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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999
REGISTRATION NO. 333-67043
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SPECTRASITE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATES OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4899
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
56-2027322
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
8000 REGENCY PARKWAY
SUITE 570
CARY, NORTH CAROLINA 27511
(919) 468-0112
(ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
DAVID P. TOMICK
SPECTRASITE HOLDINGS, INC.
8000 REGENCY PARKWAY
SUITE 570
CARY, NORTH CAROLINA 27511
(919) 468-0112
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE)
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Please address a copy of all communications to:
TIMOTHY J. KELLEY
THOMAS D. TWEDT
DOW, LOHNES & ALBERTSON, PLLC
1200 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20036
(202) 776-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement covers the registration of $225,238,000
aggregate principal amount at maturity of Series B 12% senior discount notes due
2008 of SpectraSite Holdings, Inc. that may be exchanged for equal principal
amounts at maturity of SpectraSite's outstanding 12% senior discount notes due
2008. This registration statement also covers the registration of the registered
notes for resale by CIBC World Markets Corp. in market-making transactions. The
complete prospectus relating to the exchange offer follows immediately after
this explanatory note. Following the exchange offer prospectus are certain pages
of the prospectus relating solely to such market-making transactions, including
an alternate front cover page and alternate sections entitled "Use of Proceeds"
and "Plan of Distribution." In addition, each market-making prospectus will not
include the following captions, or the information set forth under such
captions, included in the exchange offer prospectus: "Risk Factors -- Lack of
Public Market for the Notes," "Prospectus Summary -- Summary of the Exchange
Offer," "The Exchange Offer" and "Certain United States Federal Income Tax
Considerations -- Effect of Exchange of Outstanding Notes for Registered Notes."
All other sections of the exchange offer prospectus will be included in the
market-making prospectus.
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THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THEIR OFFER OR SALE IS NOT PERMITTED.
[SPECTRASITE LOGO]
SUBJECT TO COMPLETION, DATED JULY 2, 1999
PROSPECTUS
$225,238,000
SPECTRASITE HOLDINGS, INC.
OFFER TO EXCHANGE SERIES B 12% SENIOR DISCOUNT NOTES DUE 2008 FOR ANY AND ALL
OUTSTANDING 12% SENIOR DISCOUNT NOTES DUE 2008.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless extended
- - All outstanding notes that are validly tendered and not withdrawn will be
exchanged
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer
- - The exchange of notes will not be a taxable exchange for U.S. Federal tax
purposes
- - We will not receive any proceeds from the exchange offer
- - The terms of the registered notes we will issue in the exchange offer are
substantially identical to the outstanding notes, except that certain transfer
restrictions and registration rights relating to the outstanding notes will
not apply to the registered notes
The notes are eligible for trading in The Portal(SM) Market, a subsidiary
of The Nasdaq Market, Inc. The notes also may be sold in the over-the-counter
market, in negotiated transactions or through a combination of such methods.
WE ARE NOT MAKING AN OFFER TO EXCHANGE NOTES IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" COMMENCING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this prospectus in its entirety. In this prospectus, Holdings refers to
SpectraSite Holdings, Inc., a Delaware corporation, and SpectraSite and we or
our each refers to Holdings, its subsidiaries and all predecessor entities to
Holdings and its subsidiaries collectively, unless the context otherwise
requires.
THE EXCHANGE OFFER
On June 26, 1998, we completed the private offering of $225,238,000
aggregate principal amount at maturity of 12% senior discount notes due 2008.
Holdings entered into a registration rights agreement with the initial
purchasers of the notes in the private offering in which we agreed, among other
things, to deliver to you this prospectus and to complete the exchange offer on
or prior to March 10, 1999. This exchange offer allows you to exchange your
notes for registered notes with substantially identical terms. You should read
the discussions under the heading "-- Summary of Terms of the Registered Notes"
and "Description of the Notes" for further information regarding the registered
notes.
Since we did not complete the exchange offer prior to March 10, 1999, the
interest rate on the notes increased at a rate of 0.50% per annum. This
additional interest will accrue on the notes until we complete the exchange
offer, and we will pay such interest on each semi-annual interest payment date
until we cure the default.
We believe that you may resell the notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, subject to certain conditions. You should read the
discussion under the headings "-- Summary of the Exchange Offer" and "The
Exchange Offer" for further information regarding the exchange offer and resale
of the registered notes.
SPECTRASITE
We believe that SpectraSite is one of the leading full service providers of
tower related services in the U.S. wireless communications industry. SpectraSite
develops and manages build-to-suit tower networks and provides site acquisition
and site management services for major wireless communications companies. We are
capitalizing on the growing trend toward antenna co-location and independent
tower ownership, as leading wireless providers increasingly redirect their
capital outlays from tower development to subscriber acquisition activities and
local municipalities encourage multiple tenants on single towers. In addition,
we plan to expand our tower inventory through future acquisitions or partnerings
with major wireless communications service providers and by building or
acquiring selective tower assets in strategic geographic areas that will be
attractive to multiple tenants.
Our primary focus is the ownership of multi-tenant towers and the leasing,
under long-term contracts, of antenna space on such towers to a variety of
wireless service providers, including personal communications service, cellular,
paging, specialized mobile radio and enhanced specialized mobile radio. Our
build-to-suit programs provide a comprehensive solution to those wireless
service providers seeking to minimize their capital expenditures, overhead and
time associated with the build-out and ongoing maintenance of their wireless
network infrastructure. We also offer comprehensive site acquisition services,
including site location analysis; site acquisition; zoning and land use
permitting; FAA compliance analysis and filing; and contract, title and building
permit administration. In addition, we provide comprehensive site management
services for communications sites. We manage not only our own tower sites, but
also over 1,000 sites for carriers. Site acquisition and site management allow
us to offer a complete line of tower services.
Our principal executive offices are located at 8000 Regency Parkway, Suite
570, Cary, North Carolina 27511, and our telephone number is (919) 468-0112.
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BUSINESS STRATEGY
Our strategic objective is to be one of the largest owners and operators of
communications towers and to be the premier build-to-suit provider of tower
networks in the United States. Our strategy involves the following elements:
- Maximize utilization of tower capacity.
- Partner with major wireless service providers and assume ownership of
their existing towers.
- Integrate the Nextel tower assets.
- Build towers in areas of increasing wireless demand.
- Acquire towers with substantial co-location opportunities.
- Capitalize on our strong relationships with major wireless service
providers.
- Leverage our site acquisition experience.
COMPETITIVE STRENGTHS
We believe that the following strengths will enable us to successfully
expand our business:
- National presence with over 2,500 communications towers.
- Build-to-suit focus.
- Capability to manage multiple projects.
- Standardized procedures and specifications.
- Integrated provider of site development services.
- Experienced management.
RECENT EVENTS
WESTOWER MERGER. On May 15, 1999, we agreed to acquire Westower
Corporation, a Washington corporation, in a merger transaction. In the merger,
holders of Westower common stock will receive 1.81 shares of Holdings' common
stock for each of their shares. The merger is subject to the approval of
Westower stockholders and other closing conditions. We cannot assure you when or
if the Westower merger will occur.
NEXTEL TOWER ACQUISITION. On April 20, 1999, we acquired 2,000
communications towers from Nextel Communications, Inc. in exchange for $560.0
million in cash and 14 million shares of Holdings' Series C preferred stock. As
part of this transaction, Nextel agreed to lease 1,700 additional sites on our
towers as part of its national service deployment.
SALE OF SERIES C PREFERRED STOCK. In connection with the Nextel tower
acquisition, we privately placed 46,286,795 shares of Holdings' Series C
preferred stock for an aggregate purchase price of $231.4 million. We used the
proceeds from this sale to partially fund the Nextel tower acquisition.
ISSUANCE OF 2009 NOTES. On April 20, 1999, we completed the private
offering of $586,800,000 aggregate principal amount at maturity of 11 1/4%
senior discount notes due 2009. 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.
NEW CREDIT FACILITY. We have 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.
AIRADIGM TOWER ACQUISITION. We acquired 40 towers from Airadigm
Communications, Inc. in 1998 and an additional four towers in 1999. We expect to
purchase an additional three towers. The total purchase price for all 47 towers
is $11.75 million.
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SUMMARY OF THE EXCHANGE OFFER
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Registration Rights Agreement............. You have the right to exchange your 2008 notes for
registered notes with substantially identical terms.
This exchange offer is intended to satisfy these rights.
After the exchange offer is complete, you will no longer
be entitled to any exchange or registration rights with
respect to your notes.
The Exchange Offer........................ We are offering to exchange $1,000 principal amount at
maturity of Holdings' Series B 12% senior discount notes
due 2008 which have been registered under the Securities
Act for each $1,000 principal amount at maturity of
Holdings' outstanding 12% senior discount notes due 2008
which were issued in June 1998 in a private offering. In
order to be exchanged, an outstanding note must be
properly tendered and accepted. We will exchange all
2008 notes validly tendered and not validly withdrawn.
As of this date there is $225,238,000 aggregate
principal amount at maturity of 2008 notes outstanding.
We will issue registered notes on or promptly after the
expiration of the exchange offer.
Resales................................... We believe that the registered notes may be offered for
resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery
provisions of the Securities Act provided that:
- you acquire the registered notes issued in the
exchange offer in the ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the registered notes issued to you in the exchange
offer; and
- you are not an affiliate, as defined under Rule 405 of
the Securities Act, of ours.
If a broker-dealer receives registered notes for its own
account in exchange for outstanding notes which were
acquired by that broker-dealer as a result of
market-making or other trading activities, then that
broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
Act in connection with any resale of the registered
notes. A broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the
registered notes issued to it in the exchange offer.
Record Date............................... We mailed this prospectus and the related exchange offer
documents to registered holders of outstanding 2008
notes on , 1999.
Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999, unless we decide to extend
the expiration date.
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Conditions to the Exchange Offer.......... We may terminate or amend the exchange offer if:
- any legal proceeding, government action or other
adverse development materially impairs our ability to
complete the exchange offer;
- any SEC rule, regulation or interpretation materially
impairs the exchange offer; or
- we have not obtained any necessary governmental
approvals with respect to the exchange offer.
Procedures for Tendering Outstanding
Notes................................... Each holder of outstanding 2008 notes wishing to accept
the exchange offer must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof; or
- arrange for DTC to transmit certain required
information to the exchange agent in connection with a
book-entry transfer.
You must mail or otherwise deliver the documentation
listed above and your outstanding 2008 notes to United
States Trust Company of New York, as exchange agent, at
the address set forth under "The Exchange
Offer -- Exchange Agent."
By tendering your outstanding 2008 notes in this manner,
you will be representing, among other things, that you
meet the three requirements set forth under "-- Resales"
above.
Untendered Outstanding Notes.............. If you are eligible to participate in the exchange offer
and you do not tender your outstanding notes, you will
not have any further registration or exchange rights and
your outstanding notes will continue to be subject to
restrictions on transfer. Accordingly, the liquidity of
the market for such outstanding notes could be adversely
affected.
Special Procedures for Beneficial
Owners.................................. If you beneficially own outstanding 2008 notes
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender your outstanding notes in the exchange offer, you
should contact the registered holder promptly and
instruct it to tender on your behalf. If you wish to
tender on your own behalf, you must, prior to completing
and executing the letter of transmittal for the exchange
offer and delivering your outstanding 2008 notes, either
arrange to have your outstanding notes registered in
your name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery Procedures............ If you wish to tender your outstanding 2008 notes and
time will not permit your required documents to reach
the exchange agent by the expiration date of the
exchange offer, or you cannot complete the procedure for
book-entry transfer on time or you cannot deliver
certificates for your outstanding notes on time, you may
tender your outstanding notes according to the
procedures described in this prospectus under the
heading "The Exchange Offer -- Guaranteed Delivery
Procedures."
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Withdrawal Rights......................... You may withdraw the tender of your outstanding 2008
notes at any time prior to 5:00 p.m., New York City
time, on , 1999.
Certain U.S. Federal Tax Considerations... The exchange of notes will not be a taxable event for
United States federal income tax purposes.
Use of Proceeds........................... We will not receive any proceeds from the issuance of
registered notes in the exchange offer. We will pay all
our expenses incident to the exchange offer.
Exchange Agent............................ United States Trust Company of New York is serving as
the exchange agent in connection with the exchange
offer.
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SUMMARY OF TERMS OF THE REGISTERED NOTES
The form and terms of the registered notes are the same as the form and
terms of the outstanding 2008 notes except that the registered notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not be entitled to registration under the
Securities Act. The registered notes will evidence the same debt as the
outstanding 2008 notes, and the same indenture will govern both the registered
notes and the outstanding notes.
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Registered Notes.......................... Series B 12% senior discount notes due 2008 of
SpectraSite Holdings, Inc.
Maturity.................................. July 15, 2008
Accreted Value and Interest............... The registered notes will accrete at a daily rate of 12%
per year, compounded semiannually, to an aggregate
principal amount of $225,238,000 by July 15, 2003. Cash
interest will begin to accrue on July 15, 2003, and we
will pay cash interest on January 15, 2004, and on each
July 15 and January 15 thereafter, at a rate of 12% per
year.
Optional Redemption....................... After July 15, 2003, we may redeem all or a portion of
the 2008 notes at specified redemption prices, plus
accrued and unpaid interest, to the applicable
redemption date.
On any one or more occasions prior to July 15, 2001, we
may redeem up to 25% of the aggregate principal amount
at maturity of the 2008 notes with the net cash proceeds
from one or more equity offerings. The redemption price
would be 112% of the accreted value on the redemption
date.
You should refer to the heading "Description of Notes --
Optional Redemption" for further details.
Ranking................................... The 2008 notes:
- are general unsecured obligations of Holdings;
- rank equal in right of payment with all existing and
future unsecured senior indebtedness of Holdings;
- are senior in right of payment to all future
subordinated indebtedness of Holdings; and
- are effectively subordinated to all indebtedness,
liabilities and other obligations of Holdings'
subsidiaries.
Holdings conducts all operations through its
subsidiaries, and Holdings' subsidiaries are not
guarantors of the notes. As of December 31, 1998, after
giving effect to the offering of our 2009 notes and
initial borrowings under our new credit facility,
Holdings would have had $472.7 million of debt
outstanding, and Holdings' subsidiaries had
approximately $152.7 million of indebtedness and other
liabilities.
Certain Covenants......................... The indenture governing the 2008 notes contains a number
of covenants for your benefit which, among other things
and subject to certain qualifications, restrict our
ability to:
- incur indebtedness;
- make certain payments;
- issue preferred stock;
- enter into transactions with affiliates;
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- create liens;
- sell assets; and
- consolidate, merge or sell substantially all of our
assets.
Change of Control......................... Upon the occurrence of a change of control of Holdings,
we will offer to repurchase your 2008 notes, in whole or
in part, at a price equal to 101% of their accreted
value to the date of purchase prior to July 15, 2003 or
101% of their principal amount, plus accrued and unpaid
interest, if any, to the date of purchase on or after
July 15, 2003. We cannot assure you, however, that we
will have sufficient funds available to repurchase all
of the notes which holders may deliver in connection
with a change of control repurchase offer.
Form of Registered Notes.................. The registered notes will be represented by one or more
permanent global securities in bearer form deposited
with United States Trust Company of New York, as book
entry depositary, for the benefit of DTC. You will not
receive registered notes in registered form unless one
of the events set forth under the heading "Description
of the Registered Notes -- Book-Entry; Delivery and
Form" occurs. Instead, beneficial interests in the
registered notes will be shown on, and transfers of
these will be effected only through, records maintained
in book-entry form by DTC with respect to its
participants.
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RISK FACTORS
Ownership of the outstanding notes or the registered notes involves a high
degree of risk. You should consider carefully the risk factors below, as well as
the other information in this prospectus, before making any investment decision
regarding the notes.
LACK OF PUBLIC MARKET FOR THE NOTES -- YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
The outstanding notes were not registered under the Securities Act or under
the securities laws of any state and may not be resold unless they are
subsequently registered or an exemption from the registration requirements of
the Securities Act and applicable state securities laws is available. The
registered notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and we
cannot assure you as to:
- the liquidity of any market that may develop;
- the ability of registered note holders to sell their notes; or
- the price at which the registered note holders would be able to sell
their notes. If such a market were to exist, the registered notes may
trade at higher or lower prices than their principal amount or purchase
price, depending on many factors, including prevailing interest rates,
the market for similar debentures and the financial performance of
SpectraSite.
The notes are designated for trading among qualified institutional buyers
in The Portal(SM) Market. We understand that Credit Suisse First Boston
Corporation, Lehman Brothers Inc. and CIBC World Markets Corp. presently intend
to make a market in the 2008 notes. However, they are not obligated to do so,
and any market-making activity with respect to the 2008 notes may be
discontinued at any time without notice. In addition, this market-making
activity will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act of 1934, and may be limited during the exchange offer or
the pendency of an applicable shelf registration statement. We cannot assure you
that an active trading market will exist for the 2008 notes or that any trading
market which does develop will be liquid.
Notes that are not tendered or are tendered but not accepted will,
following the completion of the exchange offer, continue to be subject to
existing restrictions on transfer, and, upon completion of the exchange offer,
registration rights with respect to the outstanding 2008 notes will terminate.
In addition, any outstanding note holder who tenders in the exchange offer for
the purpose of participating in a distribution of the registered notes may be
deemed to have received restricted securities, and if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that
outstanding 2008 notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted outstanding 2008 notes
could be adversely affected.
WE ARE NOT OBLIGATED TO NOTIFY YOU OF UNTIMELY OR DEFECTIVE TENDERS OF
OUTSTANDING NOTES.
We will issue registered notes in this exchange offer only after a timely
receipt of your outstanding 2008 notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if you want
to tender your outstanding 2008 notes, please allow sufficient time to ensure
timely
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delivery. We are under no duty to give notification of defects or irregularities
with respect to the tenders of outstanding 2008 notes for exchange.
OUR SUBSTANTIAL INDEBTEDNESS COULD INTERFERE WITH OUR FINANCIAL GROWTH.
SpectraSite is and will continue to be highly leveraged. As of March 31,
1999, after giving effect to the offering of our 2009 notes, initial borrowings
under our new credit facility and the Westower merger, SpectraSite would have
had total consolidated indebtedness of approximately $628.9 million. Also, if
SpectraSite had sold the 2009 notes, borrowed under its credit facility to
acquire the Nextel towers and consummated the merger with Westower on January 1,
1998, SpectraSite's earnings before interest and taxes would have been
inadequate to service its fixed charges by $97.8 million and $25.0 million for
the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively. We expect that earnings will continue to be inadequate to service
fixed charges at least through fiscal 2000.
Our high level of indebtedness could have important consequences. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing;
- require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
our growth strategy, working capital, capital expenditures or other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- place us at a competitive disadvantage relative to less leveraged
competitors.
WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH TO SERVICE OUR INDEBTEDNESS.
Our ability to make scheduled payments of principal of, or to pay interest
on, SpectraSite's debt obligations and our ability to refinance any such debt
obligations or to fund planned capital expenditures, will depend on
SpectraSite's future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. We cannot assure you 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 or debt financings
will be available in amounts sufficient to service SpectraSite's indebtedness.
In addition, we cannot assure you that SpectraSite will be able to effect any
required refinancing of its indebtedness on commercially reasonable terms or at
all.
WE ARE A HOLDING COMPANY AND OUR ONLY SOURCE OF CASH TO PAY INTEREST ON AND THE
PRINCIPAL OF THE 2008 NOTES AND THE 2009 NOTES IS DISTRIBUTIONS FROM OUR
SUBSIDIARIES.
Holdings is a holding company with no business operations of its own.
Holdings' only significant asset is and will be the outstanding capital stock of
its subsidiaries. Holdings conducts all of its business operations through its
subsidiaries. Accordingly, Holdings' only source of cash to pay interest on and
the principal of the notes is distributions with respect to its ownership
interest in its subsidiaries from the net earnings and cash flow generated by
such subsidiaries. We currently expect that Holdings' subsidiaries will retain
and use any earnings and cash flow to support their operations, including to
service their respective debt obligations. Even if we decided to pay a dividend
on or to make a distribution in respect of the capital stock of Holdings'
subsidiaries, there can be no assurance that the subsidiaries will generate
sufficient cash flow to pay such a dividend or distribute such funds to Holdings
or that applicable state law and contractual restrictions, including negative
covenants contained in the debt instruments of such subsidiaries, will permit
such dividends or distributions.
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YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS EFFECTIVELY JUNIOR TO
SPECTRASITE'S EXISTING INDEBTEDNESS AND POSSIBLY ALL FUTURE BORROWINGS.
The 2008 notes and the 2009 notes rank equally in right of payment.
Holdings' subsidiaries are not guarantors of the notes. As a result, all
indebtedness, including trade payables, of Holdings' subsidiaries, including any
borrowings under a new credit facility will be structurally senior to the notes.
As of March 31, 1999, after giving effect to the Nextel tower acquisition and
the related financing transactions, SpectraSite's subsidiaries had approximately
$167.5 million of debt and other liabilities and the ability to borrow $350.0
million under the new credit facility, all of which is structurally senior in
right of payment to the senior discount notes.
OUR NEW CREDIT FACILITY RESTRICTS THE ABILITY OF HOLDINGS' SUBSIDIARIES TO MAKE
DISTRIBUTIONS TO HOLDINGS, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO PAY
INTEREST ON OR THE PRINCIPAL OF THE 2008 NOTES AND THE 2009 NOTES.
The new credit facility, subject to certain limited exceptions, prohibits
dividends or other distributions by Holdings' subsidiaries to Holdings. In
addition, Holdings' subsidiaries are permitted under the terms of the indenture
governing the 2008 notes and the 2009 notes to incur certain additional
indebtedness that may restrict or prohibit the subsidiaries from making
distributions, paying dividends or making loans to Holdings. If any or all of
Holdings' subsidiaries become subject to bankruptcy proceedings before payment
of the notes, we do not expect the note holders to have claims in such
proceedings. Only after the subsidiaries' creditors are fully paid would any
remaining value of the subsidiaries' assets be available to Holdings or its
creditors, including the note holders.
The new credit facility permits distributions to Holdings in an amount
sufficient to pay scheduled interest payments on the 2008 notes commencing in
2003 and on the 2009 notes commencing in 2004, provided that there is no default
or event of default outstanding under the credit facility, including under the
financial maintenance tests set forth in the new credit facility. If Holdings'
subsidiaries are not able to make distributions to Holdings, we will have to
pursue other alternatives which may include refinancing the new credit facility
or seeking other sources of debt or equity capital. For more information
regarding the new credit facility, see "Description of Certain
Indebtedness -- New Credit Facility."
REPAYMENT OF THE PRINCIPAL OF THE 2008 NOTES AND THE 2009 NOTES LIKELY WILL
REQUIRE ADDITIONAL FINANCING AND WE ARE NOT CERTAIN OF THE SOURCE OR
AVAILABILITY OF FUTURE FINANCING AT THIS TIME.
We currently anticipate that, in order to pay the principal of the notes or
to redeem or repurchase the notes upon a change of control under the indenture
governing the notes, we will be required to adopt one or more alternatives, such
as refinancing SpectraSite's indebtedness or selling its equity securities or
the equity securities or assets of its subsidiaries. We cannot assure you that
any of the foregoing actions could be effected on satisfactory terms, that any
of the foregoing actions would enable us to pay the principal of the notes or
that any of such actions would be permitted by the terms of the indentures
governing our senior discount notes or any other debt instruments then in
effect.
A GROUP OF STOCKHOLDERS CONTROLS THE VOTING POWER OF HOLDINGS AND THEIR
INTERESTS MAY BE DIFFERENT FROM YOURS.
Affiliates of Welsh, Carson, Anderson & Stowe own approximately 32 million
shares of Holdings' capital stock. They also have the right to appoint a
majority of the board of directors and proxies from certain of the other
stockholders to vote 51% of the voting power of Holdings' capital stock under a
stockholders' agreement. In addition, other Holdings stockholders have a right
to board representation under this agreement. 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
"Certain Transactions -- Stockholders' Agreement."
10
<PAGE> 14
WE MAY BE UNABLE TO ACQUIRE TOWERS OR INCREASE OUR CONSTRUCTION ACTIVITIES AS
PROJECTED; FAILURE TO FULFILL THESE STRATEGIES MAY HARM OUR REVENUES.
Our growth strategy depends on our ability to construct, acquire and
operate towers in conjunction with the expansion by wireless service providers
of their tower network infrastructure. Our ability to construct new towers can
be affected by a number of factors beyond our control, including zoning and
local permitting requirements, FAA considerations, FCC tower registration
procedures, availability of tower components and construction equipment,
availability of skilled construction personnel and weather conditions. In
addition, because the concern over tower proliferation has grown in recent
years, certain communities now restrict new tower construction or delay granting
permits required for construction. 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.
Anchor tenant leases may contain penalty or forfeiture provisions in the
event the towers are not completed within specified time periods.
Our expansion plans call for a significant increase in construction
activity. 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.
WE ANTICIPATE SIGNIFICANT CAPITAL EXPENDITURES AND MAY NEED ADDITIONAL FINANCING
WHICH MAY NOT BE AVAILABLE.
Our current plans call for at least $140.0 million of capital expenditures
through 1999 for the construction and acquisition of communication sites,
primarily towers. However, if acquisitions or other opportunities present
themselves more rapidly than we currently anticipate or if estimates prove
inaccurate, we may seek additional sources of debt or equity capital prior to
the end of 1999 or scale back the scope of tower construction activity. The
availability of additional financing cannot be assured and could be restricted
by the terms of a new credit facility and the indentures governing our senior
discount notes.
SUCCESS OF OUR BUSINESS STRATEGY REQUIRES US TO ACT QUICKLY, AND IMPLEMENTATION
OF OUR STRATEGY COULD STRAIN OUR RESOURCES.
We cannot be certain that we will be able to identify, finance and complete
future acquisitions on acceptable terms or that we will be able to manage
profitably and market available space on SpectraSite's towers. Our business
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
11
<PAGE> 15
have a material adverse effect on our business, financial condition or results
of operations with respect to both site acquisition services and site leasing.
Implementation of our strategy to expand our site leasing business may
impose significant strains on our management, operating systems and financial
resources. In addition, we anticipate that operating expenses will increase
significantly as we build and acquire additional tower assets. Failure to manage
growth or unexpected difficulties encountered during expansion could have a
material adverse effect on our business, financial condition or results of
operations. The pursuit and integration of build-to-suit prospects,
acquisitions, investments, joint ventures and strategic alliances will require
substantial attention from our senior management, which will limit the amount of
time available to devote to the existing operations. Future acquisitions could
result in the incurrence of debt and contingent liabilities and an increase in
amortization expenses related to goodwill and other intangible assets, which
could have a material adverse effect upon our business, financial condition or
results of operations.
OUR BUSINESS DEPENDS ON DEMAND FOR WIRELESS COMMUNICATIONS.
Our business depends on demand for communications sites from wireless
service providers, which, in turn, depends on the demand for wireless services.
Success of SpectraSite's business model requires us to secure co-location
tenants, and securing co-location tenants depends upon the demand for
communications sites from a variety of service providers in a particular market.
A reduction in demand for communications sites or increased competition for
co-location tenants could have a material adverse effect on SpectraSite's
business, financial condition or results of operations.
COMPETING TECHNOLOGIES AND OTHER ALTERNATIVES COULD REDUCE THE DEMAND FOR OUR
SERVICES.
Most types of wireless services currently require ground-based network
facilities, including communications sites for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on the level of demand for such wireless services, the financial
condition and access to capital of such providers, the strategy of providers
with respect to owning or leasing communications sites, government licensing of
communications licenses, changes in telecommunications regulations, general
economic conditions, 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. Such 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 such
agreements could have a material adverse effect on our business, financial
condition or results of operations.
The emergence of new technologies that do not require terrestrial antenna
sites and can be substituted for those that do also could have a negative impact
on our operations. For example, the FCC has granted license applications for
four low-earth orbiting satellite systems that are intended to provide mobile
voice and data services; one such system is currently operating. In addition,
the FCC has issued licenses for several low-earth orbiting satellite systems
that are intended to provide solely data services, and one of those systems is
operational. Although such systems are highly capital-intensive and have only
begun to be tested, mobile satellite systems could compete with land-based
wireless communications systems, thereby reducing the demand for the
infrastructure services we provide. The occurrence of any of these factors could
have a material adverse effect on our business, financial condition or results
of operations.
WE COMPETE WITH COMPANIES 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;
12
<PAGE> 16
- site acquisition companies which acquire antenna space on existing towers
for wireless service providers, manage new tower construction and provide
site acquisition services; and
- owners of non-tower antenna sites including rooftops, water towers and
other alternate structures;
- other independent tower operators.
Wireless service providers that own and operate their own towers generally
are substantially larger and have greater financial resources than SpectraSite.
For example, AT&T Wireless and Sprint PCS are large companies that own and
operate their own tower networks. We believe that tower location and capacity,
price, quality of service and density within a geographic market historically
have been and will continue to be the most significant competitive factors
affecting the site leasing business.
We compete for acquisition and new tower construction opportunities
primarily with site developers and other independent tower companies. Some of
these competitors have or are expected to have greater financial resources than
SpectraSite has.
WE MAY NOT BE ABLE TO INTEGRATE WESTOWER'S OPERATIONS AND REALIZE THE POTENTIAL
BENEFITS OF THE MERGER.
Integration of the operations of SpectraSite and Westower will present
significant challenges. In this regard, Westower has recently completed 13
acquisitions. The integration of managers from our companies will result in
changes affecting all employees and the operations of both companies.
Differences in management approach and corporate culture may strain employee
relations. The success of the merger will also depend on our ability to
integrate our business strategies. We cannot assure you that we will realize the
anticipated benefits of the merger. If we are unable to integrate our operations
successfully, we may not achieve the anticipated financial benefits of the
merger.
SPECTRASITE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING NEXTEL'S TOWERS WITH OUR
OPERATIONS, WHICH MAY RESULT IN A FAILURE TO GENERATE EXPECTED REVENUES AND
DIVERT ITS MANAGEMENT.
In April 1999, we acquired 2,000 towers from Nextel. We have never
consummated a transaction as large as the Nextel tower acquisition and will
likely face significant challenges in integrating the 2,000 acquired towers into
our operations. We are in the process of upgrading our infrastructure to
successfully manage these towers. In addition, integration of these towers will
require substantial attention from our management team, which has had limited
experience in integrating an acquisition of this size. Diversion of management
attention from our existing business could have an adverse impact on our
revenues and operating results. We may not be able to integrate the 2,000 towers
into our operations successfully.
MOST OF OUR REVENUES AND TOWER CONSTRUCTION ACTIVITY WILL DEPEND ON NEXTEL.
Nextel accounts for a significant portion of our total revenues. On a pro
forma basis, for the three months ended March 31, 1999, Nextel represented 36.9%
of our revenues. If Nextel were to suffer financial difficulties or if Nextel
were unwilling or unable to perform its obligations under its arrangements with
us, our business, financial condition and results of operations could be
materially and adversely affected.
The financial data related to Nextel set forth in the unaudited pro forma
financial statements are estimated amounts provided by Nextel. Neither the
independent auditors of SpectraSite nor Nextel have separately audited such
financial data. We believe the estimated amounts are factually supportable and
based on reasonable assumptions. However, there can be no certainty as to
whether the amounts presented 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
13
<PAGE> 17
agreements. Such 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.
OUR OPERATIONS REQUIRE COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE
REGULATORY AUTHORITIES.
SpectraSite is subject to a variety of regulations, including those at the
federal, state and local levels. Both the FCC and the FAA regulate towers and
other sites used for wireless communications transmitters and receivers. Such
regulations control siting, marking, and lighting of towers and may, depending
on the characteristics of the tower, require registration of tower facilities
with the FCC. Wireless communications devices operating on towers are separately
regulated and independently licensed by the FCC based upon the particular
frequency used and the services being provided. Any proposals to construct new
communications sites or modify existing communications sites that could affect
air traffic must be reviewed by the FAA to ensure that the proposals will not
present a hazard to aviation. Tower owners may have an obligation to paint their
towers or install lighting to conform to FCC and FAA standards, and to maintain
such painting or lighting. Tower owners also may bear the responsibility for
notifying the FAA of any tower lighting failure. SpectraSite generally
indemnifies its customers against any failure by SpectraSite to comply with
applicable standards. Failure to comply with applicable requirements may lead to
civil penalties and tort liability.
Local regulations include city or other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local regulations can delay or prevent new tower construction or
site upgrade projects, thereby limiting our ability to respond to customers'
demands. In addition, such regulations increase the costs associated with new
tower construction. We cannot assure you that existing regulatory policies will
not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted that will increase such delays or
result in additional costs to SpectraSite. Such factors could have a material
adverse effect on SpectraSite's business, financial condition or results of
operations and on SpectraSite's ability to implement or achieve its business
objectives in the future.
As part of the Westower merger, we will acquire operations in Canada and an
interest in a Brazilian joint venture. As a result, we will be subject to
regulation in those jurisdictions. Our customers also may become subject to new
regulatory policies which adversely affect the demand for communications sites.
In addition, if we pursue international opportunities, we will be subject to
regulation in foreign jurisdictions.
WE GENERALLY LEASE THE LAND UNDER OUR TOWERS AND MAY NOT BE ABLE TO MAINTAIN
THESE LEASES.
Our real property interests relating to towers primarily consist of
leasehold interests, private easements and licenses, easements and rights-of-way
granted by governmental entities. A loss of these interests would interfere with
our ability to conduct our business and generate revenues. Our ability to
protect our rights against persons claiming superior rights in towers depends on
our ability to:
- recover under title policies, the policy limits of which may be less than
the purchase price of a particular tower;
- in the absence of title insurance coverage, realize on title warranties
given by tower sellers, which warranties often terminate after the
expiration of a specific period, typically one to three years; and
- realize on title covenants from landlords contained in lease agreements.
14
<PAGE> 18
WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT REGARD TO
FAULT.
Our operations are subject to federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and nonhazardous substances, materials or wastes.
Following the Westower merger, we will be subject to similar Canadian
regulations. Under these laws, SpectraSite could be held strictly, jointly and
severally liable for the remediation of hazardous substance contamination at its
facilities or at third-party waste disposal sites and also could be held liable
for any personal or property damage related to such contamination. Although we
believe that we are in substantial compliance with and have no material
liability under all applicable environmental laws, there can be no assurance
that the costs of compliance with existing or future environmental laws and
liability related thereto will not have a material adverse effect on our
business, financial condition or results of operations.
OUR TOWERS ARE SUBJECT TO NATURAL DISASTERS.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We self-insure almost all of our towers
against such risks. A tower accident for which we are uninsured or underinsured,
or damage to a tower or group of towers, could have a material adverse effect on
our business, financial condition or results of operations.
PERCEIVED HEALTH RISKS OF RADIO FREQUENCY EMISSIONS.
The FCC requires tower owners subject to the agency's antenna structure
registration program to comply at the time of registration with federal
environmental rules which may restrict the siting of towers. Under these rules,
tower owners are required initially to identify whether proposed sites are in
environmentally sensitive locations. If so, the tower owners must prepare and
file environmental assessments, which must be reviewed by the FCC staff prior to
registration and construction of the particular towers. The wireless service
providers that utilize our towers are subject to FCC requirements and other
guidelines relating to radio frequency emissions. The potential connection
between radio frequency emissions and certain negative health effects, including
some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies have
been inconclusive. If radio frequency emissions were conclusively proved
harmful, our tenants and possibly we could be subject to lawsuits claiming
damages from such emissions and demand for wireless services and new towers
would be adversely affected. Although we have not been subject to any claims
relating to radio frequency emissions, there can be no assurance that we will
not be subject to such claims in the future.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING PRONOUNCEMENTS.
This prospectus contains forward-looking statements, including statements
concerning possible or assumed future results of operations of SpectraSite set
forth under "Description of SpectraSite" and those preceded by, followed by or
that include the words believes, expects, anticipates or similar expressions.
For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You should understand that the following important factors, in
addition to those discussed elsewhere in this document, could affect our future
results and could cause results to differ materially from those expressed in
such forward-looking statements:
- materially adverse changes in economic conditions in the markets we
serve;
- future regulatory actions and conditions in our operating areas;
- competition from others in the communications tower industry;
- the successful integration of the tower assets we recently acquired from
Nextel Communications, Inc.; and
- other risks and uncertainties as may be detailed from time to time in our
public announcements and SEC filings.
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<PAGE> 19
USE OF PROCEEDS
Holdings will not receive any cash proceeds from the issuance of the
registered notes in exchange for the outstanding notes. In consideration for
issuing the registered notes, Holdings will receive outstanding notes in like
original principal amount at maturity. Outstanding notes received in the
exchange offer will be cancelled.
The net proceeds to SpectraSite from the original issuance of the
outstanding notes, after deducting discount and estimated expenses, was
approximately $120.0 million. SpectraSite deposited $11.75 million of the
proceeds into escrow for the acquisition of up to 47 towers from Airadigm.
Airadigm received $11.25 million from escrow as payment for 45 towers.
SpectraSite did not purchase the remaining two towers and the remaining funds
were released from escrow back to SpectraSite. In addition, SpectraSite used:
- approximately $0.5 million to acquire 14 ground leases and two towers in
inventory from Amica;
- $1.9 million to acquire GlobalComm, Inc.; and
- $2.3 million to repay an outstanding note payable.
SpectraSite holds the remaining net proceeds in interest bearing accounts. We
intend to use the remaining proceeds for general corporate purposes, including
working capital, and may use all or a portion of such proceeds to acquire
additional tower assets or related businesses.
We issued the note payable, which was repaid with outstanding note
proceeds, in connection with the acquisition of Telesite and Metrosite in May
1997. The note had a stated interest rate of 7%. See "Certain
Transactions -- Telesite and Metrosite Acquisition."
16
<PAGE> 20
THE WESTOWER MERGER
On May 15, 1999, Holdings entered an agreement and plan of merger with
Westower Corporation, a Washington corporation. Westower common stock is listed
on the American Stock Exchange under the trading symbol "WTW." Under the merger
agreement, Westower stockholders would receive 1.81 shares of Holdings common
stock, plus cash for any fractional Westower shares, in exchange for each of
their shares of Westower common stock.
Approval of the merger requires the affirmative vote of holders of
two-thirds of Westower's outstanding common stock. Holders representing
approximately 49% of Westower's outstanding common stock have agreed to vote in
favor of the merger. Westower will hold a special meeting of its stockholders to
vote upon the proposed merger with SpectraSite.
THE MERGER AGREEMENT
According to the terms of the agreement, W Acquisition Corp., a Washington
corporation and wholly-owned subsidiary of Holdings, will merge with and into
Westower, which will then become a wholly-owned subsidiary of Holdings.
Completion of the merger is subject to conditions customary to that type of
transaction. The conditions to the parties' obligations to effect the merger
include:
- the requisite approval of Westower's stockholders;
- authorization to list Holdings' common stock on the Nasdaq National
Market;
- effectiveness of the registration statement on Form S-4 of Holdings of
which the proxy statement/ prospectus soliciting approval of the merger
by Westower's stockholders will be a part;
- Holdings' receipt of evidence showing exercise of certain stock purchase
warrants granting their holders the right to purchase shares of Westower
common stock;
- Holdings' receipt of all required authorizations, consents or approvals
of its lenders as required by the new credit facility;
- FCC approval of the change of control of a Westower subsidiary that has
FCC licenses;
- surrender for payment and cancellation of Westower's $15.0 million
principal amount 7% convertible senior subordinated note due April 30,
2007;
- amendment of certain merger agreements to which Westower is a party,
stating that Holdings common stock may be substituted for any additional
shares of Westower common stock issuable under those agreements;
- execution and delivery of post-closing lock-up letters under which
several principal holders of Westower common stock covenant not to sell
the Holdings common stock they receive in the merger for a specified
period of time; and
- proper demands for appraisal by holders of Westower common stock not
exceeding 5% of all outstanding shares of Westower common stock.
Waiver or satisfaction of all conditions to the merger, including those
listed above, is required before the merger will be completed. We cannot assure
you whether all conditions to the merger will be satisfied or waived, or when
the Westower merger will be completed or if it will be completed at all.
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<PAGE> 21
Following the merger, Calvin J. Payne, Westower's Chief Executive Officer,
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. In addition,
SpectraSite has agreed to elect Mr. Payne to the Holdings board of directors at
or prior to consummation of the merger.
WESTOWER CORPORATION
Westower is a leading provider of integrated tower services to the wireless
communications industry in North America, primarily the West Coast and Canada.
Westower offers turn-key communications site development and tower construction
services as well as leasing of antenna sites on towers it owns.
Westower had approximately 660 employees as of May 31, 1999. Westower owns
towers located in 15 states and three Canadian provinces and maintains 27 office
locations throughout the United States and Canada. Westower is also party to a
joint venture with Hi-Lite Construction, Ltd., a Canadian corporation. The joint
venture constructs communications towers in Brazil in the greater Sao Paulo area
for customers who are affiliates of Westower's North American customers. All
transactions of the joint venture are denominated in Canadian currency. The
joint venture employs 11 North Americans and 22 Brazilians.
As of May 31, 1999, Westower owned or had entered into binding agreements
to acquire 191 towers in the United States and Canada located as follows:
<TABLE>
<CAPTION>
NUMBER % OF
OF TOTAL
STATE TOWERS TOWERS
----- ------ ------
<S> <C> <C>
Louisiana................................................... 42 22.0%
Texas....................................................... 31 16.2
Arizona..................................................... 28 14.7
New Mexico.................................................. 25 13.1
California.................................................. 14 7.3
Alberta..................................................... 13 6.8
Other....................................................... 38 19.9
--- -----
Total............................................. 191 100.0%
=== =====
</TABLE>
In addition to the towers listed above, as of May 31, 1999, Westower had binding
site lease agreements and started construction for 17 sites and had non-binding
mandates for approximately 300 towers.
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<PAGE> 22
THE NEXTEL TOWER ACQUISITION
On April 20, 1999, SpectraSite acquired 2,000 communications towers from
Nextel Communications, Inc. in a merger transaction. All the sites were then
leased back to Nextel under a master lease agreement. In addition, in connection
with this transaction, Nextel and its controlled affiliates agreed to offer
SpectraSite certain exclusive opportunities relating to the construction or
purchase of an additional 1,700 sites. Certain of these sites may in the future
be leased to Nextel Partners Operating Corp. instead of Nextel. Nextel Partners
is an entity in which Nextel has a minority equity interest. We paid $560.0
million in cash and issued 14 million shares of Series C preferred stock, valued
at $70.0 million, to Nextel.
The following table sets forth the sources and uses of funds for the Nextel
tower acquisition in thousands of dollars:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Credit facility........................................... $150,000
11 1/4% senior discount notes due 2009.................... 340,004
Series C preferred stock issued to Nextel................. 70,000
Series C preferred stock sold to the Series C investors... 231,434
--------
Total sources.......................................... $791,438
========
USES OF FUNDS:
Cash paid to Nextel....................................... $560,000
Series C preferred stock issued to Nextel................. 70,000
General corporate purposes................................ 127,688
Estimated fees and expenses............................... 33,750
--------
Total uses............................................. $791,438
========
</TABLE>
The merger agreement required that SpectraSite and Nextel and certain other
persons enter into several ancillary agreements. For a summary of the material
terms of the new stockholders' agreement and the new registration rights
agreement, see "Certain Transactions -- Stockholders' Agreement" and
"-- Registration Rights Agreement," respectively. The following is a summary of
the material terms of the other ancillary agreements.
MASTER SITE COMMITMENT AGREEMENT
Concurrently with the closing, SpectraSite and certain of Nextel's
subsidiaries entered into the master site commitment. In accordance with this
agreement, Nextel and its controlled affiliates will offer SpectraSite certain
exclusive opportunities, under specified terms and conditions, relating to the
construction or purchase of, or co-location on, additional communications sites
which will then be leased by subsidiaries of Nextel under the terms of the
master site lease agreement. If the number of new sites leased, whether such
sites are purchased from Nextel, constructed at Nextel's request or otherwise
made available for co-location by Nextel, its affiliates and Nextel Partners, is
less than certain specified numbers as of certain specified dates, then
commencing with the 37th month after the closing, Nextel shall make certain
payments to SpectraSite. The master site commitment agreement will terminate on
the earlier of April 20, 2004 or the date on which the number of sites purchased
or constructed or made available for co-location under the master site
commitment agreement equals or exceeds 1,700. The master site commitment
agreement also gives SpectraSite a right of first refusal to acquire any towers
that Nextel or certain affiliates desire to sell.
The master site commitment agreement specifies that SpectraSite will not be
obligated to develop more than 566 new sites each year. SpectraSite has agreed
to abide by Nextel's deployment plan. To date, Nextel's plan has emphasized
filling gaps in current coverage to increase capacity and enhance signal
quality, as well as deploying sites in areas contiguous to Nextel's existing
markets and deploying sites in
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<PAGE> 23
new markets in a way which expands the Nextel network. These sites also include
sites operated or to be developed by Nextel Partners in their service areas.
This strategy contemplates expansion and deployment in most major metropolitan
areas of the contiguous United States, including highway corridors that connect
existing and planned markets, particularly in the eastern half of the United
States and along the west coast. SpectraSite is not obligated to develop sites
outside of Nextel's or Nextel Partner's currently delineated network deployment
area to the extent such sites account for more than 10% of the total sites
developed under this agreement.
The agreement may be terminated by either side, by written notice, under
certain conditions. SpectraSite may terminate the agreement if:
- Nextel or one of its subsidiaries that transferred assets to SpectraSite
becomes insolvent, or is unable to pay its debts as they become due; or
- Nextel or a transferring subsidiary is liquidated, voluntarily or
involuntarily, or a receiver or liquidator is appointed for such entity.
Nextel may terminate the agreement if:
- either Holdings or its subsidiary holding the Nextel towers becomes
insolvent, or is unable to pay its debts as they become due;
- either Holdings or such subsidiary is liquidated, voluntarily or
involuntarily, or a receiver or liquidator is appointed for such entity;
or
- at or after the end of any calendar year, Nextel has exercised its rights
to recover a penalty payment, as specified in the agreement, because, for
more than 10% of the total number of towers required to be developed by
SpectraSite during each year, SpectraSite has failed to complete
development of new towers during the time period allotted for such
development.
Either SpectraSite or Nextel may terminate the agreement if the other party is
in breach of an obligation to pay money or in breach of a material nonmonetary
obligation, if such breach is neither waived nor cured according to the methods
specified in the agreement.
MASTER SITE LEASE AGREEMENT
Concurrently with the closing, SpectraSite and Nextel entered into the
Nextel master site lease agreement. Under this agreement, SpectraSite will lease
to certain Nextel subsidiaries space on wireless communications towers or other
transmission space at the sites:
- transferred to SpectraSite as part of the Nextel tower acquisition;
- subsequently constructed or acquired by SpectraSite pursuant to 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 pursuant to the
master site commitment agreement; or
- other sites and related space on wireless communications towers or
transmission space owned, leased or licensed by SpectraSite.
