a court
order ultimately determines he or she was not entitled to be indemnified
for such expenses; and
- a written affirmation of such indemnifiable party's good faith belief
that he or she has met Westower's standards for indemnification.
Under the Delaware General Corporation Law, a corporation may not indemnify
any director, officer, employee or agent made or threatened to be made a party
to any threatened, pending or completed proceeding unless such person acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the corporation's best interests. Further, with respect to any
criminal proceeding, such person must have had no reasonable cause to believe
that his or her conduct was unlawful. SpectraSite's certificate of incorporation
and bylaws contain provisions which require SpectraSite to indemnify such
persons to the full extent the Delaware General Corporation Law permits.
The Delaware General Corporation Law also establishes several mandatory
rules for indemnification. In the case of a proceeding by or in the right of the
corporation, such as a stockholder derivative suit, the corporation may
indemnify an officer, director, employee or agent if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the corporation's best interests. However, no person adjudged to be liable to
the corporation may be indemnified unless, and only to the extent that, the
Delaware Court of Chancery or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses the court deems proper. If a director or
officer is successful, on the merits or otherwise, in defense of any proceeding
subject to the Delaware General Corporation Law's indemnification provisions,
the corporation must indemnify him or her for reasonable incurred expenses,
including attorney's fees.
The Delaware General Corporation Law and SpectraSite's bylaws require
SpectraSite to advance reasonable expenses to a director or officer after such
person provides an undertaking to repay SpectraSite upon a determination that he
or she has not met the required standard of conduct. In addition, SpectraSite's
bylaws permit SpectraSite to advance expenses to other employees and agents in a
similar manner.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Washington Business Corporation Act allows a corporation's articles of
incorporation to limit or eliminate directors' personal liability to the
corporation and its stockholders in certain circumstances. Provisions limiting
directors' liability may not be inconsistent with the law, may not be applied
retroactively and may not eliminate or limit liability for:
- acts or omissions involving intentional misconduct or a knowing violation
of law;
- a director's assent to or vote in favor of an unlawful distribution; or
- any transaction from which the director will personally receive a benefit
in money, property or services to which he or she is not legally
entitled.
Westower's articles of incorporation eliminate personal liability of a director
to Westower or its stockholders for monetary damages for his or her conduct as a
director except for any liability for:
- acts or omissions involving intentional misconduct or a knowing violation
of law;
- conduct found to be an unlawful distribution;
- any transaction from which the director will personally receive a benefit
to which he or she is not legally entitled; or
- any act or omission occurring prior to Westower's incorporation.
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The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting a director's
personal liability, to the corporation or its stockholders, for monetary damages
for breach of the director's fiduciary duty. However, no such provision can
eliminate or limit liability for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- violation of certain provisions of the Delaware General Corporation Law;
- any transaction from which the director derived an improper personal
benefit; or
- any act or omission prior to the adoption of such a provision in the
certificate of incorporation.
SpectraSite's certificate of incorporation contains a provision eliminating its
directors' personal liability for monetary damages to the full extent permitted
under the Delaware General Corporation Law.
DIRECTORS WITH CONFLICTING INTERESTS
The Washington Business Corporation Act permits transactions in which one
or more directors have a conflicting interest if:
- a majority, although no fewer than two, of qualified directors on the
board, or on the committee considering the transaction, approves the
transaction;
- an affirmative vote of a majority of all qualified shares approves the
transaction; or
- at the time of commitment, the transaction was fair to the corporation.
Such vote must occur after the directors have received disclosure of the
conflicting interest, with certain limited exceptions, or the vote will be
invalid. Further, a committee vote is valid only if all members of the committee
are qualified directors and either:
- consist of all the qualified directors on the board; or
- were appointed by affirmative vote of a majority of the board's qualified
directors.
A director is a qualified director if he or she has neither:
- a conflicting interest regarding the transaction; nor
- any familial, financial, professional or employment relationship with a
second director who does have a conflicting interest, if the relationship
would reasonably be expected to exert influence on the first director's
judgment in voting on the transaction.
Qualified shares are defined generally as shares other than those beneficially
owned, or the voting of which is controlled, by a director who has a conflicting
interest regarding the transaction.
Under the Delaware General Corporation Law, certain contracts or
transactions in which one or more of a corporation's directors or officers have
an interest are neither void nor voidable solely on that basis, solely because
such directors or officers participate in the meeting in which the transaction
is authorized or solely because any such director's or officer's votes are
counted for such purpose, provided certain conditions are met. These conditions
include obtaining the required approval and fulfilling the requirements of good
faith and full disclosure. Under the Delaware General Corporation Law, either:
- the stockholders or the board of directors must approve any such contract
or transaction after full disclosure of the material facts; or
- the contract or transaction must have been fair to the corporation at the
time it was approved. If board approval is sought, the contract or
transaction must be approved by a majority of disinterested directors,
which may be less than a majority of the board's quorum. SpectraSite's
certificate of incorporation and bylaws do not address further the issue
of directors with conflicting interests.
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DESCRIPTION OF SPECTRASITE'S CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The following is a summary of the material terms and provisions of
SpectraSite's capital stock. SpectraSite's amended and restated certificate of
incorporation authorizes 95,000,000 shares of common stock 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.
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. SpectraSite has two classes of authorized common stock which
are identical in all respects except that one class is non-voting. If a
SpectraSite stockholder is deemed a regulated entity under the Bank Holding
Company Act of 1956, as amended, its shares of SpectraSite stock over 5% of the
total issued and outstanding common stock will become non-voting shares 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 " -- 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 SpectraSite 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 SpectraSite 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;
- any subdivision, combination or reclassification of SpectraSite's
outstanding common stock;
- any issue of common stock at less than a specified price per share;
- 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
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<PAGE> 77
- any SpectraSite 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
SpectraSite's 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 SpectraSite's board of
directors declares and pays a dividend on the common stock out of funds legally
available for that purpose, SpectraSite 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 SpectraSite's liquidation, dissolution or winding-up.
LIQUIDATION. In the event of any liquidation, dissolution or winding-up of
SpectraSite, 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 SpectraSite's 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. SpectraSite 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
SpectraSite's assets, or any consolidation or merger with or into any
other corporation or corporations;
- any amendment, restatement or modification of SpectraSite's 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;
- SpectraSite's 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 SpectraSite's liquidation, dissolution or winding up.
EXCHANGE AGENT AND REGISTRAR
The exchange agent and registrar with respect to the canceled Westower
common stock and the SpectraSite common stock is BankBoston, N.A.
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STOCKHOLDERS' AGREEMENT
In connection with the closing of the Nextel tower acquisition, SpectraSite
and its stockholders entered into the third amended and restated stockholders'
agreement, which superceded and replaced the existing stockholders' agreement
among SpectraSite and its stockholders. The following is a summary of the
material terms of the stockholders' agreement.
Under the stockholders' agreement, as long as Welsh, Carson, Anderson &
Stowe holds at least 30% of SpectraSite's capital stock, it shall have the right
to designate a majority of SpectraSite's 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 have granted proxies to Welsh, Carson. As a result, Welsh, Carson
will continue to have the right to vote 51% of SpectraSite's outstanding capital
stock after the merger.
The proxies terminate upon the earliest to occur of the consummation of an
initial public offering of SpectraSite stock and the date on which Welsh, Carson
owns less than 30% of SpectraSite's stock. Under the stockholders' agreement,
initial public offering means one or more firm-commitment underwritten offerings
with an average per share price of $8.00 and aggregate net proceeds to
SpectraSite of at least $150.0 million. The stockholders' agreement also
contains a voting agreement provision under which SpectraSite and certain
stockholders agreed to take all appropriate action to:
- cause Welsh, Carson designees to make up a majority of SpectraSite's
board of directors until the earlier of the date Welsh, Carson holds less
than 30% of SpectraSite's outstanding capital stock or the second
anniversary of an initial public offering of SpectraSite's common stock,
at which time the number of Welsh, Carson designees on SpectraSite's
board will decrease to the greater of three and the number of directors
Welsh, Carson could appoint based on its proportionate ownership of
SpectraSite stock;
- elect two Nextel designees to SpectraSite's board;
- elect two designees of affiliates of J.H. Whitney & Co. to SpectraSite's
board;
- elect one designee of affiliates of Canadian Imperial Bank of Commerce to
SpectraSite's board;
- elect the Chief Executive Officer, initially Stephen H. Clark, to
SpectraSite's board;
- remove and replace any director if requested to do so by the stockholders
who designated the director;
- use their best efforts to cause Welsh, Carson designees to make up two of
the three members of a compensation committee created to, among other
things, set SpectraSite's employee compensation policy;
- use their best efforts to cause Welsh, Carson and J.H. Whitney & Co.
designees to make up two of the three members of an audit committee to,
among other things, review and approve SpectraSite's financial
statements; and
- use their best efforts to elect a Welsh, Carson affiliate, Lawrence B.
Sorrel, as Chairman of SpectraSite's board.
This voting agreement provision terminates on the earlier to occur of April
20, 2009 and the fifth anniversary of the consummation of an initial public
offering of SpectraSite's stock. The voting agreement provision will terminate
as to any given stockholder on the earlier to occur of that stockholder's
disposition of 50% or more of its SpectraSite stock and the date on which the
stockholder owns less than 8% of SpectraSite's outstanding stock.
The stockholders' agreement also prohibits all stockholders other than
Welsh, Carson from selling or otherwise transferring their SpectraSite stock,
except for transfers:
- made with the prior written consent of Welsh, Carson;
- in limited instances, transfers made with the prior written consent of
affiliates of J.H. Whitney & Co., Canadian Imperial Bank of Commerce and
Nextel;
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<PAGE> 79
- by an individual stockholder to his or her spouse or descendant;
- in accordance with the tag-along and drag-along provisions described
below;
- by institutional stockholders to their affiliates; and
- by Nextel to its affiliates or creditors to secure obligations under a
secured credit facility.
These transfer restrictions terminate upon the earlier of the date on which
Welsh, Carson disposes of at least 50% of its SpectraSite stock and April 20,
2001, unless SpectraSite completes an initial public offering of its stock prior
to April 20, 2001, in which case the restrictions will terminate upon the
earlier of 18 months after the closing date of the public offering and April 20,
2002. If SpectraSite completes an initial public offering after April 20, 2001,
the transfer restrictions will be reinstated for 180 days following the public
offering. SpectraSite's stockholders also agreed that they would agree to a
longer transfer restriction period if asked to do so by the underwriter of an
initial public offering of SpectraSite's stock, so long as the lock-up binds
SpectraSite's executive officers and all holders of more than 5% of
SpectraSite's outstanding stock, and any exceptions to the lock-up's provisions
apply equally to all stockholders.
Once the transfer restrictions terminate, all transfers by stockholders
owning more than 5% of SpectraSite's stock will continue to be governed by the
coordinated distribution requirements of SpectraSite's second amended and
restated registration rights agreement. See "Description of SpectraSite's Common
Stock--Registration Rights Agreement."
The stockholders' agreement contains a tag-along provision which gives the
parties to the stockholders' agreement the right to participate in any sale by
Welsh, Carson of its SpectraSite stock on the same terms as Welsh, Carson sells
its stock. This provision will terminate at the same time as the transfer
restrictions terminate.
The stockholders' agreement also contains a drag-along provision which
gives Welsh, Carson the right to require that all of the other stockholders
party to the stockholders' agreement participate in any sale by Welsh, Carson of
its SpectraSite stock on the terms specified in the stockholders agreement. In
order to trigger this right, the purchaser of Welsh, Carson's SpectraSite stock
must offer to purchase at least 80% of SpectraSite's outstanding shares, and
Welsh, Carson must accept the offer. This provision terminates upon the earlier
to occur of April 20, 2009, the consummation of an initial public offering of
SpectraSite stock and Welsh, Carson's disposition of at least 50% of its
SpectraSite stock.
If SpectraSite offers to sell newly issued shares of its stock for cash,
the stockholders' agreement gives certain SpectraSite stockholders, including
affiliates of J.H. Whitney & Co., Welsh, Carson, Canadian Imperial Bank of
Commerce and Nextel, the right to purchase stock in an amount proportionate to
the amount of SpectraSite's outstanding stock owned by the stockholder prior to
the offering. This preemptive right terminates when SpectraSite completes an
initial public offering of its stock. This preemptive right will not be
triggered by:
- offerings under employee stock option plans; or
- underwritten public offerings of SpectraSite stock.
In the event that a SpectraSite stockholder, other than Welsh, Carson,
desires to sell its SpectraSite stock to a third party, the stockholders'
agreement requires that the selling stockholder offer its stock as follows:
- first, to SpectraSite;
- second, any amount of stock not purchased by SpectraSite must be offered
to SpectraSite's stockholders, other than Welsh, Carson;
- third, the selling stockholder must offer any amount of stock not
purchased by SpectraSite and its stockholders to Welsh, Carson; and
- fourth, any remaining amount may be sold to a third-party.
This provision terminates on the earlier to occur of the consummation of an
initial public offering of SpectraSite's stock and April 20, 2002.
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<PAGE> 80
SpectraSite must make all redemptions of preferred stock equally among all
outstanding classes of preferred stock unless it receives written consent to do
otherwise from at least 80% of each outstanding class of preferred stock.
SpectraSite may not redeem any shares of common stock, except for repurchases
from employees of up to $0.5 million in any twelve-month period. The
stockholders' agreement also sets restrictions on SpectraSite's ability to:
- alter its certificate of incorporation or its bylaws in any way which
adversely affects the common stockholders or Series C preferred stock
holders without the consent of at least 57% of the holders of Series C
preferred stock;
- enter into transactions with its affiliates without the consent of a
majority of SpectraSite's disinterested board members;
- engage in some types of refinancing activities prior to April 20, 2001;
- prior to April 20, 2000 and without Nextel's consent, enter into any
agreement for the sale of all or substantially all of SpectraSite's
assets, or for a merger that would result in the transfer of more than
50% of SpectraSite's stock to parties who are not currently SpectraSite
stockholders;
- without the consent of Nextel and prior to the earliest of April 20,
2002, an initial public offering of SpectraSite's stock, and the
termination of the master site commitment agreement:
- acquire assets or stock for consideration in excess of $100 million,
or enter into any build-to-suit program for more than 250 towers,
unless SpectraSite has, in the reasonable judgment of its board of
directors, obtained financing sufficient to permit it to accomplish
such acquisition or program without materially impairing its ability
to perform its obligations under the Nextel master site commitment
agreement, or
- enter into any change of control agreement with a wireless
communications services provider having more than two million
subscribers.
All of these restrictions on SpectraSite's actions, except for the last,
terminate upon the earlier to occur of April 20, 2009, the consummation of an
initial public offering of SpectraSite stock and Welsh, Carson's disposition of
at least 50% of its SpectraSite stock. The last restriction terminates on the
earliest to occur of the completion of an initial public offering of
SpectraSite's stock, the end date of the master site commitment agreement and
April 20, 2002.
REGISTRATION RIGHTS AGREEMENT
In connection with the closing of the Nextel tower acquisition,
SpectraSite, 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 material terms of the registration rights agreement.
Under the registration rights agreement, the holders of SpectraSite's stock
party to the agreement may require SpectraSite to register all or some of their
shares under the Securities Act. The following conditions must be met to trigger
this registration obligation:
- SpectraSite must receive a request for registration from holders of
at least 25% of its outstanding stock covered by the registration
rights agreement, exclusive of stock held by management;
- the request must be received at any time following the earliest of
- April 20, 2002,
- 18 months following an initial public offering of SpectraSite's
stock effected prior to April 20, 2001, and
- 180 days after an initial public offering effected on or after
April 20, 2001; and
- SpectraSite must expect the aggregate offering price of the
registered securities will exceed $50.0 million.
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<PAGE> 81
SpectraSite is only obligated to effect three such registrations. Both
SpectraSite and SpectraSite's management have the right to include their shares
in any registration statement required by the registration rights agreement.
The registration rights agreement also provides that SpectraSite's
institutional stockholders and Nextel have the right to require SpectraSite to
file a registration statement on a Form S-3 covering their stock if and when
SpectraSite becomes eligible to file such a registration statement. Nextel or
the institutional shareholders may request this registration if:
- SpectraSite is eligible to file a registration statement on Form
S-3; and
- SpectraSite expects the aggregate offering price of the registered
securities will exceed $10.0 million.
In addition to SpectraSite's registration obligations discussed above, if
SpectraSite registers any of its common stock under the Securities Act for sale
to the public for SpectraSite's own account, the registration rights agreement
requires that it use its best efforts to include in the registration statement
stock held by other SpectraSite stockholders who wish to participate in the
offering. Registrations by SpectraSite on Form S-4, Form S-8 or any other form
not available for registering stock for sale to the public will not trigger this
registration obligation.
The parties to the registration rights agreement also agreed that if they
publicly sell their securities after an initial public offering they will
attempt to conduct the sale in a manner that will not adversely disrupt the
market for SpectraSite stock. The stockholders agreed, to the extent
practicable, to coordinate those sales and make them through a single broker or
market maker over a sufficient period of time to permit an orderly disposition
of their securities. This coordinated distribution restriction terminates:
- with respect to any shares which have been effectively registered
and disposed of in accordance with the registration statement
covering those shares;
- as to any stockholder who owns less than 5% of SpectraSite's
outstanding stock; or
- at such time as the number of shares of SpectraSite common stock in
the hands of the public exceeds the number of shares of
SpectraSite's restricted stock and stock held by management.
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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 "SpectraSite's Selected
Historical Financial Data," "Westower's Selected Historical Financial Data,"
"SpectraSite Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Westower Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the consolidated financial
statements and related notes thereto included elsewhere in this proxy
statement/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.
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<PAGE> 83
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
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 $11.5 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
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<PAGE> 84
- 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, 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 Inc. 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 data 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>
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<PAGE> 85
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.
81
<PAGE> 86
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.
82
<PAGE> 87
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.
83
<PAGE> 88
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.
84
<PAGE> 89
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.
85
<PAGE> 90
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.
86
<PAGE> 91
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%.
87
<PAGE> 92
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.
88
<PAGE> 93
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.
89
<PAGE> 94
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.
90
<PAGE> 95
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>
91
<PAGE> 96
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.
92
<PAGE> 97
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.
93
<PAGE> 98
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.
94
<PAGE> 99
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.
95
<PAGE> 100
DESCRIPTION OF SPECTRASITE
OVERVIEW
SpectraSite is one of the leading full service providers of tower related
services in the United States wireless communications industry. We develop and
manage 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 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 antenna
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.
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.
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 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
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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 management company;
GlobalComm handled co-location management 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.
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
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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.
THE NEXTEL TOWER ACQUISITION
On April 20, 1999, SpectraSite acquired 2,000 communications towers from
Nextel Communications, Inc. in a merger transaction. All such 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.
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The following table sets forth the sources and uses of funds for the Nextel
tower acquisition (dollars in thousands):
<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 "Description of SpectraSite's Capital Stock -- 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 and 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 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
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- 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.
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%.
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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 it 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 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, we 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 our 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 subject to the rights and
remedies of the lenders under our 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
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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.
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
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- 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. We generally receive monthly lease payments from
customers payable under written antenna site leases. The majority of our
outstanding customer leases, and the new leases we typically enter into, 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.
When SpectraSite provides site leasing services for carrier-owned towers,
SpectraSite receives a percentage of the revenues of the leases it obtains on
behalf of the carrier. When we perform site management services for
carrier-owned towers, the carrier pays us a fixed monthly fee for each managed
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 tower construction and selective acquisitions.
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. We hire independent
contractors locally to perform routine maintenance functions, such as
landscaping, pest control, snow removal, site access and equipment installation
oversight. We engage independent contractors 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 our
build-to-suit programs, we generally construct 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 our build-to-suit programs, our 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 our sales
representatives in response to specific requests for quotes or proposals from
carriers. Although the terms vary from proposal to proposal, we typically offer
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, we will analyze a number of
factors including projected construction cost, projected average monthly ground
lease rate, zoning and permitting issues and co-location opportunities.
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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, it will provide the site development activities required to:
- secure and complete a ground lease;
- obtain zoning approval and other required permits;
- design the network; and
- construct all towers within the network.
Prior to starting construction on each site, SpectraSite will enter into an
antenna site lease agreement with a provider. Certain of the build-to-suit
agreements contain penalty provisions in the event the towers are not completed
within specified time periods.
SpectraSite invests resources in radio frequency engineering and site
acquisition of potential tower sites we believe have higher than average
co-location opportunities. We do not commence tower construction until an anchor
tenant signs a lease.
SpectraSite also selectively pursues acquisitions of revenue-producing
communication sites. Our 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. We determine tower cash flow 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. We
have no present agreement regarding the terms of any such transaction. If and
when attractive opportunities become available, we contemplate pursuing such
opportunities. Nonetheless, we cannot assure you that any such future strategic
business arrangement will be entered into or the timing thereof. Specifically,
any decision we might make 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. We will then
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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 we 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.
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 we believe will best suit the needs of
the customer, we 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 we may negotiate fees on individual sites or for groups of
sites.
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CUSTOMERS
SpectraSite has performed site acquisition, tower construction and site
leasing services for several of the largest wireless service providers. The
majority of our contracts have historically been for personal communications
services customers. We also serve enhanced specialized mobile radio, specialized
mobile radio and cellular wireless providers. In both its site acquisition and
site leasing businesses, we work 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 our revenue. For the year ended December 31, 1998, Powertel and
Tritel accounted for 46.6% and 24.3%, respectively, of our revenues. No other
customer accounted for more than 10% of our 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;
- to position us 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 we provide, which will
enable us to market our 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. We believe that most decisions for site acquisition and site leasing
services are made by providers at the regional level with input from their
corporate headquarters. Our sales representatives work with provider
representatives at the local level and at the national level when appropriate.
Our sales staff compensation is heavily weighted to incentive-based goals and
measurements. In addition to our marketing and sales staff, we rely upon our
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 Holdings, Inc., SBA Communications
Corporation and Unisite, Inc. See "Risk Factors -- SpectraSite competes 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 fixed satellite 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
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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 our site acquisition
business, we 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 have established
full-service regional offices in the New York, Atlanta, Chicago and San
Francisco areas. In addition, we currently lease an office in Little Rock. We
open and close project offices from time to time in connection with our site
acquisition business, which offices are generally leased for periods not
exceeding 18 months.
LEGAL PROCEEDINGS
From time to time, SpectraSite is involved in various legal proceedings
relating to claims arising in the ordinary course of business. SpectraSite is
not a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on its business, financial condition or results of operations.
INTERNATIONAL
SpectraSite's primary focus is on its domestic operations. From time to
time, however, we may evaluate international opportunities and take advantage of
those that we feel may be profitable. As part of the proposed merger with
Westower, we will acquire an interest in certain tower operations in Canada and
Brazil. For more information about this operation, see "Description of
Westower -- Brazilian Operations." Currently, we are not considering any other
significant international projects.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF SPECTRASITE
The following table sets forth summary historical financial data of
SpectraSite derived from the audited and unaudited financial statements included
elsewhere in this proxy statement/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 unaudited combined financial information for the year ended December
31, 1997 has been derived from the audited financial statements of Telesite for
the period January 1 - May 12, 1997 and the audited financial statements of
SpectraSite from April 25 - December 31, 1997. The unaudited financial data have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary to present the information fairly.
The information set forth below should be read in conjunction with
"SpectraSite 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 proxy statement/prospectus.
<TABLE>
<CAPTION>
TELESITE (PREDECESSOR) SPECTRASITE YEAR ENDED DECEMBER 31, SPECTRASITE
------------------------- ------------ -------------------------- ------------------
JANUARY 1, APRIL 25, TELESITE & THREE MONTHS ENDED
YEAR ENDED 1997 - 1997 - SPECTRASITE MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED SPECTRASITE ------------------
1996 1997 1997 1997 1998 1998 1999
------------ ---------- ------------ ------------ ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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 2,330 2,955
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)
Earnings per share(b):
Basic and fully diluted............ (5) (12) (1) (6)
Weighted average shares
outstanding...................... 932 947 932 947
</TABLE>
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<TABLE>
<CAPTION>
TELESITE (PREDECESSOR) SPECTRASITE YEAR ENDED DECEMBER 31, SPECTRASITE
------------------------- ------------ -------------------------- ------------------
JANUARY 1, APRIL 25, TELESITE & THREE MONTHS ENDED
YEAR ENDED 1997 - 1997 - SPECTRASITE MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED SPECTRASITE ------------------
1996 1997 1997 1997 1998 1998 1999
------------ ---------- ------------ ------------ ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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(c)............................ 2,330 (411) (3,508) (3,919) (3,683) (254) (4,621)
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 --
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 $111,079
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>
- ---------------
Notes to Selected Historical Financial Information of SpectraSite
(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) Telesite was a limited liability company and, therefore, earnings per share
is not applicable.
(c) EBITDA consists of operating income (loss) before depreciation and
amortization expense and provisions for restructuring and other nonrecurring
charges. 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 (loss) 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.
(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.
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SPECTRASITE 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 proxy
statement/prospectus, SpectraSite Communications is a wholly-owned subsidiary of
SpectraSite, and substantially all of our operations are conducted through
SpectraSite Communications and its subsidiaries.
SpectraSite 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
SpectraSite's Series B preferred stock in a series of transactions for an
aggregate purchase price of $28.0 million.
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 June 1998, SpectraSite completed the private offering of $225,238,000
aggregate principal amount at maturity of 12% senior discount notes due 2008.
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, we acquired 40 of the towers in 1998, four towers in January 1999 and
one tower in April 1999. We paid $11.25 million for 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
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approximately $0.5 million. We have constructed towers on the sites. Amica is
the anchor tenant on all 14 towers.
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.
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 SpectraSite's 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 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.
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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.
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
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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.
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
SpectraSite 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 $225.0 million and will require semi-annual cash interest payments
of $13.5 million. In addition, the 2008 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 new 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.
We filed a registration statement with the SEC to register notes
substantially identical to the 2008 notes to be exchanged for the outstanding,
privately-placed 2008 notes. 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
annum. 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 will accrue on the 2009 notes until we file the exchange
offer registration
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statement, and we will pay this interest in cash on each October 15 and April 15
until we file the registration statement. We expect to file a registration
statement with respect to the 2009 notes exchange offer on or before August 13,
1999.
