<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 2000
Registration No. 333-93873
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
SPECTRASITE HOLDINGS, INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4899 56-2027322
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
100 REGENCY FOREST DRIVE
SUITE 400
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.
100 REGENCY FOREST DRIVE
SUITE 400
CARY, NORTH CAROLINA 27511
(919) 468-0112
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service)
------------------------------------
Copies to:
TIMOTHY J. KELLEY
THOMAS D. TWEDT
DOW, LOHNES & ALBERTSON, PLLC
1200 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20036
(202) 776-2000
RICHARD A. DRUCKER
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 450-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(c)
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 file 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.......................... 25,734,265 shares $13.40625 $344,999,990 $91,080(3)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457.
(3) Previously paid.
------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTES
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada. The
second prospectus relates to a concurrent offering outside the United States and
Canada. The complete prospectus relating to the U.S. offering follows
immediately after this explanatory note. The prospectuses for each of the U.S.
offering and the international offering will be identical with the exception of
an alternate front cover page. This alternate page appears in this registration
statement immediately following the complete prospectus for the U.S. offering.
<PAGE> 3
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any jurisdiction where the
offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued January 7, 2000
22,300,000 Shares
[SpectraSite Logo]
SpectraSite Holdings, Inc.
COMMON STOCK
------------------------
SPECTRASITE HOLDINGS, INC. IS OFFERING 22,300,000 SHARES OF ITS COMMON STOCK.
------------------------
OUR COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"SITE." ON JANUARY 6, 2000, THE REPORTED LAST SALE PRICE FOR OUR COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS $13 3/8 PER SHARE.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SPECTRASITE
-------- ------------- -----------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total............................. $ $ $
</TABLE>
SpectraSite Holdings, Inc. has granted the underwriters the right to purchase up
to an additional 3,345,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
LEHMAN BROTHERS
SALOMON SMITH BARNEY
, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Special Note Regarding Forward-Looking
Statements........................... 14
Use of Proceeds........................ 15
Price Range of Common Stock............ 15
Dividend Policy........................ 15
Capitalization......................... 16
Unaudited Pro Forma Financial Data..... 17
Selected Historical Financial Data..... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 34
Business............................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................. 51
Certain Transactions................... 62
Ownership of Capital Stock............. 69
Description of Capital Stock........... 71
Description of Certain Indebtedness.... 73
Shares Eligible for Future Sale........ 76
Certain United States Federal Tax
Considerations to Non-U.S. Holders... 78
Underwriters........................... 82
Legal Matters.......................... 85
Experts................................ 85
Where You Can Find More Information.... 85
Index to Financial Statements.......... F-1
</TABLE>
------------------------
SpectraSite Holdings, Inc. is a Delaware corporation. Our principal
executive offices are located at 100 Regency Forest Drive, Suite 400, Cary,
North Carolina 27511, and our telephone number at that address is (919)
468-0112. Our World Wide Web site address is http://www.spectrasite.com. The
information in our website is not part of this prospectus.
In this prospectus, Holdings refers to SpectraSite Holdings, Inc., and
SpectraSite, we, us and our refer to SpectraSite Holdings, Inc., its wholly
owned subsidiaries and all predecessor entities collectively, unless the context
requires otherwise. The term common stock refers to the common stock, par value
$0.001 per share, of Holdings.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
1
<PAGE> 5
(This page intentionally left blank)
2
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights the most important features of this offering and
the information contained elsewhere in this prospectus. This summary is not
complete and does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, especially the risks of investing in our common stock discussed under
"Risk Factors."
SPECTRASITE
OVERVIEW
We are one of the leading providers of outsourced antennae site and network
services to the wireless communications and broadcast industries in the United
States and Canada. Our businesses include the ownership and leasing of antennae
sites on towers, managing rooftop and in-building telecommunications access on
commercial real estate, network planning and deployment, and construction of
towers and related wireless facilities. Our customers are leading wireless
communications providers and broadcasters, including Nextel, Sprint PCS, AT&T
Wireless, VoiceStream Communications, Tritel Communications, Teligent, WinStar,
Cox Broadcasting, Clear Channel Communications and Paxson Communications. As of
December 31, 1999 and after giving effect to the acquisition of Apex Site
Management Holdings, Inc., we owned or managed over 15,000 sites, including
2,765 owned towers, in 98 of the top 100 markets in the United States.
The wireless communications industry is growing rapidly as the demand for
wireless services continues to increase. In addition, as the number and type of
wireless service providers has grown, the industry has also become increasingly
competitive. To meet the increased demand for their services and enhance their
competitive positions, wireless carriers continue to make large capital
investments to expand their networks as well as to satisfy customer demands for
enhanced services, seamless and comprehensive coverage, better call quality,
faster data transmission and lower prices.
We believe that as carriers face the increased challenges of expanding
their networks and improving their services, they must allocate their available
capital and resources in the most efficient manner. In particular, carriers are
increasingly outsourcing tower ownership, as well as network planning,
deployment and management to independent tower owners like SpectraSite. This
outsourcing allows our customers to focus on their core competencies and to rely
on us for planning and deploying their networks. Our services are designed to
improve our customers' competitive positions through the efficient planning,
deployment and management of their networks. Our services include:
-- WIRELESS TOWER OWNERSHIP AND LEASING. We are one of the largest
independent owners and operators of wireless communications towers in the
United States and Canada, with 2,765 owned towers in 43 states and 3
Canadian provinces.
-- WIRELESS ROOFTOP AND IN-BUILDING ACCESS. We are the largest independent
providers of rooftop and in-building access to the wireless communications
industry in the United States, with approximately 12,700 sites under
management across the country.
-- NETWORK DESIGN AND DEPLOYMENT SERVICES. We are a leading provider of
design and deployment services for wireless networks. These services
include radio frequency engineering, network architecture, microwave
relocation, fixed network engineering, site development, tower and
facility construction and network installation and optimization.
-- BROADCAST TOWER DEVELOPMENT AND LEASING. We are a leading provider of
broadcast tower analysis, design, fabrication, installation and technical
services. We have over 50 years of experience in the broadcast tower
industry and have worked on the development of more than 700 broadcast
towers, which we believe represents approximately 50% of the existing
broadcast tower infrastructure in the United States. We intend to
capitalize on our broadcast tower development expertise to create tower
ownership and leasing opportunities.
3
<PAGE> 7
GROWTH STRATEGY
Our objective is to be the leading independent provider of outsourced
antenna site and network services to the telecommunications and broadcast
industries. Key elements of our strategy include:
-- MAXIMIZING THE UTILIZATION OF OUR TOWERS AND MANAGED SITES. We intend to
capitalize on the substantial opportunities for revenue and cash flow
growth by maximizing the number of tenants we have on each of our towers
and managed sites. We believe that our strategy of owning clustered groups
of towers and managed sites in major metropolitan markets and providing
our customers with a full range of products and services allows us to
deliver reliable, scalable network solutions and will result in increased
co-location on our towers and managed sites.
-- EXPANDING OUR TOWER PORTFOLIO. We seek to expand our tower portfolio by
building new towers for anchor tenants and by making selective
acquisitions of towers. We believe that Nextel's agreement to lease space
on an additional 1,543 towers we own, acquire or construct for Nextel or
other tenants will substantially increase the number of towers we own and
operate.
-- EXPANDING THE SUITE OF SERVICES WE OFFER AND PURSUING CROSS-SELLING
OPPORTUNITIES. We believe our ability to provide a package of integrated
services, which have traditionally been offered by multiple subcontractors
coordinated by a carrier's deployment staff, will make us a preferred
provider of all outsourced antennae site and network services.
4
<PAGE> 8
THE OFFERING
Common stock offered.................... 22,300,000 shares
Common stock to be outstanding after the
offering................................ 119,642,226 shares
Use of proceeds......................... We will receive net proceeds from
this offering of approximately
$280.8 million. We intend to use
the net proceeds from this offering
to fund costs related to the
construction and acquisition of
towers, and for general corporate
purposes.
Nasdaq National Market symbol........... SITE
------------------------
Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale of up to 3,345,000 shares of common stock
which the underwriters have the option to purchase from us to cover
over-allotments.
The number of shares of our common stock that will be outstanding
immediately after the offering includes 70,749,625 shares of common stock that
will be issued upon the conversion of all outstanding shares of our Series A,
Series B and Series C preferred stock in connection with the completion of this
offering, as well as 6,175,997 and 225,000 shares of our common stock issued in
connection with the Apex merger and the Vertical Properties merger,
respectively, on January 5, 2000. However, the number of shares listed above
does not include 5,715,291 shares issuable upon the exercise of outstanding
stock options as of December 31, 1999, having a weighted average exercise price
of $6.01 per share.
5
<PAGE> 9
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
We present the following summary unaudited pro forma financial information
to give you a better understanding of what the results of operations and
financial position of the combined businesses of SpectraSite and Westower
Corporation may have been for the year ended December 31, 1998 and the nine
months ended September 30, 1999, if the Westower merger, the acquisition of
2,000 towers from Nextel Communications, Inc. and the other transactions
described under "Unaudited Pro Forma Financial Data" had occurred on January 1,
1998. We prepared the unaudited pro forma statement of operations by adding or
combining the historical pro forma results of each company with adjustments. The
companies may have performed differently had they actually been combined on
January 1, 1998. The unaudited pro forma information is not necessarily
indicative of the historical results that we actually would have had or the
future results we will experience.
Tower cash flow consists of site leasing revenues less site leasing costs
of operations. EBITDA consists of operating income (loss) before depreciation
and amortization expense and provisions for restructuring and other
non-recurring charges. Adjusted EBITDA consists of EBITDA less estimated
incremental operating expenses related to the Nextel tower acquisition. Tower
cash flow, EBITDA and adjusted EBITDA are not measurements of financial
performance under generally accepted accounting principles and should not be
considered alternatives to net income (loss) as a measure of performance or to
cash flow as a measure of liquidity. Tower cash flow, EBITDA and adjusted EBITDA
are not necessarily comparable with similarly titled measures for other
companies. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by
revenues. Tower cash flow, EBITDA and adjusted EBITDA are provided because they
are used in the communications site industry as measures of operating
performance and financial position.
<TABLE>
<CAPTION>
POST-MERGER POST-MERGER
PRO FORMA PRO FORMA
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $138,850 $120,817
Costs of operations...................................... 86,192 68,654
Selling, general and administrative expenses............. 23,646 40,348
Depreciation and amortization............................ 56,372 45,843
Restructuring and non-recurring charges.................. 404 7,727
-------- --------
Operating loss........................................... $(27,764) $(41,755)
======== ========
OTHER DATA:
Tower cash flow.......................................... $ 28,466 $ 27,837
EBITDA................................................... 29,012 11,815
Adjusted EBITDA.......................................... 10,445 7,173
Adjusted EBITDA margin................................... 7.5% 5.9%
SELECTED OPERATING DATA:
Number of towers owned................................... 2,217 2,405
</TABLE>
6
<PAGE> 10
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks and uncertainties described below and the other information in this
prospectus, including the financial statements and related notes, before
deciding to invest in shares of our common stock. While these are the risks and
uncertainties we believe are most important for you to consider, you should know
that they are not the only risks or uncertainties facing us or which may
adversely affect our business. If any of the following risks or uncertainties
actually occurs, our business, financial condition or results of operations
would likely suffer. In that event, the market price of our common stock could
decline, and you could lose all or part of your investment.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
SpectraSite was formed in May 1997, purchased 2,000 towers from Nextel in
April 1999, which represented approximately 72% of our towers as of December 31,
1999, and acquired Westower Corporation in September 1999. As a result, we have
only a limited operating history on which you can evaluate our business and
prospects. Our prospects must be considered in the light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly, companies in new and rapidly
evolving industries, such as wireless communications. To address these risks and
uncertainties we must, among other things, successfully:
-- co-locate tenants on our towers;
-- perform under our agreements with Nextel; and
-- integrate our acquisitions.
We may not be successful in accomplishing these objectives.
WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES.
On a pro forma basis, we incurred net losses of $103.2 million and $104.8
million for the year ended December 31, 1998 and the nine months ended September
30, 1999, respectively. Our losses are principally due to significant
depreciation, amortization and interest expense. We have not achieved
profitability and expect to continue to incur losses for the foreseeable future.
WE HAVE SUBSTANTIAL INDEBTEDNESS, AND SERVICING OUR INDEBTEDNESS COULD REDUCE
FUNDS AVAILABLE TO GROW OUR BUSINESS.
We are, and will continue to be, highly leveraged. As of September 30,
1999, we had total consolidated indebtedness of $657.1 million. Our high level
of indebtedness could interfere with our ability to grow. For example, it could:
-- 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;
-- 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.
Our ability to generate sufficient cash flow from operations to pay
principal of, and interest on, our indebtedness is uncertain. In particular, we
may not meet our anticipated revenue growth and operating expense targets, and
as a result, our future debt service obligations could exceed cash available to
us. Further, we may not be able to refinance any of our indebtedness on
commercially reasonable terms or at all.
7
<PAGE> 11
OUR BUSINESS DEPENDS ON THE DEMAND FOR WIRELESS COMMUNICATIONS SITES AND OUR
ABILITY TO SECURE CO-LOCATION TENANTS.
Our business depends on demand for communications sites from wireless
service providers, which, in turn, depends on the demand for wireless services.
A reduction in demand for communications sites or increased competition for
co-location tenants could have a material adverse effect on our business,
financial condition or results of operations. In particular, the success of our
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. The extent to which
wireless service providers lease communications sites on our towers depends on
the level of demand for wireless services, the financial condition and access to
capital of those providers, the strategy of providers with respect to owning or
leasing communications sites, government licensing of communications licenses,
changes in telecommunications regulations, the characteristics of each company's
technology, and geographic terrain.
A SIGNIFICANT PORTION OF OUR REVENUES AND TOWER CONSTRUCTION ACTIVITY DEPENDS ON
NEXTEL.
Nextel accounts for a significant portion of our total revenues. On a pro
forma basis, Nextel represented approximately 34% and 28% of our revenues for
the year ended December 31, 1998 and for the nine months ended September 30,
1999, respectively. 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 or results of operations could be
materially and adversely affected.
The financial data related to the Nextel towers 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 this
financial data. We believe the estimated amounts are factually supported and
based on reasonable assumptions. However, these amounts may not accurately
reflect the results of operations from the Nextel towers for the periods
presented or the operating results that we can expect from the Nextel towers in
the future.
Nextel agreed to lease 1,700 additional sites on our towers as part of its
national service deployment, and as of December 31, 1999, they had leased 157 of
those sites. Under the terms of our agreements with Nextel, we are required to
construct or purchase agreed upon numbers of towers at specified times, and in
the case of towers we purchase from Nextel, at specified prices. Our failure to
construct or purchase the towers as agreed could result in the cancellation of
our right to construct or purchase additional towers under these agreements.
Such a cancellation could have a material adverse effect on our business,
financial condition or results of operations and on our ability to implement or
achieve our business objectives in the future.
Under our agreements with Nextel, subject to limited exceptions, we will be
required to construct new towers in locations to be determined by Nextel. These
towers may have limited appeal to other providers of wireless communications
services, which may limit our opportunities to attract additional tenants,
which, in turn, could have a material adverse effect on our business, financial
condition or results of operations.
WE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING ACQUISITIONS WITH OUR OPERATIONS,
WHICH COULD LIMIT OUR REVENUE GROWTH AND OUR ABILITY TO ACHIEVE OR SUSTAIN
PROFITABILITY.
Acquiring additional tower assets and complementary businesses is an
integral part of our business strategy. We may not be able to realize the
expected benefits of past or future acquisitions or identify suitable
acquisition candidates. Our ability to complete future acquisitions will depend
on a number of factors, some of which are beyond our control, including the
attractiveness of acquisition prices and the negotiation of acceptable
definitive acquisition agreements. In addition, the process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties, divert managerial attention or require significant
financial resources that could otherwise be used for existing tower construction
and network deployment contracts. Future acquisitions also may require us to
incur additional indebtedness and contingent liabilities, which could have a
material adverse effect on our business, financial condition and results of
operations.
8
<PAGE> 12
WE MAY BE UNABLE TO INCREASE OUR CONSTRUCTION ACTIVITIES OR TO ACQUIRE TOWERS AS
CONTEMPLATED BY OUR GROWTH STRATEGY.
Our growth strategy depends on our ability to construct, acquire and
operate towers as wireless service providers expand their tower network
infrastructure. Regulatory and other barriers could adversely affect our ability
to construct towers in accordance with the requirements of our customers, and,
as a result, we may be subject to penalties and forfeiture provisions under our
anchor tenant leases. Our ability to construct new towers may 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.
Our expansion plans call for a significant increase in construction
activity. We may not be able to overcome the barriers to new construction, and
we may not complete the number of towers planned for construction. Our failure
to complete the necessary construction could have a material adverse effect on
our business, financial condition or results of operations.
We compete for tower acquisition opportunities with wireless service
providers, broadcasters, site developers and other independent tower owners and
operators, and we expect competition to increase. Increased competition for
acquisitions may result in fewer acquisition opportunities and higher
acquisition prices. We regularly explore acquisition opportunities; however, we
may have trouble identifying towers or tower companies to acquire in the future.
WE COMPETE WITH COMPANIES THAT MAY HAVE GREATER FINANCIAL RESOURCES.
If we are unable to successfully compete, our business will suffer. 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 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;
-- other independent tower operators;
-- 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.
Wireless service providers that own and operate their own towers generally
are substantially larger and have substantially greater financial resources than
SpectraSite. For example, AT&T Wireless and Sprint PCS own and operate their own
tower networks.
We compete for acquisition, new tower construction and network development
opportunities primarily with other independent tower companies and site
construction firms. Some of these competitors may have greater financial
resources than we have.
RAPID GROWTH COULD STRAIN OR DIVERT OUR MANAGEMENT TEAM AND WILL INCREASE OUR
OPERATING EXPENSES.
Implementation of our business strategy 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. Our failure to manage growth or unexpected
difficulties encountered during our expansion could have a material adverse
effect on our business, financial condition or results of operations. The
pursuit and integration of acquisitions, investments, joint ventures and
strategic alliances will require substantial attention from our senior
management, which will limit the amount of time they have available to devote to
existing operations.
9
<PAGE> 13
WE ANTICIPATE SIGNIFICANT CAPITAL EXPENDITURES AND MAY NEED ADDITIONAL FINANCING
WHICH MAY NOT BE AVAILABLE.
Our current plans call for approximately $200.0 million of capital
expenditures during the first half of 2000 for the construction and acquisition
of communication sites, primarily towers. We had approximately $300.0 million
available under our credit facility as of December 31, 1999. As of September 30,
1999 and after giving effect to this offering, we will have approximately $401.0
million of cash and cash equivalents. However, if acquisitions or other
opportunities present themselves more rapidly than we currently anticipate or if
our estimates prove to be inaccurate, we may need additional sources of debt or
equity capital prior to the end of 2000. Additional financing may not be
available or may be restricted by the terms of the credit facility and the
indentures governing our senior discount notes.
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
development and growth of communications technologies which do not require
ground-based sites or other alternatives could reduce the demand for space on
our towers.
In particular, the emergence of new technologies that do not require
terrestrial antenna sites and can be substituted for those that do, could have a
negative impact on our operations. For example, the FCC has granted license
applications for several low-earth orbiting satellite systems that are intended
to provide mobile voice and data services; one system is currently operating,
and another has recently initiated service. 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
these systems are highly capital-intensive and have only begun to be tested,
mobile satellite systems could compete with land-based wireless communications
systems, thereby reducing the demand for the infrastructure services we provide.
Reduced demand for ground-based antenna sites could have a material adverse
effect on our business, financial condition or results of operations.
In addition, wireless service providers frequently enter into agreements
with competitors allowing them to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
providers' services. These roaming agreements may be viewed by wireless service
providers as a superior alternative to leasing space for their own antennae on
communications sites we own. The proliferation of these roaming agreements could
have a material adverse effect on our business, financial condition or results
of operations.
A SMALL NUMBER OF STOCKHOLDERS CONTROLS THE VOTING POWER OF HOLDINGS, AND THESE
STOCKHOLDERS' INTERESTS MAY BE DIFFERENT FROM YOURS.
Affiliates of Welsh, Carson, Anderson & Stowe will own approximately 32
million shares, or approximately 27%, of our common stock after giving effect to
this offering, the conversion of our preferred stock and the issuance of common
stock in connection with our acquisitions of Apex and Vertical Properties, Inc.
This ownership will allow Welsh, Carson to exert significant influence over the
management and policies of SpectraSite. In addition, Welsh, Carson and certain
other Holdings' stockholders have a right to board representation under a
stockholders' agreement. Welsh, Carson and the other parties to the
stockholders' agreement may have interests that are different from yours. See
"Certain Transactions--Stockholders' Agreement."
OUR BUSINESS DEPENDS ON OUR KEY PERSONNEL.
Our future success depends to a significant extent on the continued
services of our Chief Executive Officer, Stephen H. Clark, our Chief Operating
Officer, Timothy G. Biltz, our Chief Financial Officer, David P. Tomick, our
Executive Vice President--Business Development, Richard J. Byrne, and our
Executive Vice President--Design and Construction, Calvin J. Payne. Although
each of these officers other than Mr. Biltz has an employment agreement with
Holdings, the loss of any of these key employees would likely have a
significantly detrimental effect on our business.
10
<PAGE> 14
OUR OPERATIONS REQUIRE COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE
REGULATORY AUTHORITIES.
We are 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. Failure to comply
with applicable requirements may lead to civil penalties and tort liability.
These 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.
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, these regulations increase the costs associated with new
tower construction. Existing regulatory policies may adversely affect the timing
or cost of new tower construction, and additional regulations may be adopted
that will increase these delays or result in additional costs to SpectraSite.
These factors 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.
The FCC has initiated a rulemaking proceeding to consider how to improve
telecommunications service providers' access to rooftops, other rights-of-way
and conduits in multi-tenant buildings. The FCC is considering whether such
access should be mandated and, if so, under what rules, terms, and conditions.
While new telecommunications entrants have supported the proposals, building
owners and incumbent local exchange carriers have argued that the proposals are
unconstitutional and that the agency lacks the statutory authority to adopt
them. Federal legislation addressing access by telecommunications providers to
multi-tenant buildings has also been introduced and may be considered in the
coming year. Other legislative proposals concerning tower siting and related
environmental issues may also be considered. We cannot predict whether these
regulatory and legislative initiatives will be adopted and, if they are, the
effect that they will have on our business.
As part of the Westower merger, we acquired operations in Canada and an
interest in a Brazilian joint venture. As a result, we are subject to regulation
in those jurisdictions. If we pursue additional international opportunities, we
will be subject to regulation in additional foreign jurisdictions. In addition,
our customers also may become subject to new regulatory policies which may
adversely affect the demand for communications sites.
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, recover under title
warranties given by tower sellers, which warranties often terminate
after the expiration of a specific period, typically one to three
years; and
-- recover under title covenants from landlords contained in lease
agreements.
11
<PAGE> 15
WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT REGARD TO
FAULT.
Our operations are subject to federal, state, provincial, local, and
foreign environmental laws and regulations regarding the use, storage, disposal,
emission, release and remediation of hazardous and nonhazardous substances,
materials or wastes. Under these laws, SpectraSite could be held strictly, as
well as jointly and severally, liable for the investigation and 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 currently have no
material liability under applicable environmental laws, the costs of complying
with existing or future environmental laws, investigating and remediating any
contaminated real property and resolving any related liability could have a
material adverse effect on our business, financial condition or results of
operations.
The FCC requires tower owners who are subject to the agency's antenna
structure registration program to comply at the time of registration with
federal environmental rules that 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.
OUR TOWERS MAY BE DAMAGED BY NATURAL DISASTERS.
Our towers are subject to risks associated with natural disasters such as
ice and wind storms, 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 COULD IMPACT OUR BUSINESS.
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 face
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, we cannot assure you that
these claims will not arise in the future.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND, BECAUSE WE ARE
A HOLDING COMPANY, WE MAY BE UNABLE TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. In addition, our credit facility and the
indentures governing our senior discount notes restrict our ability to pay
dividends. Any future determination to pay dividends will be at the discretion
of our board of directors and will be dependent upon then existing conditions,
including our financial condition and results of operations, capital
requirements, contractual restrictions, business prospects and other factors
that the board of directors considers relevant. Furthermore, because Holdings is
a holding company, it depends on the cash flow of its subsidiaries, and
SpectraSite Communications' credit facility imposes restrictions on Holdings'
subsidiaries' ability to distribute cash to Holdings.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE, AND YOU COULD LOSE A SIGNIFICANT PART OF
YOUR INVESTMENT AS A RESULT.
Prior to the Westower merger, our common stock was privately held with no
public trading market. On September 1, 1999, our common stock was approved for
trading on the Nasdaq National Market under the symbol "SITE", and public
trading commenced on September 3, 1999. The average daily trading volume for the
week ending December 24, 1999 was only 103,438 shares. Accordingly, only limited
public trading exists
12
<PAGE> 16
for our common stock and the market price of our common stock may be highly
volatile. Further, our common stock may be highly volatile due to factors such
as the following, some of which are beyond our control:
-- quarterly variations in our operating results;
-- operating results that vary from the expectations of securities
analysts and investors;
-- changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
-- changes in market valuations of other communications tower companies;
-- announcements of technological innovations or new services by us or
our competitors;
-- announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments by us or our
competitors;
-- additions or departures of key personnel;
-- future sales of our common stock; and
-- stock market price and volume fluctuations.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock into the public
market after this offering, or the perception that these sales could occur,
could adversely affect our stock price. Given the volatility that will likely
exist for our shares, such sales could cause the market price of the common
stock to decline.
After this offering, including the mandatory conversion of all our
preferred stock into common stock and after giving effect to the issuance of
common stock in connection with our acquisitions of Apex and Vertical
Properties, we will have 119,642,226 outstanding shares of common stock, and, as
of December 31, 1999, we had reserved an additional 5,715,291 shares of common
stock for issuance under outstanding stock options. All of the shares of common
stock to be sold in this offering will be freely tradable without restriction or
further registration under the federal securities laws unless purchased by our
affiliates, as that term is defined in Rule 144 under the Securities Act.
Approximately 81,048,929 shares of outstanding common stock, representing
approximately 67.7%, of the outstanding common stock upon completion of this
offering and after giving effect to the issuance of common stock in connection
with the acquisitions of Apex and Vertical Properties, will be restricted
securities under the Securities Act, subject to restrictions on the timing,
manner and volume of sales of such shares.
We have also filed registration statements on Form S-8 under the Securities
Act covering 10,000,000 shares of common stock reserved for issuance under our
stock incentive plan. As of December 31, 1999, options to purchase 1,765,666
shares were vested. We also have reserved 1,000,000 shares of common stock for
issuance under our employee stock purchase plan.
We cannot predict whether future sales of our common stock or the
availability of our common stock for sale will adversely affect the market price
for our common stock or our ability to raise capital by offering equity
securities.
13
<PAGE> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21C of the Securities
Exchange Act of 1934, including statements concerning possible or assumed future
results of operations of SpectraSite and those preceded by, followed by or that
include the words may, will, should, could, expects, plans, anticipates,
believes, estimates, predicts, potential or continue or the negative of such
terms and other comparable terminology. You should understand that the factors
described below, in addition to those discussed elsewhere in this document,
could affect our future results and could cause those results to differ
materially from those expressed in such forward-looking statements. These
factors include:
-- material 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 integration of our operations with those of businesses we have
acquired or may acquire in the future and the realization of the
expected benefits; and
-- other risks and uncertainties as may be detailed from time to time in
our public announcements and SEC filings.
14
<PAGE> 18
USE OF PROCEEDS
Our net proceeds from the sale of the 22,300,000 shares of common stock in
this offering are estimated to be $280.8 million, or $323.2 million if the
underwriters exercise their over-allotment option in full, assuming a public
offering price of $13.375 per share and after deducting underwriting discounts
and commissions and estimated offering expenses of $1.8 million payable by us.
We intend to use the net proceeds from this offering to fund costs related
to the construction and acquisition of towers, and for working capital and
general corporate purposes, including the expansion of our sales and marketing
activities. A portion of the net proceeds may also be used to acquire or invest
in additional tower assets or tower companies and complementary businesses,
technologies or products. We have no current agreements or commitments with
respect to any material business acquisitions. Pending such uses, the net
proceeds of this offering will be invested in short term investments.
PRICE RANGE OF COMMON STOCK
Prior to the Westower merger, our common stock was privately held with no
public trading market. On September 1, 1999, our common stock was approved for
trading on the Nasdaq National Market under the symbol "SITE", and public
trading commenced on September 3, 1999. The following table sets forth on a per
share basis the high and low sales prices for consolidated trading in our common
stock as reported on the Nasdaq National Market for the period from September 3,
1999 through September 30, 1999, the fourth quarter of 1999 and the first
quarter of 2000 through January 6, 2000.
<TABLE>
<CAPTION>
COMMON STOCK
-------------
HIGH LOW
---- ---
<S> <C> <C>
1999
Third quarter (beginning September 3)....................... $14 7/8 $11
Fourth quarter.............................................. 12 1/8 7 3/8
2000
First quarter (through January 6, 2000)..................... 14 5/16 10 3/4
</TABLE>
The last reported sale price for our stock on January 6, 2000 is set forth
on the cover page to this prospectus. As of January 6, 2000, there were
approximately 197 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. In addition, our credit facility and the
indentures governing our senior discount notes restrict our ability to pay
dividends. Any future determination to pay dividends will be at the discretion
of our board of directors and will be dependent upon then existing conditions,
including our financial condition and results of operations, capital
requirements, contractual restrictions, business prospects and other factors
that the board of directors considers relevant. Furthermore, because Holdings is
a holding company, it depends on the cash flow of its subsidiaries, and
SpectraSite Communications' credit facility imposes restrictions on Holdings'
subsidiaries ability to distribute cash to Holdings.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth our cash and capitalization as of September
30, 1999:
-- on an actual basis; and
-- on an as adjusted basis to give effect to this offering and the
conversion upon the closing of the offering of all outstanding shares
of preferred stock.
This information should be read in conjunction with our financial
statements and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 120,241 $ 401,045
========== ==========
Long-term debt:
Credit facility........................................... $ 150,000 $ 150,000
12% senior discount notes due 2008........................ 144,850 144,850
11 1/4% senior discount notes due 2009.................... 356,532 356,532
Other debt................................................ 5,718 5,718
---------- ----------
Total long-term debt................................... 657,100 657,100
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value,
3,462,830 shares authorized, 3,462,830 shares
outstanding, actual.................................... 10,000 --
Series B convertible preferred stock, $0.001 par value,
7,000,000 shares authorized, 7,000,000 shares
outstanding, actual.................................... 28,000 --
Series C convertible preferred stock, $0.001 par value,
60,286,795 shares authorized, 60,286,795 shares
outstanding, actual.................................... 301,494 --
Common stock, $0.001 par value, 300,000,000 shares
authorized, 19,060,219 shares outstanding, actual and
112,109,844 shares outstanding, as adjusted............ 19 112
Additional paid-in capital................................ 209,376 829,581
Accumulated other comprehensive income.................... 135 135
Accumulated deficit....................................... (77,928) (77,928)
---------- ----------
Total stockholders' equity............................. 471,096 751,900
---------- ----------
Total capitalization................................. $1,128,196 $1,409,000
========== ==========
</TABLE>
16
<PAGE> 20
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 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 nine
months ended September 30, 1999. The SpectraSite pro forma column and the
Westower pro forma column presented in the post-merger SpectraSite unaudited pro
forma consolidated statements of operations for the twelve months ended December
31, 1998 and for the nine months ended September 30, 1999 are derived from the
pre-merger SpectraSite and Westower pro forma consolidated statements of
operations for the corresponding periods. The unaudited pro forma consolidated
statement of operations data give effect to the following transactions as if
they had occurred on January 1, 1998:
-- the issuance and sale of SpectraSite's 12% senior discount notes due
2008;
-- the acquisition of 2,000 communications towers from Nextel, the
leaseback of antenna space by 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;
-- initial borrowings under SpectraSite's credit facility;
-- the acquisition of 45 towers from Airadigm and the release of
escrowed funds to SpectraSite; and
-- the consummation of the Westower merger.
Certain of the data presented in the "Nextel" columns to the unaudited pro
forma statements of operations of SpectraSite are estimates provided by Nextel.
None of SpectraSite's independent accountants, Nextel's independent accountants
or Westower's independent accountants have audited or otherwise tested this
data.
The acquisition of tower assets from Nextel and the leaseback of antenna
space by Nextel are presented as if the purchase of assets had occurred on
January 1, 1998. Adjustments for revenues are based on the terms of the master
site lease agreement and on historical co-location revenues. Adjustments for
costs of operations consist of direct operating expenses, which include ground
lease payments, historical routine maintenance costs and property taxes
associated with the towers. Depreciation expense is straight-line depreciation
of the aggregate cost of the towers. Ground leases are non-cancelable operating
leases, generally for terms of five years and include options for renewal, and
pro forma ground lease expense is based on executed ground leases. Nextel has
leased space on each of the 2,000 towers we acquired, primarily for five-year
terms with options for renewal.
17
<PAGE> 21
The pro forma minimum ground lease expenses and minimum rental income for
these leases assuming the Nextel transaction occurred and the related leases
commenced January 1, 1998 are as follows:
<TABLE>
<CAPTION>
GROUND LEASE RENTAL
EXPENSE INCOME
------------ --------
(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 antenna
space by Airadigm are presented as if the purchase of assets had occurred on
January 1, 1998. Adjustments for revenues are based on the executed tenant lease
terms for the Airadigm towers. Adjustments for costs of operations consist of
the cost of the executed ground leases, historical routine maintenance costs and
property taxes associated with the towers. Depreciation expense is straight-line
depreciation of the aggregate cost of $11.25 million of the 45 towers. The
Airadigm ground leases are non-cancelable operating leases, generally for terms
of five years and include options for renewal, and pro forma ground lease
expense is based on executed ground leases. Airadigm has leased space on these
towers for a five-year term with options for renewal. Airadigm has recently
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. We cannot
predict the impact of this proceeding on our future results of operations or
financial condition. 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 RENTAL
EXPENSE INCOME
------------ ------
(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 period from
January 1, 1999 through September 2, 1999, the date on which SpectraSite
acquired Westower. 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
dates 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 this
18
<PAGE> 22
acquisition occurred on January 1, 1998. In addition to the above acquisitions,
from March 1, 1998 through August 31, 1999, Westower acquired Jovin
Communications, Inc., Acier Filteau, Inc., CNG Communications, Inc., Teletronics
Management Services, Inc., Cypress Real Estate Services, Inc. and
Telecommunications R. David. These acquisitions, which are included in the
historical financial statements of Westower, were not considered significant
transactions, individually or in the aggregate, and therefore, were not included
in the unaudited pro forma consolidated statement of operations of Westower.
The acquisition of tower assets from Koch and the leaseback of antenna
space by Koch are presented as if the purchase of assets had occurred on January
1, 1998. Adjustments for revenues are based on the executed tenant lease terms
for the Koch towers. Adjustments for 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 expense 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 RENTAL
EXPENSE INCOME
------------ -------
(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>
19
<PAGE> 23
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRE-MERGER
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site leasing............................ $ 29,450 $ 14,954(a) $17(f) $ 44,421
Network services........................ 13,967 -- 13,967
-------- -------- --- --------
Total revenues............................ 43,417 14,954 17 58,388
-------- -------- --- --------
Operating expenses:
Costs of operations:
Site leasing......................... 10,490 6,913(b) 6(f) 17,409
Network services..................... 7,265 -- -- 7,265
Selling, general and administrative
expenses............................. 21,909 --(c) -- 21,909
Depreciation and amortization........... 21,833 11,808(d) 14(f) 33,655
Restructuring and other non-recurring
charges.............................. 7,727 -- -- 7,727
-------- -------- --- --------
Total operating expenses.................. 69,224 18,721 20 87,965
-------- -------- --- --------
Loss from operations...................... (25,807) (3,767) (3) (29,577)
-------- -------- --- --------
Other income (expense):
Interest income......................... 7,212 -- -- 7,212
Interest expense........................ (47,519) (20,554)(e) -- (68,073)
Other income (expense).................. (295) -- -- (295)
-------- -------- --- --------
Total other income (expense)......... (40,602) (20,554) -- (61,156)
-------- -------- --- --------
Loss before income taxes.................. (66,409) (24,321) (3) (90,733)
Income tax expense........................ 107 -- -- 107
-------- -------- --- --------
Net income (loss)......................... $(66,516) $(24,321) $(3) $(90,840)
======== ======== === ========
Net loss.................................. $(66,516)
Accretion of redemption value of preferred
stock................................... (760)
--------
Net loss applicable to common
shareholders............................ $(67,276)
========
Net loss per share:
Basic and diluted.................... $ (16.85)
========
Weighted average number of shares of
common stock outstanding:
Basic and diluted.................... 3,993
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
20
<PAGE> 24
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(a) Consists of $2,611 of historical co-location revenues received by
Nextel prior to the acquisition, which are based on fixed payment lease
terms. This information was provided to us by Nextel. Also consists of
$12,343 of additional revenues to be recognized by SpectraSite under the
terms of the Nextel master site lease agreement.
(b) Reflects certain direct operating expenses, primarily the cost of
executed ground leases, historical routine maintenance and property taxes
associated with the towers, paid by Nextel prior to the acquisition.
(c) SpectraSite has incurred incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are
estimated to have been approximately $1.5 million per month. These
incremental operating expenses are based upon management's 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 depreciation of the acquired towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if SpectraSite had
issued its 11 1/4% senior discount notes due 2009 and had entered into the
credit facility on January 1, 1998 as follows:
<TABLE>
<S> <C>
PRO FORMA INTEREST EXPENSE:
Interest on 2009 notes at 11.25%.................... $ 1,170
Interest on $150,000 term loan...................... 3,964
Amortization of debt issuance costs................. 13,794
Commitment fees on unused portion of credit
facility.......................................... 1,626
-------
Total adjustment.................................... $20,554
=======
</TABLE>
(f) Reflects the acquisition from Airadigm of one tower, which was
placed into service on June 30, 1999, and one month of revenue and related
expenses for each of the four Airadigm towers placed into service on
January 31, 1999.
21
<PAGE> 25
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL KOCH WESTOWER
WESTOWER ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Site leasing..................................... $ 1,649 $ 227(a) $ 1,876
Network services................................. 62,002 -- 62,002
-------- ----- --------
Total revenues................................... 63,651 227 63,878
-------- ----- --------
Operating expenses:
Costs of operations:
Site leasing.................................. 928 123(b) 1,051
Network services.............................. 43,943 -- 43,943
Selling, general and administrative expenses..... 18,439 -- 18,439
Depreciation and amortization.................... 2,920 142(c) 3,062
Restructuring and other non-recurring charges.... 4,629 -- 4,629
-------- ----- --------
Total operating expenses........................... 70,859 265 71,124
-------- ----- --------
Loss from operations............................... (7,208) (38) (7,246)
-------- ----- --------
Other income (expense):
Interest income.................................. 151 -- 151
Interest expense................................. (2,317) (213)(d) (2,530)
Other income (expense)........................... 154 -- 154
-------- ----- --------
Total other income (expense).................. (2,012) (213) (2,225)
-------- ----- --------
Loss before income taxes........................... (9,220) (251) (9,471)
Income tax expense................................. 223 (100)(e) 123
-------- ----- --------
Net loss........................................... $ (9,443) $(151) $ (9,594)
======== ===== ========
Net loss per share:
Basic and diluted................................ $ (1.10)
========
Weighted average number of shares of common stock
outstanding:
Basic and diluted................................ 8,562
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
22
<PAGE> 26
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 2, 1999
(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 depreciation of the acquired towers from Koch 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 approximate interest rate of 7.5%.
(e) Reflects income tax benefit for the Koch tower operating results at
Westower's estimated tax rate of 40%.