20
<PAGE> 24
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
pursuant to 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 pursuant to the master site
commitment agreement.
The master site lease agreements provide that within 15 days of the
commencement of the lease of a given site, and on the first day of each month
thereafter for the term of the lease, rental payments of $1,600 per month will
be due on each tower which it leases to any of the tenants who are parties to
the agreement. Monthly payments will be adjusted for partial months when
appropriate. On each annual anniversary of a given lease's commencement, the
rent owed under the lease will increase by 3%.
Other rental provisions include:
- an option for tenants to lease additional space, if such space is
available, on sites where the tenant already leases space; and
- a right allowing tenants to install, at their sole option and expense and
only when additional capacity exists at the rental site, microwave
antennae of various sizes and other equipment at additional rental rates
delineated in the agreement.
These provisions are subject to the same annual 3% rate increase as is the base
rent.
The agreement further provides that each tenant is responsible for any
portion of personal property taxes assessed on any site and directly
attributable to the tenant's property, franchise and similar taxes imposed on
the tenant's business and sales tax imposed upon payment or receipt of rents
payable under the agreement. The landlord is responsible for all other taxes.
Additionally, the agreement provides that the landlord will be responsible for
certain types of insurance. Each tenant also is responsible for certain other
types of insurance.
The term of each lease contracted under the agreement is at least five
years, with a right to extend for five successive five-year periods. In certain
cases, the initial lease term will be six, seven or eight years. The lease is
automatically renewed unless the tenant submits notification of its intent to
terminate the lease, when its current term expires, prior to such expiration.
The tenant has the right to trade the term of any given site for the term of any
other site, upon written notice to the landlord. However, such a trade is
limited to one time per site per term.
A tenant may terminate a lease for any site, at its sole discretion,
without further liability to the landlord, with 30 days prior written notice,
if:
- the tenant uses reasonable efforts and fails to obtain or maintain any
license, permit or other approval necessary for operation of its
communications equipment; or
- the tenant is unable to use the tower due to FCC action which is not a
result of any action by the tenant.
Either party may terminate a lease for any site with 60 days prior written
notice, if the other party breaches a nonmonetary obligation, subject to certain
cure provisions. Either party may terminate a lease for any site with 10 days
prior written notice, if the other party breaches a monetary obligation and that
breach is not cured within the 10-day period. In addition, if Nextel or Nextel
Partners, if Nextel Partners executes a master site lease agreement, defaults on
rental payments with respect to more than 10% of the sites covered by their
respective master site lease agreement and Nextel or Nextel Partners, as the
case
21
<PAGE> 25
may be, remains in default for 30 days following notice from SpectraSite,
SpectraSite may cancel the master site lease agreement of the defaulting party
as to all sites covered by such agreement.
SECURITY AND SUBORDINATION AGREEMENT
Concurrently with the closing, SpectraSite and Nextel entered into the
security and subordination agreement. Under this agreement, SpectraSite granted
to Nextel a continuing security interest in the assets acquired in the Nextel
tower acquisition or acquired or constructed pursuant to the master site
commitment agreement. This interest secures SpectraSite's obligations under the
Nextel master site lease agreement and, if applicable, the Nextel Partners
master site lease agreement. Nextel's lien and the other rights and remedies of
Nextel under the security and subordination agreement are subordinate and
subject to the rights and remedies of the lenders under the new credit facility
pursuant to the terms of an intercreditor and subordination agreement entered
into among the parties at the closing.
NEXTEL COMMUNICATIONS, INC.
Nextel provides a wide array of digital and analog wireless communications
services throughout the United States. Nextel offers a differentiated,
integrated package of digital wireless communications services under the Nextel
brand name, primarily to business users. Nextel's Digital Mobile Network
constitutes one of the largest integrated wireless communications systems
utilizing a single transmission technology in the United States. Nextel has
significant specialized mobile radio spectrum holdings in and around every major
business population center in the country, including all of the top 50
metropolitan statistical areas in the United States.
Nextel files periodic reports and other information with the SEC. For more
information about Nextel, you should read Nextel's SEC filings. However, we are
not incorporating any of Nextel's SEC filings by reference into this document.
22
<PAGE> 26
UNAUDITED PRO FORMA FINANCIAL DATA
GENERAL
The unaudited pro forma financial data are based on the historical
financial statements of SpectraSite and Westower and the adjustments described
in the accompanying notes. The unaudited pro forma financial data do not purport
to represent what SpectraSite's, Westower's or the combined entity's financial
position or results of operations would actually have been if the transactions
had in fact occurred on the dates indicated and are not necessarily
representative of SpectraSite's financial position or results of operations at
any future date or for any future period. The unaudited pro forma consolidated
financial data should be read in conjunction with "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the consolidated financial statements and related notes
thereto included elsewhere in this prospectus.
SPECTRASITE
The following unaudited pro forma consolidated financial data present the
post-merger unaudited pro forma consolidated balance sheet of SpectraSite as of
March 31, 1999 and both the pre-merger and post-merger unaudited pro forma
consolidated statements of operations of SpectraSite for the year ended December
31, 1998 and for the three months ended March 31, 1999. The post-merger
unaudited pro forma consolidated balance sheet data reflect the following
transactions as if they had occurred on March 31, 1999:
- the acquisition of 2,000 communications towers from Nextel and
SpectraSite's exclusive agreement to acquire or construct 1,700
additional sites for Nextel;
- the issuance and sale of SpectraSite's 11 1/4% senior discount notes due
2009;
- the issuance and sale of SpectraSite's Series C preferred stock;
- the issuance of two million shares of SpectraSite's common stock as
consideration for financing commitments related to the Nextel tower
acquisition;
- initial borrowings under SpectraSite's credit facility;
- the acquisition of one tower from Airadigm and the release of escrowed
funds to SpectraSite; and
- the consummation of the merger with Westower.
The unaudited pro forma consolidated statement of operations data give
effect to the transactions listed above, the issuance of SpectraSite's 12%
senior discount notes due 2008 and the acquisition of an additional 44 towers
from Airadigm as if they had occurred on January 1, 1998.
Certain of the data presented in the "Nextel" columns to the unaudited pro
forma statements of operations of SpectraSite are estimates provided by Nextel.
Neither SpectraSite's independent accountants nor Westower's independent
accountants have audited or otherwise tested this data. The unaudited pro forma
consolidated statements of operations do not include a one-time expense related
to the issuance of two million shares of SpectraSite common stock to various
parties as consideration for providing financing commitments related to the
Nextel tower acquisition that were not utilized. These shares were valued at
$9.0 million and will be included in SpectraSite's statement of operations as of
the date of the transaction.
The acquisition of tower assets from Nextel and the leaseback of antennae
space by Nextel are presented as if the purchase of assets had occurred on
January 1, 1998. Adjustments for revenue are based on the terms of the master
site lease agreement and on historical co-location revenues. Adjustments to
costs of operations consist of direct operating expenses, which include ground
lease payments, historical routine maintenance costs and property taxes
associated with the towers. Depreciation expense is straight-line depreciation
of the aggregate cost of the towers. Ground leases are non-cancelable operating
leases, generally for terms of five years and include options for renewal, and
pro forma ground lease
23
<PAGE> 27
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
- 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.
24
<PAGE> 28
The acquisition of tower assets from Koch and the leaseback of antennae
space by Koch are presented as if the purchase of assets had occurred on January
1, 1998. Adjustments for revenue are based on the executed tenant lease terms
for the Koch towers. Adjustments to costs of operations consist of direct
operating expenses, which include ground lease payments, estimated routine
maintenance costs, property taxes and insurance associated with the towers.
Depreciation expense is straight-line depreciation of the aggregate cost of
$17.0 million. The Koch ground leases are non-cancelable operating leases for a
term of 49 years, and pro forma ground lease expense is based on executed ground
leases. Koch has leased space on these towers for a ten-year term with options
for renewal. The pro forma minimum ground lease expenses and minimum rental
income for these leases assuming the transaction occurred and the related leases
commenced January 1, 1998 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE EXPENSE RENTAL INCOME
-------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998................................................. $ 439 $ 1,364
1999................................................. 439 1,364
2000................................................. 439 1,364
2001................................................. 439 1,364
2002................................................. 439 1,364
Thereafter........................................... 19,322 6,824
------- -------
Total...................................... $21,517 $13,644
======= =======
</TABLE>
25
<PAGE> 29
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-MERGER
SPECTRASITE WESTOWER SPECTRASITE MERGER SPECTRASITE
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $111,079 $ 9,246 $127,688(a) $ (5,000)(j) $ 188,080
500(d) (4,500)(j)
(50,933)(h)
Accounts receivable...................... 3,144 16,711 -- (405)(k) 19,450
Earnings in excess of billings........... -- 4,263 -- -- 4,263
Inventory................................ -- 2,920 -- -- 2,920
Related party advances and receivables... -- 1,579 -- -- 1,579
Other current assets..................... 246 2,128 -- -- 2,374
-------- -------- -------- -------- ----------
Total current assets.............. 114,469 36,847 128,188 (60,838) 218,666
Property and equipment, net................ 32,340 30,529 585,250(b) (114)(k) 648,005
Intangible assets.......................... 8,020 33,739 -- 172,370(j) 214,129
Notes receivable........................... 246 -- -- -- 246
Deposits................................... 750 -- 45,000(c) -- 45,000
(750)(d)
Deferred debt issue costs.................. 4,517 2,364 30,300(a) (2,364)(i) 34,817
Other...................................... 370 3,183 -- 3,553
-------- -------- -------- -------- ----------
Total assets...................... $160,712 $106,662 $787,988 $109,054 $1,164,416
======== ======== ======== ======== ==========
Current liabilities:
Accounts payable......................... $ 850 $ 4,909 $ -- $ (405)(k) $ 5,354
Accrued and other current liabilities.... 900 1,366 -- -- 2,266
Billings in excess of costs and estimated
earnings............................... -- 1,112 -- -- 1,112
Income taxes payable..................... -- 2,690 -- -- 2,690
Deferred income taxes.................... -- 370 -- -- 370
Stockholder advances and notes payable to
related parties........................ -- 254 -- -- 254
Note payable............................. -- 68 -- -- 68
Current portion of long-term debt and
capital lease obligations.............. 15 1,630 -- -- 1,645
-------- -------- -------- -------- ----------
Total current liabilities......... 1,765 12,399 -- (405) 13,759
Other long-term liabilities................ 224 -- -- 224
Revolving credit facility and capital lease
obligations.............................. -- 46,437 150,000(a) (45,858)(h) 150,579
Deferred income taxes...................... -- 2,926 -- -- 2,926
2008 Notes................................. 136,651 -- -- -- 136,651
2009 Notes................................. -- -- 340,004(a) -- 340,004
-------- -------- -------- -------- ----------
Total liabilities................. 138,640 61,762 490,004 (46,263) 644,143
Redeemable preferred stock (Series A)...... 11,500 -- (11,500)(e) -- --
Redeemable preferred stock (Series B)...... 29,916 -- (29,916)(e) -- --
Stockholders' equity
Common stock............................. 1 84 2(f) (69)(j) 18
Preferred stock (Series A, B and C)...... -- -- 339,434(a)(e) -- 339,434
Additional paid-in-capital............... -- 39,488 8,998(f) 160,828(j) 209,280
(34)(g)
Accumulated other comprehensive income... -- (482) -- 482(j) --
Accumulated deficit...................... (19,345) 5,810 (9,000)(f) (5,810)(j) (28,459)
(114)(k)
-------- -------- -------- -------- ----------
Total stockholder's equity........ (19,344) 44,900 339,400 155,317 520,273
-------- -------- -------- -------- ----------
Total liabilities, preferred stock
and stockholders' equity........ $160,712 $106,662 $787,988 $109,054 $1,164,416
======== ======== ======== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
26
<PAGE> 30
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Reflects the sources and uses of funds to complete the Nextel tower
acquisition on April 20, 1999:
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
-----------------
<S> <C>
Credit facility........................................... $150,000
11 1/4% senior discount notes due 2009.................... 340,004
Series C preferred stock.................................. 301,434
--------
Total Sources........................................ $791,438
========
USES OF FUNDS:
--------------
Cash paid to Nextel....................................... $560,000
Series C preferred stock issued to Nextel................. 70,000
General corporate purposes*............................... 127,688
Estimated fees and expenses**............................. 33,750
--------
Total Uses........................................... $791,438
========
</TABLE>
- ---------------
* Represents the excess of the sources of funds over the specifically
identified uses of funds.
** Includes $3,450 of estimated costs related to the Series C preferred
stock.
(b) Reflects the increase in property and equipment relating to the purchase of
2,000 towers from Nextel and the purchase of one tower from Airadigm for
$250.
(c) Reflects the amount of the $630,000 of total consideration paid to Nextel
allocated to an exclusive agreement to acquire or construct 1,700 new sites
for Nextel. As tower sites are identified and accepted in accordance with
the master site commitment agreement, a proportional amount of the recorded
cost will be capitalized as part of the tower cost. The capitalized costs
will be charged to depreciation expense over an estimated life of 15 years.
(d) Reflects the release from escrow of $250 paid to Airadigm in connection
with the purchase of one tower and an increase in cash of $500 released
from escrow back to SpectraSite.
(e) Reflects the issuance of the Series C preferred stock and the
reclassification of the Series A preferred stock and Series B preferred
stock to stockholders' equity, as they are no longer redeemable or accrue
dividends. In connection with the closing of the Nextel tower acquisition,
SpectraSite restated its certificate of incorporation and, as part of this
restatement, eliminated the mandatory redemption of, and cumulative
dividends on, the Series A and Series B preferred stock.
<TABLE>
<S> <C>
Series A preferred stock.................................. $ 11,500
Series B preferred stock.................................. 29,916
Series C preferred stock.................................. 301,434
--------
342,850
Less: accrued dividends as of March 31, 1999.............. (3,416)
--------
$339,434
========
</TABLE>
(f) Reflects the issuance of two million shares of SpectraSite's common stock
to various parties as consideration for providing financing commitments
related to the Nextel tower acquisition. The fair value of the common stock
issued reflects a 10% discount from the per share value of the Series C
preferred stock. This discount is attributable to the liquidation
preference and other rights held of Series C preferred stockholders.
27
<PAGE> 31
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(g) Reflects the net decrease to additional paid-in-capital due to the
elimination of previously accrued dividends on the Series A preferred stock
and the Series B preferred stock of $3,416, offset by the estimated costs
of issuance related to the Series C preferred stock of $3,450.
(h) Reflects the repayment of Westower's credit facility in the amount of
$31,500 and the $19,433 repayment of its $15,000 convertible note, with a
carrying value of $14,358. The final effect of this adjustment is an
increase in goodwill of SpectraSite. Subsequent to March 31, 1999, Westower
drew an additional $8,500 on its credit facility.
(i) Reflects the write-off of $2,364 of unamortized deferred financing costs
associated with Westower's credit facility and its $15,000 convertible
note. The final effect of this adjustment is an increase in goodwill of
SpectraSite.
(j) Reflects the allocation of $205,331 purchase price, Westower's payment of
$4,500 for transaction costs and the elimination of stockholders' equity in
the Westower merger. The purchase price consists of the issuance of
15,267,350 shares of SpectraSite common stock valued at $200,331, or $13.12
per share, and cash paid of $5,000 for transaction costs. The fair value of
SpectraSite's common stock is based on the price of Westower stock on June
1, 1999. Actual amounts will be calculated based on the average stock price
for the three days before closing and may be different from this amount.
(k) Reflects the elimination of accounts receivable and accounts payable
between SpectraSite and Westower as at March 31, 1999, and the elimination
of the gross profit recorded by Westower on intercompany site construction
revenues recorded for towers built for SpectraSite.
28
<PAGE> 32
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition.......................................... $ 2,383 $ -- $ -- $ 2,383
Site leasing.............................................. 572 12,347(a) 12(f) 12,931
------- -------- ------ --------
Total revenues.............................................. 2,955 12,347 12 15,314
Cost of operations:
Site acquisition.......................................... 550 -- -- 550
Site leasing.............................................. 354 5,708(b) 1(f) 6,063
------- -------- ------ --------
904 5,708 1 6,613
Selling, general and administrative expenses................ 2,676 --(c) -- 2,676
Depreciation and amortization............................... 656 9,754(d) 10(f) 10,420
Restructuring and other non-recurring charges............... 600 -- -- 600
------- -------- ------ --------
Operating income (loss)..................................... (1,881) (3,115) 1 (4,995)
Other income (expense):
Interest income........................................... 1,268 -- -- 1,268
Interest expense.......................................... (3,905) (15,924)(e) -- (19,829)
Other expense............................................. -- -- -- --
------- -------- ------ --------
(2,637) (15,924) -- (18,561)
------- -------- ------ --------
Net income (loss)........................................... $(4,518) $(19,039) $ 1 $(23,556)
======= ======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
29
<PAGE> 33
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Consists of $2,155 of historical co-location revenues, which have been
provided by Nextel and are based on fixed payment lease terms, and $10,192
of additional revenues to be recognized by SpectraSite under the terms of
the Nextel master site lease agreement.
(b) Reflects certain direct operating expenses previously paid by Nextel,
primarily the cost of executed ground leases, historical routine maintenance
and property taxes associated with the towers.
(c) SpectraSite expects that it will incur incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
currently estimated to amount to approximately $875 per quarter. These
incremental operating expenses are based upon management's best estimates
rather than on any contractual obligation; as such, these amounts have not
been presented as adjustments in the accompanying pro forma financial
statements.
(d) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if the issuance of SpectraSite's
11 1/4% senior discount notes due 2009, as well as the Nextel tower
acquisition and related transactions, had occurred on January 1, 1998. The
table below outlines the adjustment:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE:
---------------------------
<S> <C>
Commitment fees on credit facility.................... $ 1,000
$150,000 of term loan at 8.50%........................ 3,188
$340,004 (gross proceeds) of 2009 notes at 11.25%..... 10,669
Amortization of debt issuance costs................... 1,067
-------
Total adjustment...................................... $15,924
=======
</TABLE>
(f) Reflects the acquisition of one tower from Airadigm and one month of
revenue and related expenses for each of the four Airadigm towers placed
into service on January 31, 1999.
30
<PAGE> 34
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL KOCH WESTOWER
WESTOWER ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Site leasing............................................. $ 288 $ 227(a) $ 515
Site construction........................................ 18,031 -- 18,031
------- ----- -------
Total revenues............................................. 18,319 227 18,546
Cost of operations:
Site leasing............................................. 67 123(b) 190
Site construction........................................ 12,519 -- 12,519
------- ----- -------
12,586 123 12,709
Selling, general and administrative expenses............... 3,999 -- 3,999
Depreciation and amortization.............................. 870 142(c) 1,012
Restructuring and other non-recurring charges.............. -- -- --
------- ----- -------
Operating income (loss).................................... 864 (38) 826
Other income (expense):
Interest income.......................................... 78 -- 78
Interest expense......................................... (551) (213)(d) (764)
Other expense............................................ 237 -- 237
------- ----- -------
(236) (213) (449)
------- ----- -------
Income before income taxes................................. 628 (251) 377
Provision for income taxes................................. 273 (100)(e) 173
------- ----- -------
Net income (loss).......................................... $ 355 $(151) $ 204
======= ===== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
31
<PAGE> 35
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Consists of additional revenues to be recognized by Westower in connection
with site lease agreements with Koch.
(b) Reflects certain direct operating expenses, primarily the cost of executed
ground leases, estimated routine maintenance, property taxes and insurance
associated with the towers.
(c) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 20 years.
(d) Reflects adjustment to interest expense related to additional borrowings
under Westower's credit facility to acquire the Koch towers, based on the
credit facility's interest rate of 7.5% at March 31, 1999.
(e) Reflects income tax benefit for the Koch tower operating results at
Westower's estimated tax rate of 40%.
32
<PAGE> 36
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-MERGER
SPECTRASITE WESTOWER MERGER SPECTRASITE
PRO FORMA(a) PRO FORMA(b) 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)(c) 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)(c) 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(d) 14,441
(316)(e)
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(f) (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)(g) 86
-------- ------- ------- --------
Net income (loss)......................... $(23,556) $ 204 $(2,625) $(25,977)
======== ======= ======= ========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
33
<PAGE> 37
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(a) Reflects the previously detailed pro forma results of operations for
SpectraSite for the three months ended March 31, 1999
(b) Reflects the previously detailed pro forma results of operations for
Westower for the three months ended March 31, 1999
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) Reflects a reduction of the tax provision based on the consolidated results
of post-merger SpectraSite.
34
<PAGE> 38
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site acquisition........................................ $ 8,142 $ -- $ -- $ 8,142
Site leasing............................................ 656 49,388(a) 1,007 51,051
------- -------- ------ --------
Total revenues............................................ 8,798 49,388 1,007 59,193
Cost of operations:
Site acquisition........................................ 2,492 -- -- 2,492
Site leasing............................................ 299 22,830(b) 326 23,455
------- -------- ------ --------
2,791 22,830 326 25,947
Selling, general and administrative expenses.............. 9,690 --(c) -- 9,690
Depreciation and amortization............................. 1,268 39,000(d) 750 41,018
------- -------- ------ --------
Operating income (loss)................................... (4,951) (12,442) (69) (17,462)
Other income (expense):
Interest income......................................... 3,569 -- -- 3,569
Interest expense........................................ (8,170) (67,865)(e) -- (76,035)
Other expense........................................... 473 -- -- 473
------- -------- ------ --------
(4,128) (67,865) -- (71,993)
------- -------- ------ --------
Net income (loss)......................................... $(9,079) $(80,307) $ (69) $(89,455)
======= ======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
35
<PAGE> 39
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Consists of $8,662 of historical co-location revenues, which have been
provided by Nextel and are based on fixed payment lease terms, and $40,766
of additional revenues to be recognized by SpectraSite under the terms of
the master site lease agreement.
(b) Reflects certain direct operating expenses previously paid by Nextel,
primarily ground lease payments, historical routine maintenance and
property taxes associated with the towers.
(c) SpectraSite expects that it will incur incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
currently estimated to amount to approximately $3,500 per year. These
incremental operating expenses are based upon management's best estimates
rather than on any contractual obligation; as such, these amounts have not
been presented as adjustments in the accompanying pro forma financial
statements.
(d) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if the issuance of SpectraSite's
12% senior discount notes due 2008 and its 11 1/4% senior discount notes
due 2009, as well as the Nextel tower acquisition and related financing
transactions, had occurred on January 1, 1998. The table below outlines the
adjustment:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE:
---------------------------
<S> <C>
Commitment fees on credit facility......................... $ 4,000
$150,000 of term loan at 8.50%............................. 12,750
$125,000 (gross proceeds) of 2008 notes at 12.00%.......... 15,450
$340,004 (gross proceeds) of 2009 notes at 11.25%.......... 39,326
Amortization of debt issuance costs........................ 4,272
Less: historical interest expense of 2008 notes............ (7,933)
-------
Total adjustment................................. $67,865
=======
</TABLE>
36
<PAGE> 40
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------------------- TOTAL -------------------
WESTOWER WESTOWER WESTOWER WESTOWER CORD SUMMIT
1/1/98 - 3/1/98 - 10/1/98 - 1/1/98- 1/1/98- 1/1/98- KOCH
2/28/98 9/30/98 12/31/98 12/31/98 8/31/98 11/11/98 ADJUSTMENTS
-------- -------- --------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Site leasing..................... $ 49 $ 170 $ 74 $ 293 -- -- $ 1,364(a)
Site construction................ 7,784 31,774 24,914 64,472 $ 6,714 $8,818 --
------ ------- ------- ------- ------- ------ -------
Total revenues..................... 7,833 31,944 24,988 64,765 6,714 8,818 1,364
Cost of operations:
Site leasing..................... 11 25 13 49 -- -- 738(b)
Site construction................ 5,971 23,833 18,131 47,935 6,219 6,707 --
------ ------- ------- ------- ------- ------ -------
5,982 23,858 18,144 47,984 6,219 6,707 738
Selling, general and administrative
expenses......................... 991 4,958 4,258 10,207 2,636 1,040 --
Depreciation and amortization...... 149 578 589 1,316 132 279 850(c)
Merger related expenses............ -- 327 77 404 -- -- --
------ ------- ------- ------- ------- ------ -------
Operating income (loss)............ 711 2,223 1,920 4,854 (2,273) 792 (224)
Other income (expense):
Interest income.................. 14 130 53 197 4 -- --
Interest expense................. (42) (771) (572) (1,385) (45) (93) (1,275)(d)
Other income..................... 128 (2) -- 126 17 30 --
------ ------- ------- ------- ------- ------ -------
100 (643) (519) (1,062) (24) (63) (1,275)
------ ------- ------- ------- ------- ------ -------
Income (loss) before income
taxes............................ 811 1,580 1,401 3,792 (2,297) 729 (1,499)
Provision for (benefit from) income
taxes............................ 556 351 610 1,517 (919) -- (600)(e)
------ ------- ------- ------- ------- ------ -------
Net income (loss).................. $ 255 $ 1,229 $ 791 $ 2,275 $(1,378) $ 729 $ (899)
====== ======= ======= ======= ======= ====== =======
<CAPTION>
TOTAL
OTHER WESTOWER
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
Revenues
Site leasing..................... -- $ 1,657
Site construction................ -- 80,004
------- -------
Total revenues..................... -- 81,661
Cost of operations:
Site leasing..................... -- 787
Site construction................ -- 60,861
------- -------
-- 61,648
Selling, general and administrative
expenses......................... $ 73(f) 13,956
Depreciation and amortization...... 673(g) 3,250
Merger related expenses............ -- 404
------- -------
Operating income (loss)............ (746) 2,403
Other income (expense):
Interest income.................. -- 201
Interest expense................. -- (2,798)
Other income..................... -- 173
------- -------
-- (2,424)
------- -------
Income (loss) before income
taxes............................ (746) (21)
Provision for (benefit from) income
taxes............................ 262(e) 260
------- -------
Net income (loss).................. $(1,008) $ (281)
======= =======
</TABLE>
See accompanying notes to unaudited proforma consolidated statement of
operations.
37
<PAGE> 41
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Consists of additional revenues to be recognized by Westower in connection
with site lease agreements with Koch.
(b) Reflects certain direct operating expenses, primarily ground lease
payments, estimated routine maintenance, property taxes and insurance
associated with the towers.
(c) Reflects the incremental depreciation of towers calculated on a
straight-line basis over 20 years.
(d) Reflects adjustment to interest expense related to additional borrowings
under Westower's credit facility to acquire the Koch towers, based on the
credit facility's interest rate of 7.5% at March 31, 1999.
(e) Reflects a tax benefit for the Koch tower operating results and an increase
of the tax provision based on the pro forma operating results related to
the Cord and Summit acquisitions at Westower's estimated tax rate of 40%.
(f) Reflects adjustments in selling, general, and administrative expense
related to compensation of former owners of Cord and Summit.
(g) Reflects the amortization of goodwill as if the acquisitions of Cord and
Summit had each occurred on January 1, 1998. Goodwill is amortized over a
period of 20 years.
38
<PAGE> 42
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-MERGER
PRO FORMA PRO FORMA MERGER SPECTRASITE
SPECTRASITE(a) WESTOWER(b) 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)(c) 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 (1,403)(c) 22,839
Site construction............................. -- 60,681 -- 60,861
-------- ------- -------- ---------
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(d) 56,902
(665)(e)
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(f) (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)(g) 107
-------- ------- -------- ---------
Net income (loss)............................... $(89,455) $ (281) $(12,048) $(101,784)
======== ======= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma statement of operations.
39
<PAGE> 43
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(a) Reflects the previously detailed pro forma results of operations for
SpectraSite for the year ended December 31, 1998.
(b) Reflects the previously detailed pro forma results of operations for
Westower for the twelve months ended December 31, 1998.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) Reflects a reduction of the tax provision based on the consolidated results
of post-merger SpectraSite.
40
<PAGE> 44
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data derived
from the audited and unaudited financial statements included elsewhere in this
prospectus, as of and for:
- the year ended December 31, 1996;
- the period from January 1, 1997 to May 12, 1997;
- the period from SpectraSite's inception on April 25, 1997 to December 31,
1997;
- the year ended December 31, 1998;
- the three months ended March 31, 1998; and
- the three months ended March 31, 1999.
The data for the three months ended March 31, 1998 and 1999 were derived
from SpectraSite's unaudited financial statements for those periods. Data for
all other periods presented were derived from the audited financial statements
of SpectraSite and its predecessor, Telesite Services, LLC. SpectraSite prepared
the unaudited financial data on the same basis as the audited financial
statements and, in management's opinion, such data include all normal and
recurring adjustments necessary to fairly present the information. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results expected for the entire year.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
TELESITE (PREDECESSOR) SPECTRASITE YEAR ENDED DECEMBER 31, SPECTRASITE
------------------------------ -------------- --------------------------- ----------------
THREE MONTHS
JANUARY 1, APRIL 25, TELESITE & ENDED
YEAR ENDED 1997 - 1997 - SPECTRASITE MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED SPECTRASITE ----------------
1996 1997 1997 1997 1998 1998 1999
------------ --------------- -------------- ------------ ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Site acquisition............. $8,841 $1,926 $ 5,002 $ 6,928 $ 8,142 $2,319 $ 2,383
Site leasing................. -- -- -- -- 656 11 572
------ ------ ------- ------- -------- ------ -------
Total revenues................. 8,841 1,926 5,002 6,928 8,798
Costs of operations:
Site acquisition............. 2,255 595 1,120 1,715 2,492 708 550
Site leasing, exclusive of
depreciation............... -- -- -- -- 299 8 354
------ ------ ------- ------- -------- ------ -------
2,255 595 1,120 1,715 2,791 716 904
Selling, general and
administrative(a)............ 4,256 1,742 5,957 7,699 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) $(2,266) $(2,733) $ (4,951) $ (482) $(1,880)
====== ====== ======= ======= ======== ====== =======
Net income(loss)............... 2,289 (503) (2,160) (2,663) (9,079) (252) (4,517)
Net income (loss)
applicable to common
shareholders................. 2,289 (503) (2,660) (2,163) (11,235) (483) (5,277)
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
TELESITE SPECTRASITE
-------------------------- ------------------
(PREDECESSOR) SPECTRASITE COMBINED SPECTRASITE THREE MONTHS
-------------------------- ------------ ------------ ------------ ENDED
YEAR ENDED JANUARY 1 - APRIL 25 - YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, MAY 12, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------
1996 1997 1997 1997 1998 1998 1999
------------ ----------- ------------ ------------ ------------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by (used in)
operating activities............. $1,109 $ (71) $ 223 $ 152 $ (2,347) $ (64) $ (345)
Net cash provided by (used in)
investing activities............. (853) (322) (7,178) (7,500) (45,002) (1,029) 12,129
Net cash provided by (used in)
financing activities............. (266) 390 9,189 9,579 144,663 16,118 (253)
EBITDA(b).......................... 2,330 (411) (1,777) (2,188) (3,683) (254) (4,621)
Adjusted EBITDA(c)................. 24,198
Depreciation and amortization...... 91 56 489 545 1,268 228 656
Capital expenditures(d)............ 498 64 850 914 26,598 1,322 3,373
Cash interest expense.............. 64 31 64 95 216 27 --
Ratio of earnings to fixed
charges(e)....................... 23.2x -- -- -- -- -- --
Deficiency of earnings to fixed
charges.......................... -- 503 3,890 4,393 9,079 252 4,517
SELECTED OPERATING DATA (AT END OF
PERIOD):
Number of owned towers........................................................ 5 106 5 142
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash, cash equivalents and short term investments............................. $ 2,234 $114,962 $17,259 $ 11,079
Total assets.................................................................. 13,642 161,946 30,630 160,712
Total liabilities............................................................. 5,040 135,357 5,508 136,875
Stockholders' deficiency...................................................... (1,898) (14,067) (2,609) (19,344)
</TABLE>
42
<PAGE> 46
- ---------------
Notes to Selected Historical Financial Data
(a) Selling, general and administrative expense and operating income
attributable to site acquisition activities for the period April 25-December
31, 1997 were $2,706 and $1,110, respectively. In addition, selling, general
and administrative expense includes approximately $1,463 of non-recurring
charges primarily related to formation costs and the operations of
Metrosite.
(b) EBITDA consists of operating income (loss) before depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the industry. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity. EBITDA is not necessarily comparable with similarly
titled measures for other companies.
EBITDA is widely used in the communications site industry as a measure of a
company's operating performance. SpectraSite believes that EBITDA can assist
in comparing company performance on a consistent basis without regard to
depreciation and amortization, which may vary significantly depending on
accounting methods where acquisitions are involved or non-operating factors
such as historical cost bases. EBITDA presented in the table is consistent
with EBITDA calculated under the indenture governing the notes.
(c) Adjusted EBITDA for any stated period means the sum of the EBITDA of
SpectraSite for the fiscal quarters included within the stated period, less
SpectraSite's site leasing EBITDA for such stated period, plus the product
of the most recent quarter's site leasing EBITDA included within the stated
period and the total number of fiscal quarters within the stated period.
Site leasing EBITDA includes, for any stated period, the EBITDA directly
attributable to site rental revenue, license or management fees paid to
manage, lease or sublease space on communications sites owned, leased or
managed by SpectraSite, which we refer to collectively as site leasing
revenues. For the purposes of calculating Adjusted EBITDA, the site leasing
EBITDA for the most recent quarter included in the stated period shall be
determined on a pro forma basis after giving effect to acquisitions or
dispositions, new contracts and rent increases as if these events had
occurred at the beginning of the fiscal quarter, and eliminating losses
related to individual lease or site management contracts. In allocating
corporate, general administrative and other operating expenses that are not
allocated to any particular line of business in the financial statements of
SpectraSite, such expense shall be allocated to SpectraSite's site leasing
business in proportion to its percentage of the total revenues for the
applicable period. Adjusted EBITDA for site leasing includes the acquisition
from Airadigm of certain towers without co-location tenants.
For the year ended December 31, 1998, Adjusted EBITDA was computed as
follows:
<TABLE>
<S> <C>
EBITDA...................................................... $(3,683)
Less site leasing EBITDA.................................... (257)
-------
Adjusted EBITDA -- site acquisition.................... $(3,426)
=======
Pro forma revenue........................................... $12,773
Pro forma cost of site leasing revenue...................... 2,347
Pro forma selling, general and administrative............... 3,520
-------
Pro forma site leasing EBITDA for the three months ended
December 31, 1998......................................... 6,906
X 4
-------
Adjusted EBITDA -- site leasing........................ $27,624
=======
</TABLE>
Adjusted EBITDA is used in the communications tower industry as a measure of
a company's operating performance, and it is presented as additional
information because management believes that it serves as a useful financial
analysis tool for measuring and comparing companies in several areas, such
as liquidity, operating performance and leverage. In addition, Adjusted
EBITDA is a measure used in the indenture governing the notes, and the
measure reported in the table is consistent
43
<PAGE> 47
with the calculation under the indenture. Adjusted EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. Adjusted
EBITDA is not necessarily comparable with similarly titled measures for
other companies.
(d) Capital expenditures for Telesite have been reduced for the periods ended
December 31, 1996 and May 12, 1997 by $340 and $258, respectively. These
expenditures were for land and construction in progress which were sold
prior to the closing of the acquisition of Telesite.
(e) The ratio of earnings to fixed charges is computed by dividing income (loss)
before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest charges, amortization of debt discount and debt issuance
costs, and that portion of rental expense of SpectraSite believes to be
representative of interest. Earnings were not sufficient to cover fixed
charges for all periods presented in the table, except for the year ended
December 31, 1996, and, therefore, the ratio is not meaningful for such
periods.
44
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Integrated Site Development, Inc., a Delaware corporation which has since
been renamed SpectraSite Holdings, Inc., was incorporated on April 25, 1997.
Integrated Site Development, U.S. Towers, Inc., Metrosite and Telesite were
combined to form SpectraSite through a series of transactions effected as of May
12, 1997. Following this transaction, U.S. Towers was renamed SpectraSite
Communications, Inc., and on October 31, 1997, Telesite was merged into
SpectraSite Communications. On February 27, 1998, we sold Metrosite to an
unaffiliated third party for approximately $299,000 in cash, plus the right to
certain royalty payments which continue for a period of six years. Metrosite
primarily provides site acquisition services to municipal governments. As a
result of the foregoing transactions and as of the date hereof, SpectraSite
Communications is a wholly owned subsidiary of Holdings, and substantially all
of our operations are conducted through SpectraSite Communications and its
subsidiaries.
Holdings has operated the site acquisition services business for a limited
period of time and had no operations prior to May 12, 1997. The acquisitions
were accounted for as a purchase and, accordingly, the results of operations of
the respective former entities are included in the consolidated operations of
SpectraSite from the date of acquisition to, in Metrosite's case, the date of
disposition.
SpectraSite plans to continue to offer site acquisition services in the
future. However, its primary focus will be on the ownership of multi-tenant
towers and leasing of antenna space on such towers. As of December 31, 1998, we
had 106 towers in service. As a result of its limited operating history and
primary focus on tower ownership and leasing, management believes that its
results of operations for the period ended December 31, 1997 and for the year
ended December 31, 1998 are not indicative of our results of operations in the
future.
RECENT EVENTS
During 1998, a group of investors purchased seven million shares of
Holdings' Series B preferred stock in a series of transactions for an aggregate
purchase price of $28.0 million. See "Certain Transactions -- The Series A and
Series B Preferred Stock Offerings."
In May 1998, SpectraSite sold its 33% interest in Communications Management
Specialists to the other owners for approximately $0.4 million. As payment
SpectraSite received a note payable over 60 months and bearing interest at 8.5%
per annum. Communications Management Specialists provides construction
management services to telecommunications companies.
In June 1998, SpectraSite acquired all of the membership interests of H&K
Investments LLC, an independent tower owner, for an aggregate purchase price of
$1.4 million, and in December 1998, H&K was merged with SpectraSite. H&K owned
five towers; each of the towers has multiple tenants, and Sprint PCS is the
anchor tenant on all five towers.
In August 1998, SpectraSite and Airadigm, a regional provider of wireless
communications services, entered into an agreement covering our acquisition of
up to 47 communications towers and certain related assets from Airadigm for
$11.75 million. Airadigm is the anchor tenant on each tower. Under the
agreement, SpectraSite acquired 40 of the towers in 1998, four towers in January
1999 and one tower in April 1999. SpectraSite paid $11.25 million for the 45
towers, with the remaining $0.5 million released from escrow and returned to us
after we decided not to close on the purchase of the remaining two towers.
In August 1998, SpectraSite acquired 14 ground leases and two towers in
inventory from Amica, a regional provider of wireless communications services,
for an aggregate cash purchase price of approximately $0.5 million. SpectraSite
has constructed towers on the sites. Amica is the anchor tenant on all 14
towers.
45
<PAGE> 49
In September 1998, SpectraSite acquired all of the shares of capital stock
of GlobalComm, Inc. for $2.0 million in cash, and as of December 30, 1998,
GlobalComm was merged into SpectraSite Communications. GlobalComm provides
co-location marketing services to BellSouth Mobility DCS and other wireless
communications providers in North Carolina, South Carolina and Tennessee. The
founder and president of GlobalComm, Michael Garrett, joined SpectraSite as Vice
President -- Co-location Management and, in this capacity, Mr. Garrett is
responsible for marketing available antenna space on all of SpectraSite's owned
towers. See "Management" and "Certain Transactions -- GlobalComm Acquisition."
In April 1999, SpectraSite acquired 2,000 communications towers from Nextel
for a combination of cash and stock.
In connection with the Nextel tower acquisition, SpectraSite privately
placed 46,286,795 shares of 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 THE RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1998.
Revenues from site acquisition services remained at $2.3 million for the
three months ended March 31, 1999 compared to the three months ended March 31,
1998. Revenues from site leasing increased to $0.6 million for the three months
ended March 31, 1999 from $11,000 for the three months ended March 31, 1998
primarily as a result of revenues derived from communications towers which
SpectraSite acquired or constructed in the second half of 1998.
Costs of operations increased to $0.9 million for the three months ended
March 31, 1999 from $0.7 million for the three months ended March 31, 1998. The
increase in costs was attributable to site leasing activity. Gross profit
increased to $2.1 million for the three months ended March 31, 1999 from $1.6
million for the three months ended March 31, 1998. As a percentage of total
revenues, gross profit increased to 69.4% for the three months ended March 31,
1999 from 69.3% for the three months ended March 31, 1998. As our site leasing
operations mature, additional tenants on a tower will generate
disproportionately larger increases in gross profit margin and cash flow due to
the low associated variable operating costs.
Selling, general and administrative expenses increased to $2.8 million for
the three months ended March 31, 1999 from $2.0 million for the three months
ended March 31, 1998. The increase is a result of expenses related to additional
corporate overhead and field operations to manage and operate the growth in the
ongoing activities of SpectraSite. Depreciation expense increased to $0.5
million for the three months ended March 31, 1999 from $0.1 million for the
three months ended March 31, 1998 as a result of the increased number of
communication towers we own.
In March 1999, SpectraSite announced that it would relocate its marketing
and administrative operations from Little Rock, Arkansas and Birmingham, Alabama
to its corporate headquarters in Cary, North Carolina. As a result, we recorded
a restructuring charge of $0.6 million in the quarter ended March 31, 1999 for
employee termination and other costs related to the relocation of these
activities.
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<PAGE> 50
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 $2.7 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 September 30, 1997 and through December 31,
1997, and Telesite's results of operations for the period from January 1, 1997
through May 12, 1997, April 1, 1997 through May 12, 1997 and for the twelve
month period ended December 31, 1996.
Total revenues decreased to $6.9 million for the twelve months ended
December 31, 1997 from $8.8 million for the twelve months ended December 31,
1996 due primarily to the decreased demand for site development services from
more established personal communications services licensees as a result of their
completing the first phase of construction in their initial markets and not yet
commencing secondary
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build-outs in such markets or in additional markets, and the fact that holders
of certain more recently issued licenses have not yet commencing construction of
tower networks in their respective markets.
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 $2.7 million for the twelve months ended December 31,
1997 compared to $2.2 million during the twelve months ended December 31, 1996.
The change is primarily a result of the decline in revenues and the increase in
selling, general and administrative expenses attributable to the commencement of
operations of SpectraSite.
Other income, which consists primarily of equity in earnings of affiliates,
was approximately $0.1 million for the twelve months ended December 31, 1997 and
for the twelve months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Holdings is a holding company whose only significant asset is the
outstanding capital stock of its subsidiary, SpectraSite Communications. Our
only source of cash to pay interest on and principal of the 2008 notes and the
2009 notes is distributions from SpectraSite Communications. Prior to July 15,
2003, interest expense on the 2008 notes will consist solely of non-cash
accretion of an original issue discount and the notes will not require annual
cash interest payments. After such time, the 2008 notes will have accreted to
approximately $225 million and will require semi-annual cash interest payments
of $13.5 million. In addition, the notes mature on July 15, 2008. Similarly, the
2009 notes will not require cash interest payments prior to October 15, 2004 and
mature on April 15, 2009. After October 15, 2004, the 2009 notes will have
accreted to approximately $586.8 million and will require semi-annual cash
interest payments of $33.0 million. Furthermore, the new credit facility
provides for periodic principal and interest payments.
To complete the Nextel tower acquisition and pay related fees and expenses,
we used $150.0 million of borrowings under our 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.
Since we did not complete this exchange offer prior to March 10, 1999, the
interest rate on the 2008 notes increased by 0.50% per year. This additional
interest will accrue on the 2008 notes until we complete the exchange offer, and
we will pay this interest in cash on each July 15 and January 15 until we
complete the exchange offer.
As a result of the issuance and sale of our Series B preferred stock and
the notes, we realized net proceeds of $147.7 million, after deducting fees and
expenses. SpectraSite has $750,000 of the proceeds deposited in escrow for the
acquisition of three towers from Airadigm and has used:
- $11.0 million to acquire 44 of the 47 Airadigm towers;
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- approximately $0.5 million to acquire 14 ground leases and two towers in
inventory from Amica and to construct towers on the sites;
- $2.0 million for the acquisition of GlobalComm; and
- $2.3 million to repay outstanding indebtedness.
The remaining proceeds will be used for the construction and acquisition of
towers and for general working capital purposes.
Net cash used in operating activities during the year ended December 31,
1998 was $2.3 million compared to $0.2 million provided by operating activities
during the comparable period in 1997. The increase in cash used in operating
activities was primarily attributable to an increase in accounts receivable
resulting from the timing of billings related to site development services and
the net loss incurred during the year. Net cash used for investing for the year
ended December 31, 1998 was $45.0 million compared to $7.5 million for the year
ended December 31, 1997. The cash used for investing activities during the year
ended December 31, 1998 was primarily the result of the investment of unused
proceeds from the sale of the 2008 notes in short-term investments, costs
associated with tower construction, acquisition of towers from Airadigm and the
acquisition of GlobalComm. The cash used for investing activities during the
year ended December 31, 1997 primarily related to the acquisition of Telesite.
Net cash provided by financing activities for the year ended December 31, 1998
was $144.7 million compared to $9.6 million for the same period in 1997. The
increase in cash provided by financing activities was attributable to the
proceeds from the sales of Series B preferred stock and the 2008 notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, including the 2008 notes and the 2009 notes, or to fund planned
capital expenditures, will depend on our future performance, which, to a certain
extent is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Our business strategy
contemplates substantial capital expenditures in connection with our planned
tower buildout. Based on SpectraSite's current operations and anticipated
revenue growth, management believes that cash flow from operations, available
cash of approximately $241.9 million and anticipated available borrowings under
the 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 our business, prospects, financial
condition or results of operations. There can be no assurance that we will
generate sufficient cash flow from operations in the future, that anticipated
revenue growth will be realized or that future borrowings or equity
contributions will be available in amounts sufficient to service our
indebtedness and make anticipated capital expenditures.
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.
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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 that they will be converted in a timely
fashion. Any delays or omissions by us or our customers, suppliers or
contractors to resolve the year 2000 issue could materially adversely affect our
business, financial condition or results of operations. We do not anticipate
material expenditures related to the year 2000 issue and incremental costs to
date have been negligible, but we cannot assure you that amounts to be spent on
addressing the year 2000 issue will not be material.
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INDUSTRY OVERVIEW
GENERAL
SpectraSite was formed in 1997 through the combination of three existing
companies in the tower development, site acquisition and site management
businesses to capitalize on the trend toward co-location and independent tower
ownership in the wireless communications industry and has grown into a leading
build-to-suit provider of tower networks. As wireless services and current
wireless technologies are used in more applications, the cost of wireless
services to consumers declines and new wireless technologies are developed.