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 has used:
- $11.25 million to acquire the 45 Airadigm towers;
- 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 was $0.3 million in the three months
ended March 31, 1999 and $2.3 million in the year ended December 31, 1998. Cash
provided by operations activities was $0.2 million during the period from
inception to December 31, 1997. The cash used in operating activities was
primarily attributable to the net loss incurred in the three months ended March
31, 1999 and an increase in accounts receivable resulting from the timing of
billings related to site development services and the net loss incurred during
the year ended December 31, 1998. Net cash provided by investing activities
during the three months ended March 31, 1999 was $12.1 million, primarily as a
result of maturities of short-term investments of $15.4 million partially offset
by capital expenditures of $3.4 million. Net cash used for investing for the
year ended December 31, 1998 was $45.0 million compared to $7.2 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 used in financing activities for the three months ended March 31, 1999
was $0.3 million primarily due to debt issuance costs. Net cash provided by
financing activities for the year ended December 31, 1998 was $144.7 million
compared to $9.2 million for the same period in 1997. The increase in cash
provided by financing activities was attributable to the proceeds from the sales
of the 2008 notes and the Series B preferred stock.
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 new 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.
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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 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.
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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CERTAIN TRANSACTIONS OF SPECTRASITE
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 SpectraSite's 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 2008 notes to pay the
outstanding principal amount of and accrued interest on the note payable to Mr.
Finley.
GLOBALCOMM ACQUISITION
On 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, SpectraSite 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 SpectraSite 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 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 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 SpectraSite's
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 Limited
Partnership, William R. Gupton, Jack W. Jackman and Alton D. Eckert purchased an
aggregate of 7,000,000 shares of SpectraSite's Series B preferred stock for an
aggregate purchase price of $28.0 million in a transaction exempt from
registration under the Securities Act.
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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., certain affiliates of Canadian
Imperial Bank of Commerce, 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. See "Description of SpectraSite's Capital
Stock -- Stockholders' Agreement" and "-- Registration Rights Agreement."
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 SpectraSite's 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 SpectraSite's 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 SpectraSite common stock as consideration for financing commitments made in
connection with the Nextel tower acquisition. Welsh Carson, J. H. Whitney and
affiliates of Canadian Imperial Bank of Commerce are each significant
stockholders of SpectraSite and affiliates of each entity are members of
SpectraSite's 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 the Series A and Series B
preferred stock. In satisfaction of this commitment, Mr. Clark purchased 210,000
shares of SpectraSite common stock for an aggregate purchase price of $772,800
on April 20, 1999.
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DESCRIPTION OF WESTOWER
INTRODUCTION
Westower is a leading full service provider of integrated tower services to
the wireless communications industry in the U.S. and Canada. We offer turn-key
communications site development and tower construction services and also lease
antennae sites on the towers we own. Since our founding in 1990, we have
participated in one or more aspects of the development of over 7,500
communications sites. As a result, we have developed strong relationships and
built a reputation for quality tower construction with many of North America's
wireless carriers. Beginning in 1999, we aggressively expanded our tower
ownership and antenna site leasing capabilities, independent tower ownership and
antenna co-location.
Our operations are divided into two broad categories:
- communications site development and tower construction services; and
- tower ownership and antenna site leasing.
Between October 1997 and November 1998, we acquired 13 strategically positioned
companies to establish a presence in North America for turn-key communications
site development and tower construction services. In the past, substantially all
of Westower's revenues have been derived from communications site development
and tower construction services.
Westower's recent corporate strategy has been to use its expertise and
relationships developed from its tower construction and other site development
services to enhance its position as a tower owner. Westower owns towers through
acquisitions of existing towers and build-to-suit mandates. Under a
build-to-suit mandate, Westower builds one or more towers for a wireless carrier
which has entered into a long-term anchor tenant lease. Westower retains
ownership of the tower and the exclusive right to co-locate additional
third-party antennae on the tower.
In May 1999, Westower also completed the purchase of a portion of the
assets of the American Television Relay business unit of MCI Telecommunications
Corporation. American Television Relay transports primarily video signals
through the more remote areas of Arizona, California, New Mexico, Nevada and
Texas. Northern Arizona University is the primary customer, and it uses the
American Television Relay network to provide distance and conferenced learning
to the smaller communities throughout the State of Arizona. American Television
Relay also supplies the video transmission of major sportcasts and feeds
broadcast signals to regional cable television providers within the southwestern
United States. The five state network contains 137 American Television Relay and
decommissioned MCI telecommunication sites, including 63 towers purchased by
Westower.
COMMUNICATIONS SITE DEVELOPMENT AND TOWER CONSTRUCTION SERVICES.
Communications site development and tower construction typically occurs in five
phases:
- program management;
- communications site selection and acquisition;
- architectural and engineering services;
- communications site development and tower construction; and
- tower site maintenance.
PROGRAM MANAGEMENT. Effective program management begins with a complete
understanding of the wireless communications industry. With experience in every
discipline of a network build-out, we have been involved in the development and
management of thousands of wireless communications sites. From refining
processes within major carrier organizations to guiding executive-level
strategic planning, our staff provides a global overview and practical expertise
for any network deployment.
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Westower utilizes state-of-the-art information technology to assist new and
established wireless carriers confronted by the challenge of building and
operating a transmission network. As project manager, we organize and oversee
all aspects of a large build-out project. Every job description, task, file,
form, database and report that is essential to an efficient wireless network
build-out is defined and assembled. We use site selection criteria keyed to the
wireless service that the customer provides to develop a deployment strategy
that best allows the customer to effectively and efficiently service its market.
We also conduct radio frequency engineering and fixed network planning to ensure
that the network is properly implemented. We continue to provide forecasting and
quality control services on an on-going basis after we have selected and
developed a site.
COMMUNICATIONS SITE SELECTION AND ACQUISITION. The goal of site selection
is the placement of antennae to achieve optimum system performance while
minimizing the impact on the surrounding community. We employ an
interdisciplinary approach to site selection to assure that all issues are
carefully addressed. We perform reconnaissance of the project area to determine
ideal site locations. Our land-use planners identify prevailing conditions and
develop strategies to minimize impact on the community. They handle all zoning
and permitting issues, represent Westower and the carrier at public hearings and
seek to develop partnerships between Westower and the community. When the ideal
site has been identified, we secure the right from the property owner to
construct the tower or co-locate on the site. We also obtain all necessary
entitlement land use permits to start construction or install equipment.
Depending on the type of interest in the property that we believe will best suit
the needs of the customer, we negotiate and enter into:
- a contract of purchase to acquire fee title to the property;
- a long-term ground or rooftop lease to acquire 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, which gives the customer a
future right to acquire fee title to the property or acquire a leasehold
interest.
Westower generally obtains a title report on, conducts a survey of,
performs soil analysis of and obtains an environmental survey of the site during
this phase of the site development services.
ARCHITECTURAL AND ENGINEERING SERVICES. Westower's architecture and
engineering team manages a complex array of electrical, structural and
architectural elements while interfacing with our clients and construction crews
to ensure all site-specific objectives are captured in construction documents.
Our structural engineering and design abilities enable us to construct towers
that have maximum antenna site capacity based on the physical features of the
land on which the tower is constructed and the demand in the market in which the
tower is located. Our environmental blending efforts enable us to design
aesthetically acceptable sites and construct towers with minimal environmental
impact. Our custom structure design abilities combined with our engineering
skills also allow us to build towers in geographically difficult locations at
competitive prices. We believe that this specialty service will allow us to
capture market share in regions that other companies will not be able to enter
on a cost-efficient basis.
COMMUNICATIONS SITE DEVELOPMENT AND TOWER CONSTRUCTION. Westower believes
that the most effective way to control the development and construction process
is to perform the work with our own staff. Our general engineering, general
contracting, electrical, low voltage electrical, structural steel and other
specialty licenses allow us to perform all necessary services during the
development and construction phase. Our ability to perform civil and electrical
engineering as well as tower construction enables us to expedite and simplify
this phase of development by minimizing the need to subcontract.
Once the architecture and engineering phase is completed and specific
development and construction plans finalized, a project team of five to seven
people is dispatched to the site. A temporary field office is established at the
site. The project team typically is composed of our permanent employees, but may
be supplemented with local hires.
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Westower uses its information technology abilities to create construction
models and development budgets and critical path schedules throughout the
project. Our civil engineering abilities allow us to prepare the construction
site by leveling the land, removing vegetation, and installing access roads as
needed. Based on the results of soil tests that we conduct at the site we design
and build the tower foundation. After the foundation is in place we erect the
tower. We capitalize on our structural engineering abilities by constructing a
tower designed for maximum antenna capacity. Whenever possible, we fabricate the
tower at our own facilities at a favorable cost advantage over most of our
competitors.
After erecting the tower and placing the equipment shelter, we install the
antennae and feed lines, including the sweep, test and orientation. Depending on
the project, electricity is installed either during the erection process to
conform with FAA lighting requirements or after the tower has been constructed.
Our technical crews are regularly trained in the latest cellular, microwave,
fiber optic and direct current power plant system installation and testing
methods. We have also become a leader in designing and implementing in-building
wireless systems, as well as a broad range of cellular and personal
communications services repeater systems. Our state-of-the-art test equipment
and dedicated radio frequency testing teams allow us to monitor and maintain
system integrity and quality control on an ongoing basis.
Westower also offers the ability to construct the switch facility that
controls an antenna's communications with other communication sites. Although
switch construction is not performed at every project site, it is an additional
specialty service we provide that gives us a competitive edge.
Throughout the development and installation process Westower generates
status reports covering scheduling and costs. After constructing the tower and
equipment shelter and completing the antenna work, we install grounding lines
and protective fencing around the site. We then perform final grounding and
landscaping as necessary to complete the project.
COMMUNICATIONS SITE MAINTENANCE. Westower's communications site
maintenance staff has practical experience and is supported by state-of-the-art
technology to ensure customer networks and assets are protected and maintained.
Our services allow carriers to focus on their core business, while we administer
site license arrangements, billing transactions, and site operations. We also
monitor site access, solve radio frequency issues, perform quality control
testing of transmission equipment and respond to emergency situations. Our
national presence and trained emergency response teams guarantee timely local
assistance whenever it is needed. Due to advances in technology, our experience
indicates that antenna sites are updated approximately every three years at a
cost of $30,000-$45,000 payable to the services company that performs the work.
As a result of our engineering expertise, we can perform all necessary updating
services for our tenants.
TOWER OWNERSHIP AND ANTENNA SITE LEASING. There are three elements of
Westower's tower ownership and antenna site leasing business:
- acquiring towers through our build-to-suit program;
- acquiring existing towers; and
- leasing antenna sites on our towers.
BUILD-TO-SUIT PROGRAMS. After obtaining a build-to-suit mandate, Westower
works with the anchor tenant to develop a comprehensive plan for a particular
transmission network by locating new sites in areas that meet the tenant's
network expansion requirements. Customer requirements may result in:
- our leasing space on an existing tower or other structure owned by a
third party;
- our acquiring an existing tower owned by a third party;
- using space on an existing tower we own; or
- constructing a new tower.
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If new tower construction is necessary, we retain ownership of the tower and the
exclusive right to co-locate additional tenants on it. We will build the tower
to provide maximum commercial benefit based on market demand because the
incremental construction costs of constructing a tower capable of accommodating
several antennae as opposed to just one antenna are minimal while the potential
additional lease revenues can be substantial. We generally construct towers only
after having signed an antenna site lease agreement with an anchor tenant and
having made the determination that the projected revenues will justify the
initial or planned capital investment for the tower or group of towers. In
certain cases, we may identify and secure all zoning and other regulatory
permits for attractive sites in anticipation of customer demand, with actual
construction delayed until we secure an anchor tenant. Although our initial
focus is on areas where we already have a presence, we will build networks in
any region necessary to meet our customers' needs. Where we do not currently
have a presence, our planning includes establishing field or other offices
necessary to professionally manage and operate the new sites.
In competing for build-to-suit mandates, Westower utilizes its existing
relationships in the wireless communications industry to target wireless service
providers interested in outsourcing their network build-out or to respond to
competitive bids or specific requests. Although the terms vary from proposal to
proposal, we typically offer a five-year lease agreement with additional
five-year renewal periods. The proposed monthly rent may vary based on the
ground space requirements, the type of tower, the type of technology and the
number of antennae.
After obtaining a build-to-suit mandate, Westower conducts a due diligence
investigation of each proposed tower site. During the due diligence
investigation, which typically does not exceed 30 days, we determine the optimal
potential tower sites. The goal of site selection is the placement of the tower
and antennae at a location that achieves optimum network performance while
minimizing the impact on the surrounding community. Some of the factors used to
determine the optimal site include:
- co-location opportunities;
- zoning and permitting issues;
- economic potential of the site;
- difficulty of constructing a multi-tenant tower; and
- remoteness of the site.
If we conclude that it is economically feasible to construct the tower, we will
enter into a site lease agreement with the anchor tenant for the construction of
the tower and the leasing of space for its antennae and equipment. Antenna site
lease agreements provide, among other terms, that all obligations are
conditioned on our receiving all necessary zoning approvals where zoning needs
to be obtained. Leases may contain penalty or forfeiture provisions in the event
the tower is not completed within specified time periods. However, events beyond
our control, such as securing zoning approval, will excuse any penalty for such
delays.
TOWER ACQUISITIONS. Westower evaluates potential acquisitions using
numerous criteria, including:
- potential demand;
- tower location;
- tower height;
- existing capacity utilization;
- local competition; and
- local government restrictions on new tower development.
Westower capitalizes on its engineering expertise by analyzing an existing
tower's structure to determine whether it has additional unused space or,
conversely, is overloaded. We believe this gives us a disciplined approach in
valuing potential tower acquisitions.
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Westower seeks to acquire towers that have existing cash flow and
identified potential for significant future cash flow growth from additional
tenants. We target population centers and key transportation corridors in
markets where there is evidence of high potential growth. We also estimate
whether additional capital expenditures will be required to add capacity to
accommodate future growth. We have focused our acquisition efforts in the
Northwestern, Southeastern and Southwestern United States.
Westower recently created an acquisition team to organize its tower
acquisition activities. The team is responsible for the negotiation,
documentation and consummation of large cluster acquisitions. When large tower
clusters are put up for sale, a solicitation company generally contacts the
larger independent tower companies in the industry to assess interest and create
a bidding process. Our acquisition team reviews the tower portfolio, conducts
market research and works with corporate headquarters to develop a bid strategy.
ANTENNA SITE LEASING. Westower leases antenna sites on communications
towers it owns as a result of build-to-suit mandates or tower acquisitions. As
our tower ownership grows we are developing and implementing an integrated
marketing and sales strategy designed to inform the marketplace of our available
site leases. This strategy focuses on the quality of our towers and tower sites,
the ease of doing business with one lessor, and our ability to construct new
towers and reconstruct existing towers as technologies change.
Westower's tower ownership has grown as it has implemented its corporate
strategy to own additional towers. 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 build-to-suit mandates for approximately 300 towers.
CUSTOMERS
Westower has performed communications site development services for many of
North America's largest wireless carriers. Our customers include Sprint PCS,
AT&T Wireless, USWest, Nextel, U.S. Cellular, Rogers Cantel, Western Wireless
and ClearNet. In both our communications site development and antenna site
leasing businesses, we also work with smaller local, regional or private
operators. During the thirteen-month period ended March 31, 1999, no one
customer represented more than 10.0% of our revenues.
COMPETITION
Westower faces competition in the provision of communications site
services, the acquisition of towers and in the competition for build-to-suit
mandates. American Tower Corporation, Crown Castle International Corp., Pinnacle
Holdings, Inc., SBA Communications Corporation and other companies each compete
with us for the acquisition of towers and the provision of communication site
services. Each of these competitors is attempting to consolidate tower ownership
through acquisitions and the implementa-
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tion of its own build-to-suit program in an effort to expand its tower ownership
throughout North America. Currently, each of these named companies has a
significantly larger portfolio of owned towers and has greater financial
resources than we do.
The industry for wireless infrastructure building and implementation
services is highly competitive and fragmented. Traditionally, most participants
in this industry have been small firms with fewer than fifty employees. While
the industry continues to be comprised predominately of smaller firms, over the
past several years the increased demand for wireless infrastructure building and
implementation services has motivated the major tower companies to increase
their activities while other competitors have entered the market. These new
competitors include, but are not limited to, traditional, non-wireless
engineering and construction companies and non-wireless subcontractors who have
begun to enter the market either alone or in conjunction with wireless equipment
manufacturers. In addition, Westower faces competition in the market for
wireless infrastructure electrical design and engineering services from
stand-alone electrical engineering and design firms, other providers of wireless
infrastructure building and implementation services and wireless communications
equipment manufacturers. As demand for wireless infrastructure building and
implementation services increases, we expect that more non-traditional
competitors will enter the market and provide increased competition for us.
BRAZILIAN OPERATIONS
Westower is part of 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. Our customers in Brazil are affiliates of
our North American customers. The joint venture employs 11 people from North
America and 22 Brazilians. All transactions in Brazil are denominated in
Canadian currency.
EMPLOYEES
On May 31, 1999, Westower had approximately 660 employees. We believe that
our employee relations are good. None of our employees is represented by a
collective bargaining agreement.
PROPERTIES
Westower owns five acres of land in Surrey, British Columbia, Canada, on
which a 10,000 square foot fabrication, assembly and storage facility and a
5,000 square foot office building are located, four acres of land near Montreal,
Quebec, Canada, on which a 7,000 square foot facility is located and a one acre
lot in Houston, Texas on which approximately 2,500 square feet of office space
and 5,000 square feet of warehouse space are located. We also lease office space
in the following locations:
- Phoenix and Tucson, Arizona;
- Burbank, Sacramento and San Jose, California;
- Ft. Lauderdale, Palm Beach Gardens, Tampa and Orlando, Florida;
- Atlanta, Georgia;
- Kailua, Hawaii (in process of closing office);
- Ridgeland, Mississippi;
- Las Vegas, Nevada;
- Charlotte and Greensboro, North Carolina;
- Columbus, Ohio; Portland and Roseburg, Oregon;
- Austin, Dallas and Houston, Texas;
- Redmond and Seattle, Washington; and
- Alberta, Nova Scotia and Ontario, Canada.
Westower's interests in its communications sites are comprised of a variety
of fee interests, leasehold interests created by long-term lease agreements,
private easements, easements, licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a
three-to-five acre tract which supports towers, equipment shelters and guy wires
to stabilize the structure. Less than
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2,500 square feet are required for a self-supporting tower structure of the kind
typically used in metropolitan areas. Land leases generally have twenty to
twenty-five year terms, with three five-year renewals, or are for five-year
terms with automatic renewals.
LEGAL PROCEEDINGS
Westower's subsidiary CNG Communications, Inc. is a defendant in an action
entitled Commercial Labor Management, Inc., Mark J. Richardson and Edward Torres
v. CNG Communications, Inc. and Paul Bishop, No. 99-3192, United States District
Court for the Central District of California. Westower acquired CNG in September
1998. Plaintiffs allege that they had a pre-existing agreement to acquire CNG
that was breached when Westower acquired CNG by merger. The plaintiffs are
seeking the recovery of damages in an unspecified amount. CNG is contesting the
matter vigorously and believes that the allegations are without merit.
Westower is involved in other litigation in the ordinary course of
business, none of which it expects to have a material adverse effect on
Westower.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF WESTOWER
The following table sets forth Westower's selected historical consolidated
financial data. The 1996 through 1999 selected historical consolidated financial
data are derived from our consolidated financial statements set forth elsewhere
in this proxy statement/prospectus. In 1998 we changed our fiscal year from
February 28 to September 30. This change resulted in a seven-month transition
period ending on September 30, 1998. The data as of and for the seven-month
period ended September 30, 1997 and six-month periods ended March 31, 1998 and
1999 is unaudited. However, we believe that it contains all adjustments,
consisting only of normal recurring accruals, necessary to present the
information fairly. This data should be read in conjunction with our audited and
unaudited consolidated financial statements and with "Westower Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED
FISCAL YEAR ENDED FEBRUARY 28 (29), ENDED SEPTEMBER 30, MARCH 31,
--------------------------------------------- ------------------- -----------------
1994 1995 1996 1997 1998 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF INCOME DATA:
Contract revenues earned................ $6,303 $9,390 $14,775 $46,091 $41,662 $22,869 $31,944 $23,358 $43,271
Costs of revenues earned................ 5,033 6,810 10,755 33,936 29,508 16,778 23,858 17,050 30,730
------ ------ ------- ------- ------- ------- ------- ------- -------
Gross profit............................ 1,270 2,580 4,020 12,155 12,154 6,091 8,086 6,308 12,541
Selling, general and administrative..... 862 1,778 2,944 7,832 7,236 2,720 4,958 3,187 8,257
Depreciation and amortization........... 55 81 196 268 473 187 578 261 1,459
Merger related expenses................. -- -- -- -- -- -- 327 -- 77
------ ------ ------- ------- ------- ------- ------- ------- -------
Operating income........................ 353 721 880 4,055 4,445 3,184 2,223 2,860 2,748
Total other income (expense)............ (37) 39 (134) 30 124 9 (643) 156 (719)
------ ------ ------- ------- ------- ------- ------- ------- -------
Income before income taxes and minority
interest.............................. 316 760 746 4,085 4,569 3,193 1,580 3,016 2,029
Minority interest....................... -- -- (6) (19) -- -- -- -- --
------ ------ ------- ------- ------- ------- ------- ------- -------
Income before income taxes.............. 316 760 740 4,066 4,569 3,193 1,580 3,016 2,029
Provision for income taxes.............. 442 281 193 636 1,633 1,141 351 1,057 883
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $ (126) $ 479 $ 547 $ 3,430 $ 2,936 $ 2,052 $ 1,229 $ 1,959 $ 1,146
====== ====== ======= ======= ======= ======= ======= ======= =======
Basic earnings (loss) per share......... $(0.03) $ 0.11 $ 0.11 $ 0.72 $ 0.56 $ 0.43 $ 0.19 $ 0.33 $ 0.14
====== ====== ======= ======= ======= ======= ======= ======= =======
Fully diluted earnings (loss) per
share................................. $(0.03) $ 0.11 $ 0.11 $ 0.72 $ 0.52 $ 0.43 $ 0.16 $ 0.29 $ 0.13
====== ====== ======= ======= ======= ======= ======= ======= =======
Basic common shares outstanding......... 4,379 4,379 4,776 4,776 5,263 4,776 6,531 5,995 7,839
====== ====== ======= ======= ======= ======= ======= ======= =======
Fully diluted common shares
outstanding........................... 4,379 4,379 4,776 4,776 5,594 4,776 7,636 6,035 8,621
====== ====== ======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 525 $ 499 $ 906 $ 7,131 $ 7,206 $ 1,748 $ 9,331 $ 6,409 $ 9,246
Working capital......................... 734 700 639 1,908 6,559 8,179 5,204 9,470 24,448
Total assets............................ 1,955 3,385 6,647 16,003 25,057 14,345 62,294 24,166 106,662
Long term debt and capital lease
obligations, excluding current
portion............................... 792 1,113 1,044 212 292 185 14,991 537 46,437
Total stockholders' equity.............. 512 812 899 3,944 12,719 5,836 26,763 13,705 44,900
</TABLE>
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WESTOWER MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Historically, Westower principally engaged in building towers for wireless
carriers, and wireless carriers traditionally owned and operated their own
transmission tower assets. While we continue to provide construction and site
development services to wireless carriers, our focus has been directed
increasingly toward developing sources of recurring revenues, specifically
building towers for our own account and acquiring towers from carriers and other
owners, maximizing revenues from towers we own and entering into long-term
maintenance contracts with other tower owners.
RESULTS OF OPERATIONS
The following table presents, as a percentage of net revenues, financial
data for the periods indicated:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS FOR THE SEVEN FOR THE SIX
ENDED MONTHS ENDED MONTHS ENDED
FEBRUARY 28, SEPTEMBER 30, MARCH 31,
--------------------- ------------- -------------
1996 1997 1998 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Contract and other revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 72.8 73.6 70.8 73.4 74.7 73.0 71.0
Gross profit............................... 27.2 26.4 29.2 26.6 25.3 27.0 29.0
Selling, general and administrative
expenses................................. 19.9 17.0 17.4 11.9 15.5 13.6 19.1
Depreciation and amortization.............. 1.3 0.6 1.1 0.8 1.8 1.1 3.4
Merger expenses............................ -- -- -- -- 1.0 -- 0.2
Operating income........................... 6.0 8.8 10.7 13.9 7.0 12.2 6.4
Other income (expense)..................... (0.2) 0.1 0.3 -- -- 0.5 0.6
Interest income............................ -- 0.2 0.3 0.2 0.4 0.5 0.3
Interest and financing expense............. 0.7 0.2 0.3 0.1 2.4 0.3 2.6
Income before tax.......................... 5.1 8.9 11.0 14.0 5.0 12.9 4.7
Income tax................................. 1.3 1.5 3.9 5.0 1.1 4.5 2.0
Net income................................. 3.7 7.4 7.1 9.0 3.9 8.4 2.7
</TABLE>
We were a private corporation until our initial public offering, which was
completed on October 15, 1997. Since then, we have completed thirteen
acquisitions, three of which were accounted for as pooling-of-interests. The
financial statements and the following discussion of operations reflect the
pooled transactions as if these companies were part of our business for all
periods presented.
On October 27, 1998, we changed our fiscal year end from February 28 to
September 30. Accordingly, the financial results for the seven-month transition
period from March 1, 1998 to September 30, 1998 have been presented, and the
unaudited financial results for the seven-month period from March 1, 1997 to
September 30, 1997 have been included for comparative purposes.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO RESULTS FOR THE SIX MONTHS ENDED
MARCH 31, 1998.