23
<PAGE> 27
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
POST-MERGER
SPECTRASITE WESTOWER MERGER SPECTRASITE
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site leasing..................... $ 44,421 $ 1,876 $ -- $ 46,297
Network services................. 13,967 62,002 (1,449)(a) 74,520
-------- ------- ------- ---------
Total revenues..................... 58,388 63,878 (1,449) 120,817
-------- ------- ------- ---------
Operating expenses:
Costs of operations:
Site leasing.................. 17,409 1,051 -- 18,460
Network services.............. 7,265 43,943 (1,014)(a) 50,194
Selling, general and
administrative expenses....... 21,909 18,439 -- 40,348
Depreciation and amortization.... 33,655 3,062 9,577(b) 45,843
(451)(c)
Restructuring and other
non-recurring charges......... 7,727 4,629 (4,629)(d) 7,727
-------- ------- ------- ---------
Total operating expenses........... 87,965 71,124 3,483 162,572
-------- ------- ------- ---------
Loss from operations............... (29,577) (7,246) (4,932) (41,755)
-------- ------- ------- ---------
Other income (expense):
Interest income.................. 7,212 151 (1,466)(e) 5,897
Interest expense................. (68,073) (2,530) 2,052(f) (68,551)
Other income (expense)........... (295) 154 -- (141)
-------- ------- ------- ---------
Total other income
(expense)................... (61,156) (2,225) 586 (62,795)
-------- ------- ------- ---------
Loss before income taxes........... (90,733) (9,471) (4,346) (104,550)
Income tax expense................. 107 123 -- 230
-------- ------- ------- ---------
Net loss........................... $(90,840) $(9,594) $(4,346) $(104,780)
======== ======= ======= =========
Net loss per share:
Basic and diluted................ $ (5.50)(g)
=========
Weighted average number of shares
of common stock outstanding:
Basic and diluted................ 19,060
=========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
24
<PAGE> 28
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(a) Reflects the elimination of intercompany site construction revenues
and costs of site construction for towers built by Westower for SpectraSite
during the period from January 1, 1999 through September 2, 1999.
(b) Reflects amortization of goodwill as if the merger of Westower and
SpectraSite had occurred on January 1, 1998. Goodwill is amortized over 15
years.
(c) Reflects adjustments to eliminate amortization of historical goodwill
of Westower of $1,062 and to convert Westower tower depreciation from 20 years
to 15 years, increasing expense by $611.
(d) Reflects the elimination of certain non-recurring charges resulting
directly from the transaction which were incurred by Westower prior to its
acquisition by Spectrasite.
(e) Reflects an adjustment to eliminate interest income as if SpectraSite
had used cash-on-hand to repay Westower's outstanding indebtedness.
(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) SpectraSite's earnings per share for the nine months ended September
30, 1999 reflects the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share", which requires companies to compute earnings per
share under two different methods, basic and diluted. The weighted average
common shares outstanding at September 30, 1999 reflects the issuance of 15,497
shares of SpectraSite common stock in exchange for all of the outstanding shares
of Westower common stock.
If SpectraSite had positive net income during this period, diluted earnings
per share would have included potential common shares related to its convertible
preferred stock and outstanding options. These potential common shares were not
included in the diluted earnings per share calculation for the nine months ended
September 30, 1999 because the effect would have been antidilutive.
25
<PAGE> 29
PRE-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRE-MERGER
SPECTRASITE
HISTORICAL NEXTEL AIRADIGM PRO FORMA
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site leasing............................ $ 656 $ 49,388(a) $1,007 $ 51,051
Network services........................ 8,142 -- -- 8,142
-------- -------- ------ --------
Total revenues............................ 8,798 49,388 1,007 59,193
-------- -------- ------ --------
Operating expenses:
Costs of operations:
Site leasing......................... 299 22,830(b) 326 23,455
Network services..................... 2,492 -- -- 2,492
Selling, general and administrative
expenses............................. 9,690 --(c) -- 9,690
Depreciation and amortization........... 1,268 39,000(d) 750 41,018
-------- -------- ------ --------
Total operating expenses.................. 13,749 61,830 1,076 76,655
-------- -------- ------ --------
Loss from operations...................... (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 income (expense).................. 473 -- -- 473
-------- -------- ------ --------
Total other income (expense)......... (4,128) (67,865) -- (71,993)
-------- -------- ------ --------
Net loss.................................. $ (9,079) $(80,307) $ (69) $(89,455)
======== ======== ====== ========
Net loss.................................. $ (9,079)
Accretion of redemption value of preferred
stock................................... (2,156)
--------
Net loss applicable to common
shareholders............................ $(11,235)
========
Net loss per share:
Basic and diluted....................... $ (12.09)
========
Weighted average number of shares of
common stock outstanding:
Basic and diluted....................... 929
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
26
<PAGE> 30
PRE-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(a) Consists of $8,622 of historical co-location revenues received by
Nextel prior to the acquisition, which are based on fixed payment lease terms.
This information was provided to us by Nextel. Also consists of $40,766 of
additional revenues to be recognized by SpectraSite under the terms of the
Nextel master site lease agreement.
(b) Reflects certain direct operating expenses, primarily ground lease
payments, historical routine maintenance and property taxes associated with the
towers, paid by Nextel prior to the acquisition.
(c) SpectraSite would have incurred incremental operating expenses as a
result of the Nextel tower acquisition. Such incremental expenses are estimated
to have been approximately $1.5 million per month. These incremental operating
expenses are based upon management's 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 depreciation of the acquired towers calculated on a
straight-line basis over 15 years.
(e) Reflects adjustment to interest expense as if SpectraSite had issued
its 12% senior discount notes due 2008 and its 11 1/4% senior discount notes due
2009, as well as completed the Nextel tower acquisition and related financing
transactions, on January 1, 1998. The table below outlines the adjustment:
<TABLE>
<S> <C>
PRO FORMA INTEREST EXPENSE:
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>
27
<PAGE> 31
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------------------ ------------------
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 OTHER
2/28/98 9/30/98 12/31/98 12/31/98 8/31/98 11/11/98 ADJUSTMENTS ADJUSTMENTS
-------- -------- -------- -------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Site leasing..................... $ 49 $ 170 $ 74 $ 293 $ -- $ -- $1,364(a) $ --
Network services................. 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 --
------ ------- ------- ------- ------- ------ ------ -------
Operating expenses:
Costs of operations:
Site leasing................... 11 25 13 49 -- -- 738(b) --
Network services............... 5,971 23,833 18,131 47,935 6,219 6,707 -- --
Selling, general and
administrative expenses........ 991 4,958 4,258 10,207 2,636 1,040 -- 73(f)
Depreciation and amortization.... 149 578 589 1,316 132 279 850(c) 673(g)
Merger related expenses.......... -- 327 77 404 -- -- -- --
------ ------- ------- ------- ------- ------ ------ -------
Total operating expenses.......... 7,122 29,721 23,068 59,911 8,987 8,026 1,588 746
------ ------- ------- ------- ------- ------ ------ -------
Loss from operations.............. 711 2,223 1,920 4,854 (2,273) 792 (224) (746)
------ ------- ------- ------- ------- ------ ------ -------
Other income (expense):
Interest income.................. 14 130 53 197 4 -- -- --
Interest expense................. (42) (771) (572) (1,385) (45) (93) (1,275)(d) --
Other income (expense)........... 128 (2) -- 126 17 30 -- --
------ ------- ------- ------- ------- ------ ------ -------
Total other income (expense)... 100 (643) (519) (1,062) (24) (63) (1,275) --
------ ------- ------- ------- ------- ------ ------ -------
Loss before income taxes.......... 811 1,580 1,401 3,792 (2,297) 729 (1,499) (746)
Income tax expense................ 556 351 610 1,517 (919) -- (600)(e) 262(e)
------ ------- ------- ------- ------- ------ ------ -------
Net income (loss)................. $ 255 $ 1,229 $ 791 $ 2,275 $(1,378) $ 729 $ (899) $(1,008)
====== ======= ======= ======= ======= ====== ====== =======
Net income per share:
Basic............................ $ 0.34
=======
Diluted.......................... $ 0.30
=======
Weighted average number of shares
of common stock outstanding:
Basic............................ 6,786
=======
Diluted.......................... 7,548
=======
<CAPTION>
WESTOWER
PRO FORMA
---------
<S> <C>
Revenues:
Site leasing..................... $ 1,657
Network services................. 80,004
-------
Total revenues................. 81,661
-------
Operating expenses:
Costs of operations:
Site leasing................... 787
Network services............... 60,861
Selling, general and
administrative expenses........ 13,956
Depreciation and amortization.... 3,250
Merger related expenses.......... 404
-------
Total operating expenses.......... 79,258
-------
Loss from operations.............. 2,403
-------
Other income (expense):
Interest income.................. 201
Interest expense................. (2,798)
Other income (expense)........... 173
-------
Total other income (expense)... (2,424)
-------
Loss before income taxes.......... (21)
Income tax expense................ 260
-------
Net income (loss)................. $ (281)
=======
Net income per share:
Basic............................
Diluted..........................
Weighted average number of shares
of common stock outstanding:
Basic............................
Diluted..........................
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
28
<PAGE> 32
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(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 depreciation of the acquired 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 approximate interest rate of 7.5%.
(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.
29
<PAGE> 33
POST-MERGER SPECTRASITE HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PRO FORMA WESTOWER MERGER SPECTRASITE
SPECTRASITE PRO FORMA ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Site leasing..................... $ 51,051 $ 1,657 $ -- $ 52,708
Network services................. 8,142 80,004 (2,004)(a) 86,142
-------- ------- -------- ---------
Total revenues..................... 59,193 81,661 (2,004) 138,850
-------- ------- -------- ---------
Operating expenses:
Costs of operations:
Site leasing.................. 23,455 787 -- 24,242
Network services.............. 2,492 60,861 (1,403)(a) 61,950
Selling, general and
administrative expenses....... 9,690 13,956 -- 23,646
Depreciation and amortization.... 41,018 3,250 12,769(b) 56,372
(665)(c)
Merger related expenses.......... -- 404 -- 404
-------- ------- -------- ---------
Total operating expenses........... 76,655 79,258 10,701 (166,614)
-------- ------- -------- ---------
Income (loss) from operations...... (17,462) 2,403 (12,705) (27,764)
-------- ------- -------- ---------
Other income (expense):
Interest income.................. 3,569 201 (1,954)(d) 1,816
Interest expense................. (76,035) (2,798) 1,034(e) (77,799)
Other income (expense)........... 473 173 -- 646
-------- ------- -------- ---------
Total other income
(expense)................... (71,993) (2,424) (920) (75,337)
-------- ------- -------- ---------
Loss before income taxes........... (89,455) (21) (13,625) (103,101)
Income tax expense................. -- 260 (146)(f) 114
-------- ------- -------- ---------
Net loss........................... $(89,455) $ (281) $(13,479) $(103,215)
======== ======= ======== =========
Net loss per share:
Basic and diluted................ $ (5.60)(g)
=========
Weighted average number of shares
of common stock outstanding:
Basic and diluted................ 18,426
=========
</TABLE>
See accompanying notes to unaudited pro forma statement of operations.
30
<PAGE> 34
POST-MERGER SPECTRASITE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(a) Reflects the elimination of intercompany site construction revenues
and costs of site construction for towers built by Westower for SpectraSite for
the year ended December 31, 1998.
(b) Reflects amortization of goodwill as if the merger of Westower and
SpectraSite had occurred on January 1, 1998. Goodwill is amortized over 15
years.
(c) Reflects adjustments to eliminate amortization of historical and pro
forma goodwill of Westower of $979 and to convert Westower tower depreciation
from 20 years to 15 years, increasing expense by $314.
(d) Reflects an adjustment to eliminate interest income as if SpectraSite
had used cash-on-hand to repay Westower's outstanding indebtedness.
(e) 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.
(f) Reflects a reduction of the tax provision based on the consolidated
results of post-merger SpectraSite.
(g) SpectraSite's earnings per share for the year ended December 31, 1998
reflects the adoption of Statement of Financial Accounting Standards No. 128,
"Earning Per Share," which requires companies to compute earnings per share
under two different methods, basic and diluted. The weighted average common
shares outstanding at December 31, 1998 reflects the issuance of 18,426 shares
of SpectraSite common stock in exchange for all of the outstanding shares of
Westower common stock.
If SpectraSite had net income during this period, diluted earnings per
share would have included potential common shares related to its convertible
preferred stock and outstanding options. These potential common shares were not
included in the diluted earnings per share calculation for the year ended
December 31, 1998 because the effect would have been antidilutive.
31
<PAGE> 35
SELECTED HISTORICAL FINANCIAL DATA
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 nine months ended September 30, 1998; and
-- the nine months ended September 30, 1999.
The data for the nine months ended September 30, 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 nine months ended September 30, 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.
32
<PAGE> 36
<TABLE>
<CAPTION>
YEAR ENDED
TELESITE (PREDECESSOR) SPECTRASITE DECEMBER 31, SPECTRASITE
------------------------- ------------ ------------------------- ---------------------
NINE MONTHS
JANUARY 1, APRIL 25, TELESITE & ENDED
YEAR ENDED 1997- 1997- SPECTRASITE SEPTEMBER 30,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED SPECTRASITE ---------------------
1996 1997 1997 1997 1998 1998 1999
------------ ---------- ------------ ----------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Site leasing..................... $ -- $ -- $ -- $ -- $ 656 $ 211 $ 29,450
Network services................. 8,841 1,926 5,002 6,928 8,142 5,154 13,967
------ ------ ------- ------- -------- -------- ----------
Total revenues..................... 8,841 1,926 5,002 6,928 8,798 5,365 43,417
------ ------ ------- ------- -------- -------- ----------
Operating expenses:
Costs of operations:
Site leasing, exclusive of
depreciation................. -- -- -- -- 299 143 10,490
Network services............... 2,255 595 1,120 1,715 2,492 1,721 7,265
Selling, general and
administrative................. 4,256 1,742 7,390 9,132 9,690 5,997 21,909
Depreciation and amortization
expense........................ 91 56 489 545 1,268 780 21,833
Restructuring and other
non-recurring charges.......... -- -- -- -- -- -- 7,727
------ ------ ------- ------- -------- -------- ----------
Total operating expenses........... 6,602 2,393 8,999 11,392 13,749 8,641 69,224
------ ------ ------- ------- -------- -------- ----------
Income (loss) from operations...... $2,239 $ (467) $(3,997) $(4,464) $ (4,951) $ (3,276) $ (25,807)
====== ====== ======= ======= ======== ======== ==========
Net income(loss)................... 2,289 (503) (3,890) (4,393) (9,079) (5,028) (66,516)
Net income (loss) applicable to
common shareholders.............. 2,289 (503) (4,390) (4,893) (11,235) (6,424) (67,276)
OTHER DATA:
Net cash provided by (used in)
operating activities............. $1,109 $ (71) $ 223 $ 152 $ (2,347) $ 340 $ 19,734
Net cash provided by (used in)
investing activities............. (853) (322) (7,178) (7,500) (45,002) (71,348) (682,141)
Net cash provided by (used in)
financing activities............. (266) 390 9,189 9,579 144,663 144,978 683,100
EBITDA(a).......................... 2,330 (411) (3,508) (3,919) (3,683) (2,496) 3,753
Capital expenditures(b)............ 498 64 850 914 26,598 (12,496) 566,359
SELECTED OPERATING DATA (AT END OF PERIOD):
Number of owned towers....................................................... 5 106 45 2,405
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and short term investments............................ $ 2,234 $114,962 $121,766 $ 120,241
Total assets................................................................. 13,642 161,946 163,171 1,169,666
Total debt................................................................... 2,986 132,931 132,973 657,100
Total stockholders' (deficiency) equity...................................... (1,898) (14,067) (8,681) 471,096
</TABLE>
- ---------------
(a) EBITDA consists of operating income (loss) before depreciation and
amortization expense and restructuring charges. EBITDA is provided because
it is a measure commonly used in the communications site industry as a
measure of a company's operating performance. 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.
SpectraSite believes that EBITDA can assist in comparing company performance
on a consistent basis without regard to depreciation and amortization
expense, 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 indentures governing SpectraSite's 2008 notes and its 2009 notes.
(b) 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.
33
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
SpectraSite's primary focus is on the ownership of multi-tenant towers and
leasing of antenna space on such towers. As of December 31, 1999, we had 2,765
towers in service, as compared to 106 towers at December 31, 1998. As a result
of our limited operating history and primary focus on tower ownership and
leasing, management believes that our results of operations for the period ended
December 31, 1997 and for the year ended December 31, 1998 are not indicative of
our results of operations in the future.
Historically, we have derived most of our revenues from network services
activities. As a result of recent acquisitions, principally the Nextel and
Westower transactions, we expect that network services and antenna site leasing
will generate most of our revenues. On a pro forma basis, after giving effect to
the Nextel tower acquisition, the Westower merger and certain other
transactions, site leasing and network services would have represented 38% and
62% of our revenues, respectively, for the year ended December 31, 1998.
Similarly, site leasing and network services would have represented 38% and 62%
of revenues, respectively, for the nine months ended September 30, 1999. We
believe that our antenna site leasing business will continue to represent a
substantial portion of our revenues and will continue to grow as we increase our
network of towers.
Our two largest expense line items have been depreciation and amortization
and selling, general and administrative expense. Depreciation expense primarily
relates to our towers, which we depreciate over 15 years. In 1999, amortization
expense is primarily due to goodwill associated with the Westower merger. On a
pro forma basis, after giving effect to the Nextel tower acquisition, the
Westower merger and certain other transactions, depreciation and amortization
expense would have represented 41% and 38% of revenues for the year ended
December 31, 1998 and the nine months ended September 30, 1999, respectively. We
experienced a significant increase in selling, general and administrative
expense in 1999 as we integrated Westower's operations and increased our
employee base to market and manage the 2,000 Nextel towers and build towers for
Nextel under the master site commitment agreement.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE RESULTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998
Consolidated revenues for the nine months ended September 30, 1999 were
$43.4 million, an increase of $38.1 million from the nine months ended September
30, 1998. Revenues from site leasing increased to $29.5 million for the nine
months ended September 30, 1999 from $0.2 million for the nine months ended
September 30, 1998, primarily as a result of revenues derived from 2,000
communication towers which we acquired from Nextel in April 1999. We owned 2,405
communications towers at September 30, 1999 compared to 45 communications towers
at September 30, 1998.
Revenues from network services increased to $14.0 million for the nine
months ended September 30, 1999 compared to $5.2 million in the nine months
ended September 30, 1998, primarily as a result of the acquisition of Westower
in September 1999. In September 1999, we announced that we would no longer
directly provide site acquisition services. Revenues from site acquisition
activities were $6.2 million and $5.2 million in the nine months ended September
30, 1999 and 1998, respectively.
Costs of operations increased to $17.8 million for the nine months ended
September 30, 1999 from $1.9 million for the nine months ended September 30,
1998. The increase in costs was attributable to operating costs of the 2,000
communication towers purchased from Nextel in April 1999. Costs of operations
for site leasing as a percentage of site leasing revenues decreased to 35.6% for
the nine months ended September 30, 1999 from 67.8% for the nine months ended
September 30, 1998 primarily due to revenues generated from the acquisition of
towers from Nextel and co-location revenues on those towers. As our site leasing
operations mature, additional tenants on a tower will generate decreases in
costs of operations for site leasing as a percentage of site leasing revenues
and increases in cash flow because a significant proportion of tower operating
costs are fixed and do not increase with additional tenants. Costs of operations
for network
34
<PAGE> 38
services as a percentage of network services revenues increased to 52.0% for the
nine months ended September 30, 1999 from 33.4% for the nine months ended
September 30, 1998. This increase is due to construction activities associated
with Westower's operations which have higher levels of direct costs than our
historical site acquisition activities.
Selling, general and administrative expenses increased to $21.9 million for
the nine months ended September 30, 1999 from $6.0 million for the nine months
ended September 30, 1998. The increase is a result of expenses related to
additional corporate overhead and field operations implemented to manage and
operate the growth in the ongoing activities of SpectraSite and the acquisition
of Westower.
Depreciation and amortization expense increased to $21.8 million for the
nine months ended September 30, 1999 from $0.8 million for the nine months ended
September 30, 1998, primarily as a result of the increased depreciation from the
towers we acquired or constructed and amortization of goodwill related to the
Westower acquisition.
For the nine months ended September 30, 1999, we recorded restructuring and
other non-recurring charges of $7.7 million. In September 1999, we announced
that we would no longer directly provide site acquisition services. As a result,
we recorded restructuring charges of $7.1 million, of which $6.2 million related
to the write-off of goodwill associated with the purchase of TeleSite Services,
LLC and $0.9 million related to costs of employee severance. 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 non-recurring
charge of $0.6 million for employee termination and other costs related to the
relocation of these activities.
As a result of the factors discussed above, our loss from operations was
$25.8 million for the nine months ended September 30, 1999 compared to $3.3
million for the nine months ended September 30, 1998.
Net interest expense increased to $40.3 million during the nine months
ended September 30, 1999 from $2.2 million for the nine months ended September
30, 1998, reflecting additional interest expense due to the issuance of the 2008
notes in June 1998 and the 2009 notes in April 1999, as well as borrowings under
our credit facility in April 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE COMBINED RESULTS FOR THE YEAR
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 the year
ended December 31, 1997, which consists of the period from April 25, 1997
through December 31, 1997 and Telesite's results of operations for the period
from January 1, 1997 through May 12, 1997.
Revenues increased to $8.8 million for the year ended December 31, 1998
from $6.9 million for the year ended December 31, 1997 due to the initiation of
site leasing activity and an increase in the number and size of site development
services projects.
Selling, general and administrative expenses, including depreciation
expense, increased to $11.0 million for the year ended December 31, 1998 from
$9.7 million for the year ended December 31, 1997. The increase is a result of
expenses related to additional corporate overhead to manage and operate the
ongoing activities of SpectraSite. Marketing expenses related to tower
development activities as well as the site acquisition operations also
contributed to the increase in expenses. Telesite did not actively market its
services, relying primarily on its reputation in the industry and customer
referrals to generate revenues. To support our entry into tower development and
leasing, we have established a dedicated marketing effort which promotes tower
development and leasing as well as site acquisition services. Amortization of
goodwill increased to approximately $0.6 million in the year ended December 31,
1998 compared to approximately $0.3 million in the year ended December 31, 1997
as a result of acquisitions.
As a result of the factors discussed above, our operating loss was $5.0
million for the year ended December 31, 1998, compared to $4.5 million for the
year ended December 31, 1997.
35
<PAGE> 39
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 this affiliate during 1998.
COMBINED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO
TELESITE'S RESULTS FOR THE YEAR 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, 1997, which consists
of and for the period from April 25, 1997 through December 31, 1997 and
Telesite's results of operations for the period from January 1, 1997 through May
12, 1997, and of Telesite for the year ended December 31, 1996.
Total revenues decreased to $6.9 million for the year ended December 31,
1997 from $8.8 million for the year ended December 31, 1996 due primarily to the
decreased demand for site development services from more established personal
communications services licensees as a result of their completing the first
phase of construction in their initial markets and not yet commencing secondary
build-outs in such markets or in additional markets, and the fact that holders
of certain more recently issued licenses had not yet commenced construction of
tower networks in their respective markets.
Selling, general and administrative expenses increased to $9.1 million for
the year ended December 31, 1997 from $4.3 million for the year ended December
31, 1996. The increase is a result of the expenses related to management of the
ongoing activities of SpectraSite, expenses related to the implementation of
tower development and marketing activities, one-time non-cash charges of
approximately $2.6 million as a result of the formation of SpectraSite,
amortization of goodwill of approximately $0.3 million in connection with our
acquisition of Telesite and expenses incurred in connection with the operations
of Metrosite. We sold our interest in Metrosite during early 1998. We anticipate
that in the future costs related to tower development activities will be
capitalized as part of the cost of the towers.
Operating loss was $4.5 million for the year ended December 31, 1997
compared to $2.2 million of operating income for the year 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 year ended December 31, 1997 and for the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, cash flows provided by
operating activities were $19.7 million as compared to $0.3 million for the nine
months ended September 30, 1998. The change is primarily attributable to the
favorable cash flows generated from communication tower acquisitions in 1999.
For the nine months ended September 30, 1999, cash flows used in investing
activities were $682.1 million compared to $71.3 million for the nine months
ended September 30, 1998. In the nine months ended September 30, 1999,
SpectraSite invested $614.5 million in purchases of property and equipment and
deposits on future acquisitions, primarily related to the acquisition of
communication towers from Nextel. In addition, we used $78.7 million to acquire
Westower in September 1999. These investments were partially offset by $15.4
million in maturities of short-term investments.
In the nine months ended September 30, 1998, we invested $45.6 million in
short-term investments. In the nine months ended September 30, 1999, cash flows
provided by financing activities were $683.1 million as compared to $145.0
million in the nine months ended September 30, 1998. The increase in cash
provided by
36
<PAGE> 40
financing activities was attributable to the proceeds from the sales of Series C
preferred stock and the 2009 notes, as well as proceeds from borrowings under
the credit facility.
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, the 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.
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 our indebtedness is
distributions from SpectraSite Communications. Prior to July 15, 2003, interest
expense on the 2008 notes will consist solely of non-cash accretion of an
original issue discount and the notes will not require annual cash interest
payments. After such time, the 2008 notes will have accreted to approximately
$225.2 million and will require semi-annual cash interest payments of $13.5
million. In addition, the notes mature on July 15, 2008. Similarly, the 2009
notes will not require cash interest payments prior to October 15, 2004 and
mature on April 15, 2009. After October 15, 2004, the 2009 notes will have
accreted to approximately $586.8 million and will require semi-annual cash
interest payments of $33.0 million. Furthermore, the new credit facility
provides for periodic principal and interest payments.
We acquired 45 communications towers and certain related assets from
Airadigm Communications, Inc. for an aggregate purchase price of $11.25 million
in 1998 and 1999. Airadigm is the anchor tenant on 48 of our towers and has
recently filed for protection under Chapter 11 of the U.S. Bankruptcy Code. We
cannot predict the impact of this proceeding on our future results of operations
or financial condition.
On April 20, 1999, SpectraSite acquired 2,000 communications towers from
Nextel 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. Some of these sites may in the future be leased to
Nextel Partners Operating Corp. instead of Nextel. Nextel Partners, Inc., the
parent of Nextel Partners Operating Corp., is an entity in which Nextel has a
minority equity interest. In connection with this acquisition, we paid $560.0
million in cash and issued 14.0 million shares of Series C preferred stock,
valued at $70.0 million, to Nextel.
37
<PAGE> 41
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
Cash available for 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, the new registration rights agreement
and the ancillary agreements, see "Certain Transactions--Stockholders'
Agreement," "--Agreements with Nextel," and "--Registration Rights Agreement"
respectively.
In connection with the Nextel tower acquisition, SpectraSite privately
placed 46,286,795 shares of Holdings' Series C preferred stock for an aggregate
purchase price of $231.4 million. 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 these offerings to partially fund the Nextel tower acquisition and to pay
related fees and expenses. We intend to use the remaining proceeds for general
corporate purposes, including construction of new towers and selective
acquisitions.
Also on April 20, 1999, SpectraSite entered into a $500.0 million
seven-year credit facility. We borrowed $150.0 million under this facility at
the closing of the Nextel tower acquisition. We also issued 2.0 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 $300.0 million available under our credit
facility to fund new tower construction or acquisition activity. In addition, as
of September 30, 1999, our cash and cash equivalents were $120.2 million.
On September 2, 1999, we acquired Westower Corporation, a Washington
corporation, in a stock-for-stock merger. In this transaction, Westower
stockholders received 1.81 shares of Holdings' common stock, plus cash for any
fractional Westower share, in exchange for each of their shares of Westower
common stock. In connection with the merger, SpectraSite repaid approximately
$70.0 million of Westower indebtedness with cash-on-hand. Westower Corporation
now operates as a wholly-owned subsidiary of SpectraSite Communications, which
in turn is a wholly-owned subsidiary of Holdings.
On September 8, 1999, we acquired a 33% interest in Concourse
Communications Group, LLC for an aggregate purchase price of $2.5 million.
Concourse was established to build certain wireless communications
infrastructures at facilities owned by the Port Authority of New York and New
Jersey, including the Holland and Lincoln Tunnels, World Trade Center Concourse
and New York's three major airports. As part of our investment, we agreed to
provide approximately $14.4 million of working capital and construction
financing to Concourse in the form of secured loans over the next three years.
In addition, after three years, we have an option to purchase an additional 33%
interest in Concourse, and after six years, we have an option to purchase the
remaining interest in Concourse.
On September 15, 1999, we completed the exchange offers for our 2008 notes
and our 2009 notes. Under a registration rights agreement with the initial
purchasers of the 2008 notes, Holdings agreed to complete an exchange offer for
the privately placed 2008 notes prior to March 10, 1999. Since we did not
complete this exchange offer prior to March 10, 1999, the interest rate on the
2008 notes increased by 0.50% per year. This
38
<PAGE> 42
additional interest accrued on the 2008 notes until we completed the exchange
offer, and we will pay this interest in cash on January 15, 2000. Similarly,
under a registration rights agreement with the initial purchasers of the 2009
notes, Holdings agreed to file a registration statement with the SEC for an
exchange offer of registered notes for the privately placed 2009 notes before
July 20, 1999. Since we did not file the 2009 notes exchange offer registration
statement before July 20, 1999, the interest rate on the 2009 notes increased by
0.50% per year. This additional interest accrued on the 2009 notes until we
filed the exchange offer registration statement on August 12, 1999, and we paid
this interest in cash on October 15, 1999.
In November 1999, we entered into an agreement to acquire 94 communications
towers from DigiPH PCS, Inc. for $36.0 million in cash. The towers span the
corridor connecting Jackson, Mississippi, Mobile, Alabama and Tallahassee,
Florida. We acquired 61 towers for approximately $23.9 million on December 29,
1999, and we expect to acquire the remaining towers during the first quarter of
2000.
On December 30, 1999, we acquired Stainless, Inc., formerly a wholly-owned
subsidiary of Northwest Broadcasting, L.P., for $40.0 million in cash. Stainless
provides engineering, fabrication and other services in connection with the
erection of towers used for television broadcast companies. Also on December 30,
1999, we acquired Doty Moore Tower Services, Inc., Doty Moore Equipment Company,
Inc. and Doty Moore RF Services, Inc. for $2.5 million in cash and 500,000
unregistered shares of our common stock. Doty Moore is a leading source for
broadcast tower construction and technical services. In addition, on January 5,
2000, we acquired Vertical Properties, Inc. in a merger transaction under which
we issued 225,000 unregistered shares of our common stock and repaid outstanding
indebtedness of approximately $2.0 million. Vertical Properties is a broadcast
tower development company formed to meet the needs of broadcasters in secondary
broadcast markets faced with the complexities of converting to digital
technology through site acquisition, tower placement and leasing of antenna
space. On January 5, 2000, we signed a definitive agreement to acquire
substantially all of the assets of International Towers, Inc. and its
subsidiaries, including S&W Communications, Inc. International Towers owns a
modern broadcast tower manufacturing facility and, through S&W Communications,
provides integrated services for the erection of broadcast towers, foundations
and multi-tenant transmitter buildings. We have agreed to pay $5.5 million and
to issue an aggregate of 350,000 unregistered shares of our common stock in
connection with this acquisition. Consummation of the transaction is subject to
customary closing conditions, and we expect to complete this transaction in
January 2000.
On January 5, 2000, we acquired Apex Site Management Holdings, Inc. in a
merger transaction. Apex provides rooftop and in-building access to wireless
carriers. We issued approximately 4.5 million unregistered shares of our common
stock and approximately 190,000 options to purchase common stock at an exercise
price of $3.58 per share to the stockholders of Apex at the closing of the
merger. In addition, we issued approximately 1.7 million additional shares of
common stock into escrow, which shares may be released to Apex's stockholders
one year after this offering based on the average trading price for our common
stock for the 30-day period immediately preceding the one-year anniversary of
this offering. We also used approximately $6.2 million in cash to repay
outstanding indebtedness and other obligations of Apex in connection with the
merger.
Our ability to fund capital expenditures, make scheduled payments of
principal of, or pay interest on, our debt obligations, and our ability to
refinance any such debt obligations, including the 2008 notes and the 2009
notes, 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, including an expected approximate amount of
$200 million during the first half of 2000, primarily to fund the construction
and acquisition of additional communications towers. Management believes that
cash flow from operations, available cash as of September 30, 1999 of
approximately $120.2 million, and anticipated available borrowings under the
credit facility will be sufficient to fund our capital expenditures for the
foreseeable future. However, if acquisitions or other opportunities present
themselves more rapidly than we currently anticipate or if our estimates prove
inaccurate, we may seek additional sources of debt or equity capital prior to
the end of 2000 or reduce the scope of tower construction activity. We cannot
assure you that we will generate sufficient cash flow from operations or that
future borrowings or equity or debt financings will be available on terms
acceptable to us, in amounts sufficient to service our indebtedness and make
anticipated capital expenditures.
39
<PAGE> 43
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, 2000. We have not yet
determined the effect that the adoption of SFAS 133 will have on our
consolidated financial statements.
YEAR 2000 COMPLIANCE
We have conducted a comprehensive review of our computer systems to
identify which of our systems will have to be modified, upgraded or converted to
recognize and process dates after December 31, 1999. We believe that most, if
not all, of our computer software and systems are substantially year 2000
compliant, because most of our hardware and software has been purchased within
the past two years. We presently believe that 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. However, one non-operational year 2000 risk
for us is tower lighting systems. Year 2000-related problems could prevent our
monitoring systems, which use computer-controlled devices, from detecting a
failure to light systems on our tower structures, creating a situation where a
failed light might not be automatically reported to air navigation. SpectraSite
is responsible for maintaining tower lighting in compliance with FCC and FAA
requirements. We intend to take the necessary steps to address this year 2000
problem; however, we may not be entirely successful. Like most other companies,
SpectraSite is dependent upon a variety of external suppliers including vendors
providing electrical power, telephony, water and other necessary commodities.
SpectraSite also relies upon the interstate banking system and related
electronic communications for functions such as transmitting financial data from
field offices. We are not aware currently of any material non-compliance by
these vendors that will materially affect our business operations; however, we
do not control these systems and cannot assure you that they will be converted
in a timely fashion. Any delays or omissions by us or our customers, suppliers
or contractors to resolve the year 2000 issue could materially adversely affect
our business, financial condition or results of operations. We do not anticipate
material expenditures related to the year 2000 issue and incremental costs to
date have been negligible, but we cannot assure you that amounts to be spent on
addressing the year 2000 issue will not be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We use financial instruments, including fixed and variable rate debt, to
finance our operations. The information below summarizes our market risks
associated with debt obligations outstanding as of September 30, 1999. The
following table presents principal cash flow and related weighted average
interest rates by fiscal year of maturity. Variable interest rate obligations
under the credit facility are not included in the table. We have no long-term
variable interest obligations other than borrowings under the credit facility.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term obligations:
Fixed rate............ $ -- $ -- $ -- $ -- $ -- $501,382 $501,382
Average interest
rate............. -- -- -- -- -- 11.5% 11.5%
</TABLE>
40
<PAGE> 44
BUSINESS
OVERVIEW
We are one of the leading providers of outsourced antennae site and network
services to the wireless communications and broadcast industries in the United
States and Canada. Our businesses include the ownership and leasing of antennae
sites on towers, managing wireless rooftop and in-building telecommunications
access on commercial real estate, network planning and deployment, and
construction of towers and related wireless facilities. Our customers are
leading wireless communications providers and broadcasters, including Nextel,
Sprint PCS, AT&T Wireless, VoiceStream Communications, Tritel Communications,
Teligent, WinStar, Cox Broadcasting, Clear Channel Communications and Paxson
Communications. As of December 31, 1999 and after giving effect to our
acquisition of Apex, we owned or managed over 15,000 sites, including 2,765
owned towers, in 98 of the top 100 markets in the United States.
The wireless communications industry is growing rapidly and carriers are
making large capital investments to expand their networks. We believe that the
number of wireless communications sites, including towers, is likely to continue
to increase together with the growth in demand for wireless services. This
expected growth in communications sites 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
require a more concentrated network of towers than previous wireless
technologies;
-- 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.
As carriers deploy these networks, they are faced with a proliferation in
both the number and type of competitors. Because of this increasingly
competitive environment, carriers must also focus on satisfying customer demand
for enhanced services, seamless and comprehensive coverage, better call quality,
faster data transmission and lower prices.
We believe that as carriers face the increased challenges of expanding
their networks and improving their services, they must allocate their available
capital and resources in the most efficient manner. In particular, carriers are
increasingly outsourcing tower ownership, as well as network planning deployment
and management to independent tower owners like SpectraSite. This outsourcing
allows our customers to focus on their core competencies and to rely on us for
planning and deploying their networks. Our services are designed to improve our
customers' competitive positions through the efficient planning, deployment and
management of their networks.
GROWTH STRATEGY
Our objective is to be the leading independent provider of outsourced
antennae site and network services to the telecommunications and broadcast
industries. Our growth strategy involves the following key elements:
MAXIMIZING THE UTILIZATION OF OUR TOWERS AND MANAGED SITES
We intend to capitalize on the substantial opportunities for revenue and
cash flow growth by maximizing the number of tenants we have on each of our
towers and managed sites. We believe that our strategy of owning clustered
groups of towers and managed sites in major metropolitan markets and providing
our customers with a full range of products and services allows us to deliver
reliable, scalable network solutions and will result in increased co-location on
our towers and managed sites. Since most tower costs are fixed, leasing
available space on an existing tower results in minimal additional expenses
while generating a larger percentage increase in tower cash flow. In addition,
tenant turnover is low because of the relatively high cost of antenna
relocation. We generally construct towers to accommodate at least three
broadband tenants and have a dedicated sales force which markets co-location
opportunities to wireless communications providers. Our
41
<PAGE> 45
objective is to use our national tower presence to enable wireless service
providers to more quickly establish wireless coverage in individual and multiple
markets.
EXPANDING OUR TOWER PORTFOLIO
We seek to expand our tower portfolio by building new towers for anchor
tenants and by making selective acquisitions of towers. We believe that Nextel's
agreement to lease space on an additional 1,543 towers we own, acquire or
construct for Nextel or other tenants will substantially increase the number of
towers we own and operate. We also continue to pursue attractive network
development opportunities with other wireless service providers. In addition, we
evaluate other tower development opportunities from time to time which we
believe have higher than average co-location opportunities. We intend to
continue to make selective acquisitions in the highly fragmented tower owner and
operator industry. Our strategy is to acquire towers that have some, or all, of
the following criteria:
-- underutilized with additional co-location potential;
-- favorably located, either individually or in clusters, in large urban
areas and along major transportation corridors; and
-- complementary to our existing coverage areas.
We believe there are tower acquisition opportunities currently available
from both wireless service providers and smaller independent tower operators.
Furthermore, we believe that the number of tower opportunities available in the
future is likely to grow as large wireless communications service providers and
smaller independent tower companies continue to divest their tower holdings. We
regularly evaluate acquisition opportunities, engage in negotiations and submit
bids with respect to acquisitions of individual towers, groups of towers and
entities that own or manage towers and related businesses. In addition to our
transaction with Nextel, we continue to seek partnerships and other strategic
arrangements with other major wireless communications carriers in order to
assume ownership of their towers. We have no current agreements or commitments
with respect to any material acquisition.
EXPANDING THE SUITE OF SERVICES WE OFFER AND PURSUING CROSS-SELLING
OPPORTUNITIES.
We believe our ability to provide a package of integrated services, which
have traditionally been offered by multiple subcontractors coordinated by a
carrier's deployment staff, will make us a preferred provider of all outsourced
antennae site and network services. For example, we believe that our leadership
in rooftop and in-building access will give us an advantage across all of our
product offerings as fixed wireless carriers expand their networks and as
wireless telephone and data companies increasingly focus on network deployment
and in-building service. In addition, our leadership in broadcast tower design,
fabrication and construction will give us a competitive advantage as
broadcasters increasingly outsource tower and facilities ownership and
management.
PRODUCTS AND SERVICES
WIRELESS TOWER OWNERSHIP AND LEASING
We are one of the largest independent owners and operators of wireless
communications towers in the United States and Canada. We provide antennae site
leasing services, which primarily involve the leasing of antennae space on our
communications towers to wireless carriers. Each of our towers has an anchor
tenant, and we seek to add several co-location tenants over time. In leasing
antennae space, we generally receive monthly lease payments from customers. Our
customer leases typically 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 communications site.
42
<PAGE> 46
The following chart shows the locations of our owned towers as of December
31, 1999:
<TABLE>
<CAPTION>
NUMBER
STATE OF TOWERS
- ----- ---------
<S> <C>
California........... 408
Florida.............. 186
Michigan............. 168
Ohio................. 166
Texas................ 165
Illinois............. 155
Georgia.............. 154
North Carolina....... 130
Louisiana............ 99
Alabama.............. 94
Washington........... 88
Wisconsin............ 85
Tennessee............ 81
</TABLE>
<TABLE>
<CAPTION>
NUMBER
STATE OF TOWERS
- ----- ---------
<S> <C>
Missouri............. 62
Indiana.............. 55
Mississippi.......... 54
Pennsylvania......... 52
South Carolina....... 52
Arizona.............. 48
Massachusetts........ 44
Oregon............... 43
Oklahoma............. 39
Nevada............... 38
Maryland............. 35
Colorado............. 33
</TABLE>
<TABLE>
<CAPTION>
NUMBER
STATE OF TOWERS
- ----- ---------
<S> <C>
New Mexico........... 30
Minnesota............ 25
Utah................. 23
New Jersey........... 19
Virginia............. 18
Kansas............... 17
New York............. 16
Iowa................. 14
Alberta.............. 13
Other................ 56
-----
Total................ 2,765
=====
</TABLE>
In addition to towers we build for Nextel under the master site commitment
agreement and towers we selectively build and acquire, we also expect to expand
our tower portfolio through build-to-suit programs. Under build-to-suit
programs, we utilize our network development capabilities to construct tower
networks 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 that tower network would not exceed a targeted multiple of tower
cash flow after a certain period of time.