Changes in U.S. federal regulatory policy, including the implementation of the
Telecommunications Act of 1996, have led to a significant number of competitors
in the industry through the auction of frequency spectrum for a wide range of
uses, most notably personal communications services. This competition, combined
with a growing reliance on wireless services by consumers, has led to an
increased demand for higher quality, uninterrupted service and improved
coverage, which, in turn, has led to increased demand for communication sites as
new providers build out their networks and existing providers upgrade and expand
their networks to maintain their competitiveness. We believe that, as the
wireless communications industry has become more competitive, wireless service
providers have sought operating and capital efficiencies by outsourcing certain
network services and build-out activities and by co-locating transmission
equipment with other providers on multi-tenant towers. The need for co-location
has also been driven by the growing trend by municipalities to slow the
proliferation of towers by requiring that towers accommodate multiple tenants.
All of these factors provide an opportunity for us to identify and acquire
communication sites, lease antennae space on such sites and provide related
network infrastructure and support services.
NETWORK AND TOWERS
Wireless service providers require wireless transmission networks in order
to provide service to their customers. Each of these networks is configured
specifically to meet the coverage requirements of the particular provider and
includes transmission equipment such as antennae placed at various locations
throughout the service area. These locations, or communication sites, are
critical to the operation of a wireless network. A communication site may have
the capacity for multiple antennae installations, or antennae sites, depending
on the size and type of the communication site. The potential value of a tower
generally depends on its location and the number of antennae that it can
support.
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Set forth below is a diagram illustrating the basic functions of each of
the primary components of a wireless communication network.
[WIRELESS COMMUNICATIONS NETWORK DIAGRAM]
Communication sites consist of towers, rooftops and other structures upon
which antennae are placed. A typical tower includes a compound enclosing the
tower and an equipment shelter. The equipment shelter houses a variety of
transmitting, receiving and switching equipment. The tower can be either a self-
supporting or guyed model. There are two types of self-supporting models: the
lattice and the monopole. A lattice model is usually tapered from the bottom up
and can have three or four sides of open-framed steel supports. A monopole is a
free standing tubular structure. Guyed towers gain their support capacity from a
series of guy cables attaching separate levels of the tower to anchor
foundations in the ground. Monopoles typically range in height from 50-200 feet,
lattice towers can reach up to 350 feet and guyed towers can reach 2000 feet or
more.
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TYPES OF TOWERS
(DIAGRAM NOT TO SCALE)
[TYPES OF TOWERS DIAGRAM]
Rooftop sites are more common in urban areas where tall buildings are
generally available and multiple communication sites are required because of
high wireless traffic density. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such high
population density, neither height nor extended radius of coverage are as
important and the installation of a tower structure may prove to be impossible
because of zoning restrictions, land cost and land availability. Other
structures on which antennae have been installed include billboards, electric
transmission towers, silos, water tanks and smokestacks.
OPERATION OF TWO-WAY WIRELESS SYSTEMS. Wireless transmission networks use
a variety of radio frequencies to transmit voice and data. Wireless transmission
networks include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency. Although cellular
currently represents the largest segment of the wireless communications
industry, other wireless technologies are expected to grow significantly.
Two-way wireless service areas are divided into multiple regions called
cells, each of which contains a base station consisting of a low-power
transmitter, a receiver and signaling equipment, typically located on a tower.
The cells are usually configured in a grid pattern, although terrain factors,
including natural and man-made obstructions, and signal coverage patterns may
result in irregularly shaped cells and overlaps or gaps in coverage. Cellular
system cells generally have a radius ranging from two miles to 25 miles and
personal communications services and other higher frequency services system
cells generally have a radius ranging from one-quarter mile to 12 miles,
depending on the technology being used, level of customer
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usage, installation, height and the terrain. Growing demand for cell sites is
one of the primary reasons for the expected growing demand for our services. The
base station in each cell is connected by microwave, fiber optic cable or
telephone wires to a switch, which uses computers and specially developed
software to control the operation of the wireless telephone system for an entire
service area. The switch controls the transfer of calls from cells within the
system and connects calls to the local landline telephone system or to a long
distance telephone carrier.
Each wireless transmission network is planned to meet a certain level of
subscriber density and traffic demand in addition to providing a certain
geographic coverage. Each transmission requires a certain amount of radio
frequency, so a system's capacity is limited by the amount of frequency that is
available. The same frequency can be reused by each separate transmitter,
subject to certain interference limitations. The design of each wireless system
involves the placement of transmission equipment in locations that will make
optimal use of available frequency based upon projected usage patterns, subject
to the availability of such locations and the ability to use them for wireless
transmission under applicable zoning requirements.
WIRELESS COMMUNICATIONS. The wireless communications industry now provides
a broad range of services, including cellular, personal communications services,
paging, specialized mobile radio and enhanced specialized mobile radio. The
industry has benefited in recent years from increasing demand for its services
and industry experts expect this demand to continue to increase. The following
table sets forth industry estimates regarding projected subscriber growth for
certain types of wireless communications services:
<TABLE>
<CAPTION>
1998-2002 1998-2008
ESTIMATED PROJECTED PROJECTED COMPOUNDED COMPOUNDED
1998 2002 2008 ANNUAL ANNUAL
SUBSCRIBERS SUBSCRIBERS SUBSCRIBERS GROWTH RATE GROWTH RATE
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular...................... 60.0 80.7 81.1 7.7% 3.1%
Personal communications
services.................... 7.2 46.0 86.6 59.1% 28.3%
Enhanced specialized mobile
radio....................... 2.8 10.1 17.0 37.4% 19.6%
</TABLE>
- ---------------
Source: Paul Kagan Associates, Inc. We cannot assure you that these projections
will prove to be accurate.
We believe that more communication sites will be required in the future to
accommodate the expected increase in demand for wireless communications
services. Current emerging wireless communications systems, such as personal
communications services and enhanced specialized mobile radio, represent an
immediate and sizable market for providers of communication site services as
they build out large nationwide and regional networks. The development of higher
frequency technologies such as personal communications services offers us
opportunities as the reduced cell range of those technologies requires a more
concentrated network of towers. While several personal communications services
and enhanced specialized mobile radio providers have already built limited
networks in certain markets, these providers still need to fill in dead zones
and expand geographic coverage. The Personal Communications Industry Association
estimates that there were approximately 80,000 antenna sites in the United
States as of December 31, 1998. In January 1999, the Personal Communications
Industry Association estimated that the number of antenna sites in the United
States for cellular, personal communications services and enhanced mobile radio
providers will increase by an additional 66,000 communications sites through
2005 as cellular systems expand coverage and personal communications services
systems are deployed.
As a result of advances in digital technology, enhanced specialized mobile
radio operators have also begun to design and deploy digital mobile
telecommunications networks in competition with cellular providers. In response
to the increased competition, cellular operators are re-engineering their
networks by increasing the number of sites, locating sites within a smaller
radius, filling in dead zones and converting from analog to digital cellular
service in order to manage subscriber growth, extend geographic coverage
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and provide competitive services. The demand for communication sites is also
being stimulated by the development of new paging applications, such as e-mail
and voicemail notification and two-way paging, as well as other wireless data
applications.
Licenses are also being awarded, and technologies are being developed, for
numerous new wireless applications that will require networks of communication
sites. These potential applications include local multi-point distribution
services, such as wireless local loop, wireless cable television, data and
Internet access. Radio spectrum required for these technologies has, in many
cases, already been awarded and licensees have begun to build out and offer
services through local loop networks operated by Winstar and Teligent, through
new wireless cable networks operated by companies such as CellularVision, and
through data networks being constructed and operated by RAM Mobile Data, MTEL
and Ardis.
CHARACTERISTICS OF THE TOWER INDUSTRY
In addition to the increased demand for wireless services and the need to
develop and expand wireless communications networks, we believe that other
trends influencing the wireless communications industry have important
implications for independent tower operators. In this increasingly competitive
wireless industry environment, we believe that many providers are dedicating
their capital and operations primarily to those activities that directly
contribute to subscriber growth, such as marketing and distribution. Management
believes these providers, therefore, will seek to reduce costs and increase
efficiency through the outsourcing of infrastructure network functions such as
communication site ownership, construction, operation and maintenance. In order
to speed new network deployment and expansion and generate efficiencies,
providers are increasingly co-locating transmission equipment with that of other
wireless service providers. The trend towards co-location has been furthered by
the Not-In-My-Backyard arguments generated by local zoning and planning
authorities in opposition to the proliferation of towers.
Management believes that, in addition to the favorable growth and
outsourcing trends in the wireless communications industry and high barriers to
entry as a result of regulatory and local zoning restrictions associated with
new tower sites, tower operators benefit from several favorable characteristics.
The ability of tower operators to provide antenna sites to customers on multiple
tenant towers diversifies them against the specific technology, product and
market risks typically faced by an individual provider. The emergence of new
technologies, providers, products and markets may allow independent tower
operators to further diversify against such risks. We believe that independent
tower operators also benefit from the contract nature of the site leasing
business and the predictability and stability of these recurring revenues. In
addition, the site leasing business has low variable operating costs and
significant operating leverage. Towers generally are fixed cost assets with
minimal variable operating costs associated with additional tenants. A tower
operator can generally expect to experience increasing margins when new tenants
are added to existing towers.
The site leasing business typically experiences low customer churn rates as
a result of the high costs that would be incurred by a wireless service provider
were it to relocate an antenna to another site and consequently be forced to
re-engineer its network. Moving a single antenna may alter the pre-engineered
maximum signal coverage, requiring a reconfiguration of the network at
significant cost to maintain the same coverage. Municipal approvals are becoming
increasingly difficult to obtain and may also affect the provider's decision to
relocate. We believe that the costs associated with network reconfiguration and
municipal approval and the time required to complete these activities usually
are not justified by the potential savings in reduced site rental expense.
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BUSINESS
OVERVIEW
SpectraSite is one of the leading full service providers of tower related
services in the U.S. wireless communications industry. We develop and manage
build-to-suit tower networks and provide site acquisition services for major
wireless communication companies such as AT&T Wireless, Nextel and Sprint PCS,
as well as numerous other entrepreneurial service providers. Our business enjoys
favorable unit economics which include stable and recurring revenues, low
operating costs, minimal post-construction capital requirements, high customer
retention levels and a diversified asset and customer base. We are capitalizing
on the growing trend toward antenna co-location and independent tower ownership,
as leading wireless providers increasingly redirect their capital outlays from
tower development to subscriber acquisition activities and local municipalities
encourage multiple tenants on single towers.
SpectraSite generally builds towers suited for multi-tenant use under
build-to-suit programs and typically does not start construction of a tower
until an anchor tenant has agreed to lease antenna space on such tower. We have
the capacity to develop a large number of towers as:
- a typical tower takes approximately two months to construct, once zoning
approval is obtained;
- we utilize a standard set of proprietary building specifications; and
- we capitalize on our program management expertise and our established
relationships with highly experienced, pre-qualified third-party
engineers and construction firms that specialize in the wireless
communications industry.
Our primary focus is the ownership of multi-tenant towers and the leasing,
under long-term contracts, of antenna space on such towers to a variety of
wireless service providers, including personal communications services,
cellular, paging, specialized mobile radio, enhanced specialized mobile radio
and other providers. Since a typical tower has and will have multiple antennae
positions that are leased to different wireless providers and the towers are
dispersed geographically, SpectraSite will benefit from a recurring revenue base
that is diversified in terms of customer mix, geographic presence and industry
segment. The relatively low, fixed costs associated with maintaining a tower
network allow for incremental leasing revenues from co-location tenants to
result in disproportionately greater increases in tower cash flow. Management
believes that tower cash flow margins will range from approximately 35% to 80%
depending upon the level of co-location. Additionally, the capital requirements
beyond initial construction are minimal. Assuming a conservative level of
tenants per tower, the payback period on construction investment is
approximately five years, while the usable life of the tower asset is estimated
to be at least 15 years. The tower franchise is further enhanced by the high
cost of antenna relocation, which reduces customer turnover, and the high
barriers to entry resulting from local opposition to tower proliferation.
Under a build-to-suit program for an anchor wireless service provider,
SpectraSite is awarded non-binding mandates and undertakes all site development
activities and costs. In return, the anchor wireless service provider enters
into a long-term lease. SpectraSite retains ownership of the tower and has the
ability to co-locate additional tenants. Management believes that many wireless
service providers are using build-to-suit programs as an alternative to tower
ownership and that this outsourcing trend is likely to continue. SpectraSite's
build-to-suit programs provide a comprehensive solution to those wireless
service providers seeking to minimize their capital expenditures, overhead and
time associated with the build-out and on-going maintenance of their wireless
network infrastructure. We believe that our site leasing business will continue
to grow, particularly through greater acceptance of build-to-suit programs.
SpectraSite also offers comprehensive site acquisition services, including
site location analysis; site acquisition; zoning and land use permitting; FAA
compliance analysis and filing; and contract, title and building permit
administration. One of the three businesses that combined to form SpectraSite in
1997 has been providing site acquisition services since 1992 and has developed
standard procedures for efficiently and effectively identifying locations,
obtaining compliance approvals and acquiring sites. We are typically paid fees
for site acquisition services on a project by project basis.
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Management believes that the number of communication sites in use, which
include towers, rooftops and other structures, will continue to increase with
the growth in demand for wireless services. This increase is the result of
several factors, including:
- the continuing build-out of higher frequency technologies, such as
personal communications services, which have a reduced cell range and
thus require a concentrated network of towers;
- the need to expand the capacity of existing networks;
- the issuance of new wireless network licenses requiring the construction
of new wireless networks; and
- the emergence of new wireless technologies.
BUSINESS STRATEGY
Our strategic objective is to continue to be one of the largest owners and
operators of communications towers and to be the premier build-to-suit provider
of tower networks in the United States. SpectraSite's strategy involves the
following elements:
MAXIMIZE CO-LOCATION ON TOWERS. Our strategy for our owned and managed
towers is to maximize the number of tenants on each tower in order to rapidly
increase tower cash flow. Since most tower costs are fixed, leasing available
space on an existing tower results in minimal additional expenses and,
therefore, generates a disproportionately large increase in tower cash flow
margins. SpectraSite generally constructs towers to accommodate at least three
tenants. We have a dedicated sales force to market available co-location
opportunities to wireless communication providers, and we intend to leverage our
national tower footprint to enable wireless providers to more quickly establish
wireless coverage in individual and multiple markets.
PARTNER WITH WIRELESS COMMUNICATIONS CARRIERS TO ASSUME OWNERSHIP OF THEIR
EXISTING TOWERS. Our acquisition of Nextel's towers provides us with a
nationwide network of more than 2,100 strategically located towers and a
commitment to construct, acquire or make available for co-location on our towers
an additional 1,700 sites to facilitate Nextel's national service deployment
over the next several years. In addition to our transaction with Nextel, we will
continue to seek partnerships and other strategic arrangements with other major
wireless communications carriers in order to assume ownership of their towers.
INTEGRATE THE NEXTEL TOWER ASSETS. In conjunction with the Nextel tower
acquisition, we are establishing four regional offices in the New York, Atlanta,
Chicago and San Francisco areas. Each office offers SpectraSite's full
complement of services, including site acquisition, zoning, project management,
construction, site operations and co-location marketing. A seasoned Regional
Vice President is in charge of each office. We intend to immediately begin site
acquisition and tower development for Nextel and to increase these activities
during 1999 as our regional offices become fully operational.
BUILD TOWERS IN AREAS OF INCREASING WIRELESS DEMAND. SpectraSite is well
positioned to capitalize on the trend of wireless service providers outsourcing
the ownership and management of communications sites. Our turnkey operation can
develop and implement build-to-suit tower networks and then provide efficient
site management services for completed towers. Carriers value our ability to
serve all of their tower network development needs. In addition, we selectively
invest radio frequency engineering and site acquisition costs into sites that
management believes have higher than average co-location opportunities.
ACQUIRE TOWERS WITH SUBSTANTIAL CO-LOCATION OPPORTUNITIES. SpectraSite
intends to continue to make selective acquisitions in the fragmented tower owner
and operator industry. Management's strategy is to acquire towers that can
service multiple tenants and will be attractive to wireless providers based upon
their location, height and available capacity. Additionally, our strategy is to
purchase under-utilized towers with high future co-location potential.
Management believes that there are small and large acquisition candidates and
that the number of available towers will grow as large personal communications
services and other small independent tower companies divest their tower
holdings. SpectraSite has strict valuation
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criteria and believes that certain tower properties can be purchased at
reasonable price levels. SpectraSite regularly evaluates acquisition
opportunities, engages in negotiations and submits bids with respect to
acquisitions of individual towers, groups of towers and entities that own or
manage towers and related businesses, any of which may be material.
CAPITALIZE ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS SERVICE
PROVIDERS. In addition to developing towers for Nextel, we will continue to
pursue build-to-suit contracts with other major wireless communications
providers. We have established a reputation as a highly professional, responsive
build-to-suit and site acquisition provider. This has been achieved through
ongoing investment in the development of multi-level customer relationships. Our
sales force implements a dual marketing strategy that focuses company resources
on the client's decision maker at the local level while solidifying
relationships with the customer's senior management. Our experience is that a
high level of responsiveness and the rapid development of tower sites for an
existing customer ensures that SpectraSite will continue to be an integral part
of that customer's network deployment plans.
LEVERAGE SITE ACQUISITION SERVICES. Over the last six years, SpectraSite
has performed an array of site acquisition services covering approximately 4,000
sites for major wireless service providers, including ALLTEL, BellSouth
Mobility, GTE Mobility, Horizon, Nextel and Powertel. SpectraSite has a broad
field organization that allows it to identify and participate in site
acquisition projects across the country. Knowledge of local markets and strong
customer relationships with wireless service providers are competitive strengths
that position SpectraSite to further capitalize on the site acquisition and
build-to-suit needs of the wireless communications industry.
COMPETITIVE STRENGTHS
The leasing of antenna space on communications towers provides a recurring,
diversified, stable cash flow stream due to the long-term nature of the customer
contracts, the provision of services to multiple customers from different
wireless segments, and the significant costs existing tenants would incur to
relocate. Once a tower is built for an anchor tenant, co-location tenants
provide high incremental cash flow due to low, fixed tower maintenance expense.
To enhance our ability to secure additional tenants on our towers, in September
1998, we acquired GlobalComm, Inc., a leading co-location marketing company;
GlobalComm handled co-location marketing for over 750 towers owned by BellSouth
Mobility DCS. Towers can accommodate a broad array of wireless communications
carriers and, therefore, revenues are not dependent upon any specific wireless
segment or technology. Penetration of personal communications services, cellular
and enhanced specialized mobile radio was approximately 25.3% as of December 31,
1998 and is expected to reach 60.6% by 2008, according to Paul Kagan Associates,
Inc. Since towers are a basic component of a wireless communications network, we
believe we are well positioned to benefit from the proliferation and increased
penetration of wireless communications services.
Management believes that the following strengths will enable SpectraSite to
successfully expand its business:
NATIONAL PRESENCE WITH OVER 2,500 COMMUNICATIONS TOWERS. As a result of
the Nextel tower acquisition, we are one of the largest independent owners and
operators of communications towers in the United States with over 2,500 towers
under management, including more than 2,100 owned towers. Furthermore, Nextel
has agreed to lease space on 1,700 additional towers we construct, acquire or
currently own. As a result, we believe we are well positioned to assist wireless
providers in initiating service in new markets both on a local and a national
basis, thereby better positioning us to capture additional co-location
opportunities.
BUILD-TO-SUIT FOCUS. SpectraSite specializes in developing and building
tower networks to suit the needs of wireless communication carriers. Management
believes that its primary focus on and expertise in build-to-suit programs is
unique among its major competitors. SpectraSite has assembled the resources,
tools and proven personnel which combine to form the program management
organization needed for managing high-speed tower development projects. In
addition, SpectraSite offers professional site leasing and asset management
services for the towers it builds, as well as for towers owned by carriers.
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CAPABILITY TO MANAGE MULTIPLE PROJECTS. We have been able to successfully
manage multiple site acquisition and tower development projects in various
locations at the same time. SpectraSite utilizes a pre-qualified pool of local
contractors and advisors to build its towers, which allows management to focus
its resources and capital on managing multiple construction projects
simultaneously. SpectraSite's diversified and outsourced labor pool provides
flexibility to handle varying numbers of build-to-suit programs in a variety of
local markets. Management believes that the ability to undertake concurrent
build-to-suit programs in multiple markets is attractive to wireless service
providers.
STANDARDIZED PROCEDURES AND SPECIFICATIONS. SpectraSite has developed
detailed site acquisition procedures and construction specifications and
procedures that allow it to rapidly construct tower networks. Wireless carriers
require aggressive network build-out schedules, and uniform procedures and
specifications allow for reduced employee training time, improved vendor
performance and quicker identification of potential tower sites. SpectraSite
uses a pre-qualified pool of architectural, engineering and construction
contractors that work within its standard guidelines and have a proven capacity
for multiple projects. In addition, we are organized to efficiently:
- plan the project;
- secure the sites by purchase or lease;
- obtain zoning approvals; and
- manage all site preparation and tower construction.
INTEGRATED PROVIDER OF SITE DEVELOPMENT SERVICES. SpectraSite benefits
from its integrated, comprehensive site development and program management
capabilities, as wireless service providers prefer the flexibility of a vendor
who can program-manage all direct and subcontract functions related to real
estate, design, construction and on-going operations. SpectraSite's efficient
site acquisition business provides a competitive advantage by:
- maintaining a comprehensive project management database;
- allowing management to position SpectraSite with customers as an
end-to-end, full service provider of tower development services; and
- by performing site acquisition services rather than finding third parties
to achieve the same task, which permits tower development mandates to be
fulfilled more rapidly than they would be otherwise.
EXPERIENCED MANAGEMENT. Our senior managers have acquired over 8,000
communication sites and built more than 1,000 towers. In addition, SpectraSite
provides tower management services to 2,500 sites, consisting of both
SpectraSite-owned and carrier-owned tower sites. Management believes that its
industry experience allows it to offer quality service and proven results to
wireless communication providers in their network build-outs.
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TOWER LOCATIONS
The following chart shows the location of our owned towers as of May 31,
1999:
<TABLE>
<CAPTION>
NUMBER % OF
OF TOTAL
STATE TOWERS TOWERS
----- ------ ------
<S> <C> <C>
California.................................................. 379 17.7%
Michigan.................................................... 157 7.3
Ohio........................................................ 153 7.1
Florida..................................................... 142 6.6
Illinois.................................................... 142 6.6
Georgia..................................................... 133 6.2
North Carolina.............................................. 122 5.7
Texas....................................................... 102 4.8
Washington.................................................. 74 3.5
Wisconsin................................................... 71 3.3
Louisiana................................................... 55 2.6
Tennessee................................................... 55 2.6
South Carolina.............................................. 48 2.2
Missouri.................................................... 47 2.2
Indiana..................................................... 46 2.1
Massachusetts............................................... 40 1.9
Oklahoma.................................................... 39 1.8
Alabama..................................................... 38 1.8
Maryland.................................................... 33 1.5
Oregon...................................................... 31 1.4
Colorado.................................................... 30 1.4
Nevada...................................................... 28 1.3
Pennsylvania................................................ 26 1.2
Arizona..................................................... 18 0.8
Utah........................................................ 18 0.8
Virginia.................................................... 17 0.8
Minnesota................................................... 15 0.7
New Jersey.................................................. 14 0.7
New York.................................................... 14 0.7
Kansas...................................................... 13 0.6
Other....................................................... 46 2.1
----- -----
Total............................................. 2,146 100.0%
===== =====
</TABLE>
OUR SERVICES
SpectraSite's business is divided into three areas:
- tower operations, including leasing of tower space;
- tower development; and
- site acquisition.
These services are centrally managed with proprietary documentation and
through a program and site management database which contains information on all
aspects of individual tower sites.
TOWER OPERATIONS. The tower operations business consists of the leasing of
antenna space on tower sites to wireless service providers, and the maintenance
and management of tower sites. These services are provided for our towers and
for carrier-owned towers. When SpectraSite provides site leasing services for
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carrier-owned towers, SpectraSite receives a percentage of the revenues of the
leases it obtains on behalf of the carrier. When SpectraSite performs site
management services for carrier-owned towers, the carrier pays SpectraSite a
fixed monthly fee for each managed site. SpectraSite generally receives monthly
lease payments from customers payable under written antenna site leases. The
majority of SpectraSite's outstanding customer leases, and the new leases
typically entered into by SpectraSite, have original terms of five years, with
four or five renewal periods of five years each, and usually provide for
periodic price increases. Monthly lease pricing varies with the number and type
of antennae installed on a communication site.
Management believes that the site leasing portion of SpectraSite's business
has significant potential for growth, and SpectraSite intends to expand its site
leasing business through increasing activity from its build-to-suit programs and
selective acquisitions, such as the recent acquisition of GlobalComm.
Once acquired or constructed, SpectraSite maintains and manages its
communication sites through a combination of in-house personnel and independent
contractors. In-house personnel are responsible for oversight and supervision of
all aspects of site maintenance and management and are particularly responsible
for monitoring security access and lighting, radio frequency emission and
interference issues, signage, structural engineering and tower capacity, tenant
relations and supervision of independent contractors. SpectraSite hires
independent contractors locally to perform routine maintenance functions, such
as landscaping, pest control, snow removal, site access and equipment
installation oversight. Independent contractors are engaged by SpectraSite on a
fixed fee or time and materials basis.
TOWER DEVELOPMENT. SpectraSite offers comprehensive build-to-suit program
management and also selectively builds towers in strategic geographic locations
for anchor tenant and co-location marketing opportunities. Under its
build-to-suit programs, SpectraSite generally constructs tower networks only
after having signed an antenna site lease agreement with an anchor tenant and
having made the determination that the initial or planned capital investment for
such tower network would not exceed a targeted multiple of tower cash flow after
a certain period of time. In selling its build-to-suit programs, SpectraSite's
representatives utilize their existing relationships in the wireless
communications industry to target wireless service providers interested in
outsourcing their network build-out. Proposals for build-to-suit towers are made
by SpectraSite's sales representatives in response to specific requests for
quotes or proposals from carriers. Although the terms vary from proposal to
proposal, SpectraSite typically offers a five-year lease agreement with four or
five additional five-year renewal periods. The term of the anchor tenant lease
is designed to match the term of the ground lease underlying the tower. While
the proposed monthly rent also varies, anchor tenants will generally pay lower
monthly rents than subsequent tenants.
Build-to-suit proposal requests typically require SpectraSite to offer a
fixed monthly lease rate for all towers included in the proposed network
build-out. To arrive at this average monthly rate, SpectraSite will analyze a
number of factors including projected construction cost, projected average
monthly ground lease rate, zoning and permitting issues and co-location
opportunities.
If a wireless provider accepts the terms of the proposal submitted by
SpectraSite, the provider will award SpectraSite a mandate:
- to pursue specific sites;
- to identify appropriate sites within specific search rings; or
- to build a tower network within a general area.
These mandates are in the form of non-binding agreements and either party may
terminate the mandate at any time.
Based on the status of the sites SpectraSite has been given a mandate to
pursue, SpectraSite will provide the site development activities required to:
- secure and complete a ground lease;
- obtain zoning approval and other required permits;
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- design the network; and
- construct all towers within the network.
Prior to starting construction on each site, SpectraSite will enter into an
antenna site lease agreement with a provider. Certain of the build-to-suit
agreements contain penalty provisions in the event the towers are not completed
within specified time periods.
SpectraSite invests resources in radio frequency engineering and site
acquisition of potential tower sites we believe have higher than average
co-location opportunities. SpectraSite does not commence tower construction
until an anchor tenant signs a lease.
SpectraSite also selectively pursues acquisitions of revenue-producing
communication sites. SpectraSite's goal is to acquire towers that have an
initial or planned capital investment not exceeding a targeted multiple of tower
cash flow after a certain period of time. Tower cash flow is determined by
subtracting from gross tenant revenues the direct expenses associated with
operating the communication site, such as ground lease payments, real estate
taxes, utilities, insurance and maintenance.
SpectraSite has had discussions with a number of wireless communication
providers regarding possible strategic partnerships and other investment
arrangements other than the Nextel tower acquisition. SpectraSite has no present
agreement regarding the terms of any such transaction. If and when attractive
opportunities become available, SpectraSite contemplates pursuing such
opportunities. Nonetheless, there can be no assurance that any such future
strategic business arrangement will be entered into or the timing thereof.
Specifically, any decision by SpectraSite as to whether or not to pursue any
such strategic partnership or similar business arrangement will be based upon,
among other things, the relative attractiveness of available alternative
business and investment opportunities, the regulatory environment for wireless
communication properties, future developments relating to SpectraSite, general
economic conditions and other future developments.
SITE ACQUISITION. SpectraSite offers a full range of site acquisition
services. Site acquisition typically occurs in four phases:
- network pre-design;
- communication site selection;
- communication site acquisition; and
- local zoning and permitting.
SpectraSite offers each phase of its site acquisition services to its customers.
During the initial phase, network pre-design, SpectraSite performs
pre-design analysis by investigating those areas of the Basic Trading Area that
are designated as a priority by the customer. SpectraSite will then identify, to
the extent possible, all sites which meet the customer's radio frequency
requirements. Geographic Information Systems specialists create maps of the
sites, analyzing for a number of factors, including which areas may have the
most favorable zoning regulations and availability of co-location opportunities.
A preliminary zoning analysis is typically conducted, and SpectraSite will
determine those areas of the Basic Trading Area where zoning approval is likely,
along with a possible time frame for approval. These initial services are
intended to eliminate costly redesigns once a project is commenced, which can
result in significant savings of both time and money.
In the second phase, site selection, SpectraSite determines which sites:
- most closely meet the radio frequency engineering requirements of the
customer;
- can be leased or purchased;
- have the potential to be zoned for site construction or co-location based
on the then current zoning requirements; and
- are suitable for the construction of a site.
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Geographic Information Systems specialists select the most suitable sites
based on demographics, traffic patterns and signal characteristics.
Typically, SpectraSite will identify two or three potential sites for each
location in the radio frequency engineering plan, with the intent of co-locating
on an existing site or constructing a new site on the location most advantageous
to the customer. FAA approval, when necessary, is also typically sought at this
time.
In the third phase, site acquisition, SpectraSite secures the right from
the property owner to construct a tower or co-locate on the site. Depending on
the type of interest in the property that SpectraSite
believes will best suit the needs of the customer, SpectraSite will negotiate
and enter into on behalf of the customer:
- a contract of sale under which the customer acquires fee title to the
property;
- a long-term ground or rooftop lease under which the customer acquires a
leasehold interest in the property, typically a five-year lease with four
or five renewal periods of five years each;
- an easement agreement under which the customer acquires an easement over
the property; or
- an option to purchase or lease the property under which the customer has
a future right to acquire fee title to the property or acquire a
leasehold interest.
It is during this phase of the site acquisition services that SpectraSite
generally obtains a title report on the site, conducts a survey of the site,
performs soil analysis of the site and obtains an environmental survey of the
site.
The final phase, local zoning and permitting, includes preparing all
appropriate zoning applications and providing representation at any zoning
hearings that may be conducted. SpectraSite also obtains all necessary
entitlement land use permits necessary to commence construction on the site or
install equipment on the site.
Once SpectraSite is hired on a site acquisition project, a site acquisition
team is dispatched to the project site. A temporary field office is established
for the duration of the project. The site acquisition team is typically composed
of permanent in-house employees and supplemented with local hires employed only
for that particular project. A team leader is assigned to each phase of the site
acquisition project and reports to a project manager who oversees all team
leaders. Upon the completion of a site acquisition project, the field office
typically is closed and all permanent in-house employees are either relocated to
another project or directed to return to headquarters or one of the other
division offices.
SpectraSite generally sets prices for each site acquisition service
separately. Customers are billed for these services on a fixed price or time and
materials basis and SpectraSite may negotiate fees on individual sites or for
groups of sites.
CUSTOMERS
SpectraSite has performed site acquisition, tower construction and site
leasing services for several of the largest wireless service providers. The
majority of SpectraSite's contracts have historically been for personal
communications services customers. SpectraSite also serves enhanced specialized
mobile radio, specialized mobile radio and cellular wireless providers. In both
its site acquisition and site leasing businesses, SpectraSite works with
national, local and regional operators. For the year ended December 31, 1997,
Powertel, Sprint PCS, GTE Mobility, Intercel and Horizon accounted for 38.9%,
18.8%, 14.7%, 13.0% and 11.2%, respectively, of SpectraSite's revenue. For the
year ended December 31, 1998, Powertel and Tritel accounted for 46.6% and 24.3%,
respectively, of SpectraSite's revenues. No other customer accounted for more
than 10% of SpectraSite's revenues during the year ended December 31, 1998.
SALES AND MARKETING
SpectraSite's sales and marketing goals are:
- to further cultivate existing customers in order to obtain mandates for
build-to-suit programs and to maximize sales of site acquisition
services;
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- to position SpectraSite to become a market leader in the site leasing
business;
- to use existing relationships and develop new relationships with wireless
service providers to lease antennae space on SpectraSite-owned or
-managed communication sites; and
- to form affiliations with select communications system vendors who
utilize end-to-end services, including those provided by SpectraSite,
which will enable SpectraSite to market its services and products through
additional channels of distribution.
Historically, SpectraSite has capitalized on the strength of its
experience, performance and relationships with wireless service providers to
obtain build-to-suit mandates, and expects to continue to enhance and leverage
these attributes to sell site acquisition services, build-to-suit programs and
antennae space on SpectraSite-owned or -managed communication sites.
Maintaining and cultivating relationships with wireless service providers
is a main focus of senior management. SpectraSite's strategy is to delegate
sales efforts to those of its employees who have the best relationships with the
wireless service providers. The representatives are assigned specific accounts
based on historical experience with a provider and the quality of the
relationship between the SpectraSite representative and such provider. Most
wireless service providers have national corporate headquarters with regional
offices. SpectraSite believes that most decisions for site acquisition and site
leasing services are made by providers at the regional level with input from
their corporate headquarters. SpectraSite's sales representatives work with
provider representatives at the local level and at the national level when
appropriate. SpectraSite's sales staff compensation is heavily weighted to
incentive-based goals and measurements. In addition to its marketing and sales
staff, SpectraSite relies upon its executive and operations personnel on the
national and field office levels to identify sales opportunities within existing
customer accounts, as well as acquisition opportunities.
COMPETITION
SpectraSite's principal competitors include American Tower Corporation,
Crown Castle International Corp., Pinnacle Tower, SBA Communications Corporation
and Unisite, Inc. See "Risk Factors -- We compete with companies which have
greater financial resources."
Towers are not the only kind of platform for radio transmitters. The FCC
has authorized numerous entities and is considering applications from many
others to provide fixed and mobile satellite services using various frequency
bands in a manner that may compete with terrestrial service providers. Iridium,
for example, has commenced space-borne provision of mobile satellite service,
and Teledesic plans to provide high-speed fixed satellite data services through
low-earth-orbit satellites. In 1997, the FCC allocated one gigahertz of spectrum
in the 47 GHz band for any use consistent with the spectrum allocation table.
The FCC has decided to auction this spectrum in 200 MHz blocks for the provision
of communications services. It is as yet unclear which of these new technologies
will be commercially feasible, and to what extent they will offer significant
competitive alternatives to terrestrial structures.
EMPLOYEES
As of May 31, 1999, SpectraSite had 185 employees, none of whom are
represented by a collective bargaining agreement. SpectraSite considers its
employee relations to be good. Due to the nature of the site acquisition
business of SpectraSite, it may experience increases and decreases in employees
as site acquisition contracts are completed.
PROPERTIES
SpectraSite is headquartered in Cary, North Carolina, where it currently
leases approximately 12,250 square feet of space. We are also establishing
full-service regional offices in the New York, Atlanta, Chicago and San
Francisco areas. In addition, we currently lease an office in Little Rock.
SpectraSite opens and closes project offices from time to time in connection
with its site acquisition business, which offices are generally leased for
periods not exceeding 18 months.
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LEGAL PROCEEDINGS
From time to time, SpectraSite is involved in various legal proceedings
relating to claims arising in the ordinary course of business. SpectraSite is
not a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on its business, financial condition or results of operations.
INTERNATIONAL
SpectraSite's primary focus is on its domestic operations. From time to
time, however, SpectraSite may evaluate international opportunities and take
advantage of those that it feels may be profitable for SpectraSite. As part of
the proposed merger with Westower, we will acquire an interest in certain tower
operations in Canada and Brazil. Currently, SpectraSite is not considering any
other significant international projects.
REGULATORY AND ENVIRONMENTAL MATTERS
FEDERAL REGULATIONS. Both the FCC and the FAA regulate towers used for
wireless communications transmitters and receivers. Such regulations control the
siting, marking and lighting of towers and may, depending on the characteristics
of particular towers, require registration of tower facilities. Wireless
communications antennae operating on towers are separately regulated and
independently licensed by the FCC based upon the particular frequency being used
and the service being provided. In addition to these regulations, SpectraSite
must comply with certain environmental laws and regulations. See "Risk
Factors -- We are subject to environmental laws that impose liability without
regard to fault" and "--Perceived health risks of radio frequency emissions."
Under the requirements of the Communications Act of 1934, as amended, the
FCC, in conjunction with the FAA, has developed standards to consider proposals
for new or modified antennae. These standards mandate that the FCC and the FAA
consider the height of the proposed antenna structure, the relationship of the
structure to existing natural or man-made obstructions and the proximity of the
structure to runways and airports. Proposals to construct or modify existing
structures above certain heights or within certain proximity to airports are
reviewed by the FAA to ensure they will not present a hazard to aviation. The
FAA may condition its issuance of no-hazard determinations upon compliance with
specified lighting and marking requirements. The FCC will not license the
operation of wireless telecommunications antennae on towers unless the tower has
been registered with the FCC or a determination has been made that such
registration is not necessary. The FCC will not register a tower unless it has
received all necessary clearances from the FAA. The FCC also enforces special
lighting and painting requirements. Owners of towers on which wireless
communications antennae are located have an obligation to maintain painting and
lighting to conform to FCC standards. Tower owners may also bear the
responsibility of notifying the FAA of any tower lighting failures. SpectraSite
generally indemnifies its customers against any failure to comply with
applicable regulatory standards. Failure to comply with the applicable
requirements may lead to civil penalties and tort liability.
In 1995, the FCC adopted regulations making the owners of towers, rather
than communications licensees, primarily responsible for compliance with antenna
structure painting and lighting requirements. These rule changes are based on
statutory amendments adopted by Congress in 1992 extending regulatory
jurisdiction to tower owners. Communications licensees are now secondarily
responsible for tower maintenance if the tower owners are unwilling or unable to
perform those duties. Currently, these requirements apply to antenna structures
that are more than 200 feet in height, or that may interfere with the approach
or departure space of a nearby airport runway.
The regulatory requirements adopted in 1995 required tower owners to
register existing structures by state, in accordance with filing windows, over a
two-year period between July 1, 1996 and June 30, 1998. Historically, tower
locations were determined using area maps. The FCC has recognized that, with the
proliferation of inexpensive, satellite-based locating devices, such as Global
Positioning System receivers, structures can now be easily located with a higher
degree of accuracy. Accordingly, the FCC has told owners who determined that
tower registration information conflicted with previously issued licenses for
antennae on their towers to register their structures using the new data and to
seek new FAA determinations of no hazard as necessary under the FAA's rules. The
FCC also has instructed licensees or
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permittees who discovered that the coordinates on their authorizations differed
from those determined by more accurate means to submit corrective construction
permit applications. In February 1999, the FCC's Wireless Telecommunications
Bureau announced a new policy under which defective applications for wireless
authorizations and antenna structure registrations will be summarily dismissed,
without giving the applicants an opportunity to amend but requiring them to
correct and retender their applications. As part of the new policy, the Bureau
said that effective May 1, 1999, it will return and not process tower
registration applications including data that do not agree with information
listed on previously issued FAA determinations. The FCC also announced that
applications for FCC communications authorizations would be dismissed if a tower
registration number is not listed on the FCC application. Although the FCC
initially said the rule affecting communications applications would apply
beginning May 1, 1999, for applicants proposing antennae on existing structures,
and July 1, 1999, for applicants proposing to utilize new towers, the FCC in
late April 1999 extended these deadlines. For services, such as cellular,
paging, and personal communications services, which have already had their
records converted to the FCC's new Uniform Licensing System database, the new
tougher dismissal rule will apply effective July 1, 1999. For other
communications services that have not yet been converted to the Uniform
Licensing System, the FCC said the new processing rules would go into effect six
months after each service's incorporation into the Uniform Licensing System.
This new policy means that for towers to be of use to FCC applicants, it will be
necessary for tower owners to notify the FAA and obtain FCC tower registrations
well in advance of the date tenants will be filing FCC applications.
In December 1998, the FCC announced that a recent audit of existing antenna
structures revealed that over one quarter of the audited structures had not been
registered as required by the FCC's rules. In light of this finding and several
reported near misses of towers by aircraft, the FCC in January 1999 announced a
no-tolerance policy, requiring all owners of existing unregistered structures to
register them immediately or face monetary forfeitures or civil fines.
The 1996 Telecom Act amended the Communications Act of 1934 by limiting
state and local zoning authorities' jurisdiction over the construction,
modification and placement of towers. The new law preserves local zoning
authority but prohibits any action that would discriminate between different
providers of wireless services or ban altogether the construction, modification
or placement of communications towers. The 1996 Telecom Act also requires the
federal government to help licensees for wireless communications services gain
access to preferred sites for their facilities. This may require that federal
agencies and departments work directly with licensees to make federal property
available for tower facilities.
Owners and operators of communications towers may be subject to, and,
therefore, must comply with environmental laws. The FCC's decision to register a
proposed tower may be subject to environmental review pursuant to the National
Environmental Policy Act of 1969, which requires federal agencies to evaluate
the environmental impacts of their decisions under certain circumstances. The
FCC has issued regulations implementing the National Environmental Policy Act.
These regulations place responsibility on each applicant to investigate any
potential environmental effects of operations and to disclose any significant
effects on the environment in an environmental assessment prior to constructing
a tower. In the event the FCC determines the proposed tower would have a
significant environmental impact based on the standards the FCC has developed,
the FCC would be required to prepare an environmental impact statement. This
process could significantly delay the registration of a particular tower.
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STATE AND LOCAL REGULATIONS. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, SpectraSite conducts
the site acquisition portions of its site acquisition services business through
licensed real estate brokers or agents, who may be employees of SpectraSite or
hired as independent contractors. Local regulations include city and other local
ordinances, zoning restrictions and restrictive covenants imposed by community
developers. These regulations vary greatly, but typically require tower owners
to obtain approval from local officials or community standards organizations
prior to tower construction. Local zoning authorities generally have been
hostile to construction of new transmission towers in their communities because
of the height and visibility of the towers. Companies owning or seeking to build
towers have encountered an array of obstacles arising from state and local
regulation of tower site and construction, including environmental assessments,
fall radius assessments, marketing/lighting requirements, and concerns with
interference to other electronic devices. The delays resulting from the
administration of such restrictions can last for several months, and when
appeals are involved, can take several years.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and key employees of SpectraSite are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen H. Clark................. 54 President and Chief Executive Officer and a
Director
David P. Tomick.................. 47 Executive Vice President, Chief Financial
Officer and Secretary
Richard J. Byrne................. 41 Executive Vice President -- Business
Development
Terry L. Armant.................. 50 Senior Vice President -- Operations
Daniel I. Hunt................... 34 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................ 31 Director
Thomas E. McInerney.............. 57 Director
Michael J. Price................. 41 Director
Rudolph E. Rupert................ 33 Director
Steven M. Shindler............... 36 Director
Michael R. Stone................. 36 Director
</TABLE>
STEPHEN H. CLARK is President and Chief Executive Officer of SpectraSite
and a director of Holdings. He has been a director of SpectraSite since its
formation in May 1997. Mr. Clark has 22 years of general management experience
in high growth, start-up companies in the communications, technology and
manufacturing sectors. In 1994, he co-founded PCX Corporation, a manufacturer of
electrical distribution systems. Prior to starting PCX, Mr. Clark co-founded and
served as Chairman and President of Margaux, a supplier of building automation
systems. Prior to starting Margaux, he worked at several technology based,
start-up companies. Mr. Clark has a BA in physics and an MBA from the University
of Colorado.
DAVID P. TOMICK is Chief Financial Officer and Secretary of SpectraSite.
Mr. Tomick has extensive experience raising capital in both private and public
markets for high growth companies in the telecommunications industry. From 1994
to 1997, Mr. Tomick was Chief Financial Officer of Masada Security, Inc., a
company engaged in the security monitoring business. From 1988 to 1994, he was
Vice President -- Finance of Falcon Cable TV, a multiple system operator of
cable television systems, where he was responsible for debt management, mergers
and acquisitions, equity origination and investor relations. Prior to 1988, he
managed a team of corporate finance professionals focusing on the communications
industry for The First National Bank of Chicago. Mr. Tomick holds a Master of
Management degree from the Kellogg Graduate School of Management at Northwestern
University.
RICHARD J. BYRNE is Executive Vice President -- Business Development. Prior
to joining SpectraSite in April 1999, Mr. Byrne served as the Director of
Business Development for Nextel. He has had primary responsibility for the tower
sale/lease-back and build-to-suit commitment. In addition, Mr. Byrne has been
responsible for all carrier-to-carrier co-location agreements. Before joining
Nextel in 1997, Mr. Byrne held positions of increasing responsibility in the
System Development Group of AT&T Wireless Services. Prior to entering the
wireless communications industry, Mr. Bryne spent 15 years in the real-estate
industry. His work centered on property management, ownership and brokerage of
investment properties.
TERRY L. ARMANT is Vice President -- Operations of SpectraSite. Prior to
joining SpectraSite in August 1998, Mr. Armant was Director -- System
Implementation at AT&T Wireless Services. In this position, he was responsible
for site acquisition, construction, equipment installation and site management
for the Northeast region. Mr. Armant oversaw eight departments and a staff of
over 115.
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DANIEL I. HUNT is Vice President -- Finance and Administration of
SpectraSite. Prior to joining SpectraSite in April 1999, Mr. Hunt served as
Director of Accounting and Financial Reporting at Wavetek Wandel & Goltermann,
Inc., a developer and manufacturer of communications test equipment based in
North Carolina and Eningen, Germany. Previously, Mr. Hunt was Controller for
Wandel & Goltermann Technologies, Inc. Before joining Wandel & Goltermann, Mr.
Hunt worked in the audit and business consulting practice of Arthur Anderson.
Mr. Hunt is a certified public accountant and a graduate of Wake Forest
University.
LAWRENCE B. SORREL has been Chairman of the Board since April 1999. Mr.
Sorrel joined WCAS 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 WCAS, Mr. Sorrel spent 12 years at Morgan
Stanley, where he was a Managing Director and senior executive in Morgan
Stanley's private equity group, Morgan Stanley Capital Partners. Mr. Sorrel is a
director of Select Medical Corp., Emmis Communications, MedCath Inc. and
Canterbury Healthcare Ltd.