Our revenues for the six-month period ended March 31, 1999 increased
approximately 85% to $43.3 million from $23.4 million for the same six-month
period in the previous year. The increase in revenues was primarily due to an
increased rollout of wireless infrastructure building and implementation
activities during the 1999 period and the results of business acquisitions
completed after March 31, 1998 and accounted for as purchases.
Gross profit, excluding depreciation, for the six-month period ended March
31, 1999 increased approximately 99% to $12.5 million from $6.3 million for the
same six-month period in the prior year. Gross profit as a percentage of revenue
increased to 29% for the first six months of fiscal 1999 from 27% for the same
six months of fiscal 1998. The increase in the gross profit percentage is
attributable to an
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increase in the labor content of revenues. The increase in gross profit is
primarily due to the increase in revenues coupled with improved margins.
Selling, general and administrative expenses for the six-month period ended
March 31, 1999 increased approximately 159% to $8.3 million from $3.2 million
for the same six-month period in the prior year. As a percentage of revenues,
selling, general and administrative expenses increased to 19.1% in the first six
months of fiscal 1999 compared to 13.6% in the same six months of fiscal 1998.
The increase in selling, general and administrative expenses is attributable to
the increase in revenues that required additional management and administrative
resources and an increase in staffing for the build-to-suit and tower leasing
programs, both of which did not exist in the comparable period in the prior
year.
Interest and financing expenses for the six-month period ended March 31,
1999 increased approximately 1,460% to $1.1 million from $72,000 for the same
six-month period in the prior year. The increase is due to borrowings made, the
proceeds of which have been used to acquire companies and towers.
Income taxes for the six-month period ended March 31, 1999 decreased
approximately 16% to $0.9 million from $1.0 million for the same six-month
period in the prior year. Westower's effective tax rate for the first six months
of fiscal 1999 was approximately 43% compared to 35% in the same period of
fiscal 1998. The increase is primarily the result of non-deductible amortization
expense of goodwill recognized in business combinations accounted for as
purchases.
SEVEN MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO RESULTS FOR THE SEVEN MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED).
Revenues for the seven months ended September 30, 1998 increased $9.1
million or 40% compared to the comparable period in 1997. Approximately 52% of
the increase is due to strong demand for our services in certain geographic
areas, including the southeastern United States. Acquisitions accounted for by
the purchase method contributed approximately 48% of the increase.
Costs of revenues for the seven months ended September 30, 1998 increased
$7.1 million or 42% compared to the comparable period in 1997. Costs of
revenues, as a percentage of revenues, increased to 74.7% from 73.4%, due to
more competitive bidding environments. Approximately 94% of the increase is due
to the increase in revenues; 6% reflects the increase in the costs of revenues
percentage.
Gross profit for the seven months ended September 30, 1998 increased $2.0
million or 33% from the same period in 1997. The increase is attributable to the
increase in revenues explained above, partially offset by the increase in the
costs of revenues percentage.
Selling, general and administrative expenses for the seven months ended
September 30, 1998 increased $2.2 million or 82% from the same period in 1997.
The increase is attributable to increased fees and costs associated with being a
public company and increased staffing designed to enable us to become a
significant tower owner and operator.
Depreciation and amortization for the seven months ended September 30, 1998
increased $0.4 million or 209% from the same period in 1997. The increase is
attributable to amortization of intangible assets ($0.2 million) and an increase
in depreciation reflecting greater equipment and communications towers ($0.2
million).
Merger related expenses were $0.3 million for the seven months ended
September 30, 1998, as compared to none in the seven months ended September 30,
1997. These expenses represent professional fees and other costs incurred to
complete business combinations accounted for using the pooling-of-interests
method.
Operating income for the seven months ended September 30, 1998 decreased
$1.0 million or 30% compared to the same period in 1997. The decrease is due to
increased selling, general and administrative expenses, depreciation and
amortization, and merger expenses as discussed above.
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Interest and related financing costs, consisting of the amortization of a
commitment fee of $0.1 million, amortization of a conversion feature of $0.1
million, amortization of deferred financing charges of $0.1 million,
amortization of original issue discount of $27,000 and interest expense of $0.4
million for the seven months ended September 30, 1998, increased $0.7 million or
2309% from the same period in 1997. The increase is due to interest and costs
related to the issuance of convertible subordinated debt and obtaining a $75
million credit facility.
Income taxes for the seven months ended September 30, 1998 decreased $0.8
million or 69% compared to the same period in 1997. The decrease is attributable
to reduced income, and a decrease in the effective tax rate from 36% to 22%. The
decrease in the effective tax rate is primarily due to income directly taxable
to former S Corporation shareholders of companies acquired during the seven
month transition period that were accounted for under the pooling-of-interests
method.
Net income for the seven months ended September 30, 1998 decreased $0.8
million or 40% compared to the same period in 1997. The decrease is a result of
the items discussed above, such as increased revenues offset by increased
selling, general and administrative expenses, depreciation and amortization,
merger expenses, and interest costs.
Revenue and expenses of approximately $0.2 million and $25,000,
respectively, associated with tower ownership have been included in contract
revenues and costs of revenues.
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED TO RESULTS FOR THE FISCAL YEAR
ENDED FEBRUARY 28, 1997.
Revenues for the year ended February 28, 1998 decreased $4.4 million or 10%
compared to fiscal 1997. The decrease is primarily attributable to a $12.2
million decrease in the southeastern United States, primarily reflecting the end
of a major build by one customer, offset by increases throughout the rest of the
United States and Canada.
Costs of revenues for the year ended February 28, 1998 decreased $4.4
million or 13% compared to fiscal 1997. Costs of revenues, as a percentage of
sales, decreased to 70.8% from 73.6%, due to less competitive bidding
environments.
Gross profit for the year ended February 28, 1998 was virtually unchanged
from fiscal 1997; the difference is approximately $1,000. The lack of
significant change is due to the $4.4 million decrease in revenues offset by the
$4.4 million decrease in costs of revenues, both of which are explained above.
Selling, general and administrative expenses for the year ended February
28, 1998 decreased $0.6 million or 8% from fiscal 1997. In fiscal 1997, tax
motivated bonuses of $1.0 million were paid to the senior officers. No such
bonuses were paid in 1998. Adjusted for the bonuses, the selling, general and
administrative expenses increased $0.4 million and this reflects increased
staffing associated with being a public company and positioning Westower to be a
significant owner and operator of towers.
Depreciation and amortization for the year ended February 28, 1998
increased $0.2 million or 76% from fiscal 1997. The increase is consistent with
an increase in our equipment.
Operating income for the year ended February 28, 1998 increased $0.4
million or 10% from fiscal 1997. This increase is a result of decreased selling,
general and administrative expenses and improved profit margin percentage,
offset by decreased sales and increased depreciation and amortization.
Other income increased by $0.1 million for the year ended February 28, 1998
from the comparable period as a result of interest income on the proceeds from
our initial public offering and gains on the sale of property, offset by
interest expense from prior borrowings.
Income taxes for the year ended February 28, 1998 increased $1.0 million or
157% from fiscal 1997. The increase is attributable to the increase in operating
income and an increase in the effective tax rate from 16% to 36% which was a
result of increased taxable income in Canada and less income taxed directly to
former S Corporation shareholders of acquired companies accounted for using the
pooling-of-interests method.
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Net income for the year ended February 28, 1998 decreased $494,000 or 14%
from fiscal 1997 reflecting the decrease in revenues, increased depreciation and
amortization, and higher tax rate, partially offset by the improved gross profit
percentage and decreased selling, general and administrative expenses.
FISCAL YEAR ENDED FEBRUARY 28, 1997 COMPARED TO RESULTS FOR THE FISCAL YEAR
ENDED FEBRUARY 29, 1996.
Net revenues in 1997 increased 122.5% or $6.5 million from the previous
fiscal year. The increase is attributable to the deployment of personal
communications services networks in Oregon, Washington and British Columbia.
This increase in net sales is directly related to the growing demand for
wireless communication.
Gross profit for 1997 increased 134.5% over 1996, reflecting the higher
sales volume in 1997. Gross profit margins increased from 24.8% in 1996 to 26.1%
in 1997. This modest increase is attributable to continued strong demand for our
services.
Selling, general and administrative expenses increased $0.4 million, or
46.5% to $1.1 million for the year ended February 28, 1997. This increase
reflects additional expenditures made in personnel to obtain and sustain higher
sales levels in 1997.
Interest expense decreased by 43.0% from $72,914 in 1996 to $41,576 in
1997, reflecting a decrease in notes payable and capital lease obligations in
1997 and the fact that Westower did not use its operating loan facilities in
1997.
Operating income before interest and management bonuses was $1.9 million in
1997, an increase of $1.4 million or 263.1% compared to 1996. The increase is
due to the increase in sales, the modest increase in gross profit percentage,
reduced by an increase in selling, general and administrative expenses.
Prior to October 15, 1997, we were privately held and paid bonuses to our
officers. Bonuses increased by $0.6 million or 543.5% in 1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, we had cash of $9.3 million, a decrease from September
30, 1998 of $85,000. Working capital was $24.5 million.
We used $2.1 million of cash in our operations during the six months ended
March 31, 1999. Net income plus non-cash operating expenses was $2.7 million and
$4.8 million is reflected in the changes in non-cash operating assets and
liabilities. During the six months ended March 31, 1999, we used cash of $6.6
million, net of acquired cash, to acquire businesses, and $22.7 million to
purchase property and equipment, principally communications towers.
We used $4.2 million of cash in our operations during the seven month
transition period. Net income plus non-cash operating expenses was $2.4 million,
and $6.6 million is reflected in the changes in non-cash operating assets and
liabilities. During the seven month transition period, we used cash of $6.3
million, net of acquired cash, to acquire businesses, and $1.7 million to
purchase property and equipment.
During the year ended February 28, 1998, we sold 1,200,000 units in our
initial public offering of securities and received net proceeds of approximately
$7.5 million. Each unit consisted of one share of common stock and one warrant
to purchase a share of common stock for $9.00. During the seven months ended
September 30, 1998, 559,000 warrants were exercised resulting in net proceeds of
$4.8 million. Subsequent to September 30, 1998, nearly all of the remaining
warrants were exercised resulting in net proceeds of $7.3 million.
In June 1998, we executed a subordinated convertible note with an aggregate
principal amount of $15.0 million and a stated interest rate of 7%. Net proceeds
were $14.9 million. The note is convertible into 599,281 shares of common stock
at $25.03 per share until April 30, 2007. In connection with the subordinated
debt, we granted warrants to purchase 40,000 shares of common stock at $23.00
per share
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until April 30, 2007. We have used the proceeds to purchase and build
communications towers for lease to others and to acquire other enterprises.
On June 9, 1998, we signed a credit agreement with BankBoston N.A. whereby
BankBoston committed to providing $75.0 million principal amount of senior
secured revolving credit. The BankBoston credit facility allows us to purchase
or construct communications towers for use by third parties and acquire
businesses. Our ability to utilize the credit facility is determined by, among
other criteria, our cash flows generated from operations and from tower leasing.
During the six months ended March 31, 1999, we borrowed $31.5 million under the
credit facility. Subsequent to March 31, 1999, we borrowed an additional $8.5
million. The amount available for future borrowings under the credit facility is
subject to projected cash flow to be derived from future transactions.
On August 31, 1998 we completed the acquisition of Cord Communications,
Inc., a California corporation which engages in operations similar to ours. 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, if any, will be recorded as
an adjustment of the purchase price and will increase recorded goodwill. The
acquisition was recorded as a purchase, resulting in goodwill of approximately
$10.2 million.
On September 28, 1998, we completed the acquisition of CNG Communications,
Inc. for approximately $1.7 million in cash and the assumption of certain
obligations of CNG. As part of the acquisition, we 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. We entered into a settlement agreement 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. The
acquisition was accounted for using the purchase method for business
combinations.
On October 22, 1998, we executed an agreement to acquire communications
towers for $9.2 million, subject to regulatory approval. During the six months
ended March 31, 1999, Westower paid $736,000 towards the purchase price.
Westower received approval and consummated the transaction in May 1999.
On October 30, 1998, we completed the acquisition of Teletronics Management
Services, Inc. The acquisition was effected by exchanging 188,000 shares of
common stock valued at approximately $3.8 million, $1.8 million in cash, and the
assumption of liabilities, including distributions payable to former
shareholders in the amount of $0.8 million, 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, we completed the acquisition of Summit
Communications, LLC, a Mississippi limited liability company which engages in
operations similar to those of Westower. The merger was effected by exchanging
200,000 shares of common stock valued at approximately $4.1 million, $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. Additional shares of common stock
issued, if any, will be recorded as an adjustment of the purchase price and will
increase recorded goodwill. The acquisition was accounted for using the purchase
method for business combinations, resulting in goodwill of approximately $8.0
million.
On February 26, 1999 Westower completed the acquisition of
Telecommunications R. David, Inc., a Quebec, Canada company which engages in
operations similar to those of Westower. The acquisition was effected by
exchanging approximately $330,000 in cash, and the assumption of 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.
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Cash requirements to continue to fund our operations will depend primarily
upon the level of wireless infrastructure building and implementation we
undertake, the level of working capital needed to generate the revenues
associated with such business plan and acquisition opportunities. We believe
that revenues from operations and amounts available under our credit facility
will be adequate to satisfy working capital requirements at least through
September 1999.
To date, we have derived substantially all of our revenues from sales in
the United States and Canada, and inflation has not had a significant effect on
our business. We do not currently expect inflation to adversely affect us in the
future unless inflation increases significantly in the United States or Canada.
To date, our activities in Brazil have been denominated in Canadian currency.
We are currently in negotiations to acquire tower construction companies,
but we do not expect any such acquisitions, if completed, to be material. We are
also in negotiation concerning the possible acquisition of wireless
communication towers. None of the negotiations are finalized and there is no
assurance that we will be successful in concluding these negotiations, or if we
are successful, that the acquisitions will not be dilutive to existing
shareholders.
YEAR 2000 COMPLIANCE
We are aware of the issues associated with the year 2000 as it relates to
information systems. In September 1998, independent consultants completed a
review of our software and hardware. Following recommendations made by the
consultants, we replaced a few personal computers. Our total expenditure to date
for year 2000 compliance is less than $50,000. The year 2000 is not expected to
have a material impact on our current information systems because our current
software is either already year 2000 compliant or required changes are not
expected to be significant. We have not conducted a survey of our customers or
vendors to ascertain their year 2000 readiness. Based on the nature of our
business and the existence of alternate vendors, however, we anticipate that we
are unlikely to experience material business interruption due to the potential
adverse impact of the year 2000 on our vendors. As a result, we do not
anticipate that incremental expenditures to address year 2000 compliance will be
material to our liquidity, financial position or results of operations over the
next few years.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standard 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. SFAS No. 133
becomes effective for us beginning October 1, 1999. Management has not yet
evaluated the effects that the adoption of SFAS No. 133 will have on its
reported financial position or results of operations.
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CERTAIN TRANSACTIONS OF WESTOWER
ACQUISITION OF WTC HOLDINGS, INC.
On October 28, 1997, Westower acquired all of the issued and outstanding
stock of WTC Holdings Inc., now a Wyoming corporation, which holds all of the
issued and outstanding shares of Western Telecom Construction Ltd., an Alberta,
Canada company in exchange for 835,000 shares of Westower's common stock. WTC
Holdings, Inc. was owned by Peter Jeffrey, brother of S. Roy Jeffrey.
REPAYMENT OF LOANS FROM PAYNE AND JEFFREY
Approximately $0.6 million of the proceeds of Westower's initial public
offering were used to repay amounts due to Calvin J. Payne, who is Westower's
Chief Executive Officer and a director, and his spouse and a corporation
controlled by S. Roy Jeffrey, who is Westower's Chief Operating Officer and a
director, and another individual. The amount due to Mr. Payne and his spouse
arose when Westower distributed amounts to them for tax planning purposes, which
they then loaned back to Westower in 1993. The amount due to the corporation
controlled by S. Roy Jeffrey was loaned to Westower to assist Westower in
purchasing land in 1993.
LOANS TO RELATED COMPANY
During January 1998, Westower advanced $0.1 million to a corporation owned
by Calvin J. Payne, S. Roy Jeffrey, Peter Jeffrey and Peter Lucas, who is
Westower's Chief Financial Officer and a director. The borrowing corporation
used the proceeds of the loan to purchase facilities leased by one of Westower's
newly acquired subsidiaries. The advances were unsecured, bore no interest and
were repaid in full in May 1998.
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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 and Westower must comply
with certain environmental laws and regulations. See "Risk
Factors -- SpectraSite is 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
and Westower generally indemnify their 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 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
134
<PAGE> 139
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.
STATE, PROVINCIAL AND LOCAL REGULATIONS
Most states and Canadian provinces regulate certain aspects of real estate
acquisition and leasing activities. Where required, SpectraSite and Westower
conduct the site acquisition portions of their site acquisition services
businesses through licensed real estate brokers or agents, who may be employees
of SpectraSite or Westower 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.
135
<PAGE> 140
LEGAL MATTERS
Dow, Lohnes & Albertson, PLLC, Washington, D.C., will pass upon the
validity of the common stock to be issued by SpectraSite Holdings in the merger.
EXPERTS
Ernst & Young LLP, independent auditors, have audited SpectraSite's
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 proxy statement/prospectus, 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
proxy statement/prospectus 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 proxy statement/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 proxy statement/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 consolidated 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 proxy statement/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
SpectraSite Holdings filed a registration statement on Form S-4 with the
SEC covering the common stock to be issued to Westower stockholders in the
merger, and this proxy statement/prospectus is part of our registration
statement. For further information on SpectraSite, you should refer to
SpectraSite's registration statement and its exhibits. This proxy
statement/prospectus summarizes material provisions of contracts and other
documents that we refer you to. Since this proxy statement/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 SpectraSite's registration statement. You can contact SpectraSite at
8000 Regency Parkway, Suite 570, Cary, North Carolina 27511.
Following the merger, SpectraSite will file reports with the SEC as the
Exchange Act requires. Westower currently files annual, quarterly and special
reports, as well as proxy statements and other information, with the SEC.
SpectraSite's and Westower's 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. You can contact Westower at
2001 6th Avenue, Suite 3302, Seattle, Washington 98121.
136
<PAGE> 141
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
Condensed 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> 142
<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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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 average exchange rate during the
period. Foreign currency translation adjustments are reported as a component of
F-37
<PAGE> 178
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 October 1,
1999, 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> 179
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> 180
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> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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 shares of Class A redeemable preferred stock. The preferred
stock ranked in priority to common stock in the event of
F-48
<PAGE> 189
NOTE 11 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
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 issued shares of common stock under the
F-49
<PAGE> 190
NOTE 12 -- STOCK OPTIONS -- (CONTINUED)
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> 191
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 Corporation
F-51
<PAGE> 192
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
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 corporations owned by
certain stockholders of Westower Corporation. Lease payments made during the
Transition Period
F-52
<PAGE> 193
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
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.
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,
F-53
<PAGE> 194
NOTE 18 -- SEGMENT INFORMATION -- (CONTINUED)
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
certain liabilities including distributions payable to former shareholders in
the amount of $800,000, for all outstanding
F-54
<PAGE> 195
NOTE 20 -- SUBSEQUENT EVENTS -- (CONTINUED)
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> 196
This page intentionally left blank.
F-56
<PAGE> 197
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> 198
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> 199
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> 200
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> 201
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> 202
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.
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
F-62
<PAGE> 203
NOTE 4 -- ACQUISITIONS -- (CONTINUED)
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.
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>
F-63
<PAGE> 204
NOTE 5 -- INTANGIBLE ASSETS -- (CONTINUED)
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> 205
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> 206
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> 207
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> 208
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> 209
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> 210
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> 211
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> 212
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 stockholders of the
F-72
<PAGE> 213
2. NOTE PAYABLE -- (CONTINUED)
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> 214
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> 215
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> 216
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> 217
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> 218
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> 219
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members
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> 220
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> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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> 227
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.
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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>
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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.
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APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
WESTOWER CORPORATION,
SPECTRASITE HOLDINGS, INC.
AND
W ACQUISITION CORP.