In addition to leasing antenna space, we also provide maintenance and
management services at our communication sites. In providing these services to
our customers we use a combination of in-house personnel and independent
contractors. In-house personnel are responsible for oversight and supervision of
all aspects of site maintenance and management and are particularly responsible
for monitoring, security, access and lighting, radio frequency emission and
interference issues, signage, structural engineering and tower capacity, tenant
relations and supervision of independent contractors. We hire local independent
contractors to perform routine maintenance functions, such as landscaping, pest
control, snow removal and site access.
WIRELESS ROOFTOP AND IN-BUILDING ACCESS
We are the largest independent provider of rooftop and in-building access
services in the United States. We are the exclusive site manager for
approximately 12,700 diverse real estate properties, with significant access
clusters in New York, Philadelphia, Baltimore/Washington, D.C., Atlanta, New
England, Florida, Western Pennsylvania/Ohio/Indiana, Chicago, Seattle, Southern
California, Texas and St. Louis. A principal attraction of this portion of our
business is the opportunity to develop new sources of revenue and value for
building owners by managing:
-- rooftops for transmitting and receiving installations; and
-- rooftops, risers and internal telecommunications equipment space for
competitive voice, data and Internet services offered to in-building
tenants.
Wireless communications carriers utilize our managed sites as transmitting
locations, often where there are no existing towers for co-location or where new
towers are difficult to build. Our transmitting tenants encompass a broad array
of wireless communications providers, including personal communications service,
cellular, enhanced specialized mobile radio, specialized mobile radio, wireless
data, two-way radio, microwave, wireless cable and paging companies. As the
largest rooftop and in-building access manager in the United States, we provide
services to the facilities-based (wired and wireless) competitive local exchange
carrier and Internet service provider market. We have executed agreements
allowing these carriers access to over 3,000 properties, including agreements
with national providers such as Adelphia Business Solutions, AT&T Local
43
<PAGE> 47
Services, Eureka Broadband, NEXTLINK, Site Line, Teligent and WinStar, as well
as numerous regional carriers. These access agreements are, to date,
predominantly for office and industrial properties.
Our managed portfolio contains over 3,300 office and industrial properties
encompassing over 375 million square feet. We are engaged by ten of the top
nineteen office real estate investment trusts, based on market capitalization,
in the United States, according to the National Association of Real Estate
Investment Trusts. In most cases, multiple carriers will access a single
property. Our management contracts are generally for a period of three to five
years, and contain renewal periods unless terminated by either party before
renewal or upon an uncured default. Under these contracts, we are engaged as the
exclusive site manager for rooftop management. In most cases, we are also
engaged as the exclusive manager for riser and telecommunications access
management. As the site manager, we are responsible for marketing the properties
as part of our portfolio of potential telecommunications sites, reviewing
existing license agreements, negotiating new license agreements, managing and
enforcing those agreements, supervising installation of equipment by carriers to
ensure, among other things, non-interference with other users, as well as site
billing, collections and contract administration. For these services, we receive
a percentage of occupancy fees, which is higher for the new carriers we add than
for existing carriers. Upon any termination of a contract, unless due to our
default, we are entitled to continue to receive our percentage with respect to
carriers added during the term of our management agreement for so long as they
remain tenants.
NETWORK DESIGN AND DEPLOYMENT SERVICES
We are a leading provider of design and deployment services for wireless
networks. These services include architectural and engineering design, tower
construction, line and antenna installation and site acquisition services. We
offer these services individually and as an integrated package. We believe that
we have a competitive advantage in our ability to provide comprehensive network
development services by eliminating our customers' need to seek services from
different providers.
In providing these network design and deployment services, we have
developed the capability to effectively manage multiple site acquisition and
tower development projects in various locations at the same time. Where
appropriate, we supplement our in-house expertise with a pre-qualified pool of
local contractors and advisors. In addition, we have developed detailed and
standardized site acquisition and construction specifications and procedures
that allow us 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.
Architectural and Engineering Design. Our architecture and engineering
team manages a complex array of electrical, structural and architectural
elements while interfacing with our clients and construction crews to ensure
that site-specific objectives are reflected in construction documents. Our
structural engineering and design abilities enable us to construct towers that
have maximum antenna site capacity based on the physical features of the land on
which the tower is constructed and the demand in the market in which the tower
is located. We seek to design aesthetically acceptable sites and construct
towers with minimal environmental impact. Our custom structure design abilities
combined with our engineering skills also allow us to build towers in
geographically difficult locations at competitive prices. We believe that this
specialty service will enable us to compete effectively in regions in which
other companies are not able to participate on a cost-efficient basis.
Tower Construction. Our engineering, general contracting, electrical,
structural steel and other specialty licenses allow us to perform services
required to design, develop and construct communications towers. Our ability to
perform civil and electrical engineering as well as tower construction enables
us to expedite and simplify this phase of development by minimizing the need to
subcontract.
During tower construction, a project team of five to seven people is
dispatched to the site. A temporary field office is established at the site. The
project team is typically composed of our permanent employees, but may be
supplemented with local hires.
44
<PAGE> 48
We use our information technology abilities to create construction models,
development budgets, critical path schedules and status reports covering
schedules and costs throughout the course of a project. Our civil engineering
capability allows us to prepare the construction site by leveling the land,
removing vegetation and installing access roads as needed. Based on the results
of soil tests that we conduct at each site, we design and build the tower
foundation. After the foundation is in place, we erect the tower. We utilize our
structural engineering capability by constructing a tower designed for maximum
antenna capacity.
Line and Antenna Installation. After erecting the tower and placing the
equipment shelter, we install the antennae and feed lines, including the sweep,
test and orientation. Depending on the project, electricity is installed either
during the erection process to conform with the FAA lighting requirements or
after the tower has been constructed. Our technical crews are regularly trained
in cellular, microwave, fiber optic and direct current power plant system
installation and testing methods. We are also a leader in designing and
implementing in-building wireless systems, as well as a broad range of cellular
and personal communications services repeater systems. Our test equipment and
dedicated radio frequency testing teams allow us to monitor and maintain system
integrity and quality control.
We also offer the ability to construct the switch facility that controls an
antenna's communications with other communications sites. Although switch
construction is not performed at every project site, it is an additional
specialty service we provide.
After constructing the tower, placing the equipment shelter and completing
the antenna work, we install grounding lines and protective fencing around the
site. We then perform final grounding and landscaping as necessary to complete
the project.
Site Acquisition Services. We offer a full range of site acquisition
services, including network pre-design, communication site selection,
communication site acquisition and local zoning and permitting. We offer these
services through local contractors who have knowledge and expertise in the
specific geographic area.
BROADCAST TOWER DEVELOPMENT AND LEASING
We are a leading provider of broadcast tower analysis, design, fabrication,
installation, and technical services. We have over 50 years of experience in the
broadcast tower industry and have worked on the development of more than 700
broadcast towers, which we believe represents approximately 50% of the existing
broadcast tower infrastructure in the United States. Our broadcast tower group
extends our core business of outsourced wireless antenna sites to broadcast
towers. We intend to capitalize on our broadcast tower development expertise to
create tower ownership and leasing opportunities.
In 1996, the FCC mandated the conversion of analog television signals to
digital. The mandate specifies that by May 1, 2003, each television station in
the United States must complete construction of new digital broadcasting
facilities and, beginning April 21, 2003, must be simulcasting at least 50% of
its programming on both its analog and digital facilities. This conversion
creates significant potential demand for co-location on broadcast towers.
Broadcast towers require a high level of technical design and erection
expertise, as they reach heights of up to 2,000 feet. Broadcast towers support
extremely powerful television and FM radio signals over entire metropolitan
areas. The existing domestic broadcast tower infrastructure was generally
developed to accommodate individual broadcast signals. This broadcast tower
infrastructure was built primarily in the 1940's and 1950's. Today, it is
considered to be at capacity and somewhat antiquated. The FCC mandate creates
significant infrastructure deployment requirements and burdens for the broadcast
community in the United States. In addition, the engineering and construction
expertise for broadcast towers is limited to a relatively small number of
fabrication and construction companies that specialize in broadcast towers.
Recognizing this opportunity to capitalize on the broadcast infrastructure
tower development and leasing requirement, we have developed a strategic plan
that is designed to position us as the leading tower resource in the broadcast
sector. We have identified the critical core competencies necessary to fulfill
broadcast industry requirements. Through our acquisition of Stainless and Doty
Moore, we can now offer broadcast tower engineering, fabrication and erection
services. In addition, we have original tower design specifications and
45
<PAGE> 49
considerable tower modification historical information on approximately 50% of
the existing broadcast tower infrastructure. We believe that this intellectual
property positions us as one of broadcasters' first points of contact for any
broadcast tower project.
CUSTOMERS
Our primary customer currently is Nextel. On a pro forma basis after giving
effect to the Nextel acquisition, the Westower merger and certain other
transactions described under "Unaudited Pro Forma Financial Data," Nextel
represented approximately 28% and 34% of our revenues for the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively.
Nextel provides a wide array of digital 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.
In addition, our customers also include several of the largest wireless
service providers in the United States, including AT&T Wireless and Sprint PCS.
We also have provided services to enhanced specialized mobile radio, specialized
mobile radio and cellular wireless providers. For the year ended December 31,
1997, Powertel, Sprint PCS, GTE Mobility, Intercel and Horizon accounted for
38.9%, 18.8%, 14.7%, 13.0% and 11.2%, respectively, of our revenues. For the
year ended December 31, 1998 before giving effect to the Nextel acquisition,
related financings and the Westower merger, Powertel and Tritel accounted for
46.6% and 24.3%, respectively, of our revenues. During this period, no other
customer accounted for more than 10% of SpectraSite's revenues. The preceding
disclosures are historical and do not reflect our acquisition of the Nextel
towers, Westower or the other acquisitions we have completed in 1999 or expect
to complete in January 2000.
SALES AND MARKETING
We believe that our ability to satisfy a wide range of our customer's
network deployment requirements will make us a preferred provider of all
outsourced antennae site and network services. Our sales and marketing goals are
to:
-- use existing relationships and develop new relationships with
wireless service providers to lease antenna space on our owned and
managed communication sites; and
-- form affiliations with select communications system vendors who
utilize end-to-end services, including those provided by SpectraSite,
which will enable us to market our services and products through
additional channels of distribution.
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to obtain
build-to-suit mandates, and we intend to continue to emphasize our capability in
these areas in selling our broad range of services.
Maintaining and cultivating relationships with wireless service providers
is a main focus of senior management. In addition, we have a dedicated group of
representatives focused on sales efforts and establishing relationships with
wireless service providers. The representatives are assigned specific accounts
based on historical experience with a provider and the quality of the
relationship between the SpectraSite representative and such provider. Most
wireless service providers have national corporate headquarters with regional
offices. We believe that most decisions for site acquisition and site leasing
services are made by providers at the regional level with input from their
corporate headquarters. Our sales representatives work with provider
representatives at the local level and, when appropriate, at the national level.
Our sales staff
46
<PAGE> 50
compensation is heavily weighted to incentive-based goals and measurements. In
addition to our dedicated marketing and sales staff, we rely upon our executive
and operations personnel at the national and field office levels to identify
sales opportunities within existing customer accounts, as well as acquisition
opportunities.
COMPETITION
Our principal competitors include American Tower Corporation, Crown Castle
International Corp., Pinnacle Holdings Inc. and SBA Communications Corporation.
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
LLC, for example, has commenced space-borne provision of mobile satellite
service, although it is currently subject to bankruptcy proceedings. 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 unclear whether these new technologies will be
commercially feasible, and to what extent they will offer significant
competitive alternatives to terrestrial structures.
EMPLOYEES
As of December 31, 1999, SpectraSite had 1,198 employees, none of whom are
represented by a collective bargaining agreement. We consider our employee
relations to be good. Due to the nature of the site construction business, we
may experience increases and decreases in employees as site construction
contracts are entered into or completed.
PROPERTIES
SpectraSite is headquartered in Cary, North Carolina, where it currently
leases 62,136 square feet of space. We have established full-service regional
offices in the New York, Atlanta, Chicago and San Francisco areas. We open and
close project offices from time to time in connection with our network design
and development services, which offices are generally leased for periods not
exceeding 18 months.
We own a broadcast tower manufacturing facility located in Pine Forge,
Pennsylvania. We also own five acres of land in Surrey, British Columbia,
Canada, on which a 10,000 square foot fabrication, assembly and storage facility
and a 5,000 square foot office building are located; four acres of land near
Montreal, Quebec, Canada, on which a 7,000 square foot facility is located; and
a one acre lot in Houston, Texas, on which approximately 2,500 square feet of
office space and 5,000 square feet of warehouse space are located. We also lease
office space in the following locations:
-- Phoenix and Tucson, Arizona;
-- Little Rock, Arkansas;
-- Burbank, Los Angeles, Newport Beach, Sacramento and San Jose,
California;
-- Ft. Lauderdale, Palm Beach Gardens, Tampa and Orlando, Florida;
-- Ridgeland, Mississippi;
-- Las Vegas, Nevada;
-- Syracuse, New York;
-- Charlotte and Greensboro, North Carolina;
-- Columbus, Ohio;
-- Portland and Roseburg, Oregon;
47
<PAGE> 51
-- Conshohocken, Forty Fort, North Wales and Upper Gwynedd Township,
Pennsylvania;
-- Austin, Dallas and Houston, Texas;
-- Redmond and Seattle, Washington; and
-- Alberta, Nova Scotia and Ontario, Canada.
Our interests in communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements, easements and licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a
three-to-five acre tract which supports towers, equipment shelters and guy wires
to stabilize the structure. Less than 2,500 square feet are required for a
self-supporting tower structure of the kind typically used in metropolitan
areas. Land leases generally have an initial term of five years, with five
additional five-year renewal periods. You should read "--Products and
Services--Wireless Tower Ownership and Leasing" for a list of the locations of
our owned towers.
LEGAL PROCEEDINGS
From time to time, SpectraSite is involved in various legal proceedings
relating to claims arising in the ordinary course of business. We are not
currently a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on our business, financial condition or results of operations.
INTERNATIONAL
Our primary focus is on operations in the United States and Canada.
However, we evaluate possible international opportunities and may, in the
future, pursue opportunities we consider attractive.
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 could impact our
business."
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.
48
<PAGE> 52
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, like
SpectraSite, to register existing structures by state, in accordance with filing
windows, over a two-year period between July 1, 1996 and June 30, 1998.
Historically, tower locations were determined using area maps. The FCC has
recognized that, with the proliferation of inexpensive, satellite-based locating
devices, such as Global Positioning System receivers, structures can now be
easily located with a higher degree of accuracy. Accordingly, the FCC has told
owners who determined that tower registration information conflicted with
previously issued licenses for antennae on their towers to register their
structures using the new data and to seek new FAA determinations of no hazard as
necessary under the FAA's rules. The FCC also has instructed licensees or
permittees who discovered that the coordinates on their authorizations differed
from those determined by more accurate means to submit corrective construction
permit applications. In February 1999, the FCC's Wireless Telecommunications
Bureau announced a new policy under which defective applications for wireless
authorizations and antenna structure registrations will be summarily dismissed,
without giving the applicants an opportunity to amend but requiring them to
correct and retender their applications. As part of the new policy, the Bureau
said that effective May 1, 1999, it will return and not process tower
registration applications including data that do not agree with information
listed on previously issued FAA determinations. The FCC also announced that
applications for FCC communications authorizations would be dismissed if a tower
registration number is not listed on the FCC application. Although the FCC
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 applied 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.
SpectraSite has been working to review the registration of the towers it has
acquired and to confirm the accuracy of the information submitted to the FAA and
the FCC by the prior owners.
The Telecommunications Act of 1996 amended the Communications Act of 1934
by limiting state and local zoning authorities' jurisdiction over the
construction, modification and placement of wireless communications 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.
49
<PAGE> 53
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 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.
ENVIRONMENTAL REGULATIONS
Owners and operators of communications towers are subject to, and,
therefore, must comply with environmental laws. The FCC's decision to register a
proposed tower may be subject to environmental review under the National
Environmental Policy Act of 1969, which requires federal agencies to evaluate
the environmental impacts of their decisions under certain circumstances. The
FCC has issued regulations implementing the National Environmental Policy Act.
These regulations place responsibility on each applicant to investigate any
potential environmental effects of operations and to disclose any significant
effects on the environment in an environmental assessment prior to constructing
a tower. In the event the FCC determines the proposed tower would have a
significant environmental impact based on the standards the FCC has developed,
the FCC would be required to prepare an environmental impact statement. This
process could significantly delay the registration of a particular tower. In
addition, we are subject to environmental laws which may require investigation
and clean-up of any contamination at facilities we own or operate or at third-
party waste disposal sites. These laws could impose liability even if we did not
know of, or were not responsible for, the contamination. Although we believe
that we currently have no material liability under applicable environmental
laws, the costs of complying with existing or future environmental laws,
investigating and remediating any contaminated real property and resolving any
related liability could have a material adverse effect on our business,
financial condition or results of operations.
50
<PAGE> 54
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..................... 55 President and Chief Executive Officer and a Director
Timothy G. Biltz..................... 41 Chief Operating Officer
David P. Tomick...................... 47 Executive Vice President, Chief Financial Officer and
Secretary
Richard J. Byrne..................... 42 Executive Vice President--Business Development
Calvin J. Payne...................... 47 Executive Vice President--Design and Construction and
a Director
Terry L. Armant...................... 51 Senior Vice President--Operations
John H. Lynch........................ 42 Vice President, General Counsel
Daniel I. Hunt....................... 35 Vice President--Finance and Administration
Steven C. Lilly...................... 30 Vice President and Treasurer
Lawrence B. Sorrel................... 40 Chairman of the Board
Timothy M. Donahue................... 50 Director
Andrew R. Heyer...................... 42 Director
James R. Matthews.................... 32 Director
Thomas E. McInerney.................. 58 Director
Michael J. Price..................... 42 Director
Rudolph E. Rupert.................... 34 Director
Steven M. Shindler................... 36 Director
Michael R. Stone..................... 37 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.
Timothy G. Biltz is Chief Operating Officer. Prior to joining SpectraSite
in August 1999, Mr. Biltz spent 10 years at Vanguard Cellular Systems, Inc.,
most recently as Executive Vice President and Chief Operating Officer. He joined
Vanguard in 1989 as Vice President of Marketing and Operations and was Executive
Vice President and President of U.S. Wireless Operations from November 1996
until May 1998 when he became Chief Operating Officer. Mr. Biltz was
instrumental in Vanguard's development from an initial start-up to an enterprise
with over 800,000 subscribers.
David P. Tomick is Executive Vice President, Chief Financial Officer and
Secretary. 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.
51
<PAGE> 55
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 had primary responsibility for the tower
sale/lease-back and build-to-suit commitment. In addition, Mr. Byrne was
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. Byrne spent 15 years in the real-estate
industry. His work centered on property management, ownership and brokerage of
investment properties.
Calvin J. Payne is Executive Vice President--Design and Construction of
SpectraSite and a director of Holdings. Mr. Payne was Co-founder, Chairman of
the Board and Chief Executive Officer of Westower and had been a director of
Westower or its predecessor since 1990. Prior to founding Westower, Mr. Payne
acquired experience in all aspects of the construction of steel communications
towers. Mr. Payne, an award-winning tower designer, has engineered over 600
towers. Mr. Payne is a graduate of the University of British Columbia and the
University of Western Australia.
Terry L. Armant is Senior Vice President--Operations. 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.
John H. Lynch is Vice President, General Counsel. Prior to joining
SpectraSite in August 1999, Mr. Lynch served as General Counsel for Qualex Inc.,
the wholly-owned photofinishing subsidiary of Eastman Kodak Company. Before
joining Qualex in 1989, Mr. Lynch practiced corporate and real estate law in the
Atlanta, Georgia offices of Wildman, Harrold, Allen, Dixon and Branch. Mr. Lynch
holds a B.A. in Economics and English from Ohio Wesleyan University, an M.B.A.
from Ohio State University, and a J.D. from Ohio State University.
Daniel I. Hunt is Vice President--Finance and Administration. 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.
Steven C. Lilly is Vice President and Treasurer. Prior to joining
SpectraSite in July 1999, Mr. Lilly served as a Vice President in First Union
Corporation's loan syndications group where he was primarily responsible for
structuring and negotiating transactions for emerging telecommunications
companies, including wireless service providers, competitive local exchange
carriers and tower companies.
Lawrence B. Sorrel has been Chairman of the Board of Holdings since April
1999. Mr. Sorrel joined Welsh, Carson, Anderson & Stowe in 1998 and is a
managing member or general partner of the respective sole general partners of
WCAS VIII and other associated investment partnerships. Prior to joining Welsh,
Carson, Mr. Sorrel spent 12 years at Morgan Stanley, where he was a Managing
Director and senior executive in Morgan Stanley's private equity group, Morgan
Stanley Capital Partners. Mr. Sorrel is a director of Select Medical Corp.,
Emmis Communications, Westminster Healthcare Ltd. and Valor Telecommunications,
LLC.
Timothy M. Donahue has been a director of Holdings since April 1999. Mr.
Donahue has served as Chief Executive Officer of Nextel since July 15, 1999, and
as a director of Nextel since May 1996. Prior to being named Chief Executive
Officer, Mr. Donahue served as President, and on February 29, 1996, he 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
52
<PAGE> 56
Food Group, and is a director of Niagara Corporation, Hayes Lemmerz
International, Inc., Lancer Industries, Fairfield Manufacturing Company and
Millenium Digital Media Holdings, Inc.
James R. Matthews has been a director of Holdings since August 1998. Mr.
Matthews has been employed by J.H. Whitney & Co. since 1994 and serves as a
general partner. Previously, he was with Gleacher & Co. Inc. and Salomon
Brothers Inc. Mr. Matthews is a director of ClearSource, Inc. and NewPath
Holdings, Inc.
Thomas E. McInerney has been a director of Holdings since April 1999. Mr.
McInerney joined Welsh, Carson, Anderson & Stowe in 1986 and is a managing
member or general partner of the respective sole general partners of WCAS VIII
and other associated investment partnerships. Formerly, he co-founded and served
as President and Chief Executive Officer of Dama Telecommunications Corp., a
telecommunications services company. Earlier, he was Group Vice
President--Financial Services at ADP and Senior Vice President--Operations at
the American Stock Exchange. Mr. McInerney is a director of, among others,
Centennial Cellular Corp., Control Data Systems, Bridge Information Systems, The
BISYS Group, The Cerplex Group, Attachmate Corp., Global Knowledge Network and
Valor Telecommunications, LLC.
Michael J. Price has been a director of Holdings since April 1999. Mr.
Price is Co-Chief Executive Officer of FirstMark Communications International
LLC, a broadband wireless telecommunications company. Prior to that, he worked
at Lazard Freres & Co. LLC, starting in 1987, serving first as a Vice President
and then as a Managing Director, where he led their global technology and
telecommunications practice.
Rudolph E. Rupert has been a director of Holdings since April 1999. Mr.
Rupert joined Welsh, Carson, Anderson & Stowe in 1997 and is a managing member
or general partner of the respective sole general partners of Welsh, Carson,
Anderson, & Stowe 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.
Steven M. Shindler has been a director of Holdings since April 1999. Mr.
Shindler joined Nextel in May 1996 and serves as Executive Vice President and
Chief Financial Officer. Between 1987 and 1996, Mr. Shindler was an officer with
Toronto Dominion Bank, where most recently he was a Managing Director in its
Communications Finance Group. Mr. Shindler serves as a director of Nextel
International.
Michael R. Stone has been a director of Holdings since its formation in May
1997. Mr. Stone has been employed by J.H. Whitney & Co. since 1989 and serves as
a general partner. Previously, he was with Bain & Company. Mr. Stone is a
director of TBM Holdings, Inc., Scirex Corporation, MedSource Technologies, Inc.
and Physicians Surgical Care, Inc.
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."
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has formed the following committees:
-- Executive Committee;
-- Audit Committee; and
-- Compensation Committee.
EXECUTIVE COMMITTEE. The members of the executive committee are Stephen
Clark, Andrew Heyer, Thomas McInerney, Steven Shindler, Lawrence Sorrel and
Michael Stone. The principal functions of the executive committee include
exercising the powers of the board of directors during intervals between board
53
<PAGE> 57
meetings and acting as an advisory body to the board of directors by reviewing
various matters prior to their submission to the board.
AUDIT COMMITTEE. The members of the audit committee are James Matthews,
Michael Price and Rudolph Rupert. The audit committee performs the following
functions:
-- approves the selection of independent auditors for SpectraSite;
-- reviews the scope and results of the annual audit;
-- approves the services to be performed by the independent auditors;
-- reviews the independence of the auditors;
-- reviews the adequacy of the system of internal accounting controls;
-- reviews the scope and results of internal auditing procedures; and
-- reviews related party transactions.
COMPENSATION COMMITTEE. The members of the compensation committee are
Thomas McInerney, Lawrence Sorrel and Michael Stone. The compensation committee
performs the following functions:
-- adopts and oversees the administration of compensation plans for
executive officers and senior management of SpectraSite;
-- determines awards granted to executive officers under such plans;
-- approves the Chief Executive Officer's compensation; and
-- reviews the reasonableness of such compensation.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid by
or incurred on behalf of SpectraSite to its Chief Executive Officer and the
other executive officers whose salary and bonus exceeded $100,000 for the year
ended December 31, 1998. Amounts shown for 1997 include compensation paid by
Holdings to the named executive officers from April 25, 1997, the date of
Holdings' inception, through December 31, 1997. The amounts reported as All
Other Compensation for all years represent SpectraSite's contributions under its
401(k) plan.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND PRINCIPAL --------------------------- OPTIONS/ ALL OTHER
POSITION YEAR SALARY($) 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,
and as of September 30, 1999, Mr. Finley ceased providing services to
SpectraSite. See "--Employment Agreements."
54
<PAGE> 58
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.
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 3/23/08 $178,500
David P. Tomick........ 50,000 6 4.00 3/23/08 31,500
Terry L. Armant........ 125,000 14 4.00 8/10/08 75,000
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998($)
--------------------------- ---------------------------
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 received a $40,000 bonus in connection with his
relocation to Cary, North Carolina. If their employment is terminated as a
result of their death, disability, or termination without cause Messrs. Clark,
Tomick and Byrne will be entitled to receive continued salary, bonus and health
benefits for a period of 24 months.
Under the employment agreements, Messrs. Clark, Tomick and Byrne were
granted incentive stock options 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
55
<PAGE> 59
the stock options that they held prior to entering into the employment
agreement, but not those granted under the employment agreement, shall be fully
exercisable.
Messrs. Clark, Tomick and Byrne have agreed that for a period of 24 months
following the termination of their employment with SpectraSite they will not:
-- engage in competition, own any interest in, or perform any services
for any business which engages in competition with SpectraSite;
-- solicit management employees of SpectraSite or otherwise interfere
with the employment relationship between SpectraSite and its
employees; or
-- engage or work with any supplier, contractor or entity with a
business relationship with SpectraSite, if such action would have a
material adverse effect on SpectraSite.
In addition, in connection with his employment with SpectraSite, Mr. Byrne
purchased 50,000 shares of common stock for a nominal amount. Mr. Byrne's right
to retain these shares of common stock vests in equal 25% installments on each
of the first four anniversaries of his employment agreement. Vesting will
accelerate upon Mr. Byrne's termination without cause or if he dies or becomes
disabled. Mr. Byrne will also receive a bonus to pay income taxes incurred in
connection with this purchase of common stock.
On May 12, 1997, SpectraSite entered an employment agreement with Joe L.
Finley, III. The initial term of the employment agreement was May 12, 1997 to
May 31, 1999. SpectraSite and Mr. Finley terminated the employment agreement,
effective December 31, 1998. 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;
-- prior to January 1, 2002, he will not engage in any business related
to certain of SpectraSite's activities in any state where SpectraSite
has done business at any time during the three years prior to the
termination of Mr. Finley's employment; and
-- prior to January 1, 2002, 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.
SpectraSite and Finley & Company, Inc., an Arkansas corporation, entered
into a consulting agreement effective January 1, 1999, and this agreement was
terminated as of September 30, 1999. Finley & Company has agreed 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 assigned all rights, title and interest to any inventions,
ideas, developments and designs created while providing services under the
consulting agreement. Further, Finley & Company has agreed 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 has
agreed not to interfere with the relationship between SpectraSite and any of its
employees, or any of its customers or suppliers.
STOCK INCENTIVE PLAN
The SpectraSite Holdings, Inc. Stock Incentive Plan was originally
effective June 24, 1997 and was amended and restated effective August 5, 1999.
The plan has a term of ten years and provides for the issuance of incentive
stock options, non-qualified stock options and other stock-based awards to key
employees, directors, advisors and consultants of SpectraSite, as well as any
subsidiary of SpectraSite. An aggregate of 10,000,000 shares of common stock has
been reserved for issuance under the plan. The number of shares available for
grant as options may be adjusted in the event of a stock split, stock dividend,
combination of shares, spin-off, spin-out or other similar change, exchange or
reclassification of the common stock at the
56
<PAGE> 60
discretion of the board, and shares subject to an option which expires, is
terminated or canceled, or is repurchased by SpectraSite, shall be available for
future grants under the plan.
ADMINISTRATION. The plan may be administered by the board of directors or
by a duly appointed committee having powers specified by the board. This
committee shall consist solely of directors who are non-employee directors, for
purposes of Section 16 of the Exchange Act, and outside directors, for purposes
of Section 162(m) of the Internal Revenue Code. The specific terms of any award
under the plan will be reflected in a written agreement. The committee
administering the plan has the discretion to determine which eligible
individuals will receive awards, the number of shares to be covered by the
awards, the exercise date of the awards, whether the options should be incentive
stock options or non-qualified stock options, and the terms and conditions of
the awards.
STOCK OPTIONS--INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK
OPTIONS. Under the plan, the committee has the discretion to grant incentive
stock options qualifying for special tax treatment under Section 422 of the
Internal Revenue Code and nonqualified stock options that do not qualify for
such treatment. The exercise price of any incentive stock option may not be less
than the fair market value of the stock on the date the option is granted,
provided the exercise price of any incentive stock option shall not be less than
110% of the fair market value of a share of stock on the date the option is
granted in the event the participant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Holdings. Payment of the
option price is to be made in cash, by check, in cash equivalent or by any other
form permitted by the committee, including by promissory note to SpectraSite or
by delivering other shares. Only employees are eligible to receive incentive
stock options, and at the time an incentive stock option is granted, the fair
market value of the common stock for which the incentive stock option will
become exercisable in any year may not exceed $100,000.
The committee is authorized to award re-load options to participants in
order to enable the participant to use previously owned shares to pay the
exercise price of the stock options and/or to satisfy any tax withholding
requirements incident to the exercise of the underlying options, without
reducing the participant's overall ownership of shares. Re-load options are not
intended to be incentive stock options, become exercisable twelve months after
the date of grant, and must be exercised within the term of the original stock
option.
OTHER AWARDS. Under the plan, the committee has the discretion to grant
restricted stock, performance awards, dividend equivalents, deferred stock,
stock appreciation rights and other stock-based awards on terms and conditions
determined by the committee.
Restricted stock means shares that are subject to certain transfer
restrictions and/or risk of forfeiture. Except as specifically set forth in the
restricted stock award agreement, the participant will have all rights and
privileges of a stockholder as to his or her restricted stock, including the
rights to vote and to receive dividends.
Performance award means an award of the right to receive shares, cash or
other property upon the achievement of performance criteria determined by the
committee.
Dividend equivalent means the award of the right to the payment of amounts
equal to the value of dividends that may be paid with respect to shares in the
future. The committee may provide that dividend equivalents will be paid or
distributed when accrued or will be deemed to have been reinvested in additional
shares or awards, or otherwise reinvested.
Deferred stock means an award of the right to receive shares upon
expiration of a deferral period subject to certain restrictions and the risk of
forfeiture as provided under the plan and the award agreement related to the
award. Holdings will deliver shares under a deferred stock award upon expiration
of the deferral period or other conditions specified by the committee or, if
permitted by the committee, as elected by the participant.
Stock appreciation right means a right to receive an amount measured by the
appreciation in the fair market value of shares from the date of grant of the
stock appreciation right to the date of exercise of the right. A stock
appreciation right may be exercised at such times and in such manner as is
determined by the committee and, as determined by the committee, may be settled
in cash, shares or other property.
57
<PAGE> 61
The committee may grant other stock-based awards purely as bonuses that are
not subject to any restrictions or conditions. Such awards will be denominated
or payable in, valued by reference to, or otherwise based on or related to,
shares.
RESTRICTIONS ON PERFORMANCE-BASED AWARDS. Performance awards,
performance-based restricted stock, and certain other stock-based awards subject
to performance criteria are intended to be qualified performance-based
compensation within the meaning of Section 162(m) of the Internal Revenue Code,
and will be paid solely on account of the attainment of one or more
preestablished, objective performance goals within the meaning of Section 162(m)
and the regulations thereunder. As selected by the committee, the performance
goal will be the attainment of one or more preestablished amounts of sales
revenue, net income, operating income, cash flow, return on assets, return on
equity or total shareholder return of SpectraSite. No participant may be granted
any combination of performance awards, restricted stock or other stock-based
awards subject to performance criteria in any single year, the value of which is
based on more than 1,000,000 shares. The payout of any such award to a
participant may be reduced, but not increased, based on the degree of attainment
of other performance criteria or otherwise at the direction of the committee.
VESTING AND EXERCISABILITY. Generally, SpectraSite expects the committee
to award options that vest and become exercisable according to a vesting
schedule of not less than four years. In the event of a merger, consolidation,
corporate reorganization, or any transaction in which all or substantially all
of the assets of SpectraSite are sold, leased, transferred or otherwise disposed
of, all outstanding options shall immediately vest and become exercisable as of
a date prior to the change in control, unless the options were to become
exercisable upon attainment of a performance milestone which has not been
achieved as of the date of the change in control.
VESTING AND EXERCISABILITY FOR INCENTIVE STOCK OPTIONS. Once vested, an
incentive stock option may remain exercisable until the earliest of:
-- ten years from the date of grant or five years from the date of grant
if the participant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of SpectraSite;
-- three months from the date on which the participant terminates
employment with SpectraSite; or
-- if the participant's employment ceases by reason of his or her death
or disability, 12 months from the date on which the participant's
employment terminated.
In no event shall an incentive stock option be exercisable after one month
following the date a participant's employment with SpectraSite is terminated for
cause, as determined by the committee.
VESTING FOR RESTRICTED STOCK. Restricted stock awards will be subject to
the vesting schedules stated in the applicable award agreements. Any restricted
stock awards that are not vested or are subject to restrictions upon the
employee's termination of employment for any reason with SpectraSite will be
forfeited, provided that the committee may determine that a participant may
become vested in all or any portion of his award if his employment termination
constitutes a dismissal without cause and/or follows a change in control.
VESTING FOR DEFERRED STOCK. In general, any deferred stock that is subject
to deferral, other than deferral at the employee's election, will be forfeited
upon the employee's termination of employment for any reason during the deferral
period, subject to the committee's authority to waive such forfeiture
conditions.
VESTING FOR OTHER STOCK BASED AWARDS. A participant's rights in other
awards will be subject to forfeiture in accordance with the terms and conditions
of each award as set forth in the award agreement related to that award.
RIGHT OF FIRST REFUSAL. Generally, SpectraSite expects the committee to
award options subject to a right of first refusal. When a participant proposes
to sell, pledge or otherwise transfer any shares acquired upon the exercise of
an option, SpectraSite would have the right to repurchase those shares under a
right of first refusal, in accordance with the terms set forth in the individual
option agreements. If SpectraSite fails to exercise the right of first refusal,
the participant may conclude the proposed transfer, but the subsequent
transferee would
58
<PAGE> 62
be required, as a condition of the transfer, to hold the shares subject to
SpectraSite's right of first refusal with respect to any subsequent transfer.
SpectraSite's right of first refusal would not apply to transfers of shares:
-- in connection with a change in control;
-- to one or more members of the participant's immediate family;
-- that constitute a pledge to SpectraSite as security for a loan by
SpectraSite to the participant in connection with exercise of an
option; or
-- that have been approved by the board.
In addition, SpectraSite's right of first refusal would terminate upon a
change in control, unless the successor assumes the plan, or at such time as the
common stock is traded on a public market.
ASSIGNMENT OF INTEREST/NON-TRANSFERABILITY. Awards under the plan
generally are not assignable or transferable except by the laws of descent and
distribution. A participant's rights under the plan belong to the participant
alone and may not be sold, transferred, assigned or pledged to any other person
during his or her lifetime, provided the committee may permit an option or
restricted stock to be transferable to members of the participant's immediate
family or to a trust, partnership or other entity for the benefit of the
participant and/or member of the participant's immediate family to the extent
the shares underlying the options or restricted stock may be registered pursuant
to a Form S-8.
MAXIMUM NUMBER OF SHARES. The maximum number of shares with respect to
which options and awards may be granted to a participant in any single taxable
year is 1,000,000.
COMPETITION. Notwithstanding any plan provisions to the contrary, the
committee may provide under the terms of any award agreement that all rights of
the participant in any award, to the extent such rights have not already expired
or been exercised, will terminate and be extinguished immediately if a
participant engages in competition, as defined in the applicable award
agreement, with SpectraSite or any of its subsidiaries, affiliates or
successors, whether during or after his or her employment. In the event that a
participant exercises an option or other award at a time when, without the
committee's knowledge or consent, he or she has already engaged in competition
with SpectraSite, the committee may rescind and void such exercise, and the
participant will return upon demand by the committee such stock certificate(s)
representing the shares issued to him or her upon the exercise of the option or
award and still owned by the participant.
AMENDMENT OR TERMINATION OF PLAN. The plan may be amended, suspended or
terminated by the board in whole or in part at any time, provided that such
amendment, suspension or termination of the plan may not adversely affect the
rights of or obligations to the participants without the participants' consent.
The board must obtain stockholder approval for any change in the plan that
would:
-- extend the period during which options may be granted beyond June 24,
2007;
-- materially increase the number of shares which may be issued under
the plan; or
-- materially modify the requirements as to eligibility for
participation under the plan.
STOCK INCENTIVE PLAN TAX CONSEQUENCES
STOCK OPTIONS. The grant of an option under the plan will not have any
immediate effect on the federal income tax liability of SpectraSite or the
participant. If the board grants a participant a non-qualified stock option,
then the participant will recognize ordinary income at the time he or she
exercises the non-qualified stock option equal to the difference between the
fair market value of the common stock and the exercise price paid by the
participant, and SpectraSite will receive a deduction for the same amount.
If the board grants a participant an incentive stock option, then the
participant generally will not recognize any taxable income at the time he or
she exercises the incentive stock option, other than potential liability for
alternative minimum tax, but will recognize income only at the time he or she
sells the common stock acquired by exercise of the incentive stock option. Upon
sale of the common stock acquired upon exercise of the incentive stock option,
the participant will recognize income equal to the difference between
59
<PAGE> 63
the exercise price paid by the participant and the amount received upon sale,
and such income generally will be eligible for capital gain treatment.
SpectraSite generally is not entitled to an income tax deduction for the grant
of an incentive stock option or as a result of either the participant's exercise
of an incentive stock option or the participant's sale of the common stock
acquired through exercise of an incentive stock option. However, if the
participant sells the common stock either within two years of the date of the
grant to him or her of the incentive stock option, or within one year of the
date of the transfer to him or her of the common stock following exercise of the
incentive stock option, then the option is treated for federal income tax
purposes as if it were a non-qualified stock option; the income recognized by
the participant will not be eligible for capital gain treatment and SpectraSite
will be entitled to a federal income tax deduction equal to the amount of income
recognized by the participant.
AWARDS OF RESTRICTED STOCK. If the participant receives restricted stock,
the participant will be taxed in accordance with Section 83 of the Internal
Revenue Code. In general, under Section 83(a) a participant will not recognize
ordinary income, and SpectraSite will not receive a deduction, with respect to
restricted stock until such shares are no longer subject to risk of forfeiture
or are transferable. The amount included in ordinary income will be the fair
market value of the restricted stock determined as of the date the shares are no
longer subject to risk of forfeiture or are transferable. However, under Section
83(b), the participant may accelerate the recognition of ordinary income to the
time of the grant of the restricted stock award by filing an election with the
Internal Revenue Service and SpectraSite no later than 30 days after the date of
grant. In that case, the amount of ordinary income recognized by the participant
and the amount of SpectraSite's deduction will be equal to the fair market value
of the restricted stock determined as of the date of grant of the restricted
stock award.