TIMOTHY M. DONAHUE has been a director of Holdings since April 1999. Mr.
Donahue has served as President of Nextel since joining it on February 1, 1996
and as a director of Nextel since May 1996. On February 29, 1996, Mr. Donahue
was elected to the additional position of Chief Operating Officer of Nextel.
From 1986 to January 1996, Mr. Donahue held various senior management positions
with AT&T Wireless Services, Inc., including Regional President for the
Northeast. Mr. Donahue serves as a director of Nextel International.
ANDREW R. HEYER has been a director of Holdings since April 1999. Mr. Heyer
is a Managing Director at CIBC World Markets Corp., where he serves as co-head
of The High Yield Group. Prior to joining CIBC World Markets, Mr. Heyer was
founder and Managing Director of the Argosy Group L.P., which was acquired by
CIBC World Markets in 1995. Mr. Heyer is also Chairman of the Board of Directors
of the Hain Food Group, and serves on the Board of Directors of Niagara
Corporation, Hayes Lemmerz International, Inc., Lancer Industries and Fairfield
Manufacturing Company.
JAMES R. MATTHEWS has been a director of Holdings since August 1998. Mr.
Matthews has been employed by J.H. Whitney & Co. since 1994 and has served as a
Principal since 1998. Previously, he was with Gleacher & Co. Inc. and Salomon
Brothers Inc.
THOMAS E. MCINERNEY has been a director of Holdings since April 1999. Mr.
McInerney joined WCAS 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 CEO of Dama
Telecommunications Corp., a telecommunications services company. Earlier, he was
Group Vice President -- Financial Services at ADP and Senior Vice
President -- Operations at the American Stock Exchange. Mr. McInerney is a
director of, among others, Centennial Cellular Corp., Control Data Systems,
Bridge Information Systems, The BISYS Group, The Cerplex Group, Attachmate
Corp., MedE America Corporation and Global Knowledge Network.
MICHAEL J. PRICE has been a director of Holdings since April 1999. Mr.
Price is co-Chief Executive Officer of FirstMark Communications International
LLC, a broadband wireless telecommunications company. Prior to that, he worked
at Lazard Freres & Co. LLC, starting in 1987, serving first as a Vice President
and then as a Managing Director, where he led their global technology and
telecommunications practice.
RUDOLPH E. RUPERT has been a director of Holdings since April 1999. Mr.
Rupert joined WCAS 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 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,
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Mr. Shindler was an officer with Toronto Dominion Bank, where most recently he
was a Managing Director in its Communications Finance Group. Mr. Shindler serves
as a director of Nextel International.
MICHAEL R. STONE has been a director of Holdings since its formation in May
1997. Mr. Stone has been employed by J.H. Whitney & Co. since 1989 and has
served as a General Partner since 1992. Previously, he was with Bain & Company.
BOARD OF DIRECTORS
Each member of the Board of Directors holds office until the next annual
meeting of stockholders and until his or her successor has been duly elected and
qualified. For information regarding certain voting arrangements with respect to
the Board of Directors, see "Certain Transactions -- Stockholders'
Agreement -- Board of Directors."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid by
or incurred on behalf of SpectraSite to its Chief Executive Officer and the
other executive officers whose salary and bonus exceeded $100,000 for the year
ended December 31, 1998. Amounts shown for 1997 include compensation paid by
Holdings to the named executive officers from April 25, 1997, the date of
Holdings' inception, through December 31, 1997. The amounts reported as All
Other Compensation for all years represent SpectraSite contributions under its
401(k) plan.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark...................... 1998 168,000 68,000 300,000 2,400
Chief Executive Officer 1997 107,046 -- 425,000 --
David P. Tomick....................... 1998 140,000 56,000 50,000 2,178
Chief Financial Officer 1997 64,029 -- 225,000 --
Terry L. Armant(a).................... 1998 55,192 68,150 125,000 --
Senior Vice President
Joe L. Finley, III(b)................. 1998 350,000 -- -- 2,400
Executive Vice President 1997 248,548 -- -- 2,375
</TABLE>
- ---------------
(a) Mr. Armant joined SpectraSite in August 1998.
(b) Mr. Finley was an executive officer of SpectraSite in 1997 and 1998.
Effective January 1, 1999, Mr. Finley became a consultant to SpectraSite.
See " -- Employment Agreements."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
All options become exercisable immediately upon a change in control. Unless
a particular option grant provides otherwise, a change in control occurs upon a
merger, consolidation, reorganization or any transaction in which all or
substantially all of Holdings' assets are sold, leased or transferred. However,
a transaction in which the holders of Holdings' capital stock immediately prior
to the transaction continue to hold at least a majority of the voting power of
the surviving corporation does not constitute a change in control, and no
options become exercisable upon a change in control as to which a performance
milestone has not been achieved as of the date of the change in control. Messrs.
Clark, Tomick and Armant have agreed that the Nextel tower acquisition and the
related financing transactions did not constitute a change of control under
their options. The shares of common stock issuable upon exercise of the options
are subject to certain rights of first refusal.
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<PAGE> 74
The present value of the options granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0.0%, volatility of 0.7, risk free interest rate of 6.0% and
expected option lives of seven years.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED 1998 PER SHARE DATE PRESENT VALUE
---- ------------ ------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Stephen H. Clark................. 300,000 36% $4.00 3/23/05 $178,500
David P. Tomick.................. 50,000 6 4.00 3/23/05 31,500
Terry L. Armant.................. 62,500 7 4.00 8/10/02 37,500
62,500 7 4.00 8/10/05 37,500
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT DECEMBER 31, 1998($)
AT DECEMBER 31, 1998 UNEXERCISABLE
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen H. Clark............................... 106,250 618,750 $117,938 $353,813
David P. Tomick................................ 56,250 218,750 62,438 187,313
Terry L. Armant................................ 0 125,000 0 0
</TABLE>
EMPLOYMENT AGREEMENTS
SpectraSite has entered into employment agreements with each of Messrs.
Clark, Tomick and Byrne effective April 20, 1999. The initial term of the
employment agreements is five years. The annual salaries for Messrs. Clark,
Tomick and Byrne are $225,000, $200,000 and $175,000, respectively, and they are
eligible to receive annual bonuses determined at the discretion of the board of
directors. Mr. Byrne also will receive a $40,000 bonus in connection with his
relocation to Cary, North Carolina. In the event their employment is terminated
as a result of their death, disability, or termination without cause Messrs.
Clark, Tomick and Byrne will be entitled to receive continued salary, bonus and
health benefits for a period of 24 months.
Under the employment agreements, Messrs. Clark, Tomick and Byrne will be
granted incentive stock options under the 1997 Stock Option Plan to purchase
775,000, 225,000 and 200,000 shares of common stock, respectively. The exercise
price for the options will be $5.00. Twenty percent of the stock options will
become exercisable each year over the five year employment period. If
SpectraSite terminates the employment of Mr. Byrne without cause, or if he dies
or becomes disabled, then his stock options shall be fully exercisable. If
SpectraSite terminates the employment of Mr. Clark or Mr. Tomick without cause,
or if either of them dies or becomes disabled, then the stock options that they
hold prior to entering into the employment agreement, but not those granted
under the employment agreement, shall be fully exercisable.
Messrs. Clark, Tomick and Byrne have agreed that for a period of 24 months
following the termination of their employment with SpectraSite they will not:
- engage in competition, own any interest in, or perform any services for
any business which engages in competition with SpectraSite;
- solicit management employees of SpectraSite or otherwise interfere with
the employment relationship between SpectraSite and its employees; or
- 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.
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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.
On May 12, 1997, SpectraSite entered an employment agreement with Joe L.
Finley, III. The initial term of the employment agreement was May 12, 1997 to
May 31, 1999. SpectraSite and Mr. Finley terminated the employment agreement,
effective December 31, 1998. Although the employment agreement has been
terminated, Mr. Finley remains employed by SpectraSite. In connection with the
termination of his employment agreement, Mr. Finley agreed that:
- he will not use, divulge or otherwise transfer or convey any confidential
or proprietary information obtained as a result of his employment,
- for three years after his employment terminates, engage in any business
related to certain of SpectraSite's activities in any state where
SpectraSite has done business at any time during the three years prior to
the termination of Mr. Finley's employment,
- for three years after his employment terminates he will not interfere
with the relationships between SpectraSite and any of its affiliates,
including employees and customers existing at any time during the two
years prior to Mr. Finley's departure, or suppliers existing at any time
during the three years prior to Mr. Finley's departure.
Effective January 1, 1999, SpectraSite and Finley & Company, Inc., an
Arkansas corporation, entered into a consulting agreement. The initial term of
this agreement ended on May 31, 1999, but it renews automatically from month to
month, subject to termination upon 15 days prior notice. Under the consulting
agreement, Finley & Company agrees to provide not less than 50 hours a month of
general business and strategic consultation, and SpectraSite agrees to provide
office space and part-time secretarial support. Mr. Finley is employed on an
independent contractor basis with no authority to bind SpectraSite or to incur
obligations on its behalf, and receives $9,000 a month as compensation. Pursuant
to the consulting agreement, Finley & Company agrees that it will not use,
divulge or otherwise transfer or convey any confidential or proprietary
information obtained as a result of consultation activities conducted for
SpectraSite, and assigns all rights, title and interest to any inventions,
ideas, developments and designs created while providing services under the
consulting agreement. Further, Finley & Company agrees not to provide or perform
the same or substantially similar services for any competing business which it
provides to SpectraSite or to any SpectraSite customer as it provides for such
customers under the consulting agreement. Finley & Company also agrees not to
interfere with the relationship between SpectraSite and any of its employees, or
any of its customers or suppliers existing during the term of the consulting
agreement or at the time of its termination. Finley & Company may not assign the
consulting agreement or delegate its duties thereunder without prior written
consent from SpectraSite.
1997 STOCK OPTION PLAN
SpectraSite established the SpectraSite Holdings, Inc. Stock Option Plan
effective June 24, 1997. The 1997 option plan has a term of ten years and
provides for the issuance of incentive stock options and non-qualified stock
options 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 have been reserved for issuance under the 1997 option 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 1997 option plan.
The 1997 option plan may be administered by the Board or by a duly
appointed committee having powers specified by the Board. Once SpectraSite
becomes subject to the reporting requirements of the
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Exchange Act, this committee shall consist solely of directors who are
non-employee directors, for purposes of Section 16 of the Exchange Act, and
outside directors, for purposes of Section 162(m) of the Internal Revenue Code.
The specific terms of any option awarded under the 1997 option plan will be
reflected in a stock option agreement executed by SpectraSite and the optionee.
The committee administering the 1997 option plan has the discretion to
determine which eligible individuals will receive options, the number of shares
to be covered by the options, the exercise date of the options, whether the
options should be incentive stock options or non-qualified stock options, and
the terms and conditions of the options. 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 optionee owns stock possessing more
than 10% of the total combined voting power of all classes of stock of
SpectraSite. Payment of the option price is to be made in cash, by check, in
cash equivalent or by any other form permitted by the committee, including by
promissory note to SpectraSite. Only employees are eligible to receive 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 vest
in any year may not exceed $100,000. Options awarded under the 1997 option plan
generally are not assignable or transferable except by the laws of descent and
distribution.
Generally, SpectraSite expects the committee to award options that vest and
become exercisable according to a four year vesting schedule, whereby 25% of the
total grant of shares becomes vested every year for four consecutive years, or
upon the seventh anniversary of the grant date, subject to acceleration based on
the optionee's successful achievement of performance milestones. In the event of
a merger, consolidation, corporate reorganization, or any transaction in which
all or substantially all of the assets of SpectraSite are sold, leased,
transferred or otherwise disposed of, all outstanding options shall immediately
vest and become exercisable as of a date prior to the transfer of control, as
determined by the Board. Notwithstanding the foregoing, no options will become
exercisable upon a transfer of control as to which a performance milestone has
not been achieved as of the date of the change in control.
Once vested, an option may remain exercisable until the earliest of:
- ten years from the date of grant or five years from the date of grant if
the optionee owns stock possessing more than 10% of the total combined
voting power of all classes of stock of SpectraSite;
- three months from the date on which the optionee terminates employment
with SpectraSite; or
- if the optionee's employment ceases by reason of his or her death or
disability, 12 months from the date on which the optionee's employment
terminated.
In no event shall an incentive stock option be exercisable after one month
following the date an optionee's employment with SpectraSite is terminated for
cause, as determined by the committee.
Generally, SpectraSite expects the committee to award options subject to a
right of first refusal. When an optionee proposes to sell, pledge or otherwise
transfer any shares acquired upon the exercise of an option, SpectraSite would
have the right to repurchase those transfer shares under a right of first
refusal, in accordance with the terms set forth in the individual option
agreements. If SpectraSite fails to exercise the right of first refusal, the
optionee may conclude the proposed transfer, but the subsequent transferee would
be required, as a condition of such transfer, to hold the shares subject to
SpectraSite's right of first refusal with respect to any subsequent transfer.
SpectraSite's right of first refusal would not apply to transfers of shares:
- in connection with a change in control;
- to one or more members of the optionee's immediate family;
- that constitute a pledge to SpectraSite as security for a loan by
SpectraSite to the optionee in connection with exercise of an option; or
- that have been approved by the Board.
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In addition, SpectraSite's right of first refusal would terminate upon a change
in control, unless the successor assumes the 1997 option plan, or the common
stock is traded on a public market.
The 1997 option plan may be amended, suspended or terminated by the Board
in whole or in part at any time, provided that no such amendment, suspension or
termination of the 1997 option plan may adversely affect the rights of or
obligations to the optionees without such optionees' consent. The Board must
obtain stockholder approval for any change in the 1997 option plan that would:
- extend the period during which options may be granted beyond June 24,
2007;
- materially increase the number of shares which may be issued under the
1997 option plan; or
- materially modify the requirements as to eligibility for participation
under the 1997 option plan.
The grant of an option under the 1997 option plan will not have any
immediate effect on the federal income tax liability of SpectraSite or the
optionee. If the Board grants an optionee a non-qualified stock option, then the
optionee 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 optionee, and SpectraSite
will receive a deduction for the same amount.
If the Board grants an optionee an incentive stock option, then the
optionee 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 optionee will recognize income equal to the difference between the exercise
price paid by the optionee and the amount received upon sale, and such income
generally will be eligible for capital gain treatment. SpectraSite generally is
not entitled to an income tax deduction for the grant of an incentive stock
option or as a result of either the optionee's exercise of an incentive stock
option or the optionee's sale of the common stock acquired through exercise of
an incentive stock option. However, if the optionee 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 optionee will not be eligible for
capital gain treatment and SpectraSite will be entitled to a federal income tax
deduction equal to the amount of income recognized by the optionee.
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CERTAIN TRANSACTIONS
TELESITE AND METROSITE ACQUISITION
On May 12, 1997, in connection with its formation, SpectraSite purchased
the outstanding membership units of Telesite and Metrosite for an aggregate
purchase price of $7,233,125 which included 81,753 shares of common stock valued
at $71,125 in the aggregate. In addition, as part of the acquisition
consideration, 408,764 shares of common stock were issued into escrow and are to
be released upon the acquired business achieving certain operating goals. The
escrow arrangement provides that SpectraSite may repurchase the shares held in
escrow if the acquired business does not achieve the specified operating goals.
In May 1998, SpectraSite exercised its option to repurchase 204,382 shares of
the common stock held in escrow for an aggregate repurchase price of $204.38,
and in May 1999, SpectraSite repurchased an additional 137,828 shares for an
aggregate purchase price of $137.83. The remaining 66,554 shares of common stock
were released to Mr. Finley in May 1999.
Joe L. Finley, III, formerly the Vice Chairman of Holdings' board of
directors, members of Mr. Finley's family and entities controlled by Mr. Finley
received all of the aggregate purchase price, which amount included a note
payable to Mr. Finley in the original principal amount of $2,312,000, and all of
the common stock issued in connection with the acquisitions. SpectraSite used
$2,331,953 of the proceeds from the sale of the outstanding notes to pay the
outstanding principal amount of and accrued interest on the note payable to Mr.
Finley.
GLOBALCOMM ACQUISITION
As of September 23, 1998, SpectraSite acquired all of the shares of capital
stock of GlobalComm, Inc. for approximately $2 million in cash. In connection
with this acquisition, the founder and president of GlobalComm, Michael Garrett,
joined SpectraSite as Vice President -- Co-location Management, and Holdings
granted Mr. Garrett an option to purchase 100,000 shares of its common stock for
a nominal price per share. This option vests in equal installments over a
three-year period, with the first installment vesting on June 30, 1999.
REPURCHASE OF COMMON STOCK FROM FORMER EMPLOYEE
In an agreement dated September 15, 1998, a former employee agreed to sell
125,000 shares of Holdings common stock to SpectraSite and to release
SpectraSite from any potential claims for an agreed upon price. In addition, the
agreement provided that shareholders of Holdings would have an option to
purchase the former employee's remaining 37,605 shares of Holdings common stock
for the same price per share, provided that SpectraSite advise the former
employee in writing of the exercise of all or any portion of such option by
November 15, 1998. On October 9, 1998, SpectraSite paid the former employee $0.5
million for his shares and the release under the agreement, and on February 5,
1999, David P. Tomick purchased the remaining 37,605 shares for an aggregate
purchase price of $150,240.
THE PREFERRED STOCK OFFERINGS
According to the terms of a stock purchase agreement, dated as of May 12,
1997, the Whitney Equity Partners, L.P. and Kitty Hawk Capital Limited
Partnership, III purchased an aggregate of 3,462,830 shares of Holdings' Series
A preferred stock for an aggregate purchase price of $10.0 million in a
transaction exempt from registration under the Securities Act.
According to the terms of a stock purchase agreement, dated as of March 23,
1998, Whitney Equity Partners, L.P., J.H. Whitney III, L.P., Whitney Strategic
Partners III, L.P., Waller-Sutton Media Partners, L.P., Kitty Hawk Capital
Limited Partnership, III, Kitty Hawk Capital Limited Partnership IV, Eagle Creek
Capital, L.L.C., The North Carolina Enterprise Fund, L.P., Finley Family
Partnership, William R. Gupton, Jack W. Jackman and Alton D. Eckert agreed to
purchase shares of Holdings' Series B preferred stock for an aggregate purchase
price of $28.0 million.
In addition, Holdings is obligated under the Series A agreement and the
Series B agreement to pay the Whitney funds a monitoring fee of $10,000 in the
aggregate per month until Holdings completes an initial public offering of its
common stock.
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According to the terms of a stock purchase agreement, dated as of February
10, 1999, as amended on April 20, 1999, Welsh, Carson, Anderson & Stowe VIII,
L.P., WCAS Information Partners, L.P., Kenneth Melkus, Patrick J. Welsh, Russell
L. Carson, Bruce K. Anderson, Andrew M. Paul, Thomas E. McInerney, Laura M.
VanBuren, Robert A. Minicucci, Anthony J. de Nicola, Paul B. Queally, Lawrence
B. Sorrel, D. Scott Mackesy, Priscilla A. Newman, Rudolph E. Rupert, Trust under
an agreement dated 11/26/84 for the benefit of Eric Welsh, Trust under an
agreement dated 11/26/84 for the benefit of Randall Welsh, Trust under an
agreement dated 11/26/84 for the benefit of Jennifer Welsh, J.H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., CIBC WG Argosy Merchant Fund 2,
L.L.C., Co-Investment Merchant Fund 3, LLC, The North Carolina Enterprise Fund,
L.P., Waller-Sutton Media Partners, L.P., Kitty Hawk Capital Limited
Partnership, IV, Finley Family Limited Partnership, Eagle Creek Capital, L.L.C.,
David P. Tomick, Jack W. Jackman, Alton D. Eckert, William R. Gupton, The Price
Family Limited Partnership and Benake L.P. agreed to purchase 46,286,795 shares
of Holdings' Series C convertible preferred stock in connection with and
partially to fund the Nextel tower acquisition. The Series C investors paid an
aggregate purchase price of $231,433,975 on April 20, 1999 for the shares of
Holdings' Series C preferred stock in a transaction exempt from registration
under the Securities Act.
The Series C investors, including the holders of the Series A preferred
stock and the Series B preferred stock, and certain other stockholders of
Holdings are entitled to certain rights under the stockholders' agreement and
the registration rights agreement, described below.
TRANSACTIONS RELATED TO THE NEXTEL TOWER ACQUISITION
On April 20, 1999, in connection with the Nextel tower acquisition, Messrs.
Sorrel, Rupert, McInerney and Price purchased 50,000, 25,000, 262,973 and
100,000 shares of 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
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.
STOCKHOLDERS' AGREEMENT
In connection with the closing of the Nextel tower acquisition, Holdings
and its stockholders entered into the third amended and restated stockholders'
agreement, which superceded and replaced the existing stockholders' agreement
among Holdings and its stockholders. The following is a summary of the material
terms of the new stockholders' agreement.
Under the stockholders' agreement, as long as Welsh, Carson, Anderson &
Stowe holds at least 30% of Holdings' capital stock, it shall have the right to
designate a majority of Holdings' directors. The chief executive officer shall
also be a director and certain of the other stockholders shall designate the
remaining directors. In addition, subject to certain exceptions, certain
stockholders will grant proxies to Welsh,
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Carson, Anderson & Stowe so that Welsh, Carson, Anderson & Stowe will have the
right to vote 51% of Holdings' outstanding capital stock. The stockholders'
agreement also provides:
(a) certain stockholders with preemptive rights;
(b) Welsh, Carson, Anderson & Stowe with the right to require that other
stockholders participate in a sale of Holdings stock;
(c) all other stockholders with the right to participate in sales of
Holdings stock by Welsh, Carson, Anderson & Stowe; and
(d) certain restrictions on transfers of Holdings stock.
Each of the rights described in clauses (a) through (d) is subject to
certain important qualifications and exceptions. In addition, SpectraSite shall
not:
- without the consent of Nextel, for a period of one year after the
closing, enter into any agreement for the sale or transfer of all or
substantially all of the assets of SpectraSite or for the merger of
Holdings that would result in the transfer of more than 50% of Holdings'
capital stock; or
- without the consent of Nextel, until the earliest of an initial public
offering, termination of the master site commitment agreement and the
third anniversary of the closing, (1) acquire assets or stock for
consideration in excess of $100.0 million, or enter into any
build-to-suit program for more than 250 towers, unless SpectraSite has
obtained financing commitments sufficient to permit it to accomplish such
acquisition or program without materially impairing SpectraSite's ability
to perform its obligations under the master site commitment agreement, or
(2) enter into certain transactions with any wireless communications
services provider having more than two million subscribers.
REGISTRATION RIGHTS AGREEMENT
In connection with the closing of the Nextel tower acquisition, Holdings,
Nextel, the Series A investors, the Series B investors, the Series C investors
and certain members of SpectraSite's management entered into a second amended
and restated registration rights agreement. The following is a summary of the
registration rights agreement.
The registration rights agreement provides that following Holdings' initial
public offering, or the third anniversary of the closing of the Nextel tower
acquisition if Holdings has not completed an initial public offering by that
date, the holders of at least 25% of Holdings' common stock shall have the
right, exercisable on no more than three occasions, to cause Holdings to
register their shares of its common stock, so long as the aggregate offering
price for the securities to be registered will equal or exceed $50.0 million. In
addition, any institutional stockholder or Nextel shall have the right, at any
time that Holdings is eligible to file a registration statement on SEC Form S-3,
to cause Holdings to effect a registration on Form S-3 of such stockholder's
common stock, so long as the aggregate offering price for securities to be
registered will equal or exceed $10.0 million and provided that Holdings shall
not be required to effect more than one such registration in any six-month
period. Finally, the registration rights agreement provides that if Holdings
proposes to register any of its common stock, then the parties to the
registration rights agreement shall have the right to cause Holdings to register
their shares of common stock as part of such registration, subject to certain
exceptions and limitations.
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OWNERSHIP OF CAPITAL STOCK
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 Westower merger had
occurred.
Each share of Series A preferred stock, each share of Series B preferred
stock and each share of Series C preferred stock is immediately convertible into
one share of common stock, subject to certain adjustments, and, therefore, the
holders of Series A preferred stock, Series B preferred stock and Series C
preferred stock are deemed to be the beneficial owners of the shares of common
stock into which their preferred stock can be converted. The amounts and
percentages of common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial ownership of
securities. Under the rules of the SEC, a person is deemed to be a beneficial
owner of a security if that person has or shares voting power, which includes
the power to vote or to direct the voting of such security, or investment power,
which includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which that person has a right to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed to be a beneficial owner
of securities as to which such person has an economic interest.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PERCENTAGE OF PERCENTAGE OF
TOTAL VOTING TOTAL VOTING
NUMBER OF POWER OF POWER OF
SERIES A SERIES B SERIES C SHARES OF STOCK COMMON STOCK ON COMMON STOCK ON
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY A FULLY-DILUTED A FULLY-DILUTED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED BASIS BASIS
------------------------ ------ --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen H. Clark (a)...... 1,119,435 -- -- -- 1,119,435 1.5% 1.2%
David P. Tomick (b)....... 93,855 -- -- 12,395 106,250 * *
Terry L. Armant (c)....... -- -- -- -- -- --
Michael R. Stone (d)...... -- 3,203,118 5,161,219 4,000,000 12,364,337 16.7% 13.8%
James R. Matthews (d)..... -- 3,203,118 5,161,219 4,000,000 12,364,337 16.7% 13.8%
Lawrence B. Sorrel (e).... 1,375,000 -- -- 30,875,000 30,875,000 41.6% 34.4%
Andrew R. Heyer (f)....... -- -- -- 10,000,000 10,000,000 13.5% 11.2%
Thomas E. McInerney (e)... 1,375,000 -- -- 29,712,973 31,087,973 41.9% 34.7%
Michael J. Price (g)...... 100,000 -- -- 100,000 200,000 * *
Rudolph E. Rupert (e)..... 1,375,000 -- -- 30,850,000 30,850,000 41.6% 34.4%
Timothy M. Donahue (h).... -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Steven M. Shindler (h).... -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Nextel Communications,
Inc. (h)................ -- -- -- 14,000,000 14,000,000 18.9% 15.6%
Welsh, Carson, Anderson &
Stowe VIII, L.P. (e).... -- -- -- 29,300,000 29,300,000 39.5% 32.7%
WCAS Information Partners,
L.P. (e)................ -- -- -- 150,000 150,000 * *
WCAS Capital Partners III,
L.P. (e)................ 1,375,000 -- -- -- 1,375,000 1.9% 1.5%
Whitney Equity Partners,
L.P. (d)................ -- 3,203,118 1,720,406 -- 4,923,524 6.6% 5.5%
J. H. Whitney Mezzanine
Fund, L.P. (d).......... 312,500 -- -- -- 312,500 * *
Canadian Imperial Bank of
Commerce (f)............ -- -- -- 10,000,000 10,000,000 13.5% 11.2%
Caravelle Investment Fund,
L.L.C. (i).............. 312,500 -- -- -- 312,500 * *
Whitney Strategic Partners
III, L.P. (d)........... -- -- 80,961 94,118 175,079 * *
J. H. Whitney III, L.P.
(d)..................... -- -- 3,359,852 3,905,882 7,265,734 9.8% 8.1%
Waller-Sutton Media
Partners, L.P. (j)...... -- -- 1,228,862 400,000 1,628,862 2.2% 1.8%
</TABLE>
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<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PERCENTAGE OF PERCENTAGE OF
TOTAL VOTING TOTAL VOTING
NUMBER OF POWER OF POWER OF
SERIES A SERIES B SERIES C SHARES OF STOCK COMMON STOCK ON COMMON STOCK ON
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY A FULLY-DILUTED A FULLY-DILUTED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED BASIS BASIS
------------------------ ------ --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kitty Hawk Capital Limited
Partnership, III (k).... 32,761 259,712 61,443 -- 353,916 * *
Kitty Hawk Capital Limited
Partnership, IV (k)..... -- -- 307,216 200,000 507,216 * *
All directors and
executive officers as a
group (14 persons)
(l)..................... 2,738,290 3,203,118 5,161,219 57,900,368 69,002,995 92.8% 76.7%
</TABLE>
- ---------------
* Less than 1%.
(a) Includes 172,500 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days. The business address for
Mr. Clark is 8000 Regency Parkway, Suite 570, Cary, North Carolina 27511.
(b) Includes 56,250 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(c) None of Mr. Armant's outstanding stock options are exercisable within 60
days.
(d) Mr. Stone is a managing member of each of the general partners of each of
the Whitney funds, and Mr. Matthews is a principal of the Whitney funds.
Messrs. Stone and Matthews own no shares directly and disclaim beneficial
ownership of the shares held by such entities. The business address for Mr.
Stone, Mr. Matthews and the Whitney funds is 177 Broad Street, Stamford,
Connecticut 06901.
(e) Messrs. Sorrel, McInerney and Rupert are each general partners of Welsh,
Carson, Anderson & Stowe and will acquire directly 50,000, 262,973 and
25,000 shares of Series C preferred stock, respectively. Messrs. Sorrel,
McInerney and Rupert each disclaim beneficial ownership of the shares held
by the Welsh, Carson, Anderson & Stowe funds. The business address for
Messrs. Sorrel, McInerney and Rupert and the Welsh, Carson, Anderson &
Stowe funds is 320 Park Avenue, Suite 2500, New York, New York 10022.
(f) Andrew R. Heyer, an employee of an affiliate of Canadian Imperial Bank of
Commerce, along with Jay R. Bloom and Dean C. Kehler, who are also
employees of an affiliate of Canadian Imperial Bank of Commerce, have
shared power to vote and dispose of the Series C preferred stock reported
in the table. The business address for Canadian Imperial Bank of Commerce
is 161 Bay Street, PP Box 500, M51258, Toronto, Canada, and the business
address for Mr. Heyer is 425 Lexington Avenue, 7th Floor, New York, New
York 10017.
(g) All of the Series C preferred shares reported as beneficially owned by Mr.
Price are held by The Price Family Limited Partnership. Mr. Price disclaims
beneficial ownership of all such shares.
(h) Messrs. Donahue and Shindler are executive officers of Nextel, own no
shares directly and disclaim beneficial ownership of the shares held by
Nextel. The business address for Messrs. Donahue and Shindler and Nextel is
2001 Edmund Halley Drive, Reston, Virginia 20191.
(i) The general partner and investment manager of Caravelle Investment Fund,
L.L.C. are affiliates of Canadian Imperial Bank of Commerce. The business
address for Caravelle is 425 Lexington Avenue, New York, New York 10017.
(j) The business address for Waller-Sutton Media Partners, L.P. is c/o
Waller-Sutton Management Group, Inc., 1 Rockefeller Plaza, New York, New
York 10020.
(k) The business address for Kitty Hawk III and Kitty Hawk IV is 2700 Coltsgate
Road, Suite 202, Charlotte, North Carolina 28211.
(l) Includes 228,750 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms and provisions of
Holdings' capital stock. Holdings' amended and restated certificate of
incorporation authorizes 95,000,000 shares of common stock, $0.001 par value per
share, and 70,749,625 shares of preferred stock, of which 3,462,830 shares have
been designated as Series A convertible preferred stock, 7,000,000 shares have
been designated as Series B convertible preferred stock and 60,286,795 shares
have been designated as Series C convertible preferred stock. As of May 31,
1999, there were:
- 3,398,307 shares of common stock issued and outstanding;
- 3,462,830 shares of Series A preferred stock issued and outstanding;
- 7,000,000 shares of Series B preferred stock issued and outstanding; and
- 60,286,795 shares of Series C preferred stock issued and outstanding.
The 60,286,795 shares of Series C preferred stock were issued to the Series
C investors and Nextel in connection with the Nextel tower acquisition. In
addition:
- 979,600 shares of common stock are reserved for issuance upon exercise of
stock options available for future grant under the 1997 stock option
plan;
- 3,120,400 shares of common stock are reserved for issuance upon exercise
of stock options granted under the 1997 stock option plan; and
- 70,749,625 shares of common stock are reserved for issuance upon the
conversion of the preferred stock.
COMMON STOCK
Holdings has two classes of authorized common stock which are identical in
all respects except that one class is non-voting. If a Holdings stockholder is
deemed a regulated entity under the Bank Holding Company Act of 1956, as
amended, its shares of Holdings common stock over 5% of the total issued and
outstanding common stock will become non-voting until transferred to a
non-regulated entity. The voting common stock is entitled to one vote per share.
All outstanding shares of common stock are validly issued, fully paid and
nonassessable. The common stock holders have no cumulative rights, subscription,
redemption, sinking fund or conversion rights and preferences. There are no
preemptive rights other than those granted under the stockholders' agreement.
See "Certain Transactions -- Stockholders' Agreement." Subject to preferences
that may be applicable to the Series A, the Series B and Series C preferred
stock or any preferred stock which Holdings may issue in the future, the common
stock holders will be entitled to receive such dividends as the board of
directors may declare out of funds legally available for that purpose. The
rights and preferences of the common stock holders are subject to the rights of
the preferred stock holders and will be subject to the rights of any series of
preferred stock which Holdings may issue in the future.
PREFERRED STOCK
CONVERSION. Each holder of the Series A, the Series B and the Series C
preferred stock has the right to convert his or her shares at any time.
Currently each share of preferred stock is convertible into one share of common
stock, subject to adjustment in the event of:
- any dividend or distribution made in shares of common stock;
- subdivision, combination or reclassification of Holdings' outstanding
common stock;
- any issue of common stock at less than a specified price per share;
- any issue of rights, options or warrants to subscribe for or purchase
shares of common stock at less than a specified price per share;
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- any issue of rights for the purchase of shares of common stock or other
securities convertible or exchangeable into shares of common stock at
less than a specified price per share; and
- any Holdings distribution, to the common stock holders, of any shares of
its capital stock, other than common stock, or evidence of indebtedness,
cash or other assets.
The preferred stock will automatically convert into common stock upon
Holdings' completion of a firm commitment underwritten initial public offering
raising gross proceeds of at least $150 million at an offering price per share
greater than or equal to $8.00.
DIVIDENDS. The holders of outstanding shares of preferred stock are not
entitled to receive dividends. However, when, as and if Holdings' board of
directors declares and pays a dividend on the common stock out of funds legally
available for that purpose, Holdings will declare and pay to each preferred
stock holder a dividend equal to the dividend that would have been payable to
such holder if his or her shares of preferred stock had been converted into
common stock on the date of determination of common stock holders entitled to
receive such dividend. No dividends will be paid on the common stock until all
accumulated and unpaid dividends have been paid on the preferred stock, or with
the prior written consent of 75% of the holders of outstanding preferred stock
voting as a single class. Accrued and unpaid dividends on the preferred stock
will be payable upon Holdings' liquidation, dissolution or winding-up.
LIQUIDATION. In the event of any liquidation, dissolution or winding-up of
Holdings, either voluntary or involuntary, before any distribution or payment to
holders of common stock or other capital stock, other than the Series A, the
Series B and the Series C preferred stock, the preferred stock holders shall be
entitled to receive an amount equal to the applicable liquidation preference.
The liquidation preference, for this purpose, is equal to the original issue
price plus all unpaid accrued and accumulated dividends on the Series A, the
Series B and the Series C preferred stock. If Holdings' assets are insufficient
to permit payment in full to all the preferred stock holders, the assets shall
be distributed ratably among them. Any remaining assets available for
distribution shall be distributed to the common stock holders.
VOTING. Each of the Series A, the Series B and the Series C preferred
stock holders is entitled to such number of votes equal to the whole number of
shares of common stock into which such holder's preferred stock is convertible
immediately after the close of business on the record date of the meeting.
SPECIAL REQUIRED APPROVAL
Holdings may not take the following actions without approval by vote or
written consent of the holders of 60% of all issued shares of the Series A, the
Series B and the Series C preferred stock, voting as a single class:
- the consummation of any sale or transfer of all or substantially all of
Holdings' assets, or any consolidation or merger with or into any other
corporation or corporations;
- any amendment, restatement or modification of Holdings' Certificate of
Incorporation or Bylaws which adversely affects the respective
preferences, qualifications, special or relative rights, or privileges of
preferred stock holders or which adversely affect the common stock or its
holders, provided, however, that any such change which adversely affects
the preferences, qualifications, special or relative rights or privileges
of any series of preferred stock but does not affect the other series of
preferred stock in a substantially similar manner shall require the prior
consent of the holders of a majority of the outstanding shares of the
affected series of preferred stock;
- Holdings' voluntary dissolution, liquidation or winding-up; or
- the authorization, creation or issuance of any shares of capital stock or
other securities which are ranked prior to or ratably with the preferred
stock, increase the authorized amount of the preferred stock, increase
the authorized amount of any additional class of shares of stock which
are ranked prior to or ratably with the preferred stock, or create or
authorize any obligation or security convertible into shares of preferred
stock or any other class of stock which is ranked prior to or ratably
with the preferred stock as to dividends and the distribution of assets
on Holdings' liquidation, dissolution or winding up.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
SpectraSite Communications, Inc., a wholly-owned subsidiary of Holdings,
entered into a credit agreement, dated as of April 20, 1999, with CIBC
Oppenheimer Corp., now known as CIBC World Markets Corp., and Credit Suisse
First Boston, New York Branch, and certain other lenders. This credit facility
provides a $500.0 million credit facility. The proceeds of the new credit
facility will be used to consummate the Nextel tower acquisition, to finance the
construction and acquisition of additional towers and for working capital and
general corporate purposes.
The following is a summary of the material terms of the credit facility.
This summary is qualified in its entirety by the final terms of the new credit
facility.
The credit facility consists of:
- a $50.0 million revolving credit facility that may, subject to the
satisfaction of certain financial covenants, be drawn at any time after
the closing of the Nextel tower acquisition and from time to time
thereafter up to December 31, 2005, at which time all amounts drawn under
the revolving credit facility must be paid in full;
- a $300.0 million multiple draw term loan that may be drawn at any time
and from time to time from the closing of the Nextel tower acquisition
through March 31, 2002; the amount drawn must be repaid in quarterly
installments commencing on June 30, 2002 and ending on December 31, 2005;
and
- a $150.0 million term loan that was drawn in full at the closing of the
Nextel tower acquisition and that amortizes at a rate of 1.0% annually,
payable in quarterly installments beginning in 2002, $67.5 million on
March 31, 2006 with the balance due on June 30, 2006.
In addition, the credit facility contemplates borrowings to be funded by
affiliates of certain of Holdings' shareholders subject to the approval of a
majority of the lenders under the credit facility and the consent of such
affiliates.
The revolving credit loans and the multiple draw term loans will bear
interest, at SpectraSite Communications' option, at either:
- Canadian Imperial Bank of Commerce's base rate, plus an applicable margin
of 1.5% per annum initially, which margin after a period of time may
decrease based on a leverage ratio, or
- the reserve adjusted London interbank offered rate, plus an applicable
margin of 3.0% per annum initially, which margin after a period of time
may decrease based on a leverage ratio.
The term loan bears interest, at SpectraSite Communications' option, at
either:
- Canadian Imperial Bank of Commerce's base rate, plus 2.0% per annum,
which margin after a period of time may decrease based on a leverage
ratio, or
- the reserve adjusted London interbank offered rate, plus 3.5% per annum,
which margin after a period of time may decrease based on a leverage
ratio.
SpectraSite Communications will be required to pay a commitment fee of
between 1.25% and 0.50% per annum in respect of the undrawn portion of the
multiple draw term loan, depending on the amount undrawn. SpectraSite
Communications will be required to pay a commitment fee of 0.50% per annum in
respect of the undrawn portion of the revolving credit facility.
SpectraSite Communications may be required to prepay the new credit
facility in part upon the occurrence of certain events, such as a sale of
assets, the incurrence of certain additional indebtedness, the issuance of
equity and the generation of excess cash flow.
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We expect Holdings and each of SpectraSite Communications' subsidiaries has
guaranteed SpectraSite Communications' obligations under the new credit
facility. The new credit facility is further secured by:
- substantially all the tangible and intangible assets of SpectraSite
Communications and its subsidiaries, and
- a pledge of all of the capital stock of SpectraSite Communications and of
all of its subsidiaries.
The new credit facility contains a number of covenants that, among other
things, restrict the ability of Holdings, SpectraSite Communications and their
subsidiaries to:
- incur additional indebtedness,
- create liens on assets,
- make investments, make acquisitions, or engage in mergers or
consolidations,
- dispose of assets,
- enter into new lines of business,
- engage in certain transactions with affiliates, and
- pay dividends or make capital distributions.
SpectraSite Communications, however, will be permitted to pay dividends after
July 15, 2003, for the purpose of paying interest on the 2008 Notes and the 2009
Notes so long as no default under the new credit facility then exists or would
exist after giving effect to such payment.
In addition, the new credit facility requires compliance with certain
financial covenants, including requiring SpectraSite Communications and its
subsidiaries, on a consolidated basis, to maintain:
- a maximum ratio of total debt to annualized EBITDA;
- a minimum interest coverage ratio;
- a minimum fixed charge coverage ratio; and
- a minimum annualized EBITDA, for the first year only.
SpectraSite Communications does not expect that such covenants will materially
impact its ability and the ability of its subsidiaries to operate their
respective businesses.
The new credit facility contains customary events of default.
11 1/4% SENIOR DISCOUNT NOTES DUE 2009
On April 20, 1999, Holdings issued $586.8 million in aggregate principal
amount at maturity of its 11 1/4% senior discount notes due 2009 pursuant to an
indenture between Holdings and the United States Trust Company of New York, as
trustee. The 2009 notes mature on April 15, 2009 and rank equally with the 2008
notes.
The 2009 notes were issued at a substantial discount to their principal
amount, and were sold to investors at a price that yielded gross proceeds to
Holdings of $340.0 million. The 2009 Notes accrete daily at a rate of 11 1/4%
per annum, compounded semiannually, to an aggregate principal amount of $586.8
million as of April 15, 2004. Cash interest will not accrue on the 2009 notes
prior to April 15, 2004. Commencing April 15, 2004, cash interest on the 2009
notes will accrue and be payable semiannually in arrears on each October 15 and
April 15, commencing October 15, 2004, at a rate of 11 1/4% per annum.
Except as described below, the 2009 notes are not redeemable at Holdings'
option prior to April 15, 2004. Thereafter, the 2009 Notes will be subject to
redemption at any time at the option of Holdings, in whole or in part, at the
redemption prices set forth in the indenture plus accrued and unpaid interest
thereon, if any, to the applicable redemption date. In addition, from time to
time prior to April 15, 2002, SpectraSite may on one or more occasions redeem up
to 35% of the aggregate principal amount at maturity of the 2009 notes issued at
a redemption price of 111.25% of their accreted value, to the redemption date,
with the net cash proceeds from one or more equity offerings; provided, however,
that at least 65% of the aggregate principal amount at maturity of 2009 notes
originally issued remains outstanding immediately after the occurrence of such
redemption.
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The 2009 notes are general unsecured obligations of Holdings, rank senior
in right of payment to any future indebtedness of Holdings which is made
expressly junior thereto, and rank equal in right of payment with all current
and future unsecured senior indebtedness of Holdings, including the 2008 notes.
All of the operations of Holdings are conducted through its subsidiaries, and
Holdings' subsidiaries did not guarantee the 2009 notes. Accordingly, the 2009
notes are effectively subordinated to all indebtedness and all other liabilities
or obligations of such subsidiaries, including borrowings under the new credit
facility.
Upon the occurrence of a change of control, the holders of the 2009 notes
have the right to require Holdings to repurchase such holders' 2009 notes, in
whole or in part, at a price equal to 101% of the accreted value thereof to the
date of purchase prior to April 15, 2004 or 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase on or
after April 15, 2004.
The indenture governing the 2009 notes contains certain covenants that,
among other things, limit the ability of Holdings and its subsidiaries to:
- incur additional indebtedness and issue preferred stock;
- pay dividends or make certain other restricted payments;
- enter into transactions with affiliates;
- make certain asset dispositions;
- merge or consolidate with, or transfer substantially all its assets to,
another entity;
- create liens securing indebtedness; and
- permit subsidiaries to incur restrictions on their ability to pay
dividends to Holdings.
However, all of these limitations are subject to a number of important
qualifications.
Holdings has agreed to file a registration statement with the SEC with
respect to a registered offer to exchange the outstanding 2009 notes for
registered 2009 notes, which will have terms substantially identical in all
material respects to the outstanding notes except that such notes will not
contain terms with respect to transfer restrictions. We have agreed to use our
reasonable best efforts to file a registration statement for the exchange notes
with the SEC on or before July 20, 1999 and to cause that registration statement
to be declared effective by October 20, 1999. In addition, in certain
circumstances, we have agreed to file a shelf registration statement that would
allow some or all of these notes to be offered to the public. We will keep the
registered exchange offer open for not less than 30 days, or longer if required
by applicable law, after the date notice of the registered exchange offer is
mailed to the holders of the outstanding notes. This prospectus is not an offer
to purchase or a solicitation of an offer to purchase the 2009 notes or a
solicitation to tender the 2009 notes in the exchange offer. The exchange offer
will only be made by means of a prospectus, which is part of the exchange offer
registration statement, and a copy of the prospectus will be mailed to all
registered holders of the 2009 notes as of the record date for the exchange
offer.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Holdings originally sold the outstanding notes to Credit Suisse First
Boston Corporation, Lehman Brothers, Inc. and CIBC Oppenheimer Corp., now known
as CIBC World Markets Corp. These initial purchasers subsequently placed the
outstanding notes with:
- qualified institutional buyers in reliance on Rule 144A under the
Securities Act; and
- qualified buyers outside the United States in reliance on Regulation S
under the Securities Act.
Holdings entered into a registration rights agreement with the initial
purchasers, as a condition to their purchase of the outstanding notes, under
which Holdings agreed, for the benefit of the outstanding note holders and at
its own expense, to file a registration statement for this exchange offer, of
which this prospectus is a part, with the SEC no later than November 15, 1998.
When the exchange offer registration statement is declared effective, Holdings
will offer the registered notes in exchange for tender of the outstanding notes.
For each outstanding note tendered to Holdings in response to the exchange
offer, the holder of such outstanding note will receive a registered note having
an original principal amount at maturity equal to that of the tendered
outstanding note.
Based upon interpretations by the SEC staff set forth in certain no-action
letters to third parties, including Exxon Capital Holdings Corp., SEC No-Action
Letter (April 13, 1989); Morgan Stanley & Co. Inc., SEC No-Action Letter (June
5, 1991); and Shearman & Sterling, SEC No-Action Letter (July 2, 1993),
SpectraSite believes that the registered notes issued under this exchange offer
in exchange for the outstanding notes, in general will be freely tradeable after
the exchange offer, without compliance with the registration and prospectus
delivery requirements of the Securities Act. However, any purchaser of
outstanding notes who is a SpectraSite "affiliate," within the meaning of Rule
405 under the Securities Act, who does not acquire the registered notes in the
ordinary course of business, or who tenders in the exchange offer for the
purpose of participating in a distribution of the registered notes, could not
rely on the SEC staff position enunciated in such no-action letters and, in the
absence of an applicable exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. A holder's failure to comply with those requirements in such
an instance may result in that holder incurring liability under the Securities
Act. We do not assume or indemnify you against any such liability.