DATED AS OF MAY 15, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 231
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS....................................................................... 1
ARTICLE 1
THE MERGER..................................................................... 1
Section 1.1 The Merger.................................................. 1
Section 1.2 Closing..................................................... 1
Section 1.3 Effective Time.............................................. 2
Section 1.4 The Articles of Incorporation............................... 2
Section 1.5 The By-Laws................................................. 2
Section 1.6 Directors of Surviving Corporation.......................... 2
Section 1.7 Officers of Surviving Corporation........................... 2
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES................ 2
Section 2.1 Effect on Capital Stock..................................... 2
Section 2.2 Exchange of Certificates for Shares......................... 3
Section 2.3 Appraisal Rights............................................ 5
Section 2.4 Adjustments to Prevent Dilution............................. 5
Section 2.5 Treatment of Stock Options.................................. 6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 6
Section 3.1 Organization and Qualification; Subsidiaries................ 6
Section 3.2 Articles of Incorporation and By-Laws....................... 7
Section 3.3 Capitalization.............................................. 7
Section 3.4 Authority................................................... 8
Section 3.5 No Conflict................................................. 8
Section 3.6 Required Filings and Consents............................... 8
Section 3.7 Permits; Compliance with Law................................ 9
Section 3.8 SEC Filings; Financial Statements........................... 9
Section 3.9 Absence of Certain Changes or Events........................ 10
Section 3.10 Employee Benefit Plans; Labor Matters....................... 10
Section 3.11 Tax Matters................................................. 11
Section 3.12 Contracts; Debt Instruments................................. 11
Section 3.13 Litigation.................................................. 11
Section 3.14 Environmental Matters....................................... 12
Section 3.15 Intellectual Property....................................... 12
Section 3.16 Taxes....................................................... 13
Section 3.17 Non-Competition Agreements.................................. 13
Section 3.18 Opinion of Financial Advisor................................ 13
Section 3.19 Title to Properties; Leases................................. 13
Section 3.20 Brokers..................................................... 14
Section 3.21 Certain Statutes............................................ 14
Section 3.22 Information................................................. 14
Section 3.23 Vote Required............................................... 15
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.................... 15
Section 4.1 Organization and Qualification; Subsidiaries................ 15
Section 4.2 Certificate of Incorporation and By-Laws.................... 15
Section 4.3 Capitalization.............................................. 15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.4 Authority................................................... 16
Section 4.5 No Conflict................................................. 17
Section 4.6 Required Filings and Consents............................... 17
Section 4.7 Permits; Compliance with Law................................ 17
Section 4.8 2008 Prospectus; Financial Statements....................... 17
Section 4.9 Nextel Tower Acquisition.................................... 18
Section 4.10 Employee Benefit Plans; Labor Matters....................... 18
Section 4.11 Tax Matters................................................. 19
Section 4.12 Contracts; Debt Instruments................................. 19
Section 4.13 Litigation.................................................. 19
Section 4.14 Environmental Matters....................................... 19
Section 4.15 Taxes....................................................... 19
Section 4.16 Brokers..................................................... 19
Section 4.17 Information................................................. 19
Section 4.18 Interim Operations of Merger Sub............................ 20
Section 4.19 Title to Properties; Leases................................. 20
ARTICLE 5
COVENANTS...................................................................... 21
Section 5.1 Conduct of Business of the Company.......................... 21
Section 5.2 Certain Interim Operations of the Parent.................... 22
Section 5.3 Other Actions............................................... 22
Section 5.4 Notification of Certain Matters............................. 23
Section 5.5 Proxy Statement............................................. 23
Section 5.6 Stockholders' Meeting....................................... 24
Section 5.7 Access to Information; Confidentiality...................... 24
Section 5.8 No Solicitation............................................. 25
Section 5.9 Employee Benefits Matters................................... 26
Section 5.10 Directors' and Officers' Indemnification and Insurance...... 26
Section 5.11 Letters of Accountants...................................... 27
Section 5.12 Reasonable Best Efforts..................................... 27
Section 5.13 Consents; Filings; Further Action........................... 27
Section 5.14 Plan of Reorganization...................................... 28
Section 5.15 Public Announcements........................................ 28
Section 5.16 Obligations of Merger Sub................................... 28
Section 5.17 Stock Exchange Listings and De-Listings..................... 28
Section 5.18 Expenses.................................................... 28
Section 5.19 Takeover Statutes........................................... 28
Section 5.20 Control of the Company's and Parent's Operations............ 29
Section 5.21 Affiliates.................................................. 29
Section 5.22 Merger Sub Charter Documents................................ 29
Section 5.23 Corporate Matters........................................... 29
Section 5.24 Jovin....................................................... 29
ARTICLE 6
CONDITIONS..................................................................... 29
Conditions to Each Party's Obligation to Effect the
Section 6.1 Merger...................................................... 29
(a) Stockholder Approval........................................ 29
(b) Listing..................................................... 29
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(c) HSR Act..................................................... 29
(d) Litigation.................................................. 30
(e) Registration Statement...................................... 30
(f) Accountants' Letters........................................ 30
(g) Blue Sky Approvals.......................................... 30
Section 6.2 Conditions to Obligations of the Parent and Merger Sub...... 30
(a) Representations and Warranties.............................. 30
(b) Performance of Obligations of the Company................... 30
(c) Material Adverse Effect..................................... 30
(d) Consents Under Agreements................................... 30
(e) Tax Opinion................................................. 30
(f) Exercise of Warrants........................................ 30
(g) Bank Consent................................................ 31
(h) Governmental Consents....................................... 31
(i) Senior Subordinated Notes................................... 31
(j) Stockholder Loans........................................... 31
(k) Cunningham.................................................. 31
(l) Cord Earn-Out............................................... 31
(m) Summit Earn-Out............................................. 31
(n) Dissenting Shares........................................... 31
(o) Post-Closing Lock-Ups....................................... 32
(p) Indentures.................................................. 32
(q) Affiliates.................................................. 32
Section 6.3 Conditions to Obligation of the Company..................... 32
(a) Representations and Warranties.............................. 32
(b) Performance of Obligations of the Parent and Merger Sub..... 32
(c) Material Adverse Effect..................................... 32
(d) Tax Opinion................................................. 32
(e) Board Seat.................................................. 32
ARTICLE 7
TERMINATION.................................................................... 33
Section 7.1 Termination................................................. 33
Section 7.2 Effect of Termination....................................... 34
Section 7.3 Amendment................................................... 34
Section 7.4 Waiver...................................................... 34
Section 7.5 Expenses Following Termination.............................. 34
ARTICLE 8
MISCELLANEOUS.................................................................. 35
Section 8.1 Certain Definitions......................................... 35
Non-Survival of Representations, Warranties and
Section 8.2 Agreements.................................................. 37
Section 8.3 Counterparts................................................ 37
Section 8.4 Governing Law and Venue; Waiver of Jury Trial............... 37
Section 8.5 Notices..................................................... 38
Section 8.6 Entire Agreement............................................ 38
Section 8.7 No Third Party Beneficiaries................................ 38
Section 8.8 Obligations of the Parent and of the Company................ 38
Section 8.9 Severability................................................ 39
Section 8.10 Interpretation.............................................. 39
Section 8.11 Assignment.................................................. 39
Section 8.12 Specific Performance........................................ 39
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
2008 Indenture.............................................. 6.2p
2009 Indenture.............................................. 6.2p
2008 Prospectus............................................. 4.8(a)
Acquisition Proposal........................................ 5.8(a)
Acquisitions Canada......................................... 5.24
affiliate................................................... 8.1(a)
Agreement................................................... Title
Amex........................................................ 3.6
Articles of Merger.......................................... 1.3
Assets...................................................... 3.19(a)
BCA......................................................... Recital (a)
Benefit Plans............................................... 3.10(a)
Blue Sky Laws............................................... 3.6
business day................................................ 8.1(b)
Call Right.................................................. 5.24
Certificate................................................. 2.1(a)
Change of Control........................................... 8.1(c)
Claims...................................................... 3.13
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ Recital (b)
Communications Act.......................................... 3.6
Company Title
Company Charter Documents................................... 3.2
Company Common Stock........................................ 2.1(a)
Company Disclosure Letter................................... 3.1(b)
Company Financial Advisor................................... 3.18
Company Permits............................................. 3.7
Company Principals.......................................... Recital (c)
Company SEC Reports......................................... 3.8(a)
Company Share............................................... 2.1(a)
Company Shares.............................................. 2.1(a)
Company Stock Options....................................... 3.3(b)
Company Stockholders Meeting................................ 5.5(a)
Company Subsidiaries........................................ 3.1(a)
Company's Option Plans...................................... 3.3(b)
Confidentiality Agreement................................... 5.7(b)
Contracts................................................... 3.5(a)(iii)
control..................................................... 8.1(a)
controlled by............................................... 8.1(a)
controlling................................................. 8.1(a)
Converted Stock Option...................................... 2.5
Dissenting Shares........................................... 2.3
Effective Time.............................................. 1.3
Employment Agreements....................................... 5.23
Environmental Claim......................................... 3.14(a)
Environmental Laws.......................................... 3.14(a)
ERISA....................................................... 3.10(a)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Excess Parent Shares........................................ 2.2(d)(i)
Exchange Act................................................ 3.6
Exchangeable Holders........................................ 5.24
Exchangeable Shares......................................... 5.24
Exchange Agent.............................................. 2.2(a)(i)
Exchange Ratio.............................................. 2.1(a)
Exchange Trust.............................................. 2.2(d)(i)
Excluded Company Shares..................................... 2.1(a)
Expenses.................................................... 7.5(a)
Form 10-KSB................................................. 3.8(b)
GAAP........................................................ 3.8(b)
Governmental Entity......................................... 3.6
group....................................................... 8.1(h)
HSR Act..................................................... 3.6
including................................................... 8.1(d)
IPO Registration Statement.................................. 3.8(b)
knowledge................................................... 8.1(e)
Law......................................................... 3.5(a)(ii)
Lease....................................................... 8.1(f)
Liens....................................................... 3.3(c)
Material Adverse Effect on the Company...................... 3.1(a)
Material Adverse Effect on the Parent....................... 4.1(a)
Merger...................................................... Recital (a)
Merger Consideration........................................ 2.1(a)
Merger Sub.................................................. Title
Nasdaq...................................................... 2.2(d)(i)
Parent...................................................... Title
Parent Benefit Plans........................................ 4.10(a)
Parent Charter Documents.................................... 4.2
Parent Common Stock......................................... 2.1(a)
Parent Disclosure Letter.................................... 4.1(b)
Parent Permits.............................................. 4.7
Parent Stock Options........................................ 4.3(b)
Parent Subsidiaries......................................... 4.1(a)
Parent's Option Plan........................................ 4.3(b)
Pending Transactions........................................ 8.1(g)
Permitted Liens............................................. 8.1(h)
person...................................................... 8.1(i)
Proxy Materials............................................. 5.5(a)
Proxy Statement............................................. 5.5(a)
Real Property............................................... 8.1(j)
Registration Statement...................................... 5.5(a)
Registration Statement Effective Date....................... 5.5(a)
Representatives............................................. 5.7(a)(i)
Requisite Company Vote...................................... 3.4(a)
Rule 145 Affiliate Agreement................................ 5.21
Rule 145 Affiliates......................................... 5.21
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
SEC......................................................... 3.8(a)
Securities Act.............................................. 3.6
Series A Preferred Stock.................................... 4.3(a)
Series B Preferred Stock.................................... 4.3(a)
Series C Preferred Stock.................................... 4.3(a)
Stockholder Agreements...................................... Recital (c)
Sub Common Stock............................................ 4.3(d)
subsidiary.................................................. 8.1(k)
subsidiaries................................................ 8.1(k)
Superior Proposal........................................... 5.8(a)
Surviving By-Laws........................................... 1.5
Surviving Charter........................................... 1.4
Surviving Corporation....................................... 1.1
Systems..................................................... 3.15(b)
Takeover Statute............................................ 3.21
Taxes....................................................... 3.16
Terminating Company Breach.................................. 7.1(f)
Terminating Parent Breach................................... 7.1(g)
Termination Amount.......................................... 7.5(b)
Title IV Plan............................................... 3.10(a)
under common control with................................... 8.1(a)
Year 2000 Compliant......................................... 3.15(b)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 15, 1999,
among WESTOWER CORPORATION, a Washington corporation (the "COMPANY"),
SPECTRASITE HOLDINGS, INC., a Delaware corporation (the "PARENT"), and W
ACQUISITION CORP., a Washington corporation and a wholly owned subsidiary of the
Parent ("MERGER SUB").
RECITALS
(a) The respective boards of directors of each of the Parent, Merger Sub
and the Company have determined that it is in the best interests of their
respective stockholders to combine the respective businesses of the Parent and
the Company, and consequently have approved the merger of Merger Sub with and
into the Company (the "MERGER") and approved and adopted the Merger, in
accordance with the Washington Business Corporation Act (the "BCA") and upon the
terms and subject to the conditions set forth in this Agreement.
(b) It is intended that, for federal income tax purposes, the Merger shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the rules and
regulations promulgated under the Code.
(c) Concurrently with the execution of this Agreement, as a condition to
the willingness of the Parent to enter into this Agreement, certain holders of
Company Shares (the "COMPANY PRINCIPALS") are entering into one or more
Stockholder Agreements with the Parent and the Company, each of which is
substantially in the form attached to this Agreement as Exhibit A (the
"STOCKHOLDER AGREEMENTS"), providing for, among other things, the agreement of
the Company Principals to vote their respective Company Shares, and an
irrevocable proxy to vote their respective Company Shares, in each case in favor
of approval and adoption of this Agreement and the Merger at the Company
Stockholders Meeting.
(d) Certain terms used in this Agreement which are not capitalized have the
meanings specified in Section 8.1.
(e) The Company, the Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time, Merger Sub shall be merged with
and into the Company and the separate corporate existence of Merger Sub shall
cease. The Company shall be the surviving corporation in the Merger (sometimes
referred to as the "SURVIVING CORPORATION") and shall continue to be governed by
the laws of the State of Washington, and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The Merger shall have the effects set forth
in Section 23B.11.060 of the BCA.
SECTION 1.2 CLOSING. The closing of the Merger (the "CLOSING") shall take
place (a) at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, New York,
New York at 10:00 A.M. on the third business day after the last to be fulfilled
or waived of the conditions set forth in Article 6 (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (b) at such other place and time and/or on
such other date as the Company and the Parent may agree in writing (the "CLOSING
DATE").
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SECTION 1.3 EFFECTIVE TIME. As soon as practicable following the Closing,
the Company and the Parent will cause Articles of Merger (the "ARTICLES OF
MERGER") to be signed, acknowledged and delivered for filing with the Secretary
of State of the State of Washington as provided in Section 23B.11.050 of the
BCA. The Merger shall become effective at the time when the Articles of Merger
have been duly filed with the Secretary of State of the State of Washington or
such other time as shall be agreed upon by the parties and set forth in the
Articles of Merger and in accordance with the BCA (the "EFFECTIVE TIME").
SECTION 1.4 THE ARTICLES OF INCORPORATION. The articles of incorporation
of the Merger Sub in effect immediately prior to the Effective Time shall, from
and after the Effective Time, be the articles of incorporation of the Surviving
Corporation (the "SURVIVING CHARTER"), until duly amended as provided in the
Surviving Charter or by applicable law.
SECTION 1.5 THE BY-LAWS. The by-laws of the Merger Sub in effect at the
Effective Time shall, from and after the Effective time, be the by-laws of the
Surviving Corporation (the "SURVIVING BY-LAWS"), until duly amended as provided
in the Surviving By-Laws or by applicable law.
SECTION 1.6 DIRECTORS OF SURVIVING CORPORATION. From and after the
Effective Time, the directors of the Surviving Corporation shall be Calvin J.
Payne, Stephen H. Clark and David P. Tomick until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Charter and the
Surviving By-Laws.
SECTION 1.7 OFFICERS OF SURVIVING CORPORATION. The officers of the Company
at the Effective Time shall, from and after the Effective Time, be the officers
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Charter and the Surviving By-Laws.
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of
the Merger and without any action on the part of the holder of any capital stock
of the Company:
(a) MERGER CONSIDERATION. Each share (each a "COMPANY SHARE" and
together the "COMPANY SHARES") of the common stock, par value $.01 per
share, of the Company (the "COMPANY COMMON STOCK") issued and outstanding
immediately prior to the Effective Time (other than (x) Dissenting Shares
and (y)(i) Company Shares that are owned by the Parent, Merger Sub or any
other Parent Subsidiary or (ii) Company Shares that are owned by the
Company or any Company Subsidiary and in each case not held on behalf of
third parties (the shares in clause (y) being collectively referred to as
"EXCLUDED COMPANY SHARES")) shall be converted into the right to receive
and become exchangeable for 1.81 shares (the "EXCHANGE RATIO") of common
stock, par value $0.001 per share, of the Parent ("PARENT COMMON STOCK"),
subject to adjustment as provided in Section 2.4 and subject to cash in
lieu of fractional shares of Parent Common Stock, if any, pursuant to
Section 2.2(d) (collectively, the "MERGER CONSIDERATION"). At the Effective
Time, all Company Shares shall no longer be outstanding, shall be canceled
and retired and shall cease to exist, and each certificate (a
"CERTIFICATE") formerly representing any Company Shares (other than
Dissenting Shares and Excluded Company Shares) shall thereafter represent
only the right to receive the Merger Consideration and any distribution or
dividend under Section 2.2(b).
(b) CANCELLATION OF EXCLUDED COMPANY SHARES. Each Excluded Company
Share issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder of
that Excluded Company Share, no longer be outstanding, shall be canceled
and retired without payment of any consideration therefor and shall cease
to exist.
(c) MERGER SUB. At the Effective Time, each share of common stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one
2
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validly issued, fully paid and nonassessable share of common stock, par
value $.01 per share, of the Surviving Corporation, and the Surviving
Corporation shall be a wholly owned subsidiary of the Parent.
SECTION 2.2 EXCHANGE OF CERTIFICATES FOR SHARES
(a) EXCHANGE PROCEDURES.
(i) LETTER OF TRANSMITTAL. Promptly after the Effective Time, the
Surviving Corporation shall cause an exchange agent selected by the
Parent and reasonably acceptable to the Company (the "EXCHANGE AGENT")
to mail to each holder of record of a Certificate (other than
Certificates in respect of Excluded Company Shares) (A) a letter of
transmittal specifying that delivery shall be effected, and that risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu of Certificates) to the
Exchange Agent, in a form and with other provisions reasonably
acceptable to both the Parent and the Company, and (B) instructions for
exchanging the Certificates for (1) certificates representing shares of
Parent Common Stock, (2) cash in lieu of fractional shares, and (3) any
unpaid dividends and other distributions.
(ii) SURRENDER OF CERTIFICATES. Upon surrender of a Certificate
for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of that Certificate shall be
entitled to receive in exchange (A) a certificate representing that
number of whole shares of Parent Common Stock that the holder is
entitled to receive under this Article 2, (B) a check in the amount
(after giving effect to any required tax withholding) of (1) any cash in
lieu of fractional shares plus (2) any unpaid dividends (other than
stock dividends) and any other dividends or other distributions that
such holder has the right to receive under the provisions of this
Article 2, and the Certificate so surrendered shall immediately be
canceled. No interest will be paid or accrued on any amount payable upon
due surrender of the Certificates.
(iii) UNREGISTERED TRANSFEREES. In the event of a transfer of
ownership of Company Shares that are not registered in the transfer
records of the Company, a certificate representing the proper number of
shares of Parent Common Stock, together with a check for any cash to be
paid upon the surrender of the Certificate and any other dividends or
distributions in respect of those shares, may be issued or paid to such
a transferee if the Certificate formerly representing such Company
Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect the transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that
in which the surrendered Certificate is registered, it shall be a
condition of such exchange that the person requesting such exchange
shall pay any transfer or other taxes required by reason of the issuance
of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the surrendered Certificate, or shall
establish to the satisfaction of the Parent or the Exchange Agent that
such tax has been paid or is not applicable.
(iv) NO OTHER RIGHTS. Until surrendered as contemplated by this
Section 2.2(a), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive the certificate
representing shares of Parent Common Stock and any other dividend or
distribution in respect of those shares and cash in lieu of any
fractional shares of Parent Common Stock, as contemplated by this
Section 2.2(a). All shares of Parent Common Stock, together with any
cash paid under Section 2.2(b) or Section 2.2(d) issued upon the
surrender for or exchange of Certificates in accordance with the terms
of this Agreement, shall be deemed to have been issued in full
satisfaction of all rights pertaining to the Company Shares formerly
represented by such Certificates.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Whenever a
dividend or other distribution is declared by the Parent in respect of
Parent Common Stock and the record date for that dividend or other
distribution is at or after the Effective Time, that declaration shall
include dividends or other distributions in respect of all shares issuable
under this Agreement. No dividends or other distributions in respect of the
Parent Common Stock shall be paid to any holder of any unsurrendered
Certificate until
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that Certificate is surrendered for exchange in accordance with this
Article 2. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be issued or paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
dividends or other distributions with a record date after the Effective
Time and a payment date on or prior to the date of issuance of such whole
shares of Parent Common Stock and not previously paid, and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date
after the Effective Time but with a payment date subsequent to surrender.
For purposes of dividends or other distributions in respect of shares of
Parent Common Stock, all shares of Parent Common Stock to be issued
pursuant to the Merger shall be deemed issued and outstanding as of the
Effective Time.
(c) NO FURTHER TRANSFERS. After the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers on the records of the Company of the Company
Shares that were outstanding immediately prior to the Effective Time.
(d) FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle its
owner to vote, to receive dividends or to any other rights of a
stockholder of the Parent. Notwithstanding any other provision of this
Agreement, each holder of Company Shares exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all Certificates
delivered by such holder) shall receive from the Exchange Agent, in
accordance with the provisions of this Article 2, a cash payment in lieu
of such fractional shares of Parent Common Stock, as applicable,
representing such holder's proportionate interest, if any, in the net
proceeds from the sale by the Exchange Agent in one or more transactions
(which sale transactions shall be made at such times, in such manner and
on such terms as the Exchange Agent shall determine in its reasonable
discretion) on behalf of all such holders of the aggregate of the
fractional shares of Parent Common Stock, as applicable, which would
otherwise have been issued (the "EXCESS PARENT SHARES"). The sale of the
Excess Parent Shares by the Exchange Agent shall be executed on the
National Market System of the Nasdaq Stock Market (the "NASDAQ") and
shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of
Certificates, the Exchange Agent will hold such proceeds in trust (the
"EXCHANGE TRUST") for the holders of Certificates. All commissions,
transfer taxes and other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent, incurred in connection
with this sale of the Excess Parent Shares shall be paid by the Parent.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Certificates in lieu of any fractional
shares of Parent Common Stock, the Exchange Agent shall make available
such amounts to such holders of Certificates without interest. The
Exchange Agent shall determine the portion of such net proceeds to which
each holder of Company Shares shall be entitled, if any, by multiplying
the amount of the aggregate net proceeds by a fraction the numerator of
which is the amount of the fractional share interest to which such
holder of Company Shares is entitled (after taking into account all
Company Shares then held by such holder) and the denominator of which is
the aggregate amount of fractional share interests to which all holders
of Certificates representing Company Shares are entitled.
(ii) Notwithstanding the provisions of subsection (i) of this
Section 2.2(d), the Parent may elect, at its option exercised prior to
the Effective Time and in lieu of the issuance and sale of Excess Parent
Shares and the making of the payments contemplated in such subsection,
to pay to the Exchange Agent an amount in cash sufficient for the
Exchange Agent to pay each holder of Company Shares an amount in cash
equal to the product obtained by multiplying (A) the fractional share
interest to which such holder would otherwise be entitled (after taking
into account all Company Shares held at the Effective Time by such
holder) by (B) the closing price for a share of Parent Common Stock on
the Nasdaq on the first business day immediately following the Effective
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Time and, in such case, the Exchange Fund, all references in this
Agreement to the cash proceeds of the sale of the Excess Shares and
similar references shall be deemed to mean and refer to the payments
calculated as set forth in this Section 2.2(d)(ii).
(e) TERMINATION OF EXCHANGE PERIOD; UNCLAIMED STOCK. Any shares of
Parent Common Stock and any portion of the Exchange Fund or of dividends or
other distributions with respect to the Parent Common Stock deposited by
the Parent with the Exchange Agent (including the proceeds of any
investments of those funds) that remain unclaimed by the stockholders of
the Company 180 days after the Effective Time shall be paid to the Parent.
Any former stockholders of the Company who have not theretofore complied
with this Article 2 shall thereafter look only to the Parent for payment of
their Merger Consideration and any dividends and other distributions
issuable or payable pursuant to Section 2.1 and Section 2.2(b) upon due
surrender of their Certificates (or affidavits of loss in lieu of
Certificates), in each case, without any interest. Notwithstanding the
foregoing, none of the Parent, the Surviving Corporation, the Exchange
Agent or any other person shall be liable to any former holder of Company
Shares for any amount properly delivered to a public official under
applicable abandoned property, escheat or similar laws. If any Certificates
shall not have been surrendered prior to five years after the Effective
Time (or immediately prior to such earlier date on which any Merger
Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity), any amounts payable in
respect of such Certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of
all claims or interests of any person previously entitled to those amounts.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming such Certificate to be
lost, stolen or destroyed and the posting by such person of a bond in the
form reasonably required by the Parent as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
shares of Parent Common Stock, any unpaid dividends or other distributions
and any cash payment in lieu of a fractional share in respect of that
Certificate issuable or payable under this Article 2 upon due surrender of
and deliverable in respect of the Company Shares represented by such
Certificate under this Agreement, in each case, without interest.
SECTION 2.3 APPRAISAL RIGHTS. Notwithstanding anything in this Agreement
to the contrary, each Company Share that is issued and outstanding immediately
prior to the Effective Time and that is held by a stockholder who has properly
exercised and perfected dissenters' rights under Chapter 23B.13 of the BCA (the
"DISSENTING SHARES"), shall not be converted into or exchangeable for the right
to receive the Merger Consideration, but shall be entitled to receive such
consideration as shall be determined pursuant to Chapter 23B.13 of the BCA;
provided, however, that if such holder shall have failed to perfect or shall
have effectively withdrawn or lost its right to dissent and obtain payment under
the BCA, each Company Share of such holder shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon, in accordance with Section 2.1(a), and such shares shall no longer be
Dissenting Shares. The Company shall give Parent (i) prompt notice of any
written demands to assert dissenters' rights with respect to Company Shares
received by the Company and (ii) the right to direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle, offer to settle or otherwise negotiate, any such demands.
SECTION 2.4 ADJUSTMENTS TO PREVENT DILUTION. In the event that prior to
the Effective Time there is a change in the number of Company Shares or shares
of Parent Common Stock or securities convertible or exchangeable into or
exercisable for Company Shares or shares of Parent Common Stock issued and
outstanding as a result of a distribution, reclassification, stock split
(including a reverse stock split), stock dividend or distribution or other
similar transaction, the Exchange Ratio shall be equitably adjusted to eliminate
the effects of that event.
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SECTION 2.5 TREATMENT OF STOCK OPTIONS.
(a) As of the Effective Time of the Merger, each Company Stock Option
exercisable for shares of Company Common Stock under the Company Option
Plans will be converted (as converted, a "CONVERTED STOCK OPTION") by
virtue of the Merger and without any action on the part of the holder
thereof, to an option exercisable for that number of shares of Parent
Common Stock equal to the product of (x) the aggregate number of shares of
Company Common Stock for which such Company Stock Option was exercisable
and (y) the Exchange Ratio, rounded, in the case of any Company Stock
Options other than an "incentive stock option" (within the meaning of
Section 422 of the Code) up, and in the case of any incentive stock option,
down, to the nearest whole share, if necessary, and the exercise price per
share of such Converted Stock Option shall be equal to the aggregate
exercise price of such Company Stock Option immediately prior to the
Effective Time divided by the number of shares of Parent Common Stock for
which such Converted Stock Option shall be exercisable, as determined above
rounded to the nearest cent, if necessary. Prior to the Effective Time, the
Company shall make such amendments and take such other actions, if
necessary, with respect to the Company Option Plans as shall be necessary
to permit the adjustment referred to in this Section 2.5, including
notifying all participants in the Company Option Plans of such adjustment.
(b) All Company Stock Options which were granted under either the 1997
Stock Compensation Plan or a Non-Qualified Stock Option Letter Agreement
which are outstanding immediately prior to the Effective Time shall, to the
extent not fully vested and exercisable, become fully vested and
exercisable and continue to be exercisable in accordance with the terms of
the 1997 Stock Compensation Plan or the Non-Qualified Stock Option Letter
Agreement, as applicable. In all other respects all Company Stock Options
(including Company Stock Options under the 1997 Stock Compensation Plan,
the 1998 Stock Incentive Compensation Plan or the Non-Qualified Stock
Option Letter Agreements) shall continue to have, and be subject to, the
same terms and conditions set forth in the Company Option Plans (or any
other agreement to which such Company Stock Option was subject immediately
prior to the Effective Time) except as otherwise provided for herein.
(c) It is the intention of the parties that, to the extent that any
Company Stock Option constituted an incentive stock option immediately
prior to the Effective Time, such option continue to qualify as an
incentive stock option to the maximum extent permitted by Section 422 of
the Code, and that the adjustment of the Company Stock Options provided by
this Section 2.5 satisfy the conditions of Section 424(a) of the Code.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Merger Sub that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
(a) Each of the Company and each subsidiary of the Company
(collectively, the "COMPANY SUBSIDIARIES") has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, as the case may be, and has the
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing
or in good standing or to have such power, authority and governmental
approvals, individually or in the aggregate, have not resulted and would
not reasonably be expected to result in a Material Adverse Effect on the
Company. Each of the Company and each Company Subsidiary is duly qualified
or licensed to do business, and is in good standing, in each jurisdiction
where the character of the properties owned, leased or operated by it or
the nature of its business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in good
standing that, individually or in the aggregate, have not resulted and
would not reasonably be expected to result in a Material Adverse Effect on
the Company. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT ON
THE COMPANY" means any
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change in or effect on the business, assets, properties, results of
operations or condition (financial or otherwise) of the Company or any
Company Subsidiaries that is or would reasonably be expected to be
materially adverse to the Company and the Company Subsidiaries, taken as a
whole, or that would reasonably be expected to materially impair the
ability of the Company to perform its obligations under this Agreement or
consummate the Merger and the other transactions contemplated hereby.
(b) Section 3.1(b) of the letter from the Company, dated the date
hereof, addressed to the Parent (the "COMPANY DISCLOSURE LETTER") sets
forth a complete and correct list of all of the Company Subsidiaries.
Neither the Company nor any Company Subsidiary holds any interest in any
person other than the Company Subsidiaries so listed.
SECTION 3.2 ARTICLES OF INCORPORATION AND BY-LAWS. The copies of the
Company's articles of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "COMPANY CHARTER DOCUMENTS") that have
heretofore been made available to Parent are complete and correct copies of
those documents. The Company Charter Documents are in full force and effect. The
Company is not in violation of any of the provisions of the Company Charter
Documents.
SECTION 3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock. As of May 13, 1999, (i) 8,529,514 shares of
Company Common Stock were issued and outstanding, all of which were validly
issued and are fully paid, nonassessable and not subject to preemptive
rights, (ii) no shares of Company Common Stock were held in the treasury of
the Company or by the Company Subsidiaries, (iii) 1,110,974 shares of
Company Common Stock were reserved for issuance upon exercise of
outstanding Company Stock Options and (iv) 98,500 shares of Company Common
Stock were reserved for issuance upon exercise of outstanding stock
purchase warrants.