OTHER AWARDS. In general, there will be no tax consequences to the
participant upon the issuance of other awards under the plan, and the
participant will recognize ordinary income only at the time that cash, shares or
other property are received by the participant under the award. The amount of
ordinary income recognized by the participant will be equal to the cash received
by the participant and/or the fair market value of the shares or other property
received by the participant, determined as of the date of receipt. The
disclosure contained in this prospectus of the stock incentive plan will
constitute approval of SpectraSite's adoption of the plan for purposes of the
stockholder approval requirements of SEC Rule 16b-3, which will exempt certain
transactions involving the plan from short-swing profit liability under Section
16(b) of the Exchange Act.
SPECTRASITE'S EMPLOYEE STOCK PURCHASE PLAN
SpectraSite has adopted the SpectraSite Holdings, Inc. Employee Stock
Purchase Plan. The stock purchase plan is administered by a committee designated
by the board of directors. The board of directors has reserved and authorized
for issuance under the stock purchase plan 1,000,000 shares of common stock. We
intend to register the shares reserved under the stock purchase plan with the
SEC. However, we currently do not expect to issue shares under this plan before
September 30, 2000.
All individuals employed by SpectraSite as of a grant date who customarily
work at least 20 hours per week and five months per year will be eligible to
participate in the stock purchase plan. Each eligible employee will be given an
option to purchase a number of shares of common stock equal to the total dollar
amount contributed by the employee to his or her payroll deduction account
during each six month offering period, divided by the purchase price per share
under the option. In no event may an employee receive an option which would
permit him or her during any one calendar year to purchase shares which have a
fair market value on the grant date in excess of $25,000. The price of the
shares offered to employees under the stock purchase plan will be the lesser of:
-- 85% of the fair market value of the common stock on the grant date;
or
-- 85% of the fair market value of the common stock at the exercise
date.
Generally, the employee does not recognize taxable income, and SpectraSite
is not entitled to an income tax deduction, on the grant or exercise of an
option issued under the stock purchase plan. If the employee sells the shares
acquired upon exercise of his or her option at least one year after the date he
or she exercised the
60
<PAGE> 64
option and at least two years after the date the option was granted to him or
her, then the employee will recognize ordinary income equal to the difference
between the fair market value of the stock as of the date of grant and the
exercise price. Any additional appreciation realized on the sale of the option
stock will be treated as a capital gain. SpectraSite will be entitled to an
income tax deduction corresponding to the amount of ordinary income recognized
by the employee. If the employee sells the shares acquired upon the exercise of
his or her option at any time within one year after the date of exercise of the
option, or two years after the date the option was granted, then the employee
will recognize ordinary income in an amount equal to the excess, if any, of
-- the lesser of the sale price or the fair market value on the date of
exercise, over
-- the exercise price of the option.
Payment of an eligible employee's subscription amount will be made through
payroll deductions, and an employee's participation in the stock purchase plan
is contingent on the employee providing SpectraSite with written authorization
to withhold from his or her pay an amount to be applied toward the purchase of
shares of common stock. An eligible employee is deemed to have exercised his or
her option granted under the stock purchase plan as of the exercise date.
SpectraSite will generally be entitled to a deduction in an amount equal to
the amount of ordinary income recognized by the employee.
The stock purchase plan may be amended, suspended or terminated by the
board of directors at any time, provided such amendment, suspension or
termination of the stock purchase plan may not adversely affect the rights of or
obligations to the participants without the participants' consent, and any such
amendment, suspension or termination will be subject to the approval of
SpectraSite stockholders to the extent required by any federal or state law or
regulation of any stock exchange.
61
<PAGE> 65
CERTAIN TRANSACTIONS
TELESITE AND METROSITE ACQUISITION
On May 12, 1997, in connection with its formation, SpectraSite purchased
the outstanding membership units of Telesite Services, LLC and Metrosite
Management, LLC from Joe L. Finley, III and certain affiliates of Mr. Finley for
an aggregate purchase price of approximately $7.2 million which consisted of
cash and 81,753 shares of common stock valued at $177,200 in the aggregate. In
addition, as part of the acquisition consideration, 408,764 shares of common
stock were issued into escrow, to be released when and if the acquired business
achieved certain operating goals. The escrow arrangement provided that
SpectraSite may repurchase the shares held in escrow if the acquired business
did 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 approximately $2.3
million, and all of the common stock issued in connection with the acquisitions.
SpectraSite used approximately $2.3 million of the proceeds from the sale of the
2008 notes to pay the outstanding principal amount of and accrued interest on
the note payable to Mr. Finley.
REPURCHASE OF COMMON STOCK FROM FORMER EMPLOYEE
In an agreement dated September 15, 1998, a former employee agreed to sell
125,000 shares of common stock to SpectraSite and to release SpectraSite from
any potential claims for an agreed upon price. In addition, the agreement
provided that stockholders of Holdings would have an option to purchase the
former employee's remaining 37,605 shares of 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, 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 Limited
Partnership, William R. Gupton, Jack W. Jackman and Alton D. Eckert purchased an
aggregate of 7,000,000 shares of Holdings' Series B preferred stock for an
aggregate purchase price of $28.0 million. As of March 23, 1998 the Series B
investors purchased the first installment of 4,250,000 shares of Series B
preferred stock for $17.0 million. As of August 27, 1998, the Series B investors
(other than Whitney Equity Partners, L.P.) purchased 2,074,016 shares for an
aggregate purchase price of approximately $8.3 million and as of September 21,
1998, Whitney Equity Partners, L.P. purchased the remaining 675,874 shares of
Series B preferred stock for an aggregate purchase price of approximately $2.7
million.
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., certain other persons and entities affiliated with Welsh, Carson, Anderson
& Stowe, J.H. Whitney III, L.P., Whitney Strategic Partners III, L.P., CIBC WG
62
<PAGE> 66
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 approximately $231.4 million 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.
AGREEMENTS WITH NEXTEL
On April 20, 1999, Nextel and SpectraSite entered into several agreements
in connection with SpectraSite's acquisition of tower assets from Nextel. The
following is a summary of the material terms of these agreements.
Master Site Commitment Agreement. SpectraSite and certain of Nextel's
subsidiaries entered into a master site commitment agreement under which 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.
These sites 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
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 the agreed upon numbers as of particular dates, then commencing with the
37th month after the closing, Nextel has agreed to make certain payments to
SpectraSite. The master site commitment agreement terminates 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 is not
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 areas to increase capacity and enhance signal
quality, as well as deploying sites in areas contiguous to Nextel's existing
markets and deploying sites in new markets to expand 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 Partners' currently delineated
network deployment area to the extent these 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 that
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;
63
<PAGE> 67
-- 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 allotted time
period.
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 the breach is neither waived nor cured.
Master Site Lease Agreement. SpectraSite and Nextel entered into a master
site lease agreement under which SpectraSite has agreed to lease to Nextel's
subsidiaries space on wireless communications towers or other transmission
space:
-- at the sites transferred to SpectraSite as part of the Nextel tower
acquisition;
-- at the sites subsequently constructed or acquired by SpectraSite
under the master site commitment agreement; or
-- at 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 separate master site lease
agreement. Under this separate agreement, SpectraSite would agree to 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;
-- at some of the sites subsequently constructed or acquired by
SpectraSite under the master site commitment agreement; or
-- at other sites and related space on wireless communications towers or
transmission space owned, leased or licensed by SpectraSite.
If Nextel Partners does not enter into a master site lease agreement with
SpectraSite in the future, any site that would otherwise have been leased to
Nextel Partners thereunder will instead be leased to Nextel's subsidiaries under
the Nextel master site lease agreement.
The Nextel master site lease agreement and, if executed, the Nextel
Partners master site lease agreement will be supplemented from time to time to
provide for the lease of space on certain additional communications towers or
other transmission space at sites owned, constructed or acquired by SpectraSite.
Nextel and, if Nextel Partners executes a master site lease agreement, Nextel
Partners shall have a right of first refusal with respect to the sale of any
sites acquired by SpectraSite as part of the Nextel tower acquisition or
constructed or acquired by SpectraSite under the master site commitment
agreement.
The Nextel master site lease agreement and, if executed, the Nextel
Partners master site lease agreement 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, a rental payment of $1,600 per month will
be due on each tower which SpectraSite 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 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.
64
<PAGE> 68
These provisions are subject to the same annual 3% rate increase as 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 is also responsible for certain other
types of insurance.
The term of each lease contracted under the agreement is at least five
years, with a right to extend for five successive five-year periods. In certain
cases, the initial lease term will be six, seven or eight years. The lease is
automatically renewed unless the tenant submits notification of its intent to
terminate the lease, when its current term expires, prior to such expiration.
The tenant has the right to trade the term of any given site for the term of any
other site, upon written notice to the landlord. However, such a trade is
limited to one time per site per term.
A tenant may terminate a lease for any site, at its sole discretion,
without further liability to the landlord, with 30 days prior written notice,
if:
-- the tenant uses reasonable efforts and fails to obtain or maintain
any license, permit or other approval necessary for operation of its
communications equipment; or
-- the tenant is unable to use the tower due to FCC action which is not
a result of any action by the tenant.
Either party may terminate a lease for any site with 60 days prior written
notice, if the other party breaches a nonmonetary obligation, subject to certain
cure provisions. Either party may terminate a lease for any site with 10 days
prior written notice, if the other party breaches a monetary obligation and that
breach is not cured within the 10-day period. In addition, if Nextel or Nextel
Partners, if Nextel Partners executes a master site lease agreement, defaults on
rental payments with respect to more than 10% of the sites covered by its
respective master site lease agreement and Nextel or Nextel Partners, as the
case 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 that agreement.
Security and Subordination Agreement. SpectraSite and Nextel entered into
a security and subordination agreement under which SpectraSite granted to Nextel
a continuing security interest in the assets acquired in the Nextel tower
acquisition or acquired or constructed under the master site commitment
agreement. This interest secures SpectraSite's obligations under the Nextel
master site lease agreement and, if applicable, the Nextel Partners master site
lease agreement. The terms of an intercreditor agreement render Nextel's lien
and the other rights and remedies of Nextel under the security and subordination
agreement subordinate and subject to the rights and remedies of the lenders
under the credit facility.
TRANSACTIONS RELATED TO THE NEXTEL TOWER ACQUISITION
On April 20, 1999, in connection with the Nextel tower acquisition, Messrs.
Sorrel, Rupert, McInerney and Price purchased 50,000, 25,000, 262,973 and
100,000 shares of Holdings' Series C preferred stock for $5.00 per share,
respectively. See "-- The Preferred Stock Offerings." In addition, Mr. Price
purchased 100,000 shares of common stock and executed promissory notes as
payment for the common stock. The promissory notes mature on April 20, 2009 and
bear interest at 5.67% per year. Under the purchase agreement for Mr. Price's
shares, 25% of the shares of common stock vest each year, with the first
installment vesting on April 20, 2000. In addition, SpectraSite has the right to
repurchase half of the shares at their original cost to Mr. Price at any time
prior to April 20, 2000 and upon the date Mr. Price ceases to perform services
for SpectraSite. Each of Messrs. Sorrel, Rupert, McInerney and Price are members
of Holdings' board of directors. Messrs. Sorrel, Rupert and McInerney are also
affiliates of Welsh, Carson, Anderson & Stowe.
Affiliates of Welsh, Carson, Anderson & Stowe, J. H. Whitney & Co., and
Canadian Imperial Bank of Commerce received an aggregate of two million shares
of Holdings common stock as consideration for financing commitments made in
connection with the Nextel tower acquisition. Welsh Carson, J. H. Whitney
65
<PAGE> 69
and Canadian Imperial Bank of Commerce are each significant stockholders of
Holdings and affiliates of each entity are members of Holdings' board of
directors.
To finance a portion of the cash consideration paid to Nextel, Holdings
issued and sold the 2009 notes in a private offering and borrowed $150.0 million
under its credit facility. CIBC World Markets Corp. was an initial purchaser in
the 2009 notes offering, and an affiliate of CIBC World Markets is an agent and
a lender under the credit facility. CIBC World Markets was also an initial
purchaser of Holdings' 2008 notes. CIBC World Markets and its affiliates
received customary fees for such services. Andrew M. Heyer is a director of
Holdings and a Managing Director of CIBC World Markets Corp.
TRANSACTIONS WITH EXECUTIVE OFFICERS
In May 1997, Stephen H. Clark agreed to invest additional personal funds in
SpectraSite at the average per share price of Holdings Series A and Series B
preferred stock. In satisfaction of this commitment, Mr. Clark purchased 210,000
shares of Holdings common stock for an aggregate purchase price of $772,800 on
April 20, 1999.
In August 1999, SpectraSite loaned David P. Tomick $325,000 in connection
with the exercise of certain stock options. The 112,500 shares Mr. Tomick
acquired through the exercise of these options are pledged to SpectraSite as
security for this loan. The loan bears interest at the applicable federal rate
under the Internal Revenue Code, 5.36% per annum, and matures in August 2002.
In September 1999, SpectraSite loaned Timothy G. Biltz $500,000 to purchase
a home as a relocation incentive. This loan will be secured by any shares of
Holdings common stock issued to Mr. Biltz upon his exercise of options, bears
interest at 5.82% per annum and matures in September 2004.
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 superseded and replaced the existing stockholders' agreement
among Holdings and its stockholders. The following is a summary of the material
terms of the stockholders' agreement that will remain in effect following this
offering.
The stockholders' agreement contains a voting agreement provision under
which Holdings and certain stockholders agreed to take all appropriate action
to:
-- elect the greater of three and the number of directors Welsh, Carson
could appoint based on its proportionate ownership of Holdings stock
to Holdings' board;
-- elect two Nextel designees to Holdings' board;
-- elect two designees of funds affiliated with J.H. Whitney & Co. to
Holdings' board;
-- elect one designee of Canadian Imperial Bank of Commerce or its
affiliates to Holdings' board;
-- elect the Chief Executive Officer, initially Stephen H. Clark, to
Holdings' board;
-- remove and replace any director if requested to do so by the
stockholders who designated the director;
-- use their best efforts to cause Welsh, Carson designees to make up
two of the three members of a compensation committee created to,
among other things, set SpectraSite's employee compensation policy;
-- use their best efforts to cause Welsh, Carson and the J.H. Whitney
funds' designees to make up two of the three members of an audit
committee to, among other things, review and approve SpectraSite's
financial statements; and
-- use their best efforts to elect a Welsh, Carson affiliate, Lawrence
B. Sorrel, as Chairman of Holdings' board.
66
<PAGE> 70
This voting agreement provision terminates on the earlier to occur of April
20, 2009 and the fifth anniversary of the consummation of this offering. The
voting agreement provision will terminate as to any given stockholder on the
earlier to occur of that stockholder's disposition of 50% or more of its
Holdings stock and the date on which the stockholder owns less than 8% of
Holdings' outstanding stock.
The stockholders' agreement also prohibits all stockholders that are
parties to the agreement other than Welsh, Carson from selling or otherwise
transferring their Holdings stock, except for transfers:
-- made with the prior written consent of Welsh, Carson;
-- in limited instances, made with the prior written consent of 60% of
the aggregate shares of capital stock held by affiliates of J.H.
Whitney & Co., Canadian Imperial Bank of Commerce and Nextel;
-- by an individual stockholder to his or her spouse or descendant;
-- in accordance with the tag-along provisions described below;
-- by institutional stockholders to their affiliates; and
-- by Nextel to its affiliates or creditors to secure obligations under
a secured credit facility.
These transfer restrictions terminate upon the earlier of the sale,
transfer or other disposition by Welsh, Carson of 50% or more of its Holdings
stock, 18 months after the earlier of the closing date of this offering and
April 20, 2002. Holdings' stockholders also agreed that they would agree to a
longer transfer restriction period if asked to do so by the underwriter of an
initial public offering of Holdings' stock, so long as the lock-up binds
SpectraSite's executive officers and all holders of more than 5% of Holdings'
outstanding stock, and any exceptions to the lock-up provision apply equally to
all stockholders.
Once the transfer restrictions terminate, all transfers by stockholders
owning more than 5% of Holdings' stock will continue to be governed by the
coordinated distribution requirements of Holdings' second amended and restated
registration rights agreement. See "--Registration Rights Agreement."
The stockholders' agreement contains a tag-along provision which gives the
parties to the stockholders' agreement the right to participate in any sale by
Welsh, Carson of its Holdings stock on the same terms as Welsh, Carson sells its
stock. This provision will terminate at the same time as the transfer
restrictions terminate.
SpectraSite must make all redemptions of preferred stock equally among all
outstanding classes of preferred stock unless it receives written consent to do
otherwise from at least 80% of each outstanding class of preferred stock.
SpectraSite may not redeem any shares of common stock, except for repurchases
from employees of up to $0.5 million in any twelve-month period.
REGISTRATION RIGHTS AGREEMENT
In connection with the closing of the Nextel tower acquisition,
SpectraSite, Nextel, the Series A investors, the Series B investors, the Series
C investors and certain members of SpectraSite's management entered into a
second amended and restated registration rights agreement. In connection with
SpectraSite's acquisition of Apex, the former stockholders of Apex are expected
to join the registration rights agreement. The following is a summary of the
material terms of the registration rights agreement.
Under the registration rights agreement, the holders of Holdings' stock
party to the agreement may require SpectraSite to register all or some of their
shares under the Securities Act. The following conditions must be met to trigger
this registration obligation:
-- SpectraSite must receive a request for registration from holders of
at least 25% of its outstanding stock covered by the registration
rights agreement, exclusive of stock held by management;
-- the request must be received at any time following the earliest of
(1) April 20, 2002,
67
<PAGE> 71
(2) 18 months following an initial public offering of SpectraSite's
stock effected prior to April 20, 2001, and
(3) 180 days after an initial public offering effected on or after
April 20, 2001; and
-- SpectraSite must expect the aggregate offering price of the
registered securities will exceed $50.0 million.
SpectraSite is only obligated to effect three such registrations. Both
Holdings and its management have the right to include their shares in any
registration statement required by the registration rights agreement.
The registration rights agreement also provides that Holdings'
institutional stockholders and Nextel have the right to require SpectraSite to
file a registration statement on a Form S-3 covering their stock if and when
Holdings becomes eligible to file a such a registration statement. Nextel or the
institutional shareholders may request this registration if:
-- Holdings is eligible to file a registration statement on Form S-3;
and
-- SpectraSite expects the aggregate offering price of the registered
securities will exceed $10.0 million.
In addition to SpectraSite's registration obligations discussed above, if
Holdings registers any of its common stock under the Securities Act for sale to
the public for SpectraSite's own account or for the account of others or both,
the registration rights agreement requires that it use its best efforts to
include in the registration statement stock held by other Holdings stockholders
who wish to participate in the offering. Registrations by Holdings on Form S-4,
Form S-8 or any other form not available for registering stock for sale to the
public will not trigger this registration obligation.
The parties to the registration rights agreement also agreed that if they
publicly sell their securities after an initial public offering they will
attempt to conduct the sale in a manner that will not adversely disrupt the
market for SpectraSite stock. The stockholders agreed, to the extent
practicable, to coordinate those sales and make them through a single broker or
market maker over a sufficient period of time to permit an orderly disposition
of their securities. This coordinated distribution restriction terminates:
-- with respect to any shares that have been effectively registered and
disposed of in accordance with the registration statement covering
those shares;
-- as to any stockholder who owns less than 5% of Holdings' outstanding
stock; or
-- at such time as the number of shares of common stock in the hands of
the public exceeds the number of shares of Holdings' restricted stock
and stock held by management.
68
<PAGE> 72
OWNERSHIP OF CAPITAL STOCK
The table below sets forth, as of December 31, 1999, information with
respect to the beneficial ownership of Holdings' capital stock by:
-- each person who is known by Holdings to be the beneficial owner of
more than 5% of any class or series of capital stock of Holdings;
-- each of the directors and named executive officers individually; and
-- all directors and executive officers as a group.
The percentage of total voting power of common stock before the offering is
based on 90,941,229 shares of capital stock, which consisted of 20,191,604
shares of common stock and 70,749,625 shares of preferred stock which are
convertible into common stock, outstanding as of December 31, 1999. The
percentage of total voting power of common stock after the offering gives effect
to this offering, the conversion of all of the preferred stock into 70,749,625
shares of our common stock and the issuance of 6,175,997 and 225,000 shares of
common stock in connection with the Apex merger and the Vertical Properties
merger, respectively, on January 5, 2000.
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. In addition, all shares
of Series A, Series B and Series C preferred stock will automatically convert
into shares of common stock upon consummation of this offering. 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>
NUMBER OF PERCENTAGE OF
SERIES A SERIES B SERIES C SHARES OF STOCK TOTAL VOTING
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY POWER OF
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED COMMON STOCK
- ------------------------ --------- --------- --------- ---------- --------------- -------------------
BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen H. Clark(a)..................... 1,159,435 -- -- -- 1,159,435 1.3% *
David P. Tomick(b)...................... 150,105 -- -- 12,395 162,500 * *
Terry L. Armant(c)...................... 31,250 -- -- -- 31,250 * *
Calvin J. Payne(d)...................... 2,091,454 -- -- -- 2,091,454 2.3% 1.7%
Michael R. Stone(e)..................... -- 3,203,118 5,161,219 4,000,000 12,364,337 13.6% 10.3%
James R. Matthews(e).................... -- 3,203,118 5,161,219 4,000,000 12,364,337 13.6% 10.3%
Lawrence B. Sorrel(f)................... 1,375,000 -- -- 29,500,000 30,875,000 34.0% 25.8%
Andrew R. Heyer(g)(j)................... 312,500 -- -- 10,000,000 10,312,500 11.0% 8.4%
Thomas E. McInerney(f).................. 1,375,000 -- -- 29,712,973 31,087,973 34.2% 26.0%
Michael J. Price(h)..................... 100,000 -- -- 100,000 200,000 * *
Rudolph E. Rupert(f).................... 1,375,000 -- -- 29,475,000 30,850,000 33.9% 25.8%
Timothy M. Donahue(i)................... -- -- -- 14,000,000 14,000,000 15.4% 11.7%
Steven M. Shindler(i)................... -- -- -- 14,000,000 14,000,000 15.4% 11.7%
Nextel Communications, Inc.(i).......... -- -- -- 14,000,000 14,000,000 15.4% 11.7%
Welsh, Carson, Anderson & Stowe(f)...... 1,375,000 -- -- 29,450,000 30,825,000 33.9% 25.8%
Funds affiliated with J.H. Whitney &
Co.(e)................................ 312,500 3,203,118 5,161,219 4,000,000 12,676,837 13.9% 10.3%
Canadian Imperial Bank of Commerce(g)... -- -- -- 10,000,000 10,000,000 11.0% 8.4%
Caravelle Investment Fund, L.L.C.(j).... 312,500 -- -- -- 312,500 * *
Waller-Sutton Media Partners, L.P.(k)... -- -- 1,228,862 400,000 1,628,862 1.8% 1.9%
</TABLE>
69
<PAGE> 73
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SERIES A SERIES B SERIES C SHARES OF STOCK TOTAL VOTING
COMMON PREFERRED PREFERRED PREFERRED BENEFICIALLY POWER OF
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK OWNED COMMON STOCK
- ------------------------ --------- --------- --------- ---------- --------------- -------------------
BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Kitty Hawk Capital(l)................... 32,761 259,712 368,659 200,000 861,132 * *
S. Roy Jeffrey(m)....................... 2,091,454 -- -- -- 2,091,454 2.3% 1.7%
Peter Jeffrey(n)........................ 1,627,190 -- -- -- 1,627,190 1.8% 1.4%
All directors and executive officers as
a group (18 persons)(o)............... 4,957,244 3,203,118 5,161,219 57,900,368 71,221,949 78.0% 59.3%
</TABLE>
- ---------------
* Less than 1%.
(a) Includes 212,500 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days. Of the shares reported in
the table, 816,327 are held by Holt Road, L.P. Mr. Clark owns a 1% general
partnership interest, certain family trusts own a 98% limited partnership
interest and Mary Clark, Mr. Clark's spouse, owns a 1% limited partnership
interest in Holt Road, L.P. Mr. Clark is a trustee of each family trust, and
he disclaims beneficial ownership of the shares held by Holt Road, L.P., as
well as those deemed to be beneficially owned by the family trusts.
(b) None of Mr. Tomick's outstanding options are exercisable within 60 days.
(c) Includes 31,250 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(d) Includes 177,380 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(e) Represents 3,203,118 shares of Series A preferred stock and 1,720,406 shares
of Series B preferred stock held by Whitney Equity Partners, L.P.; 3,359,852
shares of Series B preferred stock and 3,905,882 shares of Series C
preferred stock held by J.H. Whitney III, L.P.; 80,961 shares of Series B
preferred stock and 94,118 shares of Series C preferred stock held by
Whitney Strategic Partners III, L.P.; and 312,500 shares of common stock
held by J.H. Whitney Mezzanine Fund, L.P. Each of these funds is affiliated
with J.H. Whitney & Co. Each of Mr. Stone and Mr. Matthews disclaims
beneficial ownership of shares held by these entities except to the extent
of his pecuniary interest in such funds. The business address for Mr. Stone,
Mr. Matthews and the Whitney funds is 177 Broad Street, Stamford,
Connecticut 06901.
(f) Messrs. Sorrel, McInerney and Rupert are each principals of Welsh, Carson,
Anderson & Stowe and acquired 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 Welsh, Carson. The
business address for Messrs. Sorrel, McInerney and Rupert and Welsh, Carson
is 320 Park Avenue, Suite 2500, New York, New York 10022.
(g) 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, M51 258, Toronto, Canada, and the business address for Mr. Heyer
is 425 Lexington Avenue, 3rd Floor, New York, New York 10017.
(h) 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.
(i) 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.
(j) The general partner and investment manager of Caravelle Investment Fund,
L.L.C. are affiliates of Andrew R. Heyer, Jay R. Bloom and Dean C. Kehler.
See footnote (g). The business address for Caravelle is 425 Lexington
Avenue, New York, New York 10017.
(k) The percentage of total voting power of common stock after the offering
reflects 633,996 shares of common stock to be issued to Waller-Sutton Media
Partners, L.P. in connection with the Apex merger. 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.
(l) The business address for Kitty Hawk Capital is 2700 Coltsgate Road, Suite
202, Charlotte, North Carolina 28211.
(m) Includes 177,380 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(n) Includes 115,840 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days and 755,000 shares held by
the Peter Jeffrey Family Trust. Mr. Jeffrey disclaims beneficial ownership
of the shares held by the trust.
(o) Includes 421,130 shares of common stock issuable upon the exercise of
outstanding options exercisable within 60 days.
70
<PAGE> 74
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 300,000,000 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 December 31, 1999, there were:
-- 20,191,604 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.
All of the shares of Series A, Series B and Series C preferred stock will
convert into shares of common stock on a one-for-one basis in connection with
the consummation of this offering. Holdings is not authorized to issue any
preferred stock other than the outstanding Series A, Series B and Series C
preferred stock. In addition:
-- 1,000,000 shares of common stock are reserved for issuance under our
employee stock purchase plan;
-- 4,084,703 shares of common stock are reserved for issuance upon
exercise of stock options available for future grant under the stock
incentive plan;
-- 5,715,291 shares of common stock are reserved for issuance upon
exercise of stock options granted under the stock incentive 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 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, Series B and Series C preferred stock, 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.
PREFERRED STOCK
CONVERSION. The preferred stock will automatically convert into common
stock upon Holdings' completion of a firm commitment underwritten initial public
offering raising gross proceeds of at least $150.0 million at an offering price
per share greater than or equal to $8.00. Therefore, upon consummation of this
offering, all shares of preferred stock will convert into shares of common
stock. Until then, each holder of Series A, Series B and 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;
71
<PAGE> 75
-- any issue of common stock at less than a specified price per share;
-- any issue of rights, options or warrants to subscribe for or purchase
shares of common stock at less than a specified price per share;
-- any issue of rights for the purchase of shares of common stock or
other securities convertible or exchangeable into shares of common
stock at less than a specified price per share; and
-- 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.
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 affects 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.
72
<PAGE> 76
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
SpectraSite Communications, Inc., a wholly-owned subsidiary of Holdings,
entered into a credit agreement, dated as of April 20, 1999, with CIBC
Oppenheimer Corp., now known as CIBC World Markets Corp., Credit Suisse First
Boston, New York Branch, and certain other lenders. This credit facility
provides a $500.0 million credit facility. Proceeds from the credit facility
were used to consummate the Nextel tower acquisition, and future borrowings will
be used to finance the construction and acquisition of additional towers and for
working capital and general corporate purposes.
The following is a summary of the material terms of the credit facility.
This summary is qualified in its entirety by the final terms of the credit
facility.
The credit facility consists of:
-- a $50.0 million revolving credit facility that may, subject to the
satisfaction of certain financial covenants, be drawn at any time and
from time to time prior 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 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' stockholders subject to the approval of a
majority of the lenders under the credit facility and the consent of such
affiliates.
The revolving credit loans and the multiple draw term loans will bear
interest, at SpectraSite Communications' option, at either:
-- Canadian Imperial Bank of Commerce's base rate, plus an applicable
margin of 1.5% per annum initially, which margin after a period of
time may decrease based on a leverage ratio; or
-- the reserve adjusted London interbank offered rate, plus an
applicable margin of 3.0% per annum initially, which margin after a
period of time may decrease based on a leverage ratio.
The term loan bears interest, at SpectraSite Communications' option, at
either:
-- Canadian Imperial Bank of Commerce's base rate, plus 2.0% per annum,
which margin after a period of time may decrease based on a leverage
ratio; or
-- the reserve adjusted London interbank offered rate, plus 3.5% per
annum, which margin after a period of time may decrease based on a
leverage ratio.
SpectraSite Communications will be required to pay a commitment fee of
between 1.25% and 0.50% per annum in respect of the undrawn portion of the
multiple draw term loan, depending on the amount undrawn. SpectraSite
Communications will be required to pay a commitment fee of 0.50% per annum in
respect of the undrawn portion of the revolving credit facility.
SpectraSite Communications may be required to prepay the credit facility in
part upon the occurrence of certain events, such as a sale of assets, the
incurrence of certain additional indebtedness, the issuance of equity and the
generation of excess cash flow.
73
<PAGE> 77
Holdings and each of SpectraSite Communications' subsidiaries has guaranteed
SpectraSite Communications' obligations under the credit facility. The credit
facility is further secured by:
-- substantially all the tangible and intangible assets of SpectraSite
Communications and its subsidiaries; and
-- a pledge of all of the capital stock of SpectraSite Communications
and of all of its subsidiaries.
The credit facility contains a number of covenants that, among other
things, restrict the ability of Holdings, SpectraSite Communications and their
subsidiaries to:
-- incur additional indebtedness;
-- create liens on assets;
-- make investments, make acquisitions, or engage in mergers or
consolidations;
-- dispose of assets;
-- enter into new lines of business;
-- engage in certain transactions with affiliates; and
-- pay dividends or make capital distributions.
SpectraSite Communications, however, will be permitted to pay dividends
after July 15, 2003, for the purpose of paying interest on the 2008 notes and
the 2009 notes so long as no default under the credit facility then exists or
would exist after giving effect to such payment.
In addition, the credit facility requires compliance with certain financial
covenants, including requiring SpectraSite Communications and its subsidiaries,
on a consolidated basis, to maintain:
-- a maximum ratio of total debt to annualized EBITDA;
-- a minimum interest coverage ratio;
-- a minimum fixed charge coverage ratio; and
-- a minimum annualized EBITDA, for the first year only.
SpectraSite Communications does not expect that such covenants will
materially impact its ability and the ability of its subsidiaries to operate
their respective businesses.
The credit facility contains customary events of default.
SENIOR DISCOUNT NOTES
On June 26, 1998, Holdings issued $225.2 million in aggregate principal
amount at maturity of its 12% senior discount notes due 2008 under an indenture
between Holdings and the United States Trust Company of New York, as trustee.
The 2008 notes mature on July 15, 2008 and rank equally with the 2009 notes.
The 2008 notes were issued at a substantial discount to their principal
amount and were sold to investors at a price that yielded gross proceeds to
SpectraSite of $125.0 million. The 2008 notes accrete daily at a rate of 12% per
year, compounded semiannually, to an aggregate principal amount of $225.2
million as of July 15, 2003. Cash interest will not accrue on the 2008 notes
prior to July 15, 2003. Commencing July 15, 2003, cash interest on the 2008
notes will accrue and be payable semiannually in arrears on each January 15 and
July 15, commencing January 15, 2004, at a rate of 12% per year. Except as
described in this paragraph, the 2008 notes are not redeemable at Holdings'
option prior to July 15, 2003. Thereafter, the 2008 notes will be subject to
redemption at any time at the option of Holdings, in whole or in part, at the
redemption prices set forth in the indenture plus accrued and unpaid interest
thereon, if any, to the applicable redemption date. In addition, from time to
time prior to July 15, 2001, SpectraSite may on one or more occasions redeem up
to 25% of the aggregate principal amount at maturity of the 2008 notes issued at
a redemption price of 112% of their accreted value, to the redemption date, with
the net cash proceeds from one or more equity offerings; provided,
74
<PAGE> 78
however, that at least 75% of the aggregate principal amount at maturity of 2008
notes originally issued remains outstanding immediately after the occurrence of
such redemption.
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 under 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
SpectraSite 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 in this paragraph, 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.
The 2008 notes and 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 to, the notes and rank equal in right of payment
with all current and future unsecured senior indebtedness of Holdings. All of
the operations of Holdings are conducted through its subsidiaries, and Holdings'
subsidiaries did not guarantee the 2008 notes nor the 2009 notes. Accordingly,
the 2008 notes and the 2009 notes are effectively subordinated to all
indebtedness and all other liabilities or obligations of such subsidiaries,
including borrowings under the $500.0 million credit facility.
Upon the occurrence of a change of control, the holders of the 2008 notes
and the holders of the 2009 notes have the right to require Holdings to
repurchase such holders' 2008 notes, in whole or in part, at a price equal to
101% of their accreted value or principal amount, as applicable, plus accrued
and unpaid interest, if any, to the date of purchase.
The indentures governing the 2008 notes and the 2009 notes contain certain
covenants that, among other things, limit the ability of Holdings and its
subsidiaries to:
-- incur additional indebtedness and issue preferred stock;
-- pay dividends or make certain other restricted payments;
-- enter into transactions with affiliates;
-- make certain asset dispositions;
-- merge or consolidate with, or transfer substantially all its assets
to, another entity;
-- create liens securing indebtedness; and
-- permit subsidiaries to incur restrictions on their ability to pay
dividends to Holdings.
However, all of these limitations are subject to a number of important
qualifications.
On March 24, 1999, Holdings received consents from all holders of the 2008
notes to certain amendments to the indenture governing the 2008 notes. The
indenture amendments allowed for consummation of the Nextel tower acquisition
and the related financing transactions.
75
<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the consummation of the Westower merger, there was no market for
our common stock. We cannot assure you that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options, in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities.
Upon completion of this offering, after giving effect to the conversion of
our preferred stock and the issuance of common stock in connection with our
acquisitions of Apex and Vertical Properties, we will have outstanding
119,642,226 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options, of which, as of
December 31, 1999, 1,765,666 were vested and an additional 3,949,625 will vest
for in the future. Of these shares, the 22,300,000 shares, or 25,645,000 shares
if the underwriters exercise their over-allotment option in full, of common
stock sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by our affiliates, as that term is defined
in Rule 144 under the Securities Act. Approximately 74,147,932 shares of common
stock outstanding, including shares of common stock issued upon conversion of
outstanding preferred stock, will be restricted securities under Rule 144 and
may in the future be sold without registration under the Securities Act to the
extent permitted by Rule 144 or any other applicable exemption under the
Securities Act. Some holders of outstanding shares of common stock immediately
prior to the offering may, under certain circumstances, include their shares in
a registration statement filed by Holdings for a public offering of common
stock. Some existing stockholders also have the right to demand that we register
their shares of common stock for resale. See "Certain Transactions--Registration
Rights Agreement."
Each of Holdings and the directors, executive officers and certain other
stockholders of Holdings has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus sell shares
of common stock or take related actions, subject to limited exceptions, all as
described under "Underwriters." In addition, certain executive officers,
directors and stockholders of Holdings are subject to certain transfer
restrictions under a stockholders' agreement. See "Certain
Transactions--Stockholders' Agreement."
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, including the holding period of any prior owner except an
affiliate, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
-- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering, or
-- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
Sales under Rule 144 also are subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of SpectraSite at any time during the three months preceding a sale
and who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner except an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance on Rule 144 but without
compliance with specified restrictions of Rule 144. Any employee, officer or
director of or consultant to SpectraSite who purchased his or her shares under a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell those shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.
76
<PAGE> 80
We have filed registration statements on Form S-8 under the Securities Act
covering shares of common stock subject to outstanding options under our stock
incentive plan. Based on the number of shares subject to outstanding options at
December 31, 1999 and currently reserved for issuance under the stock incentive
plan, the stock incentive plan registration statement covers 10,000,000 shares
issuable on exercise of the options, of which 1,765,666 options have vested.
Accordingly, subject to the exercise of those options and any applicable lock-up
agreements, shares registered under that registration statement are available
for sale in the open market. We also have reserved 1,000,000 shares for issuance
under our employee stock purchase plan. We currently do not expect to issue
shares under this plan before September 30, 2000. Also, after this offering,
some holders of shares of common stock will be entitled to registration rights
for their shares of common stock for offer and sale to the public. However,
under lock-up agreements with the underwriters, those rights will not be
available for exercise until 180 days after the date of this prospectus. See
"Certain Transactions--Registration Rights Agreement" and "Underwriters."
77
<PAGE> 81
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS TO NON-U.S. HOLDERS
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 common stock by holders that are non-U.S. holders, as that term is defined
below. This summary does not purport to be a complete analysis of all potential
tax effects and is based upon the Internal Revenue Code of 1986, as amended,
existing and proposed regulations promulgated thereunder, published rulings and
court decisions, all as in effect and existing on the date hereof and all of
which are subject to change at any time, which change may be retroactive or
prospective. Unless otherwise specifically noted, this summary applies only to
those persons that hold the common stock as capital asset within the meaning of
Section 1221 of the Internal Revenue Code.
This summary is for general information only and does not address the tax
consequences to taxpayers who are subject to special rules or circumstances.
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 purchasing, owning and disposing of the common
stock, including the investor's status as a non-U.S. holder, as well as any tax
consequences that may arise under the laws of any state, municipality, foreign
country or other taxing jurisdiction.
GENERAL
For purposes of this discussion, a non-U.S. holder is a beneficial owner of
the common stock that is not:
(1) a citizen or individual resident, as defined in Section 7701(b)
of the Internal Revenue Code, of the United States;
(2) 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;
(3) an estate the income of which is subject to United States federal
income tax without regard to its source; or
(4) 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 a U.S. holder prior to such date, may elect to
continue to be treated as a U.S. holder.
DIVIDENDS
Dividends, if any, paid to a non-U.S. holder will generally be subject to
the withholding of United States federal income tax at the rate of 30% of the
gross amount of such dividends, unless:
-- the dividends are effectively connected with the conduct of a trade
or business or, if an income tax treaty applies, are attributable to
a permanent establishment, as defined therein, within the United
States of the non-U.S. holder, and such non-U.S. holder furnishes to
SpectraSite or its agent a duly executed Internal Revenue Service
Form W-8ECI, or any successor form; or
-- such non-U.S. holder is entitled to a reduced withholding tax rate
pursuant to any applicable income tax treaty.
For purposes of determining whether tax will be withheld at a reduced rate
as specified by an income tax treaty, current law permits SpectraSite to presume
that dividends paid to an address in a foreign country are paid to a resident of
such country absent definite knowledge that such presumption is not warranted.
However, under newly issued U.S. Treasury regulations, in the case of dividends
paid after December 31, 2000, in order to obtain a reduced rate of withholding
under an income tax treaty, a non-U.S. holder generally will be
78
<PAGE> 82
required to furnish to SpectraSite or its agent a duly executed Internal Revenue
Service Form W-8BEN, or any successor form, certifying, under penalties of
perjury, that such non-U.S. holder is entitled to benefits under an income tax
treaty. The new regulations also provide special rules for dividend payments
made to foreign intermediaries, U.S. or foreign wholly-owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction or both. Prospective investors should consult their tax advisors
concerning the effect, if any, of the adoption of these new U.S. Treasury
regulations on an investment in the common stock. A non-U.S. holder who is
eligible for a reduced withholding rate may obtain a refund of any excess
amounts withheld by filing an appropriate claim for a refund with the Internal
Revenue Service.