As the above mentioned no-action letters and the registration rights
agreement contemplate, each holder accepting the exchange offer is required to
represent to us, in a letter of transmittal, that:
- the holder or the person receiving the registered notes, whether or not
such person is the holder, will acquire those registered notes in the
ordinary course of business;
- the holder or any other acquiror is not engaging in a distribution of the
registered notes;
- the holder or any other acquiror has no arrangement or understanding with
any person to participate in a distribution of the registered notes;
- neither the holder nor any other acquiror is a Holdings affiliate within
the meaning of Rule 405 under the Securities Act; and
- the holder or any other acquiror acknowledges that if that holder or
other acquiror participates in the exchange offer for the purpose of
distributing the registered notes, it must comply with the registration
and prospectus delivery requirements of the Securities Act in connection
with any such resale and cannot rely on the above mentioned no-action
letters.
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As indicated above, each broker-dealer that receives for its own account a
registered note in exchange for outstanding notes must acknowledge that it:
- acquired the outstanding notes for its own account as a result of
market-making activities or other trading activities;
- has not entered into any arrangement or understanding with Holdings or
any Holdings affiliate to distribute the registered notes; and
- will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of the registered notes.
For a description of the procedures for resales by participating broker-dealers,
see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the SEC staff do not permit Holdings to effect this exchange offer, or if for
any other reason the exchange offer is commenced and not consummated within 120
days of November 10, 1998, SpectraSite will:
- file a shelf registration statement covering resales of the outstanding
notes;
- use reasonable best efforts to cause the shelf registration statement to
be declared effective under the Securities Act; and
- use reasonable best efforts to keep effective the shelf registration
statement until the earlier of two years after the outstanding notes'
original issuance date, subject to extension under certain circumstances,
or such time as all of the applicable outstanding notes have been sold.
Holdings will, if and when it files the shelf registration statement,
provide to each applicable holder of the outstanding notes copies of the
prospectus which is a part of the shelf registration statement. A holder that
sells the outstanding notes under the shelf registration statement generally:
- must be named as a selling security holder in the related prospectus;
- must deliver a prospectus to purchasers;
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales; and
- will be bound by the provisions of the registration rights agreement
which are applicable to that holder, including certain indemnification
obligations.
In addition, each of the outstanding note holders must deliver information to
Holdings, to be used in connection with the shelf registration statement, in
order to have his or her outstanding notes included in the shelf registration
statement and to benefit from the provisions set forth in the foregoing
paragraph.
The registration rights agreement covering the outstanding notes provides
that Holdings will file an exchange offer registration statement with the SEC no
later than November 15, 1998. We filed the exchange offer registration statement
on November 10, 1998. In the event that:
- by the 120th day after the exchange offer registration statement filing
date neither the exchange offer is consummated nor the shelf registration
statement is declared effective; or
- after either the exchange offer registration statement or shelf
registration statement is declared effective, such registration statement
thereafter ceases to be effective or usable, subject to certain
exceptions, including an exception for a period not to exceed 60 days in
any 12-month period during which SpectraSite effects a material corporate
transaction, in connection with resales of the outstanding notes or
registered notes in accordance with and during the periods specified in
the registration rights agreement,
the interest rate on the outstanding notes will increase by 0.50% per annum from
and including the date on which any such registration default occurred, but
excluding the date on which all registration defaults are cured. The sole remedy
available to the outstanding note holders will be the immediate assessment of
cash
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interest on the outstanding notes, whether or not cash interest is then payable
on the outstanding notes under the indenture. All interest payable because a
registration default occurred will be payable to the outstanding notes holders
in cash on each January 15 and July 15, commencing with the first such date
occurring after any such interest begins to accrue, until the registration
default is cured. After the date on which the registration default is cured, the
interest rate on the outstanding notes will revert to 12% per annum.
Outstanding note holders must:
- make certain representations to us in order to participate in the
exchange offer;
- deliver information to be used in connection with the shelf registration
statement, if required; and
- provide comments on the shelf registration statement within the time
periods set forth in the registration rights agreement,
in order to have their outstanding notes included in the shelf registration
statement and to benefit from the provisions regarding additional interest
payable because a registration default occurred, as set forth above.
The preceding summary of the material provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the registration rights agreement, a copy
of which is filed as an exhibit to the exchange offer registration statement of
which this prospectus is a part.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal for the exchange offer, we will accept any and
all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the expiration date. See "-- Expiration Date; Extensions;
Amendments." Holdings will issue $1,000 original principal amount at maturity of
registered notes in exchange for each $1,000 original principal amount at
maturity of outstanding notes accepted in the exchange offer. Holders may tender
some or all of their outstanding notes in response to the exchange offer.
However, outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the registered notes are the same as the form and
terms of the outstanding notes except that:
- the registered notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer; and
- the registered note holders will not be entitled to certain rights under
the registration rights agreement covering the outstanding notes,
including the provisions providing for an increase in the interest rate
on the outstanding notes in certain circumstances relating to the timing
of the exchange offer, all of which rights will terminate when the
exchange offer is terminated.
The registered notes will evidence the same debt as the outstanding notes
and will be entitled to the benefits of the indenture governing the outstanding
notes. As of the date of this prospectus, $225,238,000 aggregate original
principal amount at maturity of outstanding notes were outstanding. We have
fixed the close of business on , 1999 as the record date for the
exchange offer for purposes of determining the persons to whom this prospectus
and the letter of transmittal will be mailed initially.
Outstanding note holders do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC related to such offers.
Holdings shall be deemed to have accepted validly tendered outstanding
notes when, as and if we give oral or written notice to that effect to United
States Trust Company of New York, which is the exchange
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agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the registered notes from Holdings.
If any tendered outstanding notes are not accepted for exchange either
because of an invalid tender, the occurrence of certain other events set forth
herein, or otherwise, the certificates for the unaccepted outstanding notes will
be returned, without expense, to the tendering holder as promptly as practicable
after the exchange offer's expiration date.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes in response to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
We shall keep the exchange offer open for at least 30 days, or longer if
required by applicable law, including in connection with any material
modification or waiver of the terms or conditions of the exchange offer that
requires such extension, after the date that notice of the exchange offer is
mailed to outstanding note holders. The expiration date shall be 5:00 p.m., New
York City time, on , 1999, unless we, in our sole discretion, extend
the exchange offer, in which case the expiration date shall be the latest date
and time to which we extend the exchange offer.
If we decide to extend the exchange offer, we will notify United States
Trust Company of New York, which is the exchange agent, of the extension by oral
or written notice, and will mail an announcement of the extension to the
registered holders prior to 10:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
SpectraSite reserves the right, in its sole discretion:
- to delay accepting any outstanding notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth below
under "-- Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent; or
- to amend the terms of the exchange offer in any manner.
We will give oral or written notice of any delay in acceptance, extension,
termination or amendment to the registered holders as promptly as practicable.
PROCEDURES FOR TENDERING
Only an outstanding note holder may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if the letter of transmittal so requires, or transmit an
agent's message in connection with a book-entry transfer, and mail or otherwise
deliver the letter of transmittal or facsimile, or agent's message, together
with the outstanding notes and any other required documents, to United States
Trust Company of New York, which is the exchange agent, prior to 5:00 p.m., New
York City time, on the expiration date. In addition, either:
- the exchange agent must receive the letter of transmittal and
certificates for the outstanding notes prior to the expiration date;
- the exchange agent must receive a timely confirmation of a book-entry
transfer of the outstanding notes into the exchange agent's account at
DTC according to the procedure for book-entry transfer described below,
prior to the expiration date; or
- the holder must comply with the guaranteed delivery procedures described
below.
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For effective tender, the exchange agent must receive the outstanding notes
or book-entry confirmation, as the case may be, the letter of transmittal, and
other required documents, at the address set forth below under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration date. DELIVERY
OF DOCUMENTS TO THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS
PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold outstanding notes on behalf
of the outstanding notes' beneficial owners to tender their outstanding notes as
if they were holders. To effect a tender of outstanding notes, DTC participants
should either:
- complete and sign the letter of transmittal, or a manually signed
facsimile thereof, have the signature guaranteed if required by the
instructions, and mail or deliver the letter of transmittal, or the
manually signed facsimile, to the exchange agent according to the
procedure set forth in "Procedures for Tendering;" or
- transmit their acceptance to DTC through the DTC automated tender offer
program for which the transaction will be eligible and follow the
procedure for book-entry transfer set forth in "-- Book-Entry Transfer."
By executing the letter of transmittal or an agent's message, each holder
will make to SpectraSite the representations set forth above in the third
paragraph under the heading "-- Purpose and Effect of the Exchange Offer."
Each holder's tender, and Holdings' acceptance, will constitute agreement
between such holder and Holdings in accordance with the terms, and subject to
the conditions, set forth herein and in the letter of transmittal or agent's
message.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE, AND ALL OTHER REQUIRED DOCUMENTS, TO THE EXCHANGE AGENT IS AT
THE HOLDER'S ELECTION AND SOLE RISK. AS AN ALTERNATIVE TO MAIL DELIVERY, HOLDERS
MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS
SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO
SPECTRASITE. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the letter of transmittal.
A member of the Medallion System must guarantee signatures on a letter of
transmittal or a notice of withdrawal, as the case may be, unless the
outstanding notes tendered thereto are tendered, respectively:
- by a registered holder who has not completed the box entitled Special
Registration Instructions or Special Delivery Instructions on the letter
of transmittal; or
- for the account of a Medallion System member.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, must be guaranteed, such guarantee must be by a
Medallion System member.
If a person other than the registered holder of any outstanding notes
listed therein signs the accompanying letter of transmittal, the outstanding
notes must be endorsed or accompanied by a properly completed bond power, signed
by the registered holder as his or her name appears on the outstanding notes,
with the signature guaranteed by a Medallion System member.
If trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations, or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or
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bond powers, such persons should so indicate when signing, and they must submit
evidence satisfactory to SpectraSite of their authority to so act, with the
letter of transmittal.
SpectraSite will determine, in its sole discretion, all questions as to the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered, or any outstanding notes, Holdings' acceptance of which
would, in the opinion of SpectraSite's counsel, be unlawful. We also reserve the
right, in our sole discretion, to waive any defects, irregularities or
conditions of tender as to particular outstanding notes. Our interpretation of
the terms and conditions of the exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within such time as we shall determine. Although we intend
to notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither Holdings, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. If the exchange agent receives any
outstanding notes that are not properly tendered, and as to which the defects or
irregularities have not been cured or waived, the exchange agent will return
them to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF REGISTERED NOTES
For each outstanding note Holdings accepts for exchange, the holder will
receive a registered note having a principal amount at maturity equal to that of
the surrendered outstanding note. For purposes of the exchange offer, Holdings
shall be deemed to have accepted properly tendered outstanding notes for
exchange when, as and if Holdings has given oral or written notice to that
effect to United States Trust Company of New York, as exchange agent.
In all cases, Holdings will issue registered notes for outstanding notes
that are accepted for exchange under the exchange offer only after the exchange
agent's timely receipt of certificates for such outstanding notes, or a timely
book-entry confirmation of the outstanding notes into the exchange agent's
account at the book-entry transfer facility, plus a properly completed and duly
executed letter of transmittal or agent's message and all other required
documents. If Holdings does not accept any tendered outstanding notes for any
reason set forth in the terms and conditions of the exchange offer, we will
return the unaccepted or non-exchanged outstanding notes without expense to the
tendering holder, or, in the case of outstanding notes tendered by book-entry
transfer into the exchange agent's account, the non-exchanged outstanding notes
will be credited to an account maintained with the book-entry transfer facility,
as promptly as practicable after the expiration date.
BOOK-ENTRY TRANSFER
United States Trust Company of New York, as exchange agent, will establish
a new account or utilize an existing account at DTC for the outstanding notes
promptly after the date of this prospectus, and any financial institution that
is a participant in DTC and whose name appears on a security position listing as
the owner of outstanding notes may make a book-entry tender of outstanding notes
by causing DTC to transfer such outstanding notes into the exchange agent's
account in accordance with DTC's procedures for such transfer. However, the
exchange agent must receive, at its address set forth below under the caption
"Exchange Agent," on or prior to the expiration date, or the holders must comply
with the guaranteed delivery procedures described below to submit, the letter of
transmittal, or a manually signed facsimile thereof, properly completed and
validly executed, with any required signature guarantees, or an agent's message,
and any other required documents. Document delivery to DTC in accordance with
DTC's procedures does not constitute delivery to the exchange agent.
The term agent's message means a message transmitted by DTC to, and
received by, the exchange agent, forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the DTC
participant tendering the outstanding notes, stating:
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- the aggregate principal amount of outstanding notes which have been
tendered by such participant;
- that such participant has received and agrees to be bound by the terms of
the letter of transmittal; and
- that Holdings may enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and:
- whose outstanding notes are not immediately available;
- who cannot deliver their outstanding notes, the letter of transmittal or
any other required documents, to United States Trust Company of New York,
which is the exchange agent; or
- who cannot complete the procedures for book-entry transfer, prior to the
expiration date,
may effect a tender if:
(a) the tender is made through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States;
(b) prior to the expiration date, the exchange agent receives from an
institution listed in clause (a) above a properly completed and duly
executed Notice of Guaranteed Delivery, by facsimile transmission, mail or
hand delivery, setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days
after the expiration date, the letter of transmittal, or facsimile thereof,
or an agent's message, together with the certificate(s) representing the
outstanding notes, or a confirmation of book-entry transfer of the notes
into the exchange agent's account at the book-entry transfer facility, and
any other documents required by the letter of transmittal, will be
deposited by the institution with the exchange agent; and
(c) the exchange agent receives, no later than five New York Stock
Exchange trading days after the expiration date, the certificate(s)
representing all tendered outstanding notes in proper form for transfer, or
a confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at the book-entry transfer facility, together with
a letter of transmittal, or facsimile thereof, properly completed and duly
executed, with any required signature guarantees, or an agent's message,
and all other documents required by the letter of transmittal.
Holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above may request that the exchange
agent send them a Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on ,
1999; otherwise such tenders are irrevocable.
To withdraw a tender of outstanding notes in the exchange offer United
States Trust Company of New York, which is the exchange agent, must receive a
telegram, telex, letter or facsimile transmission notice of withdrawal at its
address set forth herein prior to 5:00 p.m., New York City time, on the
expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number(s) and principal amount of such outstanding notes, or, in the case
of outstanding notes transferred by book-entry transfer, the name and
number of the account at the book-entry transfer facility to be credited;
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- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding notes register the transfer of such outstanding notes into
the name of the person withdrawing the tender; and
- specify the name in which to register the outstanding notes, if different
from that of the depositor.
Holdings will determine all questions as to the validity, form and
eligibility, including time of receipt, of the notices. This determination shall
be final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no registered notes will be issued with respect thereto unless the outstanding
notes so withdrawn are validly retendered. Holdings will return to the holder
any outstanding notes which have been tendered but which are not accepted for
exchange, without expense to the holder, as soon as practicable after
withdrawal, rejection of tender, or termination of the exchange offer. Holders
may retender properly withdrawn outstanding notes by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or offer registered notes for, any outstanding
notes, and may terminate or amend the exchange offer as provided herein before
the acceptance of the outstanding notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the exchange offer
which, in our judgment, might impair materially our ability to proceed with
the exchange offer, or any material adverse development has occurred in any
existing action or proceeding with respect to Holdings or any of its
subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the SEC
staff is proposed, adopted or enacted, which, in our judgment, might impair
materially our ability to proceed with the exchange offer, or impair
materially our contemplated benefits from the exchange offer; or
(c) any governmental approval has not been obtained, which approval we
shall, in our discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject, however, to the
holders' rights to withdraw the outstanding notes; or
- waive the unsatisfied conditions and accept all properly tendered
outstanding notes which have not been withdrawn.
We shall keep the exchange offer open for at least 30 days, or longer if
applicable law so requires, including, in connection with any material
modification or waiver of the terms or conditions of the exchange offer that
requires such extension under applicable law, after the date we mail notice of
the exchange offer to outstanding note holders.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for this exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of
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the letter of transmittal, and requests for notice of guaranteed delivery should
be directed to the exchange agent, addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway, 13th floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attn: Corporate Trust Window
Attn: Corporate Trust Services
By Hand: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level
Corporate Trust Window Confirm by Telephone:
New York, New York 10006 (800)548-6565
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
Holdings will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of Holdings and its affiliates or its agents.
Holdings has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the exchange offer. Holdings, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of pocket expenses in connection with the exchange
offer.
Holdings will pay the cash expenses incurred in connection with the
exchange offer. Such expenses include the exchange agent's and the trustee's
fees and expenses, accounting and legal fees, and printing costs, among others.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in Holdings' accounting
records on the date of exchange. Accordingly, Holdings will not recognize any
gain or loss for accounting purposes. The exchange offer expenses will be
expensed over the term of the registered notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The outstanding notes that are not exchanged for registered notes in
response to the exchange offer will remain restricted securities. Accordingly,
such outstanding notes may be resold only:
- to Holdings, upon redemption thereof or otherwise;
- so long as the outstanding notes are eligible for resale under Rule 144A,
to a person inside the United States whom the seller reasonably believes
is a qualified institutional buyer within the meaning of Rule 144A under
the Securities Act in a transaction meeting the requirements of Rule
144A, in accordance with Rule 144 under the Securities Act, or under
another exemption from the registration requirements of the Securities
Act, and based upon an opinion of counsel reasonably acceptable to us;
- outside the United States to a foreign person in a transaction meeting
the requirements of Regulation S under the Securities Act; or
- under an effective registration statement under the Securities Act.
Any resale of outstanding notes must comply with any applicable securities
laws of any state of the United States.
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DESCRIPTION OF THE NOTES
The registered notes have the same form and terms as the outstanding notes,
which they replace, with two exceptions. First, because the issuance of the
registered notes has been registered under the Securities Act, the registered
notes will not bear legends restricting their transfer. Second, the holders of
registered notes will not be entitled to rights under the registration rights
agreement, since the primary provision of that agreement will terminate when the
exchange offer is consummated. Copies of the indenture, dated June 26, 1998, and
the first supplemental indenture, dated March 25, 1999, between Holdings and
United States Trust Company of New York, as trustee, have been filed as exhibits
to the exchange offer registration statement of which this prospectus forms a
part.
The following is a summary of the material terms of the indenture, as
amended by the first supplemental indenture. This summary does not include all
the provisions of the indenture, nor does it include certain terms made a part
of the indenture by the Trust Indenture Act of 1939, as amended. You can find
definitions of certain capitalized terms used in the following summary under the
subheading "--Certain Definitions." Certain terms contained in this summary but
not capitalized in this summary or defined under the subheading "-- Certain
Definitions" are defined in the indenture. You should carefully read the
indenture before participating in the exchange offer.
GENERAL
Methods of Payment
The principal of, premium, if any, and interest on the notes will be
payable, and the notes may be exchanged or transferred, at the office or agency
of SpectraSite in the Borough of Manhattan, The City of New York. The initial
office for transfers is the corporate trust office of the trustee at 114 West
47th Street, 25th Floor, New York, New York 10036. However, at Holdings' option,
interest payments may be made by check, mailed to the registered holders of the
notes at their registered addresses.
Methods of Issuance
Holdings will issue the registered notes only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
No service charge will be made for any registration of a transfer or an exchange
of notes, but SpectraSite may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
Federal Tax Issues
For United States federal income tax purposes, a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
registered holder of notes as such discount is amortized from the Issue Date.
However, holders will not receive any payments on the notes until January 15,
2004. For a description of certain tax matters related to an investment in the
notes, see "Certain U.S. Federal Tax Considerations."
TERMS OF THE NOTES
The notes:
- are unsecured, senior obligations of Holdings;
- are subordinated in right of payment to all existing and future senior
indebtedness of Holdings;
- are senior in right of payment to any future subordinated indebtedness of
Holdings;
- mature on July 15, 2008;
- have a maximum aggregate principal amount at maturity of $225.2 million;
and
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- will accrue interest at a rate of 12% per annum, which will be compounded
semi-annually on each semi-annual accrual date, but will not be payable
in cash, except that interest on the Accreted Value of each note as of
July 15, 2003 will continue to accrue at 12% per annum, but will be paid
semi-annually commencing January 15, 2004 and continuing on each July 15
and January 15 thereafter to holders of record at the close of business
on the first day of the month during which the interest payment will be
made; interest to be paid on a 360-day year, twelve 30-day month basis.
REDEMPTION
Terms of Optional Redemption
Prior to July 15, 2001, Holdings may redeem up to 25% of the principal
amount at maturity of the notes at any time and from time to time but only from
the proceeds of equity offerings. The redemption price for any such redemption
will be 112% of the Accreted Value of the notes being redeemed, plus accrued and
unpaid interest, if any, to the redemption date, subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date. At least 75% of the aggregate principal amount at
maturity of the notes must remain outstanding after each such redemption,
excluding notes held by Holdings or any of its subsidiaries, and each such
redemption must occur within 60 days after the date of closing of the related
equity offering.
Between July 15, 2001, and July 15, 2003, Holdings may not redeem the
notes.
Holdings may redeem the notes at any time or from time to time on or after
July 15, 2003. Holdings shall pay accrued and unpaid interest, if any, on the
Accreted Value of the notes being redeemed to the redemption date, subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date. For any notes being redeemed in any
period in Column A below, Holdings shall pay a redemption price equal to the
percentage of the Accreted Value of the notes being redeemed set forth opposite
such period in Column B below.
<TABLE>
<CAPTION>
COLUMN A COLUMN B
PERIOD REDEMPTION PRICE
-------- ----------------
<S> <C>
July 15, 2003, through July 14, 2004........................ 106.000%
July 15, 2004, through July 14, 2005........................ 104.000%
July 15, 2005, through July 14, 2006........................ 102.000%
July 15, 2006 and thereafter................................ 100.000%
</TABLE>
Partial Redemption: Selection and Notice
In the case of any partial redemption, the trustee will select the notes
for redemption:
- in compliance with the requirements of the principal national securities
exchange, if any, on which the notes are listed; or,
- if the notes are not so listed, on a pro rata basis, by lot or by such
other method as the trustee in its sole discretion shall deem to be fair
and appropriate. However, no note of $1,000 or less, in original
principal amount, will be redeemed in part.
Holdings will send notice by first class mail at least 30, but not more
than 60, days before the redemption date, to each note holder, to be redeemed at
its registered address. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
notes, or portions of notes, called for redemption. If any note is to be
redeemed in part only, the notice of redemption relating to such note shall
state the portion of the principal amount thereof to be redeemed. A new note, in
principal amount equal to the unredeemed portion of the partially redeemed note,
will be issued in the name of the holder thereof upon cancellation of the
original note.
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Mandatory Redemption
Holdings will not make mandatory redemption or sinking fund payments with
respect to the notes.
RANKING
The indebtedness evidenced by the notes:
- is unsecured senior indebtedness of Holdings;
- will rank ratably in right of payment with all existing and future senior
indebtedness of Holdings; and
- will be senior in right of payment to all existing and future
subordinated obligations of Holdings.
Also, the notes will be effectively subordinated to all existing and future
Secured Indebtedness of Holdings to the extent of the value of the assets
securing such indebtedness, and will be structurally subordinated to all
existing and future indebtedness of any of Holdings' subsidiaries.
At December 31, 1998, after giving pro forma effect to the Nextel tower
acquisitions and the related financing transactions, Holdings had no
indebtedness outstanding other than the 2008 notes and the 2009 notes, and
Holdings' subsidiaries had approximately $152.7 million of debt and other
liabilities and the ability to borrow at least $350.0 million under the New
Credit Facility. Although the indenture contains limitations on the amount of
additional indebtedness which Holdings may incur, under certain circumstances
the amount of indebtedness could be substantial and, in any case, the
indebtedness may be senior indebtedness or Secured Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness."
Holdings conducts all of its operations through subsidiaries and,
therefore, Holdings depends upon the cash flow of its subsidiaries to meet its
obligations, including its obligations under the notes. Holdings' subsidiaries
will not be guarantors of the notes and are separate entities, with no
obligation to make payments on the notes, or to make funds available for that
purpose. Generally, with respect to the assets and earnings of Holdings'
subsidiaries, priority will be given to claims of the subsidiaries' creditors,
including trade creditors, secured creditors, creditors holding indebtedness and
guarantees issued by the subsidiaries, and claims of preferred stockholders, if
any, of the subsidiaries over the claims of Holdings' creditors, including
holders of our notes. The notes, therefore, will be effectively subordinated to
all indebtedness, preferred stock, if any, and other liabilities and commitments
of Holdings' subsidiaries. The provisions of the New Credit Facility contain
substantial restrictions on the ability of its subsidiaries to transfer cash or
assets to Holdings, by dividend or distribution. Although the indenture limits
the incurrence of indebtedness and preferred stock of certain of Holdings'
subsidiaries, that limitation is subject to a number of significant
qualifications. Moreover, the indenture does not impose any limitation on the
subsidiaries' incurrence of liabilities that are not considered indebtedness or
preferred stock under the indenture. See "-- Certain Covenants -- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries."
As of the date of the indenture, all of Holdings' subsidiaries are
restricted subsidiaries, which are any subsidiaries that are not Unrestricted
Subsidiaries. However, under certain circumstances, Holdings may designate
current or future subsidiaries as Unrestricted Subsidiaries, which will not be
subject to many of the restrictive covenants set forth in the indenture.
CHANGE OF CONTROL
If a Change of Control occurs, each registered holder of notes will have
the right to require Holdings to repurchase all or any part of such holder's
notes, at a purchase price in cash equal to 101% of the Accreted Value as of the
repurchase date, plus accrued and unpaid interest, if any, to the repurchase
date, subject to the right of holders of record on the relevant record date to
receive interest due on the related interest payment date.
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<PAGE> 100
Within 30 days following any Change of Control, Holdings shall mail a
notice to each holder, with a copy to the trustee, stating:
- that a Change of Control has occurred and that each holder has the right
to require Holdings to purchase such holder's notes at a purchase price
in cash equal to 101% of the Accreted Value as of the repurchase date,
plus accrued and unpaid interest, if any, to the repurchase date, subject
to the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date;
- the circumstances and relevant facts regarding such Change of Control,
including information with respect to pro forma historical income, cash
flow, and capitalization, after giving effect to the Change of Control;
- the repurchase date, which shall be no earlier than 30 days, nor later
than 60 days, from the date the notice is mailed; and
- the instructions Holdings determines, consistent with this covenant, that
a holder must follow in order to have its notes purchased.
The definition of Change of Control includes the phrase all or
substantially all, as used with respect to a sale of assets. The meaning of
substantially all varies according to the facts and circumstances of the subject
transaction. There is no clearly established meaning of substantially all under
New York law, the law governing the indenture, and the phrase thus is subject to
judicial interpretation. Accordingly, in certain circumstances, there may be
uncertainty in ascertaining whether a particular transaction would involve a
disposition of all or substantially all of the assets of a person, and therefore
it may be unclear whether a Change of Control has occurred.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes according to the terms of this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under this covenant by virtue of its compliance with
the law.
The Change of Control purchase feature is a result of negotiations between
Holdings and the initial purchasers of the outstanding notes. Subject to the
limitations discussed below, Holdings could enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the indenture, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect Holdings'
capital structure or credit rating. Restrictions on Holdings' ability to incur
additional indebtedness are contained in the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries." These restrictions
can be waived only with the consent of the holders of a majority, in principal
amount at maturity, of the notes then outstanding. Except for the limitations
contained in such covenants, however, the indenture does not contain any
covenants or provisions that afford holders of notes protection in the event of
a highly leveraged transaction.
The New Credit Facility:
- limits Holdings' access to its subsidiaries' cash flow and, therefore,
restricts Holdings' ability to purchase any notes; and
- provides, with respect to Holdings, that the occurrence of certain events
similar to those included in the definition of the term Change of Control
will constitute a default.
In the event that a Change of Control occurs at a time when Holdings's
subsidiaries are prohibited from making distributions to Holdings to allow it to
purchase notes, Holdings could cause its subsidiaries to seek the consent of the
lenders under the New Credit Facility, to allow the distributions, or it could
attempt to refinance the borrowings that contain the prohibition against
distributions. If Holdings does not
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obtain such a consent or repay such borrowings, Holdings will remain prohibited
from purchasing notes. In that case, Holdings' failure to purchase tendered
notes would constitute an event of default under the indenture which would, in
turn, constitute a default under the New Credit Facility.
Future indebtedness of Holdings and its subsidiaries may contain
prohibitions against the occurrence of certain events that would constitute a
Change of Control, or require the indebtedness to be purchased upon a Change of
Control. Moreover, the holders' exercise of their right to require Holdings to
purchase the notes could cause a default under its indebtedness, even if the
Change of Control itself does not cause a default, due to the financial effect
on Holdings of such a notes purchase.
Holdings' ability to pay cash to the holders following the occurrence of a
Change of Control may be limited by Holdings' then existing financial resources,
including its ability to access its subsidiaries' cash flow. See "Risk Factors
- -- We may be unable to generate sufficient cash to service our indebtedness" and
"Risk Factors -- We are a holding company and our only source of cash to pay
interest on and the principal of the 2008 notes and the 2009 notes is
distributions from our subsidiaries." We cannot assure you that sufficient funds
will be available when necessary for Holdings to make any required purchases.
The indenture provisions relative to Holdings' obligation to make an offer
to repurchase the notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority, in principal
amount at maturity, of the notes.
Holdings will not be required to make an offer, according to the terms of
this section of the indenture, upon a Change of Control, if a third party, in
compliance with the requirements set forth in the indenture applicable to
Holdings' Change of Control, makes an offer to purchase, and purchases, all
notes validly tendered and not withdrawn under such offer.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
Limitation on Indebtedness
1. Holdings cannot have an Indebtedness to Adjusted EBITDA Ratio of more than
7.00:1. Holdings may give pro forma effect to the incurrence of indebtedness
and the application of proceeds from such incurrence when determining
compliance with the ratio. Accrual of interest, accretion, or amortization
of original issue discount, and the payment of interest in the form of
additional indebtedness, will not be deemed to be an incurrence of
indebtedness for purposes of this covenant.
2. Despite the limitations described in paragraph (1), and regardless of the
amount of Holdings' outstanding indebtedness, Holdings may incur any or all
of the following indebtedness:
a. indebtedness of Holdings owing to and held by any restricted subsidiary.
However, any subsequent issuance or transfer of any capital stock, or
any other event which results in the restricted subsidiary ceasing to be
a restricted subsidiary, or any subsequent transfer of this type of
indebtedness, except to another restricted subsidiary, will be deemed to
constitute Holdings' incurrence of this type of indebtedness;
b. indebtedness represented by the notes;
c. any of Holdings' indebtedness outstanding on the Issue Date, other than
the indebtedness described in clauses (2) (a) or (b) above;
d. indebtedness, including capital lease obligations, which Holdings incurs
to finance the acquisition, construction or improvement of fixed or
capital assets, in an aggregate principal amount, not to exceed $5.0
million, at any one time outstanding, together with the amount of any
indebtedness then outstanding and incurred according to the terms of
clause (2)(f) of the "Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" covenant. However, the indebtedness must be
incurred within 180 days after the date of the acquisition, construction
or improvement,
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and must not exceed the fair market value of the acquired, constructed
or improved assets, as Holdings' board of directors determines in good
faith;
e. Refinancing Indebtedness, incurred in respect of any indebtedness
incurred according to the terms of paragraph (1) above or clauses (2)(b)
or (c) above or this clause (2)(e);
f. indebtedness which is:
- in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds provided by Holdings in the ordinary
course of its business, which do not secure other indebtedness; and
- incurred under currency exchange protection agreements and interest
rate protection agreements which, at the time of incurrence, are in
the ordinary course of business. However, the currency agreements
exchange protection and interest rate protection agreements must be
directly related to indebtedness which Holdings is permitted to incur
under the indenture;
g. indebtedness represented by guarantees, by Holdings, of indebtedness
which Holdings or any of its subsidiaries otherwise is permitted to
incur under the indenture;
h. indebtedness of any other person, existing at the time the other person
is merged with or into Holdings, and outstanding on, or prior to, the
date on which the person was merged with or into Holdings, other than
indebtedness incurred in connection with, or to provide all, or any
portion, of the funds or credit support utilized to consummate the
transaction, or series of related transactions, as a result of which the
person was merged with or into Holdings. However, on the date of such a
merger and after giving it effect, Holdings must be permitted to incur
at least $1.00 of additional indebtedness according to the terms of
paragraph (1) above;
i. indebtedness incurred by Holdings' subsidiaries, which the terms of the
indenture do not otherwise prohibit;
j. incurrence by Holdings of indebtedness not to exceed, at any one time
outstanding, together with the amount of any indebtedness then
outstanding and incurred according to the terms of clause (2)(i) of the
"Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant:
- 1.5
times
- the aggregate Net Cash Proceeds Holdings receives from the issue or
sale of capital stock, other than Disqualified Stock, subsequent to
the Issue Date,
less
- the amount of such Net Cash Proceeds used to make Restricted Payments
according to clause (1)(c)(ii), or applied according to clause
(2)(a)(ii), of the "Limitation on Restricted Payments" covenant;
however, for purposes of calculating the amount in the second bullet
point of clause 2(j) above, the issuance or sale of capital stock to a
Holdings subsidiary or to an employee stock ownership plan or a trust
established by Holdings or any of its restricted subsidiaries shall not
be included; and
k. other indebtedness, in an aggregate principal amount outstanding at any
time, not to exceed $5.0 million, together with the amount of any
indebtedness and preferred stock then outstanding and incurred according
to the terms of clause (2)(j) of the "Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries" covenant.
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3. Holdings shall not incur any indebtedness according to the terms of the
foregoing paragraph (2) if it uses those proceeds, directly or indirectly,
to refinance any subordinated obligations, unless the new indebtedness
shall:
a. be subordinated to the notes to at least the same extent as the
subordinated obligations being refinanced; and
b. have a Stated Maturity that is no earlier than the Stated Maturity of
the subordinated obligations being refinanced.
4. For purposes of determining compliance with this covenant:
a. in the event that an item of indebtedness meets the criteria of more
than one of the types of indebtedness described above, Holdings, in its
sole discretion, will classify that indebtedness, and only be required
to include the amount and type of the indebtedness in one of the above
clauses; and
b. an item of indebtedness may be divided and classified into more than one
of the types of indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries
1. Holdings shall not permit any restricted subsidiary to incur any
indebtedness or preferred stock unless, on the date of, and after giving
effect to, such incurrence and the application of the net proceeds
therefrom, Holdings' Indebtedness to Adjusted EBITDA Ratio would be less
than 7.00:1. Accrual of interest, accretion or amortization of original
issue discount and the payment of interest in the form of additional
indebtedness will not be deemed to be an incurrence of indebtedness for
purposes of this covenant.
2. Despite the above paragraph (1), and regardless of the amount of the
restricted subsidiaries' outstanding indebtedness, any restricted subsidiary
may incur any or all of the following indebtedness:
a. indebtedness incurred under the New Credit Facility, in an aggregate
principal amount outstanding at any time not to exceed the greater of:
i. $50.0 million; and
ii. the product of
- $200,000
times
- the number of Completed Towers on the date of incurrence, less the
aggregate amount of all proceeds from all Asset Dispositions of
Holdings' Tower Assets that have been applied, since the Issue
Date, to permanently reduce the outstanding amount of this
indebtedness, according to the "Limitation on Sale of Assets and
Subsidiary Stock" covenant;
b. indebtedness or preferred stock of a restricted subsidiary issued to,
and held by, Holdings or a restricted subsidiary. However, any
subsequent issuance or transfer of any capital stock which results in
any restricted subsidiary ceasing to be a restricted subsidiary, or any
subsequent transfer of such indebtedness or preferred stock, other than
to Holdings or a restricted subsidiary, shall be deemed to constitute an
incurrence by Holdings of that indebtedness or preferred stock;
c. indebtedness or preferred stock of a restricted subsidiary incurred and
outstanding on, or prior to, the date on which Holdings acquired the
restricted subsidiary, other than indebtedness or preferred stock
incurred in connection with, or to provide all, or any portion of, the
funds or credit support utilized to consummate the transaction, or
series of related transactions, as a result of which the restricted
subsidiary became a restricted subsidiary or Holdings acquired it.
However, on the date of the acquisition and after giving it effect,
Holdings must be permitted to incur at least $1.00 of
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additional indebtedness according to the terms of paragraph (1) of the
"Limitation on Indebtedness" covenant above;
d. indebtedness or preferred stock outstanding on the Issue Date, other
than indebtedness described in clauses (2)(a), (b) or (c) above;
e. Refinancing Indebtedness incurred in respect of indebtedness or
preferred stock referred to in clauses (2)(c) and (d) above or this
clause (e). However, to the extent the Refinancing Indebtedness directly
or indirectly refinances a subsidiary's indebtedness or preferred stock
described in clause (2)(c) above, only the subsidiary shall incur the
refinancing indebtedness;
f. indebtedness, including capital lease obligations, which a subsidiary
incurs to finance the acquisition, construction or improvement of fixed
or capital assets, in an aggregate principal amount at any one time
outstanding not to exceed $5.0 million, together with the amount of any
indebtedness then outstanding and incurred according to the terms of
clause (2)(d) of the "Limitation on Indebtedness" covenant. However, the
subsidiary must incur the indebtedness within 180 days after the date of
the acquisition, construction or improvement, and the indebtedness may
not exceed the fair market value of the acquired, constructed or
improved assets, as Holdings' board of directors determines in good
faith;
g. indebtedness which is:
i. in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds provided in the ordinary course of
its business, which do not secure other indebtedness; and
ii. incurred under currency exchange protection agreements and interest
rate protection agreements which, at the time of incurrence, are in
the ordinary course of business. However, the currency exchange
protection agreements and interest rate protection agreements must
be directly related to indebtedness which Holdings or any of its
subsidiaries is permitted to incur under the Indenture;
h. indebtedness represented by guarantees, by a subsidiary, of indebtedness
which Holdings or another subsidiary is otherwise permitted to incur
under the indenture;
i. a subsidiary's incurrence of indebtedness, not to exceed at any one time
outstanding, together with the amount of any indebtedness then
outstanding and incurred according to the terms of clause (2)(j) of the
"Limitation on Indebtedness" covenant:
- 1.5
times
- the aggregate Net Cash Proceeds Holdings receives from the issue or
sale of capital stock, other than Disqualified Stock, subsequent to
the Issue Date; however, this amount excludes Net Cash Proceeds from
an issuance or sale to a Holdings subsidiary, to an employee stock
ownership plan or to a trust established by Holdings or any of its
restricted subsidiaries,
less
- the amount of Net Cash Proceeds used to make Restricted Payments
according to clause (1)(c)(ii) of the "Limitation on Restricted
Payments" covenant, or applied according to clause (2)(a)(ii)of the
"Limitation on Restricted Payments" covenant; and
j. other indebtedness and preferred stock, in an aggregate principal and/or
liquidation amount not to exceed, at any time outstanding, $5.0 million,
less the amount of any indebtedness then outstanding and incurred
according to the terms of clause (2)(k) of the "Limitation on
Indebtedness" covenant.
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3. For purposes of determining compliance with this covenant:
a. in the event that an item of indebtedness meets the criteria of more
than one of the types of indebtedness described above, Holdings, in its
sole discretion, will classify that indebtedness and only be required to
include the amount and type of the indebtedness in one of the above
clauses; and
b. an item of indebtedness may be divided and classified into more than one
of the types of indebtedness described above.
Holdings will not permit any Unrestricted Subsidiary to incur any
indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments
1. Holdings will not make, and will not permit any restricted subsidiary to
make, directly or indirectly, any Restricted Payment, if at the time
Holdings or the restricted subsidiary makes the Restricted Payment:
a. a default or event of default will have occurred and be continuing, or
would result from the payment;
b. Holdings could not incur at least $1.00 of additional indebtedness
according to the terms of paragraph (1) of the "Limitation on
Indebtedness" covenant; or
c. the aggregate amount of the Restricted Payment and all other Restricted
Payments, which amount, if other than in cash, the Holdings board of
directors will determine in good faith, and will evidence that
determination by a board of directors resolution, declared or made
subsequent to the Issue Date, would exceed the sum of:
i. the aggregate EBITDA, or, in the event that EBITDA shall be a
deficit, minus that deficit, accrued subsequent to the Issue Date to
the most recent date for which financial information is available to
Holdings, taken as one accounting period, less 1.4 times Consolidated
Interest Expense for the same period;
plus
ii. 100% of the aggregate Net Cash Proceeds, less the aggregate amount
of the Net Cash Proceeds used to incur indebtedness according to the
terms of clause (2)(j) of the "Limitation on Indebtedness" covenant
and clause (2)(i) of the "Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries" covenant, plus 70% of the GAAP
purchase accounting valuation of Qualified Proceeds, with each of
these valuations calculated as of the sale date of the capital stock
received as consideration, in each case received by Holdings from
the issue or sale of capital stock, other than Disqualified Stock,
subsequent to the Issue Date, other than an issuance or sale to one
of Holdings' subsidiaries, and other than an issuance or sale to an
employee stock ownership plan, or to a trust established by Holdings
or any of its restricted subsidiaries;
plus
iii. the amount by which Holdings' indebtedness is reduced on Holdings'
balance sheet, upon conversion or exchange, other than by a
restricted subsidiary, subsequent to the Issue Date of any Holdings
indebtedness which is convertible or exchangeable for Holdings'
capital stock,
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other than Disqualified Stock, less the amount of any cash, or the
fair value of any other property, distributed by Holdings upon the
conversion or exchange;
plus
iv. an amount equal to the sum of the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances, or other transfers of assets to Holdings or any
restricted subsidiary from Unrestricted Subsidiaries, plus the
portion, proportionate to Holdings' equity interest in the
subsidiary, of the fair market value of the net assets of an
Unrestricted Subsidiary, at the time the Unrestricted Subsidiary is
designated a restricted subsidiary;
plus
v. dividends and distributions Holdings receives, subsequent to the
Issue Date, from Unrestricted Subsidiaries, to the extent those
dividends and distributions are not otherwise included in calculating
EBITDA;
plus
vi. Net Cash Proceeds Holdings receives, subsequent to the Issue Date,
from Investments that are not Permitted Investments, to the extent
not otherwise included in calculating EBITDA.
The sum in clause (iv) above shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments Holdings or any
restricted subsidiary previously made in the Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments.
2. The provisions of paragraph (1) of this covenant will not prohibit:
a. any purchase, redemption, defeasance or other acquisition of Holdings'
capital stock or subordinated obligations made by exchange for, or out
of the net proceeds of the substantially concurrent sale of, Holdings'
capital stock, other than Disqualified Stock and other than capital
stock issued or sold to a Holdings subsidiary, or an employee stock
ownership plan, or a trust established by Holdings or any of its
subsidiaries. However:
i. the purchase, redemption, defeasance or other acquisition will be
excluded in the calculation of the amount of Restricted Payments; and
ii. to the extent applied toward the purchase, redemption, defeasance or
other acquisition, the Net Cash Proceeds from the sale will be
excluded from clause (1)(c)(ii) above, clause (2)(j) of the
"Limitation on Indebtedness" covenant and clause (2)(i) of the
"Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant;
b. any purchase, redemption, defeasance or other acquisition of
subordinated obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Holdings' subordinated
obligations. However:
i. the principal amount of the new indebtedness must not exceed the
principal amount of the subordinated obligations being so redeemed,
repurchased, acquired or retired for value, plus the amount of any
premium required to be paid under the terms of the instrument
governing the subordinated obligations being so redeemed,
repurchased, acquired or retired;
ii. the new indebtedness must be subordinated to the notes at least to
the same extent as the subordinated obligations so purchased,
exchanged, redeemed, repurchased, acquired or retired for value;
iii. the new indebtedness must have a final scheduled maturity date
later than the earlier of the final scheduled maturity date of the
subordinated obligations being so redeemed, repurchased, acquired
or retired, and the final scheduled maturity date of the notes; and
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iv. the new indebtedness must have an Average Life equal to or greater
than the Average Life of the notes;
Any purchase, redemption, defeasance or other acquisition consistent with
clause 2(b) above will be excluded in the calculation of the amount of
Restricted Payments;
c. dividends paid within 60 days after the date of their declaration, if at
the date of declaration the dividend would have complied with this
covenant; and
d. purchases of outstanding shares of Holdings' capital stock from deceased
stockholders, in an amount not to exceed $1.0 million in the aggregate.
Any dividend or purchase consistent with 2(c) and 2(d), respectively, above
will be included in the calculation of Restricted Payments.
The Restricted Payments described in clauses (2)(a), (b) and (d) above shall not
be permitted if at the time of, and after giving effect to, the Restricted
Payments, a default or an event of default shall have occurred and be
continuing.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
Holdings will not, and will not permit any restricted subsidiary to,
create, or otherwise cause or permit to exist or become effective, any
consensual encumbrance or restriction on the ability of any restricted
subsidiary to:
1. pay dividends or make any other distributions on its capital stock, to
Holdings or to a restricted subsidiary, or pay any indebtedness or other
obligation owed to Holdings;
2. make any loans or advances to Holdings; or
3. transfer any of its property or assets to Holdings or any restricted
subsidiary, except:
a. any encumbrance or restriction under the New Credit Facility or any
agreement in effect at, or entered into on, the Issue Date;
b. any encumbrance or restriction, with respect to a restricted subsidiary,
under an agreement relating to any indebtedness it incurred on, or prior
to, the date on which Holdings or a restricted subsidiary acquired it,
other than indebtedness incurred as consideration in, or to provide all,
or any portion, of the funds or credit support utilized to consummate
the transaction, or series of related transactions, as a result of which
the restricted subsidiary became a subsidiary, or Holdings or a
restricted subsidiary acquired it, and outstanding on such date;
c. any encumbrance or restriction under an agreement effecting a
refinancing of indebtedness incurred, under an agreement referred to in
clause (3)(a) or (b) above, or contained in any amendment to an
agreement referred to in clause (3)(a) or (b) above. However, the
encumbrances and restrictions contained in any such refinancing
agreement or amendment, taken as a whole, with respect to a restricted
subsidiary, may be no less favorable to the holders of notes than the
encumbrances and restrictions with respect to the restricted subsidiary
contained in the predecessor agreements, as the Holdings board of
directors determines in good faith;
d. in the case of this paragraph (3), any encumbrance or restriction that
restricts, in a customary manner, the subletting, assignment or transfer
of any property or asset that is subject to a lease, license or other
contract;
e. in the case of this paragraph (3), contained in security agreements or
mortgages securing a restricted subsidiary's indebtedness, to the extent
the encumbrance or restrictions restrict the transfer of the property
subject to those security agreements or mortgages;
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f. any restriction with respect to a restricted subsidiary, imposed under
an agreement entered into for the sale or disposition of all or
substantially all of the restricted subsidiary's capital stock or
assets, pending the closing of the sale or disposition; and
g. customary provisions with respect to the disposition or distribution of
assets or property in joint venture and other similar agreements.