(b) Between September 30, 1998 and the date of this Agreement, an
aggregate of 429,438 options to purchase shares of Company Common Stock
("COMPANY STOCK OPTIONS") have been granted by the Company under the 1997
Stock Compensation Plan, the 1998 Stock Incentive Compensation Plan and
Non-Qualifying Stock Option Letter Agreements (collectively, the "COMPANY'S
OPTION PLANS"). Except (i) for Company Stock Options to purchase an
aggregate of 1,110,974 shares of Company Common Stock outstanding under the
Company's Option Plans or (ii) under agreements or arrangements set forth
in Section 3.3(b) of the Company Disclosure Letter, there are no options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights or other rights, agreements, arrangements or commitments
of any character to which the Company is a party or by which the Company is
bound relating to the issued or unissued capital stock of the Company or
any Company Subsidiary or obligating the Company or any Company Subsidiary
to issue or sell any shares of capital stock of, or other equity interests
in, the Company or any Company Subsidiary. Section 3.3(b) of the Company
Disclosure Letter sets forth, as of the date of this Agreement, (x) the
persons to whom Company Stock Options have been granted, (y) the exercise
price for the Company Stock Options held by each such person and (z)
whether such Company Stock Options are subject to vesting and, if subject
to vesting, the dates on which each of those Company Stock Options vest.
Except as set forth in Section 3.3(b) of the Company Disclosure Letter,
none of the Company Stock Options which are subject to vesting will vest as
a result of the consummation of the Merger.
(c) All shares of Company Common Stock subject to issuance, upon
issuance prior to the Effective Time on the terms and conditions specified
in the instruments under which they are issuable, will be duly authorized,
validly issued, fully paid, nonassessable and will not be subject to
preemptive rights. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or any capital stock of any
Company Subsidiary. Except as set forth in Section 3.3(c) of the Company
Disclosure Letter, each outstanding share of capital stock of each Company
Subsidiary is duly authorized, validly issued, fully paid, nonassessable
and not subject to preemptive rights and each such share owned by the
Company or a Company Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Company Subsidiary's
voting rights,
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charges and other encumbrances or any nature whatsoever (collectively,
"LIENS"). There are no outstanding material contractual obligations of the
Company or any Company Subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in,
any Company Subsidiary that is not wholly owned by the Company or in any
other person.
SECTION 3.4 AUTHORITY.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the Merger and the other transactions
contemplated by this Agreement to be consummated by the Company. The
execution and delivery of this Agreement by the Company and the
consummation by the Company of such transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate such transactions, other than, with respect to
the Merger, the adoption of this Agreement by the affirmative vote of the
holders of two-thirds of the outstanding shares of Company Common Stock
entitled to vote (the "REQUISITE COMPANY VOTE"). This Agreement has been
duly authorized and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
(b) The Board of Directors of the Company (i) has unanimously adopted
the plan of merger set forth in this Agreement and approved this Agreement
and the other transactions contemplated by this Agreement and (ii) has
declared that the Merger and this Agreement and the other transactions
contemplated by this Agreement are advisable.
SECTION 3.5 NO CONFLICT.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not:
(i) conflict with or violate any provision of any Company Charter
Document or any equivalent organizational documents of any Company
Subsidiary;
(ii) assuming that all consents, approvals, authorizations and
other actions described in Section 3.6 have been obtained and all
filings and obligations described in Section 3.6 have been made,
conflict with or violate any foreign or domestic law, statute,
ordinance, rule, regulation, order, judgment or decree ("LAW")
applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is or may be
bound or affected, except for any such conflicts or violations which,
individually or in the aggregate, have not resulted and would not
reasonably be expected to result in a Material Adverse Effect on the
Company; or
(iii) except as set forth in Section 3.5(a)(iii) of the Company
Disclosure Letter, result in any breach of or constitute a default (or
an event which with or without notice or lapse of time or both would
become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of
a Lien on any property or asset of the Company or any Company Subsidiary
under any note, bond, mortgage, indenture, contract, agreement,
commitment, lease, license, permit, franchise or other instrument or
obligation (collectively, "CONTRACTS") that is material to the conduct
of the business of the Company and the Company Subsidiaries taken as a
whole and to which the Company or any Company Subsidiary is a party or
by which any of them or their assets or properties is or may be bound or
affected.
(b) Section 3.5(b) of the Company Disclosure Letter sets forth a
correct and complete list in all material respects of Contracts to which
the Company or any Company Subsidiaries are a party or by which they or
their assets or properties are or may be bound or affected under which
consents or waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement.
SECTION 3.6 REQUIRED FILINGS AND CONSENTS. The execution and delivery of
this Agreement by the Company do not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any domestic or foreign national, federal,
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state, provincial or local governmental, regulatory or administrative authority,
agency, commission, court, tribunal or arbitral body or self-regulated entity
(each, a "GOVERNMENTAL ENTITY"), except for applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "EXCHANGE ACT"), applicable requirements
of the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "SECURITIES ACT"), applicable
requirements of state securities or "blue sky" laws ("BLUE SKY LAWS"), the rules
and regulations of the American Stock Exchange (the "AMEX"), applicable
requirements of Takeover Statutes, the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR ACT"), applicable
requirements of the Communications Act of 1934, as amended (together with the
rules and regulations promulgated thereunder, the "COMMUNICATIONS ACT"), notices
required to be sent to the Bureau of Land Management and for the filing of the
Articles of Merger as required by the BCA.
SECTION 3.7 PERMITS; COMPLIANCE WITH LAW.
(a) Each of the Company and the Company Subsidiaries has all
franchises, grants, registrations, determinations, authorizations,
licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity
(collectively, the "COMPANY PERMITS") that are material to the conduct of
the business of the Company and the Company Subsidiaries taken as a whole,
and no suspension or cancellation or material modification of any of the
Company Permits that are material to the conduct of the business of the
Company and the Company Subsidiaries taken as a whole is pending or, to the
knowledge of the Company, threatened. Neither the Company nor any Company
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is or may be
bound or affected or (ii) any Company Permits, except for any such
conflicts, defaults or violations that, individually or in the aggregate,
have not resulted and would not reasonably be expected to result in a
Material Adverse Effect on the Company.
(b) Section 3.7(b) of the Company Disclosure Letter sets forth all
Company Permits issued by the Federal Communications Commission or state
public utilities commissions.
SECTION 3.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Except as set forth in Section 3.8(a) of the Company Disclosure
Letter, the Company has filed all forms, reports, statements and other
documents required to be filed with the United States Securities and
Exchange Commission (the "SEC") under the Exchange Act and the Securities
Act since the date of its initial public offering (collectively, including
any such documents filed subsequent to the date of this Agreement, the
"COMPANY SEC REPORTS"), and the Company SEC Reports, including any
financial statements or schedules included or incorporated by reference,
(i) comply in all material respects with the requirements of the Exchange
Act or the Securities Act or both, as the case may be, applicable to those
Company SEC Reports and (ii) did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary in order to make the statements made in
those Company SEC Reports, in the light of the circumstances under which
they were made, not misleading. No Company Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or is otherwise
required to file any documents with the SEC or any national securities
exchange or quotation service or comparable Governmental Entity.
(b) As of the date of the filing of the relevant Company SEC Report,
each of the consolidated balance sheets included in the Company's Form SB-2
Registration Statement (File No. 333-32963) (the "IPO REGISTRATION
STATEMENT"), the Company's Report on Form 10-K for the fiscal year ended
February 28, 1998, the Company's Transition Report on Form 10-KSB, dated
January 25, 1999 and amended on January 28, 1999 and February 9, 1999 (the
"FORM 10-KSB") or in the Company SEC Reports filed or to be filed
subsequent to February 9, 1999 (including the related notes and schedules)
fairly presented or will fairly present, in all material respects, the
consolidated financial position of the Company as of the dates set forth in
those consolidated balance sheets. Each of the consolidated statements of
income and of cash flows included in the IPO Registration Statement, the
Company's Report on Form 10-K for the
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fiscal year ended February 28, 1998, the Form 10-KSB or in the Company SEC
Reports filed or to be filed subsequent to February 9, 1999 (including any
related notes and schedules), fairly presented or will fairly present, in
all material respects, the consolidated results of operations and cash
flows, as the case may be, of the Company and the consolidated Company
Subsidiaries for the periods set forth in those consolidated statements of
income and of cash flows (subject, in the case of unaudited quarterly
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in conformity with United
States generally accepted accounting principles ("GAAP") (except, in the
case of unaudited quarterly statements, as permitted by Form 10-Q of the
SEC) consistently applied throughout the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the consolidated Company Subsidiaries as of
September 30, 1998, including the related notes, or as set forth in Section
3.8(c) of the Company Disclosure Letter or in the Company SEC Reports filed
subsequent to September 30, 1998 and prior to the date hereof, as of the
date of this Agreement, neither the Company nor any Company Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a
balance sheet or in the related notes prepared in accordance with GAAP,
except for liabilities or obligations incurred since September 30, 1998 in
the ordinary course of business and consistent with past practices.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1998, the Company and the Company Subsidiaries have, except as set forth in
Section 3.9 of the Company Disclosure Letter, conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been: (a) any Material Adverse Effect on the Company;
(b) any damage, destruction or other casualty loss with respect to any asset or
property owned, leased or otherwise used by the Company or any of the Company
Subsidiaries, whether or not covered by insurance, which damage, destruction or
loss, individually or in the aggregate, has resulted or would reasonably be
expected to result in a Material Adverse Effect on the Company; (c) any material
change by the Company in its or any Company Subsidiary's accounting methods,
principles or practices; (d) any declaration, setting aside or payment of any
dividend or distribution in respect of Company Shares or any redemption,
purchase or other acquisition of any of the Company's securities; or (e) except
as set forth in Section 3.9(e) of the Company Disclosure Letter, any increase in
the compensation or benefits or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of the Company or any Company Subsidiary
except in the ordinary course of business consistent with past practice or
except as required by applicable Law.
SECTION 3.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 3.10(a) of the Company Disclosure Letter identifies each
material employment, severance or similar contract or arrangement and each
material plan, policy, fund, program or contract or arrangement (whether or
not written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements) health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance
benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
under which the Company or any Company Subsidiary has or in the future
could have any material liability, including any material liability as a
result of being a single employer under Section 414 of the Code ("BENEFIT
PLANS"). There is no Benefit Plan which (i) is a multiemployer plan (within
the meaning of Section 3(37) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or (ii) is a plan, other than a
multiemployer plan, subject to Title IV of ERISA (a "TITLE IV PLAN").
(b) The Company has made available to the Parent copies of the Benefit
Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with
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the most recent annual report (Form 5500 including, if applicable, Schedule
B thereto), the most recent actuarial valuation report prepared in
connection with any Benefit Plan, and the most recent determination letter
received from any taxation authority with respect to any Benefit Plan.
(c) Each Benefit Plan that is intended to be qualified under an
applicable statute or regulation, including Section 401(a) of the Code, is
so qualified and has been so qualified during the period since its
adoption; each trust created under any such Plan is exempt from tax and has
been so exempt since its creation and nothing has occurred with respect to
the operation of any Benefit Plan which would cause the loss of such
qualification or exemption. Each Benefit Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed
by any and all applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code and no transaction
prohibited by any applicable statute or regulation, including Section 406
of ERISA or Section 4975 of the Code, has occurred with respect to any
Benefit Plan that will or would reasonably be expected to result in a
material liability to the Company and the Company Subsidiaries taken as a
whole.
(d) Neither the Company nor any Company Subsidiary has any material
current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits for retired,
former or current employees of the Company or any Company Subsidiary,
except as required under applicable law.
(e) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of the Company or any Company
Subsidiary that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to the terms of
Section 280G or Section 162(m)of the Code.
(f) Except as set forth in Section 3.10(f) of the Company Disclosure
Letter, no employee or former employee of the Company or any Company
Subsidiary will become entitled to any bonus, retirement, severance, job
security or similar benefit or enhancement of such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of
the transactions contemplated hereby.
(g) There are no unfunded obligations under any Benefit Plan which are
not fully reflected on the most recent financial statements of the Company.
(h) Neither the Company nor any Company Subsidiary is party to any
collective bargaining agreements. There are no unfair labor practices
complaint or other proceeding pending and there is no strike pending or
threatened against the Company or any Company Subsidiary.
SECTION 3.11 TAX MATTERS. Neither the Company nor, to the knowledge of the
Company, any of its affiliates has taken or agreed to take any action, nor is
the Company aware of any agreement, plan or other circumstance that would
prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 3.12 CONTRACTS; DEBT INSTRUMENTS. Except as disclosed in Section
3.12 of the Company Disclosure Letter or filed as an exhibit to, or as
incorporated by reference in, the Form 10-KSB, there is no Contract that is
material to the business, financial condition or results of operations of the
Company and the Company Subsidiaries taken as a whole. Neither the Company nor
any Company Subsidiary is in violation of or in default under (nor does there
exist any condition which with the passage of time or the giving of notice would
cause such a violation of or default under) any material Contract to which it is
a party or by which it or any of its properties or assets is or may be bound or
affected. Set forth in Section 3.12 of the Company Disclosure Letter is a
description of any material changes to the amount and terms of the indebtedness
of the Company and the consolidated Company Subsidiaries as described in the
notes to the financial statements set forth in the Form 10-KSB.
SECTION 3.13 LITIGATION. Except as disclosed in Section 3.13 of the
Company Disclosure Letter, there is no suit, claim, action, proceeding or
investigation (collectively, "CLAIMS") pending or, to the knowledge of the
Company, threatened against the Company or any Company Subsidiary before any
Governmental Entity that, individually or in the aggregate, has resulted or
would reasonably be expected to result in a Material Adverse
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Effect on the Company. Neither the Company nor any Company Subsidiary is subject
to any outstanding order, writ, injunction or decree which, individually or in
the aggregate, has resulted or would reasonably be expected to result in a
Material Adverse Effect on the Company.
SECTION 3.14 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 3.14(a) of the Company Disclosure
Letter, (i) each of the Company and the Company Subsidiaries is in
compliance with all Laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata)
(collectively, "ENVIRONMENTAL LAWS"), except for instances of
non-compliance that would not, individually or in the aggregate, reasonably
be expected to result in a liability in excess of $1,000,000, which
compliance includes, but is not limited to, the possession by the Company
and the Company Subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws for the conduct
of the Company's business, and compliance with the terms and conditions
thereof; (ii) none of the Company or the Company Subsidiaries has received
written notice of, or, to the knowledge of the Company, is threatened with
or the subject of, any material action, cause of action, claim,
investigation, demand or notice by any person or entity alleging liability
under or non-compliance with any Environmental Law (an "ENVIRONMENTAL
CLAIM"), except with respect to Environmental Claims which would not
reasonably be expected to, individually or in the aggregate, result in a
liability in excess of $1,000,000; and (iii) to the knowledge of the
Company, there are no circumstances that are reasonably likely to prevent
or interfere with such material compliance or lead to such an Environmental
Claim in the future.
(b) To the knowledge of the Company, there is no condition on, in or
under any property currently or formerly owned, leased or operated by the
Company or any Company Subsidiary in violation of, or for which there is an
obligation under, Environmental Laws where such violation or obligation is
reasonably likely to result in a liability in excess of $1,000,000.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) DISCLOSURE, OWNERSHIP AND CLAIMS. The Company and the Company
Subsidiaries own or have valid rights to use the trademarks, trade names,
copyrights, patents, logos, logo types, type styles, licenses and computer
software programs (including without limitation, the source codes thereto)
that are necessary for the conduct of their respective businesses as now
being conducted; provided, however, that the Company and the Company
Subsidiaries do not have access to the source codes relating to certain
computer software programs with respect to which they are the licensee.
Each material trademark, trade name, copyright and patent owned by the
Company or a Company Subsidiary and necessary for the conduct of their
business on the date hereof, and each material license to use any
trademark, trade name, copyright, patent or computer software program
necessary for the conduct of their business on the date hereof, except
computer software licenses that are commercially available, is listed in
Section 3.15(a) of the Company Disclosure Letter. To the knowledge of the
Company, neither the Company nor any of the Company Subsidiaries has
received written notice that the Company or any of the Company Subsidiaries
is infringing on any trademark, trade name, copyright, patent or other
intangible property right or any registration thereof or application
pending therefor which is necessary for the conduct of their business on
the date hereof.
(b) YEAR 2000 COMPLIANCE. All computer software programs, including
all source code, object code and documentation related thereto, hardware,
databases, and embedded control systems (collectively, the "SYSTEMS") used
by the Company or a Company Subsidiary are Year 2000 Compliant, except
where the failure to be Year 2000 Compliant would not reasonably be
expected to have a Material Adverse Effect on the Company. For purposes of
this Agreement, "YEAR 2000 COMPLIANT" means that the Systems (i) accurately
process date and time data (including calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first
centuries, the years 1999 and 2000, and leap year calculations and (ii)
operate accurately with other software and hardware that use standard date
format (4 digits) for representation of the year.
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SECTION 3.16 TAXES. The Company and the Company Subsidiaries have filed
all material Tax returns and reports to be filed by them and have paid, or
established adequate reserves for, all Taxes required to be paid by them. No
deficiencies for any material Taxes have been proposed, asserted or assessed
against the Company or any Company Subsidiaries, and no requests for waivers of
the time to assess any such Taxes are pending. As used in this Agreement,
"TAXES" shall mean all federal, state, local and foreign income, property,
sales, excise and other taxes, tariffs or governmental charges of any nature
whatsoever.
SECTION 3.17 NON-COMPETITION AGREEMENTS. Except as set forth in Section
3.17 of the Company Disclosure Letter, neither the Company nor any Company
Subsidiary is a party to any agreement which purports to restrict or prohibit in
any material respect the Company and the Company Subsidiaries collectively from,
directly or indirectly, engaging in any business involving communications tower
ownership, antenna site leasing, communications site services or any other
business currently engaged in by the Company or any Company Subsidiary. To the
knowledge of the Company, none of the Company's officers, directors or key
employees is a party to any agreement which, by virtue of such person's
relationship with the Company, restricts the Company or any Company Subsidiary
from, directly or indirectly, engaging in any of the businesses described above,
except for those restrictions which would not reasonably be expected to have a
Material Adverse Effect on the Company.
SECTION 3.18 OPINION OF FINANCIAL ADVISOR. BancBoston Robertson Stephens,
Inc. (the "COMPANY FINANCIAL ADVISOR") has delivered to the Board of Directors
of the Company its oral opinion to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair to the Company's stockholders from a
financial point of view, which opinion was or will promptly after the date of
this Agreement be confirmed in writing and accompanied by an authorization to
include a copy of that opinion in the Proxy Materials. The Company has delivered
or will, promptly after receipt of such written opinion, deliver a signed copy
of that written opinion to the Parent.
SECTION 3.19 TITLE TO PROPERTIES; LEASES.
(a) Section 3.19(a) of the Company Disclosure Letter sets forth a list
of all Real Property owned by the Company and the Company Subsidiaries and
indicates the entity that owns the Real Property. The Company and the
Company Subsidiaries have good indefeasible, marketable and insurable title
to all such Real Property (other than leasehold real property) and good
title to all of its other owned property and assets, tangible and
intangible (collectively, the "ASSETS") that are material to the business
of the Company and the Company Subsidiaries taken as a whole; all of the
Assets are so owned, in each case, free and clear of all Liens, except (i)
Permitted Liens, (ii) Liens set forth in Section 3.19(a) of the Company
Disclosure Letter and (iii) Liens which, individually or in the aggregate,
have not resulted and would not reasonably be expected to result in a
Material Adverse Effect on the Company. Except as disclosed in Section
3.19(a) of the Company Disclosure Letter, all improvements on the real
property owned or leased by the Company and the Company Subsidiaries are in
compliance with applicable zoning, building, wetlands and land use laws,
ordinances and regulations and applicable title covenants, conditions,
restrictions and reservations in all respects necessary to conduct the
business of the Company and the Company Subsidiaries as presently conducted
or proposed to be conducted on or prior to the Closing Date, except for any
instances of non-compliance which, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Company. Except as disclosed in Section 3.19(a) of
the Company Disclosure Letter, all such improvements comply with all Laws
and Company Permits, except for any instances of non-compliance which,
individually or in the aggregate, have not resulted and would not
reasonably be expected to result in a Material Adverse Effect on the
Company. Except as disclosed in Section 3.19(a) of the Company Disclosure
Letter, all of the transmitting towers, ground radials, guy anchors,
transmitting buildings and related improvements, if any, located on the
real property owned or leased by the Company and the Company Subsidiaries
are located entirely on such real property or in areas where a Company
Subsidiary has a valid easement to locate such items, except for any
instances of non-compliance which, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Company. Except as set forth in Section 3.19(a) of
the Company Disclosure Letter, such transmitting towers, ground radials,
guy anchors, transmitting buildings and related
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improvements and other material items of personal property, including
equipment, are in a state of repair and maintenance and operating condition
so as to permit the business of the Company and the Company Subsidiaries to
be operated in accordance with the terms and conditions of all applicable
Laws and Company Permits, except where the failure to be in such repair or
condition or to be so usable, individually or in the aggregate, has not
resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Company.
(b) Section 3.19(b) of the Company Disclosure Letter contains a list
of all Leases under which any real property used in the business of the
Company and the Company Subsidiaries is leased to the Company or any
Company Subsidiary by any person and indicates the entity that leases the
real property. Except as otherwise set forth in Section 3.19(b) of the
Company Disclosure Letter or as would not result in a Material Adverse
Effect on the Company, each Lease under which the Company or any Company
Subsidiary holds real property constituting a part of the Assets is in full
force and effect, and the Company or a Company Subsidiary has a valid
leasehold interest in and enjoys peaceful and undisturbed possession or a
valid easement right under all Leases pursuant to which it holds any such
real property, subject to the terms of each Lease and applicable Law and
except for Permitted Liens and such other Liens as, individually or in the
aggregate, have not resulted and would not reasonably be expected to result
in a Material Adverse Effect on the Company. Neither the Company nor, to
the Company's knowledge, any other party thereto, has failed to duly comply
with all of the material terms and conditions of each such Lease or has
done or performed, or failed to do or perform (and no Claim is pending or,
to the knowledge of the Company, threatened to the effect that the Company
has not so complied, done and performed or failed to do and perform) any
act which would invalidate or provide grounds for the other party thereto
to terminate (with or without notice, passage of time or both) such Leases
or impair the rights or benefits, or increase the costs, of the Company
under any of such Leases in any material respect except, in each case, for
such exceptions which individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 3.20 BROKERS. No broker, finder or investment banker other than
the Company Financial Advisor is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. Prior to the date of this Agreement, the Company has made available
to the Parent a complete and correct copy of all agreements between the Company
and the Company Financial Advisor under which the Company Financial Advisor
would be entitled to any payment relating to the Merger or any other
transactions.
SECTION 3.21 CERTAIN STATUTES. The Board of Directors of the Company has
taken or will take all appropriate and necessary actions to ensure that the
restrictions on business combinations in Section 23B.19.040 of the BCA will not
have any effect on the Merger or the other transactions contemplated by this
Agreement. To the knowledge of the Company, no "fair price," "moratorium,"
"control share acquisition" or other similar state or federal anti-takeover
statute or regulation (each a "TAKEOVER STATUTE") is, as of the date of this
Agreement, applicable to the Merger or any other transactions contemplated by
this Agreement.
SECTION 3.22 INFORMATION. None of the information to be supplied by the
Company for inclusion or incorporation by reference in the Proxy Statement or
the Registration Statement will, in the case of the Registration Statement, at
the time it becomes effective and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in that Registration Statement or necessary to make the statements in
that Registration Statement not misleading, or, in the case of the Proxy
Statement or any amendments or supplements of the Proxy Statement, at the time
of the mailing of the Proxy Statement and any amendments or supplements of the
Proxy Statement and at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in that Proxy Statement or necessary in order to make the
statements in that Proxy Statement, in light of the circumstances under which
they are made, not misleading; provided, however, that no representation or
warranty is made by the Company with respect to statements made therein based on
information supplied by the Parent or the Merger Sub. The Proxy Statement
(except for those portions of the
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Proxy Statement that relate only to Parent or subsidiaries or affiliates of the
Parent) will comply as to form in all material respects with the provisions of
the Exchange Act.
SECTION 3.23 VOTE REQUIRED. The Requisite Company Vote is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under the Company Charter Documents, the BCA, other applicable Law or
otherwise) to approve this Agreement, the Merger or the other transactions
contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
Each of the Parent and Merger Sub represents and warrants to the Company
that:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Parent, Merger Sub, and each other subsidiary of the
Parent (collectively, the "PARENT SUBSIDIARIES") has been duly organized
and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and
has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority
and governmental approvals, individually or in the aggregate, have not
resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent. Each of the Parent, Merger Sub and each other
Parent Subsidiary is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that, individually or in the
aggregate, have not resulted and would not reasonably be expected to result
in a Material Adverse Effect on the Parent. For purposes of this Agreement,
"MATERIAL ADVERSE EFFECT ON THE PARENT" means any change in or effect on
the business, assets, properties, results of operations or condition
(financial or otherwise) of the Parent or any Parent Subsidiaries that is
or would reasonably be expected to be materially adverse to the Parent and
the Parent Subsidiaries, taken as a whole, or that would reasonably be
expected to materially impair the ability of the Parent or Merger Sub to
perform its obligations under this Agreement or to consummate transactions
contemplated hereby.
(b) Section 4.1(b) of the letter from the Parent, dated the date
hereof, addressed to the Company (the "PARENT DISCLOSURE LETTER") sets
forth a complete and correct list of all of the Parent Subsidiaries.
Neither the Parent nor any Parent Subsidiary holds any interest in any
other person other than the Parent Subsidiaries so listed.
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The copies of the
Parent's certificate of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "PARENT CHARTER DOCUMENTS") that have
heretofore been made available to the Company are complete and correct copies of
those documents. The Parent Charter Documents are in full force and effect. The
Parent is not in violation of any of the provisions of the Parent Charter
Documents.