Dividends paid to a non-U.S. holder that are effectively connected with the
conduct of a trade or business, or, if an income tax treaty applies, are
attributable to a permanent establishment, as defined therein, within the United
States of the non-U.S. 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 persons. In the case of a non-U.S. 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-U.S. holder is a qualified resident of
the treaty country.
GAIN ON SALE OR OTHER DISPOSITION
A non-U.S. 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 common stock, unless:
(1) the gain is effectively connected with the conduct of a trade or
business, or, if an income tax treaty applies, is attributable to a
permanent establishment, as defined therein, within the United States of
the non-U.S. holder or of a partnership, trust or estate in which such
non-U.S. holder is a partner or beneficiary;
(2) SpectraSite has been, is or becomes a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code at any time within the shorter of the five-year period
preceding such sale or other disposition or such non-U.S. holder's holding
period for the common stock; or
(3) the non-U.S. holder is an individual that:
(a) is present in the United States for 183 days or more in the
taxable year of the sale or other disposition; and
(b) either (i) has a tax home in the United States, as specially
defined for purposes of the United States federal income tax, or (ii)
maintains an office or other fixed place of business in the United
States and the gain from the sale or other disposition of the common
stock is attributable to such office or other fixed place of business.
Gains realized by a non-U.S. holder that are effectively connected with the
conduct of a trade or business, or, if an income tax treaty applies, are
attributable to a permanent establishment, as defined therein, within the United
States of the non-U.S. 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 persons. In the case of a non-U.S. 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-U.S. holder is a qualified resident of
the treaty country.
A corporation is generally considered to be a United States real property
holding corporation if the fair market value of its United States real property
interests within the meaning of Section 897(c)(1) of the Internal Revenue Code
equals or exceeds 50% of the sum of the fair market value of its worldwide real
79
<PAGE> 83
property interests plus the fair market value of any other of its assets used or
held for use in a trade or business. The determination of the fair market value
of our assets and, therefore, whether we are a United States real property
holding corporation at any given time will depend on the particular facts and
circumstances applicable at the time. Currently, it is our best estimate that
the fair market value of our United States real property interests is
approximately 50% of the fair market value of our United States and non-United
States real property interests and our other assets used or held for use in our
trade or business. Therefore, we believe that it is likely that we currently are
a United States real property holding corporation. Because the determination of
whether we are a United States real property holding corporation is based on the
fair market value of our United States real property interests and our other
assets, it is difficult to predict whether we will be a United States real
property holding corporation in the future.
Nevertheless, even if we are or have been a United States real property
holding corporation, a non-5% holder, as defined below, that is not otherwise
taxed under any other circumstance described above will not be taxed on any gain
realized on the sale or other disposition of the common stock if, at any time
during the calendar year of the disposition, the common stock was regularly
traded on an established securities market. A non-5% holder is a non-U.S. holder
that did not beneficially own, directly or indirectly, more than 5% of the total
fair market value of the common stock at any time during the shorter of the
five-year period ending on the date of disposition and the period that the
common stock was held by the non-U.S. holder. The common stock is quoted on the
Nasdaq National Market. Although the matter is not free from doubt, the common
stock should be considered to be regularly traded on an established securities
market during the time it is regularly quoted on Nasdaq.
If we are treated as a United States real property holding corporation and
either the common stock is not considered to be regularly traded on an
established securities market or the selling non-U.S. holder does not qualify as
a non-5% holder, then the selling non-U.S. holder will be taxed on any gain
realized on the disposition of such holder's common stock on a net income basis
at the rates and in the manner applicable to United States persons.
Furthermore, if we are treated as a United States real property holding
corporation and the common stock is not considered to be regularly traded on an
established securities market, the person acquiring the common stock from the
selling non-U.S. holder generally will be required to withhold a withholding tax
at a rate of 10% from the gross amount of the proceeds of the sale. The
witholding tax will be creditable against the selling non-U.S. holder's United
States federal income tax liability and might entitle the non-U.S. holder to a
refund upon furnishing required information to the Internal Revenue Service. In
addition, the witholding tax rate may be reduced or eliminated by obtaining a
withholding certificate from the Internal Revenue Service in accordance with
applicable U.S. Treasury regulations.
We urge all non-U.S. holders to consult their own tax advisors regarding
the application of the foregoing rules to them.
Individual non-U.S. holders may also be subject to tax pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates, including former long-term residents of the United States.
FEDERAL ESTATE AND GIFT TAXES
Common stock owned or treated as owned by a non-U.S. holder at the date of
death will be included in such individual's estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
A non-U.S. holder will not be subject to United States federal gift tax on
a transfer of common stock, unless such person is an individual domiciled in the
United States or such person is an individual 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.
80
<PAGE> 84
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
SpectraSite must report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, such non-U.S. holder, regardless of whether tax was actually
withheld and whether withholding was reduced by an applicable income tax treaty.
Under certain income tax treaties and other agreements, that information may
also be made available to the tax authorities of the country in which the
non-U.S. holder resides.
United States federal backup withholding, which generally is withholding
tax imposed at the rate of 31% on certain payments to persons not otherwise
exempt who fail to furnish certain identifying information, will generally not
apply to dividends paid to a non-U.S. holder that are subject to withholding at
the 30% rate, or that are subject to withholding at a reduced rate under an
applicable income tax treaty. Under current law, dividends paid to a non-U.S.
holder at an address outside of the United States are subject to withholding at
the rate of 30% or a reduced rate under an applicable income tax treaty, unless
the payor has knowledge that the payee is a United States person.
Under newly issued U.S. Treasury regulations, in the case of dividends paid
after December 31, 2000, a non-U.S. holder will generally be subject to backup
withholding, unless certain certification procedures, or in the case of payments
made outside of the United States with respect to an offshore account, certain
documentary evidence procedures, are satisfied, directly or through a foreign
intermediary.
The backup withholding and information reporting requirements will
generally also apply to the gross proceeds paid to a non-U.S. holder upon the
sale or other disposition of common stock by or through a United States office
of a United States or foreign broker, unless the non-U.S. holder certifies to
the broker under penalties of perjury as to, among other things, its name,
address and status as a non-U.S. holder by filing the Service's Form W-8BEN, or
any successor form with the broker, or unless the non-U.S. holder otherwise
establishes an exemption.
Information reporting requirements, but not backup withholding, will
generally apply to a payment of the proceeds of a sale or other disposition of
common stock effected at a foreign office of:
(i) a United States broker,
(ii) a foreign broker 50% or more of whose gross income for certain
periods is effectively connected with the conduct of a trade or business
within the United States,
(iii) a foreign broker that is a controlled foreign corporation for
United States federal income tax purposes, or
(iv) pursuant to newly issued U.S. Treasury regulations effective
after December 31, 2000, a foreign broker that is
(A) a foreign partnership one or more of whose partners are U.S.
persons that in the aggregate hold more than 50% of the income or
capital interest in the partnership at any time during its tax year, or
(B) a foreign partnership engaged at any time during its tax year
in the conduct of a trade or business in the United States, unless the
broker has certain documentary evidence in its records that the holder
is a non-U.S. holder, and the broker has no knowledge to the contrary,
and certain other conditions are met, or unless the non-U.S. holder
otherwise establishes an exemption.
Neither backup withholding nor information reporting will generally apply
to a payment of the proceeds of a sale or other disposition of common stock
effected at a foreign office of a foreign broker not subject to the preceding
paragraph. Prospective investors should consult their tax advisors concerning
the effect, if any, of the adoption of the newly issued U.S. Treasury
regulations on backup withholding and information reporting on an investment in
the common stock.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the non-U.S.
holder's United States federal income tax liability, provided that the non-U.S.
holder files an appropriate claim for a refund with the Internal Revenue
Service.
81
<PAGE> 85
UNDERWRITERS
Under the terms and subject to the conditions of an underwriting agreement
dated the date of this prospectus, the U.S. underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., CIBC World Markets
Corp., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc.,
Lehman Brothers Inc. and Salomon Smith Barney, Inc. are acting as U.S.
representatives, and the international underwriters named below for whom Morgan
Stanley & Co. International Limited, Goldman Sachs International, CIBC World
Markets plc, Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG
London, Lehman Brothers International (Europe) and Salomon Brothers
International Limited are acting as international representatives, have
severally agreed to purchase, and Holdings has agreed to sell to them,
severally, the number of shares of our common stock indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Goldman, Sachs & Co. .....................................
CIBC World Markets Corp. .................................
Credit Suisse First Boston Corporation....................
Deutsche Bank Securities Inc. ............................
Lehman Brothers Inc. .....................................
Salomon Smith Barney Inc. ................................
-----------
Subtotal............................................... 18,955,000
International Underwriters:
Morgan Stanley & Co. International Limited................
Goldman Sachs International...............................
CIBC World Markets plc ...................................
Credit Suisse First Boston (Europe) Limited...............
Deutsche Bank AG London...................................
Lehman Brothers International (Europe)....................
Salomon Brothers International Limited....................
-----------
Subtotal............................................... 3,345,000
-----------
Total................................................ 22,300,000
===========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock subject to their acceptance
of the shares from Holdings and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of specific legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for all
of the shares of common stock offered by this prospectus, if any are purchased.
However, the underwriters are not required to take or pay for the shares covered
by the underwriters' over-allotment option described below.
In the agreement between the U.S. and international underwriters, sales may
be made between the U.S. underwriters and international underwriters of any
number of shares as may be mutually agreed. The per share price of any shares so
sold by the underwriters shall be the public offering price listed on the cover
page of this prospectus, in United States dollars, less an amount not greater
than the per share amount of the concession to dealers described below.
82
<PAGE> 86
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be changed by the representatives.
Holdings has granted to the U.S. underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
3,345,000 additional shares of common stock at the public offering price listed
on the cover page of this prospectus, less underwriting discounts and
commissions. The U.S. underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the extent
the option is exercised, each U.S. underwriter will become obligated, subject to
specified conditions, to purchase about the same percentage of additional shares
of common stock as the number listed next to the U.S. underwriter's name in the
preceding table bears to the total number of shares of common stock listed next
to the names of all U.S. underwriters in the preceding table. If the U.S.
underwriters' option is exercised in full, the total price to the public for
this offering would be $ , the total underwriters' discounts and commissions
would be $ and total proceeds to SpectraSite would be $ .
Our common stock is quoted on the Nasdaq National Market under the symbol
"SITE."
At the request of SpectraSite, the underwriters have reserved for sale, at
the public offering price, shares offered by this prospectus for directors,
officers, employees, business associates, and related persons of SpectraSite.
Morgan Stanley & Co. Incorporated will administer the directed share program.
The number of shares of common stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased, will be offered by the underwriters
to the general public on the same basis as the other shares offered by this
prospectus.
Each of Holdings and the directors, executive officers and certain other
stockholders of Holdings, has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
-- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or
-- enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
the common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. In addition, these
directors, executive officers and stockholders have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not, during the period ending 180 days after the date of
this prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock.
The restrictions described in the preceding paragraph do not apply to:
-- the sale of shares to the underwriters under the underwriting
agreement;
-- the issuance by Holdings of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security outstanding
on the date of this prospectus of which the underwriters have been
advised in writing;
-- transactions by any person other than Holdings relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering;
-- the pledge or transfer of shares in accordance with certain
provisions of the stockholders' agreement;
83
<PAGE> 87
-- the granting by Holdings of any options, deferred shares or other
equity awards under Holdings' stock incentive plan, so long as such
options do not vest and become exercisable or such deferred share or
other awards do not vest, in each case, in the absence of
extraordinary events or occurrences beyond the control of the grantee
or recipient, until after the expiration of such 180 day period;
-- the issuance by Holdings of shares of common stock in connection with
acquisitions of businesses or portions thereof; provided the parties
in any such acquisition agree in writing to be bound by the foregoing
restrictions;
-- the pledge of shares to us by our employees to secure loans from us;
or
-- any disposition made among such persons' family members or
affiliates.
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell or
allot more shares than the 22,300,000 shares of our common stock which we have
agreed to sell them. This over-allotment would create a short position in our
common stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities and may end any of these activities
at any time.
From time to time, some of the underwriters have provided, and may continue
to provide, investment banking services to us. Affiliates of CIBC World Markets
Corp. and Credit Suisse First Boston Corporation are acting as agents and
lenders under SpectraSite's credit facility and each receives fees customary for
performing those services. Credit Suisse First Boston Corporation, Lehman
Brothers Inc. and CIBC World Markets Corp. were initial purchasers of Holdings'
2008 notes in June 1998, and each received customary fees for their services. In
addition, CIBC World Markets Corp., Credit Suisse First Boston Corporation and
Morgan Stanley & Co. Incorporated were initial purchasers of Holdings' 2009
notes in April 1999 and each received customary fees for their services.
Holdings and the underwriters have agreed to indemnify each other against a
variety of liabilities, including liabilities under the Securities Act.
84
<PAGE> 88
LEGAL MATTERS
Dow, Lohnes & Albertson, PLLC, Washington, D.C., will pass upon the
validity of the shares of common stock offered by this prospectus. Davis Polk &
Wardwell in New York, New York will pass upon certain matters for the
underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the period from inception (April 25, 1997) to December
31, 1997 and the year ended December 31, 1998 and the consolidated financial
statements of our predecessor, Telesite Services, LLC, for the year ended
December 31, 1996 and for the period from January 1, 1997 to May 12, 1997
included in this registration statement, as set forth in their reports appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
Westower's consolidated financial statements as of September 30, 1998 and
for the seven months then ended and Summit's financial statements as of
September 30, 1998 and for the nine months then ended have been included in this
registration statement in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Westower's consolidated financial statements as of February 28, 1997 and
February 28, 1998 and for the three years ended February 28, 1998 and Cord's
financial statements as of June 30, 1998 and for the two years ended June 30,
1998 have been included in this prospectus in reliance on the report of Moss
Adams LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of MJA Communications Corp. as of December 31,
1996 and December 31, 1997 and for the three years ended December 31, 1997, have
been consolidated with those of Westower in this prospectus in reliance on the
report of Lamn, Krielow, Dytrych & Darling, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Summit Communications LLC as of December 31,
1997 and for the period from inception, May 24, 1997, to December 31, 1997 have
been included in this prospectus in reliance on the report of Shearer, Taylor &
Co., P.A., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Holdings filed a registration statement on Form S-1 with the SEC for this
offering, and this prospectus is part of that registration statement. For
further information on SpectraSite, 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.
Holdings files reports with the SEC as the Exchange Act requires. In
addition, the indentures governing Holdings' outstanding notes require 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.
85
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998........................... F-3
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1999 and
1998...................................................... F-4
Unaudited Condensed Consolidated Statement of Redeemable
Convertible Preferred Stock and Shareholders' Equity
(Deficiency) for the nine months ended September 30,
1999...................................................... F-5
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998..... F-6
Notes to the Unaudited Condensed Consolidated Financial
Statements................................................ F-7
Report of Independent Auditors.............................. F-14
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1998......................................... F-15
Consolidated Statements of Operations for the period from
inception (April 25, 1997) to December 31, 1997 and for
the year ended December 31, 1998.......................... F-16
Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholders' Deficiency........................ F-17
Consolidated Statements of Cash Flows for the period from
inception (April 25, 1997) to December 31, 1997 and for
the year ended December 31, 1998.......................... F-18
Notes to Consolidated Financial Statements.................. F-19
TELESITE SERVICES, LLC
Report of Independent Auditors.............................. F-30
Consolidated Balance Sheet as of December 31, 1996.......... F-31
Consolidated Statements of Operations for the year ended
December 31, 1996 and for the period from January 1, 1997
through May 12, 1997...................................... F-32
Consolidated Statements of Members' Equity.................. F-33
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and for the period from January 1, 1997
through May 12, 1997...................................... F-34
Notes to Consolidated Financial Statements.................. F-35
WESTOWER CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at September 30, 1998
and June 30, 1999 (unaudited)............................. F-39
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended June 30, 1999 and
1998...................................................... F-40
Unaudited Condensed Consolidated Statements of Stockholders'
Equity for the nine months ended June 30, 1999............ F-41
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1999 and 1998.......... F-42
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-43
Reports of Independent Accountants.......................... F-50
Consolidated Balance Sheets as of February 28, 1997 and 1998
and September 30, 1998.................................... F-53
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-54
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-55
</TABLE>
F-1
<PAGE> 90
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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-56
Notes to Consolidated Financial Statements.................. F-57
CORD COMMUNICATIONS, INC.
Report of Independent Auditors.............................. F-77
Balance Sheets as of June 30, 1998 and 1997................. F-78
Statements of Operations for the years ended June 30, 1998
and 1997.................................................. F-79
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended June 30, 1998 and 1997.................... F-80
Statements of Cash Flows for the years ended June 30, 1998
and 1997.................................................. F-81
Notes to Financial Statements............................... F-82
SUMMIT COMMUNICATIONS, LLC
Report of Independent Accountants........................... F-90
Balance Sheets as of December 31, 1997 and September 30,
1998...................................................... F-92
Statements of Income for the period from May 24, 1997
(Inception) to December 31, 1997 and for the nine months
ended September 30, 1998.................................. F-93
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-94
Statements 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-95
Notes to Financial Statements............................... F-96
</TABLE>
F-2
<PAGE> 91
SPECTRASITE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30,1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 120,241 $ 99,548
Short-term investments.............................. -- 15,414
Accounts receivable................................. 24,721 3,353
Costs and estimated earnings in excess of
billings......................................... 7,314 --
Inventories......................................... 4,055 --
Prepaid expenses and other.......................... 2,825 253
---------- --------
Total current assets............................. 159,156 118,568
Property and equipment, net........................... 695,921 28,469
Goodwill and other intangible assets, net............. 257,834 12,757
Other assets.......................................... 56,755 2,152
---------- --------
Total assets..................................... $1,169,666 $161,946
========== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................... $ 24,548 $ 1,635
Accrued and other expenses.......................... 13,936 809
Billings in excess of costs and estimated
earnings......................................... 2,986 --
---------- --------
Total current liabilities........................ 41,470 2,444
Long term debt........................................ 155,718 --
Senior discount notes................................. 501,382 132,689
Other long-term liabilities........................... -- 224
---------- --------
Total liabilities................................ 698,570 135,357
---------- --------
Redeemable convertible preferred stock (Series A and
B).................................................. -- 40,656
---------- --------
Shareholders' equity (deficiency):
Common stock ($.001 par value) 95,000,000 and
20,000,000 shares authorized, 19,060,219 and 956,753
shares issued and outstanding as of September 30,
1999 and December 31, 1998, respectively............ 19 1
Convertible preferred stock (Series A, B and C)....... 339,494 --
Additional paid-in-capital............................ 209,376 --
Accumulated other comprehensive income................ 135 --
Accumulated deficit................................... (77,928) (14,068)
---------- --------
Total shareholders' equity (deficiency).......... 471,096 (14,067)
---------- --------
Total liabilities, redeemable preferred stock and
shareholders' equity (deficiency).............. $1,169,666 $161,946
========== ========
</TABLE>
F-3
<PAGE> 92
SPECTRASITE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Site leasing....................... $ 16,436 $ 170 $ 29,450 $ 211
Network services................. 9,644 1,520 13,967 5,154
-------- ------- -------- -------
Total revenues..................... 26,080 1,690 43,417 5,365
-------- ------- -------- -------
Operating expenses:
Costs of operations excluding
depreciation, amortization and
selling, general and
administrative expenses:
Site leasing.................. 5,463 117 10,490 143
Network services.............. 6,372 565 7,265 1,721
Selling, general and
administrative expenses....... 12,249 2,262 21,909 5,997
Depreciation and amortization
expense....................... 12,759 461 21,833 780
Restructuring and non-recurring
charges....................... 7,127 -- 7,727 --
-------- ------- -------- -------
Total operating expenses........... 43,970 3,405 69,224 8,641
-------- ------- -------- -------
Loss from operations............... (17,890) (1,715) (25,807) (3,276)
-------- ------- -------- -------
Other income (expense):
Interest income.................. 2,485 1,743 7,212 2,110
Interest expense................. (18,693) (3,898) (47,519) (4,335)
Other income (expense)........... (295) 208 (295) 473
-------- ------- -------- -------
Total other income
(expense)................... (16,503) (1,947) (40,602) (1,752)
-------- ------- -------- -------
Loss before income taxes........... (34,393) (3,662) (66,409) (5,028)
Income tax expense................. 107 -- 107 --
-------- ------- -------- -------
Net loss........................... $(34,500) $(3,662) $(66,516) $(5,028)
======== ======= ======== =======
Loss applicable to common
shareholders:
Net loss........................... $(34,500) $(3,662) $(66,516) $(5,028)
Accretion of redemption value of
preferred stock.................. -- (626) (760) (1,396)
-------- ------- -------- -------
Net loss applicable to common
shareholders..................... $(34,500) $(4,288) $(67,276) $(6,424)
======== ======= ======== =======
Net loss per common share (basic
and diluted)..................... $ (4.21) $ (4.53) $ (16.85) $ (6.86)
======== ======= ======== =======
Weighted average common shares
outstanding (basic and
diluted)......................... 8,188 947 3,993 937
======== ======= ======== =======
</TABLE>
F-4
<PAGE> 93
SPECTRASITE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE OTHER
CONVERTIBLE COMMON STOCK CONVERTIBLE COMPREHENSIVE
PREFERRED ------------------- PREFERRED ADDITIONAL INCOME
STOCK SHARES AMOUNT STOCK PAID-IN CAPITAL (LOSS)
----------- ---------- ------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... $ 40,656 956,753 $ 1 $ -- $ -- $ --
Net loss........................... -- -- -- -- -- (66,516)
Foreign currency translation
adjustment....................... -- -- -- -- -- 135
--------
Total comprehensive loss........... -- $(66,381)
========
Issuance of common stock........... -- 18,103,466 18 -- 215,927
Stock issuance costs............... -- -- -- -- (6,551)
Issuance of Series C preferred
stock............................ -- -- -- 301,494 --
Accretion of redemption value...... 760 -- -- -- --
Cancellation of redemption status
of preferred stock............... (41,416) -- -- 38,000 --
-------- ---------- --- -------- --------
Balance at September 30, 1999...... $ -- 19,060,219 $19 $339,494 $209,376
======== ========== === ======== ========
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE ACCUMULATED
INCOME (LOSS) DEFICIT TOTAL
----------------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1998....... $ -- $(14,068) $ (14,067)
Net loss........................... -- (66,516) (66,516)
Foreign currency translation
adjustment....................... 135 -- 135
Total comprehensive loss...........
Issuance of common stock........... -- -- (215,945)
Stock issuance costs............... -- -- (6,551)
Issuance of Series C preferred
stock............................ -- -- 301,494
Accretion of redemption value...... -- (760) (760)
Cancellation of redemption status
of preferred stock............... -- 3,416 41,416
---- -------- ---------
Balance at September 30, 1999...... $135 $(77,928) $(471,096)
==== ======== =========
</TABLE>
F-5
<PAGE> 94
SPECTRASITE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (66,516) $ (5,028)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 19,749 261
Amortization of goodwill and other intangibles............ 2,084 519
Amortization of debt issuances costs...................... 11,085 --
Amortization of senior discount notes..................... 28,689 3,915
Write-off of TeleSite goodwill............................ 6,178 --
Loss (gain) on sale of assets............................. 95 (472)
Changes in operating assets and liabilities net of
acquisitions:
Accounts receivable....................................... (3,859) 436
Costs and estimated earnings in excess of billings........ (552) --
Inventories............................................... (147) --
Prepaid expenses and other................................ (1,938) (149)
Accounts payable.......................................... 16,832 (1,217)
Other current liabilities................................. 8,372 (359)
Other, net.................................................. (338) --
--------- --------
Net cash provided by operating activities................... 19,734 340
--------- --------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (566,359) (12,496)
Deposits on asset purchases................................. (48,186) (11,750)
Purchase of short-term investments.......................... -- (45,561)
Maturities of short-term investments........................ 15,414 --
Acquisitions, net of cash acquired.......................... (78,720) (1,989)
Proceeds from sale of assets................................ 22 298
Other, net.................................................. (4,312) 150
--------- --------
Net cash used in investing activities....................... (682,141) (71,348)
--------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 900 --
Proceeds from issuance of preferred stock................... 231,494 28,000
Stock issuance costs........................................ (6,551) (359)
Proceeds from issuance of long-term debt.................... 150,052 --
Repayments of debt.......................................... (3,598) (2,952)
Proceeds from issuance of senior discount notes............. 340,004 125,000
Debt issuance costs......................................... (29,201) (4,711)
--------- --------
Net cash provided by financing activities................... 683,100 144,978
--------- --------
Net increase in cash and cash equivalents................... 20,693 73,970
Cash and cash equivalents at beginning of period............ 99,548 2,234
--------- --------
Cash and cash equivalents at end of period.................. 120,241 76,204
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 4,498 $ 211
========= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued for financing costs..................... $ 9,000 $ --
========= ========
Series C preferred stock issued for purchase of property and
equipment................................................. $ 70,000 $ --
========= ========
Common stock issued for purchase of Westower Corporation.... $ 205,559 $ --
========= ========
</TABLE>
F-6
<PAGE> 95
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SpectraSite Holdings, Inc. ("SpectraSite") and its wholly owned
subsidiaries (collectively referred to as the "Company") are principally engaged
in providing services to companies operating in the telecommunications industry,
including leasing of antenna sites on multi-tenant towers, network design, tower
construction and antenna installation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SpectraSite and its subsidiaries. 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 unaudited condensed
consolidated financial statements. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Site leasing revenues are recognized when earned. Escalation clauses
present in the lease agreements with the Company's customers are recognized on a
straight-line basis over the term of the lease. Service revenues from site
selection, construction and construction management activities are derived under
service contracts with customers which provide for billing on a time and
materials or fixed price basis. Revenues are recognized as services are
performed with respect to time and materials contracts. Revenues are recognized
using the percentage-of-completion method for fixed price contracts, measured by
the percentage of contract costs incurred to date compared to estimated total
contract costs. Costs in excess of billings on uncompleted contracts represent
revenues recognized in excess of amounts billed. Billings in excess of costs on
uncompleted contracts represent billings in excess of revenues recognized.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method and consist primarily of materials purchased for future
construction not associated with specific jobs
INVESTMENTS
Investments in entities in which the Company owns more than 20% but less
than 50% are accounted for using the equity method. Under the equity method, the
investment is stated at cost plus the Company's equity in net income (loss) of
the entity since acquisition. The equity in net income (loss) of such entity is
recorded in "Other income (expense)" in the accompanying condensed consolidated
statements of operations.
SIGNIFICANT CUSTOMERS
In the three and nine months ended September 30, 1999, one customer
accounted for 40.2% and 40.4% of the Company's revenues, respectively. In the
three and nine months ended September 30, 1998, a different customer accounted
for 41.2% and 42.2% of revenues, respectively. In addition, in the three months
ended September 30, 1998, two customers accounted for 21.9% and 10.1% of the
Company's revenues, respectively.
F-7
<PAGE> 96
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
RESTRUCTURING AND NON-RECURRING CHARGES
In September 1999, the Company announced that it would no longer directly
provide site acquisition services. As a result, the Company recorded
restructuring charges of $7.1 million, of which $6.2 million related to the
write-off of goodwill related to the purchase of TeleSite Services, LLC and $0.9
million is related to the costs of employee severance. In March 1999, the
Company 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, the Company recorded a
non-recurring charge of $0.6 million for employee termination and other costs
related to the relocation of these activities.
INCOME TAXES
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year for each tax
reporting entity. Cumulative adjustments to the Company's estimate are recorded
in the interim period in which a change in the estimated annual effective rate
is determined.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 condensed consolidated
financial statements to conform to the 1999 presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 quarters beginning after June
15, 2000. The Company has not yet determined the effect that the adoption of
SFAS 133 will have on its consolidated financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
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-K. 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.
F-8
<PAGE> 97
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Towers........................................ $667,333 $24,780
Equipment..................................... 6,293 823
Furniture and fixtures........................ 1,701 288
Other......................................... 11,444 212
-------- -------
686,771 26,103
Less accumulated depreciation................. (15,348) (870)
-------- -------
671,423 25,233
Construction in progress...................... 24,498 3,236
-------- -------
$695,921 $28,469
======== =======
</TABLE>
3. ACQUISITION ACTIVITIES
In September 1999, the Company consummated the Agreement and Plan of
Merger, dated as of May 15, 1999 with Westower Corporation ("Westower"). Under
the terms of the agreement, Westower shareholders received 1.81 shares of
SpectraSite common stock for each share of Westower common stock. In the
aggregate, SpectraSite exchanged 15.5 million shares of its common stock valued
at $205.6 million for 8.6 million shares of Westower common stock and assumed
$81.5 million of debt. The Company repaid $72.2 million of such assumed debt at
closing. In addition, the Company assumed the outstanding Westower employee
stock options, which were converted into options to purchase 1.7 million shares
of SpectraSite's common stock. The acquisition was accounted for as a purchase,
and the excess of cost over fair value of the net assets acquired is being
amortized on a straight-line basis over fifteen years. The operations of
Westower are included in the consolidated statement of operations from the date
of acquisition.
The pro forma unaudited results of operations for the nine months ended
September 30, 1999 and 1998, assuming the acquisition of Westower by the Company
and Westower's purchases of Cord Communications, Inc. and Summit Communications,
LLC had been consummated as of January 1, 1998, follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues..................................... $130,571 $ 60,613
Net loss..................................... $(81,860) $(17,834)
Basic and diluted net loss per common
share...................................... $ (4.65) $ (1.17)
</TABLE>
In April 1999, the Company purchased 2,000 communications towers from
Nextel Communications, Inc. ("Nextel") for $560.0 million in cash and shares of
SpectraSite's Series C preferred stock valued at $70.0 million. 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 offering of senior
discount notes and $231.5 million from the sale of SpectraSite's Series C
preferred stock to fund the cash purchase price, to pay related fees and
expenses and for general corporate purposes. 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.
F-9
<PAGE> 98
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
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.
In November 1999, the Company entered into an agreement to acquire 94
communication towers from DigiPH PCS, Inc. for $36 million in cash. The cash
consideration is expected to come from currently available funds. The
transaction is expected to close in the fourth quarter of 1999.
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Goodwill...................................... $227,048 $ 8,963
Debt issuance costs........................... 33,847 4,836
-------- -------
260,895 13,799
Less accumulated amortization................. (3,061) (1,042)
-------- -------
$257,834 $12,757
======== =======
</TABLE>
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Deposits...................................... $49,244 $1,750
Other......................................... 7,511 402
------- ------
$56,755 $2,152
======= ======
</TABLE>
6. DEBT
11.25% SENIOR DISCOUNT NOTES DUE 2009
In April 1999, SpectraSite issued $586.8 million aggregate principal amount
at maturity of senior discount notes due 2009 (the "2009 Notes") for gross
proceeds of $340.0 million. Interest on the 2009 Notes accretes daily at a rate
of 11.25% per annum, compounded semiannually, to an aggregate principal amount
of $586.8 million on April 15, 2004. Cash interest will not accrue on the 2009
Notes prior to April 15, 2004. Commencing April 15, 2004, cash interest will
accrue and be payable semiannually in arrears on each April 15 and October 15,
commencing October 15, 2004, at a rate of 11.25% per annum. After April 15,
2004, the Company may redeem all or a portion of the 2009 Notes at specified
redemption prices, plus accrued and unpaid interest, to the applicable
redemption date. On one or more occasions prior to April 15, 2002, the Company
may redeem up to 35% of the aggregate principal amount at maturity of the 2009
Notes with the net cash proceeds from one or more equity offerings. The
redemption price would be 111.25% of the accreted value on the redemption date.
The Company is required to comply with certain covenants under the terms of the
2009 Notes that restrict the Company's ability to incur additional indebtedness,
make certain payments and issue preferred stock, among other things.
F-10
<PAGE> 99
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
CREDIT FACILITY
In April 1999 in connection with the acquisition of communications towers
from Nextel, SpectraSite Communications, Inc. ("Communications"), a wholly-owned
subsidiary of SpectraSite, entered into a $500.0 million 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
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 through March 31, 2002, which requires that the amount
drawn 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 on June 30, 2002 through
December 31, 2005, $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 SpectraSite's stockholders 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 our 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 our 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.
We 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. We are required to pay a commitment fee of
0.50% per annum in respect of the undrawn portion of the revolving credit
facility.
We may be required to prepay the credit facility in part upon the
occurrence of certain events, such as a sale of assets, the incurrence of
certain additional indebtedness, the issuance of equity and the generation of
excess cash flow.
SpectraSite and each of Communications' subsidiaries has guaranteed the
obligations under the credit facility. The credit facility is further secured by
substantially all the tangible and intangible assets of Communications and its
subsidiaries and a pledge of all of the capital stock of Communications and its
subsidiaries.
The credit facility contains a number of covenants that, among other
things, restrict our ability 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, however, will be permitted to pay dividends after
July 15, 2003, for the purpose of paying interest on its 12% Senior Discount
Notes due 2008 and the 2009 Notes so long as no default under the credit
facility then exists or would exist after giving effect to such payment.
In addition, the credit facility requires compliance with certain financial
covenants, including requiring 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.
F-11
<PAGE> 100
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
7. SHAREHOLDERS' EQUITY
SERIES A AND B CONVERTIBLE PREFERRED STOCK
At December 31, 1998, the Company had mandatorily redeemable convertible
preferred stock consisting of Series A and Series B cumulative redeemable
preferred stock, each with a $0.001 par value, 10,462,830 shares authorized in
the aggregate and 3,462,830 and 7,000,000 shares issued and outstanding,
respectively. In connection with closing the Nextel tower acquisition,
provisions for dividends and redemption were eliminated with respect to the
Series A and Series B preferred stock. Previously accrued dividends have been
eliminated, and the outstanding balances have been reclassified as shareholders'
equity in the balance sheet as of September 30, 1999. Each share of Series A and
Series B preferred stock is convertible into one share of common stock and
entitles the holder to vote on an as-converted basis with holders of common
stock. In addition, contemporaneously with the closing of an underwritten public
offering of common stock resulting in gross proceeds of at least $150.0 million
at a per share price of $8.00 or greater, the outstanding shares of Series A and
Series B preferred stock shall automatically convert to common stock on a
share-for-share basis. 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.
SERIES C CONVERTIBLE PREFERRED STOCK
In connection with closing the Nextel tower acquisition, the Company sold
46,286,795 shares of Series C preferred stock at a price of $5.00 per share. In
addition, Nextel received 14 million shares of Series C preferred stock. At
September 30, 1999, the Company has 60,286,795 of $0.001 par value Series C
shares authorized, issued and outstanding. Each share of Series C preferred
stock is convertible into one share of common stock and entitles the holder to
vote on an as-converted basis with holders of common stock. In addition,
contemporaneously with the closing of an underwritten public offering of common
stock resulting in gross proceeds of at least $150.0 million at a per share
price of $8.00 or greater, the outstanding shares of Series C preferred stock
shall automatically convert to common stock. 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.
COMMON STOCK
In connection with the Nextel tower acquisition, SpectraSite also restated
its certificate of incorporation. The amended and restated certificate
authorized 95 million shares of common stock, $0.001 par value per share. In
addition, the Company increased the maximum number of shares for which options
may be granted under its stock option plan to 4.1 million.
In August 1999, SpectraSite amended its restated certificate of
incorporation to increase the authorized shares of common stock to 300 million.
In addition, SpectraSite increased the maximum number of shares for which
options may be granted under its stock option plan to 10 million and authorized
one million shares to be issued under the Employee Stock Purchase Plan.
8. BUSINESS SEGMENTS
The Company previously operated in one business segment. As a result of the
Westower acquisition, the Company now operates in two business segments, site
leasing and network services. Prior period information has been restated to
reflect the current business segments. The site leasing segment provides for
leasing and subleasing of antennae sites on multi-tenant towers for a diverse
range of wireless communication services, including personal communication
services, paging, cellular and microwave. The network services segment offers a
broad range of network development services, including network design, tower
construction and antenna installation.
F-12
<PAGE> 101
SPECTRASITE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
In evaluating financial performance, management focuses on operating profit
(loss), excluding depreciation and amortization and restructuring charges. This
measure of operating profit (loss) is also before interest income, interest
expense, other income (expense) and income taxes. All reported segment revenues
are generated from external customers as intersegment revenues are not
significant.
Summarized financial information concerning the reportable segments as of
and for the three and nine months ended September 30, 1999 and 1998 is shown in
the following table. The "Other" column represents amounts excluded from
specific segments, such as income taxes, corporate general and administrative
expenses, depreciation and amortization, restructuring and other non-recurring
charges and interest. In addition, "Other" also includes corporate assets such
as cash and cash equivalents, tangible and intangible assets and income tax
accounts which have not been allocated to a specific segment.
<TABLE>
<CAPTION>
SITE NETWORK
LEASING SERVICES OTHER TOTAL
-------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30,
1999
Revenues....................................... $ 16,436 $ 9,644 $ -- $ 26,080
Income (loss) before income taxes.............. 10,944 1,227 (46,564) (34,393)
Assets......................................... 691,820 44,832 433,014 1,169,666
1998
Revenues....................................... $ 170 $ 1,520 $ -- $ 1,690
Income (loss) before income taxes.............. 53 955 (4,670) (3,662)
Assets......................................... 25,865 -- 136,081 161,946
NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues....................................... $ 29,450 $13,967 $ -- $ 43,417
Income (loss) before income taxes.............. 18,930 4,658 (89,997) (66,409)
Assets......................................... 691,820 44,832 433,014 1,169,666
1998
Revenues....................................... $ 211 $ 5,154 $ -- $ 5,365
Income (loss) before income taxes.............. 68 3,433 (8,529) (5,028)
Assets......................................... 25,865 -- 136,081 161,946
</TABLE>
F-13
<PAGE> 102
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 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 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
Raleigh, North Carolina
February 26, 1999
F-14
<PAGE> 103
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,234 $ 99,548
Short-term investments.................................... -- 15,414
Accounts receivable....................................... 1,610 3,353
Prepaid expenses and other................................ 34 253
------- --------
Total current assets........................................ 3,878 118,568
Property and equipment, net................................. 1,176 28,469
Goodwill, less accumulated amortization of $278 and $798
respectively.............................................. 6,792 8,165
Deposits.................................................... 1,300 1,750
Investment in affiliate..................................... 336 --
Note receivable............................................. -- 273
Debt issuance costs, less accumulated amortization of
$244...................................................... -- 4,592
Other assets................................................ 160 129
------- --------
Total assets................................................ $13,642 $161,946
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS'
DEFICIENCY
Current liabilities:
Line of credit............................................ $ 629 $ --
Accounts payable.......................................... 1,049 1,635
Accrued and other expenses................................ 1,005 759
Deferred revenue.......................................... -- 32
Current portion of long-term debt......................... 26 18
------- --------
Total current liabilities................................... 2,709 2,444
Long-term debt, less current portion........................ 19 --
Other long-term liabilities................................. -- 224
Note payable to shareholder................................. 2,312 --
Senior discount notes....................................... -- 132,689
------- --------
Total liabilities........................................... 5,040 135,357
Series A redeemable convertible preferred stock, $0.001 par,
3,462,830 shares authorized, 3,462,830 outstanding........ 10,500 11,300
Series B redeemable convertible preferred stock, $0.001 par,
7,000,000 shares authorized, 7,000,000 outstanding........ -- 29,356
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.......................... 1 1
Additional paid-in-capital................................ 1,991 --
Accumulated deficit....................................... (3,890) (14,068)
------- --------
Total shareholders' deficiency.............................. (1,898) (14,067)
------- --------
Total liabilities, redeemable preferred stock and
shareholders' deficiency.................................. $13,642 $161,946
======= ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 104
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR
(APRIL 25, 1997) TO ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Revenues:
Site acquisition......................................... $ 5,002 $ 8,142
Site leasing........................................... -- 656
------- --------
Total revenues........................................... 5,002 8,798
Costs of operations:
Site acquisition....................................... 1,120 2,492
Site leasing (exclusive of depreciation presented
separately below)................................... -- 299
------- --------
1,120 2,791
Selling, general and administrative expenses............. 7,390 9,690
Depreciation and amortization expense.................... 489 1,268
------- --------
Operating loss........................................... (3,997) (4,951)
Other income (expense):
Equity in earnings of affiliate........................ 205 --
Interest income........................................ 122 3,569
Interest expense....................................... (164) (8,170)
Gain on sale of assets................................. -- 473
Other expense.......................................... (56) --
------- --------
107 (4,128)
------- --------
Net loss................................................. $(3,890) $ (9,079)
======= ========
Loss applicable to common shareholders:
Net loss................................................. $(3,890) $ (9,079)
Accretion of redemption value of preferred stock......... (500) (2,156)
------- --------
Net loss applicable to common shareholders............... $(4,390) $(11,235)
======= ========
Net loss per common share (basic and diluted)............ $ (5.21) $ (11.98)
======= ========
Weighted average common shares outstanding (basic and
diluted)............................................... 842 938
======= ========
</TABLE>
See accompanying notes.