Limitation on Sales of Assets and Subsidiary Stock
1. Holdings will not, and will not permit any restricted subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
a. Holdings or the restricted subsidiary receives consideration, at the
time of the Asset Disposition, at least equal to the fair market value,
including as to the value of all non-cash consideration, as the Holdings
board of directors determines in good faith, of the shares and assets
subject to the Asset Disposition; and
b. except in the case of a Tower Asset Exchange, at least 75% of the
consideration Holdings or the restricted subsidiary receives is in the
form of cash or cash equivalents.
2. Within 365 days after the receipt of any Net Available Cash from an Asset
Disposition, Holdings or the applicable restricted subsidiary may apply that
Net Available Cash to:
a. prepay, repay, redeem or purchase indebtedness, other than Disqualified
Stock, of a Holdings wholly-owned subsidiary, provided that the
applicable restricted subsidiary, whether or not a wholly-owned
subsidiary, also may prepay, repay, redeem or purchase its own
outstanding indebtedness, or senior indebtedness, in each case other
than indebtedness owed to Holdings or an Affiliate of Holdings;
b. acquire all or substantially all of the assets of an entity engaged in a
Permitted Business;
c. acquire Voting Stock of an entity engaged in a Permitted Business from a
person who is not a Holdings subsidiary. However, after giving effect to
the acquisition, Holdings or its restricted subsidiary must own a
majority of the entity's Voting Stock, and the acquisition otherwise
must be made in accordance with the indenture, including the "Limitation
on Restricted Payments" covenant; or
d. make a capital expenditure or acquire other long-term assets that are
used or useful in a Permitted Business.
To the extent of the balance of this Net Available Cash, after application in
accordance with clause (2)(a), (b), (c) or (d) above, Holdings shall make an
offer to the holders to purchase notes according to the terms of, and subject
to, the conditions set forth in paragraph (5) below.
3. Notwithstanding the foregoing provisions, Holdings and its restricted
subsidiaries shall not be required to apply any Net Available Cash in
accordance with this covenant, except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in
accordance with this covenant exceeds $2.5 million. Pending application of
Net Available Cash according to this covenant, the Net Available Cash shall
be invested in Permitted Investments.
4. For the purposes of this covenant, the following are deemed to be cash:
a. the transferee's assumption of Holdings' indebtedness, other than
Holdings' Disqualified Stock, and other than indebtedness that is
subordinated to the notes, or any restricted subsidiary's indebtedness
and the release of Holdings or the restricted subsidiary from all
liability on that indebtedness in connection with the Asset Disposition;
b. securities that Holdings or any restricted subsidiary receives from the
transferee, that Holdings or the restricted subsidiary converts into
cash within 20 days of the applicable Asset Disposition, to the extent
of the cash received; and
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c. the transferee's assumption of any of Holdings' or any restricted
subsidiary's liabilities, as shown on Holdings' or the restricted
subsidiary's most recent balance sheet, other than contingent
liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee on the notes, of any such assets, according to
the terms of a customary novation agreement that releases Holdings or
the restricted subsidiary from further liability.
5. In the event of an Asset Disposition that requires a notes purchase
according to the terms of paragraph (1) of this covenant, Holdings will be
required to purchase notes tendered, in response to Holdings' offer for the
notes, at a purchase price of:
- 100% of their Accreted Value as of the purchase date, without premium,
plus
- accrued and unpaid interest to the purchase date, in accordance with the
procedures, including prorating in the event of oversubscription, set
forth in the indenture.
If the aggregate purchase price for notes tendered in response to the offer
is less than the Net Available Cash allotted to the notes purchase,
Holdings may use any remaining Net Available Cash for general corporate
purposes not otherwise prohibited by the indenture.
If the aggregate purchase price for notes tendered in response to the offer
is greater than the Net Available Cash allotted to the notes purchase, the
trustee will select the notes to be purchased on the basis set forth under
"-- Redemption -- Partial Redemption -- Selection and Notice" above. Upon
completion of any required offer to the holders, the amount of Net
Available Cash will be reset at zero. Holdings shall not be required to
make an offer for notes according to the terms of this covenant if the Net
Available Cash available, after application of the proceeds as provided in
paragraph (2) of this covenant, is less than $5.0 million for all Asset
Dispositions, which lesser amounts shall be carried forward, for purposes
of determining whether an offer is required, with respect to the Net
Available Cash, from any subsequent Asset Disposition.
6. Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with a notes repurchase according to the terms of
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings will comply
with the applicable securities laws and regulations and will not be deemed
to have breached its obligations under this covenant by virtue of its
compliance with the law.
7. The provisions of this covenant shall not apply to any transaction that is
permitted under the provisions of the covenant described under "-- Merger
and Consolidation."
Limitation on Transactions with Affiliates
1. Holdings will not, and will not permit any restricted subsidiary to,
directly or indirectly, enter into or conduct any transaction, or series of
transactions, including the purchase, sale, lease or exchange of any
property, employee compensation arrangements, or the rendering of any
service, with any Holdings Affiliate unless:
a. the terms of the transaction, taken as a whole, are no less favorable to
Holdings or the restricted subsidiary, as the case may be, than those
that could be obtained, at the time of the transaction, in arm's-length
dealings with a person who is not an Affiliate;
b. in the event the affiliate transaction involves an aggregate amount in
excess of $1.0 million, the terms of the transaction are set forth in
writing and shall have been approved by a majority of the members of the
board of directors having no personal stake in that affiliate
transaction, and this majority determines that the affiliate transaction
satisfies the criteria in clause (1)(a) above; and
c. in the event the affiliate transaction involves an aggregate amount in
excess of $5.0 million, Holdings has received a written opinion from a
nationally recognized independent investment
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banking firm that the affiliate transaction is fair to Holdings and its
restricted subsidiaries from a financial point of view.
2. The provisions of paragraph (1) above shall not prohibit:
a. any Restricted Payment permitted to be made according to the terms of
the "Limitation on Restricted Payments" covenant;
b. any securities issuance, or other payments, awards or grants in cash,
securities or otherwise, made under, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
board of directors, or any related arrangements;
c. the grant of stock options or similar rights to Holdings employees and
directors, made under plans approved by the board of directors;
d. loans or advances to employees, in the ordinary course of business, in
accordance with Holdings' or its restricted subsidiaries' past
practices, but in any event not to exceed $1.0 million in the aggregate
outstanding at any one time;
e. the payment of reasonable fees to directors of Holdings and its
restricted subsidiaries who are not employees of Holdings or its
restricted subsidiaries;
f. any transaction between Holdings and a restricted subsidiary or between
restricted subsidiaries;
g. the issuance or sale of any Holdings capital stock, other than
Disqualified Stock;
h. any transaction, consummated according to the terms of any agreement
described in Holdings' final offering circular dated June 23, 1998, to
which Holdings is a party, in each case as that agreement is in effect
on the Issue Date and without giving any effect to any subsequent
amendments, modifications or alterations to the agreement; and
i. any transaction:
- contemplated by the Nextel merger agreement;
- contemplated by a credit facility under which an Affiliate of Holdings
is a lender, as long as the terms of such a facility are no less
favorable than those that could be obtained in an arm's-length
transaction; or
- between Holdings or any restricted subsidiary and any Affiliate of
Holdings involving ordinary course investment banking, commercial
banking or related activities.
Limitation on Liens
Holdings will not, and will not permit any restricted subsidiary to,
directly or indirectly, create, or permit to exist, any Lien on any of its
property or assets, including capital stock, whether owned on the Issue Date or
acquired later, securing any obligation, other than Permitted Liens, unless
effective provision is made contemporaneously to secure the notes equally and
ratably with or, in the case of subordinated obligations, on a senior basis to,
that obligation, for so long as the obligation is so secured.
Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries
Holdings:
1. will not, and will not permit any restricted subsidiary to, transfer,
convey, sell, lease, or otherwise dispose of any restricted subsidiary's
capital stock, to any person, other than to Holdings or to a wholly-owned
subsidiary of Holdings, unless:
a. the transfer, conveyance, sale, lease, or other disposition is of all of
the capital stock of that restricted subsidiary, or a majority of the
issued and outstanding capital stock of the restricted
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subsidiary. However, Holdings' minority equity interest in that person,
after giving effect to any such disposition, shall be deemed to
constitute an Investment by Holdings in that person; and
b. the Net Cash Proceeds from such a transfer, conveyance, sale, lease, or
other disposition, are applied in accordance with the "Limitation on
Sales of Assets and Subsidiary Stock" covenant; and
2. will not permit any restricted subsidiary to issue any of its capital stock
to any person, other than to Holdings or a wholly-owned subsidiary of
Holdings, and other than shares of its capital stock constituting directors'
qualifying shares or the ownership by foreign nationals of capital stock of
any restricted subsidiary, to the extent necessary or mandated by applicable
law.
Limitation on Sale/Leaseback Transactions
Holdings will not, and will not permit any restricted subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless:
1. Holdings or that restricted subsidiary would be entitled to:
a. incur indebtedness in an amount equal to the Attributable Indebtedness
with respect to the Sale/ Leaseback Transaction, according to the terms
of the "Limitation on Indebtedness" covenant; and
b. create a Lien on the property securing the Attributable Indebtedness,
without equally and ratably securing the notes, according to the terms
of the "Limitation on Liens" covenant;
2. the Net Cash Proceeds received by Holdings or any restricted subsidiary in
connection with the Sale/ Leaseback Transaction are at least equal to the
fair value of the property, as the Holdings board of directors determines in
good faith; and
3. the transfer of the property is permitted by, and Holdings or the restricted
subsidiary applies the proceeds of the transaction in compliance with, the
"Limitation on Sales of Assets and Subsidiary Stock" covenant.
SEC Reports
Despite the fact that Holdings may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings will
file with the SEC, unless the SEC does not permit the filing, and provide the
trustee and note holders with, the annual reports and the information, documents
and other reports which are specified in Sections 13 and 15(d) of the Exchange
Act. Holdings also will comply with the other provisions of the Trust Indenture
Act Section 314(a).
MERGER AND CONSOLIDATION
Holdings will not, in one transaction or a series of transactions,
consolidate with or merge with or into, or convey, transfer, or lease, all or
substantially all its assets to, any person, unless:
1. the resulting, surviving or transferee person, the Successor Issuer, will be
a person organized and existing under the laws of the United States of
America or any State or the District of Columbia, and the Successor Issuer,
if not Holdings, will expressly assume, by supplemental indenture, executed
and delivered to the trustee, in form satisfactory to the trustee, all
Holdings' obligations under the notes and the Indenture;
2. immediately after giving effect to the transaction on a pro forma basis, and
treating any indebtedness which becomes an obligation of the Successor
Issuer, or any restricted subsidiary, as a result of the transaction, as
having been incurred by the Successor Issuer, or the restricted subsidiary,
at the time of the transaction, no default or event of default will have
occurred and be continuing;
3. except in the case of a merger of Holdings into a wholly-owned subsidiary or
a merger Holdings enters into solely for the purpose of reincorporating in
another jurisdiction, immediately after giving effect to
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the transaction on a pro forma basis, as if the transaction had occurred at
the beginning of the applicable four-quarter period, Holdings, or the person
formed by, or surviving, any such consolidation or merger, if other than
Holdings, or to which the conveyance, transfer, lease or other disposition
shall have been made, would have been permitted to incur at least $1.00 of
additional indebtedness according to the terms of paragraph (1) of the
"Limitation on Indebtedness" covenant above; and
4. Holdings will have delivered to the trustee an officer's certificate and an
opinion of counsel, each stating that the consolidation, merger or transfer,
and such supplemental indenture, if any, comply with the indenture, as
stated in the indenture.
The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of Holdings, under the indenture, and the
predecessor issuer, in the case of a conveyance, transfer or lease of all or
substantially all its assets, will be released from the obligations under the
indenture and the notes, including, without limitation, the obligation to pay
the principal of and interest on the notes.
DEFAULTS
An event of default is defined in the indenture as:
1. a default in any interest payment, when due, on any note, continued for 30
days;
2. a default in the payment of principal, when due, of any note at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
3. Holdings' failure to comply with its obligations under "-- Merger and
Consolidation;"
4. Holdings' failure to comply, for 30 days after notice, with any of its
obligations under the covenants described under "-- Change of Control" or
"-- Certain Covenants," in each case, other than a failure to purchase
notes;
5. Holdings' failure to comply, for 60 days after notice, with its other
agreements contained in the indenture;
6. Holdings' failure, or the failure of any of Holdings' Significant
Subsidiaries, to pay any indebtedness within any applicable grace period,
after final maturity, or the acceleration of any such indebtedness by the
holders thereof, because of a default, if the total amount of the
indebtedness, unpaid or accelerated, exceeds $5.0 million or its foreign
currency equivalent (the cross acceleration provision);
7. certain events of bankruptcy, insolvency or reorganization of Holdings or
any of Holdings' Significant Subsidiaries (the bankruptcy provisions); or
8. any final judgment or decree, for the payment of money in excess of $5.0
million, is rendered against Holdings or any of Holdings' Significant
Subsidiaries, net of any amounts with respect to which a creditworthy
insurance company has acknowledged full liability, subject to any deductible
amounts of less than $5.0 million required to be paid by Holdings in
accordance with the applicable insurance policy, and either:
a. an enforcement proceeding has been commenced by any creditor upon that
judgment or decree; or
b. the judgment or decree remains outstanding for a period of 60 days
following the judgment and is not discharged, waived or stayed within 10
days after notice (the judgment default provision).
The events listed above will constitute events of default whatever the
reason for any such event of default, and whether it is voluntary or
involuntary, or is effected by operation of law, or under any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body.
However, a default under clauses (4), (5) and (8) above will not constitute
an event of default until the trustee or the holders of 25%, in aggregate
principal amount at maturity, of the outstanding notes,
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notify Holdings, as provided in the indenture, of the default and Holdings does
not cure the default within the time specified in clauses (4) and (5) above,
after it receives notice.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25%, in aggregate principal amount at maturity, of the outstanding
notes, by notice to Holdings, may declare the Accreted Value of, and accrued but
unpaid interest on, all the notes to be due and payable. Upon such a
declaration, the Accreted Value and interest will be due and payable
immediately. If an event of default relating to certain events of bankruptcy,
insolvency or reorganization of Holdings occurs and is continuing, the Accreted
Value of, and accrued interest on, all the notes automatically will become due
and payable immediately, without any declaration or other act on the part of the
trustee or any holders. Under certain circumstances, the holders of a majority,
in aggregate principal amount at maturity, of the outstanding notes may rescind
any such acceleration, with respect to the notes, and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture, at the request or direction of any of the holders of notes, unless
those holders shall have offered to the trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder may
pursue any remedy with respect to the indenture or the notes unless:
- that holder shall have previously given the trustee notice that an event
of default is continuing;
- holders of at least 25%, in aggregate principal amount at maturity, of
the outstanding notes shall have requested the trustee to pursue the
remedy;
- those holders shall have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
- the trustee shall not have complied with such request, within 60 days
after the receipt of the request and the offer of security or indemnity;
and
- the holders of a majority, in principal amount at maturity, of the
outstanding notes shall not have given the trustee a direction
inconsistent with the request within the 60-day period.
Subject to certain restrictions, the holders of a majority, in principal
amount at maturity, of the outstanding notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee, or of exercising any trust or power conferred on the trustee. The
trustee, however, may refuse to follow any direction that conflicts with law or
the indenture, or that the trustee determines is unduly prejudicial to the
rights of any other holder of notes, or that would involve the trustee in
personal liability.
The indenture provides that if a default occurs and is continuing, and is
known to the trustee, the trustee must mail to each holder notice of the
default, within the earlier of 90 days after it occurs, or 30 days after it is
known to a trust officer or written notice of it is received by the trustee.
Except in the case of a default in the payment of principal of, premium, if any,
or interest on any note, the trustee may withhold notice, if and so long as a
committee of its trust officers in good faith determines that withholding notice
is not opposed to the interests of the note holders. In addition, Holdings is
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether its signers know of any default that
occurred during the previous year. Holdings is also required to deliver to the
trustee, within 30 days after its knowledge of the occurrence of the event,
written notice of any event which would constitute certain defaults, their
status, and what action Holdings is taking, or proposes to take, in respect of
such event.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended, and any past
default or compliance with any provisions may be waived, with the consent of the
holders of a majority, in principal amount at maturity, of the notes then
outstanding, including consents obtained in connection with a tender offer or
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exchange for the notes. However, without the consent of each holder of an
outstanding note affected, no amendment may, among other things:
- reduce the amount of notes whose holders must consent to an amendment;
- reduce the rate of, or extend the time for, payment of interest on any
note;
- reduce the principal of, or extend the Stated Maturity of, any note;
- reduce the premium payable upon the redemption of any note, or change the
time at which any note may be redeemed, as described under "-- Optional
Redemption;"
- make any note payable in money other than that stated in the note;
- impair the right of any holder to receive payment of principal of, and
interest on, the holder's notes on or after the due dates therefor, or to
institute suit for the enforcement of any payment on, or with respect to,
that holder's notes; or
- make any change in the amendment provisions which require each holder's
consent, or in the waiver provisions.
Without the consent of any holder, Holdings and the trustee may amend the
indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of Holdings' obligations under the
indenture, to provide for uncertificated notes in addition to, or in place of,
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal Revenue Code, or
in a manner such that the uncertificated notes are as described in Section
163(f)(2)(B) of the Internal Revenue Code, to add guarantees with respect to the
notes, to secure the notes, to add to Holdings' covenants for the benefit of the
note holders, or to surrender any right or power, conferred upon Holdings, to
make any change that does not materially adversely affect the rights of any
holder, and to comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
The holders' consent is not necessary, under the indenture, to approve the
particular form of any proposed amendment. It is sufficient if the consent
approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, Holdings is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
Upon any transfer or exchange, the registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents, and Holdings may require a holder to pay any taxes required by law or
permitted by the indenture, including any transfer tax or other similar
governmental charge payable in that connection. Holdings is not required to
transfer or exchange any note selected for redemption, or to transfer or
exchange any note for a period of 15 days prior to a selection of notes to be
redeemed. The notes will be issued in registered form, and the registered holder
of a note will be treated as the owner of that note for all purposes.
DEFEASANCE
Holdings at any time may terminate all its obligations under the notes and
the indenture, except for certain obligations, including:
- those respecting the defeasance trust, and obligations to register the
transfer or exchange of the notes;
- the obligation to replace mutilated, destroyed, lost or stolen notes; and
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- maintenance of a registrar and paying agent in respect of the notes.
Holdings at any time may terminate its obligations under:
- the covenants described under "-- Certain Covenants," other than the
covenant described under "Merger and Consolidation";
- the operation of the cross acceleration provision;
- the bankruptcy provisions with respect to Significant Subsidiaries and
the judgment default provision described under "-- Defaults;" and
- the limitations contained in clause (3) under "-- Merger and
Consolidation."
Holdings may exercise its legal defeasance option despite its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the notes may not be accelerated because of an
event of default with respect to that exercise. If Holdings exercises its
covenant defeasance option, payment of the notes may not be accelerated because
of an event of default as specified in clauses (4), (5), (6), (7) with respect
to Significant Subsidiaries only, or (8) under "-- Defaults," or because of
SpectraSite's failure to comply with clause (3) under "-- Merger and
Consolidation."
In order to exercise either defeasance option, Holdings must deposit, or
cause to be deposited, irrevocably in trust with the trustee, money or U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof, in accordance with their terms, will provide cash
at those times and in those amounts as will be sufficient to pay principal and
interest, when due, on all the notes, except lost, stolen or destroyed notes
which have been replaced or repaid, to maturity or redemption, as the case may
be. Holdings must comply with certain other conditions, including delivery to
the trustee of an opinion of counsel to the effect that the note holders will
not recognize income, gain or loss, for federal income tax purposes, as a result
of such deposit and defeasance, and will be subject to federal income tax on the
same amounts, in the same manner, and at the same times as would have been the
case if such deposit and defeasance had not occurred and, in the case of legal
defeasance only, this opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No Holdings director, officer, employee, incorporator or stockholder, as
such, shall have any liability for any of Holdings' obligations under the notes
or the indenture, or for any claim based on, in respect of, or by reason of,
those obligations or their creation. Each note holder, by accepting a note,
waives and releases all such liability. This waiver and release are part of the
consideration for issuance of the notes. This waiver may not be effective to
waive liabilities under the federal or state securities law, and it is the view
of the SEC that this type of a waiver is against public policy.
CONCERNING THE TRUSTEE
United States Trust Company of New York is the trustee under the indenture,
and Holdings has appointed it as registrar and paying agent with regard to the
notes.
The holders of a majority, in principal amount at maturity, of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding, for exercising any remedy available to the trustee,
subject to certain exceptions. The indenture provides that if an event of
default occurs and is not cured, the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in the conduct of
his or her own affairs. Subject to those provisions, the trustee will be under
no obligation to exercise any of its rights or powers under the indenture at the
request of any note holder, unless that holder shall have offered to the trustee
security and indemnity satisfactory to it, against any loss, liability or
expense, and then only to the extent required by the terms of the indenture.
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GOVERNING LAW
The indenture provides that it and the notes are governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all defined terms.
Accreted Value means, as of any date, with respect to each $1,000 principal
amount at maturity of notes:
1. if the specified date is one of the following semi-annual accrual dates, the
Accreted Value will equal the amount set forth opposite the date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------ --------------
<S> <C>
June 26, 1998.......................................... $ 554.97
January 15, 1999....................................... 591.90
July 15, 1999.......................................... 627.41
January 15, 2000....................................... 665.06
July 15, 2000.......................................... 704.96
January 15, 2001....................................... 747.26
July 15, 2001.......................................... 792.09
January 15, 2002....................................... 839.62
July 15, 2002.......................................... 890.00
January 15, 2003....................................... 943.40
July 15, 2003.......................................... 1,000.00
</TABLE>
2. if the specified date occurs between two semi-annual accrual dates, the
Accreted Value will equal the sum of:
a. the Accreted Value for the semi-annual accrual date immediately
preceding the specified date;
plus
b. an amount equal to the product of
- the Accreted Value for the immediately following semi-annual accrual
date, less the Accreted Value for the immediately preceding semi-annual
accrual date,
times
- a fraction, the numerator of which is the number of days elapsed from the
immediately preceding semi-annual accrual date to the specified date,
using a 360-day year of twelve 30-day months, and the denominator of
which is 180; or
3. if the specified date occurs after the last semi-annual accrual date, the
Accreted Value will equal $1,000.00.
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Adjusted EBITDA as of any date of determination, means the sum of:
1. Holdings' EBITDA for the four most recent full fiscal quarters ending prior
to such date, less Holdings' Tower EBITDA for such four-quarter period; plus
2. the product of four times Holdings' Tower EBITDA for the most recent
quarterly period. The Tower EBITDA for the most recent quarterly period
shall be determined on a pro forma basis after giving effect to:
a. all acquisitions or dispositions of assets Holdings and its subsidiaries
make, from the beginning of the quarter through, and including, the date
of determination, including any related financing transactions, as if
the acquisitions and dispositions had occurred at the beginning of the
quarter;
b. any new lease or Site Management Contract Holdings or any restricted
subsidiary enters into in the ordinary course of business, with respect
to Tower Assets, from the beginning of the quarter through, and
including, the date of determination, as if that new lease or Site
Management Contract had been signed at the beginning of the quarter, and
Holdings or a restricted subsidiary had received the rent required by
the terms of that lease or Site Management Contract, for that quarter,
during the quarter;
c. the loss from the beginning of the quarter through, and including, the
date of determination of any lease or Site Management Contract Holdings
or a restricted subsidiary has entered into, with respect to any Tower
Assets, that was in effect on the first day of the quarter, as if the
lease or Site Management Contract had not been in effect during that
quarter, and no rent under the lease had been received during the
quarter; and
d. any rent increases Holdings or any restricted subsidiary receives, from
the beginning of the quarter through, and including, the date of
determination related to leases or Site Management Contracts on Tower
Assets, as if the increased rental rate had been in effect at the
beginning of that quarter and Holdings or a restricted subsidiary had
received the increased amount of rent during the quarter.
For purposes of making the computation referred to above:
i. acquisitions that Holdings or any of its restricted subsidiaries
has made, including through mergers or consolidations, and
including any related financing transactions, during the reference
period, or subsequent to such reference period, and on or prior to
the date of determination, shall be deemed to have occurred on the
first day of the reference period, and EBITDA for the reference
period shall be calculated without giving effect to clause (2) of
the proviso set forth in the definition of Consolidated Net
Income; and
ii. the EBITDA attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of
prior to the date of determination, shall be excluded.
Affiliate of any specified person means any other person, directly or
indirectly, controlling or controlled by, or under direct or indirect common
control with, such specified person. For the purposes of this definition,
control, when used with respect to any person, means the power to direct the
management and policies of that person, directly or indirectly, whether through
the ownership of voting securities, by contract, or otherwise, and the terms
controlling and controlled have correlative meanings. For purposes of the
covenants in the indenture, Affiliate shall also mean any beneficial owner of
capital stock representing 10% or more of the total voting power of Holdings'
Voting Stock, on a fully diluted basis, or of rights or warrants to purchase
that amount of capital stock, whether or not currently exercisable, and any
person who would be an Affiliate of any such beneficial owner, according to the
first sentence in this definition.
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Asset Disposition means any sale, lease, transfer, or other disposition, or
series of related sales, leases, transfers, or dispositions, by Holdings or any
restricted subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction, of:
1. any shares of a restricted subsidiary's capital stock, other than directors'
qualifying shares, or shares required, by applicable law, to be held by a
person other than Holdings or a restricted subsidiary;
2. all or substantially all the assets of any of Holdings' or any restricted
subsidiary's division or line of business; or
3. any other of Holdings' or any restricted subsidiary's assets outside of the
ordinary course of business;
other than in the case of clauses (1), (2) and (3) above:
- a disposition by a restricted subsidiary, to Holdings, or by Holdings or
a restricted subsidiary, to a wholly-owned subsidiary:
- only for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock", a
disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments";
- a disposition of assets with a fair market value of less than $0.5
million;
- grants of leases or licenses in the ordinary course of business; and
- disposals of cash equivalents.
Attributable Indebtedness in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value, discounted at the interest
rate borne by the notes, compounded annually, of the total obligations of the
lessee, for rental payments during the remaining term of the lease included in
the Sale/Leaseback Transaction, including any period for which the lease has
been extended.
Average Life means, as of the date of determination, with respect to any
indebtedness or preferred stock, the quotient obtained by dividing:
1. the sum of the product of the numbers of years, from the date of
determination to the dates of each successive scheduled principal payment,
of that indebtedness, or redemption, or similar payment with respect to that
preferred stock, times the amount of the payment;
by
2. the sum of all such payments.
Change of Control means the occurrence of any of the following events:
1. prior to the first public offering of Holdings common stock, the Permitted
Holders cease to be the beneficial owners, as defined in Exchange Act Rules
13d-3 and 13d-5, directly or indirectly, of a majority, in the aggregate, of
the total voting power of Holdings' Voting Stock, whether as a result of:
- Holdings' issuance of any securities;
- any merger or consolidation of Holdings;
- any liquidation or dissolution of Holdings;
- any direct or indirect transfer of securities, by Holdings or otherwise.
For purposes of this paragraph (1) and paragraph (2) below, the Permitted
Holders shall be deemed to beneficially own any Voting Stock of an entity,
the specified entity, held by any other entity, the parent entity, so long
as the Permitted Holders beneficially own, directly or indirectly, in the
aggregate, a majority of the voting power of the parent entity's Voting
Stock;
2. subsequent to the first public offering of Holdings common stock, any
person, as such term is used in Exchange Act Sections 13(d) and 14(d), other
than one or more Permitted Holders, is or becomes
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the beneficial owner, as defined in paragraph (1) above, except that for
purposes of this paragraph (2) that person shall be deemed to have
beneficial ownership of all shares that the person has the right to acquire,
whether that right is exercisable immediately or only after the passage of
time, directly or indirectly, of more than 35% of the total voting power of
Holdings' Voting Stock. However, the Permitted Holders must beneficially
own, as defined in paragraph (1) above, directly or indirectly, in the
aggregate, a lesser percentage of the total voting power of Holdings' Voting
Stock than the other person, and do not have the right or ability, by voting
power, contract, or otherwise, to elect, or designate for election, a
majority of the Holdings board of directors.
For purposes of this paragraph (2), the other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if that other person is the beneficial owner, as defined in this
paragraph (2), directly or indirectly, of more than 35% of the voting power
of the parent entity's Voting Stock, and the Permitted Holders beneficially
own, as defined in paragraph (1) above, directly or indirectly, in the
aggregate, a lesser percentage of the voting power of the parent entity's
Voting Stock, and do not have the right or ability, by voting power,
contract, or otherwise, to elect, or designate for election, a majority of
the parent entity's board of directors;
3. during any period of two consecutive years, or, in the case this event
occurs within the first two years after the Issue Date, any shorter period
as shall have begun on the Issue Date, individuals who at the beginning of
that period constituted Holdings' board of directors, together with any new
directors whose election by Holdings' board of directors or whose nomination
for election by Holdings' shareholders was approved by a vote of a majority
of Holdings' directors then still in office who were either directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Holdings board of directors then in office;
4. Holdings' merger or consolidation with or into another person or the merger
of another person with or into Holdings, if Holdings' securities that are
outstanding immediately prior to the transaction and which represent 100% of
the aggregate voting power of Holdings' Voting Stock are changed into or
exchanged for cash, securities or property, unless as a result of that
transaction the securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after the transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation; and
5. the sale of all or substantially all of Holdings' assets to another person,
other than a Permitted Holder or a person who is controlled by the Permitted
Holders.
Completed Tower means a wireless transmission tower with, as of any date of
determination:
- at least one anchor tenant that has executed a definitive lease with
Holdings or any of its restricted subsidiaries; and
- capacity for at least three tenants.
Consolidated Indebtedness as of any date of determination means, without
duplication:
- the total amount of indebtedness of Holdings and its restricted
subsidiaries;
- the total amount of indebtedness of any other person, to the extent that
indebtedness has been guaranteed by Holdings or one or more of its
restricted subsidiaries; and
- the aggregate liquidation value of all of Holdings' Disqualified Stock
and all preferred stock of Holdings' restricted subsidiaries, in each
case determined on a consolidated basis in accordance with GAAP.
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Consolidated Interest Expense means, for any period, the total interest
expense of Holdings and its consolidated restricted subsidiaries, plus, to the
extent not included in that total interest expense, and to the extent incurred
by Holdings or its restricted subsidiaries, without duplication:
1. interest expense attributable to capital leases and to leases constituting
part of a Sale/Leaseback Transaction;
2. amortization of debt discount and debt issuance cost;
3. capitalized interest;
4. non-cash interest expense;
5. commissions, discounts, and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
6. net costs associated with hedging obligations, including amortization of
fees;
7. preferred stock dividends paid in respect of all of Holdings' and its
subsidiaries' preferred stock, held by persons other than Holdings or a
wholly-owned subsidiary of Holdings;
8. interest incurred in connection with Investments in discontinued operations;
9. interest accruing on any indebtedness of any other person, to the extent
that indebtedness is guaranteed by, or secured by the assets of, Holdings or
any restricted subsidiary; and
10. the cash contributions to any employee stock ownership plan or similar
trust, to the extent those contributions are used by the plan or trust to
pay interest or fees to any person, other than Holdings, in connection with
indebtedness incurred by that plan or trust.
Consolidated Net Income means, for any period, the net income or loss of
Holdings and its consolidated subsidiaries. The following, however, shall not be
included in Consolidated Net Income:
1. any net income or loss of any person, other than Holdings, if the person is
not a restricted subsidiary, except that:
a. subject to the exclusion contained in clause (4) below, Holdings' equity
in the net income of any such person, other than an Unrestricted
Subsidiary, for the period, shall be included in the Consolidated Net
Income up to the aggregate amount of cash actually distributed by that
person during that period, to Holdings or a restricted subsidiary, as a
dividend or other distribution, subject, in the case of a dividend or
other distribution paid to a restricted subsidiary, to the limitations
contained in clause (3) below; and
b. solely for purposes of calculating the Indebtedness to Adjusted EBITDA
Ratio, Holdings' equity in a net loss of any such person, other than an
Unrestricted Subsidiary, for that period, shall be included in
determining the Consolidated Net Income;
2. any net income or loss of any person, acquired by Holdings or a subsidiary,
in a pooling of interests transaction for any period prior to the date of
the acquisition;
3. any restricted subsidiary's net income, if the restricted subsidiary is
subject to restrictions, other than any restrictions contained in the New
Credit Facility, directly or indirectly, on the payment of dividends or the
making of distributions, directly or indirectly, to Holdings, except that:
a. subject to the exclusion contained in clause (4) below, Holdings' equity
in the net income of any restricted subsidiary for that period shall be
included in the Consolidated Net Income up to the aggregate amount of
cash actually distributed by the restricted subsidiary during that
period to Holdings or another restricted subsidiary as a dividend or
other distribution, subject, in the case of a dividend or other
distribution paid to another restricted subsidiary, to the limitation
contained in this clause; and
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b. solely for purposes of calculating the Indebtedness to Adjusted EBITDA
Ratio, Holdings' equity in a net loss of any restricted subsidiary, for
that period, shall be included in determining the Consolidated Net
Income;
4. any gain or loss realized upon the sale or other disposition of any assets
of Holdings, its consolidated subsidiaries, or any other person, including
as a result of any Sale/Leaseback Transaction, which are not sold or
otherwise disposed of in the ordinary course of business, and any gain or
loss realized upon the sale or other disposition of any capital stock of any
person;
5. any Unrestricted Subsidiary's net income or loss, whether or not distributed
to Holdings or one of its subsidiaries;
6. any extraordinary gain or loss; and
7. the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, only for the purposes of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances, or other transfers of assets, from Unrestricted
Subsidiaries, to Holdings or a restricted subsidiary, to the extent those
dividends, repayments, or transfers increase the amount of Restricted Payments
permitted under that covenant, according to the terms of clause (1)(c)(iv)
thereof.
Consolidated Tangible Assets means, with respect to Holdings, the total
consolidated tangible assets of Holdings and its restricted subsidiaries, as
shown on the most recent internal consolidated balance sheet of Holdings and the
restricted subsidiaries, calculated on a consolidated basis in accordance with
GAAP.
Disqualified Stock means, with respect to any person, any capital stock
which, by its terms, or by the terms of any security into which it is
convertible, or for which it is exchangeable, or upon the happening of any
event:
1. matures or is mandatorily redeemable under a sinking fund obligation or
otherwise;
2. is convertible or exchangeable for indebtedness or Disqualified Stock; or
3. is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the 91st day after the Stated Maturity of the
notes.
Capital stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require the person to
repurchase or redeem the capital stock, upon the occurrence of an asset sale or
change of control occurring prior to the 91st day after the Stated Maturity of
the notes, shall not constitute Disqualified Stock, if the asset sale or change
of control provisions applicable to that capital stock are not more favorable to
the holders of the capital stock than the provisions described under "-- Change
of Control," and " -- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock."
EBITDA for any period, means the sum of Consolidated Net Income, plus the
following, to the extent deducted in calculating the Consolidated Net Income:
1. Consolidated Interest Expense;
2. all income tax expense of Holdings and its consolidated restricted
subsidiaries;
3. depreciation expense of Holdings and its consolidated restricted
subsidiaries;
4. amortization expense of Holdings and its consolidated restricted
subsidiaries, excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period;
5. all other non-cash charges of Holdings and its consolidated restricted
subsidiaries, excluding any such non-cash charge to the extent that it
represents an accrual of, or reserve for, cash expenditures in any future
period; and
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6. any premium or penalty paid in connection with repurchasing, redeeming,
retiring, defeasing or acquiring any indebtedness prior to maturity, to the
extent deducted in calculating Consolidated Net Income, in each case, for
the period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges of, a
restricted subsidiary, shall be added to Consolidated Net Income to compute
EBITDA only to the extent, and in the same proportion, that the net income of
the restricted subsidiary was included in calculating Consolidated Net Income,
and only if a corresponding amount would be permitted, at the date of
determination, to be dividended to Holdings by the restricted subsidiary without
prior approval, that has not been obtained, according to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to the restricted subsidiary or
its stockholders, without in any event giving effect to any restrictions or
limitations contained in the New Credit Facility.
GAAP means generally accepted accounting principles in the United States of
America as in effect as of the Issue Date, including those set forth in:
1. the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants;
2. statements and pronouncements of the Financial Accounting Standards Board;
3. other statements by other entities as approved by a significant segment of
the accounting profession; and
4. the rules and regulations of the SEC governing the inclusion of financial
statements, including pro forma financial statements, in periodic reports
required to be filed under Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC.
Indebtedness to Adjusted EBITDA Ratio as of any date of determination means
the ratio of:
- Consolidated Indebtedness as of that date;
to
- Adjusted EBITDA.
Investment in any person means any:
- direct or indirect advance or loan, other than advances to customers in
the ordinary course of business that are recorded as accounts receivable
on the balance sheet of that person, or other extension of credit,
including by way of guarantee or similar arrangement,
- capital contribution, by means of any transfer of cash or other property
to others or any payment for property or services for the account or use
of others, or
- any purchase or acquisition of, capital stock, Indebtedness or other
similar instruments issued by the person.
For purposes of the definitions of Unrestricted Subsidiary and Restricted
Payment, and the "Limitation on Restricted Payments" covenant:
1. Investment shall include the portion, proportionate to Holdings' equity
interest in its subsidiary of the fair market value of the net assets of any
of Holdings' subsidiaries at the time that the subsidiary is designated an
Unrestricted Subsidiary. However, upon a redesignation of the subsidiary as
a restricted
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subsidiary, Holdings shall be deemed to continue to have a permanent
Investment in an Unrestricted Subsidiary of an amount, if positive, equal
to:
a. Holdings' Investment in that subsidiary at the time of the
redesignation; less
b. the portion, proportionate to Holdings' equity interest in the
subsidiary, of the fair market value of the net assets of the subsidiary
at the time the subsidiary is so re-designated a restricted subsidiary;
and
2. any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of the transfer, in each case as
the board of directors determines in good faith, and evidenced by a board of
directors resolution.
Issue Date means the date on which the outstanding notes were originally
issued.
Lien means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including any conditional sale or other title retention
agreement, or lease in the nature thereof.
Net Available Cash from an Asset Disposition means cash payments received,
including any cash payments received by way of deferred payment of principal,
under a note or installment receivable or otherwise and proceeds from the sale,
or other disposition, of any securities received as consideration, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person, of indebtedness or other obligations
relating to those properties or assets, or received in any other non-cash form,
from that Asset Disposition, in each case net of:
1. all legal, title, accounting, investment banking and recording tax expenses,
commissions and other fees and expenses incurred, and all federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of the Asset Disposition;
2. all payments made on any indebtedness, which is secured by any assets
subject to the Asset Disposition, in accordance with the terms of any Lien
upon, or other security arrangement of any kind with respect to, those
assets, or which must by its terms, or in order to obtain a necessary
consent to that Asset Disposition, or by applicable law, be repaid out of
the proceeds from the Asset Disposition;
3. all distributions and other payments required to be made to minority
interest holders in restricted subsidiaries or joint ventures as a result of
the Asset Disposition;
4. the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in the Asset Disposition, and retained by Holdings or
any restricted subsidiary after the Asset Disposition; and
5. any reserves established in respect of the sales price of the asset for
post-closing adjustments, indemnification purposes or employee termination
expenses.
Net Cash Proceeds, with respect to any issuance or sale of capital stock,
means the cash proceeds of that issuance or sale, net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees and expenses
actually incurred in connection with the issuance or sale, and net of taxes paid
or payable as a result thereof.
New Credit Facility means that certain credit facility entered into by
Holdings' wholly-owned subsidiary, SpectraSite Communications, Inc., according
to the terms of a commitment letter from Credit Suisse First Boston to
SpectraSite Communications dated December 22, 1997, which was renewed through
March 31, 1999, including all collateral documents, instruments and agreements
executed in that connection; the term New Credit Facility also shall include any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings and any credit facilities that replace, refund or refinance any part
of the loans, other credit facilities or commitments under the New Credit
Facility, including any replacement, refunding or refinancing facility that
increases the amount borrowable under, or alters the maturity of, the New Credit
Facility.
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Non-Recourse Debt means indebtedness:
1. as to which neither Holdings nor any restricted subsidiary:
a. provides any guarantee or credit support of any kind, including any
undertaking, guarantee, indemnity, agreement or instrument that would
constitute indebtedness; or
b. is directly or indirectly liable, as a guarantor or otherwise; and
2. as to which no default, including any rights that the debt holders may have
to take enforcement action against an Unrestricted Subsidiary, would permit,
upon notice, lapse of time or both, any holder of any other of Holdings' or
any restricted subsidiary's indebtedness, to declare a default under that
other indebtedness, or cause the payment of that other indebtedness to be
accelerated or payable prior to its stated maturity.
Permitted Business means any business Holdings and its restricted
subsidiaries conducted on the Issue Date and any other business related,
ancillary or complementary to any such business.
Permitted Holders means any or all of Stephen H. Clark, David P. Tomick,
Joe L. Finley, III, Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information
Partners, L.P., WCAS Capital Partners III, L.P., their respective general
partners, employees of Welsh, Carson, Anderson & Stowe, CIBC W6 Argosy Merchant
Fund 2, L.L.C., Co-Investment Merchant Fund 3, LLC, Caravelle Investment Fund,
L.L.C., Tower Parent Corp., Whitney Equity Partners, L.P., J.H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., J.H. Whitney Mezzanine Fund, L.P.,
Waller-Sutton Media Partners, L.P., Kitty Hawk Capital Limited Partnership, III,
Kitty Hawk Capital Limited Partnership, IV, Eagle Creek Capital, L.L.C., The
North Carolina Enterprise Fund, L.P., Finley Family Limited Partnership, and
their respective Affiliates.
Permitted Investment means any of Holdings' or a restricted subsidiary's
Investment in:
1. Holdings, a wholly-owned subsidiary, or a person which will, upon the making
of that Investment, become a wholly-owned subsidiary, but a loan or other
extension of credit by Holdings or a restricted subsidiary, to a restricted
subsidiary that is not a wholly-owned subsidiary, also will constitute a
Permitted Investment; and provided, however, that the primary business of
the person in which any such Investment is made is a Permitted Business; and
2. another person if, as a result of that Investment, the other person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a restricted subsidiary;
provided, however, that the person's primary business is a Permitted
Business;
3. Temporary Cash Investments;
4. receivables owing to Holdings or any restricted subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that these trade
terms may include concessionary trade terms which Holdings or any such
restricted subsidiary deems reasonable under the circumstances;
5. payroll, travel and similar advances to cover matters that are expected, at
the time of the advances, ultimately to be treated as expenses for
accounting purposes, and that are made in the ordinary course of business;
6. loans or advances to employees made in the ordinary course of business,
consistent with the past practices of Holdings or such restricted
subsidiary, but in any event not to exceed $2.0 million in the aggregate
outstanding at any one time;
7. stock, obligations, or securities, received in settlement of debts created
in the ordinary course of business and owing to Holdings or any restricted
subsidiary, or in satisfaction of judgments;
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8. any person, to the extent the investment represents the non-cash portion of
the consideration received for an Asset Disposition as permitted according
to the terms of the covenant described under "--Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
9. Holdings' or any restricted subsidiary's capital stock, purchased, redeemed
or otherwise acquired or retired for value from members of Holdings'
management or employees, but in any event not to exceed $0.5 million in the
aggregate in any twelve-month period;
10. other Investments in Permitted Businesses not to exceed, at any one time
outstanding, each such Investment being measured as of the date made and
without giving effect to subsequent changes in value, the greater of:
a. $5.0 million; and
b. 5% of Holdings' Consolidated Tangible Assets;
11. any interest rate protection agreement or currency exchange protection
agreement;
12. any acquisition of assets solely in exchange for the issuance of Holdings'
capital stock, other than Disqualified Stock;
13. prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits;
and
14. deposits of proceeds from Asset Dispositions with a qualified intermediary,
qualified trustee or similar person for purposes of facilitating a like-kind
exchange made in accordance with the applicable provisions of the Internal
Revenue Code; provided, however, that the making of any Permitted Investment
according to the terms of this clause (14) will not in any manner violate
the covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock."
Permitted Liens means, with respect to any person:
1. pledges or deposits by that person, under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts, other than for the payment of
indebtedness, or leases to which the person is a party, or deposits to
secure public or statutory obligations of such person, or deposits or cash
or United States government bonds to secure surety or appeal bonds to which
the person is a party, or deposits as security for contested taxes or import
duties, or for the payment of rent, in each case incurred in the ordinary
course of business;
2. Liens imposed by law, such as carriers' warehousemen's, landlords' and
mechanics' Liens, in each case for sums not yet due, or being contested in
good faith by appropriate proceeding, or judgment Liens not giving rise to
an event of default so long as any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated, or the period within which such proceedings may be
initiated shall not have expired;
3. Liens for property taxes not yet subject to penalties for non-payment, or
which are being contested in good faith by appropriate proceedings;
4. Liens in favor of issuers of surety bonds or letters of credit issued upon
the request of, and for the account of, such person in the ordinary course
of its business;
5. minor survey exceptions, minor encumbrances, easements or reservations of,
or rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties, or Liens incidental to the
conduct of the business of such person, or to the ownership of its
properties, which were not incurred in connection with indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of the person;
6. Liens securing hedging obligations, so long as the related indebtedness is,
and the indenture permits it to be, secured by a Lien on the same property
securing those hedging obligations;
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7. leases and subleases of real property which do not interfere with Holdings'
or any of its restricted subsidiaries' ordinary conduct of business, and
which are made on customary and usual terms applicable to similar
properties;
8. Liens existing as of the date on which the notes are originally issued, and
Liens which the indenture created;
9. Liens created solely for the purpose of securing the payment of all, or a
part of, the purchase price of assets or property acquired or constructed in
the ordinary course of business, after the date on which the notes are
originally issued; provided, however, that:
a. the aggregate principal amount of indebtedness secured by the Liens
shall not exceed the aggregate purchase price of the assets or property
so acquired or constructed;
b. the indebtedness secured by the Liens is indebtedness which the
indenture otherwise permits to be incurred; and
c. the Liens shall not encumber any other of Holdings' or any of its
restricted subsidiaries' assets or property, and shall attach to the
assets or property within 90 days of the construction or acquisition of
the assets or property;
10. Liens on a restricted subsidiary's assets or property, existing at the time
the restricted subsidiary became a Holdings subsidiary, and not incurred as
a result of, in connection with, or in anticipation of the restricted
subsidiary becoming a Holdings subsidiary; provided, however, that:
a. any such Lien does not by its terms cover any property or assets after
the time the restricted subsidiary becomes a subsidiary, which were not
covered immediately prior to the transaction;
b. the indebtedness secured by these Liens is indebtedness which the
indenture otherwise permits to be incurred; and
c. these Liens do not extend to or cover any other property or assets of
Holdings or any of its restricted subsidiaries;
11. Liens securing indebtedness outstanding under the New Credit Facility;
12. Liens extending, renewing or replacing, in whole or in part, a Lien the
indenture permits; provided, however, that:
a. these Liens do not extend beyond the property subject to the existing
Lien, and improvements and construction on that property; and
b. the indebtedness the Lien secures may not exceed the indebtedness the
existing Lien secured at the time;
13. Liens incurred in the ordinary course of business, by Holdings or any
restricted subsidiary of Holdings, with respect to obligations that do not
exceed $5.0 million at any one time outstanding, and that:
a. are not incurred in connection with the borrowing of money or the
obtaining of advances of credit, other than trade credit in the ordinary
course of business; and
b. do not, in the aggregate, materially detract from the value of the
property, or materially impair their use in the operation of business by
Holdings or the restricted subsidiary;
14. Liens in favor of Holdings or a wholly-owned subsidiary of Holdings;
15. any interest in or title of a lessor to any property subject to a capital
lease obligation the indenture permits to be incurred;
16. Liens on Unrestricted Subsidiaries' capital stock; and
17. Liens granted under the security and subordination agreement executed in
connection with the Nextel tower acquisition.