SECTION 4.3 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital stock of
the Parent consists of (i) 95,000,000 shares of Parent Common Stock and
(ii) 70,749,625 shares of preferred stock, $0.001 par value, consisting of
3,462,830 shares of Series A Convertible Preferred Stock ("SERIES A
PREFERRED STOCK"), 7,000,000 shares of Series B Convertible Preferred Stock
("SERIES B PREFERRED STOCK") and 60,286,795 shares of Series C Convertible
Preferred Stock ("SERIES C PREFERRED STOCK"). As of the Closing Date, the
authorized capital stock of the Parent will consist of (i) 120,000,000
shares of Parent Common Stock and (ii) 70,749,625 shares of preferred stock
$0.001 par value, consisting of 3,462,830 shares of Series A Preferred
Stock, 7,000,000 shares of Series B Preferred Stock and 60,286,795 shares
of
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Series C Preferred Stock. As of May 13, 1999, (A) 3,536,135 shares of
Parent Common Stock, 3,462,830 shares of Series A Preferred Stock,
7,000,000 shares of Series B Preferred Stock and 60,286,795 shares of
Series C Preferred Stock were issued and outstanding, all of which were
validly issued and are fully paid, nonassessable and not subject to
preemptive rights, (B) no shares of Parent Common Stock, Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock were held in
the treasury of the Parent or by the Parent Subsidiaries, (C) 4,100,000
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding Company Stock Options and (D) an aggregate of 70,749,625 shares
of Parent Common Stock were reserved for issuance in connection with the
conversion of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock. As of the date hereof, each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is
convertible into one share of Parent Common Stock. No adjustment to the
conversion ratio of the Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock will occur as a result of the consummation of
the Merger.
(b) Between December 31, 1998 and the date of this Agreement, an
aggregate of 1,578,500 options to purchase shares of Parent Common Stock
("PARENT STOCK OPTIONS") have been granted by the Parent under the Parent
Stock Option Plan (collectively, the "PARENT'S OPTION PLAN"). Except (i)
for Parent Stock Options to purchase an aggregate of 4,100,000 shares of
Parent Common Stock outstanding or available for grant under the Parent's
Option Plan or (ii) under agreements or arrangements set forth in Section
4.3(b) of the Parent Disclosure Letter, there are no options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights or other rights, agreements, arrangements or commitments of any
character to which the Parent is a party or by which the Parent is bound
relating to the issued or unissued capital stock of the Parent or any
Parent Subsidiary or obligating the Parent or any Parent Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in,
the Parent or any Parent Subsidiary.
(c) There are no outstanding contractual obligations of the Parent or
any Parent Subsidiary to repurchase, redeem or otherwise acquire any shares
of Parent Common Stock or any capital stock of any Parent Subsidiary.
Except as set forth in Section 4.3(c) of the Parent Disclosure Letter, each
outstanding share of capital stock of each Parent Subsidiary is duly
authorized, validly issued, fully paid, nonassessable and not subject to
preemptive rights and each such share owned by the Parent or a Parent
Subsidiary is free and clear of all Liens. There are no material
outstanding contractual obligations of the Parent or any Parent Subsidiary
to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Parent Subsidiary that is not wholly
owned by the Parent or in any other person.
(d) The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, no par value ("SUB COMMON STOCK"). All of the
issued and outstanding shares of Sub Common Stock are (A) owned by the
Parent or another Parent Subsidiary wholly owned by the Parent and (B) duly
authorized, validly issued, fully paid and nonassessable.
SECTION 4.4 AUTHORITY. Each of the Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated hereby
to be consummated by it. The execution and delivery of this Agreement by each of
the Parent and Merger Sub and the consummation by each of the Parent and Merger
Sub of such transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Parent or
Merger Sub are necessary to authorize this Agreement or to consummate such
transactions; provided, however, that a filing to amend the certificate of
incorporation of the Parent prior to the Effective Time to increase the
authorized number of shares of Parent Common Stock as required in order to
effect the Merger will be made. This Agreement has been duly authorized and
validly executed and delivered by each of the Parent and Merger Sub and
constitutes a legal, valid and binding obligation of each of the Parent and
Merger Sub, enforceable against each of the Parent and Merger Sub in accordance
with its terms.
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SECTION 4.5 NO CONFLICT. The execution and delivery of this Agreement by
the Parent and Merger Sub do not, and the performance of this Agreement by each
of the Parent and Merger Sub will not:
(a) conflict with or violate any provision of any Parent Charter
Document or any equivalent organizational documents of any Parent
Subsidiary;
(b) assuming that all consents, approvals, authorizations and other
actions described in Section 4.6 have been obtained and all filings and
obligations described in Section 4.6 have been made, conflict with or
violate any foreign or domestic Law applicable to the Parent, Merger Sub or
any other Parent Subsidiary or by which any property or asset of the Parent
or any Parent Subsidiary is or may be bound or affected, except for any
such conflicts or violations which, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent; or
(c) result in any breach of or constitute a default (or an event which
with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Parent, Merger Sub, or any
other Parent Subsidiary under, any Contract to which the Parent, Merger Sub
or any other Parent Subsidiary is a party or by which any of them or their
assets or Properties is or may be bound or affected, except for those
which, individually or in the aggregate, would not reasonably be expected
to result in a Material Adverse Effect on the Parent.
SECTION 4.6 REQUIRED FILINGS AND CONSENTS. The execution and delivery of
this Agreement by the Parent and Merger Sub do not, and the performance of this
Agreement by the Parent and Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Government
Entity except (i) for applicable requirements of the Exchange Act, applicable
requirements of the Securities Act, applicable requirements of Blue Sky Laws,
the rules and regulations of the Nasdaq, applicable requirements of Takeover
Statutes, the obtaining of rulings or orders exempting the distribution of
Parent Common Stock in the Merger under applicable Canadian securities laws, the
pre-merger notification requirements of the HSR Act and the Competition Act
(Canada), the filing of a notice under the Investment Canada (Act) and for the
filing of the Articles of Merger as required by the BCA and the filing of an
amendment to the certificate of incorporation of the Parent to increase the
authorized number of shares of Parent Common Stock and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, individually or in the aggregate, have not resulted
and would not reasonably be expected to result in a Material Adverse Effect on
the Parent.
SECTION 4.7 PERMITS; COMPLIANCE WITH LAW. Each of the Parent and the
Parent Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity (collectively, the "PARENT
PERMITS") that are material to the conduct of the business of the Parent and the
Parent Subsidiaries taken as a whole, and no suspension or cancellation of any
of the Parent Permits that are material to the conduct of the business of the
Parent and the Parent Subsidiaries taken as a whole is pending or, to the
knowledge of the Parent, threatened. Neither the Parent nor any Parent
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to the Parent or any Parent Subsidiary or by which any property or
asset of the Parent or any Parent Subsidiary is or may be bound or affected or
(ii) any Parent Permits, except for any such conflicts, defaults or violations
that, individually or in the aggregate, have not resulted and would not
reasonably be expected to result in a Material Adverse Effect on the Parent.
SECTION 4.8 2008 PROSPECTUS; FINANCIAL STATEMENTS.
(a) The prospectus (the "2008 PROSPECTUS") contained in Amendment No.
3 to the Parent's Registration Statement on Form S-4 covering the Parent's
12% Senior Discount Notes due 2008, as filed with the SEC on April 29,
1999, including any financial statements or schedules included therein, did
not, at such date, contain any untrue statement of a material fact or omit
to state a material fact required to be stated or necessary in order to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
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(b) Each of the audited consolidated balance sheets (including the
related notes and schedules) of the Parent as of December 31, 1998 and
December 31, 1997, copies of which are included in the 2008 Prospectus,
fairly presented, in all material respects, the consolidated financial
position of the Parent as of the dates set forth in those consolidated
balance sheets. Each of the consolidated statements of operations,
redeemable convertible preferred stock and shareholders' deficiency and
cash flows (including any related notes and schedules), copies of which are
included in the 2008 Prospectus, for the year ended December 31, 1998 and
for the period from April 25, 1997 (inception) to December 31, 1997
presented the consolidated results of operations and cash flows, as the
case may be, of the Parent and the consolidated Parent Subsidiaries for the
periods set forth in those consolidated statements of income and of cash
flows, in each case in conformity with GAAP consistently applied throughout
the periods indicated.
SECTION 4.9 NEXTEL TOWER ACQUISITION. As described in the 2008 Prospectus,
the Parent completed the "Nextel Tower Acquisition" on April 20, 1999. Since
April 20, 1999, there has not been (a) any Material Adverse Effect on the
Parent; or (b) any damage, destruction or other casualty loss with respect to
any asset or property owned, leased or otherwise used by the Parent or any of
the Parent Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or would
reasonably be expected to result in a Material Adverse Effect on the Parent.
SECTION 4.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 4.10(a) of the Parent Disclosure Letter identifies each
material plan, policy, fund, program or contract or arrangement (whether or
not written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements) health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance
benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
under which the Parent or any Parent Subsidiary has or in the future could
have any material liability, including any material liability as a result
of being a single employer under Section 414 of the Code ("PARENT BENEFIT
PLANS"). There is no Parent Benefit Plan which (i) is a multiemployer plan
(within the meaning of Section 3(37) of ERISA) or (ii) is a Title IV Plan.
(b) The Parent has made available to the Company copies of the Parent
Benefit Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto), the most recent actuarial valuation report prepared in connection
with any Parent Benefit Plan, and the most recent Internal Revenue Service
determination letter received with respect to any Parent Benefit Plan.
(c) Each Parent Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period since its adoption; each trust created under any such Plan is
exempt from tax under Section 501(a) of the Code and has been so exempt
since its creation and nothing has occurred with respect to the operation
of any Parent Benefit Plan which would cause the loss of such qualification
or exemption. Each Parent Benefit Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and
all applicable statutes, orders, rules and regulations, including but not
limited to ERISA and the Code and no transaction prohibited by Section 406
of ERISA or Section 4975 of the Code, has occurred with respect to any
Benefit Plan except as has not resulted or could not reasonably expected to
result, individually or in the aggregate, in a Material Adverse Effect on
the Parent.
(d) Neither the Parent nor any Parent Subsidiary has any material
current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits for retired,
former or current employees of the Parent or any Parent Subsidiary, except
as required under applicable law.
(e) There are no unfunded obligations under any Benefit Plan which are
not fully reflected on the most recent financial statements of the Parent.
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SECTION 4.11 TAX MATTERS. Neither the Parent nor Merger Sub, nor to the
knowledge of the Parent, any of Parent's affiliates has taken or agreed to take
any action, nor is the Parent aware of any agreement, plan or other
circumstance, that would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.12 CONTRACTS; DEBT INSTRUMENTS. Neither the Parent nor any
Parent Subsidiary is in violation of or in default under (nor does there exist
any condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract to which it is a party or by
which it or any of its properties or assets is or may be bound or affected,
except for violations or defaults that, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent.
SECTION 4.13 LITIGATION. There is no Claim pending or, to the knowledge of
the Parent, threatened against the Parent or any Parent Subsidiary before any
Governmental Entity that, individually or in the aggregate, has resulted or
would reasonably be expected to result in a Material Adverse Effect on the
Parent. Neither the Parent nor any Parent Subsidiary is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, has resulted or would reasonably be expected to result in a Material
Adverse Effect on the Parent.
SECTION 4.14 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 4.14(a) of the Parent Disclosure
Letter, (i) each of the Parent and the Parent Subsidiaries is in compliance
with all Environmental Laws, except for instances of non-compliance that
could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on the Parent, which compliance
includes, but is not limited to, the possession by the Parent and the
Parent Subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws for the conduct
of the Parent's business, and compliance with the terms and conditions
thereof; (ii) none of the Parent or the Parent Subsidiaries has received
written notice of, or, to the knowledge of the Parent, is threatened with
or the subject of, any Environmental Claim except with respect to
Environmental Claims which would not reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Effect on
the Parent; and (iii) to the knowledge of the Parent, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance or lead to such an Environmental Claim in the future.
(b) There is no condition on, in or under any property currently or
formerly owned, leased or operated by the Parent or any Parent Subsidiary
in violation of, or for which there is an obligation under, Environmental
Laws where such violation or obligation is reasonably likely to result in a
Material Adverse Effect on the Parent.
SECTION 4.15 TAXES. The Parent and the Parent Subsidiaries have filed all
material Tax returns and reports to be filed by them and have paid, or
established adequate reserves for, all Taxes required to be paid by them. No
deficiencies for any material Taxes have been proposed, asserted or assessed
against the Parent or any Parent Subsidiaries, and no requests for waivers of
the time to assess any such Taxes are pending.
SECTION 4.16 BROKERS. No broker, finder or investment banker other than
Goldman, Sachs & Co. is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
hereby based upon arrangements made by or on behalf of the Parent or Merger Sub.
SECTION 4.17 INFORMATION. None of the information to be supplied by the
Parent or Merger Sub for inclusion or incorporation by reference in the
Registration Statement or the Proxy Statement will, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in that Registration Statement or necessary
to make the statements in that Registration Statement not misleading, or, in the
case of the Proxy Statement or any amendments thereof or supplements thereto, at
the time of the mailing of the Proxy Statement and any amendments or supplements
thereto and at the time of the Company Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
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stated in that Proxy Statement or necessary in order to make the statements in
that Proxy Statement, in light of the circumstances under which they are made,
not misleading; provided, however, that no representation or warranty is made by
the Parent or the Merger Sub with respect to statements made therein based on
information supplied by the Company. The Registration Statement will comply as
to form in all material respects with the provisions of the Securities Act.
SECTION 4.18 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by this
Agreement.
SECTION 4.19 TITLE TO PROPERTIES; LEASES.
(a) The Parent and the Parent Subsidiaries have good indefeasible,
marketable and insurable title to all of their Real Property (other than
leasehold real property) and good title to all of its other Assets that are
material to the business of the Parent and the Parent Subsidiaries taken as
a whole; all of the Assets are so owned, in each case, free and clear of
all Liens, except (i) Permitted Liens, (ii) Liens set forth in Section
4.19(a) of the Parent Disclosure Letter and (iii) Liens which, individually
or in the aggregate, have not resulted and would not be expected to result
in a Material Adverse Effect on the Parent. Except as disclosed in Section
4.19(a) of the Parent Disclosure Letter, all improvements on the real
property owned or leased by the Parent and the Parent Subsidiaries are in
compliance with applicable zoning, building, wetlands and land use laws,
ordinances and regulations and applicable title covenants, conditions,
restrictions and reservations in all respects necessary to conduct the
business of the Parent and the Parent Subsidiaries as presently conducted
or proposed to be conducted on or prior to the Closing Date, except for any
instances of non-compliance which, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent. Except as disclosed in Section 4.19(a) of the
Parent Disclosure Letter, all such improvements comply with all Laws and
Parent Permits, except for any instances of non-compliance which,
individually or in the aggregate, have not resulted and would not
reasonably be expected to result in a Material Adverse Effect on the
Parent. Except as disclosed in Section 4.19(a) of the Parent Disclosure
Letter, all of the transmitting towers, ground radials, guy anchors,
transmitting buildings and related improvements, if any, located on the
real property owned or leased by the Parent and the Parent Subsidiaries are
located entirely on such real property or in areas where a Parent
Subsidiary has a valid easement to locate such items, except for any
instances of non-compliance which, individually or in the aggregate, have
not resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent. Except as set forth in Section 4.19(a) of the
Parent Disclosure Letter, such transmitting towers, ground radials, guy
anchors, transmitting buildings and related improvements and other material
items of personal property, including equipment, are in a state of repair
and maintenance and operating condition so as to permit the business of the
Parent and the Parent Subsidiaries to be operated in accordance with the
terms and conditions of all applicable Laws and Parent Permits, except
where the failure to be in such repair or condition or to be so usable,
individually or in the aggregate, has not resulted and would not reasonably
be expected to result in a Material Adverse Effect on the Parent.
(b) Except as otherwise set forth in Section 4.19(b) of the Parent
Disclosure Letter or as would not result in a Material Adverse Effect on
the Parent, each Lease under which the Parent or any Parent Subsidiary
holds real property constituting a part of the Assets is in full force and
effect and the Parent or a Parent Subsidiary has a valid leasehold interest
in and enjoys peaceful and undisturbed possession or a valid easement right
under all Leases pursuant to which it holds any such real property, subject
to the terms of each Lease and applicable Law and except for Permitted
Liens and such other Liens as, individually or in the aggregate, have not
resulted and would not reasonably be expected to result in a Material
Adverse Effect on the Parent. Neither the Parent nor, to the Parent's
knowledge, any other party thereto, has failed to duly comply with all of
the material terms and conditions of each such Lease or has done or
performed, or failed to do or perform (and no Claim is pending or, to the
knowledge of the Parent, threatened to the effect that the Parent has not
so complied, done and performed or failed to do and perform) any act which
would invalidate or provide grounds for the other party thereto to
terminate (with or without notice, passage of time or both) such Leases or
impair the rights or benefits, or increase
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the costs, of the Parent under any of such Leases in any material respect
except, in each case, for such exceptions which individually or in the
aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on the Parent.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement or with the prior written consent of the Parent, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause each of the Company Subsidiaries to, conduct its operations only
in the ordinary course of business consistent with past practice and will use
its reasonable best efforts to, and to cause each Company Subsidiary to,
preserve intact the business organization of the Company and each of the Company
Subsidiaries, to keep available the services of the present officers and key
employees of the Company and the Company Subsidiaries, and to preserve the good
will of customers, suppliers and all other persons having business relationships
with the Company and the Company Subsidiaries. Without limiting the generality
of the foregoing, and except as otherwise contemplated by this Agreement or
disclosed in the Company Disclosure Letter, prior to the Effective Time, the
Company will not, and will not permit any Company Subsidiary to, without the
prior written consent of the Parent:
(a) adopt any amendment to the Company Charter Documents or the
comparable organizational documents of any Company Subsidiary;
(b) except for issuances of capital stock of Company Subsidiaries to
the Company or a wholly owned Company Subsidiary, issue, reissue or sell,
or authorize the issuance, reissuance or sale of (i) additional shares of
capital stock of any class, or securities convertible into capital stock of
any class, or any rights, warrants or options to acquire any convertible
securities or capital stock, other than the issue of Company Shares, in
accordance with the terms of the instruments governing such issuance as in
effect on the date hereof and described in Section 3.3(b) of the Company
Disclosure Letter, and pursuant to the exercise of Company Stock Options
outstanding on the date hereof, or (ii) any other securities in respect of,
in lieu of, or in substitution for, Company Shares outstanding on the date
hereof;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than between the
Company and any wholly owned Company Subsidiary;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock, or any of its other securities;
(e) except for increases in salary, wages and benefits of officers or
employees of the Company or the Company Subsidiaries in the ordinary course
of business and consistent with past practice, increase the compensation or
fringe benefits payable or to become payable to its directors, officers or
employees (whether from the Company or any Company Subsidiaries), or pay
any benefit not required by any existing plan or arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted
stock or performance units) or grant any severance or termination pay to
(except pursuant to existing agreements, plans or policies), or enter into
any employment or severance agreement with, any director, officer or other
employee of the Company or any Company Subsidiaries or establish, adopt,
enter into, or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination, severance
or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or
current or former employees, except in each case to the extent required by
applicable Law; provided, however, that nothing in this Agreement will be
deemed to prohibit the payment of benefits as they become payable;
(f) except in connection with the Pending Transactions, acquire, sell,
lease, license, transfer, pledge, encumber, grant or dispose of (whether by
merger, consolidation, purchase, sale or otherwise) any assets,
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including capital stock of Company Subsidiaries (other than the acquisition
and sale of inventory or the disposition of used or excess equipment and
the purchase of raw materials, supplies and equipment, in either case in
the ordinary course of business consistent with past practice), or enter
into any material commitment or transaction outside the ordinary course of
business, other than transactions between a wholly owned Company Subsidiary
and the Company or another wholly owned Company Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or incur or
assume any short-term indebtedness (including, in either case, by issuance
of debt securities), except that the Company and the Company Subsidiaries
may (x) incur or prepay indebtedness in the ordinary course of business
consistent with past practice under existing lines of credit and (y) assume
or incur indebtedness in connection with the consummation of the Pending
Transactions (so long as such assumed indebtedness was not created in
contemplation of such Pending Transaction and such incurred or assumed
indebtedness is repayable at any time without penalty or premium and is
consented to by Parent), (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except in the ordinary course of
business, or (iii) make any loans, advances or capital contributions to, or
investments in, any other person except in the ordinary course of business
and except for loans, advances, capital contributions or investments
between any wholly owned Company Subsidiary; or
(h) terminate, cancel or request any material change in, or agree to
any material change in any Contract which is material to the Company and
the Company Subsidiaries taken as a whole, or enter into any Contract which
would be material to the Company and the Company Subsidiaries taken as a
whole, in either case other than in connection with Pending Transactions or
in the ordinary course of business consistent with past practice; or make
any capital expenditure, other than capital expenditures in connection with
the Pending Transactions or that are made in the ordinary course of
business consistent with past practice;
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any material rights,
claims or litigation;
(k) make any Tax election (except elections under Section 85(1) of the
Income Tax Act (Canada) with respect to transfers of assets among Company
Subsidiaries) or settle or compromise any material federal, state, local or
foreign income Tax liability;
(l) amend or waive or agree to amend or waive any provision of that
certain agreement, dated the date of this Agreement, between BET
Associates, L.P. and the Company, referred to in Section 6.2(i) of this
Agreement; or
(m) authorize or enter into any formal or informal binding written or
other agreement or otherwise make any binding commitment to do any of the
foregoing.
SECTION 5.2 CERTAIN INTERIM OPERATIONS OF THE PARENT. The Parent covenants
and agrees that, except as expressly provided in this Agreement, during the term
of this Agreement, without the prior written consent of the Company, the Parent
will not, and will cause the Parent Subsidiaries not to:
(a) unless an appropriate adjustment is concurrently made to the
Exchange Ratio in accordance with Section 2.4 of this Agreement directly or
indirectly, split, combine or reclassify the outstanding the Parent Common
Stock; or
(b) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock other
than dividends or other distributions paid by any Parent Subsidiary to the
Parent or other Parent Subsidiaries.
SECTION 5.3 OTHER ACTIONS. During the period from the date hereof to the
Effective Time, the Company and the Parent shall not, and shall not permit any
of their respective subsidiaries to, take any action that
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would, or that would reasonably be expected to, result in any of the conditions
to the Merger set forth in Article 6 hereof not being satisfied or satisfaction
thereof being delayed.
SECTION 5.4 NOTIFICATION OF CERTAIN MATTERS. The Parent and the Company
shall promptly notify each other of (a) the occurrence or non-occurrence of any
fact or event which would reasonably be expected (i) to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, (ii) to
cause any covenant, condition or agreement hereunder not to be complied with or
satisfied in all material respects or (iii) to result in, in the case of Parent,
a Material Adverse Effect on the Parent; and, in the case of the Company, a
Material Adverse Effect on the Company, (b) any failure of the Company or the
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder, (c) any notice or other material communications from any
Governmental Entity in connection with the transactions contemplated by this
Agreement and (d) the commencement of any suit, action or proceeding that seeks
to prevent or seek damages in respect of, or otherwise relates to, the
consummation of the transactions contemplated by this Agreement.
SECTION 5.5 PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
the Parent and the Company shall jointly prepare and file with the SEC a
single document that will constitute (i) the proxy statement of the Company
relating to the special meeting of the Company's stockholders (the "COMPANY
STOCKHOLDERS MEETING") to be held to consider approval and adoption of this
Agreement and the Merger and (ii) the registration statement on Form S-4 of
the Parent (together with all amendments thereto, the "REGISTRATION
STATEMENT"), in connection with the registration under the Securities Act
of the Parent Common Stock to be issued to the stockholders of the Company
in connection with the Merger and the prospectus included in the
Registration Statement (such single document, together with any amendments
thereof or supplements thereto, the "PROXY STATEMENT"). Substantially
contemporaneously with the filing of the definitive Proxy Statement with
the SEC, copies of the definitive Proxy Statement shall be provided to the
Amex and the Nasdaq. The Parent and the Company each shall use its
reasonable best efforts to cause the Registration Statement to become
effective as promptly as practicable, and, prior to the effective date of
the Registration Statement (the "REGISTRATION STATEMENT EFFECTIVE DATE"),
the Parent shall take all or any action required under any applicable Law
in connection with the issuance of Parent Common Stock pursuant to the
Merger. The Parent or the Company, as the case may be, shall furnish all
information concerning the Parent or the Company as the other party may
reasonably request in connection with such actions and the preparation of
the Proxy Statement. As promptly as practicable after the Registration
Statement Effective Date, the proxy statement[s] and prospectus included in
the Proxy Statement (collectively, the "PROXY MATERIALS") will be mailed to
the stockholders of the Company. The Parent and the Company shall cause the
Proxy Statement to comply as to form and substance in all material respects
with the applicable requirements of (i) the Exchange Act, including
Sections 14(a) and 14(d) thereof and the respective regulations promulgated
thereunder, (ii) the Securities Act, (iii) the rules and regulations of the
Amex and the Nasdaq and (iv) the BCA.
(b) The Proxy Statement shall include the unanimous and unconditional
recommendation of the Board of Directors of the Company to the stockholders
of the Company that they vote in favor of the adoption of this Agreement
and the Merger, except to the extent that the Board of Directors of the
Company shall have withdrawn or modified its approval or recommendation of
this Agreement or the Merger and terminated this Agreement in accordance
with Sections 5.8(c) and 7.1(g).
(c) No amendment or supplement to the Proxy Statement will be made
without the approval of each of the Parent and the Company, which approval
shall not be unreasonably withheld or delayed. Each of the Parent and the
Company will advise the other, promptly after it receives notice thereof,
of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order,
of the suspension of the qualification of Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of
any request by the
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SEC or the Amex or the Nasdaq for amendment of the Proxy Statement or
comments thereon and responses thereto or requests by the SEC for
additional information.
(d) The information supplied by the Company for inclusion in the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of the Company,
(iii) the time of the Company Stockholders' Meeting, and (iv) the Effective
Time, contain any untrue statement of a material fact or fail to state any
material fact required to be stated in the Proxy Statement or necessary in
order to make the statements in the Proxy Statement not misleading. If at
any time prior to the Effective Time any event or circumstance relating to
the Company or any Company Subsidiary, or their respective officers or
directors, should be discovered by the Company that should be set forth in
an amendment or a supplement to the Proxy Statement, the Company shall
promptly inform the Parent. All documents that the Company is responsible
for filing with the SEC in connection with the transactions contemplated
hereby will comply as to form and substance in all material respects with
the applicable requirements of the BCA, the Securities Act and the Exchange
Act.