F-16
<PAGE> 105
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDERS' DEFICIENCY
REDEEMABLE CONVERTIBLE --------------------------------------------
PREFERRED STOCK ADDITIONAL
----------------------------- COMMON PAID-IN ACCUMULATED
SERIES A SERIES B TOTAL STOCK CAPITAL DEFICIT TOTAL
-------- -------- ------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 25, 1997
(inception)................... $ -- $ -- $ -- $-- $ -- $ -- $ --
Issuance of common stock........ -- -- -- 1 2,281 -- 2,282
Issuance of warrants............ -- -- -- -- 390 -- 390
Issuance of preferred stock..... 10,000 -- 10,000 -- -- -- --
Stock issuance cost............. -- -- -- -- (180) -- (180)
Accretion of redemption value... 500 -- 500 -- (500) -- (500)
Net loss........................ -- -- -- -- -- (3,890) (3,890)
------- ------- ------- -- ------- -------- --------
Balance at December 31, 1997.... 10,500 -- 10,500 1 1,991 (3,890) (1,898)
Issuance of preferred stock..... -- 28,000 28,000 -- -- -- --
Stock issuance costs............ -- -- -- -- (434) -- (434)
Accretion of redemption value... 800 1,356 2,155 -- (1,557) (599) (2,156)
Repurchase of common stock...... -- -- -- -- -- (500) (500)
Net loss........................ -- -- -- -- -- (9,079) (9,079)
------- ------- ------- -- ------- -------- --------
Balance at December 31, 1998.... $11,300 $29,356 $40,656 $1 $ -- $(14,068) $(14,067)
======= ======= ======= == ======= ======== ========
</TABLE>
See accompanying notes.
F-17
<PAGE> 106
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(APRIL 25, 1997) TO YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
--------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,890) $ (9,079)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 191 712
Amortization of goodwill and other intangibles............ 298 556
Amortization of debt issuance costs....................... -- 244
Loss (gain) on sale of assets............................. 60 (473)
Equity in earnings of affiliate........................... (205) --
Amortization of discount--senior discount notes........... -- 7,689
Non-cash charge (Note 1).................................. 2,600 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (289) (1,451)
Interest receivable on short-term investments........... -- (759)
Prepaid expenses and other.............................. 136 (164)
Accounts payable........................................ 317 591
Accrued and other expenses.............................. 1,005 (213)
------- --------
Net cash provided by (used in) operating activities......... 223 (2,347)
INVESTING ACTIVITIES
Proceeds from note receivable............................... -- 41
Purchases of property and equipment......................... (850) (26,598)
Distribution from affiliate................................. -- 150
Purchases of investments.................................... -- (30,005)
Maturities of short-term investments........................ -- 15,350
Proceeds from sale of assets................................ -- 299
Repurchase of common stock.................................. -- (500)
Acquisitions, net of cash acquired.......................... (5,028) (1,989)
Deposits on acquisitions.................................... (1,300) (1,750)
------- --------
Net cash used in investing activities....................... (7,178) (45,002)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................... 10,000 28,000
Stock issuance costs........................................ (179) (434)
Proceeds from issuance of senior discount notes............. -- 125,000
Debt issuance costs......................................... -- (4,836)
Net repayments on line of credit............................ (568) (628)
Repayment of note to shareholder and other debt............. (64) (2,439)
------- --------
Net cash provided by financing activities................... 9,189 144,663
------- --------
Net increase in cash and cash equivalents................... 2,234 97,314
Cash and cash equivalents at beginning of period............ -- 2,234
------- --------
Cash and cash equivalents at end of period.................. $ 2,234 $ 99,548
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 64 $ 216
======= ========
Additional consideration (common stock) for acquisition..... $ -- $ 224
======= ========
</TABLE>
See accompanying notes.
F-18
<PAGE> 107
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-19
<PAGE> 108
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 of interest was capitalized for the year ended December
31, 1998. 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:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $2,234 $2,234 $ 99,548 $ 99,548
Short-term investments.................. -- -- 15,414 15,414
Senior Discount Notes................... -- -- (132,689) (114,871)
</TABLE>
F-20
<PAGE> 109
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
FOR THE PERIOD FROM PERCENT OF REVENUES PERCENT OF
APRIL 25, 1997 PERCENT OF ACCOUNTS FOR THE YEAR ACCOUNTS
(INCEPTION) TO RECEIVABLE AT ENDED RECEIVABLE AT
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
------------------- ------------------- ------------------- -----------------
<S> <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%
Customer 7........... -- -- -- 22.7%
</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.
EARNINGS PER SHARE
Basic net loss per common share is computed using net loss applicable to
common shareholders divided by the weighted average number of shares
outstanding. Diluted net loss per common share is identical to basic net loss
per common share due to the fact that the Company was operating at a net loss
position for the year ended December 31, 1998 and the period from inception
(April 25, 1997) to December 31, 1997.
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
F-21
<PAGE> 110
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-22
<PAGE> 111
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
------ -------
<S> <C> <C>
Towers.................................................. $ 167 $24,780
Equipment............................................... 466 823
Furniture and fixtures.................................. 250 288
Other................................................... 148 212
------ -------
Total................................................... 1,031 26,103
Less accumulated depreciation........................... (161) (870)
------ -------
870 25,233
Construction in progress................................ 306 3,236
------ -------
Property and equipment, net............................. $1,176 $28,469
====== =======
</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, the Company recorded amortization of debt discount of
approximately $7,689,000 related to the Senior Discount Notes as additional
interest expense.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
------------------
<S> <C>
Senior Discount Notes.................................... $225,238
Unamortized discount..................................... (92,549)
--------
Balance................................................ $132,689
========
</TABLE>
LINE OF CREDIT
During 1997, the Company maintained a $1.5 million line of credit with a
bank, which bore interest at prime plus 0.5%. The balance at December 31, 1997
was $628,561. The line of credit was repaid in full in March 1998.
F-23
<PAGE> 112
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER LONG-TERM DEBT
Long-term debt, other than the Senior Discount Notes, consists of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <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
Less current portion.................................... (25,404) 17,826
-------- -------
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.
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
F-24
<PAGE> 113
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
======== =======
</TABLE>
F-25
<PAGE> 114
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
DECEMBER 31,
1998
------------
<S> <C>
Convertible preferred stock........................... 10,462,830
Outstanding stock options............................. 1,567,900
Possible future issuance under stock option plans..... 249,800
----------
Total................................................. 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 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.
F-26
<PAGE> 115
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
F-27
<PAGE> 116
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
YEAR ENDED
DECEMBER 31, 1998
-------------------------
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<S> <C>
Net revenues................................ $11,055
Net loss.................................... (7,965)
</TABLE>
F-28
<PAGE> 117
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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. On September 2, 1999, the Westower stockholders approved the
merger, and Westower was merged with a wholly-owned subsidiary of SpectraSite.
As a result, Westower now operates as a subsidiary of the Company. In connection
with the merger, SpectraSite issued 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-29
<PAGE> 118
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-30
<PAGE> 119
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-31
<PAGE> 120
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-32
<PAGE> 121
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-33
<PAGE> 122
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS 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-34
<PAGE> 123
TELESITE SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
TeleSite Services, LLC (the "Company") was formed on August 1, 1995, for
the purpose of providing site development services, as agent, to companies
operating in the telecommunications industry. TeleSite's clients are located
primarily in the southeastern and south central regions of the United States.
MetroSite Management, LLC ("MetroSite") was formed on February 28, 1997 by
the contribution of $99 by the Company and $1 by a member of the Company for the
99% and 1% ownership of MetroSite, respectively. MetroSite was formed for the
purpose of negotiating agreements with municipalities to lease certain locations
to PCS providers (e.g., water towers, etc.) in return for a percentage of the
monthly rental amounts charged by the municipalities to the PCS providers.
PRINCIPLES OF CONSOLIDATION
The accompanying 1997 consolidated financial statements include the
accounts of TeleSite, LLC and MetroSite Management, LLC from the date of
MetroSite's formation. All significant intercompany transactions and balances
have been eliminated in consolidation. Minority interest related to the
membership interest not owned by the Company is insignificant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets ranging from three to seven years.
REVENUE RECOGNITION
Revenue from projects is recognized when site selection services are
rendered.
COST OF REVENUES
Cost of revenues consist of the direct costs incurred to provide the
related services.
SIGNIFICANT CONCENTRATIONS
The Company's customer base consists of companies operating in the
telecommunications industry. The Company's exposure to credit risk consists
primarily of unsecured accounts receivable from these customers.
F-35
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
AS OF AND FOR THE PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, TO
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-36
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land..................................................... $ 297,600
Equipment................................................ 304,148
Furniture and fixtures................................... 143,199
Vehicles................................................. 200,240
Leasehold improvements................................... 53,448
Construction in progress................................. 42,259
----------
Total.................................................... 1,040,894
Less accumulated depreciation............................ (109,603)
----------
Property and equipment, net.............................. $ 931,291
==========
</TABLE>
3. LINE OF CREDIT AND LONG-TERM DEBT
The Company has a maximum $1,500,000 line of credit with a bank, with an
outstanding balance of $946,724 at December 31, 1996. The line of credit bears
interest at a variable rate, not to exceed 10.0%, 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-37
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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-38
<PAGE> 127
WESTOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30,1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 4,204,000 $ 9,331,000
Accounts receivable, net.................................. 20,506,000 13,289,000
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 6,758,000 5,078,000
Inventory................................................. 3,133,000 2,151,000
Related party advances and receivables.................... 419,000 956,000
Income tax receivable..................................... 220,000 220,000
Other current assets...................................... 1,744,000 1,203,000
------------ -----------
Total current assets................................... 36,984,000 32,228,000
PROPERTY AND EQUIPMENT, net................................. 50,217,000 7,574,000
INTANGIBLE ASSETS, net...................................... 26,992,000 19,721,000
OTHER ASSETS................................................ 6,139,000 2,771,000
------------ -----------
TOTAL ASSETS................................................ $120,332,000 $62,294,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................... $ 8,374,000 $ 7,053,000
Other current liabilities................................. 1,909,000 2,810,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,586,000 1,435,000
Income taxes payable...................................... 2,450,000 2,116,000
Deferred income taxes..................................... 395,000 428,000
Stockholder advances and notes payable to related
parties................................................ 154,000 228,000
Note payable.............................................. 68,000 1,089,000
Current portion of long-term debt and capital lease
obligations............................................ 1,576,000 2,419,000
------------ -----------
Total current liabilities......................... 16,512,000 17,578,000
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, excluding
current portion........................................... 57,059,000 14,991,000
DEFERRED INCOME TAXES....................................... 2,977,000 2,962,000
------------ -----------
Total liabilities................................. 76,548,000 35,531,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 25,000,000 and 10,000,000
shares authorized, 8,562,000 and 7,047,000 shares
issued and outstanding at June 30, 1999 and September
30, 1998, respectively)................................ 85,000 70,000
Additional paid-in-capital................................ 39,818,000 22,610,000
Accumulated other comprehensive loss...................... (237,000) (581,000)
Retained earnings......................................... 4,118,000 4,664,000
------------ -----------
Total stockholders' equity........................ 43,784,000 26,763,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $120,332,000 $62,294,000
============ ===========
</TABLE>
F-39
<PAGE> 128
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CONTRACT AND OTHER REVENUES
EARNED........................... $25,184,000 $12,637,000 $ 68,455,000 $35,995,000
COSTS OF REVENUES EARNED (exclusive
of depreciation shown below)....... 17,688,000 9,609,000 48,418,000 26,659,000
----------- ----------- ------------- -----------
Gross profit..................... 7,496,000 3,028,000 20,037,000 9,336,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 5,128,000 1,640,000 13,385,000 4,827,000
DEPRECIATION AND AMORTIZATION...... 1,078,000 146,000 2,537,000 407,000
MERGER RELATED EXPENSES............ 1,519,000 250,000 1,596,000 250,000
----------- ----------- ------------- -----------
OPERATING INCOME (LOSS)............ (229,000) 992,000 2,519,000 3,852,000
OTHER INCOME (EXPENSE)
Other income (expense)........... (53,000) 41,000 220,000 157,000
Interest income.................. 21,000 75,000 152,000 187,000
Interest and financing expense... (928,000) (31,000) (2,051,000) (103,000)
----------- ----------- ------------- -----------
Total other income
(expense).............. (960,000) 85,000 (1,679,000) 241,000
----------- ----------- ------------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES..................... (1,189,000) 1,077,000 840,000 4,093,000
PROVISION FOR INCOME TAXES......... (503,000) (213,000) (1,386,000) (1,270,000)
----------- ----------- ------------- -----------
NET INCOME (LOSS).................. $(1,692,000) $ 864,000 $ (546,000) $ 2,823,000
=========== =========== ============= ===========
EARNINGS (LOSS) PER SHARE:
BASIC.............................. $ (0.20) $ 0.14 $ (0.07) $ 0.46
=========== =========== ============= ===========
DILUTED............................ $ (0.20) $ 0.13 $ (0.07) $ 0.39
=========== =========== ============= ===========
</TABLE>
F-40
<PAGE> 129
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) INCOME (LOSS) 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 loss................ (546,000) $(546,000)
Foreign currency
translation
adjustment............ 344,000 344,000
---------
Total comprehensive
loss.............. $(202,000) (202,000)
=========
Proceeds from warrants
and options exercised,
net................... 1,112,000 11,000 8,868,000 8,879,000
Stock issuances for
business
acquisitions.......... 403,000 4,000 8,280,000 8,284,000
Stock compensation
expense............... 60,000 60,000
--------- ------- ----------- ---------- --------- -----------
BALANCE, June 30,
1999.................. 8,562,000 $85,000 $39,818,000 $4,118,000 $(237,000) $43,784,000
========= ======= =========== ========== ========= ===========
</TABLE>
F-41
<PAGE> 130
WESTOWER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (546,000) $ 2,823,000
Adjustments to reconcile net income(loss) to net cash from
operating activities
Depreciation and amortization............................. 2,537,000 407,000
Gain on sale of assets.................................... (125,000)
Non-cash interest and financing expense................... 361,000 142,000
Earnings from equity investment........................... (142,000)
Stock compensation expense................................ 60,000 55,000
Changes in operating assets and liabilities, net of effect
of acquisitions
Accounts receivable....................................... (3,609,000) (646,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. (1,680,000) (1,138,000)
Inventory and other current assets........................ (1,333,000) (867,000)
Other assets.............................................. 13,000
Trade accounts payable.................................... 647,000 109,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 151,000 141,000
Other current liabilities................................. (1,023,000) 19,000
Income taxes payable...................................... 334,000 1,280,000
Current and deferred income taxes......................... (18,000) (57,000)
------------ -----------
Net cash flows (used in) provided by operating
activities............................................. (4,261,000) 2,156,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired.......... (6,583,000) (1,474,000)
Increase in other assets.................................. (2,700,000)
Purchases of property and equipment....................... (37,422,000) (1,405,000)
Proceeds from sale of assets.............................. 302,000
------------ -----------
Net cash flows used in investing activities............... (46,705,000) (2,577,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances, net........................ 8,878,000 8,934,000
Redemption of preferred stock............................. (150,000)
Proceeds from long-term debt.............................. 1,207,000 15,884,000
Repayments to related parties............................. (2,080,000) (1,972,000)
Repayments from (advances to) related parties............. 696,000 (101,000)
Borrowings (repayments) on line of credit, net............ (1,871,000) (245,000)
Proceeds from credit facility............................. 41,600,000
Distributions to stockholders of acquired subsidiaries
prior to acquisition................................... (2,800,000)
Additions to financing costs.............................. (490,000) (349,000)
Repayments of long-term debt.............................. (2,140,000) (476,000)
------------ -----------
Net cash flow from financing activities................... 45,800,000 18,725,000
------------ -----------
EFFECT OF EXCHANGE RATES.................................... 39,000 28,000
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (5,127,000) 18,332,000
CASH AND CASH EQUIVALENTS, beginning of period.............. 9,331,000 1,748,000
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,204,000 $20,080,000
============ ===========
</TABLE>
F-42
<PAGE> 131
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 June 30, 1999 and September 30, 1998 (audited), and for the three and nine
months ended June 30, 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 (loss) earnings from this investment
during the three and nine months ended June 30, 1999 was $(83,000) and $142,000,
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-43
<PAGE> 132
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(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>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
<S> <C> <C>
Buildings....................................... $ 1,883,000 $ 1,795,000
Vehicles........................................ 4,016,000 2,540,000
Equipment....................................... 2,851,000 1,580,000
Communications towers........................... 37,479,000 1,401,000
Furniture and fixtures.......................... 1,840,000 943,000
Leasehold improvements.......................... 161,000 81,000
Construction in progress........................ 3,534,000
----------- -----------
51,764,000 8,340,000
Less accumulated depreciation and
amortization.................................. (2,878,000) (1,562,000)
----------- -----------
48,886,000 6,778,000
Land............................................ 1,331,000 796,000
----------- -----------
$50,217,000 $ 7,574,000
=========== ===========
</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. In May 1999, the Company completed the acquisition of
certain communications towers under contract in October 1998, at an aggregate
cost of approximately $15.5 million.
NOTE 4--ACQUISITIONS
During the nine months ended June 30, 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
F-44
<PAGE> 133
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an additional 100,000 shares of common stock, based on certain performance
criteria during the three years following the date of acquisition. The
acquisition was accounted for using the purchase method for business
combinations resulting in goodwill of approximately $8.0 million.
On February 4, 1999 the Company completed the acquisition of Cypress Real
Estate Services, Inc. ("Cypress"), a Florida corporation. The acquisition was
effected by exchanging approximately 15,000 shares 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>
NINE MONTHS
ENDED
JUNE 30,
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>
JUNE 30,
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 nine months ended June
30, 1999 are revenues of $5,273,000 and $14,552,000, respectively, and operating
income of $668,000 and $2,028,000, respectively, from the dates of acquisition.
Goodwill is generally amortized over a 20 year period.
F-45
<PAGE> 134
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
<S> <C> <C>
Goodwill........................................ $27,864,000 $14,039,000
Communications tower purchase contract.......... -- 5,661,000
Non-compete agreements.......................... 355,000 219,000
----------- -----------
28,219,000 19,919,000
Less accumulated amortization................... (1,227,000) (198,000)
----------- -----------
$26,992,000 $19,721,000
=========== ===========
</TABLE>
NOTE 6--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
Deposits on tower purchase contracts............. $1,176,000 $ --
Equity investment in joint venture............... 1,189,000 217,000
Other noncurrent assets, net..................... 3,774,000 2,554,000
---------- ----------
$6,139,000 $2,771,000
========== ==========
</TABLE>
During the nine months ended June 30, 1999, the Company paid approximately
$1.2 million as deposits to acquire additional towers. Equity investment in
joint venture represents the Company's cash investment and the Company's equity
earnings from this investment
NOTE 7--LONG-TERM DEBT
During the nine months ended June 30, 1999, the Company borrowed an
aggregate $41.6 million under its credit facility with Bank Boston N.A. As of
June 30, 1999, the effective interest rate on borrowings under the facility was
approximately 7.75%. The Company borrowed an additional $8.0 million under the
facility subsequent to June 30, 1999. The facility is collateralized by
substantially all of the Company's assets. At June 30, 1999, the Company was in
compliance with all of its covenants with the exception of certain financial
ratio requirements related to cash flow. The Company has received a waiver from
the lenders waiving the right to demand repayment as a result of the violation.
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 nine months ended June 30, 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 nine months ended
June 30, 1999, the Company's underwriters exercised warrants, issued in
connection with the Company's initial public offering, resulting in the Company
receiving $1,123,000 on the exercise of warrants to purchase 162,000 shares of
common stock at $9 per share. At June 30, 1999, there were unexercised warrants
to purchase approximately 79,000 shares of common stock held by underwriters.
F-46
<PAGE> 135
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--EARNINGS (LOSS) PER SHARE
The numerators and denominators of basic and fully diluted earnings (loss)
per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Numerator--Net income(loss)
as reported............... $(1,692,000) $ 864,000 $ (546,000) $2,823,000
=========== ========== ========== ==========
Denominator--Weighted
average number of shares
outstanding:
Basic weighted average
number of shares....... 8,525,000 6,356,000 8,234,000 6,104,000
Effect of dilutive stock
options and warrants... 431,000 1,104,000
----------- ---------- ---------- ----------
Diluted weighted
average number of
shares............... 8,525,000 6,787,000 8,234,000 7,208,000
=========== ========== ========== ==========
</TABLE>
For the three and nine months ended June 30, 1999, all potential common
shares were excluded from the computation of diluted earnings (loss) per share
because inclusion would have had an anti-dilutive effect on earnings (loss) per
share. For the three months ended June 30, 1998, 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 calculations for the three and nine months ended June 30,
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 OF AND FOR THE NINE MONTHS ENDED JUNE 30,
---------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
1999
Contract and Other Revenues............. $68,455,000 $52,658,000 $15,797,000
Long-lived Assets..................... $50,217,000 $43,574,000 $ 6,643,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30,
---------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
1998
Contract and Other Revenues............. $35,995,000 $19,206,000 $16,789,000
Long-lived Assets..................... $ 4,854,000 $ 1,251,000 $ 3,603,000
</TABLE>
Long-lived assets are comprised of property and equipment and exclude
intangible assets.
F-47
<PAGE> 136
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The transaction was consummated on September 2, 1999
and under the terms of the agreement, Westower shareholders received 1.81 shares
of SpectraSite common stock for each Westower share. During the nine months
ended June 30, 1999, the Company incurred approximately $1.5 million in expenses
related to the merger, which included $750,000 paid to the Company's investment
advisors for services in connection with the merger. Under the terms of the
arrangement the Company paid an additional $2,250,000 to its investment advisors
at closing.
F-48
<PAGE> 137
[PAGE INTENTIONALLY LEFT BLANK.]
F-49
<PAGE> 138
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-50
<PAGE> 139
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-51
<PAGE> 140
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-52
<PAGE> 141
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-53
<PAGE> 142
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>
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
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<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
=========== =========== =========== =========== ===========
Pro forma 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-54
<PAGE> 143
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>
COMMON STOCK ACCUMULATED
------------------- 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 7 $ 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-55
<PAGE> 144
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>
SEVEN
SEVEN MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<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-56
<PAGE> 145
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.
F-57
<PAGE> 146
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-58
<PAGE> 147
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Foreign Currency Translation--All asset and liability accounts of
Canadian operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the average exchange rate during the
period. Foreign currency translation adjustments are reported as a component of
comprehensive income and stockholders' equity in the consolidated balance sheet.
Gains and losses resulting from foreign currency transactions are included in
income currently.
(m) Earnings Per Share and Change in Accounting Policy--During fiscal year
ended February 28, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. The new standard supersedes
Accounting Principles Board (APB) No. 15, Earnings Per Share and establishes
standards for computing and presenting earnings per share. Prior years have been
restated to conform with the new requirements.
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the period after giving retroactive effect
to stock dividends and stock splits. Diluted earnings per share amounts are
computed by determining the number of additional shares that are deemed
outstanding from stock options and warrants, using the treasury stock method,
and convertible debentures.
(n) Segment Information--In the Transition Period, the Company adopted SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 supersedes SFAS 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not significantly affect the disclosure of
segment information previously reported (see "Segment Information" note).
(o) New Accounting Standards--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Among other provisions, SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Gains and losses
resulting from changes in the fair values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This Statement becomes effective beginning June 15, 2000,
for the Company. The Company is currently assessing the impact, if any, to its
financial position or results of operations.
(p) Interim Financial Data (Unaudited)--As discussed in Note 1, on October
27, 1998 the Company changed its fiscal year end to September 30 from February
28. The information presented for the seven months ended September 30, 1997 is
unaudited. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim period have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the seven months
ended September 30, 1997 are not necessarily indicative of the results that were
reported for the entire fiscal year ending February 28, 1998.
NOTE 3--MERGERS AND ACQUISITIONS
MERGERS
Westower Holdings Ltd. Concurrent with its incorporation in June 1997, the
Company completed a merger with Westower Holdings Ltd. by issuing 3,000,000
shares of common stock in exchange for all outstanding common stock of Westower
Holdings Ltd. Westower Holdings Ltd. is a Wyoming corporation
F-59
<PAGE> 148
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
WTC Holdings, Inc. and Western Telecom Construction Ltd. Effective October
28, 1997, the Company completed a merger with WTC Holdings, Inc. (formerly
411677 Alberta Ltd.) and its wholly owned subsidiary, Western Telecom
Construction Ltd., (collectively, "Western Telecom"). WTC Holdings, Inc. was
wholly-owned by a relative of a significant stockholder and a director of
Westower Corporation. WTC Holdings, Inc. is a Wyoming corporation, and Western
Telecom Construction Ltd. is a Canadian corporation. Western Telecom engages in
operations similar to those of the Company. The merger was effected by
exchanging 835,000 shares of common stock for all outstanding common stock of
Western Telecom. The merger qualified as a tax-free exchange and has been
accounted for using the pooling-of-interests method for business combinations.
Accordingly, the consolidated financial statements for the fiscal years ended
February 29, 1996 and February 28, 1997 and 1998 and the Transition Period have
been restated to include the combined financial position, results of operations,
and cash flows of Western Telecom.
MJA Communications Corporation. Effective May 31, 1998, the Company
completed a merger with MJA Communications Corporation ("MJA"). MJA is a Florida
corporation which engages in operations similar to those of the Company. In
connection with the merger, MJA's tax status was changed from an S corporation
to a C corporation. The merger was effected by exchanging 397,000 shares of
common stock for all outstanding common stock of MJA. The merger qualified as a
tax-free exchange and has been accounted for using the pooling-of-interests
method for business combinations. Accordingly, the consolidated financial
statements for the fiscal years ended February 29, 1996 and February 28, 1997
and 1998 and the Transition Period have been restated to include the combined
financial position, results of operations, and cash flows of MJA.
Standby Services, Inc. Effective August 31, 1998, the Company completed a
merger with Standby Services, Inc. ("Standby"). Standby is a Texas corporation
which engages in operations similar to those of the Company. In connection with
the merger, Standby's tax status was changed from an S corporation to a C
corporation. The merger was effected by exchanging 544,000 shares of common
stock for all outstanding common stock of Standby. The merger qualified as a
tax-free exchange and has been accounted for using the pooling-of-interests
method for business combinations. Accordingly, the consolidated financial
statements for the fiscal years ended February 29, 1996 and February 28, 1997
and 1998 and the Transition Period have been restated to include the combined
financial position, results of operations, and cash flows of Standby.
Prior to the respective mergers, Western Telecom had a fiscal year-end of
January 31 and MJA and Standby had a fiscal year end of December 31. In
recording the business combinations, the fiscal years ended 1998 and 1997
financial statements have not been restated to conform with Westower
Corporation's previous fiscal year end of February 28, as the effect on the
consolidated financial statements is not material. As a result of Western
Telecom, MJA and Standby having a different fiscal year end and the change in
the Company's fiscal year end, Western Telecom and MJA and Standby's results of
operations for the respective one and two-month periods ended February 28, 1998
have been excluded from the reported results of operations in the Transition
Period and, therefore, have been presented as an adjustment to the Company's
consolidated statement of stockholders' equity for the Transition Period.
Aggregate revenues, expenses, income before extraordinary items and net income,
attributable to these mergers, which have been excluded from the Company's
reported results of operations in the Transition Period, were $3,302,000,
$2,864,000, $438,000 and $438,000, respectively, for the period from January 1,
1998 to February 28, 1998.
F-60
<PAGE> 149
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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>
YEAR SEVEN MONTHS SEVEN MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<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.
F-61
<PAGE> 150
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR SEVEN MONTHS SEVEN MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<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.
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.
F-62
<PAGE> 151
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-63
<PAGE> 152
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the periods presented, after including the impact of certain adjustments such as
amortization of intangible assets and income tax effects:
<TABLE>
<CAPTION>
SEVEN
MONTHS
YEAR ENDED ENDED
FEBRUARY 28, SEPTEMBER 30,
1998 1998
------------ -------------
(UNAUDITED) (UNAUDITED)
<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.
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>
F-64
<PAGE> 153
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-65
<PAGE> 154
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-66
<PAGE> 155
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
F-67
<PAGE> 156
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
</TABLE>
F-68
<PAGE> 157
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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>
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.
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>
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
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<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
========== ========== ========== ========== ==========
</TABLE>
F-69
<PAGE> 158
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
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
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Denominator--Weighted
average number of
shares outstanding
Basic weighted average
number of shares.... 4,776,000 4,776,000 5,263,000 4,776,000 6,531,000
Effect of dilutive
stock options and
warrants............ -- -- 331,000 -- 1,105,000
---------- ---------- ---------- ---------- ----------
Diluted weighted
average number of
shares............ 4,776,000 4,776,000 5,594,000 4,776,000 7,636,000
========== ========== ========== ========== ==========
</TABLE>
At September 30, 1998, 342,000 weighted-average shares associated with the
Convertible Debt discussed in Note 8 were excluded from the computation of
diluted earnings per share for the Transition Period because their inclusion
would have had an anti-dilutive effect on earnings per share. All other
potential common shares have been included in the diluted earnings per share
calculation. All potential common shares were included in the calculation of
diluted earnings per share for the years ended February 29, 1996 and February
28, 1997 and 1998.
NOTE 11--STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
During the year ended February 28, 1998, the Company merged with WTC
Holdings Ltd. and its wholly-owned subsidiary, Western Telecom Construction Ltd.
(collectively, "Western Telecom"). The merger was accounted for as a
pooling-of-interests and the February 28, 1997 financial statements have been
restated to include the accounts of Western Telecom. In February 1994, Western
Telecom issued 467 shares of Class A redeemable preferred stock. The preferred
stock ranked in priority to common stock in the event of 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.
F-70
<PAGE> 159
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK WARRANTS
In connection with its initial public offering in October 1997, the Company
issued stock warrants to purchase 1,380,000 shares of common stock of the
Company with an exercise price of $9.00 per share. The warrants contained a
provision whereby the Company could call for redemption of the warrants if the
closing price of the Company's common stock equaled or exceeded $15.00 for ten
consecutive days. During the Transition Period 559,000 warrants to purchase
559,000 shares of common stock were tendered for exercise with aggregate
proceeds of $4.79 million to the Company, net of commissions and related
expenses of $243,000. On September 29, 1998, the Company exercised its right to
call the remaining warrants, with a redemption date of October 30, 1998.
Subsequent to September 30, 1998 and prior to the redemption date, 819,000
warrants were tendered for conversion with gross proceeds of $7.37 million,
resulting in the cancellation of the remaining warrants which were not tendered.
NOTE 12--STOCK OPTIONS
The Company has two stock option plans that provide for the granting of
stock options to certain officers, employees, directors and consultants of the
Company and its subsidiaries. These options generally vest over a period of
three years from the date of grant (as determined by the Company's Compensation
Committee) and have a maximum exercise term of ten years from the date of grant.
The 1998 Stock Incentive Compensation Plan (the "1998 Plan") is the only plan
with stock option awards currently available for grant; a prior plan has stock
options exercisable at September 30, 1998 to purchase up to 400,000 shares of
common stock. The Company is authorized to grant options for up to ten percent
of the issued shares of common stock under the 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>
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- NUMBER WEIGHTED-
AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE 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>
F-71
<PAGE> 160
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-72
<PAGE> 161
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash paid for interest......... $ 91,000 $80,000 $ 107,000 $ 312,000
Cash paid for income taxes..... 128,000 77,000 177,000 280,000
Non-cash transactions
Stock issuances for business
acquisitions................. -- -- 1,184,000 8,100,000
</TABLE>
NOTE 14--RETIREMENT PLAN
The Company's subsidiary, Westower Communications Inc., adopted a defined
contribution retirement plan, effective January 1, 1997. The plan contains
certain participation criteria and allows for both employee and employer
discretionary contributions. The total Company funded discretionary contribution
for the years ended February 29, 1996 and February 28, 1997 and 1998 was $0,
$46,000 and $52,000, respectively. There were no employer contributions during
the Transition Period.
NOTE 15--RELATED PARTY TRANSACTIONS
ADVANCE TO RELATED PARTIES
During the fiscal year ended February 28, 1998, the Company advanced
$119,000 to a Canadian corporation owned by certain stockholders of Westower
Corporation. Proceeds were used by the Corporation 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.
F-73
<PAGE> 162
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES AND ADVANCES PAYABLE TO RELATED PARTIES
Notes and advances payable to related parties consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current
Unsecured advances and notes payable to
stockholders and officers, paid in
full during the Transition Period.. $ -- $ 871,000 $ --
Unsecured advances payable to officers
and stockholders, in Canadian
dollars, with no stated interest
rate and no specific repayment
terms, paid in full during the
Transition Period.................. -- 173,000 --
Unsecured advances payable to officers
and stockholders, with no stated
interest rate, and no specific
repayment terms.................... -- -- 228,000
Unsecured notes payable to officers
and stockholders, paid in full
during the transition period....... 672,000 1,000,000 --
-------- ---------- --------
$672,000 $2,044,000 $228,000
======== ========== ========
</TABLE>
FACILITY LEASES
Two subsidiaries acquired during the fiscal year ended February 28, 1998,
501053 B.C. Ltd. and National Tower Service Ltd., lease their operating
facilities, on a month-to-month basis, from Canadian corporations owned by
certain stockholders of Westower Corporation. Lease payments made during the
Transition Period 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.
F-74
<PAGE> 163
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
NOTE 17--CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit consist primarily of cash, cash equivalents and trade
accounts receivable. The Company places its temporary cash investments with a
major financial institution. At times, deposits with any one institution may
exceed federally insured limits. The Company extends credit to customers based
on evaluation of customer's financial condition and credit history. Collateral
is generally not required. Customers include large Canadian and U.S. companies
concentrated in the telecommunications industry.
Contract revenues from two customers accounted for 29% of revenues during
the fiscal year ended February 28, 1998, and one customer accounted for 56% of
revenues during the fiscal year ended February 28, 1997. Accounts receivable
from two customers comprise 48% of accounts receivable at February 28, 1998 and
one customer accounted for 39% of account receivable at February 28, 1997. There
were no customers who accounted for greater than 10% of sales for the Transition
Period and there were no customers with accounts receivable representing 10% or
more of the total accounts receivable at September 30, 1998.
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes the Company's financial results depend in significant part upon the
success of these customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have an adverse effect on the Company's
business, financial condition and results of operations.
NOTE 18--SEGMENT INFORMATION
The Company's operations are comprised of a number of communication tower
construction entities that were recently acquired. While management assesses the
operating results of each of these entities separately, 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>
F-75
<PAGE> 164
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues............... $41,662,000 $22,160,000 $19,502,000
Long-lived assets......................... $ 4,321,000 $ 1,196,000 $ 3,125,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------------
TOTAL UNITED STATES CANADA
----------- ------------- -----------
<S> <C> <C> <C>
Contract and other revenues............... $31,944,000 $19,982,000 $11,962,000
Long-lived assets......................... $ 7,574,000 $ 3,729,000 $ 3,845,000
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
excludes intangible assets.
NOTE 19--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, trade accounts receivable and
payable, and other current liabilities approximate their carrying amounts. The
fair values of advances to and from related parties approximate their fair value
due to the short term nature of the instruments. The fair values of long-term
debt, which are based on the present values of the underlying cash flows
discounted at the Company's incremental borrowing rates, are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Long-term debt.......................... $822,000 $794,000 $19,446,000
</TABLE>
NOTE 20--SUBSEQUENT EVENTS
On November 10, 1998 the Company completed the acquisition of Summit
Communications, LLC ("Summit"), a Mississippi limited liability company which
engages in operations similar to those of the Company. The merger was effected
by exchanging 200,000 shares of common stock valued at approximately $4.1
million, based on the publicly traded price, $4.4 million in cash, and the
assumption of certain liabilities, for all membership interests in Summit. The
former members of Summit may also receive an additional 100,000 shares of common
stock, based on certain performance criteria during the three years following
the date of acquisition. The acquisition was accounted for using the purchase
method for business combinations resulting in goodwill of approximately $8.0
million.
On October 30, 1998 the Company completed the acquisition of Teletronics
Management Services, Inc. ("Teletronics"). The acquisition was effected by
exchanging 188,000 shares of common stock valued at approximately $4 million,
based on the publicly traded price, $1 million in cash, and the assumption of
certain liabilities including distributions payable to former shareholders in
the amount of $800,000, for all outstanding 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-76
<PAGE> 165
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-77
<PAGE> 166
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-78
<PAGE> 167
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-79
<PAGE> 168
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-80
<PAGE> 169
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-81
<PAGE> 170
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-82
<PAGE> 171
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(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.
F-83
<PAGE> 172
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. NOTE PAYABLE
The Company has a line of credit with South Umpqua State Bank, which bears
interest at the Wall Street Journal's published prime rate plus 1%. The Company
may borrow up to $1,000,000 under the terms of the line of credit. The note is
collateralized by equipment, intangible assets, chattel paper accounts,
equipment, and general intangibles. The note payable is also personally
guaranteed by the stockholders of the 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>
AMOUNT
YEAR ENDING 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-84
<PAGE> 173
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(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-85
<PAGE> 174
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
F-86
<PAGE> 175
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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)
--------- -----------
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.
F-87
<PAGE> 176
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-88
<PAGE> 177
CORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-89
<PAGE> 178
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Summit Communications, LLC
In our opinion, the accompanying balance sheet and the related statements
of income, members' equity and cash flows present fairly, in all material
respects, the financial position of Summit Communications, LLC at September 30,
1998, and the results of its operations and its cash flows for the nine months
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Summit Communications, LLC for the Period of
Inception (May 24, 1997) to December 31, 1997 were audited by other independent
accountants whose report dated March 5, 1998 expressed an unqualified opinion on
those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
May 21, 1999
F-90
<PAGE> 179
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-91
<PAGE> 180
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-92
<PAGE> 181
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-93
<PAGE> 182
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-94
<PAGE> 183
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-95
<PAGE> 184
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.
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.
F-96
<PAGE> 185
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-97
<PAGE> 186
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-98
<PAGE> 187
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
F-99
<PAGE> 188
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-100
<PAGE> 189
SUMMIT COMMUNICATIONS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
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-101
<PAGE> 190
(This page intentionally left blank)
<PAGE> 191
[SPECTRASITE LOGO]
<PAGE> 192
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and we are not soliciting offers to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
PROSPECTUS (Subject to Completion)
Issued January 7, 2000
22,300,000 Shares
[SpectraSite Logo]
SpectraSite Holdings, Inc.
COMMON STOCK
------------------------
SPECTRASITE HOLDINGS, INC. IS OFFERING 22,300,000 SHARES OF ITS COMMON STOCK.
------------------------
OUR COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"SITE." ON JANUARY 6, 2000, THE REPORTED LAST SALE PRICE FOR OUR COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS $13 3/8 PER SHARE.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SPECTRASITE
-------- ------------- -----------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total............................. $ $ $
</TABLE>
SpectraSite Holdings, Inc. has granted the underwriters the right to purchase up
to an additional 3,345,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER GOLDMAN SACHS INTERNATIONAL
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK
LEHMAN BROTHERS
SALOMON SMITH BARNEY INTERNATIONAL
, 2000
<PAGE> 193
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee. All of these fees are being paid by SpectraSite.
<TABLE>
<S> <C>
Registration Fee............................................ $ 91,080
NASD Filing Fee............................................. 30,500
Blue Sky Fees and Expenses.................................. 5,000
Legal Fees and Expenses..................................... 600,000
Accounting Fees and Expenses................................ 350,000
Printing and Engraving Fees................................. 500,000
Miscellaneous............................................... 223,420
----------
Total....................................................... $1,800,000
==========
</TABLE>
ITEM 14. 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 15. RECENT SALES OF UNREGISTERED SECURITIES.
SpectraSite Holdings, Inc. ("Holdings") was formed in 1997 through the
combination of three existing companies: U.S. Towers, Inc., a Delaware
corporation ("UST"); TeleSite Services, LLC, an Arkansas limited liability
company ("TeleSite"); and MetroSite Management LLC, an Arkansas limited
liability company ("MetroSite").
(a) Prior to the date of this registration statement, Holdings has
issued and sold the following unregistered securities.