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Principal of a note means the principal of the note plus the premium, if
any, payable on the note, which is due or overdue or is to become due at the
relevant time.
Qualified Proceeds means assets that are used or useful in, or capital
stock of any person engaged in, a Permitted Business.
Refinancing Indebtedness means indebtedness that refinances any of
Holdings' or any restricted subsidiary's indebtedness existing on the date of
the indenture, or incurred in compliance with the indenture, including any of
Holdings' indebtedness that refinances any restricted subsidiary's indebtedness,
and any restricted subsidiary's indebtedness that refinances another restricted
subsidiary's indebtedness, including indebtedness that refinances Refinancing
Indebtedness; provided, however, that:
1. the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the indebtedness being refinanced;
2. the Refinancing Indebtedness has an Average Life, at the time the
Refinancing Indebtedness is incurred, that is equal to or greater than the
Average Life of the indebtedness being refinanced; and
3. the Refinancing Indebtedness is incurred in an aggregate principal amount,
or if issued with original issue discount, an aggregate issue price, that is
equal to or less than the sum of the aggregate principal amount, or if
issued with original issue discount, the aggregate Accreted Value, then
outstanding or committed, plus fees and expenses, including any premium and
defeasance costs, under the indebtedness being refinanced; provided,
however, that Refinancing Indebtedness shall not include:
a. any of a subsidiary's indebtedness that refinances any of Holdings'
indebtedness; or
b. any of Holdings' or a subsidiary's indebtedness that refinances an
Unrestricted Subsidiary's indebtedness.
Restricted Payment with respect to any person means:
1. the declaration or payment of any dividends or any other distributions of
any sort in respect of its capital stock, or similar payment to the direct
or indirect holders of its capital stock, other than dividends or
distributions payable solely in its capital stock, other than Disqualified
Stock, and dividends or distributions payable solely to Holdings or a
restricted subsidiary, and other than pro rata dividends or other
distributions, made by a subsidiary that is not a wholly-owned subsidiary of
Holdings, to minority stockholders, or owners of an equivalent interest, in
the case of a subsidiary that is an entity other than a corporation;
2. the purchase, redemption or other acquisition or retirement for value of any
of Holdings' capital stock held by any person, or of any of a restricted
subsidiary's capital stock held by any person, other than Holdings or a
restricted subsidiary, including the exercise of any option to exchange any
capital stock, other than into Holdings' capital stock that is not
Disqualified Stock, other than as permitted by clause (9) of the definition
of Permitted Investments;
3. the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of, any subordinated obligations, other than
the purchase, repurchase or other acquisition of subordinated obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition; or
4. the making of any Investment in any person, other than a Permitted
Investment.
Sale/Leaseback Transaction means an arrangement relating to property now
owned or hereafter acquired, whereby Holdings or a restricted subsidiary
transfers that property to a person, and Holdings or a restricted subsidiary
leases it from that person.
Secured Indebtedness means any of Holdings' indebtedness secured by a Lien.
Significant Subsidiary means any restricted subsidiary that would be a
Significant Subsidiary of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
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Site Management Contract means any agreement under which Holdings, or any
of its restricted subsidiaries, has the right to substantially control Tower
Assets and the revenues derived from their rental or use.
Stated Maturity means, with respect to any security, the date specified in
that security as the fixed date on which the payment of principal of the
security is due and payable, including according to any mandatory redemption
provision, but excluding any provision providing for the repurchase of the
security at the holder's option upon the happening of any contingency beyond
Holdings' control, unless the contingency has occurred.
Temporary Cash Investments means any of the following:
1. any investment in direct obligations of the United States of America or any
of its agencies, or obligations guaranteed by the United States of America
or any of its agencies;
2. investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition, issued
by a bank or trust company which is organized under the laws of the United
States of America or any State or any foreign country recognized by the
United States of America, having capital, surplus and undivided profits
aggregating in excess of $500.0 million, or the foreign currency equivalent,
and whose long-term debt is rated A, or a similar equivalent rating or
higher by at least one nationally recognized statistical rating
organization, as defined in Rule 436 under the Securities Act, or any money
market fund sponsored by a registered broker dealer or mutual fund
distributor;
3. repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (1) above, entered into with a
bank, meeting the qualifications described in clause (2) above;
4. investments in commercial paper, maturing not more than 90 days after the
date of acquisition, issued by a corporation, other than a Holdings
Affiliate, organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America,
with a rating at the time of investment of at least P-1 according to Moody's
Investors Service, Inc. or at least A-1 according to Standard & Poor's
Ratings Group; and
5. investments in securities with maturities of six months or less from the
date of acquisition, issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least A by Standard &
Poor's Ratings Group or A by Moody's Investors Service, Inc.
The Trust Indenture Act means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the date of the indenture.
Tower Asset Exchange means any transaction in which Holdings or a
restricted subsidiary exchanges assets for Tower Assets, or Tower Assets and
cash or cash equivalents, where the fair market value, evidenced by a board of
directors resolution, set forth in an officer's certificate delivered to the
trustee, of the Tower Assets and cash or cash equivalents which Holdings and its
restricted subsidiaries received in that exchange, is at least equal to the fair
market value of the assets disposed in the exchange.
Tower Assets means wireless communication transmission towers and related
assets that are located on the site of a transmission tower.
Tower EBITDA means, for any period, the EBITDA of Holdings and its
restricted subsidiaries for the period that is directly attributable to site
rental revenue or license or management fees, paid to manage, lease or sublease
space on communication sites owned, leased or managed by Holdings, collectively,
site leasing revenues, all determined on a consolidated basis and in accordance
with GAAP. Tower EBITDA will not include revenue derived from the sale of
assets. In allocating corporate, general, administrative and other operating
expenses that are not allocated to any particular line of business in Holdings'
financial
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statements, those expenses shall be allocated to Holdings' site leasing business
in proportion to the percentage of Holdings' total revenues, for the applicable
period, that were site leasing revenues.
Unrestricted Subsidiary means:
1. any Holdings subsidiary that, at the time of determination, shall be
designated an Unrestricted Subsidiary by the board of directors in the
manner provided below; and
2. any subsidiary of an Unrestricted Subsidiary.
The board of directors may designate any Holdings subsidiary, including any
newly acquired or newly formed Holdings subsidiary, to be an Unrestricted
Subsidiary unless that subsidiary, or any of its subsidiaries, owns any capital
stock or indebtedness of, or owns or holds any Lien on any property of, Holdings
or any other restricted subsidiary, that is not a subsidiary of the subsidiary
to be so designated; provided, however, that either:
a. the subsidiary designated as an Unrestricted Subsidiary has total
consolidated assets of $1,000 or less; or
b. if the subsidiary has consolidated assets greater than $1,000, then the
designation would be permitted under "Limitation on Restricted
Payments."
The board of directors may designate any Unrestricted Subsidiary to be a
restricted subsidiary, as long as, immediately after giving effect to such
designation:
- Holdings would have been permitted to incur at least $1.00 of additional
indebtedness according to the terms of paragraph (1) of the "Limitation
on Indebtedness" covenant above; and
- no default shall have occurred and be continuing. Any such designation by
the board of directors shall be evidenced to the trustee by promptly
filing with the trustee a copy of the board of directors resolution
giving effect to the designation, and an officer's certificate certifying
that the designation complied with the foregoing provisions.
U.S. Government Obligations means direct obligations, or certificates
representing an ownership interest in direct obligations, of the United States
of America, including any agency or instrumentality of the United States, for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at Holdings' option.
Voting Stock of a person means all classes of capital stock or other
interests, including partnership interests, of that person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of the person's directors, managers, or trustee.
BOOK-ENTRY; DELIVERY AND FORM
The registered notes will be issued in the form of a Global Senior Note.
The Global Senior Note will be deposited with, or on behalf of, the Depository
and registered in the name of the Depository or its nominee. Except as set forth
below, the Global Senior Note may be transferred, in whole and not in part, only
to the Depository or another nominee of the Depository. Investors may hold their
beneficial interests in the Global Senior Note directly through the Depository
if they have an account with the Depository, or indirectly through organizations
which have accounts with the Depository.
Notes that are issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of a Senior Note in definitive
form, such Senior Note will be exchanged for an interest in the Global Senior
Note representing the principal amount at maturity of notes being transferred,
unless the Global Senior Note has previously been exchanged for notes in
definitive form.
The Depository has advised Holdings as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the provisions of Section 17A of the Exchange Act. The
Depository was created to hold
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securities of institutions that have accounts with the Depository (participants)
and to facilitate the clearance and settlement of securities transactions, among
its participants, in such securities, through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Access to the Depository's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Upon the issuance of the Global Senior Note, the Depository will credit, on
its book-entry registration and transfer system, the principal amount at
maturity of the notes represented by such Global Senior Note, to the accounts of
participants. The accounts to be credited shall be designated by the notes'
Initial Purchasers. Ownership of beneficial interests in the Global Senior Note
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Senior Note will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository, with respect to participants'
interest, and such participants, with respect to the owners of beneficial
interests in the Global Senior Note other than participants. The laws of some
jurisdictions may require that certain securities purchasers take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Senior
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Senior Note, the Depository or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related notes for
all purposes of such notes and the Indenture. Except as set forth below, owners
of beneficial interests in the Global Senior Note will not be entitled to have
the notes represented by the Global Senior Note registered in their names, will
not receive or be entitled to receive physical delivery of certificated notes in
definitive form, and will not be considered to be the owners or holders of any
notes under the Global Senior Note. Holdings understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Senior Note desires to take any action that the Depository, as the holder of the
Global Senior Note, is entitled to take, the Depository would authorize the
participants to take such action, and the participants would authorize
beneficial owners, owning through such participants, to take such action, or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of, and interest on, notes represented by the Global
Senior Note registered in the name of, and held by, the Depository or its
nominee will be made to the Depository, or its nominee, as the case may be, as
the registered owner and holder of the Global Senior Note.
Holdings expects that the Depository, or its nominee, upon receipt of any
payment of principal of, or interest on, the Global Senior Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Senior
Note as shown on the records of the Depository or its nominee. Holdings also
expects that payments by participants, to owners of beneficial interests in the
Global Senior Note held through such participants, will be governed by standing
instructions and customary practices, and will be the responsibility of such
participants. Holdings will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Senior Note for any Senior Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between the
Depository and its participants, or the relationship between such participants
and the owners of beneficial interests in the Global Senior Note owning through
such participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the Global Senior Note may not be transferred, except as a
whole, by the Depository to a nominee of such Depository, or by a nominee of
such Depository to such Depository or another nominee of such Depository.
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Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Senior Note among participants
of the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the trustee nor Holdings will have any responsibility for the performance by the
Depository or its participants or indirect participants, of their respective
obligations, under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the Global Senior Note are exchangeable for
certificated notes, in definitive form of like tenor as such notes, in
denominations of U.S. $1,000 and integral multiples thereof if:
- the Depository notifies Holdings that it is unwilling or unable to
continue as Depository of the Global Senior Note, or if at any time the
Depository ceases to be a clearing agency registered under the Exchange
Act and a successor Depository is not appointed by Holdings within 90
days;
- Holdings in its discretion at any time determines not to have all of the
notes represented by the Global Senior Note; or
- an event of default has occurred and is continuing. Any Global Senior
Note that is exchangeable according to the terms of the preceding
sentence, is exchangeable for certificated notes, issuable in authorized
denominations and registered in such names as the Depository shall
direct. Subject to the foregoing, the Global Senior Note is not
exchangeable, except for a Global Senior Note of the same aggregate
denomination to be registered in the name of the Depository or its
nominee. In addition, such certificates will bear the legend referred to
under "Transfer Restrictions," unless Holdings determines otherwise in
accordance with applicable law, subject, with respect to such notes, to
the provisions of such legend.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
GENERAL
The following is a summary of the material United States federal income,
estate and gift tax consequences of the purchase, ownership and disposition of
the notes, but is not purported to be a complete analysis of all potential tax
effects. This summary is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive or prospective. Unless otherwise specifically noted, this summary
applies only to those persons who hold the notes as capital assets within the
meaning of Section 1221 of the Internal Revenue Code. This discussion assumes
that the notes will be treated as indebtedness for United States federal income
tax purposes.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES, SUCH AS FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, S CORPORATIONS,
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, BROKER-DEALERS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND PERSONS THAT WILL HOLD THE
NOTES AS PART OF A POSITION IN A STRADDLE OR AS PART OF A CONSTRUCTIVE SALE OR A
HEDGING OR CONVERSION TRANSACTION, OR ADDRESS ASPECTS OF FEDERAL TAXATION THAT
MIGHT BE RELEVANT TO A PROSPECTIVE INVESTOR BASED UPON SUCH INVESTOR'S
PARTICULAR TAX SITUATION. THIS SUMMARY DOES NOT ADDRESS ANY TAX CONSEQUENCES
ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF
THE NOTES, INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES HOLDER OR A
NON-UNITED STATES HOLDER, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION.
EFFECT OF EXCHANGE OF OUTSTANDING NOTES FOR REGISTERED NOTES
SpectraSite believes that the exchange of outstanding notes for registered
notes under the registered exchange offer will not be treated as an exchange for
federal income tax purposes because the registered notes will not be considered
to differ materially in kind or extent from the outstanding notes. Rather, the
registered notes received by a holder will be treated as a continuation of the
outstanding notes in the hands of such holder. As a result, holders will not
recognize any taxable gain or loss or any interest income as a result of
exchanging outstanding notes for registered notes under the exchange offer, the
holding period of the registered notes will include the holding period of the
outstanding notes, and the basis of the registered notes will equal the basis of
the outstanding notes immediately before the exchange.
UNITED STATES HOLDERS
GENERAL. The following is a general discussion of certain United States
federal income tax consequences of the ownership and sale or other disposition
of the notes by a beneficial owner that, for United States federal income tax
purposes, is a United States person. For purposes of this discussion, a United
States person means a citizen or individual resident, as defined in Section
7701(b) of the Internal Revenue Code, of the United States; a corporation or
partnership, including any entity treated as a corporation or partnership for
United States federal income tax purposes, created or organized under the laws
of the United States, any State thereof or the District of Columbia unless, in
the case of a partnership, otherwise provided by regulation; an estate the
income of which is subject to United States federal income tax without regard to
its source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date that
elect to continue to be so treated shall also be considered to be United States
persons.
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ORIGINAL ISSUE DISCOUNT. Because the notes were issued at a discount from
their stated redemption price at maturity, the notes have original issue
discount for federal income tax purposes. The amount of original issue discount
generally equals the excess of the note's stated redemption price at maturity
over its issue price. The note's issue price is the first price at which a
substantial amount of the notes is sold, excluding sales to bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters or
wholesalers. The note's stated redemption price at maturity is the sum of all
cash payments to be made on such note, whether denominated as principal or
interest, other than payments of qualified stated interest. Qualified stated
interest is stated interest that is unconditionally payable at least annually at
a single fixed rate that appropriately takes into account the length of the
interval between payments. Because there will be no required payment of interest
on the notes prior to January 15, 2004, none of the interest payments on the
notes constitute qualified stated interest; and, accordingly, each note bears
original issue discount in an amount equal to the excess of the sum of its
principal amount and all stated interest payments, over its issue price.
A United States holder is required to include original issue discount in
gross income periodically over the term of a note before receipt of the cash or
other payment attributable to such income, regardless of such holder's method of
tax accounting. The amount to be included for any taxable year is the sum of the
daily portions of original issue discount with respect to the note for each day
during the taxable year or portion of a taxable year during which such holder
holds the note. The daily portion is determined by allocating to each day of any
accrual period within a taxable year a pro rata portion of an amount equal to
the note's adjusted issue price at the beginning of the accrual period
multiplied by the note's yield to maturity. For purposes of computing original
issue discount, SpectraSite will use six-month accrual periods that end on the
days in the calendar year corresponding to the maturity date of the notes and
the date six months prior to such maturity date, with the exception of an
initial short accrual period. A United States holder is permitted to use
different accrual periods; provided that each accrual period is no longer than
one year, and each scheduled payment of interest or principal occurs on either
the first or last day of an accrual period. The adjusted issue price of a note
at the beginning of any accrual period is its issue price increased by the
amount of original issue discount previously includible in the gross income of
the holder and decreased by any payments previously made on the note. The note's
yield to maturity is the discount rate that, when used in computing the present
value of all payments of principal and interest to be made on a note, produces
an amount equal to the issue price of the note. Under these rules, United States
holders are required to include in gross income increasingly greater amounts of
original issue discount in each successive accrual period. Payments of stated
interest on a note will not be separately included in income, but rather will be
treated first as payments of previously accrued original issue discount and then
as payments of principal and, consequently, will reduce a United States holder's
basis in a note as described below under "-- United States Holders -- Sale,
Exchange or Redemption of the Notes."
SpectraSite intends to treat the possibility of an optional redemption, as
described under "Description of the Notes -- Optional Redemption," and a
repurchase made upon a change in control, as described under "Description of the
Notes -- Change of Control," as not affecting the determination of the yield to
maturity of the notes, or giving rise to any additional accrual of original
issue discount or recognition of ordinary income upon the redemption, sale or
exchange of a note.
ACQUISITION PREMIUM. A United States holder that purchases a note for an
amount that is greater than its adjusted issue price as of the purchase date
will be considered to have purchased such note at an acquisition premium. The
amount of original issue discount that such holder must include in its gross
income with respect to such note for any taxable year is generally reduced by
the portion of such acquisition premium properly allocable to such year. The
information reported by SpectraSite to the record holders of the notes on an
annual basis will not account for an offset against original issue discount for
any portion of the acquisition premium. Accordingly, each United States holder
should consult its own tax advisor as to the determination of the acquisition
premium amount and the resulting adjustments to the amount of reportable
original issue discount.
AMORTIZABLE BOND PREMIUM. A United States holder that purchases a note for
an amount in excess of its principal amount will be considered to have purchased
the note at a premium and may elect to
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amortize such premium, using a constant yield method, over the remaining term of
the note, or, if a smaller amortization allowance would result, by computing
such allowance with reference to the amount payable on an earlier call date and
amortizing such allowance over the shorter period to such call date. The amount
amortized in any year will be treated as a reduction of the United States
holder's interest income from the note. Bond premium on a note held by a United
States holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the note. The election
to amortize bond premium on a constant yield method, once made, applies to all
debt obligations held or subsequently acquired by the electing United States
holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service.
MARKET DISCOUNT. If a United States holder purchases, subsequent to its
original issuance, a note for an amount that is less than its revised issue
price as of the purchase date, the amount of the difference generally will be
treated as market discount, unless such difference is less than a specified de
minimis amount. The Internal Revenue Code provides that the revised issue price
of a note equals its issue price plus the amount of original issue discount
includable in the income of all holders for periods prior to the purchase date,
disregarding any deduction for acquisition premium, reduced by the amount of all
prior cash payments on the note. Subject to a de minimis exception, a United
States holder will be required to treat any gain recognized on the sale,
exchange, redemption, retirement or other disposition of the note as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. In addition, the United States holder may be required to
defer, until the maturity date of the note or its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the United
States holder elects to accrue market discount on a constant interest method. A
United States holder of a note may elect to include market discount in income
currently as it accrues, under either the ratable or constant interest method.
This election to include currently, once made, applies to all market discount
obligations acquired in or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service. If the United States holder of a note makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such instruments, and with respect to the deferral of
interest deductions on debt incurred or maintained to purchase or carry such
debt instruments, would not apply.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. A United States
holder of a note may elect, subject to certain limitations, to include all
interest that accrues on a note in gross income on a constant yield basis. For
purposes of this election, interest includes stated interest, original issue
discount, market discount, de minimis original issue discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. Special rules and limitations apply to taxpayers who make
this election; therefore, United States holders should consult their tax
advisors as to whether they should make this election.
THE AHYDO RULE. The notes constitute applicable high yield discount
obligations (AHYDOs). Accordingly, under Sections 163(e) and 163(i) of the
Internal Revenue Code, SpectraSite is not entitled to deduct original issue
discount that accrues with respect to such notes until amounts attributable to
such original issue discount are paid in cash. In addition, to the extent that
the yield to maturity of the notes exceeds the sum of the applicable federal
rate for the month in which the notes were issued (5.93%) plus 6 percentage
points (the Excess Yield), the disqualified portion of the original issue
discount accruing on the notes will be disallowed permanently and characterized
as a nondeductible dividend with respect to SpectraSite and also will be treated
as a dividend distribution, to the extent of available current and accumulated
earnings and profits, solely for purposes of the dividends received deductions
of Sections 243,
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246 and 246A of the Internal Revenue Code with respect to holders of notes that
are U.S. corporations. The disqualified portion for any accrual period will
equal the product of:
- a percentage determined by dividing the Excess Yield by the yield to
maturity,
times
- the original issue discount for the accrual period.
Subject to otherwise applicable limitations, such a corporate holder will be
entitled to a dividend received deduction with respect to the disqualified
portion if SpectraSite has sufficient current or accumulated earnings and
profits. To the extent that SpectraSite's earnings and profits are insufficient,
any portion of the original issue discount that otherwise would have been
recharacterized as a dividend for purposes of the dividends received deduction
will continue to be treated as ordinary original issue discount income in
accordance with the rules described above under "-- United States
Holders -- Original Issue Discount." Treatment of the notes as AHYDOs will not
disqualify interest or original issue discount with respect to notes from the
portfolio interest exception described below under " -- Foreign
Holders -- Interest;" provided that all applicable requirements for the
exception are otherwise satisfied.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES. Generally, a sale, exchange or
redemption of the notes will result in taxable gain or loss equal to the
difference between the amount of cash or other property received and the United
States holder's adjusted tax basis in the notes. A United States holder's
adjusted tax basis for determining gain or loss on the sale or other disposition
of a note will initially equal the cost of the note to such holder and will be
increased by:
- any amounts included in income as original issue discount, and
- any market discount previously included in income by such holder,
and decreased by:
- any principal and stated interest payments received by such holder, and
- any amortized premium previously deducted from income by such holder.
Except as described above with respect to market discount, such gain or
loss will be capital gain or loss. Capital gain or loss will be long-term gain
or loss if the note is held by the United States holder for more than one year,
otherwise such gain or loss will be short-term.
United States holders that are corporations generally will be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States holders that
are individuals generally will be taxed on net capital gains at a maximum rate
of 39.6% for property held for 12 months or less, and 20% for property held more
than 12 months. Special rules, and generally lower maximum rates, apply for
individuals in lower tax brackets. Any capital losses realized by a United
States holder that is a corporation generally may be used only to offset capital
gains. Any capital losses realized by a United States holder that is an
individual generally may be used only to offset capital gains plus $3,000 of
other income per year.
FOREIGN HOLDERS
The following is a general discussion of certain United States federal
income, estate and gift tax consequences of the ownership and sale or other
disposition of the notes by any beneficial owner of a note that is not a United
States holder. Resident alien individuals are subject to United States federal
income tax with respect to the notes as if they were United States holders.
INTEREST. Under current United States federal income tax law, and subject
to the discussion of backup withholding below, interest, including original
issue discount, paid on the notes to a non-United States holder will not be
subject to the normal 30% United States federal withholding tax; provided that
(i) the interest is "effectively connected with the conduct of a trade or
business in the United States" by the non-United States holder and the
non-United States holder timely furnishes SpectraSite with two duly executed
copies of Internal Revenue Service Form 4224, or any successor form, or (ii) all
of the following conditions of the portfolio interest exception are met: (A) the
non-United States holder does not, actually
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or constructively, own 10% or more of the total combined voting power of all
classes of stock of SpectraSite entitled to vote, (B) the non-United States
holder is not a controlled foreign corporation that is related, directly or
indirectly, to SpectraSite through stock ownership, (C) the non-United States
holder is not a bank receiving interest (including original issue discount)
pursuant to a loan agreement entered into in the ordinary course of its trade or
business, and (D) either (1) the non-United States holder certifies to
SpectraSite or its agent, under penalties of perjury, that it is a non-United
States holder and provides its name and address, or (2) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business, and holds the notes
in such capacity, certifies to SpectraSite or its agent, under penalties of
perjury, that such statement has been received from the beneficial owner of the
notes by it or by any other financial institution between it and the beneficial
owner and furnishes SpectraSite or its agent with a copy thereof. The foregoing
certification may be provided by the non-United States holder on Internal
Revenue Service Form W-8, or any successor form. Such certificate is effective
with respect to payments of interest, including original issue discount, made
after the issuance of the certificate in the calendar year of its issuance and
the two immediately succeeding calendar years.
On October 14, 1997, final regulations were published in the Federal
Register that affect the United States federal income taxation of non-United
States holders. The 1997 regulations are effective for payments after December
31, 2000, regardless of the issue date of the instrument with respect to which
such payments are made, subject to certain transition rules discussed below. The
discussion under this heading and under "-- Backup Withholding Tax and
Information Reporting," below, is not intended to be a complete discussion of
the provisions of the 1997 regulations. Prospective holders of the notes are
urged to consult their tax advisors concerning the tax consequences of their
investment in light of the 1997 regulations.
The 1997 regulations provide documentation procedures designed to simplify
compliance by withholding agents. The 1997 regulations generally do not affect
the documentation rules described above, but add other certification options.
Under one such option, a withholding agent will be allowed to rely on an
intermediary withholding certificate furnished by a qualified intermediary on
behalf of one or more beneficial owners, or other intermediaries, without having
to obtain the beneficial owner certificate described above. Qualified
intermediaries include:
- foreign financial institutions or foreign clearing organizations, other
than a United States branch or United States office of such institution
or organization, or
- foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations,
which have entered into withholding agreements with the Internal Revenue
Service.
In addition to certain other requirements, qualified intermediaries must
obtain withholding certificates, such as revised Internal Revenue Service Form
W-8, from each beneficial owner. Under another option, an authorized foreign
agent of a United States withholding agent will be permitted to act on behalf of
the United States withholding agent, including the receipt of withholding
certificates, the payment of amounts of income subject to withholding and the
deposit of tax withheld; provided that certain conditions are met.
For purposes of the certification requirements, the 1997 regulations
generally treat as the beneficial owners of payments on a note those persons
that, under United States federal income tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally must provide the required certifications to
qualify for the withholding tax exemption described above, unless the
partnership has entered into a special agreement with the Internal Revenue
Service. A payment to a United States partnership, however, is treated for these
purposes as payment to a United States payee, even if the partnership has one or
more foreign partners. The 1997 regulations provide certain presumptions with
respect to withholding for holders of notes not furnishing the required
certifications to qualify for the
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withholding tax exemption described above. In addition, the 1997 regulations
will replace a number of current tax certification forms, including Internal
Revenue Service Form W-8, with a single, revised Internal Revenue Service Form
W-8, which, in certain circumstances, requires information in addition to that
previously required. Under the 1997 regulations, this revised Form W-8 will
remain valid until the last day of the third calendar year following the year in
which the certificate is signed.
The 1997 regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1999 will generally remain valid
until the earlier of December 31, 2000 or the date of their expiration. Existing
certificates that expire in 1999 will not be effective after their expiration.
Certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
In the event that the interest, including original issue discount, paid on
the notes is effectively connected with the conduct of a trade or business
within the United States of the non-United States holder, the non-United States
holder will generally be taxed on a net income basis (that is, after allowance
for applicable deductions) at the graduated rates that are applicable to United
States holders in essentially the same manner as if the notes were held by a
United States holder, as discussed above. In the case of a non-United States
holder that is a corporation, such income may also be subject to the United
States federal branch profits tax, which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits, at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the non-United States holder
is a qualified resident of the treaty country.
If the interest on the notes is not effectively connected and does not
qualify for the portfolio interest exception described above in "-- Foreign
Holders -- Interest", then the interest will be subject to United States federal
withholding tax at a flat rate of 30%, or a lower applicable income tax treaty
rate upon delivery of Internal Revenue Service Form 1001, or any successor form,
certifying eligibility for treaty benefits.
GAIN ON SALE OR OTHER DISPOSITION. Subject to special rules applicable to
individuals as described below, a non-United States holder generally will not be
subject to regular United States federal income or withholding tax on gain
recognized on a sale or other disposition of the notes, unless the gain is
effectively connected with the conduct of a trade or business within the United
States of the non-United States holder or of a partnership, trust or estate in
which such non-United States holder is a partner or beneficiary.
Gains realized by a non-United States holder that are effectively connected
with the conduct of a trade or business within the United States of the
non-United States holder generally will be taxed on a net income basis at the
graduated rates that are applicable to United States holders, as described
above, unless exempt by an applicable income tax treaty. In the case of a
non-United States holder that is a corporation, such income may also be subject
to the United States federal branch profits tax, which is generally imposed on a
foreign corporation upon the deemed repatriation from the United States of
effectively connected earnings and profits, at a 30% rate, unless the rate is
reduced or eliminated by an applicable income tax treaty and the non-United
States holder is a qualified resident of the treaty country.
In addition to being subject to the rules described above, an individual
non-United States holder who holds the notes as a capital asset generally will
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such notes if:
- such gain is not effectively connected with the conduct of a trade or
business within the United States of the non-United States holder;
- such individual is present in the United States for 183 days or more in
the taxable year of the sale or other disposition; and
- either (A) has a tax home in the United States, as specially defined for
purposes of the United States federal income tax, or (B) maintains an
office or other fixed place of business in the United
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States and the gain from the sale or other disposition of the notes is
attributable to such office or other fixed place of business.
Individual non-United States holders may also be subject to tax under
provisions of United States federal income tax law applicable to certain United
States expatriates, including certain former long-term residents of the United
States.
FEDERAL ESTATE AND GIFT TAXES. A note beneficially owned by an individual
who is neither a United States citizen nor a domiciliary of the United States at
the time of death will not be subject to United States federal estate tax as a
result of such individual's death; provided that any interest thereon would have
been eligible for the portfolio interest exception described above in
"-- Foreign Holders -- Interest," if such interest had been received by the
individual at the time of death.
An individual who is not a United States citizen will not be subject to
United States federal gift tax on a transfer of notes, unless such person is a
domiciliary of the United States or such person is subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates, including certain former long-term residents of the United States.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest, including original issue discount, paid to, and
to the proceeds of sales or other dispositions before maturity by, certain
United States holders. In addition, a 31% backup withholding tax applies if a
non-corporate United States holders if such person:
- fails to furnish such person's taxpayer identification number, which, for
an individual, is his or her Social Security Number, to the payor in the
manner required;
- furnishes an incorrect taxpayer identification number and the payor is so
notified by the Internal Revenue Service;
- is notified by the Internal Revenue Service that such person has failed
properly to report payments of interest and dividends; or
- in certain circumstances, fails to certify, under penalties of perjury,
that such person has furnished a correct taxpayer identification number
and has not been notified by the Internal Revenue Service that such
person is subject to backup withholding for failure properly to report
interest or dividend payments.
Backup withholding does not apply to payments made to certain exempt recipients,
such as corporations and tax-exempt organizations.
In the case of a non-United States holder, under current United States
federal income tax law, backup withholding does not apply to payments of
interest, including original issue discount, with respect to a note, or to
payments on the sale or other disposition of a note, if such holder has provided
to SpectraSite or its paying agent the certification described in clause (ii)(D)
of "-- Foreign Holders -- Interest" or has otherwise established an exemption.
SpectraSite must report annually to the Internal Revenue Service and to each
non-United States holder any interest, including original issue discount, that
is subject to withholding or that is exempt from withholding. Copies of these
information returns may also be made available to the tax authorities of the
country in which the non-United States holder resides.
Under current United States federal income tax law, (i) interest payments,
including original issue discount, with respect to a note collected outside the
United States by a foreign office of a custodian, nominee or broker acting on
behalf of a beneficial owner of a note, and (ii) payments on the sale or other
disposition of a note to or through a foreign office of a broker generally are
not subject to backup withholding or information reporting. However, if such
custodian, nominee or broker is a "United States person," as defined in Section
7701(a)(30) of the Internal Revenue Code, a controlled foreign corporation for
United States tax purposes or a foreign person 50% of more of whose gross income
is effectively connected with the conduct of a United States trade or business
for a specified three-year period (a "U.S. Related Person"), such custodian,
nominee or broker may be subject to certain information reporting, but
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not backup withholding, requirements with respect to such payments, unless such
custodian, nominee or broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain conditions are met or
the beneficial owner otherwise establishes an exemption. Backup withholding may
apply to any payment that such custodian, nominee or broker is required to
report if such person has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the holder
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
The 1997 regulations, described above in "-- Foreign Holders -- Interest,"
modify certain of the certification requirements for backup withholding and
expand the group of U.S. Related Persons. It is possible that SpectraSite or its
paying agent may request new withholding exemption forms from holders of notes
in order to qualify for continued exemption from backup withholding when the
1997 regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a holder of notes under the backup withholding rules
are allowed as a refund or a credit against such holder's United States federal
income tax; provided that the required information is furnished to the Internal
Revenue Service.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes for its own account
through the exchange offer, where its outstanding notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such registered notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of registered notes received in exchange for outstanding notes
where such outstanding notes were acquired as a result of market making or other
trading activities. Until , 1999 (90 days after the commencement of
the exchange offer), all dealers effecting transactions in the registered notes
may be required to deliver a prospectus.
SpectraSite will not receive any proceeds from any sales of the registered
notes by participating broker-dealers. Registered notes received by
participating broker-dealers for their own account through the exchange offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the registered notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
participating broker-dealer that resells the registered notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
for the exchange offer states that, by acknowledging that it will deliver, and
by delivering, a prospectus, a participating broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act.
For a period of 180 days after the expiration date, or until all
broker-dealers who exchange outstanding notes which were acquired as a result of
market making activities for registered notes have sold all registered notes
held by them, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. Holdings has agreed to pay all
expenses incident to the exchange offer. SpectraSite will indemnify the holders
of the registered notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
The registered notes will not be listed on any stock exchange. The notes
are designated for trading in The Portal Market.
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LEGAL MATTERS
Dow, Lohnes & Albertson, PLLC, Washington, D.C., will pass upon the
validity of the registered notes.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the period from inception (April 25, 1997) to December
31, 1997 and the year ended December 31, 1998 and the consolidated financial
statements of our predecessor, Telesite Services, LLC, for the year ended
December 31, 1996 and for the period from January 1, 1997 to May 12, 1997
included in Amendment No. 4 to our registration statement (Form S-4, No.
333-67043), 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
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 prospectus in reliance on the report of Moss
Adams LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of MJA Communications Corp. as of December 31,
1996 and December 31, 1997 and for the three years ended December 31, 1997, have
been consolidated with those of Westower in this prospectus in reliance on the
report of Lamn, Krielow, Dytrych & Darling, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Summit Communications LLC as of December 31,
1997 and for the period from inception, May 24, 1997, to December 31, 1997 have
been included in this prospectus in reliance on the report of Shearer, Taylor &
Co., P.A., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Holdings filed a registration statement on Form S-4 with the SEC covering
the registered notes, and this prospectus is part of our registration statement.
For further information on SpectraSite and the notes, you should refer to our
registration statement and its exhibits. This prospectus summarizes material
provisions of contracts and other documents that we refer you to. Since the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
Following the exchange offer, Holdings will file reports with the SEC as
the Exchange Act requires. In addition, the indenture governing the notes
requires that we file Exchange Act reports with the SEC and provide those
reports to the indenture trustee and holders of notes. Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York and Chicago. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 1997,
December 31, 1998 and March 31, 1999 (unaudited).......... F-4
Consolidated Statements of Operations for the period from
inception (April 25, 1997) to December 31, 1997, for the
year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited)................................ F-5
Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholders' Deficiency........................ F-6
Consolidated Statements of Cash Flows for the period from
inception (April 25, 1997) to December 31, 1997, for the
year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited)................................ F-7
Notes to Consolidated Financial Statements.................. F-8
TELESITE SERVICES, LLC
Report of Independent Auditors.............................. F-20
Consolidated Balance Sheet as of December 31, 1996.......... F-21
Consolidated Statements of Operations for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-22
Consolidated Statements of Members' Equity.................. F-23
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the period ended May 12, 1997....... F-24
Notes to Consolidated Financial Statements.................. F-25
WESTOWER CORPORATION AND SUBSIDIARIES
Reports of Independent Accountants.......................... F-29
Consolidated Balance Sheets as of February 28, 1997 and 1998
and September 30, 1998.................................... F-32
Consolidated Statements of Income for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-33
Consolidated Statements of Stockholders' Equity for the
years ended February 29, 1996, February 28, 1997 and 1998
and for the seven months ended September 30, 1998......... F-34
Consolidated Statements of Cash Flows for the years ended
February 29, 1996, February 28, 1997 and 1998 and for the
seven months ended September 30, 1997 (unaudited) and
1998...................................................... F-35
Notes to the Consolidated Financial Statements.............. F-36
Consolidated Balance Sheets as of September 30, 1998 and
March 31, 1999 (unaudited)................................ F-57
Unaudited Condensed Consolidated Statements of Income for
the three and six months ended March 31, 1998 and 1999.... F-58
Unaudited Condensed Consolidated Statements of Stockholders'
Equity for the six months ended March 31, 1999............ F-59
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 1998 and 1999.......... F-60
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-61
CORD COMMUNICATIONS, INC.
Report of Independent Auditors.............................. F-66
Balance Sheets as of June 30, 1998 and 1997................. F-67
Statements of Operations for the years ended June 30, 1998
and 1997.................................................. F-68
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended June 30, 1998 and 1997.................... F-69
Statements of Cash Flows for the years ended June 30, 1998
and 1997.................................................. F-70
Notes to Financial Statements............................... F-71
</TABLE>
F-1
<PAGE> 143
<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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
approximately $170,000 and $25,000, respectively, have been included in contract
and other revenues earned and cost of revenues earned, respectively, in the
Transition Period.
(d) Cash and Cash Equivalents -- Cash and cash equivalents consist of cash
in banks and money market investments on deposit with major Canadian and U.S.
financial institutions. Investments with maturities of three months or less when
purchased are considered cash equivalents.
(e) Inventory -- Inventory consists of construction parts and supplies and
is stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
(f) Property and Equipment -- Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives by major asset category are
as follows: buildings -- 10-25 years; furniture, fixtures and equipment -- 3 to
10 years; wireless communication towers -- 20 years; vehicles -- 5 years. Gains
or losses on the dispositions of assets are recorded at the time of disposition.
The costs of normal repairs and maintenance are charged to expense as incurred.
(g) Capitalized Software -- Purchased software is capitalized at cost and
amortized over its estimated useful life of 3 years.
(h) Intangible Assets -- Business acquisition costs are allocated to the
tangible and identifiable intangible assets that are acquired. Business
acquisition costs allocated to contracts to purchase wireless communication
towers are amortized over a 20 year period upon acquisition of the wireless
communication towers, and costs allocated to non-compete agreements are
amortized over the term of the agreements, which are generally 5 years. The
excess of the aggregate purchase price over the fair value of the net assets
acquired and identifiable intangible assets acquired is recorded as goodwill.
Goodwill is amortized over a 20 year period. The Company amortizes its
intangible assets using the straight line method.
(i) Financing Costs -- Direct costs associated with obtaining debt
financing are deferred and are amortized over the term of the debt using the
effective interest method. Direct costs of obtaining commitments for financing
are deferred and charged to expense over the term of the commitments. Direct
costs associated with obtaining equity financing are charged to additional
paid-in capital as the related funds are raised. Deferred financing costs
totaled $2.4 million at September 30, 1998, which has been included in other
assets. Accumulated amortization of deferred financing costs totaled $113,000 at
September 30, 1998.
(j) Valuation of Long-Lived Assets -- The Company periodically reviews its
long-lived assets and certain identifiable intangible assets, including
goodwill, whenever events or changes in circumstance indicate that the carrying
amount of an asset may be impaired and not recoverable. Adjustments are made if
the sum of the expected future undiscounted operating cash flows is less than
the carrying value of the asset.
(k) Income Taxes -- The Company accounts for income taxes under the
liability method. Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statement and income
tax purposes at the enacted tax rates. The significant differences relate
primarily to the timing and recognition of depreciation and amortization of
long-lived assets, profit on uncompleted contracts, amortization of financing
costs and bad debt expense. Deferred tax amounts represent the future tax
consequences of those differences, which will either be deductible or taxable
when the assets and liabilities are recovered or settled. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized. The Company files a consolidated federal income tax
return in the United States. The Company files separate tax returns for each of
its Canadian subsidiaries in Canada. Additionally, certain of the Company's
operations are subject to Provincial income taxes in Canada and state income
taxes in the United States.
(l) Foreign Currency Translation -- All asset and liability accounts of
Canadian operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the
F-37
<PAGE> 179
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
average exchange rate during the period. Foreign currency translation
adjustments are reported as a component of comprehensive income and
stockholders' equity in the consolidated balance sheet. Gains and losses
resulting from foreign currency transactions are included in income currently.
(m) Earnings Per Share and Change in Accounting Policy -- During fiscal
year ended February 28, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. The new standard
supersedes Accounting Principles Board (APB) No. 15, Earnings Per Share and
establishes standards for computing and presenting earnings per share. Prior
years have been restated to conform with the new requirements.
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the period after giving retroactive effect
to stock dividends and stock splits. Diluted earnings per share amounts are
computed by determining the number of additional shares that are deemed
outstanding from stock options and warrants, using the treasury stock method,
and convertible debentures.
(n) Segment Information -- In the Transition Period, the Company adopted
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 supersedes SFAS 14, Financial Reporting for Segments
of a Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 did not significantly affect
the disclosure of segment information previously reported (see "Segment
Information" note).
(o) New Accounting Standards -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Among other provisions, SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Gains and losses
resulting from changes in the fair values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This Statement becomes effective beginning 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> 180
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.
F-39
<PAGE> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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> 189
NOTE 9 -- INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Assets:
Allowance for doubtful accounts.............. $ -- $ -- $ (51,000)
Liabilities:
Deferred taxable income on uncompleted
contracts.................................. 580,000 534,000 479,000
-------- -------- ----------
$580,000 $534,000 $ 428,000
======== ======== ==========
Noncurrent
Liabilities:
Depreciation and amortization................ $ 27,000 $ 48,000 $2,626,000
Amortization of debt discount................ -- -- 322,000
Other........................................ -- -- 14,000
-------- -------- ----------
$ 27,000 $ 48,000 $2,962,000
======== ======== ==========
</TABLE>
NOTE 10 -- EARNINGS PER SHARE
The numerators and denominators of basic and fully diluted earnings per
share are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Numerator -- Net income as
reported...................... $ 547,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
Dividends on preferred
shares...................... (39,000) -- -- -- --
---------- ---------- ---------- ---------- ----------
$ 508,000 $3,430,000 $2,936,000 $2,052,000 $1,229,000
========== ========== ========== ========== ==========
Denominator -- Weighted average
number of shares outstanding
Basic weighted average number
of shares................... 4,776,000 4,776,000 5,263,000 4,776,000 6,531,000
Effect of dilutive stock
options and warrants........ -- -- 331,000 -- 1,105,000
---------- ---------- ---------- ---------- ----------
Diluted weighted average
number of shares........ 4,776,000 4,776,000 5,594,000 4,776,000 7,636,000
========== ========== ========== ========== ==========
</TABLE>
At September 30, 1998, 342,000 weighted-average shares associated with the
Convertible Debt discussed in Note 8 were excluded from the computation of
diluted earnings per share for the Transition Period because their inclusion
would have had an anti-dilutive effect on earnings per share. All other
potential common shares have been included in the diluted earnings per share
calculation. All potential common shares were included in the calculation of
diluted earnings per share for the years ended February 29, 1996 and February
28, 1997 and 1998.
NOTE 11 -- STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
During the year ended February 28, 1998, the Company merged with WTC
Holdings Ltd. and its wholly-owned subsidiary, Western Telecom Construction Ltd.
(collectively, "Western Telecom"). The merger was accounted for as a
pooling-of-interests and the February 28, 1997 financial statements have been
restated to include the accounts of Western Telecom. In February 1994, Western
Telecom issued 467
F-48
<PAGE> 190
NOTE 11 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
shares of Class A redeemable preferred stock. The preferred stock ranked in
priority to common stock in the event of liquidation, dissolution or winding up
of the affairs of Western Telecom. The shares also contain stated redemption
values and rights to 5% noncumulative dividends when declared by the Board of
Directors. There were no unpaid dividends at February 28, 1997 and 1998. The
preferred stock has no voting rights.
The shares have been reflected at their total redemption price of $450,000
in the February 28, 1997 balance sheet. During the year ended February 28, 1998,
the Company redeemed all outstanding shares.
Common Stock
The Company has a single class of $0.01 par value common stock. Authorized
shares total 10 million, of which 2,580,000 have been registered on Form SB-2
with the Securities and Exchange Commission under the 1933 Securities Act. A
total of 1,200,000 of the registered securities were sold in connection with an
initial public offering on October 15, 1997. Proceeds from the offering totaled
$7.5 million, net of $485,000 of underwriting costs.
As disclosed in Note 3, an additional 1,277,000 shares were issued in
connection with various business combinations during the Transition Period and
an additional 3,969,000 shares were issued in the fiscal year ended February 28,
1998. During the fiscal year ended February 28, 1998, a total of 7,000 shares
were issued as stock awards to employees of the Company and acquired businesses
as incentive to remain in the employ of the Company.