(e) The information supplied by the Parent for inclusion in the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment of or
supplement to the Proxy Materials) are first mailed to the stockholders of
the Company, (iii) the time of the Company Stockholders Meeting, and (iv)
the Effective Time, contain any untrue statement of a material fact or fail
to state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement not
misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to the Parent or any Parent Subsidiary, or their
respective officers or directors, should be discovered by the Parent that
should be set forth in an amendment or a supplement to the Proxy Statement,
the Parent shall promptly inform the Company. All documents that the Parent
is responsible for filing in connection with the transactions contemplated
by this Agreement will comply as to form and substance in all material
aspects with the applicable requirements of the BCA, the Securities Act and
the Exchange Act.
SECTION 5.6 STOCKHOLDERS' MEETING.
The Company shall call and hold the Company Stockholders Meeting as
promptly as practicable after the Registration Statement Effective Date for the
purpose of voting upon the adoption of this Agreement and the Parent and the
Company will cooperate with each other to cause the Company Stockholders Meeting
to be held as soon as practicable following the mailing of the Proxy Materials
to the stockholders of the Company. The Company shall use its reasonable best
efforts (through its agents or otherwise) to solicit from its stockholders
proxies in favor of the adoption of this Agreement, and shall take all other
action necessary or advisable to secure the Requisite Company Vote, except to
the extent that the Board of Directors of the Company determines in good faith
that doing so would cause the Board of Directors of the Company to breach its
fiduciary duties to the Company's Stockholders under applicable Law after
receipt of advice from independent legal counsel (which may be the Company's
regularly engaged independent legal counsel).
SECTION 5.7 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required under any confidentiality agreement or similar
agreement or arrangement to which the Parent or the Company or any of their
respective subsidiaries is a party or under applicable Law or the
regulations or requirements of any securities exchange or quotation service
or other self regulatory organization with whose rules the parties are
required to comply, from the date of this Agreement to the Effective Time,
the Parent and the Company shall (and shall cause their respective
subsidiaries to): (i) provide to the other (and its officers, directors,
employees, accountants, consultants, legal counsel, financial advisors,
investment bankers, agents and other representatives (collectively,
"REPRESENTATIVES")) access at reasonable times upon prior notice to the
officers, employees, agents, properties, offices and other facilities of
the other and its subsidiaries and to the books and records thereof; and
(ii) furnish promptly such information concerning the business, properties,
Contracts, assets, liabilities, personnel and other aspects of the other
party and its subsidiaries as the other party or its
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Representatives may reasonably request. No investigation conducted under
this Section 5.7 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under
the Confidentiality Agreement, dated March 26, 1999 (the "CONFIDENTIALITY
AGREEMENT"), between Spectrasite Communications, Inc. and the Company with
respect to the information disclosed under this Section 5.7.
SECTION 5.8 NO SOLICITATION.
(a) From the date hereof until the termination of this Agreement,
except as permitted hereby, the Company shall not, nor shall it permit any
Company Subsidiary, or any officer, director, employee, agent or
representative of the Company or a Company Subsidiary (including, without
limitation, any investment banker, attorney or accountant retained by the
Company or a Company Subsidiary), to, directly or indirectly, (i) initiate,
solicit or knowingly encourage any inquiries, offers or proposals that
constitute, or would reasonably be expected to lead to, a proposal or offer
for (x) any merger, consolidation, share exchange, recapitalization,
business combination or similar transaction, (y) any sale, lease, exchange,
mortgage, transfer or other disposition, in a single transaction or series
of related transactions, of assets representing 20% or more of the assets
of the Company and the Company Subsidiaries, taken as a whole, or (z) sale
of shares of capital stock representing, individually or in the aggregate,
20% or more of the voting power of the Company other than to the Company or
a Company Subsidiary, including, without limitation, by way of a tender
offer or exchange offer by any person (other than the Company or a Company
Subsidiary) for shares of capital stock representing 20% or more of the
voting power of the Company (any of the foregoing inquiries, offers or
proposals being referred to in this Agreement as an "ACQUISITION
PROPOSAL"), (ii) engage in negotiations or discussions concerning, or
provide to any person or entity any information or data relating to the
Company or any Company Subsidiary for the purposes of making, or take any
other action to facilitate, any Acquisition Proposal, (iii) agree to,
approve or recommend any Acquisition Proposal or (iv) take any other action
materially inconsistent with the obligations and commitments assumed by the
Company pursuant to this Section 5.8; provided, however, that, subject to
the Company's compliance with this Section 5.8, nothing contained in this
Agreement shall prevent the Company or its Board of Directors from, prior
to receipt of the Requisite Company Vote, (A) entering into a definitive
agreement providing for the implementation of a Superior Proposal (as
defined below) if the Company or the Board of Directors is simultaneously
terminating this Agreement pursuant to Section 7.1(g), (B) furnishing
non-public information to, entering into customary confidentiality
agreements with, or entering into discussions or negotiations with, any
person or entity in connection with an unsolicited bona fide written
Acquisition Proposal to the Company or its stockholders, if the Board of
Directors of the Company, by action of a majority of the entire Board of
Directors of the Company, determines in good faith after consultation with
the Company Financial Advisor or other nationally-recognized independent
financial advisors that such Acquisition Proposal, if accepted,
constitutes, or is reasonably likely to lead to, a Superior Proposal or (C)
taking and disclosing to its stockholders a position with respect to such
Acquisition Proposal contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or making any other public disclosure that, in the opinion of
the Company's counsel, is required by or advisable under applicable Law,
provided, further, that except as otherwise permitted in this Section 5.8,
the Company does not withdraw or modify, or propose to withdraw or modify,
its position with respect to the Merger or approve or recommend, or propose
to approve or recommend, an Acquisition Proposal. For purposes of this
Agreement, "SUPERIOR PROPOSAL" means a bona fide written Acquisition
Proposal on terms which a majority of the members of the Board of Directors
of the Company determine in their good faith judgment (after consultation
with the Company Financial Advisor or other nationally-recognized
independent financial advisors) and after taking into account all legal,
financial, regulatory and other material aspects of the Acquisition
Proposal, and the person making the proposal, to be more favorable from a
financial point of view to the Company's stockholders than the Merger, and
for which the Board of Directors of the Company determines in their good
faith judgment (after such consultation) that financing, to the extent
required, is then committed or reasonably likely to be available. The
Company will immediately cease and cause to be terminated any
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existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and will promptly inform
the individuals or entities referred to in the first sentence of this
Section 5.8(a) of the obligations undertaken in this Section 5.8(a). For
purposes of this Agreement, an Acquisition Proposal shall not be deemed to
exist solely as a result of a person filing a report on Schedule 13G to
report ownership of the Company Common Stock.
(b) The Company shall (i) promptly notify the Parent orally and in
writing after receipt by the Company (or its advisors) of any Acquisition
Proposal or any inquiries indicating that any person is considering making
or wishes to make, or which would reasonably be expected to lead to, an
Acquisition Proposal, including the material terms and conditions thereof
and, subject to the fiduciary duties of the Board of Directors of the
Company under applicable law, the identity of the person making it, (ii)
promptly notify the Parent orally and in writing after receipt of any
request for non-public information relating to it or any of the Company
Subsidiaries or for access to its or any of the Company Subsidiaries'
properties, books or records by any person that, to the Company's
knowledge, may be considering making, or has made, an Acquisition Proposal,
(iii) receive from any person who may make or has made an Acquisition
Proposal and that requests non-public information relating to the Company
and/or any Company Subsidiary, an executed confidentiality letter in
reasonably customary form and containing terms that are as stringent in all
material respects as those contained in the Confidentiality Agreement prior
to delivery of any such non-public information, and (iv) keep the Parent
advised on a prompt basis of the status of any such Acquisition Proposal,
indication or request (including any material changes to the terms and
conditions of any Acquisition Proposal).
(c) The Company Board will not withdraw or modify, or propose to
withdraw or modify, in any manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger except in connection with a
Superior Proposal and then only upon or after the termination of this
Agreement pursuant to Section 7.1(g).
SECTION 5.9 EMPLOYEE BENEFITS MATTERS.
(a) In the event that any employee of the Company or a Company Subsidiary
is at any time after the Effective Time transferred to the Parent or any
affiliate of the Parent or becomes a participant in an employee benefit plan,
program or a arrangement maintained by or contributed to by the Parent or any
affiliate of the Parent, the Parent shall cause such plan, program or
arrangement to treat the prior service of such employee with the Company and the
Company Subsidiaries, to the extent prior service is generally recognized, as
service rendered to the Parent or such affiliates for purposes of eligibility
and vesting. The Parent shall cause to be waived any pre-existing condition
limitation under its welfare plans that might otherwise apply to such employee.
The Parent agrees to recognize (or cause to be recognized) the dollar amount of
all expenses incurred by such employees during the calendar year in which the
Effective Time occurs for purposes of satisfying the calendar year deductibles
and co-payment limitations for such year under the relevant benefit plans of the
Parent and the Parent Subsidiaries.
(b) Promptly following the Effective Time, Parent shall take all
actions reasonably necessary to cause the shares of Parent Common Stock
issuable upon exercise of the Converted Stock Options to be registered
under the Securities Act.
SECTION 5.10 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) The Parent agrees that all rights to indemnification now existing
in favor of any employee, agent, director or officer of the Company and the
Company Subsidiaries as provided in their respective charters or by-laws as
in effect on the date hereof shall survive the Merger and shall continue in
full force and effect for a period of not less than six years from the
Effective Time; provided that in the event any claim or claims are asserted
or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition
of any and all such claims.
(b) The Parent agrees that the Company and, from and after the
Effective Time, the Surviving Corporation shall cause to be maintained in
effect for not less than three years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by
the Company; provided
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that the Surviving Corporation may substitute therefor policies of at least
the same coverage containing terms and conditions which are no less
advantageous; and provided, further, that the Surviving Corporation shall
not be required to pay an annual premium in excess of 125% of the last
annual premium paid by the Company prior to the date hereof and if the
Surviving Corporation is unable to obtain the insurance required by this
Section 5.10(b) it shall obtain as much comparable insurance as possible
for an annual premium equal to such maximum amount.
SECTION 5.11 LETTERS OF ACCOUNTANTS.
(a) The Company shall use its reasonable best efforts to cause to be
delivered to the Parent "comfort" letters of PricewaterhouseCoopers LLP,
the Company's independent public accountants, dated and delivered on the
Registration Statement Effective Date and as of the Effective Time, and
addressed to the Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions contemplated hereby.
(b) The Parent shall use its reasonable best efforts to cause to be
delivered to the Company "comfort" letters of Ernst & Young LLP, the
Parent's independent public accountants, dated and delivered the
Registration Statement Effective Date and as of the Effective Time, and
addressed to the Company and reasonably customary in scope and substance
for letters delivered by independent public accountants in connection with
transactions contemplated hereby.
SECTION 5.12 REASONABLE BEST EFFORTS. Subject to the terms and conditions
provided in this Agreement and to applicable legal requirements, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, in the case of the Company,
consistent with the fiduciary duties of the Company's Board of Directors, and to
assist and cooperate with the other parties hereto in doing, as promptly as
practicable, all things necessary, proper or advisable under applicable laws and
regulations to ensure that the conditions set forth in Article 6 are satisfied
and to consummate and make effective the transactions contemplated by this
Agreement. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
SECTION 5.13 CONSENTS; FILINGS; FURTHER ACTION.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to (i) take, or cause
to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger and the other transactions
contemplated hereby, (ii) obtain from Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by the Parent or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby, (iii) make all necessary filings, and
thereafter make any other submissions either required or deemed appropriate
by each of the parties, with respect to this Agreement and the Merger and
the other transactions contemplated hereby required under (A) the
Securities Act, the Exchange Act, any other applicable federal or Blue Sky
Laws and applicable Canadian securities laws, (B) the HSR Act and
Competition Act (Canada), (C) the BCA, (D) any other applicable Law, (E)
the Communications Act and (F) the rules and regulations of the Amex, the
Nasdaq and the Bureau of Land Management. The parties hereto shall
cooperate and consult with each other in connection with the making of all
such filings, including by providing copies of all such documents to the
nonfiling party and its advisors prior to filing, and none of the parties
will file any such document if any of the other parties shall have
reasonably objected to the filing of such document. No party to this
Agreement shall consent to any voluntary extension of any statutory
deadline or waiting period or to any voluntary delay of the consummation of
the Merger and the other transactions contemplated hereby at the behest of
any Governmental Entity without the consent and agreement of the other
parties to this Agreement, which consent shall not be unreasonably withheld
or delayed.
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(b) Without limiting the generality of Section 5.13(a), each party
hereto shall promptly inform the others of any material communication from
the Federal Trade Commission, the Department of Justice or any other
domestic or foreign government or governmental or multinational authority
regarding any of the transactions contemplated by this Agreement. If any
party or any affiliate thereof receives a request for additional
information or documentary material from any such government or authority
with respect to the transactions contemplated by this Agreement, then such
party will endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request. Nothing in this
Section 5.13 shall require, or be construed to require, the Parent or the
Company, in connection with the receipt of any regulatory approval, to
proffer to, or agree to (A) sell or hold separate and agree to sell, divest
or to discontinue to or limit, before or after the Effective Time, any
assets, businesses, or interest in any assets or businesses of the Parent,
the Company or any of their respective affiliates (or to the consent to any
sale, or agreement to sell, or discontinuance or limitation by the Parent
or the Company, as the case may be, of any of its assets or businesses) or
(B) agree to any conditions relating to, or changes or restriction in, the
operations of any such asset or businesses which, in either case, would
reasonably be expected to result in a Material Adverse Effect on the Parent
or a Material Adverse Effect on the Company or to materially and adversely
impact the economic or business benefits to such party of the transactions
contemplated by this Agreement.
SECTION 5.14 PLAN OF REORGANIZATION. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not,
without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken which could prevent the Merger from
qualifying, as a reorganization under the provisions of Section 368(a) of the
Code. Following the Effective Time, and consistent with any such consent, none
of the Surviving Corporation, the Parent or any of their affiliates shall
knowingly take any action or knowingly cause any action to be taken which would
cause the Merger to fail to so qualify as a reorganization under Section 368(a)
of the Code.
SECTION 5.15 PUBLIC ANNOUNCEMENTS. The initial press release concerning
the Merger shall be a joint press release and, thereafter, the Parent and Merger
Sub and the Company shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or any of the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation,
except to the extent required by applicable Law or the requirements of the Amex
or the Nasdaq, in which case the issuing party shall use its reasonable best
efforts to consult with the other parties before issuing any such release or
making any such public statement.
SECTION 5.16 OBLIGATIONS OF MERGER SUB. The Parent shall take all actions
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.
SECTION 5.17 STOCK EXCHANGE LISTINGS AND DE-LISTINGS. The Parent shall use
its reasonable best efforts to cause the shares of Parent Common Stock to be
issued in the Merger to be approved for listing on the Nasdaq, subject to
official notice of issuance, prior to the Effective Time. The parties shall use
their reasonable best efforts to cause the Surviving Corporation to cause the
Company Common Stock to be de-listed from the Amex and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
SECTION 5.18 EXPENSES. Except as otherwise provided in Section 7.5(b),
whether or not the Merger is consummated, all Expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated
hereby shall be paid by the party incurring such Expense, except that Expenses
incurred in connection with the filing fee for the Proxy Statement and printing
and mailing the Proxy Materials and the filing fee under the HSR Act shall be
shared equally by the Parent and the Company.
SECTION 5.19 TAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated hereby, each of
the Parent and the Company and its board of directors shall, subject to their
fiduciary duty under applicable law, grant such approvals and take such actions
as are
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necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
SECTION 5.20 CONTROL OF THE COMPANY'S AND PARENT'S OPERATIONS. Nothing
contained in this Agreement shall give the Parent or the Company, directly or
indirectly, rights to control or direct the other party's operations prior to
the Effective Time.
SECTION 5.21 AFFILIATES. Within 30 days after the date of this Agreement,
(a) the Company shall deliver to the Parent a letter identifying all persons who
may be deemed to be affiliates of the Company under Rule 145 of the Securities
Act as of the record date for the Company Stockholders Meeting, including,
without limitation, all of its directors and executive officers (the "RULE 145
AFFILIATES") and (b) the Company shall advise the persons identified in such
letter of the resale restrictions imposed by applicable securities laws and
shall use commercially reasonable efforts to obtain from each person identified
in such letter a written agreement, substantially in the form of Exhibit B
hereto (a "RULE 145 AFFILIATE AGREEMENT").
SECTION 5.22 MERGER SUB CHARTER DOCUMENTS. The Parent shall not, without
the prior written consent of the Company (which consent shall not be
unreasonably withheld), amend the articles of incorporation or by-laws of the
Merger Sub prior to the Closing.
SECTION 5.23 CORPORATE MATTERS. At the Effective Time, Parent shall enter
into employment agreements with Calvin J. Payne and S. Roy Jeffrey in the forms
attached hereto as Exhibit C and D (the "EMPLOYMENT AGREEMENTS"). Pursuant to
the terms of the Employment Agreements, Calvin Payne shall hold the position of
Executive Vice President -- Construction Operations and S. Roy Jeffrey shall
hold the position of Vice President -- Canadian Region, respectively, of the
Parent. The authority, duties and responsibilities of Messrs. Payne and Jeffrey
shall be as set forth in the Employment Agreements.
SECTION 5.24 JOVIN. The Company will (i) use its reasonable best efforts
to enter into agreements prior to the Effective Time with each of the holders
(the "EXCHANGEABLE HOLDERS") of Class B Shares (the "EXCHANGEABLE SHARES") of
Westower Acquisitions Canada Inc. ("ACQUISITIONS CANADA"), in form and substance
reasonably satisfactory to the Parent, pursuant to which each Exchangeable
Holder shall have agreed that a Canadian subsidiary of the Company other than
Acquisitions Canada shall have the right (the "CALL RIGHT") to purchase any
Exchangeable Shares tendered for conversion or redemption by delivering to the
holder of such shares the same number and class of securities which would
otherwise have been exchangeable by Acquisitions Canada for such Exchangeable
Shares on conversion or exchange, as the case may be, and (ii) cause the Call
Right to be exercised in the event that any Exchangeable Shares are tendered for
conversion prior to the Effective Time.
ARTICLE 6
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
Closing Date is subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and consummation of the
Merger shall have been duly approved by holders of outstanding Company
Shares by the Requisite Company Vote.
(b) LISTING. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement shall have been
authorized for listing on the Nasdaq upon official notice of issuance.
(c) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act and, if applicable, the Competition Act (Canada)
shall have expired or been terminated.
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(d) LITIGATION. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any Law, order injunction or decree (whether temporary, preliminary or
permanent) that is in effect and restrains, enjoins or otherwise prohibits
consummation of the Merger or the other transactions contemplated hereby or
that, individually or in the aggregate with all other such Laws, orders
injunctions or decrees, would reasonably be expected to result in a
Material Adverse Effect on the Parent or a Material Adverse Effect on the
Company, and no Governmental Entity shall have instituted any proceeding or
threatened to institute any proceeding seeking any such Law, order
injunction or decree.
(e) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been initiated or be threatened by
the SEC.
(f) ACCOUNTANTS' LETTERS. The Parent and the Company shall have
received the "comfort" letters described in Section 5.11.
(g) BLUE SKY APPROVALS. The Parent shall have received all state
securities and "blue sky" permits and approvals necessary to consummate the
transactions contemplated hereby.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE PARENT AND MERGER SUB. The
obligations of each of the Parent and Merger Sub to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
Closing Date are also subject to the satisfaction or waiver by the Parent at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true and correct, and the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date, as though made
on and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and the Parent
shall have received a certificate (which certificate may be qualified by
knowledge to the same extent as the representations and warranties of the
Company contained in this Agreement are so qualified) signed on behalf of
the Company by an executive officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Company and the Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(d) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the
consent, approval or waiver of each person whose consent, approval or
waiver shall be required in order to consummate the transactions
contemplated by this Agreement, except those for which the failure to
obtain such consent, approval or waiver, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect on
the Company.
(e) TAX OPINION. The Parent shall have received the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, special counsel to the Parent, dated
the Closing Date, based upon representation letters and certificates
substantially in the form previously agreed upon by the Parent and the
Company, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
(f) EXERCISE OF WARRANTS. Each of (x) the stock purchase warrant,
dated as of May 11, 1998, issued to BET Associates, L.P. and (y) any
remaining unexercised stock purchase warrants issued pursuant to that
certain Underwriters' Warrant Agreement, dated as of October 20, 1997, by
and among
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the Company and National Securities Corporation, as representative for
several underwriters, shall have been exercised in full by the holders
thereof to purchase shares of Company Common Stock prior to the Effective
Time or through cashless exercise, and the Parent shall have received
evidence of such exercise reasonably satisfactory in form and substance to
Parent.
(g) BANK CONSENT. All required authorizations, consents or approvals
of the lenders required by the Credit Agreement, dated as of April 20,
1999, among Parent, Spectrasite Communications, Inc., CIBC Oppenheimer
Corp., Credit Suisse First Boston and the other parties thereto to permit
the consummation of the Merger shall have been obtained.
(h) GOVERNMENTAL CONSENTS. Other than the filing provided for in
Section 1.3, all notices, reports and other filings required to be made
prior to the Effective Time by the Company or the Parent or any of their
respective subsidiaries with, and all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Effective
Time by, the Company or the Parent or any of their respective subsidiaries
from, any Governmental Entity in connection with the execution and delivery
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby shall have been made or obtained (as the
case may be).
(i) SENIOR SUBORDINATED NOTES. The Company's $15,000,000 principal
amount 7% Convertible Senior Subordinated Notes due April 30, 2007 shall
have been surrendered for prepayment and cancellation in accordance with
the terms and conditions set forth in that certain agreement, dated the
date of this Agreement, between BET Associates, L.P. and the Company.
(j) STOCKHOLDER LOANS. All loans and other advances made to
stockholders, employees, officers or directors of the Company or any
Company Subsidiary (excluding (x) loans between the Company and any Company
Subsidiary or between two Company Subsidiaries and (y) loans and advances
to employees for reasonable, travel, business and moving expenses in the
ordinary course of business) shall have been repaid, and the Parent shall
have received evidence of such repayment satisfactory in form and substance
to Parent in its sole discretion.
(k) CUNNINGHAM. Tom T. Cunningham shall have waived, in form and
substance reasonably satisfactory to Parent, his rights under Section 11 of
that certain Employment Agreement, dated August 31, 1998, between Tom T.
Cunningham and Standby Services, Inc., to terminate his employment with
Standby Services, Inc. and receive certain severance benefits upon
consummation of the Merger.
(l) CORD EARN-OUT. The terms and provisions of Sections 2.1(c) and
2.3 of that certain Agreement and Plan of Merger, dated as of August 31,
1998, among the Company, Cord Communications, Incorporated, Cord
Acquisition Co., Mark Beuchley, Seth Beuchley and Mark Reed shall have been
amended, in form and substance reasonably satisfactory to Parent, to
provide (x) that any additional shares of capital stock to be issued
thereunder shall be shares of Parent Common Stock instead of shares of
Company Common Stock and (y) for an appropriate adjustment to the number of
additional shares of capital stock to be issued thereunder to give effect
to the Exchange Ratio contemplated by this Agreement.
(m) SUMMIT EARN-OUT. The terms and provisions of Sections 2.1(a)(iii)
and 2.1(b) of that certain Agreement and Plan of Merger, dated as of
November 10, 1998, by and among the Company, Westower Summit Acquisition,
LLC, Summit Communications, LLC and the Members of Summit Communications,
LLC shall have been amended, in form and substance reasonably satisfactory
to Parent, to provide (x) that any additional shares of capital stock to be
issued thereunder shall be shares of Parent Common Stock instead of shares
of Company Common Stock and (y) for an appropriate adjustment to the number
of additional shares of capital stock to be issued thereunder to give
effect to the Exchange Ratio contemplated by this Agreement.
(n) DISSENTING SHARES. Holders of not more than 5% of the outstanding
shares of Company Common Stock shall have properly demanded appraisal
rights for their shares under the BCA.
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(o) POST-CLOSING LOCK-UPS. Each of Calvin J. Payne and S. Roy Jeffrey
shall have executed and delivered to the Parent lock-up agreements in the
forms attached hereto as Exhibit E-1 and Exhibit E-2, respectively. Each of
the persons listed on Exhibit F-1 hereto shall have executed and delivered
to the Parent lock-up agreements in the form attached hereto as Exhibit
F-2.
(p) INDENTURES. The Parent shall have obtained, if and to the extent
required, all consents or approvals from the holders of notes issued by
Parent pursuant to (x) the Indenture, dated as of June 26, 1998, as
amended, between the Parent and United States Trust Company of New York, as
trustee (the "2008 INDENTURE") and (y) the Indenture, dated as of April 20,
1999, between the Parent and United States Trust Company of New York, as
trustee (the "2009 INDENTURE"), including, without limitation, the consent
to any amendments to, or waivers of the provisions of, the 2008 Indenture
and/or the 2009 Indenture to permit the transactions contemplated by this
Agreement.
(q) AFFILIATES. The Parent shall have received from each Rule 145
Affiliate of the Company an executed copy of a Rule 145 Affiliate Agreement
as contemplated by Section 5.21.
SECTION 6.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger and consummate the other transactions contemplated
hereby to be consummated on the Closing Date is also subject to the satisfaction
or waiver by the Company at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the Parent and Merger Sub set forth in this Agreement
that are qualified as to materiality shall be true and correct, and the
representations and warranties of the Parent and Merger Sub set forth in
this Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms
to another date, and the Company shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of each of the Parent and Merger Sub
contained in this Agreement are so qualified) signed on behalf of each of
the Parent and Merger Sub by an executive officer of the Parent to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE PARENT AND MERGER SUB. Each of
the Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate
signed on behalf of the Parent and Merger Sub by an executive officer of
the Parent to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on the Parent and the Company
shall have received a certificate signed on behalf of the Parent by an
executive officer of the Parent to such effect.