(1) Effective May 12, 1997, in connection with its formation,
Holdings issued (i) 850,000 shares of common stock and warrants to
purchase 150,000 shares of common stock to the original
II-1
<PAGE> 194
owners of UST and (ii) 490,517 shares of common stock to the original
owners of Telesite and MetroSite. Also in May 1997, Stephen H. Clark
agreed to invest additional personal funds into Holdings, and on April
20, 1999, Holdings sold Mr. Clark 210,000 shares of common stock for an
aggregate purchase price for $772,800.
(2) On May 12, 1997, Holdings sold 3,203,118 shares of its 8%
Series A Cumulative Convertible Redeemable Preferred Stock, $.001 par
value per share, which will automatically convert to common stock upon
the closing of this offering, to J.H. Whitney III, L.P. (the "JHWIII")
for an aggregate purchase price of $9.25 million and 259,712 shares of
its Series A preferred stock, to Kitty Hawk Capital Limited Partnership,
III for an aggregate purchase price of $750,000.
(3) On May 12, 1997, Holdings issued warrants to purchase 150,000
shares of common stock at a price of $ .001 per share in exchange for a
"corporate opportunity" in the tower business to PCX Corporation. These
warrants were later transferred and assigned to the shareholders of PCX.
On September 1, 1998, Holdings issued an aggregate of 150,000 shares of
common stock upon exercise of the warrants.
(4) In a series of transactions on March 23, August 27 and
September 21, 1998, Holdings sold an aggregate of 7,000,000 shares of
its Series B preferred stock, which will automatically convert to common
stock upon the closing of this offering, to Whitney Equity Partners,
L.P., J.H. Whitney III, L.P., Whitney Strategic Partners III, L.P.,
Waller-Sutton Media Partners, L.P., Kitty Hawk Capital Limited
Partnership, III, Kitty Hawk Capital Limited Partnership IV, Eagle Creek
Capital, L.L.C., The North Carolina Enterprise Fund, L.P., Finley Family
Limited Partnership, William R. Gupton, Jack W. Jackman and Alton D.
Eckert for an aggregate purchase price of $28 million to twelve
accredited investors.
(5) On June 26, 1998, Holdings sold $255.2 million in aggregate
principal amount at maturity of its 12% senior discount notes due 2008
to Credit Suisse First Boston Corporation, Lehman Brothers Inc. and CIBC
Oppenheimer Corp., as initial purchasers of the notes.
(6) On April 20, 1999, Holdings sold $586.8 million in aggregate
principal amount at maturity of its 11 1/4% senior discount notes due
2009 to CIBC Oppenheimer Corp., Credit Suisse First Boston Corporation,
Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc.
and TD Securities (USA), Inc., as initial purchasers of the notes.
(7) On April 20, 1999, Holdings an aggregate of 46,286,795 shares
of its Series C preferred stock, which will automatically convert to
common stock upon the closing of this offering, to 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 November 26, 1984 for the benefit of Eric Welsh, Trust
under an agreement dated November 26, 1984 for the benefit of Randall
Welsh, Trust under an agreement dated November 26, 1984 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. for an
aggregate purchase price of approximately $231.4 million.
(8) On April 20, 1999, Holdings issued 14,000,000 shares of its
Series C preferred stock, which will automatically convert to common
stock upon the closing of this offering, to Tower Parent Corp., a
subsidiary of Nextel Communications, Inc., as part of the consideration
paid for certain tower assets.
II-2
<PAGE> 195
(9) On April 20, 1999, Holdings issued two million shares of
common stock to certain stockholders for their commitment to provide
financing for the Nextel tower acquisition.
(10) On April 20, 1999, Holdings sold Michael Price 100,000 shares
of common stock.
(11) On December 30, 1999, Holdings issued 500,000 shares of
common stock to the stockholders of Doty-Moore Tower Services, Inc.,
Doty-Moore Equipment, Inc. and Doty Moore RF Services, Inc. in
connection with Holdings' acquisitions of Doty-Moore Tower Services,
Inc., Doty-Moore Equipment, Inc. and Doty Moore RF Services, Inc.
(12) On January 5, 2000, Holdings issued 225,000 shares of common
stock to the stockholders of Vertical Properties, Inc. in connection
with Holdings' acquisition of Vertical Properties, Inc.
(13) On January 5, 2000, Holdings issued 4,505,997 shares of
common stock to the stockholders of Apex Site Management Holdings, Inc.
and 1,670,000 shares of common stock into escrow in connection with
Holdings' acquisition of Apex Site Management Holdings, Inc.
(14) As of December 31, 1999, Holdings had issued 6,167,967
options to purchase shares of common stock to directors, employees and
consultants pursuant to Holdings' stock incentive plan, had cancelled
252,670 of such options, and had sold 200,006 shares of common stock
upon exercise of such options.
(b) Other than the initial purchasers identified in items 5 and 6,
there were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above.
(c) The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D or Regulation S promulgated thereunder
(with respect to items 1 through 13), or Rule 701 promulgated under Section
3(b) of the Securities Act (with respect to item 14) as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as
provided under such Rule 701. Other than with respect to items 5 and 6, the
recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the instruments representing such
securities issued in such transactions. All recipients had adequate access
to information about Holdings.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement
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").
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
2.2 Amendment No. 1 to the Nextel Merger Agreement. Incorporated
by reference to the corresponding exhibit to the
registration statement on Form S-4 of the Registrant, file
no. 333-67403.
2.3 Agreement and Plan of Merger among Westower Corporation,
SpectraSite Holdings, Inc. and W. Acquisition Corp., dated
as of May 15, 1999. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
2.4 Merger Agreement and Plan of Reorganization, dated as of
November 24, 1999, among SpectraSite Holdings, Inc. Apex
Merger Sub, Inc. and Apex Site Management Holdings, Inc.
2.5 Stock Purchase Agreement, dated as of December 30, 1999,
between Northwest Broadcasting, L.P. and SpectraSite
Holdings, Inc.
</TABLE>
II-3
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.6 Stock Purchase Agreement, dated as of December 30, 1999,
among Donald Doty, John Patrick Moore and SpectraSite
Holdings, Inc.
2.7 Merger Agreement and Plan of Reorganization, dated as of
December 30, 1999, among SpectraSite Holdings, Inc., VPI
Merger Sub, Inc., Vertical Properties, Inc. and the
stockholders of Vertical Properties, Inc.
3.1 Certificate of Incorporation of Integrated Site Development
("ISD"), dated and filed as of April 25, 1997. Incorporated
by reference to the corresponding exhibit to the
registration statement on Form S-4 of the Registrant, file
no. 333-67403.
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. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
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. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
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")).
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
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). Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
3.6 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of May 29, 1998 and filed June
2, 1998. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
3.7 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of August 18, 1998 and filed
August 19, 1998. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
*3.8 Amended Bylaws of SpectraSite Holdings, Inc.
3.9 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
3.10 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Registrant, dated August
31, 1999. Incorporated by reference to the corresponding
exhibit to the Form 8-K of the Registrant, dated September
2, 1999 and filed September 17, 1999.
4.1 Indenture, dated as of June 26, 1998, between the Registrant
and United States Trust Company of New York, as trustee.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
4.2 First Supplemental Indenture, dated as of March 25, 1999,
between the Registrant and United States Trust Company of
New York, as trustee. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
4.3 Indenture, dated as of April 20, 1999, between the
Registrant and United States Trust Company of New York, as
trustee. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
**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. Incorporated by reference to
the corresponding exhibit to the registration statement on
Form S-4 of the Registrant, file no. 333-67403.
</TABLE>
II-4
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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"). Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
10.3 First Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of May 29, 1998. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
10.4 Second Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of August 27, 1998. Incorporated
by reference to the corresponding exhibit to the
registration statement on Form S-4 of the Registrant, file
no. 333-67403.
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"). Incorporated
by reference to the corresponding exhibit to the
registration statement on Form S-4 of the Registrant, file
no. 333-67403.
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. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.7 Employment Agreement with Stephen H. Clark. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
10.8 Employment Agreement with David P. Tomick. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
10.9 Employment Agreement with Richard J. Byrne. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
10.10 Consulting Agreement with Finley & Co. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
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.
Incorporated by reference to exhibit 10.1 to the
registration statement on Form 8-A of the Registrant.
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. Incorporated by reference to
the corresponding exhibit to the registration statement on
Form S-4 of SpectraSite Holdings, file no. 333-67403.
10.13 First Amendment to the Membership Interests Purchase
Agreement, dated May 29, 1998. Incorporated by reference to
the corresponding exhibit to the registration statement on
Form S-4 of the Registrant, file no. 333-67403.
10.14 Purchase and Sale Agreement, dated as of February 20, 1998,
by and among the Registrant, Metrosite and Apex Site
Management, L.P. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.15 Letter Agreement, dated as of February 6, 1998, by and
between SCI and Whalen. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.16 SpectraSite Holdings, Inc. Stock Incentive Plan.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.17 SpectraSite Holdings, Inc. Employee Stock Purchase Plan.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
</TABLE>
II-5
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.18 Escrow Agreement, dated as of May 12, 1997, by and among.
ISD, Finley LP, and Morrison Cohen Singer & Weinstein, LLP
("Morrison Cohen"). Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.19 Option Escrow Agreement, dated as of May 12, 1997, by and
among Whitney LP, Kitty Hawk III and Morrison Cohen.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
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.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.21 Stock Restriction Agreement, dated as of May 12, 1997, by
and between ISD and Finley LP. Incorporated by reference to
the corresponding exhibit to the registration statement on
Form S-4 of the Registrant, file no. 333-67403.
10.22 Agreement, dated September 15, 1998, by and between Robert
M. Long and the Registrant. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.23 Asset Purchase Agreement, dated as of August 14, 1998 by and
among Airadigm Communications, Inc. ("Airadigm") and SCI.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.24 Form of Master Tower Attachment Lease Agreement by and
between Airadigm and SCI. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.25 Asset Purchase, dated as of August 20, 1998, by and among
Amica Wireless Phone Service, Inc. ("Amica") and SCI.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.26 Form of Master Design Build Lease Agreement by and between
Amica and SCI. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.27 Stock Contribution Agreement, dated as of May 12, 1997, by
and among ISD, Clark, Long and UST. Incorporated by
reference to the corresponding exhibit to the registration
statement on Form S-4 of the Registrant, file no. 333-67403.
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. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.29 Agreement and Plan of Merger, dated as of October 31, 1997,
by and between UST and SCI. Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
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. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
10.31 First Amendment to Preferred Stock Purchase Agreement
(Series C Preferred Stock). Incorporated by reference to the
corresponding exhibit to the registration statement on Form
S-4 of the Registrant, file no. 333-67403.
10.32 Security & Subordination Agreement, dated as of April
20,1999. Incorporated by reference to the corresponding
exhibit to the registration statement on Form S-4 of the
Registrant, file no. 333-67403.
10.33 Master Site Commitment Agreement, dated as of April 20,
1999. Incorporated by reference to the corresponding exhibit
to the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.34 Master Site Lease Agreement, dated as of April 20, 1999.
Incorporated by reference to the corresponding exhibit to
the registration statement on Form S-4 of the Registrant,
file no. 333-67403.
10.35 Employment Agreement with Calvin J. Payne. Incorporated by
reference to Exhibit 10.1 to the Form 8-K of the Registrant,
dated September 2, 1999 and filed September 17, 1999.
</TABLE>
II-6
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
**10.36 Joinder Agreement to SpectraSite Restated Registration
Rights Agreement.
21.1 Subsidiaries of the Registrant.
**23.1 Consent of Dow, Lohnes & Albertson, PLLC (contained in
Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP.
*23.3 Consent of PricewaterhouseCoopers LLP.
*23.4 Consent of Moss Adams LLP.
*23.5 Consent of Lamn, Krielow, Dytrych & Co. (formerly, Lamn,
Krielow, Dytrych & Darling).
*23.6 Consent of Shearer, Taylor & Co., P.A.
*24.1 Power of Attorney.
</TABLE>
- ------------
* Previously filed.
** To be filed by pre-effective amendment.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
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.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be anew 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.
II-7
<PAGE> 200
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
SPECTRASITE HOLDINGS, INC. HAS DULY CAUSED THIS AMENDMENT NO. 1 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 JANUARY 7,
2000.
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. 1 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 January 7, 2000
- ------------------------------------------ Director (Principal Executive Officer)
Stephen H. Clark
/s/ DAVID P. TOMICK Executive Vice President, Chief January 7, 2000
- ------------------------------------------ Financial Officer and Secretary
David P. Tomick (Principal Financial Officer)
* Executive Vice President--Design and January 7, 2000
- ------------------------------------------ Construction and Director
Calvin J. Payne
/s/ DANIEL I. HUNT Vice President--Finance and January 7, 2000
- ------------------------------------------ Administration (Principal Accounting
Daniel I. Hunt Officer)
* Chairman of the Board of Directors January 7, 2000
- ------------------------------------------
Lawrence B. Sorrel
* Director January 7, 2000
- ------------------------------------------
Timothy M. Donahue
* Director January 7, 2000
- ------------------------------------------
Andrew R. Heyer
* Director January 7, 2000
- ------------------------------------------
James R. Matthews
* Director January 7, 2000
- ------------------------------------------
Thomas E. McInerney
</TABLE>
II-8
<PAGE> 201
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director January 7, 2000
- ------------------------------------------
Michael J. Price
* Director January 7, 2000
- ------------------------------------------
Steven M. Shindler
* Director January 7, 2000
- ------------------------------------------
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-9
<PAGE> 1
Exhibit 2.4
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
AMONG
SPECTRASITE HOLDINGS INC.,
APEX MERGER SUB, INC.,
AND
APEX SITE MANAGEMENT HOLDINGS, INC.
November 24, 1999
<PAGE> 2
TABLE OF CONTENTS
Section Page
1. Definitions...........................................................1
2. The Merger............................................................8
(a) The Merger...................................................8
(b) Certificate of Incorporation; Bylaws; Directors and Officers.8
(c) Effects of the Merger........................................9
(d) Manner of Conversion of Stock................................9
(e) Escrow Deposit; Merger Consideration........................10
(f) Exchange of Certificates and Payment of Cash................13
(g) Manner of Payment and Delivery..............................14
(h) Post-Closing Merger Consideration Adjustment................14
(i) The Closing.................................................15
(j) Deliveries at the Closing...................................15
3. Representations and Warranties of the Buyer and Newco................15
(a) Organization of the Buyer and Newco.........................16
(b) Authorization of Transaction................................16
(c) Noncontravention............................................16
(d) Brokers'Fees................................................16
(e) Investment..................................................16
(f) Legal Compliance............................................16
(g) Absence of Litigation.......................................16
(h) Environment, Health, and Safety.............................17
(i) Share Validity..............................................17
(j) Securities Law Compliance...................................17
(k) Public Filings..............................................18
(l) Tax Matters.................................................18
(m) No Material Adverse Change..................................19
4. Representations and Warranties Concerning Holdings, the Company and its
Subsidiaries........................................................19
(a) Organization, Qualification, and Corporate Power............19
(b) Capitalization of Holdings..................................19
(c) Noncontravention; Consents..................................20
(d) Brokers'Fees................................................20
(e) Title to Assets.............................................20
(f) The Company and the Subsidiaries............................21
(g) Financial Statements........................................21
(h) Events Subsequent to Most Recent Fiscal Year End............22
i
<PAGE> 3
(i) Undisclosed Liabilities.....................................24
(j) Legal Compliance............................................24
(k) Tax Matters.................................................24
(l) Sites; Management Agreements; Tenant Agreements.............26
(m) Intellectual Property.......................................27
(n) Contracts...................................................28
(o) Notes and Accounts Receivable...............................29
(p) Insurance...................................................29
(q) Litigation..................................................30
(r) Employees...................................................30
(s) Employee Benefits...........................................30
(t) Guaranties..................................................32
(u) Environment, Health, and Safety.............................32
(v) Bank Accounts and Credit................................... 33
(w) Certain Business Relationships with Holdings, the Company
and theSubsidiaries.........................................33
(x) Disclosure..................................................33
(y) Authorization of Transaction................................33
(z) Delivery of Tax Opinion.....................................33
5. Pre-Closing Covenants................................................34
(a) Notices and Consents........................................34
(b) Hart-Scott-Rodino Act Filing................................34
(c) Operation of Business.......................................34
(d) Preservation of Business; Retention of Records..............34
(e) Full Access.................................................35
(f) Notice of Developments......................................35
(g) Exclusivity.................................................36
(h) Employees...................................................36
(i) Confidentiality.............................................36
(j) Termination of Interests....................................37
(k) Distribution of BLEC........................................37
(l) Receipt of Releases.........................................37
(m) Restricted Activities.......................................37
(n) Registration Rights Agreement...............................37
(o) Delivery of Tax Returns.....................................38
(p) Conversion of Options.......................................38
(r) General.....................................................39
6. Post-Closing Covenants...............................................39
(a) General.....................................................39
(b) Restrictions on Sale of Buyer Shares; Delivery of Investor
Representation Letter......................................40
(c) Treatment as a Tax-Free Reorganization......................40
ii
<PAGE> 4
(d) Filing of Registration Statement............................41
7. Conditions to Obligation to Close....................................41
(a) Conditions to Obligation of the Buyer.......................41
(b) Conditions to Obligation of Holdings........................43
8. Remedies for Breaches of this Agreement..............................44
(a) Survival of Representations and Warranties..................44
(b) Indemnification Provisions for Benefit of the Buyer.........44
(c) Indemnification Provisions for Benefit of the Stockholders..45
(d) Procedures for Claims Between the Parties...................45
(e) Defense of Third-Party Actions..............................46
(f) Indemnification Limitations.................................46
9. Termination..........................................................47
(a) Termination of Agreement....................................47
(b) Effect of Termination.......................................48
10. Miscellaneous........................................................48
(a) Press Releases and Public Announcements.....................48
(b) No Third-Party Beneficiaries................................48
(c) Succession and Assignment...................................48
(d) Counterparts; Facsimile Signatures..........................48
(e) Headings....................................................49
(f) Notices.....................................................49
(g) Governing Law...............................................51
(h) Amendments and Waivers......................................51
(i) Severability................................................51
(j) Expenses....................................................52
(k) Incorporation of Exhibits, Annexes, and Schedules...........52
(l) Specific Performance........................................52
(m) Non-Recourse to Certain Persons.............................52
(n) Stockholder Representatives.................................52
iii
<PAGE> 5
Exhibits and Schedules
Exhibits
Exhibit A Form of Employment Agreements
Exhibit B Form of Escrow Agreement
Disclosure Schedule
ss.3(c) Buyer Consents
ss.4(a) Directors and Executive Officers
ss.4(b) Capitalization of Holdings
ss.4(c)(ii) Noncontravention; Consents
ss.4(f) Subsidiaries
ss.4(h)(ii) Obligations in Excess of $50,000
ss.4(h)(iii) Acceleration, Termination, Modification or Cancellation
ss.4(h)(iv) Security Interests
ss.4(h)(v) Capital Expenditures
ss.4(h)(vi) Investments
ss.4(h)(vii) Indebtedness
ss.4(h)(xii) Rights to Purchase Capital Stock
ss.4(h)(xii) Dividends and Capital Distributions
ss.4(i) Undisclosed Liabilities
ss. 4(k) Tax Matters
ss.4(l) Real Property; Sites; Management Agreements, Lease
Agreements, Government Agreements, Tenant Agreements
ss.4(m)(iii) Intellectual Property Registrations
ss.4(m)(iv) Intellectual Property
ss.4(n) Material Contracts
ss.4(p) Insurance
ss.4(p)(v) Self-Insurance Arrangements
ss.4(q) Litigation
ss.4(r) Employees
ss.4(s) Employee Benefit Plans
ss.4(v) Bank Accounts
ss.4(w) Affiliate Transactions
ss.5(a)(ii) Material Consents
ss.5(c) Operation of Business
ss.5(h) Employment Agreements
iv
<PAGE> 6
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
This agreement (the "Agreement") is entered into as of November 24,
1999, by and among SpectraSite Holdings Inc., a Delaware corporation (the
"Buyer"), Apex Merger Sub, Inc., a Delaware corporation and a newly-formed,
wholly-owned subsidiary of the Buyer ("Newco"), and Apex Site Management
Holdings, Inc., a Delaware corporation ("Holdings"). The Buyer, Newco and
Holdings are sometimes referred to individually herein as a "Party" and together
as the "Parties."
Holdings owns all of the outstanding capital stock of Apex Site
Management, Inc., a Delaware corporation (the "Company"). The Company is engaged
in the telecommunications site management business (the "Business").
This Agreement contemplates a transaction in which Newco will merge
with and into Holdings (the "Merger") pursuant to this Agreement, the
Certificate of Merger (as defined in ss.2(a)) and the applicable provisions of
the laws of the State of Delaware.
The Boards of Directors of each of the Buyer, Newco and Holdings have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (as hereinafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Additional Buyer Shares" has the meaning set forth in ss.2(h) below.
"Affiliate" has the meaning set forth in Rule 501(b) of the regulations
promulgated under the Securities Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504, or any similar group defined under a similar provision of state,
local or foreign law.
"Agreement" has the meaning set forth in the preface above.
"Anticipated Closing Date" has the meaning set forth in ss.2(i) below.
"Applicable Laws" shall mean any law, rule, regulation, order,
judgment, or determination of any Governmental Authority, or any restrictive
covenant or deed restriction
<PAGE> 7
(recorded or otherwise) applicable to Holdings, the Business of the Company or
any Subsidiary, including the rules and regulations of the Federal Aviation
Administration and the Federal Communications Commission.
"Assets" means all assets of Holdings, the Company and its
Subsidiaries, including the Equipment, the Management Agreements, the Lease
Agreements, the Government Agreements, and the Tenant Agreements.
"BLEC" has the meaning set forth in ss.5(k) below.
"Business" has the meaning set forth in the preface above.
"Business Day" means any day other than a Saturday, Sunday, legal
holiday in the Commonwealth of Pennsylvania or other day of the year on which
banks in the Commonwealth of Pennsylvania are authorized or required by
Applicable Laws to close.
"Buyer" has the meaning set forth in the preface above.
"Buyer Balance Sheet" has the meaning set forth in ss.3(k)(i) below.
"Buyer Balance Sheet Date" has the meaning set forth in ss.3(k)(i)
below.
"Buyer Shares" has the meaning set forth in ss.2(e)(ii) below.
"Certificate of Merger" has the meaning set forth in ss.2(a) below.
"Certificates" has the meaning set forth in ss.2(f)(ii) below.
"Claim" has the meaning set forth in ss.8(d) below.
"Claimant " has the meaning set forth in ss.8(d) below.
"Claim Notice" has the meaning set forth in ss.8(d) below.
"Closing" has the meaning set forth in ss.2(i) below.
"Closing Cash Payment" has the meaning set forth in ss.2(e)(v) below.
"Closing Date" has the meaning set forth in ss.2(i) below.
2
<PAGE> 8
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Compensation Arrangement" has the meaning set forth in ss.4(s)(i)
below.
"Confidential Information" means any confidential and proprietary
knowledge and information concerning the Business of the Company and its
Subsidiaries that is not already generally available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code
Sec. 1563.
"Deductible" has the meaning set forth in ss.8(f)(i) below.
"DGCL" has the meaning set forth in ss.2(b)(i) below.
"Direction Letter" has the meaning set forth in ss.2(g)(iii) below.
"Dissenting Stockholder" has the meaning set forth in ss.2(d)(vi)
below.
"Effective Time" has the meaning set forth in ss.2(i) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"Equipment" means all equipment owned by the Company and its
Subsidiaries.
3
<PAGE> 9
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in ss.4(s)(ii) below.
"Escrow Agent" has the meaning set forth in ss.2(e)(i) below.
"Escrow Agreement" has the meaning set forth in ss.2(e)(i) below.
"Escrow Deposit" has the meaning set forth in ss.2(e)(i) below.
"Excess Loss Account" has the meaning set forth in Treas. Reg.
ss.1.1502-19.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986,
as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in ss.4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Government Agreements" means all agreements with a Governmental
Authority providing for the Company's or any Subsidiary's management or lease of
any Site.
"Governmental Authority" means any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency, commission or
regulatory or administrative authority or instrumentality.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"Holdback Shares" has the meaning set forth in ss.2(e)(vii) below.
"Holdings" has the meaning set forth in the preface above.
"Holdings Share(s)" means any share or shares of the capital stock of
Holdings, including all shares of common stock and preferred stock.
"includes", "including" or other equivalent words mean "including,
without limitation".
"Indemnifying Party" has the meaning set forth in ss.8(d) below.
4
<PAGE> 10
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations- in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Intercompany Transaction" has the meaning set forth in Treas. Reg.
ss.1.1502-13.
"Knowledge" means actual knowledge of Marc C. Ganzi, Alexander L.
Gellman, Richard B. Stern, Harry Oppenheimer and Benjamin Long.
"Lease Agreements" means all agreements providing for the Company's or
any Subsidiary's lease of any Sites.
"Lender" means General Electric Capital Corporation, pursuant to the
terms of the Credit Agreement, dated as of April 21, 1999, among the Company,
the Lender and certain other parties.
"Liability" means any liability (whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"Lock-Up Agreement" has the meaning set forth in ss.6(b) below.
"Losses" means all losses, Taxes, liabilities, damages, injunctions,
judgments, orders, decrees, rulings, fines, settlements, lawsuits (including
administrative proceedings), deficiencies, claims, demands, costs or expenses,
including interest, penalties and reasonable attorneys' fees and disbursements.
"Management Agreements" means all agreements providing for the
Company's or any Subsidiary's management of any Site.
5
<PAGE> 11
"Material Adverse Change" means a change or set of circumstances or
conditions that has had or is reasonably likely to result in a Material Adverse
Effect.
"Material Adverse Effect" means a material adverse effect on the
business, financial condition, assets, operations, liabilities or results of
operation of the Person, business or assets specified; provided, however, that
neither (i) the effects of any events, circumstances or conditions resulting
from changes, developments or circumstances in worldwide or national conditions
(political, economic, regulatory or otherwise) that adversely affect the markets
where the Sites are located or adversely affect industries related to the
telecommunications business generally (including proposed legislation or
regulation by any Governmental Authority or the introduction of any
technological changes in the telecommunications industry), or adversely affect a
broad group of industries generally, nor (ii) any effects of competition, shall
constitute a Material Adverse Effect.
"Material Consents" has the meaning set forth in ss.5(a)(ii) below.
"Material Contract" has the meaning set forth in ss.4(n) below.
"Measurement Date" has the meaning set forth in ss.2(h) below.
"Merger" has the meaning set forth in the preface above.
"Merger Consideration" has the meaning set forth in ss.2(e)(ii) below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in ss.4(g)
below.
"Most Recent Fiscal Month End" has the meaning set forth in ss.4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in ss.4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Newco" has the meaning set forth in the preface above.
"New Options" has the meaning set forth ss.6(p)(i) below.
"Optionee" has the meaning set forth in ss.6(p) below.
"Options" has the meaning set forth in ss.6(p) below.
6
<PAGE> 12
"Ordinary Course of Business" means the ordinary course of business of
the Company and its Subsidiaries consistent with past custom and practice
(including with respect to quantity and frequency).
"Party(ies)" has the meaning set forth in the preface above.
"Payoff Amount" has the meaning set forth in ss.2(e)(vi) below.
"Payoff Letter" has the meaning set forth in ss.2(e)(vi) below.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Interest" means (a) liens for Taxes not yet due and payable
or for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings and for which an adequate reserve has been established, (b) any
lease and any Security Interest arising out of deposits made to secure leases or
other obligations of a like nature arising in the Ordinary Course of Business,
(c) any easements, rights of way, restrictions, installations or public
utilities, title imperfections and restrictions, reservations in land patents or
zoning ordinances that do not materially interfere with the use by the Company
of the property subject thereto or affected thereby, (d) mechanic's,
materialmen's, and similar liens for sums not yet due, (e) purchase money liens
and liens securing rental payments under capital lease arrangements that are
listed in ss.4(n) of the Disclosure Schedule, and (f) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money or capitalized leases and that do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of the Business.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a governmental entity (or any department, agency, or political
subdivision thereof), or any other entity.
"Post-Closing Average" has the meaning set forth in ss.2(h) below.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"Registration Rights Agreement" has the meaning set forth in
ss.2(e)(iv) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"SEC" has the meaning set forth in ss.3(k)(i) below.
"SEC Documents" has the meaning set forth in ss.3(k)(i) below.
7
<PAGE> 13
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest.
"Sites" means all communications sites where the Company or its
Subsidiaries conducts its Business.
"Stockholder(s)" means the holder(s) of shares of capital stock of
Holdings listed in ss.4(b) of the Disclosure Schedule.
"Stockholder Representative Agreement" has the meaning set forth in
ss.10(n) below.
"Stockholder Representatives" has the meaning set forth in ss.10(n)
below.
"Subsidiary" or "Subsidiaries" means any Person in which Holdings,
directly or indirectly through another Person, beneficially owns more than fifty
percent (50%) of either the equity interests in, or the control of, such Person,
including each of the entities listed in ss.4(f) of the Disclosure Schedule.
"Surviving Corporation" has the meaning set forth in ss.2(a) below.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind imposed by any Governmental
Authority, including: federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
(and any interest in respect of such penalty), or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
information return or other statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"Tenant Agreements" means all agreements providing for end user
tenants' operations on the Sites.
"Third Party Action" has the meaning set forth in ss.8(e) below.
8
<PAGE> 14
"Third Party Action Notice" has the meaning set forth in ss.8(e) below.
2. The Merger.
(a) The Merger. On and subject to the terms and conditions of this Agreement, at
the Effective Time, Newco shall be merged with and into Holdings pursuant to
this Agreement and the Certificate of Merger (the "Certificate of Merger") to be
filed in the Office of the Secretary of State of the State of Delaware, and the
separate corporate existence of Newco shall cease. Holdings, as it exists from
and after the Effective Time, is sometimes referred to as the "Surviving
Corporation."
(b) Certificate of Incorporation; Bylaws; Directors and Officers. At the
Effective Time:
(i) The Certificate of Incorporation of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as did the
Certificate of Incorporation of Newco immediately prior to the Effective Time
(except that the name of the Surviving Corporation will remain unchanged),
unless and until thereafter amended as provided therein and under the General
Corporation Law of the State of Delaware (the "DGCL").
(ii) The Bylaws of the Surviving Corporation shall be amended and restated at
and as of the Effective Time to read as did the Bylaws of Newco immediately
prior to the Effective Time (except that the name of the Surviving Corporation
will remain unchanged), unless and until thereafter amended as provided therein
and under the DGCL.
(iii) The directors and officers of the Surviving Corporation shall be the
individuals designated by the Buyer, until their successors are elected and
qualified.
(c) Effects of the Merger. The Merger shall have the effects provided therefor
by the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time (i) all the rights, privileges, immunities,
powers and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including without limitation subscriptions to shares, and all other choses in
action, and all and every other interest of or belonging to or due to Holdings
or Newco shall be taken and deemed to be transferred to, and vested in, the
Surviving Corporation without further act or deed; and all property, rights and
privileges, immunities, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation, as
they were of Holdings and Newco, and (ii) all debts, liabilities, duties and
obligations of Holdings and Newco shall become the debts, liabilities, duties
and obligations of the Surviving Corporation and the Surviving Corporation shall
thenceforth be responsible and liable for all the debts, liabilities, duties and
obligations of Holdings and Newco and neither the rights of creditors nor any
liens upon the property of Holdings or Newco shall be impaired by the Merger,
and may be enforced against the Surviving Corporation.
9
<PAGE> 15
(d) Manner of Conversion of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Buyer, Newco or Holdings, the
shares of capital stock of the Parties shall be converted as follows:
(i) Capital Stock of Newco. Each issued and outstanding share of capital stock
of Newco shall be converted into and exchanged for one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(ii) Cancellation of Certain Shares of Capital Stock of Holdings. All shares of
capital stock of Holdings that are owned directly or indirectly by Holdings
shall be canceled and no consideration shall be delivered in exchange therefor.
(iii) Conversion of Certain Other Shares of Capital Stock of Holdings. All of
the issued and outstanding Holdings Shares (other than shares to be canceled
pursuant to ss.2(d)(ii) and other than shares held by Dissenting Stockholders),
that are issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive the Merger Consideration set forth in
ss.2(e)(ii) hereof. Each issued and outstanding option to purchase Holdings
Shares that is issued and outstanding immediately prior to the Effective Time
shall be converted as set forth in ss.6(p) hereof.
(iv) Fractional Shares. No fractional Buyer Shares shall be issued pursuant to
this Agreement, but in lieu thereof each holder of Holdings Shares who would
otherwise be entitled to receive a fraction of a Buyer Share shall receive from
the Buyer the whole number of Buyer Shares measured by rounding the fraction up
or down to the nearest whole share.
(v) Adjustments to Buyer Shares. If, on or prior to the Effective Time, the
Buyer should split or combine its common stock, or pay a stock dividend or other
stock distribution in its common stock, or otherwise change the common stock
into any other securities, or make any other dividend or distribution on the
common stock (other than normal quarterly dividends, as the same may be adjusted
from time to time and in the ordinary course), then the number of Buyer Shares
issuable as the Merger Consideration will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change.
(vi) Appraisal Rights. If any Stockholder (a "Dissenting Stockholder")
perfects such Stockholder's right to seek an appraisal under the DGCL, the
Merger Consideration to be delivered hereunder shall be adjusted as set forth in
this ss.2(d)(vi). The Holdings Shares held by such Dissenting Stockholder will
not be converted as set forth herein and the Buyer shall not deliver the pro
rata portion of the Merger Consideration that would otherwise be delivered to
such Stockholder, but instead will retain such Merger Consideration to satisfy
any appraisal obligations the Buyer might have to the Dissenting Stockholder. If
the pro rata portion of the Merger Consideration held by the Buyer has a value
greater than the amount of the Buyer's
10
<PAGE> 16
appraisal obligation, then the Buyer shall retain such excess. If the pro rata
portion of the Merger Consideration held by the Buyer is insufficient to satisfy
the Buyer's appraisal obligations under the DGCL, the Buyer shall be entitled to
indemnification for the amount of the deficiency, as set forth in ss.8 hereof.
The Stockholder Representatives shall have the right to participate in all
proceedings with respect to any such appraisal procedure. If such Dissenting
Stockholder shall have effectively withdrawn or lost the right to receive an
appraisal under the DGCL, the Holdings Shares held by such Stockholder shall
then be deemed to have been converted into and to have become exchangeable for,
as of the Effective Time, the right to receive its pro rata share of the Merger
Consideration, without any interest thereon, in accordance with ss.2.
(e) Escrow Deposit; Merger Consideration.
(i) Escrow Deposit. On November 26, 1999, the Buyer will deliver to First Union
National Bank, as escrow agent (the "Escrow Agent"), $3,000,000 in cash, which
amount (including, unless otherwise stated herein, any interest earned thereon,
the "Escrow Deposit") shall be held by the Escrow Agent pursuant to the terms of
the Escrow Agreement attached hereto as Exhibit B (the "Escrow Agreement"). The
parties acknowledge and agree that time is of the essence in delivering the
Escrow Deposit to the Escrow Agent hereunder.
(ii) Merger Consideration. The Buyer agrees to deliver to the Stockholder
Representatives for distribution to the Stockholders or the Stockholders'
designee, 4,807,612 shares of unregistered common stock, par value $.001 per
share of the Buyer, which number shall be subject to adjustment as set forth
herein (as so adjusted, the "Buyer Shares" and collectively, including any Buyer
Shares delivered pursuant to ss.2(h), the "Merger Consideration").
(iii) Adjustment of New Options. For purposes of this ss.2(e)(iii), the
following definitions shall apply:
"Fair Market Value" means the fair market value of a share of common
stock of the Buyer on the Closing Date.
"Adjustment Ratio" means $12.59 divided by the Fair Market Value.
"Adjusted Option Shares" shall mean the Adjustment Ratio multiplied by
202,000.
"Holdings Exercise Price" means $3.76.
If, at the Closing, the Adjustment Ratio must be greater than 1.04917
to avoid a charge against earnings or variable accounting treatment with respect
to the New Options, then the number of Buyer Shares to be issued at the Closing
as set forth herein shall be reduced by the Buyer Share Adjustment, calculated
pursuant to the following formula:
11
<PAGE> 17
(1) Adjusted Option Shares x (Fair Market Value - (Holdings
Exercise Price / Adjustment Ratio) = Aggregate Option Value
(2) Aggregate Option Value / Fair Market Value = Adjusted
Aggregate Shares
(3) 1/2 x (Adjusted Aggregate Shares - 148,638) = Buyer Share
Adjustment.
(iv) Registration Rights Agreement. Holdings acknowledges and agrees that on the
Closing Date, the Buyer Shares will be not be registered under the Securities
Act. The Buyer Shares will be subject to the terms of a registration rights
agreement to be entered into as of the Closing Date among the Buyer and certain
parties (the "Registration Rights Agreement"), as more specifically set forth in
ss.5(n) hereof.
(v) Option to Receive Cash. No later than three (3) Business Days prior to the
Anticipated Closing Date, the Stockholder Representatives may notify the Buyer
that the Stockholders elect to receive up to 18% of the Merger Consideration in
cash (the "Closing Cash Payment"); provided, however, that in no event shall the
Closing Cash Payment exceed the lesser of (A) $4,500,000 or (B) an amount which,
when added to the cash to be paid to Stockholders exercising their appraisal
rights under the DGCL, will equal or exceed 19% of the Merger Consideration. If
the Stockholders elect to receive the Closing Cash Payment, the number of Buyer
Shares to be delivered to the Stockholders as Merger Consideration shall be
reduced by the quotient of the Closing Cash Payment divided by twelve (12).
(vi) Payoff of Amounts Due to Lender and Others.
(A) The Buyer agrees to pay up to $2,000,000, plus any amount borrowed as set
forth in this ss.2(v) (the "Payoff Amount") to the Lender at the Closing in
accordance with the terms of a payoff letter in a form reasonably satisfactory
to the Parties (the "Payoff Letter"). If the Effective Time is on or prior to
December 31, 1999, then on the Closing Date, the Buyer will loan to Holdings an
amount sufficient to pay year-end bonuses to be paid to employees of the
Company, in an amount not to exceed $465,000 in the aggregate, and in accordance
with written instructions to be delivered by the Stockholder Representatives to
the Buyer no later than three (3) Business Days prior to the Anticipated Closing
Date. If the Effective Time is after December 31, 1999, Holdings may draw down
sufficient funds under its credit facility with Lender to pay such year-end
bonuses to employees of the Company, in an amount not to exceed $465,000 in the
aggregate, and the amount of the funds borrowed will be included in the Payoff
Amount.
(B) Any amount due to the Lender by the Company at the Effective Time in excess
of (i) $2,465,000 if Holdings has borrowed funds from the Lender to pay employee
bonuses as set forth in ss.2(e)(vi) or (ii) $2,000,000 if the Buyer has loaned
funds to Holdings to pay employee bonuses as set forth in ss.2(e)(vi), will be
included in the Payoff Amount and reduce the Merger Consideration to be
delivered hereunder. Such reduction will be
12
<PAGE> 18
first from the Closing Cash Payment, if any, and then from the Buyer Shares. If
such reduction is made in Buyer Shares, the number of Buyer Shares deliverable
at Closing will be reduced by the quotient of the difference between the amount
due to the Lender as set forth in the Payoff Letter and $2,465,000 or
$2,000,000, as appropriate, divided by twelve (12).
(C) The Buyer may elect to repay in full, concurrently with the Closing, any
capitalized lease obligations of Holdings.
(D) The Buyer may elect to pay any sums necessary to release Security Interests,
which payments shall reduce the Merger Consideration to be delivered hereunder
(other than amounts covered by the Payoff Letter). Such reduction will be first
from the Closing Cash Payment, if any, and then from the Buyer Shares. If such
reduction is made in Buyer Shares, the number of Buyer Shares deliverable at
Closing will be reduced by the quotient of the dollar amount of such payment
divided by twelve (12).
(vii) Holdback Shares. At the Closing, the Buyer shall deliver 250,000 Buyer
Shares issued in the name of the Escrow Agent, on behalf of the Stockholder
Representatives (the "Holdback Shares") to the Escrow Agent to be held pursuant
to the terms of the Escrow Agreement. The Holdback Shares shall be available as
security for any payment due to the Buyer pursuant to ss.8 of this Agreement.
The Holdback Shares shall be distributed by the Escrow Agent pursuant to the
terms of the Escrow Agreement.
(f)Exchange of Certificates and Payment of Cash.
(i) Delivery of Consideration. At the Closing, in exchange for the outstanding
Holdings Shares (other than Holdings Shares held by Dissenting Stockholders),
the Buyer shall cause to be made available to the Stockholders or their designee
the Merger Consideration, with all cash payments to be made by federal wire
transfer of immediately available funds pursuant to wire transfer instructions
provided by the Stockholder Representatives at least three (3) Business Days
prior to the Anticipated Closing Date.