Stock Warrants
In connection with its initial public offering in October 1997, the Company
issued stock warrants to purchase 1,380,000 shares of common stock of the
Company with an exercise price of $9.00 per share. The warrants contained a
provision whereby the Company could call for redemption of the warrants if the
closing price of the Company's common stock equaled or exceeded $15.00 for ten
consecutive days. During the Transition Period 559,000 warrants to purchase
559,000 shares of common stock were tendered for exercise with aggregate
proceeds of $4.79 million to the Company, net of commissions and related
expenses of $243,000. On September 29, 1998, the Company exercised its right to
call the remaining warrants, with a redemption date of October 30, 1998.
Subsequent to September 30, 1998 and prior to the redemption date, 819,000
warrants were tendered for conversion with gross proceeds of $7.37 million,
resulting in the cancellation of the remaining warrants which were not tendered.
NOTE 12 -- STOCK OPTIONS
The Company has two stock option plans that provide for the granting of
stock options to certain officers, employees, directors and consultants of the
Company and its subsidiaries. These options generally vest over a period of
three years from the date of grant (as determined by the Company's Compensation
Committee) and have a maximum exercise term of ten years from the date of grant.
The 1998 Stock Incentive Compensation Plan (the "1998 Plan") is the only plan
with stock option awards currently available for grant; a prior plan has stock
options exercisable at September 30, 1998 to purchase up to 400,000 shares of
common stock. The Company is authorized to grant options for up to ten percent
of the
F-49
<PAGE> 191
NOTE 12 -- STOCK OPTIONS -- (CONTINUED)
issued shares of common stock under the 1998 Plan. A summary of awards granted
under the plans is as follows for the fiscal year ended February 28, 1998 and
the Transition Period:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
FEBRUARY 28, 1998 SEPTEMBER 30, 1998
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year.................................. -- -- 592,000 $ 7.78
Options granted......................... 592,000 $7.78 121,500 18.63
Options exercised....................... -- -- 37,000 7.80
Options forfeited....................... -- -- -- --
------- ----- ------- ------
Options outstanding at end of year...... 592,000 $7.78 676,500 $ 9.87
======= ===== ======= ======
Options exercisable at end of year...... 105,000 $8.07 125,500 $ 7.85
======= ===== ======= ======
</TABLE>
A summary of stock options outstanding as of September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE NUMBER WEIGHTED-
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL AVERAGE SEPTEMBER 30, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE EXERCISE PRICE 1998 PRICE
- ------------------------ -------------- ---------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$13.40 to 26.00........ 137,000 4.8 years $18.60 -- --
$ 7.50 to 8.25......... 525,000 3.6 years 7.24 123,300 $7.99
$ 1.00................. 4,500 3.4 years 1.00 1,500 1.00
$ .01................. 10,000 3.6 years 0.01 700 0.01
</TABLE>
The Company applies the accounting provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations for its
stock-based plans. Accordingly, costs for employee stock options or issuance of
shares is measured as the excess, if any, of the fair value of the Company's
common stock at the measurement date over the amount the employee must pay to
acquire the stock. The cost is recognized ratably by the Company as compensation
expense over the vesting period. The expense for the fiscal year ended February
28, 1998 and the Transition Period was $21,000 and $35,000 respectively.
The Company adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), which was effective as of January
1, 1996. The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model and the following assumptions:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Risk-free interest rate..................................... 6.38% 4.75%
Expected life............................................... 2.7 years 2.7 years
Expected volatility......................................... 29% 70%
Expected dividend yield..................................... 0% 0%
</TABLE>
F-50
<PAGE> 192
NOTE 12 -- STOCK OPTIONS -- (CONTINUED)
Had the Company elected to recognize compensation expense as provided for
by SFAS No. 123, the Company's net income amounts on a pro forma basis for the
year ended February 28, 1998 and the Transition Period would have been as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Pro forma net income adjusted............................... $2,721,000 $838,000
========== ========
Pro forma basic earnings per share.......................... $ 0.52 $ 0.13
========== ========
Pro forma diluted earning per share......................... $ 0.49 $ 0.11
========== ========
</TABLE>
The weighted average fair values per share at the date of grant for options
granted during the year ended February 28, 1998 and the Transition Period were
as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Options with exercise prices less than the fair value of the
stock at the date of grant................................ 39,500 19,100
-- weighted average fair value......................... $ 6.00 $ 12.00
Options with exercise prices equal to the fair value of the
stock at the date of grant................................ 311,500 102,400
-- weighted average fair value......................... $ 1.25 $ 9.00
Options with exercise prices greater than the fair value of
the stock at the date of grant............................ 241,000 --
-- weighted average fair value......................... $ 0.50 --
</TABLE>
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash paid for interest................ $ 91,000 $80,000 $ 107,000 $ 312,000
Cash paid for income taxes............ 128,000 77,000 177,000 280,000
Non-cash transactions
Stock issuances for business
acquisitions..................... -- -- 1,184,000 8,100,000
</TABLE>
NOTE 14 -- RETIREMENT PLAN
The Company's subsidiary, Westower Communications Inc., adopted a defined
contribution retirement plan, effective January 1, 1997. The plan contains
certain participation criteria and allows for both employee and employer
discretionary contributions. The total Company funded discretionary contribution
for the years ended February 29, 1996 and February 28, 1997 and 1998 was $0,
$46,000 and $52,000, respectively. There were no employer contributions during
the Transition Period.
NOTE 15 -- RELATED PARTY TRANSACTIONS
Advance to Related Parties
During the fiscal year ended February 28, 1998, the Company advanced
$119,000 to a Canadian corporation owned by certain stockholders of Westower
Corporation. Proceeds were used by the
F-51
<PAGE> 193
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
Corporation to purchase facilities leased by two of the Company's subsidiaries.
The advance was repaid during the Transition Period. The Company also advanced
$77,000 to several stockholders during the fiscal year ended February 28, 1998
which were repaid during the Transition Period. At September 30, 1998,
additional related party advances include $379,000 of unsecured non-interest
bearing shareholder loans made by subsidiaries, prior to acquisition, during the
Transition Period which are expected to be paid in full subsequent to September
30, 1998. At September 30, 1998, the Company has a $65,000 receivable from a
former shareholder of an acquired S corporation. The acquired S corporation made
a distribution to the shareholder, prior to the combination, in an amount to
meet the shareholder's current estimated tax obligation. Subsequent to the
combination it was determined that the tax liability was approximately $65,000
overestimated and a receivable for the excess distribution has been recorded.
The Company expects to collect this amount in full subsequent to September 30,
1998.
Note Receivable
At September 30, 1998, the Company had a note receivable for $495,000, plus
accrued interest of $17,000, from an organization with which they share a common
director. The note bears interest at 12% and is collateralized by warrants to
purchase shares of the Company's common stock, and is due on demand.
Management Services and Accounts Payable
In prior years the Company received consulting services from Westower
Consulting Ltd., a Canadian corporation owned by a stockholder of Westower
Corporation. Charges for these services were $94,000 and $126,000 in the fiscal
years ended February 28, 1997 and 1998, respectively. Included in trade accounts
payable at February 28, 1998 is $39,000 due to Westower Consulting Ltd. Fees
billed by related entities generally do not continue subsequent to acquisition
by the Company as the related services are performed by employees and officers
of the Company.
Notes and Advances Payable to Related Parties
Notes and advances payable to related parties consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Unsecured advances and notes payable to
stockholders and officers, paid in full
during the Transition Period................ $ -- $ 871,000 $ --
Unsecured advances payable to officers and
stockholders, in Canadian dollars, with no
stated interest rate and no specific
repayment terms, paid in full during the
Transition Period........................... -- 173,000 --
Unsecured advances payable to officers and
stockholders, with no stated interest rate,
and no specific repayment terms............. -- -- 228,000
Unsecured notes payable to officers and
stockholders, paid in full during the
transition period........................... 672,000 1,000,000 --
-------- ---------- --------
$672,000 $2,044,000 $228,000
======== ========== ========
</TABLE>
Facility Leases
Two subsidiaries acquired during the fiscal year ended February 28, 1998,
501053 B.C. Ltd. and National Tower Service Ltd., lease their operating
facilities, on a month-to-month basis, from Canadian
F-52
<PAGE> 194
NOTE 15 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
corporations owned by certain stockholders of Westower Corporation. Lease
payments made during the Transition Period were $39,000 and there were no
significant lease payments made to the stockholders during the fiscal year ended
February 28, 1998.
NOTE 16 -- COMMITMENTS AND CONTINGENCY
The Company leases operating facilities, office equipment and vehicles
under noncancelable operating lease agreements. Future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
-------------------------
<S> <C>
1999........................................................ $ 607,000
2000........................................................ 348,000
2001........................................................ 203,000
2002........................................................ 67,000
2003........................................................ 63,000
Thereafter.................................................. 52,000
----------
Total....................................................... $1,340,000
==========
</TABLE>
Rent and lease expense was $29,000, $224,000, $259,000 and $632,000 for the
fiscal years ended February 29, 1996 and February 28, 1997 and 1998 and the
Transition Period, respectively.
LITIGATION
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
NOTE 17 -- CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash, cash equivalents and trade
accounts receivable. The Company places its temporary cash investments with a
major financial institution. At times, deposits with any one institution may
exceed federally insured limits. The Company extends credit to customers based
on evaluation of customer's financial condition and credit history. Collateral
is generally not required. Customers include large Canadian and U.S. companies
concentrated in the telecommunications industry.
Contract revenues from two customers accounted for 29% of revenues during
the fiscal year ended February 28, 1998, and one customer accounted for 56% of
revenues during the fiscal year ended February 28, 1997. Accounts receivable
from two customers comprise 48% of accounts receivable at February 28, 1998 and
one customer accounted for 39% of account receivable at February 28, 1997. There
were no customers who accounted for greater than 10% of sales for the Transition
Period and there were no customers with accounts receivable representing 10% or
more of the total accounts receivable at September 30, 1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes the Company's financial results depend in significant part upon the
success of these customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have an adverse effect on the Company's
business, financial condition and results of operations.
F-53
<PAGE> 195
NOTE 18 -- SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, as these entities and
its existing operations exhibit similar financial performance and have similar
economic characteristics, they have been aggregated as one segment.
The following table summarizes contract and other revenues and long-lived
assets related to the respective countries in which the Company operates.
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $14,775,000 $ 8,897,000 $ 5,878,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $46,091,000 $39,177,000 $ 6,914,000
Long-lived assets............................. $ 2,707,000 $ 1,000,000 $ 1,707,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $41,662,000 $22,160,000 $19,502,000
Long-lived assets............................. $ 4,321,000 $ 1,196,000 $ 3,125,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues................... $31,944,000 $19,982,000 $11,962,000
Long-lived assets............................. $ 7,574,000 $ 3,729,000 $ 3,845,000
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
excludes intangible assets.
NOTE 19 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, trade accounts receivable and
payable, and other current liabilities approximate their carrying amounts. The
fair values of advances to and from related parties approximate their fair value
due to the short term nature of the instruments. The fair values of long-term
debt, which are based on the present values of the underlying cash flows
discounted at the Company's incremental borrowing rates, are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Long-term debt................................... $822,000 $794,000 $19,446,000
</TABLE>
NOTE 20 -- SUBSEQUENT EVENTS
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The merger was effected
by exchanging 200,000 shares of common stock valued at approximately $4.1
million, based on the publicly traded price, $4.4 million in cash, and the
assumption of certain liabilities, for all membership interests in Summit. The
former members of Summit may also receive an additional 100,000 shares of common
stock, based on certain performance criteria during the three years following
the date of acquisition. The acquisition was accounted for using the purchase
method for business combinations resulting in goodwill of approximately $8.0
million.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging 188,000 shares of common stock valued at approximately $4 million,
based on the publicly traded price, $1 million in cash, and the assumption of
F-54
<PAGE> 196
NOTE 20 -- SUBSEQUENT EVENTS -- (CONTINUED)
certain liabilities including distributions payable to former shareholders in
the amount of $800,000, for all outstanding shares of Teletronics. The
acquisition was accounted for using the purchase method for business
combinations resulting in goodwill of approximately $5.0 million.
The Company is currently in negotiations with certain tower construction
companies concerning acquisition by Westower. The Company is also in
negotiations with certain third parties concerning the acquisition of wireless
communication towers, and with a financial institution to arrange financing for
the wireless communication tower purchases, should the negotiations conclude
successfully. None of the negotiations are finalized and there is no assurance
that the Company will be successful in concluding these negotiations, or if the
Company is successful, that the acquisitions will not be dilutive to existing
shareholders.
F-55
<PAGE> 197
[Page Intentionally Left Blank.]
F-56
<PAGE> 198
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 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> 199
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> 200
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> 201
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> 202
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> 203
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 $10.2 million.
F-62
<PAGE> 204
NOTE 4 -- ACQUISITIONS -- (CONTINUED)
On February 4, 1999 the Company completed the acquisition of Cypress Real
Estate Services, Inc. ("Cypress"), a Florida corporation. The acquisition was
effected by exchanging approximately 15,000 shares of common stock valued at
approximately $424,000, based on the publicly traded price, for all outstanding
shares of Cypress. The former shareholder of Cypress may also receive additional
shares of common stock, based on the number of towers, not to exceed 1,000
towers, acquired or constructed by the Company, subject to certain limitations
and restrictions. The acquisition was accounted for using the purchase method
for business combinations with substantially all of the purchase price allocated
to goodwill.
On February 26, 1999 the Company completed the acquisition of
Telecommunications R. David ("R. David"), a Quebec, Canada company which engages
in operations similar to those of the Company. The acquisition was effected by
exchanging approximately $330,000 in cash, and the assumption of certain
liabilities, for all outstanding shares of R. David. The acquisition was
accounted for using the purchase method for business combinations resulting in
goodwill of approximately $350,000.
The following is a summary of all consideration exchanged for acquisitions
that were accounted for as purchases:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1999
-----------
<S> <C>
Shares issued............................................... 403,000
Value of shares............................................. $ 8,284,000
Cash........................................................ 6,583,000
-----------
Total purchase price........................................ $14,867,000
===========
</TABLE>
The assets and liabilities of the acquired entities were recorded at their
estimated fair market values at the dates of acquisition. The initial
allocations of fair market values are preliminary and are subject to adjustments
during the first year following the acquisition. The initial allocations were as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
Non-compete agreements...................................... $ 136,000
Tangible assets............................................. 5,084,000
Goodwill.................................................... 13,825,000
Liabilities assumed and deferred tax liabilities............ (4,178,000)
-----------
Total purchase price........................................ $14,867,000
===========
</TABLE>
Included in the operating results for the three and six months ended March
31, 1999 are revenues of $4,384,000 and $9,279,000, respectively, and operating
income of $426,000 and $1,360,000, respectively, from the dates of acquisition.
Goodwill is generally amortized over a 20 year period.
F-63
<PAGE> 205
NOTE 5 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- -----------
<S> <C> <C>
Goodwill................................................... $14,039,000 $27,864,000
Communications tower purchase contract..................... 5,661,000 6,381,000
Non-compete agreements..................................... 219,000 355,000
----------- -----------
19,919,000 34,600,000
Less accumulated amortization.............................. (198,000) (861,000)
----------- -----------
$19,721,000 $33,739,000
=========== ===========
</TABLE>
During May 1999, the Company completed the acquisition of certain wireless
communications towers under contract at an aggregate cost of $9.2 million, which
is in addition to the amount ascribed in the contract above.
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ----------
<S> <C> <C>
Deposits on tower purchase contracts........................ $ -- $ 781,000
Equity investment in joint venture.......................... 217,000 1,210,000
Deposit on business purchase................................ -- 662,000
Other noncurrent assets, net................................ 2,554,000 2,894,000
---------- ----------
$2,771,000 $5,547,000
========== ==========
</TABLE>
During the six months ended March 31, 1999, the Company paid $781,000 as a
deposit to acquire additional towers. Equity investment in joint venture
represents the Company's cash investment and the Company's equity earnings from
this investment. Deposits on business purchases represent deposits on purchases
of businesses that the Company is currently negotiating. There can be no
assurance that the Company will be successful in completing these negotiations,
in which case the deposits are refundable.
NOTE 7 -- LONG-TERM DEBT
During the six months ended March 31, 1999, the Company borrowed an
aggregate $31.5 million under its credit facility with Bank Boston N.A. As of
March 31, 1999, the effective interest rate on borrowings under the facility was
approximately 7.5%.
NOTE 8 -- COMMON STOCK
On October 15, 1997, the Company issued 1,200,000 shares of common stock
and 1,380,000 warrants to purchase common stock in a public offering. The
Company received proceeds, net of costs, of $7,493,000 from its public offering.
During the six months ended March 31, 1999, the Company received net proceeds of
$7,291,000 on the exercise of 819,000 warrants, at $9.00 per share of common
stock. In addition to the warrants noted above, during the six months ended
March 31, 1999, the Company's underwriters exercised warrants, issued in
connection with the Company's initial public offering, resulting in the Company
receiving $996,000 on the exercise of warrants to purchase 111,000 shares of
common stock at $9 per share. At March 31, 1999, the Company has a receivable
from the underwriters of $996,000 included in related party advances and
receivables for which the Company received cash proceeds in April and May 1999.
At March 31, 1999, there were unexercised warrants to purchase approximately
130,000 shares of common stock held by underwriters.
F-64
<PAGE> 206
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> 207
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> 208
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> 209
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> 210
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> 211
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> 212
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> 213
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets.
<TABLE>
<S> <C>
Vehicles.................................................... 5 years
Office furniture and equipment.............................. 3 to 7 years
Construction equipment...................................... 5 to 7 years
Leasehold improvements...................................... 3 years
</TABLE>
Property and equipment consisted of the following at June 30, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Vehicles.................................................... $ 342,782 $ 275,864
Office furniture and equipment.............................. 183,760 137,735
Construction equipment...................................... 119,028 112,648
Leasehold improvements...................................... 19,361 19,361
--------- ---------
664,931 545,608
Less accumulated depreciation............................... (263,097) (146,390)
--------- ---------
$ 401,834 $ 399,218
========= =========
</TABLE>
The cost and related accumulated depreciation of assets sold or disposed
are removed from the accounts, and any resulting gain or loss is included in
operations. Repairs and maintenance expenditures are expensed as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements, and consist of taxes currently due plus deferred taxes
related primarily to different methods of accounting for depreciation and the
use of the cash method for income tax purposes. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates used in preparing these financial statements include
estimated costs to complete which have a direct effect on gross profit.
VALUATION OF LONG LIVED ASSETS AND CHANGE IN ACCOUNTING POLICY
The Company periodically reviews long-lived assets and certain identifiable
intangibles whenever events of changes in circumstance indicate that the
carrying amount of an asset may not be recoverable. There will be no provisions
for impairment during 1998 or 1997.
2. NOTE PAYABLE
The Company has a line of credit with South Umpqua State Bank, which bears
interest at the Wall Street Journal's published prime rate plus 1%. The Company
may borrow up to $1,000,000 under the terms of the line of credit. The note is
collateralized by equipment, intangible assets, chattel paper accounts,
equipment, and general intangibles. The note payable is also personally
guaranteed by the
F-72
<PAGE> 214
2. NOTE PAYABLE -- (CONTINUED)
stockholders of the Company. Borrowing on the line is limited to 70% of
receivables less than 90 days old, less retainage receivables. The line of
credit was scheduled to expire on February 1, 1999, however, the note was paid
off on September 1, 1998 (see note 13).
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Notes payable to Ford Motor Credit Corp. with interest from
9.75% to 10.25%, payable in monthly installments of
$1,149, including interest, maturing from 1999 through
2001, collateralized by vehicles.......................... $ 25,798 $ 36,431
Notes payable to South Umpqua State Bank with interest from
8.48% to 10.75%, payable in monthly installments of
$1,950, including interest, maturing from 1998 through
2001, collateralized by vehicles.......................... 21,968 36,074
Note payable to Damerow Ford with interest at 8.65%, payable
in monthly installments of $646, including interest,
maturing in 2001, collateralized by a vehicle............. 21,349 26,950
Note payable on equipment with interest from 1.9%, to 11.5%
payable in monthly installments of $1,716, including
interest, maturing in 1998 through 2001, collateralized by
equipment................................................. 11,518 28,068
Capital lease obligations for equipment, payable in monthly
installments of $608, including interest, inputed from
15.29% to 20.92%, maturing in 1999 through 2001,
collateralized by equipment............................... 12,030 7,072
-------- --------
92,663 134,595
Less current portion........................................ (38,897) (48,474)
-------- --------
Long-term portion........................................... $ 53,766 $ 86,121
======== ========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
JUNE 30, MATURING
----------- --------
<S> <C>
1999........................................................ $38,897
2000........................................................ 27,571
2001........................................................ 22,396
2002........................................................ 3,743
2003........................................................ 56
-------
$92,663
=======
</TABLE>
4. OPERATING LEASE COMMITMENTS
The Company leases office and storage space, vehicles, and communication
analyzing equipment under non-cancelable operating leases expiring on various
dates through February 2000. Total rental payments amounted to $229,482 and
$109,964 for the years ended June 30, 1998 and 1997, respectively.
F-73
<PAGE> 215
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> 216
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> 217
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> 218
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> 219
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 the Company 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> 220
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
Ridgeland, Mississippi
We have audited the accompanying balance sheet of Summit Communications,
LLC, as of December 31, 1997 and the related statements of income, members'
equity and cash flows for the Period of Inception (May 24, 1997) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Communications, LLC
as of December 31, 1997, the results of its operations and its cash flows for
the Period of Inception (May 24, 1997) to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Shearer, Taylor & Co., P.A.
March 5, 1998
Jackson, Mississippi
F-79
<PAGE> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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> 227
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> 228
6. CAPITAL LEASE OBLIGATIONS
The following is a summary of future minimum lease payments under capital
lease agreements at September 30, 1998:
<TABLE>
<S> <C>
Three months ending December 31, 1998....................... $ 22,933
1999........................................................ 70,699
2000........................................................ 65,529
2001........................................................ 62,712
--------
Total minimum lease payments.............................. 221,873
Less: Amount representing interest.......................... (29,546)
--------
$192,327
========
</TABLE>
The following is a summary of assets and accumulated depreciation of assets
under capital lease agreements as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Vehicles.................................................... $54,397 $138,697
Machinery................................................... 92,473
------- --------
54,397 231,170
Less: Accumulated depreciation.............................. (6,802) (21,463)
------- --------
$47,595 $209,707
======= ========
</TABLE>
Depreciation expense includes amortization of assets under capital leases
of $6,802 and $18,811 for the Period of Inception (May 24, 1997) to December 31,
1997 and for the nine months ended September 30, 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan, which is the
401(k) Profit Sharing Plan and Trust. Employees become eligible for
participation in the plan after one year of service. Employees may contribute a
percentage of their gross compensation not to exceed certain limits.
Contributions by the Company are made at the discretion of the members. There
were no contributions made by the Company related to this plan for the Period of
Inception (May 24, 1997) to December 31, 1997 and for the nine months ended
September 30, 1998.
8. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE
At September 30, 1998, the Company had a note receivable for $155,000 from
one of its members. The note bears interest at the same rate as the line of
credit, is payable on demand, and is uncollateralized. The note was subsequently
repaid in full.
SALE OF BUILDINGS
In February 1998, the Company acquired a building from one of the members
for $500,000. In July 1998 the building was sold to the members resulting in a
loss of approximately $12,000.
FACILITY LEASES
The Company leases space in two buildings owned by the members of the
Company under a month to month operating lease. For the nine months ended
September 30, 1998, total rent paid to the members was approximately $9,300.
F-87
<PAGE> 229
9. CONTINGENCIES
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
10. CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash and accounts receivable. The
Company deposits its cash with a major financial institution. At times, deposits
may exceed federally insured limits. The Company extends credit to customers
based on evaluation of the customer's financial condition and credit history.
Collateral is generally not required. Customers include large U.S. companies
concentrated in the telecommunications industry.
Contract revenues earned from three customers accounted for 54% of revenues
for the Period of Inception (May 24, 1997) to December 31, 1997. Accounts
receivable from these three customers comprise 53% of accounts receivable at
December 31, 1997. Contract revenues earned from two customers accounted for 58%
of revenues for the nine months ended September 30, 1998. Accounts receivable
from these two customers comprise 57% of accounts receivable at September 30,
1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes that financial results depend in significant part upon the success of
these customers. Although the composition of the group comprising the Company's
largest customers may vary from period to period, the loss of a significant
customer or reduction in orders by any significant customers, including
reductions due to market, economic or competitive conditions in the wireless
communications industry, may have an adverse effect on the Company's business,
financial condition and results of operations.
11. ACQUISITION
On May 24, 1997, the Company acquired certain assets and assumed certain
liabilities of Summit Communications, Inc. (SCI), an unrelated third party, in a
purchase transaction. The following is a summary of assets acquired and
liabilities assumed in the SCI transaction:
<TABLE>
<S> <C>
Assets acquired
Other current assets...................................... $ 23,760
Property and equipment.................................... 855,896
Other assets.............................................. 20,386
--------
900,042
Liabilities assumed
Long-term debt............................................ 293,634
Capital lease obligations................................. 16,188
Accrued expenses and other liabilities.................... 78,013
--------
387,835
--------
Cash paid.............................................. $512,207
========
</TABLE>
F-88
<PAGE> 230
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD
OF INCEPTION
(MAY 24, 1997) NINE MONTHS
TO ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- -------------
<S> <C> <C>
Interest paid............................................. $42,644 $ 95,248
Non-cash investing and financing activities:
Vehicles and machinery acquired under capital leases.... $25,905 $173,386
Note payable to member refinanced with commercial
bank................................................. $378,197
</TABLE>
13. SUBSEQUENT EVENTS
On November 10, 1998 the members sold all of their outstanding ownership
interest in the Company to Westower Corporation (Westower), a publicly traded
company, in exchange for approximately 200,000 shares of Westower and $4.4
million in cash. The members may also receive an additional 100,000 shares of
Westower common stock based upon certain performance criteria during the three
years subsequent to the date of acquisition. The purchase agreement also
provides that Westower will supply the Company's need for additional working
capital following the purchase.
On May 15, 1999, Westower entered into a definitive agreement with
Spectrasite Holdings, Inc. (Spectrasite), under which Westower will merge with a
subsidiary of Spectrasite. Under the terms of the agreement, Westower
shareholders will receive 1.81 shares of Spectrasite common stock for each
Westower share and Westower will become a wholly owned subsidiary of
Spectrasite. The merger is subject to the approval of Westower's shareholders
and the appropriate regulatory agencies as well as other customary closing
conditions. There can be no assurance that the merger will be consummated.
F-89
<PAGE> 231
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell or to buy only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------------------------
TABLE OF CONTENTS
------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 8
Use of Proceeds....................... 16
The Westower Merger................... 17
The Nextel Tower Acquisition.......... 19
Unaudited Pro Forma Consolidated
Financial Data...................... 23
Selected Historical Financial Data.... 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 45
Industry Review....................... 51
Business.............................. 56
Management............................ 68
Certain Transactions.................. 75
Ownership of Capital Stock............ 78
Description of Capital Stock.......... 80
Description of Certain Indebtedness... 82
The Exchange Offer.................... 85
Description of the Notes.............. 94
Certain U.S. Federal Tax
Considerations...................... 129
Plan of Distribution.................. 137
Legal Matters......................... 138
Experts............................... 138
Where You Can Fnd More Information.... 138
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 (90TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$225,238,000
SPECTRASITE HOLDINGS, INC.
EXCHANGE OFFER FOR
12% SENIOR DISCOUNT NOTES DUE 2008
-------------------------------------
PROSPECTUS
-------------------------------------
[SPECTRASITE LOGO]
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 232
[SPECTRASITE LOGO]
Alternate Cover Page
PROSPECTUS
[DATE OF EFFECTIVENESS]
$225,238,000
SPECTRASITE HOLDINGS, INC.
12% SENIOR DISCOUNT NOTES DUE 2008
CIBC World Markets Corp. will use this prospectus in connection with offers
and sales of the notes related to market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. SpectraSite Holdings, Inc. will not receive any of the
proceeds of such sales. CIBC World Markets Corp. may act as a principle or agent
in such transactions. The closing of the exchange offer, which constituted the
delivery of the registered notes in place of the old notes, occurred on
, 1999. See "Plan of Distribution."
SPECTRASITE:
- - We develop and manage build-to-suit communications tower networks and provide
site acquisition and site management services for major wireless
communications service providers.
- - SpectraSite Holdings, Inc. 8000 Regency Parkway, Suite 570 Cary, North
Carolina 27511 (919) 468-0112
TRADING FORMAT:
- - The PORTAL market, in the over-the-counter market, negotiated transactions or
through a combination of such methods.
THE NOTES:
- - Maturity Date: July 15, 2008.
- - Accretion and Interest: the notes accrete daily at a rate of 12% per year,
compounded semiannually, to an aggregate principal amount of $225,238,000 by
July 15, 2003. Cash interest will begin to accrue on July 15, 2003, and we
will pay cash interest on January 15, 2004 and on each July 15 and January 15
thereafter until maturity.
- - Redemption: We may redeem the notes on or after July 15, 2003. We may redeem
up to 25% of the notes prior to July 15, 2001 with net proceeds from one or
more public equity offerings.
- - Ranking: The notes are general, unsecured obligations of SpectraSite Holdings,
Inc. and:
- rank equally in right of payment to all existing and future senior
indebtedness of Holdings; and
- are effectively subordinated to all existing and future indebtedness and
other liabilities of Holdings' subsidiaries.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE [8].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC WORLD MARKETS CORP.
<PAGE> 233
ALTERNATE USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the exchange
notes by CIBC World Markets Corp. in market-making transactions. SpectraSite
will not receive any of the proceeds from such transactions.
<PAGE> 234
ALTERNATE PLAN OF DISTRIBUTION
This prospectus is to be used by CIBC World Markets Corp. in connection
with offers and sales of the notes in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. CIBC World Markets Corp. may act as a principal or agent in
such transactions, has no obligation to make a market in the notes and may
discontinue its market-making activities at any time without notice, at its sole
discretion. There is currently no trading market for the 2008 notes. No
assurances can be given as to the development or liquidity of any trading market
for the 2008 notes.
We have agreed to indemnify jointly and severally CIBC World Markets Corp.
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that CIBC World Markets Corp. may be required to make
in that regard.
Affiliates of CIBC World Markets Corp. beneficially own approximately
% of Holdings' capital stock on a fully-diluted basis. In addition, Andrew
R. Heyer, a Managing Director of CIBC World Markets Corp., serves on Holdings'
board of directors.
CIBC World Markets Corp. and its affiliates have provided investment
banking and other financial services to us in the past and may do so in the
future. In addition, CIBC World Markets Corp. and an affiliate are lenders and
an agent under our new credit facility and have received customary fees for
acting in such capacities.
<PAGE> 235
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation (in its original certificate of
incorporation or amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise of perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. The Registrant's Certificate
of Incorporation, as amended, limits the liability of directors thereof to the
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*2.1 Agreement and Plan of Merger, dated as of February 10, 1999,
among Nextel Communications, Inc., Tower Parent Corp., Tower
Merger Vehicle, Inc., Tower Asset Sub Inc., SpectraSite
Holdings, Inc., SpectraSite Communications, Inc. and SHI
Merger Sub, Inc. (the "Nextel Merger Agreement")
*2.2 Amendment No. 1 to the Nextel Merger Agreement
2.3 Agreement and Plan of Merger among Westower Corporation,
SpectraSite Holdings, Inc. and W. Acquisition Corp., dated
as of May 15, 1999
*3.1 Certificate of Incorporation of Integrated Site Development
("ISD"), dated and filed as of April 25, 1997
*3.2 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of May 11, 1997 (authorizing Series A
Preferred Stock) and filed May 12, 1997
*3.3 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of August 14, 1997 (changing name to
SpectraSite Communications, Inc. ("SCI")) and filed August
15, 1997
*3.4 Certificate of Amendment of the Certificate of Incorporation
of SCI, dated and filed as of October 29, 1997 (changing
name to SpectraSite Holdings, Inc. (the "Registrant"))
*3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated and filed as of March 23, 1998
(authorizing Series B Preferred Stock)
*3.6 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of May 29, 1998 and filed June
2, 1998
*3.7 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of August 18, 1998 and filed
August 19, 1998
</TABLE>
II-1
<PAGE> 236
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*3.8 Bylaws of ISD, dated as of April 25, 1997
*3.9 Amended and Restated Certificate of Incorporation of the
Registrant
*4.1 Indenture, dated as of June 26, 1998, between the Registrant
and United States Trust Company of New York, as trustee
*4.2 First Supplemental Indenture, dated as of March 25, 1999
*4.3 Indenture, dated as of April 20, 1999, between the
Registrant and United States Trust Company of New York, as
trustee.
*5.1 Opinion of Dow Lohnes & Albertson, PLLC
*10.1 Stock Purchase Agreement (Series A Preferred Stock), dated
as of May 12, 1997, by and among U.S. Towers, Inc. ("UST"),
TeleSite Services, LLC ("TeleSite"), Metrosite Management,
LLC ("Metrosite"), Whitney Equity Partners, L.P. ("Whitney
Equity"), Kitty Hawk Capital Limited Partnership, L.P., III
("Kitty Hawk III"), and ISD
*10.2 Stock Purchase Agreement (Series B Preferred Stock), dated
as of March 23, 1998, by and among the Registrant, Whitney
Equity, J. H. Whitney, III, L.P. ("Whitney III"), Whitney
Strategic Partners III, L.P. ("Whitney Strategic"),
Waller-Sutton Media Partners, L.P. ("Waller-Sutton"), Kitty
Hawk III, Kitty Hawk Capital Limited Partnership, IV ("Kitty
Hawk IV"), Eagle Creek Capital, L.L.C. ("Eagle Creek"), The
North Carolina Enterprise Fund, L.P. ("NCEF"), Finley Family
Limited Partnership ("Finley LP"), William R. Gupton
("Gupton"), Jack W. Jackman ("Jackman") and Alton D. Eckert
("Eckert")
*10.3 First Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of May 29, 1998
*10.4 Second Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of August 27, 1998
*10.5 Second Amended and Restated Registration Rights Agreement,
dated as of April 20, 1999, by and among the Registrant,
Whitney Equity, Whitney III, Whitney Strategic,
Waller-Sutton, Kitty Hawk III, Kitty Hawk IV, Eagle Creek,
NCEF, Finley LP, certain affiliates of CIBC Oppenheimer
Corp. (the "CIBC Purchasers"), certain affiliates and
employees of Welsh Carson Anderson & Stowe (the "WCAS
Purchasers"), Tower Parent Corp., Gupton, Eckert, Stephen H.
Clark ("Clark") and David P. Tomick ("Tomick")
*10.6 Third Amended and Restated Stockholders' Agreement, dated as
of April 20, 1999, by and among the Registrant, Whitney
Equity, Whitney III, Whitney Strategic, Waller-Sutton, Kitty
Hawk III, Kitty Hawk IV, Eagle Creek, Clark, Tomick, Finely
LP, NCEF, the CIBC Purchasers, the WCAS Purchasers, Tower
Parent Corp., Edward Lutkewich ("Lutkewich"), Jackman,
Eckert, and Gupton
*10.7 Employment Agreement with Stephen H. Clark
*10.8 Employment Agreement with David P. Tomick
*10.9 Employment Agreement with Richard J. Byrne
*10.10 Consulting Agreement with Finley & Co.
*10.11 Credit Agreement, dated as of April 20, 1999, by and among
the Registrant, SCI, CIBC Oppenheimer Corp., Credit Suisse
First Boston Corporation and the other parties thereto
*10.12 Membership Interests Purchase Agreement, dated as of
December 31, 1997, by and among SCI, Jeffrey Hawkins, Edwin
Keuck and H&K Investments LLC
*10.13 First Amendment to the Membership Interests Purchase
Agreement, dated May 29, 1998
*10.14 Purchase and Sale Agreement, dated as of February 20, 1998,
by and among the Registrant, Metrosite and Apex Site
Management, L.P.
*10.15 Letter Agreement, dated as of February 6, 1998, by and
between SCI and Whalen
</TABLE>
II-2
<PAGE> 237
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.16 Stock Option Plan of the Registrant, effective as of June
24, 1997
*10.17 Amendment to Stock Option Plan
*10.18 Escrow Agreement, dated as of May 12, 1997, by and among
ISD, Finley LP, and Morrison Cohen Singer & Weinstein, LLP
("Morrison Cohen")
*10.19 Option Escrow Agreement, dated as of May 12, 1997, by and
among Whitney LP, Kitty Hawk III and Morrison Cohen
*10.20 Release and Settlement Agreement, dated as of May 12, 1997,
by and among PCX Corporation ("PCX"), NCEF, Kitty Hawk III,
Eckert, Gupton, Jackman, Lutkewich, UST, Long and Clark
*10.21 Stock Restriction Agreement, dated as of May 12, 1997, by
and between ISD and Finley LP
*10.22 Agreement, dated September 15, 1998, by and between Robert
M. Long and the Registrant
*10.23 Asset Purchase Agreement, dated as of August 14, 1998 by and
among Airadigm Communications, Inc. ("Airadigm") and SCI
*10.24 Form of Master Tower Attachment Lease Agreement by and
between Airadigm and SCI
*10.25 Asset Purchase, dated as of August 20, 1998, by and among
Amica Wireless PhoneService, Inc. ("Amica") and SCI
*10.26 Form of Master Design Build Lease Agreement by and between
Amica and SCI
*10.27 Stock Contribution Agreement, dated as of May 12, 1997, by
and among ISD, Clark, Long and UST
*10.28 Membership Interests Contribution Agreement, dated as of May
12, 1997, by and among ISD, Finley, Caroline Finley, Finley
LP, the Central Arkansas Opportunity Foundation, TeleSite
and MetroSite
*10.29 Agreement and Plan of Merger, dated as of October 31, 1997,
by and between UST and SCI
*10.30 Preferred Stock Purchase Agreement (Series C Preferred
Stock), dated as of February 10, 1999, by and among
SpectraSite Holdings, Inc., the WCAS Purchasers, the Whitney
Purchasers, the CIBC Purchasers and the Additional
Purchasers.
*10.31 First Amendment to Preferred Stock Purchase Agreement
(Series C Preferred Stock)
*10.32 Security & Subordination Agreement, dated as of April 20,
1999
*10.33 Master Site Commitment Agreement, dated as of April 20, 1999
*10.34 Master Site Lease Agreement, dated as of April 20, 1999
*12.1 Computation of Ratio of Earnings to Fixed Charges
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Dow, Lohnes & Albertson, PLLC (contained in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Moss Adams LLP
23.5 Consent of Lamn, Krielow, Dytrych & Darling
23.6 Consent of Shearer, Taylor & Co., P.A.
*25.1 Form T-1 (Statement of Eligibility of Trustee)
27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules.
None.
II-3
<PAGE> 238
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the provisions, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issues undertake that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
the reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
Every prospectus: (i) that is filed pursuant to the immediately preceding
paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of
II-4
<PAGE> 239
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 240
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
SPECTRASITE HOLDINGS, INC. HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CARY, STATE OF NORTH CAROLINA, ON JULY 1, 1999.
SPECTRASITE HOLDINGS, INC.
By: /s/ STEPHEN H. CLARK
------------------------------------
Stephen H. Clark
President, Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN H. CLARK President, Chief Executive Officer and July 1, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Stephen H. Clark
/s/ DAVID P. TOMICK Executive Vice President, Chief July 1, 1999
- ------------------------------------------ Financial Officer and Secretary
David P. Tomick (Principal Financial Officer)
/s/ DANIEL I. HUNT Vice President of Finance July 1, 1999
- ------------------------------------------ (Principal Accounting Officer)
Daniel I. Hunt
* Chairman of the Board of Directors July 1, 1999
- ------------------------------------------
Lawrence B. Sorrel
* Director July 1, 1999
- ------------------------------------------
Timothy M. Donahue
* Director July 1, 1999
- ------------------------------------------
Andrew R. Heyer
* Director July 1, 1999
- ------------------------------------------
James R. Matthews
* Director July 1, 1999
- ------------------------------------------
Thomas E. McInerney
* Director July 1, 1999
- ------------------------------------------
Michael J. Price
* Director July 1, 1999
- ------------------------------------------
Rudolph E. Rupert
* Director July 1, 1999
- ------------------------------------------
Steven M. Shindler
* Director July 1, 1999
- ------------------------------------------
Michael R. Stone
</TABLE>
*POWER OF ATTORNEY
David P. Tomick, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
By: /s/ DAVID P. TOMICK
------------------------------------
(David P. Tomick
Attorney-In-Fact)
II-6
<PAGE> 241
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.3 Agreement and Plan of Merger among Westower Corporation,
SpectraSite Holdings, Inc. and W. Acquisition Corp., dated
as of May 15, 1999
21.1 Subsidiaries of the Registrant
23.2 Consent of Ernst & Young LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Moss Adams LLP
23.5 Consent of Lamn, Krielow, Dytrych & Darling
23.6 Consent of Shearer, Taylor & Co., P.A.
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 2.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
WESTOWER CORPORATION,
SPECTRASITE HOLDINGS, INC.
AND
W ACQUISITION CORP.
DATED AS OF MAY 15, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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>
i
<PAGE> 3
<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
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... 29
(a) Stockholder Approval........................................ 29
(b) Listing..................................................... 29
</TABLE>
ii
<PAGE> 4
<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
Section 8.2 Non-Survival of Representations, Warranties and
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>
iii
<PAGE> 5
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>
iv
<PAGE> 6
<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>
v
<PAGE> 7
<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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<PAGE> 8
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
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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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<PAGE> 11
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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<PAGE> 12
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
37
<PAGE> 45
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.
38
<PAGE> 46
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.
39
<PAGE> 47
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
40
<PAGE> 1
Exhibit 21
Subsidiaries of SpectraSite Holdings, Inc.
SpectraSite Communications, Inc. Delaware
Tower Merger Vehicle, Inc. Delaware
Tower Asset Sub , Inc. Delaware
W Acquisition Corp. Delaware
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 26, 1999 in Amendment 4 to the Registration
Statement (Form S-4; file no. 333-67043) of SpectraSite Holdings, Inc., for the
offer to exchange its 12% Senior Notes due 2008, with respect to the
consolidated financial statements of SpectraSite Holdings, Inc. as of December
31, 1997 and 1998 and for the period from inception (April 25, 1997) to
December 31, 1997 and for the year ended December 31, 1998 and our report dated
March 27, 1998, with respect to the consolidated financial statements of the
Company's predecessor, TeleSite Services, LLC, as of December 31, 1996 and for
the year ended December 31, 1996 and the period from January 1, 1997 to May 12,
1997.
/s/ Ernst & Young LLP
Raleigh, North Carolina
July 1, 1999
<PAGE> 1
EXHIBIT 23.3
Consent of PricewaterhouseCoopers LLP
We consent to the use in this Registration Statement on Form S-4 of
SpectraSite Holdings, Inc. of (i) our report dated February 4, 1999, except for
the fourth paragraph in Note 3, as to which the date is June 17, 1999, relating
to the consolidated financial statements of Westower Corporation and its
subsidiaries as of September 30, 1998 and for the seven months ended September
30, 1998 and (ii) our report dated May 21, 1999 relating to the financial
statements of Summit Communications, LLC as of September 30, 1998 and for the
nine months ended September 30, 1998 which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
June 29, 1999
<PAGE> 1
EXHIBIT 23.4
Consent of Moss Adams LLP
We consent to (a) the inclusion in the Registration Statement of
SpectraSite Holdings, Inc. on Form S-4 (File No. 333-67043) of (i) our report
dated April 14, 1998, except for the third paragraph in Note 3, as to which the
date is May 31, 1998 and the fourth paragraph in Note 3, as to which the date is
June 14, 1999, relating to the consolidated financial statements of Westower
Corporation and Subsidiaries as of February 28, 1997 and 1998 and the three
years in the period ended February 28, 1998 and (ii) our report dated October
21, 1998 on our audit of the consolidated financial statements of CORD
Communications, Inc. as of June 30, 1997 and 1998 and for the years then ended
and (b) the reference to our firm in the prospectus under the caption "Experts".
/s/ Moss Adams LLP
Bellingham, Washington
July 1, 1999
<PAGE> 1
EXHIBIT 23.5
Consent of Lamn, Krielow, Dytrych & Darling
We consent to the inclusion in the Registration Statement of SpectraSite
Holdings, Inc. on Form S-4 (File No. 333-67043) of our report dated February 11,
1998, except for Note 4, as to which the date is August 12, 1998, relating to
the financial statements of MJA Communications Corp. and to the references to
our firm in the prospectus.
/s/ LAMN, KRIELOW, DYTRYCH & DARLING
Certified Public Accountants
June 29, 1999
<PAGE> 1
EXHIBIT 23.6
Consent of Shearer, Taylor & Co., P.A.
We consent to the inclusion in the Registration Statement of SpectraSite
Holdings, Inc. on Form S-4 (File No. 333-67043) of our report dated March 5,
1998 on our audit of the financial statements of Summit Communications, LLC as
of December 31, 1997 and the period from May 24, 1997 (inception) to December
31, 1997 and to the reference to our firm in the prospectus under the caption
"Experts."
/s/ Shearer, Taylor & Co., P.A.
July 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998, FOR THE PERIOD FROM APRIL 25, 1997 (INCEPTION) TO
DECEMBER 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1999
<PERIOD-START> JAN-01-1998 APR-25-1997 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1997 MAR-31-1999
<CASH> 99,548,234 2,234,148 111,078,599
<SECURITIES> 15,414,048 0 0
<RECEIVABLES> 3,352,970 1,610,039 3,144,381
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 118,568,050 3,878,206 114,469,198
<PP&E> 29,338,928 1,336,856 33,712,046
<DEPRECIATION> 869,911 160,824 1,371,599
<TOTAL-ASSETS> 161,946,012 13,641,953 160,712,055
<CURRENT-LIABILITIES> 2,444,273 2,708,439 1,765,463
<BONDS> 0 0 0
40,655,781 10,500,000 41,415,783
0 0 0
<COMMON> 957 932 957
<OTHER-SE> (14,067,966) (1,898,794) (19,344,929)
<TOTAL-LIABILITY-AND-EQUITY> 161,946,012 13,641,953 0
<SALES> 0 0 0
<TOTAL-REVENUES> 8,798,127 5,001,668 2,955,295
<CGS> 0 0 0
<TOTAL-COSTS> 2,791,120 1,119,608 903,625
<OTHER-EXPENSES> 10,957,943 7,878,969 3,931,615
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 8,169,576 163,555 3,905,057
<INCOME-PRETAX> (9,079,354) (3,890,446) (4,516,961)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (9,079,354) (3,890,446) (4,516,961)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (9,079,354) (3,890,446) (4,516,961)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