(d) TAX OPINION. The Company shall have received the opinion of
Morgan, Lewis & Bockius LLP, counsel to the Company, dated the Closing
Date, based upon representation letters and certificates substantially in
the form previously agreed upon by the Parent and the Company, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
(e) BOARD SEAT. The Parent shall have executed and delivered to
Calvin J. Payne and S. Roy Jeffrey the letter agreement in the form
attached hereto as Exhibit G regarding the Parent's Board of Directors.
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ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement, as follows:
(a) by mutual written consent of the Parent and the Company duly
authorized by their respective boards of directors;
(b) by either the Parent or the Company, if the Effective Time shall
not have occurred on or before December 31, 1999; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not
be available to the party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date;
(c) by either the Parent or the Company, if any order, injunction or
decree preventing the consummation of the Merger shall have been entered by
any court of competent jurisdiction or Governmental Entity and shall have
become final and nonappealable;
(d) by the Parent or the Company, if this Agreement shall fail to
receive the requisite vote for adoption at the Company Stockholders Meeting
or any adjournment or postponement thereof;
(e) by the Parent, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement, or if any representation or warranty of the Company shall
have become untrue, in either case such that the conditions set forth in
either of Section 6.2(a) or 6.2(c) would not be satisfied (a "TERMINATING
COMPANY BREACH"); provided, however, that, if such Terminating Company
Breach is curable by the Company through the exercise of its reasonable
best efforts and for so long as the Company continues to exercise such
reasonable best efforts, the Parent may not terminate this Agreement under
this Section 7.1(e);
(f) by the Company, upon breach of any material representation,
warranty, covenant or agreement on the part of the Parent set forth in this
Agreement, or if any representation or warranty of the Parent shall have
become untrue, in either case such that the conditions set forth in either
of Section 6.3(a) or 6.3(c) would not be satisfied (a "TERMINATING PARENT
BREACH"); provided, however, that, if such Terminating Parent Breach is
curable by the Parent through its reasonable best efforts and for so long
as the Parent continues to exercise such reasonable best efforts, the
Company may not terminate this Agreement under this Section 7.1(f); or
(g) by the Company, if prior to the Requisite Company Vote the Board
of Directors of the Company shall have approved, and the Company shall
concurrently enter into, a definitive agreement providing for the
implementation of a Superior Proposal; provided, however, that (i) the
Company is not then in breach of Section 5.8, (ii) the Company's Board of
Directors shall have authorized the Company, subject to complying with the
terms of this Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the
Company shall have notified the Parent in writing that it intends to enter
into such an agreement, attaching the most current version of such
agreement to such notice, (iii) during the two-business day period after
the Company's notice, (A) the Company shall have offered to negotiate with
(and, if accepted, negotiate with), and shall have caused its respective
financial and legal advisors to have offered to negotiate with (and, if
accepted, negotiate with) Parent to attempt to make such commercially
reasonable adjustments in the terms and conditions of this Agreement as
would enable the Company to proceed with the Merger and (B) the Board of
Directors of the Company shall have concluded, after considering the
results of such negotiations and the revised proposals made by the Parent,
if any, that any Superior Proposal giving rise to the Company's notice
continues to be a Superior Proposal; (iv) such termination is within five
(5) business days following the two (2) business day period referred to
above, and (v) no termination pursuant to this Section 7.1(g) shall be
effective unless the Company shall simultaneously make the
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payment of the termination fee portion of the Termination Amount required
by Section 7.5(b); provided, however, that such termination of this
Agreement shall not relieve the Company of its obligation to pay the
remainder of the Termination Amount.
SECTION 7.2 EFFECT OF TERMINATION. Except as provided in Section 8.2, in
the event of termination of this Agreement pursuant to Section 7.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of the Parent, Merger Sub or the Company or any of their
respective Representatives, and all rights and obligations of each party hereto
shall cease, subject to the remedies of the parties set forth in Sections 7.5(b)
and (c); provided, however, that nothing in this Agreement shall relieve any
party from liability for the wilful breach of any of its representations and
warranties or the breach of any of its covenants or agreements set forth in this
Agreement.
SECTION 7.3 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided that, after the approval of this
Agreement by the stockholders of the Company, no amendment may be made that
would reduce the amount or change the type of consideration into which each
Company Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 7.4 WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained in this Agreement of any other party hereto or in any
document delivered pursuant hereto, and (c) waive compliance with any agreement
or condition of any other party hereto contained in this Agreement. Any waiver
of a condition set forth in Section 6.1, or any determination that such a
condition has been satisfied, will be effective only if made in writing by each
of the Company and the Parent and, unless otherwise specified in such writing,
shall thereafter operate as a waiver (or satisfaction) of such conditions for
any and all purposes of this Agreement. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
SECTION 7.5 EXPENSES FOLLOWING TERMINATION.
(a) Except as set forth in this Section 7.5, all Expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid in accordance with the provisions of Section 5.18. For
purposes of this Agreement, "EXPENSES" consist of all reasonable
out-of-pocket expenses (including, all reasonable fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a
party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation, printing,
filing and mailing of the Proxy Statement and/or the Proxy Materials (as
the case may be), the solicitation of stockholder approvals and all other
matters related to the closing of the transactions contemplated hereby.
(b) The Company agrees that, if (i) the Company shall terminate this
Agreement pursuant to Section 7.1(g) or (ii) the Parent or the Company
shall terminate this Agreement pursuant to Section 7.1(d) due to the
failure to obtain the approval of the Company's stockholders at the Company
Stockholders' Meeting, the Company shall pay to Parent (x) within 5
business days after receipt of evidence of Parent's documented expenses
following such termination if pursuant to Section 7.1(g), or on the date
specified in the sentence before the penultimate sentence of this Section
7.5(b) if pursuant to Section 7.1(d), an amount equal to Parent's
documented Expenses in connection with this Agreement and the transactions
contemplated hereby and (y) concurrently with such termination, if pursuant
to Section 7.1(g), or on the date specified in the sentence before the
penultimate sentence of this Section 7.5(b) if pursuant to Section 7.1(d),
a termination fee in the amount of $12 million (collectively, such Expenses
and such fee, the Termination Amount"); provided, however, that the Company
shall not be obligated to pay such Termination Amount to the Parent if this
Agreement is terminated pursuant to Section 7.1(d) unless (i) at the time
of the Company Stockholders Meeting in the case of termination pursuant to
Section 7.1(d), the Company has received a bona fide alternative
Acquisition Proposal from a third party or a third party has made or
publicly announced its intention to make a bona fide Acquisition
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Proposal, in each case which has not been withdrawn prior to the Company
Stockholders' Meeting, and (ii) within twelve months after the termination
of this Agreement, the Company enters into a definitive agreement providing
for an alternative Acquisition Proposal with any third party that will
constitute a Change of Control or an alternative Acquisition Proposal that
constitutes a Change of Control is consummated with any third party. If the
Termination Amount becomes payable as a result of a termination pursuant to
Section 7.1(d), such Termination Amount shall be paid promptly (and in any
event within five (5) days of receipt by Company of a written notice from
Parent) following the earlier of the execution of such definitive agreement
providing for an alternative Acquisition Proposal that will constitute a
Change of Control or the consummation of an alternative Acquisition
Proposal that constitutes a Change of Control, as the case may be. In
addition, in the event the Company terminates this Agreement pursuant to
Section 7.1(d) and at the time of the Company Stockholders Meeting the
Company has received a bona fide alternative Acquisition Proposal from a
third party or a third party has made or publicly announced its intention
to make a bona fide Acquisition Proposal, in each case which has not been
withdrawn prior to the Company Stockholders' Meeting, the Company shall
promptly on demand reimburse all of the portion of the Termination Amount
that constitutes Expenses and thereafter be obligated to pay the balance of
the Termination Amount in the event such fee is payable pursuant to this
Section 7.5(b). Any payment required to be made pursuant to this Section
7.5(b) shall be made by wire transfer of immediately available funds to an
account designated by Parent or by check if Parent fails to designate an
account.
(c) Each of the Parent and the Company agrees that the payments
provided for in Section 7.5(b) shall be the sole and exclusive remedy of
the parties upon a termination of this Agreement pursuant to Section 7.1,
and such remedy shall be limited to the payment stipulated in Section
7.5(b); provided, however, that nothing in this Agreement shall relieve any
party from liability for the wilful breach of any of its representations
and warranties or the breach of any of its covenants or agreements set
forth in this Agreement.
(d) The Company acknowledges that the agreements contained in this
Section 7.5 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Parent would not enter
into this Agreement; accordingly, if the Company fails to pay promptly the
Termination Amount, and, in order to obtain such payment, the Parent
commences a suit which results in a judgment against the Company for the
Termination Amount, the Company shall pay the Parent's Expenses in
connection with such suit, together with interest on the amount of the
Termination Amount at the prime rate of the Canadian Imperial Bank of
Commerce in effect on the date such payment was required to be made. If the
Parent commences such suit, and it results in a judgment for the Company,
the Parent will pay the Company's expenses in connection with such suit.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) The term "AFFILIATE," as applied to any person, means any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through
the ownership of voting securities, by contract or otherwise.
(b) The term "BUSINESS DAY" means any day, other than Saturday, Sunday
or a federal holiday, and shall consist of the time period from 12:01 a.m.
through 12:00 midnight Eastern time. In computing any time period under
this Agreement, the date of the event which begins the running of such time
period shall be included except that if such event occurs on other than a
business day such period shall begin to run on and shall include the first
business day thereafter.
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(c) The term "CHANGE OF CONTROL" of the Company shall mean such time
as: (i) any person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of outstanding shares of capital stock of the Company,
entitling such person or persons to exercise 30% or more of the total votes
entitled to be cast at a regular or special meeting, or by action by
written consent, of stockholders of the Company (the term "beneficial
owner" shall be determined in accordance with Rule 13d-3, promulgated by
the Securities Commission under the Exchange Act); (ii) a majority of the
Board of Directors of the Company shall consist of Persons other than
Continuing Directors. The term "Continuing Director" shall mean any member
of the Board of Directors of the Company on the date of this Agreement and
any other member of the Board of Directors who shall be recommended or
elected to succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board of Directors of the
Company; (iii) a recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the persons who were the respective beneficial owners of
the outstanding shares of capital stock of the Company immediately prior to
such recapitalization, reorganization, merger or consolidation,
beneficially own, directly or indirectly, less than 50% of the combined
voting power of the then outstanding shares of capital stock of the company
resulting from such recapitalization, reorganization, merger, consolidation
or similar transaction; or (iv) the sale or other disposition of all or
substantially all the assets of the Company in one transaction or in a
series of related transactions.
(d) The term "INCLUDING" means, unless the context clearly requires
otherwise, including but not limited to the things or matters named or
listed after that term.
(e) The term "KNOWLEDGE," as applied to the Company or the Parent,
means the actual knowledge of any executive officer or director of the
Company or the Parent, as the case may be.
(f) The term "LEASE" shall mean any lease of property, whether real,
personal or mixed, and all amendments thereto, and shall include without
limitation all use or occupancy agreements.
(g) The term "PENDING TRANSACTIONS" shall mean the pending
acquisitions and other transactions set forth in Section 8.1(f) of the
Company Disclosure Letter.
(h) The term "PERMITTED LIENS" shall mean (a) Liens for current Taxes
not yet due and payable, (b) such imperfections of title, easements,
encumbrances and mortgages or other Liens, if any, as are not, individually
or in the aggregate, material in character, amount or extent and do not
materially detract from the value, or materially interfere with the present
use, of the property subject thereto or affected thereby, (c) Liens
securing debt for borrowed money of the underlying fee owner where the
Company or a Company Subsidiary or the Parent or a Parent Subsidiary, as
the case may be, is a lessee, (d) levies not at the time due or which are
being contested or good faith by appropriate proceedings and (e)
mechanics', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business that are not overdue for a period of more than
30 days.
(i) The term "PERSON" shall include individuals, corporations, limited
and general partnerships, trusts, limited liability companies,
associations, joint ventures, Governmental Entities and other entities and
groups (which term shall include a "GROUP" as such term is defined in
Section 13(d)(3) of the Exchange Act).
(j) The term "REAL PROPERTY" shall mean all of the fee estates and
buildings and other fixtures and improvements thereon, leasehold interests,
easements, licenses, rights to access, rights-of-way, and other real
property interests which are owned or used by the Company or any Company
Subsidiary or the Parent or any Parent Subsidiary, as the case may be, as
of the date hereof, in the operations of the business of the Company and
the Company Subsidiaries, plus such additions thereto and deletions
therefrom arising in the ordinary course of business between the date
hereof and the Closing Date.
(k) The term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to the
Parent, the Company or any other person, any entity of which the Parent,
the Company or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, stock or other equity interests constituting 50% or more of the
voting or economic interest in such entity.
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SECTION 8.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
and in any certificate delivered under this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement under Section 7.1, as
the case may be, except that the agreements set forth in Articles 1 and 2 and
Sections 5.9, 5.10, 5.14 and 5.17 and this Article 8 shall survive the Effective
Time, those set forth in Sections 5.7(b), 5.18, 7.2 and 7.5 and this Article 8
shall survive termination of this Agreement and those set forth in Section 5.15
shall survive for a period of one year after termination of this Agreement. Each
party agrees that, except for the representations and warranties contained in
this Agreement, the Company Disclosure Letter and the Parent Disclosure Letter,
no party to this Agreement has made any other representations and warranties,
and each party disclaims any other representations and warranties, made by
itself or any of its officers, directors, employees, agents, financial and legal
advisors or other Representatives with respect to the execution and delivery of
this Agreement or the transactions contemplated by this Agreement,
notwithstanding the delivery of disclosure to any other party or any party's
representatives of any documentation or other information with respect to any
one or more of the foregoing.
SECTION 8.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
SECTION 8.4 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES, EXCEPT THAT WASHINGTON LAW SHALL APPLY TO THE EXTENT REQUIRED
IN CONNECTION WITH THE EFFECTUATION OF THE MERGER. The parties irrevocably
submit to the jurisdiction of the federal courts of the United States of
America located in the State of New York solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the
transactions contemplated by this Agreement and by those documents, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement of this Agreement or of
any such document, that it is not subject to this Agreement or that such
action, suit or proceeding may not be brought or is not maintainable in
said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts,
and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a federal
court. The parties hereby consent to and grant any such court jurisdiction
over the person of such parties and over the subject matter of such dispute
and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 8.5 or in such
other manner as may be permitted by law, shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO
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THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.4.
SECTION 8.5 NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Parent or Merger Sub:
Spectrasite Holdings, Inc.
8000 Regency Parkway, Suite 570
Cary, NC 27511
Attention: Stephen H. Clark
Fax: (919) 468-8522
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Fax: (212) 757-3990
if to the Company:
Westower Corporation
17886 55th Avenue
Surrey, BC V3S 6C8
Canada
Attention: Calvin J. Payne
Fax: (604) 576-4855
with copies to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Peter S. Sartorius, Esq.
Fax: (215) 963-5299
or to such other persons or addresses as may be designated in writing by
the party to receive such notice as provided above.
SECTION 8.6 ENTIRE AGREEMENT. This Agreement (including any exhibits and
annexes to this Agreement), the Company Disclosure Letter and the Parent
Disclosure Letter constitute the entire agreement and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter of this Agreement.
SECTION 8.7 NO THIRD PARTY BENEFICIARIES. Except as provided in Section
5.10 this Agreement is not intended to confer upon any person other than the
parties to this Agreement any rights or remedies under this Agreement.
SECTION 8.8 OBLIGATIONS OF THE PARENT AND OF THE COMPANY. Whenever this
Agreement requires a Parent Subsidiary to take any action, that requirement
shall be deemed to include an undertaking on the part of the Parent to cause
that Parent Subsidiary to take that action. Whenever this Agreement requires a
Company Subsidiary to take any action, that requirement shall be deemed to
include an undertaking on the part of the Company to cause that Company
Subsidiary to take that action and, after the Effective Time, on the part of the
Surviving Corporation to cause that Company Subsidiary to take that action.
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SECTION 8.9 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions of this Agreement.
If any provision of this Agreement, or the application of that provision to any
person or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted for that provision in order to carry
out, so far as may be valid and enforceable, the intent and purpose of the
invalid or unenforceable provision and (b) the remainder of this Agreement and
the application of the provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of the provision, or the
application of that provision, in any other jurisdiction.
SECTION 8.10 INTERPRETATION. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
section, exhibit or annex, that reference shall be to a section of or exhibit or
annex to this Agreement unless otherwise indicated. Wherever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
SECTION 8.11 ASSIGNMENT. This Agreement shall not be assignable by
operation of law or otherwise, except that the Parent may designate, by written
notice to the Company, another Parent Subsidiary that is wholly owned directly
or indirectly by the Parent to be merged with and into the Company in lieu of
Merger Sub, in which event all references in this Agreement to Merger Sub shall
be deemed references to such other Parent Subsidiary, and in that case, all
representations and warranties made in this Agreement with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other Parent Subsidiary as of the date of such
designation.
SECTION 8.12 SPECIFIC PERFORMANCE. The parties to this Agreement agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties to this Agreement as of the date
first written above.
WESTOWER CORPORATION
By: /s/ CALVIN J. PAYNE
------------------------------------
Name: Calvin J. Payne
Title: Chairman of the Board,
President
and Chief Executive Officer
SPECTRASITE HOLDINGS, INC.
By: /s/ STEPHEN H. CLARK
------------------------------------
Name: Stephen H. Clark
Title: President and Chief
Executive Officer
W ACQUISITION CORP
By: /s/ STEPHEN H. CLARK
------------------------------------
Name: Stephen H. Clark
Title: President
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APPENDIX II
OPINION OF BANCBOSTON
ROBERTSON STEPHENS INC.
<PAGE> 278
As of May 14, 1999
Board of Directors
Westower Corporation
7001 N.E. 40th Avenue
Vancouver, WA 98661
Members of the Board:
This letter confirms the oral opinion we delivered to the Board of
Directors on May 14, 1999.
We understand that Westower Corporation (the "Company"), Spectrasite
Holdings, Inc. ("Acquiror") and W Acquisition Corp., a wholly owned subsidiary
of Acquiror ("Merger Sub"), are proposing to enter into an Agreement and Plan of
Merger (the "Agreement") which will provide, among other things, for the merger
(the "Merger") of Merger Sub with and into the Company. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Acquiror. Under the
terms set forth in a draft of the Agreement as of May 14, 1999 (the "Draft
Agreement"), at the effective time of the Merger, the outstanding shares of
common stock of the Company, par value $.01 per share ("Company Common Stock"),
other than certain shares to be canceled pursuant to the Agreement and shares
held by stockholders who properly exercise dissenters' rights ("Dissenting
Shares"), will be converted into the right to receive 1.81 shares (the "Exchange
Ratio") of the common stock of Acquiror, par value $.001 per share ("Acquiror
Common Stock"). Currently, there is no public market for shares of Acquiror
Common Stock. The Draft Agreement provides that the shares of Acquiror Common
Stock that Acquiror proposes to issue pursuant to the Merger will be registered
under the Securities Act of 1933, as amended, and will be quoted on the National
Market System of the Nasdaq Stock Market. The terms and conditions of the Merger
are set out more fully in the Draft Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view as of the date hereof to the "Holders of Company
Common Stock". The "Holders of Company Common Stock" shall be defined as all
holders of Company Common Stock other than Acquiror, Merger Sub, any affiliates
of Acquiror or Merger Sub or any holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and
other business and financial information of the Company and
Acquiror, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and
Acquiror, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger,
prepared by the managements of the Company and Acquiror,
respectively;
(iii) reviewed certain financial forecasts and other forward looking
financial information prepared by the managements of the
Company and Acquiror, respectively;
(iv) held discussions with the respective managements of the Company
and Acquiror concerning the businesses, past and current
operations, financial condition and future prospects of both the
Company and Acquiror, independently and combined, including
discussions with the managements of the Company and Acquiror
concerning cost savings and other synergies that are expected to
result from the Merger as well as their views regarding the
strategic rationale for the Merger;
(v) reviewed the financial terms and conditions set forth in the
Draft Agreement;
(vi) reviewed the stock price and trading history of the Company;
(vii) compared the financial performance of the Company and the
Acquiror and the prices and trading activity of Company Common
Stock with that of certain other publicly traded companies
comparable with the Company and Acquiror, respectively;
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(viii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
(ix) reviewed the pro forma impact of the Merger on Acquiror's
earnings before interest, tax, depreciation and amortization
("EBITDA") per share and financial condition;
(x) reviewed and considered in the analysis, information prepared by
members of management of the Company and Acquiror relating to
the relative contributions of the Company and Acquiror to the
combined company;
(xi) prepared a discounted cash flow analysis of the Company;
(xii) participated in discussions and negotiations among
representatives of the Company and Acquiror and their financial
and legal advisors; and
(xiii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by management of the Company and Acquiror) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of management of the Company and Acquiror that they are not aware of
any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of the Company or Acquiror, nor
were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and projections (and the assumptions and bases therefor) for
each of the Company and Acquiror that we have reviewed, upon the advice of the
managements of the Company and Acquiror, we have assumed that such forecasts and
projections have been reasonably prepared in good faith on the basis of
reasonable assumptions and reflect the best currently available estimates and
judgments as to the future financial condition and performance of the Company
and Acquiror, respectively. We have further assumed that such projections and
forecasts will be realized in the amounts and in the time periods currently
estimated. We have assumed that the Merger will be consummated upon the terms
set forth in the Draft Agreement without material alteration thereof, including,
among other things, that the Merger will be accounted for as a "purchase method"
business combination in accordance with U.S. generally accepted accounting
principles ("GAAP") and that the Merger will be treated as a tax-free
reorganization pursuant to the Internal Revenue Code of 1986, as amended. In
addition, we have assumed that the historical financial statements of each of
the Company and Acquiror reviewed by us have been prepared and fairly presented
in accordance with U.S. GAAP consistently applied. We have further assumed that,
upon consummation of the Merger, (i) a public trading market will develop for
the shares of Acquiror Common Stock that Acquiror proposes to issue pursuant to
the Merger, (ii) the liquidity for such newly developed public trading market
will be substantially similar to the current public trading market for Company
Common Stock, and (iii) the number of research analysts who follow the publicly
traded Acquiror Common Stock will be the same as the current number of research
analysts who cover Company Common Stock. We have relied as to all legal matters
relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect the
conclusion expressed in this opinion and that we disclaim any undertaking or
obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of view
as of the date hereof, of the Exchange Ratio to the Holders of Company Common
Stock. We do not express any opinion as to (i) the value of any employee
agreement or other arrangement entered into in connection with the Merger, (ii)
any tax or other consequences that might result from the Merger or (iii) what
the value of Acquiror Common Stock will be when issued to the Holders of Company
Common Stock pursuant to the Merger or the price at which the shares of Acquiror
Common Stock that are issued pursuant to the Merger may be traded in the future.
Our opinion does not address the relative merits of the Merger and the other
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business strategies that the Company's Board of Directors has considered or may
be considering, nor does it address the decision of the Company's Board of
Directors to proceed with the Merger. In connection with the preparation of our
opinion, we were not authorized to solicit, and did not solicit, third-parties
regarding alternatives to the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive (i) a fee contingent upon the delivery of this opinion
and (ii) an additional fee contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. One of our affiliates acts as
sole agent with respect to a senior credit facility arranged for the Company. In
addition, we acted as co-manager for the placement of Acquiror's 11.25% Senior
Discount Notes due 2009, and one of our affiliates acts as a participant in
Acquiror's senior credit facility. In the ordinary course of business, we may
trade in the Company's securities and Acquiror's securities for our own account
and the account of our customers and, accordingly, may at any time hold a long
or short position in the Company's securities or Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board
of Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. This opinion may not be summarized,
described or referred to or furnished to any party except with our express prior
written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to the Holders of
Company Common Stock from a financial point of view.
Very truly yours,
BANCBOSTON ROBERTSON STEPHENS INC.
/s/ BANCBOSTON ROBERTSON STEPHENS INC.
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APPENDIX III
WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS
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SECTIONS
<TABLE>
<S> <C>
23B.13.010 Definitions.
23B.13.020 Right to dissent.
23B.13.030 Dissent by nominees and beneficial owners.
23B.13.200 Notice of dissenters' rights.
23B.13.210 Notice of intent to demand payment.
23B.13.220 Dissenters' notice.
23B.13.230 Duty to demand payment.
23B.13.240 Share restrictions.
23B.13.250 Payment.
23B.13.260 Failure to take action.
23B.13.270 After-acquired shares.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
23B.13.300 Court action.
23B.13.310 Court costs and counsel fees.
</TABLE>
RCW 23B.13.010 DEFINITIONS.
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. [1989 c 165 s 140.]
RCW 23B.13.020 RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on
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the sale or exchange, including a sale in dissolution, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation. [1991 c 269 s 37; 1989 c 165 s 141.]
RCW 23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote. [1989 c 165 s 142.]
RCW 23B.13.200 NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220. [1989 c 165 s
143.]
RCW 23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the
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shareholder's shares if the proposed action is effected, and (b) not vote such
shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter. [1989 c 165 s 144.]
RCW 23B.13.220 DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter. [1989 c 165 s 145.]
RCW 23B.13.230 DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter. [1989 c 165 s 146.]
RCW 23B.13.240 SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action. [1989 c 165 s 147.]
RCW 23B.13.250 PAYMENT.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
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(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter. [1989 c 165 s 148.]
RCW 23B.13.260 FAILURE TO TAKE ACTION.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure. [1989 c 165 s 149.]
RCW 23B.13.270 AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280. [1989 c 165 s 150.]
RCW 23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares. [1989 c 165 s
151.]
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RCW 23B.13.300 COURT ACTION.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270. [1989 c 165 s 152.]
RCW 23B.13.310 COURT COSTS AND COUNSEL FEES.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited. [1989 c 165 s 153.]
6