(ii) Certificate Delivery Requirements. At the Effective Time, the Stockholder
Representatives on behalf of the Stockholders shall deliver to the Buyer the
certificates (the "Certificates") representing Holdings Shares owned by each
Stockholder, accompanied by blank stock powers duly executed and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled. The Stockholder Representatives on behalf of the
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be canceled. Until delivered as contemplated by this ss.2(f)(ii), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the number of Buyer Shares as
provided by this Agreement and the applicable provisions of the DGCL.
13
<PAGE> 19
(iii) No Further Ownership Rights in Capital Stock of Holdings. All Buyer Shares
and cash to be delivered upon the surrender of certificates representing
Holdings Shares in accordance with the terms hereof (including any additional
Buyer Shares delivered pursuant to ss.2(h) hereof) shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such Holdings Shares,
and, following the Effective Time, the Stockholders shall have no further rights
to, or ownership in, shares of capital stock of Holdings. There shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Holdings Shares which were issued and outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this ss.2(f).
(iv) Lost, Stolen or Destroyed Certificates. If any Certificates evidencing
Holdings Shares shall have been lost, stolen or destroyed, then the Buyer shall
deliver a portion of the Merger Consideration in exchange for such lost, stolen
or destroyed certificates, upon the delivery to the Buyer of an affidavit of
that fact by the holder thereof; provided, however, that the Buyer may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver an
indemnification agreement without a bond having such terms as it may reasonably
direct as indemnity against any claim that may be made against the Buyer with
respect to the certificates alleged to have been lost, stolen or destroyed.
(g) Manner of Payment and Delivery. At Closing:
(i) Concurrently with the Closing, the Buyer shall pay to the Lender by wire
transfer of immediately available funds to such banks and accounts thereat as
shall be specified in the Payoff Letter an amount equal to the Payoff Amount.
(ii) The Buyer shall deliver to the Stockholder Representatives (or to any other
Person as the Stockholder Representatives may direct in writing) (A) the Buyer
Shares less the Holdback Shares (issued in the names and denominations
designated by the Stockholder Representatives to the Buyer no later than three
(3) Business Days prior to the Anticipated Closing Date), and (B) if the
Stockholders so elect, the Closing Cash Payment by wire transfer of immediately
available funds to such banks and accounts thereat as shall be specified in
writing by the Stockholder Representatives at least three (3) Business Days
prior to the Anticipated Closing Date, for distribution to the Stockholders or
the Stockholders' designee.
(iii) The Buyer and the Stockholder Representatives shall direct the Escrow
Agent in writing (the "Direction Letter") to deliver to the Buyer the Escrow
Deposit.
(h) Post-Closing Merger Consideration Adjustment. The number of Buyer Shares to
be delivered hereunder shall be subject to adjustment as set forth herein. The
adjustment set forth in this ss.2(h) shall be calculated on the date (the
"Measurement Date") that is the earlier to occur of (i) the date that is 180
days after the Closing Date, if the Buyer has not
14
<PAGE> 20
consummated an initial public offering of its common stock within such 180-day
period and (ii) the date that is 180 days after the expiration of the
restrictions on transfer in the Lock-Up Agreement, if the Buyer shall have
consummated an initial public offering of its common stock within 180 days after
the Closing Date. On the Measurement Date, the Buyer and the Stockholder
Representatives shall calculate the average of the closing share prices (the
"Post-Closing Average") of the Buyer common stock for the thirty (30) trading
day period ended on the last trading day immediately prior to the Measurement
Date. If the Post-Closing Average is $12.00 per share or higher, there shall be
no adjustment to the number of Buyer Shares to be delivered as part of the
Merger Consideration hereunder. If the Post-Closing Average is less than $9.00
per share, the Buyer shall deliver to the Stockholder Representatives for
distribution to the Stockholders an additional 1,670,000 Buyer Shares. If the
Post-Closing Average is equal to or higher than $9.00 per share, and lower than
$12.00 per share, the Buyer shall deliver to the Stockholder Representatives for
distribution to the Stockholders, a number of additional Buyer Shares equal to
(A) the quotient obtained by dividing $60,000,000 by the Post-Closing Average,
minus (B) 5,000,000. The number of Buyer Shares to be delivered as set forth in
this ss.2(h) shall be reduced by the same pro rata portion that the Merger
Consideration was reduced pursuant to ss.2(d)(vi). The Buyer shall issue
1,670,000 Buyer Shares into escrow on the Closing Date (the "Additional Buyer
Shares") which shall be released to the Buyer or the Stockholders'
Representatives, as appropriate, promptly following the Measurement Date. The
Buyer shall not be entitled to set off against any additional Buyer Shares to be
delivered hereunder any amounts claimed by the Buyer to be owed under ss.8
hereof or otherwise.
(i) The Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Kleinbard, Bell & Brecker
LLP, 1900 Market Street, Suite 700, Philadelphia, PA 19103, commencing at 9:00
a.m. local time on the second Business Day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself) (any such date being
referred to herein as the "Anticipated Closing Date") or such other date as the
Buyer and the Stockholder Representatives may mutually determine. The date on
which the Closing shall occur is referred to in this Agreement as the "Closing
Date"; provided, however, that the Closing Date shall be no later than January
14, 2000. On the Closing Date, the Certificate of Merger, or other appropriate
documents executed in accordance with the DGCL, together with any required
officers' certificates, shall be filed in accordance with the provisions of the
DGCL. The Merger shall become effective upon such filings or at such later time
as may be specified in such filings (the "Effective Time").
(j) Deliveries at the Closing. At the Closing, (i) Holdings will deliver to the
Buyer the various certificates, instruments, and documents referred to in
ss.7(a) below, (ii) the Buyer will deliver to the Stockholder Representatives on
behalf of the Stockholders the various certificates, instruments, and documents
referred to in ss.7(b) below, (iii) the Stockholder Representatives on behalf of
the Stockholders will deliver to the Buyer, free and clear of all liens, stock
certificates representing all of the Holdings Shares (or affidavits of lost
certificates, as
15
<PAGE> 21
described in ss.2(f)(iv)), endorsed in blank or accompanied by duly executed
assignment documents, (iv) the Buyer will deliver to the Stockholder
Representatives for distribution to the Stockholders or the Stockholders'
designee, the Buyer Shares less the Holdback Shares and, if applicable, the
Closing Cash Payment, (v) the Buyer will deliver to the Stockholder
Representatives for distribution to the Optionees, the New Options, (vi) the
Stockholder Representatives and the Buyer will deliver to the Escrow Agent the
Direction Letter, (vii) the Buyer will deliver the Holdback Shares to the Escrow
Agent, (viii) the Stockholder Representatives will deliver to the Buyer the
Payoff Letter signed by the Lender, (ix) the Buyer will deliver to the Lender
the Payoff Amount and (x) the Parties will deliver the Certificate of Merger for
filing in the office of the Secretary of State of the State of Delaware pursuant
to the DGCL,. In addition to the foregoing, at the Closing, the Stockholder
Representatives shall deliver to the Buyer (x) originals of all Management
Agreements, Lease Agreements, Government Agreements and Tenant Agreements, (y)
the entire corporate books and records of Holdings, the Company and each
Subsidiary from the dates of incorporation through the Closing, including the
Certificates of Incorporation or Formation, Bylaws and minutes of meetings of
Holdings, the Company and each Subsidiary, if any, and (z) the resignations of
all directors, officers and employees of Holdings, the Company and each
Subsidiary, other than the resignations described in ss.7(a)(ix) hereof.
3. Representations and Warranties of the Buyer and Newco. The Buyer and Newco,
jointly and severally, represent and warrant to Holdings as follows:
(a) Organization of the Buyer and Newco. Each of the Buyer and Newco is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction. Each of the Buyer and Newco has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer and Newco, enforceable in accordance with its terms and
conditions, subject to bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditors' rights generally.
Except for any notices that may be required to be filed pursuant to the
Hart-Scott-Rodino Act, under federal securities laws or under state securities
or blue sky laws, neither the Buyer nor Newco need give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
Governmental Authority in order to consummate the transactions contemplated by
this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (A) violate
any injunction, judgment, order, decree, ruling, charge, or other restriction of
any Governmental Authority to which the Buyer or Newco is subject or any
provision of its charter or bylaws or (B) subject to the receipt of the consents
listed in ss.3(c) of the Disclosure Schedule, violate, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right
16
<PAGE> 22
to accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer or Newco is a party or by which it is bound or to which any of its
assets is subject.
(d) Brokers Fees. Neither the Buyer nor Newco has any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Holdings could become
liable or obligated.
(e) Investment. The Buyer and Newco are not acquiring Holdings Shares with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
(f) Legal Compliance. Each of the Buyer, Newco and, to the Knowledge of the
Buyer, their predecessors and Affiliates have complied in all respects with all
Applicable Laws, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply, except where the failure so to
comply would not have a Material Adverse Effect on the Buyer.
(g) Absence of Litigation. Except as disclosed in the Buyer's SEC Documents,
neither the Buyer nor Newco is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge and is not a party, or to the knowledge of the
Buyer, is not threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any Governmental Authority or before
any arbitrator, except where such injunction, judgment, order, decree, ruling,
charge, action, suit, proceeding, hearing or investigation would not have a
Material Adverse Effect on the Buyer.
(h) Environment, Health, and Safety.
(i) Each of the Buyer, Newco and, to the knowledge of the Buyer, their
respective predecessors and Affiliates, has complied with all Environmental,
Health, and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply, except where
any non-compliance would not have a Material Adverse Effect on the Buyer.
Without limiting the generality of the preceding sentence, each of the Buyer and
Newco and, to the knowledge of the Buyer, their respective predecessors and
Affiliates has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are required
under all Environmental, Health, and Safety Laws, except where any
non-compliance would not have a Material Adverse Effect on the Buyer.
(ii) To the Buyer's knowledge, neither the Buyer nor Newco has any Liability
(and the Buyer, Newco and their respective Affiliates have not handled
or disposed of any substance or arranged for the disposal of any substance
giving rise to any Liability) for
17
<PAGE> 23
damage to any site where the Buyer or Newco operates its business, location, or
body of water (surface or subsurface), for any illness of or personal injury to
any employee or other individual, arising under any reason under any
Environmental, Health, and Safety Law, where such Liability would have a
Material Adverse Effect on the Buyer.
(i) Share Validity. The Buyer Shares and the shares issuable upon exercise of
the New Options shall be, upon issuance in accordance with this Agreement or the
New Options, as applicable, duly authorized, validly issued, fully paid and
nonassessable, and free and clear of any liens and preemptive and other similar
rights.
(j) Securities Law Compliance. The Buyer has given the Stockholder
Representatives and their agents, and agrees to continue to give the Stockholder
Representatives and their agents through the Closing Date, the opportunity to
ask questions of, and receive answers from, executive officers of the Buyer
concerning the Buyer and the Buyer Shares. Neither the Buyer nor, to the Buyer's
knowledge, any Person acting on its behalf has, in connection with the Buyer
Shares offered hereby, engaged in (A) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (B) any action involving a public offering within the
meaning of Section 4(2) of the Securities Act, or (C) any action that would
require the registration under the Securities Act of the offering and sale of
the Buyer Shares pursuant to this Agreement or that would violate applicable
state securities or "Blue Sky" laws. The Buyer has not made and will not prior
to the Closing make, directly or indirectly, any offer or sale of securities of
the same or a similar class as the Buyer Shares if as a result the offer and
sale of the Buyer Shares contemplated hereby would fail to be entitled to
exemption from the registration requirements of the Securities Act. As used in
this ss.3(j), the terms "offer" and "sale" have the meanings specified in
Section 2(3) of the Securities Act.
(k) Public Filings.
(i) The Buyer has made available (or will make available within ten (10) days
after the execution of this Agreement) to Holdings true and complete copies of
its quarterly report on Form 10-Q for fiscal quarter ended September 30, 1999
and all current reports on Form 8-K and other documents filed since January 1,
1999 (collectively, the "SEC Documents") and will make available to Holdings any
similar SEC Documents filed with the U.S. Securities and Exchange Commission
(the "SEC") on or before the Closing Date. As of their respective filing dates,
each SEC Document complied, or will comply, in all material respects with the
requirements of the Securities Exchange Act, and as of their respective dates
none of the SEC Documents contained, or will contain, any untrue statement of a
material fact or omitted, or will omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As used in this
Agreement, the consolidated balance sheet of the Buyer and its consolidated
subsidiaries as of September 30, 1999 included in the Form 10-Q for the fiscal
18
<PAGE> 24
quarter then ended is hereinafter referred to herein as the "Buyer Balance
Sheet" and September 30, 1999 is hereinafter referred to herein as the "Buyer
Balance Sheet Date".
(ii) Except to the extent expressly set forth in, or contemplated by, the Buyer
Balance Sheet, or the notes, schedules or exhibits thereto, or as disclosed in,
or contemplated by, the SEC Documents: (i) as of the Buyer Balance Sheet Date,
neither the Buyer nor any of its consolidated subsidiaries had any material
liabilities or obligations (whether absolute, contingent, accrued or otherwise)
that would be required to be included on a consolidated or condensed balance
sheet or in the notes, schedules or exhibits thereto prepared in accordance with
GAAP; and (ii) since the Buyer Balance Sheet Date, the Buyer and its
consolidated subsidiaries have not incurred any such material liabilities or
obligations other than in the ordinary course of business or as so disclosed or
contemplated.
(l) Tax Matters. The fair market value of the Buyer Shares and other
consideration received by the Stockholders will be approximately equal to the
fair market value of the Holdings Shares surrendered in the Merger. Immediately
before the Merger, the Buyer will be in control of Newco within the meaning of
Code Sec. 368(c). The Buyer has no plan or intention to (i) cause Holdings to
issue additional shares of its stock that would result in the Buyer losing
control of Holdings within the meaning of Code Sec. 368(c), (ii) reacquire any
of its stock issued in the Merger, except as provided pursuant to the escrow of
the Additional Buyer Shares or as provided by the Escrow Agreement or (iii)
liquidate Holdings, merge Holdings with or into another corporation, sell or
otherwise dispose of the stock of Holdings (except for transfers of stock to
corporations controlled by the Buyer), or to cause Holdings to sell or otherwise
dispose of any of its assets or any of the assets acquired from Newco, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Holdings. Newco will have no liabilities assumed
by Holdings, and will not transfer to Holdings any assets subject to liabilities
in the Merger. The Buyer does not own, nor has it owned during the past five
years, any shares of the stock of Holdings. Neither Buyer nor Newco is or will
be an investment company as defined in Code Secs. 368(a)(2)(F)(iii) and (iv).
(m) No Material Adverse Change. Since the Buyer Balance Sheet Date,
there has been no Material Adverse Change in the business, financial condition,
assets, liabilities, operations or results of operations of the Buyer or its
ability to consummate the transactions contemplated hereby.
4. Representations and Warranties Concerning Holdings, the Company and
its Subsidiaries. Holdings represents and warrants to the Buyer as follows:
(a) Organization, Qualification, and Corporate Power. (a)ab Each of Holdings,
the Company and the Subsidiaries is a corporation or limited liability company
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization. Each of Holdings, the Company
and the Subsidiaries is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
19
<PAGE> 25
required, except where the failure to be so qualified would not have a Material
Adverse Effect on Holdings. Each of Holdings, the Company and the Subsidiaries
has full corporate or limited liability company power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it,
except where the failure to have such licenses, permits and authorizations would
not have a Material Adverse Effect on Holdings. ss.4(a) of the Disclosure
Schedule lists the directors and officers of each of Holdings, the Company and
the Subsidiaries. Holdings has delivered to the Buyer correct and complete
copies of the charter and bylaws or other organizational documents of each of
Holdings, the Company and the Subsidiaries (as amended to date). The minute
books (containing the records of meetings of the stockholders or members, the
board of directors or manager, and any committees of the board of directors),
the stock certificate books, and the stock record books of each of Holdings, the
Company and the Subsidiaries are correct and complete. None of Holdings, the
Company and the Subsidiaries is in default under or in violation of any
provision of its charter or bylaws or other organizational documents.
(b) Capitalization of Holdings.
(i) The entire authorized capital stock of Holdings consists of 5,000,000 shares
of Common Stock, par value $0.01 per share, of which 3,451,440 shares are issued
and outstanding, and 12,200,000 shares of Preferred Stock, par value $0.01 per
share, of which 12,161,997 shares are issued and outstanding. No shares are held
in treasury. All of the issued and outstanding Holdings Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the Stockholders as set forth in ss.4(b) of the Disclosure Schedule.
Except as set forth in ss.4(b) of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require Holdings to issue, sell, or otherwise cause to become
outstanding any of its capital stock or equity. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to Holdings. Except as set forth in ss.4(b) of the
Disclosure Schedule, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of Holdings.
(ii) The Stockholders and Optionees hold of record and own beneficially all of
the Holdings Shares and/or Options set forth opposite such Stockholder's or
Optionee's name in ss.4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. Except
as set forth in ss.4(b) of the Disclosure Schedule, no Stockholder is a party to
any option, warrant, purchase right, or other contract or commitment that could
require the Stockholder to sell, transfer, or otherwise dispose of any capital
stock of any Subsidiary, the Company, or Holdings (other than this Agreement).
Except as set forth in ss.4(b) of the Disclosure Schedule, no Stockholder is a
party to any voting trust, proxy, or other agreement
20
<PAGE> 26
or understanding with respect to the voting of any capital stock of any
Subsidiary, the Company, or Holdings.
(c) Noncontravention; Consents.
(i) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) violate any
injunction, judgment, order, decree, ruling, charge, or other restriction of any
Governmental Authority to which any of Holdings, the Company or any Subsidiary
is subject or any provision of the charter or bylaws or other organizational
documents of Holdings, the Company or any Subsidiary or (B) subject to the
receipt of any consent listed in ss.4(c)(i) of the Disclosure Schedule, violate,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which any of Holdings, the Company or any Subsidiary is
a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets),
excluding in any case such violations, breaches or defaults or Permitted
Interests that in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Holdings.
(ii) Except for (A) consents listed in ss.4(c)(ii) of the Disclosure Schedule,
(B) the expiration or earlier termination of any required waiting period under
the Hart-Scott-Rodino Act, and (C) the requisite approval of the Stockholders
pursuant to ss.251 of the DGCL, none of Holdings, the Company or any Subsidiary
needs to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Person or Governmental Authority in order for the
Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers Fees. None of Holdings, the Company or any Subsidiary has any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(e) Title to Assets. Holdings, the Company and the Subsidiaries have good and
marketable title to, or a valid leasehold interest in, their respective Assets,
free and clear of all Security Interests (other than Permitted Interests),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet. Each tangible asset of
Holdings, the Company and the Subsidiaries is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
(f) The Company and the Subsidiaries. ss.4(f) of the Disclosure Schedule sets
forth for the Company and each Subsidiary (i) its name and jurisdiction of
incorporation or organization, (ii) the number of shares of authorized capital
stock (or other equity) of each class of its capital stock (or other equity),
(iii) the number of issued and outstanding shares (or interests) of each class
of its capital stock (or other equity), the names of the holders thereof, and
the number of shares (or
21
<PAGE> 27
interests) held by each such holder, and (iv) the number of shares (or
interests) of its capital stock (or other equity) held in treasury. All of the
issued and outstanding shares (or interests) of capital stock (or other equity)
of each Subsidiary have been duly authorized and are validly issued, fully paid,
and nonassessable. Holdings is the sole owner of all equity interests in the
Company, and holds of record and owns beneficially all of the outstanding shares
of the Company, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Company is the sole owner of all equity
interests in each Subsidiary, and holds of record and owns beneficially all of
the outstanding shares of each Subsidiary of the Company, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. There are no
outstanding or authorized options, warrants, purchase rights, conversion rights,
exchange rights, or other contracts or commitments that could require Holdings,
the Company, or any Subsidiary to sell, transfer, or otherwise dispose of any
capital stock of the Company or any Subsidiary or that could require the Company
or any Subsidiary to issue, sell, or otherwise cause to become outstanding any
of its own capital stock (or other equity). There are no outstanding stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company or any Subsidiary. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of the Company or any Subsidiary. None of Holdings, the Company or any
Subsidiary controls directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association except as set forth in ss.4(f) of the Disclosure Schedule. Except as
set forth in ss.4(f) of the Disclosure Schedule, neither Holdings, the Company
nor any Subsidiary holds or owns any equity interest in any corporation,
partnership, limited liability company, or other entity.
(g) Financial Statements. Holdings has provided to the Buyer the following
financial statements (collectively the "Financial Statements"): (i) audited
consolidated and unaudited consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1996, December 31, 1997 and December 31, 1998 (the
"Most Recent Fiscal Year End") for Holdings, the Company and the Subsidiaries;
and (ii) unaudited consolidated and consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow (the "Most Recent
Financial Statements") as of and for the nine months ended September 30, 1999
(the "Most Recent Fiscal Month End") for Holdings, the Company and the
Subsidiaries. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (subject to, in the case of the Most Recent Financial
Statements, the absence of footnotes, year-end adjustments, and other items
required by GAAP to be included in audited statements), present fairly the
financial condition of Holdings, the Company and the Subsidiaries as of such
dates and the results of operations of
22
<PAGE> 28
Holdings, the Company and the Subsidiaries for such periods, are correct and
complete, and are consistent with the books and records of Holdings, the Company
and the Subsidiaries.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Year End, there has not been any Material Adverse Change in the business,
financial condition, assets, liabilities, operations or results of operations of
Holdings, the Company and the Subsidiaries. Without limiting the generality of
the foregoing, since that date:
(i) none of Holdings, the Company or any Subsidiary has sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
(ii) except as set forth in ss.4(h)(ii) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) either obligating the Company to pay more than $50,000 or outside
the Ordinary Course of Business;
(iii) except as set forth in ss.4(h)(iii) of the Disclosure Schedule, no party
(including Holdings, the Company or any Subsidiary) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) except where such
acceleration, termination, modification or cancellation would not have a
Material Adverse Effect on Holdings;
(iv) except as set forth in ss.4(h)(iv) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has imposed any Security Interest (other
than Permitted Interests) upon any of its assets, tangible or intangible;
(v) except as set forth in ss.4(h)(v) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has made any capital expenditure (or
series of related capital expenditures) either involving more than $50,000 or
outside the Ordinary Course of Business;
(vi) except as set forth in ss.4(h)(vi) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $50,000 or outside the Ordinary Course of Business;
(vii) except as set forth in ss.4(h)(vii) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
23
<PAGE> 29
(viii) none of Holdings, the Company or any Subsidiary has delayed or postponed
the payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) none of Holdings, the Company or any Subsidiary has cancelled, compromised,
waived, or released any right or claim (or series of related rights and claims)
either involving more than $50,000 in the aggregate or outside the Ordinary
Course of Business;
(x) none of Holdings, the Company or any Subsidiary has granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or bylaws of any
of Holdings, the Company or any Subsidiary;
(xii) except as set forth in ss.4(h)(xii) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
(xiii) except as set forth in ss.4(h)(xiii) of the Disclosure Schedule, none of
Holdings, the Company or any Subsidiary has declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv)none of Holdings, the Company or any Subsidiary has experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
(xv) none of Holdings, the Company or any Subsidiary has made any loan to, or
entered into any other transaction with, any of its Stockholders, directors,
officers, and employees or their Affiliates outside the Ordinary Course of
Business;
(xvi) none of Holdings, the Company or any Subsidiary has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) none of Holdings, the Company or any Subsidiary has granted any increase
in the base compensation of any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xviii)ab none of Holdings, the Company or any Subsidiary has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, or employees (or taken any such action with respect to any other
Employee Benefit Plan);
24
<PAGE> 30
(xix) none of Holdings, the Company or any Subsidiary has made any other change
in employment terms for any of its directors, officers, or employees outside the
Ordinary Course of Business;
(xx) none of Holdings, the Company or any Subsidiary has made or pledged to make
any charitable or other capital contribution in excess of $10,000 in the
aggregate;
(xxi) there has not been any other occurrence, event, incident, action, failure
to act, or transaction outside the Ordinary Course of Business involving any of
Holdings, the Company or any Subsidiary that would reasonably be expected to
have a Material Adverse Effect on Holdings; and
(xxii) none of Holdings, the Company or any Subsidiary has committed to any of
the foregoing.
(i) Undisclosed Liabilities. None of Holdings, the Company or any Subsidiary has
any Liability, except for (i) Liabilities set forth on the Most Recent Balance
Sheet, (ii) Liabilities which have arisen after the Most Recent Fiscal Month End
in the Ordinary Course of Business and (iii) the Liabilities set forth in
ss.4(i) of the Disclosure Schedule.
(j) Legal Compliance. Each of Holdings, the Company, its Subsidiaries, and their
respective predecessors and Affiliates has complied in all material respects
with all Applicable Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply.
(k) Tax Matters.
(i) Each of Holdings, the Company and the Subsidiaries has filed in a timely
manner all Tax Returns that it was required to file. All such Tax Returns were
correct and complete in all material respects. All Taxes owed by Holdings, the
Company and the Subsidiaries (whether or not shown on any Tax Return) have been
paid. None of Holdings, the Company or any Subsidiary currently is the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by a Governmental Authority in a jurisdiction where any
of Holdings, the Company or any Subsidiary does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of any of Holdings, the Company or any Subsidiary
that arose in connection with any failure (or alleged failure) to pay any Tax.
25
<PAGE> 31
(ii) Each of Holdings, the Company and each Subsidiary has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(iii) There is no dispute or claim concerning any Tax Liability of any of
Holdings, the Company or any Subsidiary either (A) claimed or raised by any
Governmental Authority in writing or (B) as to which Holdings has Knowledge
based upon personal contact with any agent of such Governmental Authority.
ss.4(k) of the Disclosure Schedule lists all federal, state, local, and foreign
Tax Returns filed with respect to any of Holdings, the Company or any Subsidiary
for taxable periods ended on or after December 31, 1996 and indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit.
(iv) None of Holdings, the Company or any Subsidiary has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) None of Holdings, the Company or any Subsidiary has filed a consent under
Code Sec. 341(f) concerning collapsible corporations. None of Holdings, the
Company or any Subsidiary has made any payments, is obligated to make any
payments, or is a party to any agreement that under any circumstances could
obligate it to make any payments that will not be deductible under Code Sec.
280G. To the Knowledge of Holdings, there are no proposed reassessments of any
property owned by Holdings, the Company, or the Subsidiaries that would affect
the Taxes of such company after the Closing Date. Holdings has not been a United
States real property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii).
None of Holdings, the Company, or any Subsidiary has any income or gain
reportable for a period ending after the Closing Date but attributable to a
transaction (e.g., an installment sale) occurring in, or a change in accounting
method made for, a taxable period ending on or prior to the Closing Date which
resulted in a deferred reporting of income or gain from such transaction or from
such change in accounting method. Each of Holdings, the Company and the
Subsidiaries has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Sec. 6662. None of Holdings, the Company or the
Subsidiaries is a party to any Tax allocation or sharing agreement. None of
Holdings, the Company or the Subsidiaries (A) is or has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Holdings) or (B) has any Liability for the
Taxes of any Person (other than any of Holdings, the Company and the
Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
(vi) ss.4(k) of the Disclosure Schedule sets forth the following information
with respect to each of Holdings, the Company and the Subsidiaries (or, in the
case of clause (B) below, with respect to each of the Subsidiaries) as of the
most recent practicable
26
<PAGE> 32
date: (A) the basis of Holdings, the Company and the Subsidiaries in their
respective Assets; (B) the basis of the stockholder(s) of the Company and the
Subsidiaries in their stock (or the amount of any Excess Loss Account); (C) the
amount of all net operating loss, net capital loss, unused investment or other
credit, unused foreign tax, credit and excess charitable contribution carryovers
(and any limitations applicable to any of the foregoing), and the earnings and
profits allocable to Holdings, the Company and the Subsidiaries; and (D) the
amount of any deferred gain or loss allocable to Holdings, the Company or the
Subsidiaries arising out of any Intercompany Transaction.
(vii) The fair market value of the Buyer Shares and other consideration received
by the Stockholders will be approximately equal to the fair market value of the
Holdings Shares surrendered in the Merger.
(viii) The unpaid Taxes of Holdings, the Company and the Subsidiaries (including
any Taxes attributable to the distribution or other disposition of property on
or prior to the Closing Date) (A) did not, as of the Most Recent Fiscal Month
End, exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) and (B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
Holdings, the Company and the Subsidiaries in filing their Tax Returns. The
distribution by Holdings of the stock of BLEC pursuant to ss.5(k) will not
result in any Tax Liability to Holdings.
(l) Sites; Management Agreements; Tenant Agreements. Except as set forth in
ss.4(l) of the Disclosure Schedule, neither Holdings, the Company nor any
Subsidiary owns or holds a ground lease of any real property. ss.4(l) of the
Disclosure Schedule (i) lists all Sites and (ii) identifies the Management
Agreements, Lease Agreements, Government Agreements, and Tenant Agreements that
correspond to the Sites. The Sites listed in ss.4(l) of the Disclosure Schedule
constitute all of the telecommunication Sites included in the Business. Holdings
has given the Buyer access to correct and complete copies of all Management
Agreements, Lease Agreements, Government Agreements, and all Tenant Agreements,
including the agreements (as amended to date) listed in ss.4(l) of the
Disclosure Schedule. ss.4(l) of the Disclosure Schedule identifies the
expiration date or remaining term of each Management Agreement, Lease Agreement,
Government Agreement and Tenant Agreement. Such Management Agreements, Lease
Agreements, Government Agreements and Tenant Agreements constitute all of the
agreements with property owners and telecommunications services providers
relating to the Business. With respect to each Management Agreement, Lease
Agreement, Government Agreement or Tenant Agreement (as applicable) and except
as set forth in ss.4(l) of the Disclosure Schedule:
(i) the Management Agreement, Lease Agreement, Government Agreement or Tenant
Agreement (as applicable) is legal, valid, binding, enforceable, and in full
27
<PAGE> 33
force and effect, subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect affecting creditors' rights
generally;
(ii) neither Holdings, the Company nor any Subsidiary is and, to the Knowledge
of Holdings, no other party to the Management Agreement, Lease Agreement,
Government Agreement or Tenant Agreement (as applicable) is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iii) neither Holdings, the Company nor any Subsidiary has and, to the Knowledge
of Holdings, no other party to the Management Agreement, Lease Agreement,
Government Agreement or Tenant Agreement (as applicable) has repudiated any
provision thereof;
(iv) there are no disputes, oral agreements, or forbearance programs in effect
as to the Management Agreement, Lease Agreement, Government Agreement or Tenant
Agreement (as applicable) that would, in the aggregate, have a Material Adverse
Effect on Holdings;
(v) none of Holdings, the Company and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold in a manner that would, in the aggregate, have a
Material Adverse Effect on Holdings; and
(vi) ss.4(l) of the Disclosure Schedule sets forth the applicable expiration
date.
(m) Intellectual Property.
(i) Holdings, the Company and the Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the Business as presently conducted.
Each of Holdings, the Company and the Subsidiaries has taken all reasonable
action to maintain and protect each item of Intellectual Property that it owns
or uses.
(ii) None of Holdings, the Company or any Subsidiary has ever received any
written charge, complaint, claim, demand, or notice alleging any interference
with, infringement of, misappropriation of, or violation of any Intellectual
Property rights of third parties (including any claim that any of Holdings, the
Company and the Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party).
(iii) ss.4(m)(iii) of the Disclosure Schedule identifies each registration which
has been issued to any
28
<PAGE> 34
of Holdings, the Company and the Subsidiaries with respect to any of its
Intellectual Property, identifies each pending application for registration
which any of Holdings, the Company and the Subsidiaries has made with respect to
any of its Intellectual Property, and identifies each license, agreement, or
other permission which any of Holdings, the Company and the Subsidiaries has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). ss.4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by any of Holdings,
the Company and the Subsidiaries in connection with its Business.
(iv) ss.4(m)(iv) of the Disclosure Schedule identifies each item of Intellectual
Property that any third party owns and that any of Holdings, the Company and the
Subsidiaries uses pursuant to license, sublicense, agreement, or permission.
Holdings has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
(n) Contracts. ss.4(n) of the Disclosure Schedule lists the following contracts
and other agreements to which Holdings, the Company or any Subsidiary is a party
other than the Management Agreements, Lease Agreements, Government Agreements
and Tenant Agreements (each a "Material Contract"):
(i) any agreement (or group of related agreements) for the lease of property to
or from any Person providing for lease payments in excess of $5,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase or sale of
materials, supplies, products, or other personal property, or for the furnishing
or receipt of services, the performance of which will extend over a period of
more than one year, result in a material loss to Holdings, the Company or any
Subsidiary, or involve consideration in excess of $15,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has imposed a Security Interest
(other than a Permitted Interest) on any of its assets, tangible or intangible;
(v) any agreement with any Stockholder and its Affiliates (other than Holdings,
the Company and the Subsidiaries);
(vi) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other material plan arrangement for the
benefit of its current or former directors, officers, or employees;
(vii) any collective bargaining agreement;
29
<PAGE> 35
(viii) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis;
(ix) any agreement under which it has advanced or loaned any amount to any of
its directors, officers, and employees which, in the aggregate, does not exceed
$50,000;
(x) any other agreement (or group of related agreements) the performance of
which involves consideration in excess of $50,000; or
(xi) any noncompetition agreement.
Holdings has given the Buyer access to correct and complete copies of
each written agreement listed in ss.4(n) of the Disclosure Schedule.
With respect to each Material Contract: (A) the Material Contract is
legal, valid, binding, enforceable, and in full force and effect, subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect affecting creditors' rights generally; (B) neither Holdings,
the Company nor any Subsidiary is, and to the Knowledge of Holdings, no other
party thereto is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the Material Contract; and (C)
neither Holdings, the Company nor any Subsidiary has, and to the Knowledge of
Holdings, no other party thereto has repudiated any provision of the Material
Contract.
(o) Notes and Accounts Receivable. All notes and accounts receivable of
Holdings, the Company and the Subsidiaries are reflected on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, subject only to the reserve for bad debts set forth on
the face of the Most Recent Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
Holdings, the Company and the Subsidiaries.
(p) Insurance. ss.4(p) of the Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which Holdings, the Company or any Subsidiary has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past three (3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the name of each
covered insured;
30
<PAGE> 36
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on a claims
made, occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or other loss-sharing
arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) neither Holdings,
the Company or any Subsidiary nor, to the Knowledge of Holdings, any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (C) neither
Holdings, the Company or any Subsidiary nor, to the Knowledge of Holdings, any
other party to the policy has repudiated any provision thereof. Each of
Holdings, the Company and the Subsidiaries has been covered during the past five
(5) years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. ss.4(p) of
the Disclosure Schedule describes any self-insurance arrangements affecting any
of Holdings, the Company and the Subsidiaries.
(q) Litigation. ss.4(q) of the Disclosure Schedule sets forth each instance in
which Holdings, the Company or any Subsidiary (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of Holdings, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any Governmental
Authority or before any arbitrator.
(r) Employees. ss.4(r) of the Disclosure Schedule sets forth the name and title
of each employee of Holdings, the Company and each Subsidiary. To the Knowledge
of Holdings, no executive, key employee, or group of employees has any plans to
terminate employment with any of Holdings, the Company or any Subsidiary. None
of Holdings, the Company or any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. Holdings has no Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of any of Holdings, the Company or any Subsidiary. Except as set forth in
ss.4(r) of the Disclosure Schedule, none of Holdings, the Company or any
Subsidiary has any employment agreement of any kind, oral or written, express or
implied, that would require the Buyer to employ any employee of Holdings, the
Company or any Subsidiary after the Effective Time. Each such agreement is
terminable at will without liability, or without liability in excess of $50,000
in the aggregate with respect to all such agreements, to Holdings, the Company
or any Subsidiary.
31
<PAGE> 37
(s) Employee Benefits.
(i) ss.4(s) of the Disclosure Schedule lists each Employee Benefit Plan and each
material compensation arrangement providing compensation or other benefits,
whether deferred or not, in excess of base salary or wages ("Compensation
Arrangement") that any of the Company and its Subsidiaries maintains or to which
Holdings, the Company or any Subsidiary contributes. Each Employee Welfare
Benefit Plan and each Compensation Arrangement may be terminated at any time,
subject to requirements to deliver notices, without liability to Holdings, the
Company or its Subsidiaries.
(A) Each such Employee Benefit Plan (and each related trust, insurance contract,
or fund) complies in form and in operation in all material respects with the
applicable requirements of ERISA, the Code, and other Applicable Laws.
(B) All required reports and descriptions (including Form 5500 Annual Reports,
Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed
or distributed in accordance with Applicable Laws with respect to each such
Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Sec. 4980B have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and employee salary
reduction contributions) which are due have been paid to each such Employee
Benefit Plan which is an Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of Holdings, the Company or any Subsidiary. All
premiums or other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan
meets the requirements of a "qualified plan" under Code Sec. 401(a) and has
received a favorable determination letter from the Internal Revenue Service, and
no plan amendment that is not the subject of a favorable determination letter
would affect the validity of an Employee Benefit Plan's letter.
(E) The market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of all vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for determination.
32
<PAGE> 38
(F) Holdings has delivered to the Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan, along with copies
any employee handbooks or similar documents.
(ii) With respect to each Employee Benefit Plan that Holdings, the Company, any
Subsidiary or any entity required to be combined with Holdings, the Company or
its Subsidiaries under Code Sec. 414(b), (c), (m) or (o) ("ERISA Affiliate")
maintains or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is in Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been completely or partially terminated
or been the subject of a Reportable Event as to which notices would be required
to be filed with the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the Knowledge of Holdings, threatened.
(B) There have been no Prohibited Transactions with respect to any such Employee
Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of Holdings, threatened,
and Holdings has no Knowledge of any facts which could give rise to any such
action, suit or proceeding.
(C) None of Holdings, the Company, any Subsidiary or any ERISA Affiliate of such
entity has incurred any Liability to the PBGC (other than PBGC premium payments)
or otherwise under Title IV of ERISA (including any withdrawal Liability) or
under the Code with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(iii) None of Holdings, the Company, any Subsidiary or any ERISA Affiliate of
such entity contributes to, ever has contributed to, or ever has been required
to contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) None of Holdings, the Company or any Subsidiary maintains or ever has
maintained or contributes, ever has contributed, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other
34
<PAGE> 39
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Code
Sec. 4980B).
(t) Guaranties. None of Holdings, the Company or any Subsidiary is a guarantor
or otherwise is liable for any Liability or obligation (including indebtedness)
of any other Person.
(u) Environment, Health, and Safety.
(i) Each of Holdings, the Company, the Subsidiaries, and their respective
predecessors and Affiliates has complied in all material aspects with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
Without limiting the generality of the preceding sentence, each of Holdings, the
Company, the Subsidiaries, and, with respect to the Business, their respective
predecessors and Affiliates has obtained and been in substantial compliance with
all of the terms and conditions of all material permits, licenses, and other
authorizations which are required under all Environmental, Health, and Safety
Laws.
(ii) To the Knowledge of Holdings, none of Holdings, the Company or any
Subsidiary has any Liability (and none of Holdings, the Company, any Subsidiary,
and their respective Affiliates has handled or disposed of any substance or
arranged for the disposal of any substance giving rise to any Liability) for
damage to any Site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, arising under
any reason under any Environmental, Health, and Safety Law, where such Liability
would have a Material Adverse Effect on Holdings.
(v) Bank Accounts and Credit. ss.4(v) of the Disclosure Schedule lists all banks
and lending institutions with which Holdings, the Company or any Subsidiary
maintains any account or has a credit facility, and sets forth the names of all
individuals who have signing authority for any such account.
(w) Certain Business Relationships with Holdings, the Company and the
Subsidiaries. No Stockholder or its Affiliates has been involved in any business
transaction, arrangement or relationship (except transactions, arrangements, or
relationships that are on "arms length" terms and conditions) with any of
Holdings, the Company or any Subsidiary within the past 12 months, and no
Stockholder or its Affiliates owns any asset, tangible or intangible, which is
used in the business of any of Holdings, the Company or any Subsidiary. To the
Knowledge of Holdings, ss.4(w) of the Disclosure Schedule lists all "arms
length" transactions of Holdings, the Company or any Subsidiary with any
Stockholder or its Affiliates.
(x) Disclosure. The representations and warranties contained in this ss.4 do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
ss.4 not misleading.
34
<PAGE> 40
(y) Authorization of Transaction. Subject to the receipt of required Stockholder
approval pursuant to ss.251 of the DGCL, Holdings has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Subject to the receipt of required Stockholder approval pursuant to
ss.251 of the DGCL, this Agreement constitutes the valid and legally binding
obligation of Holdings, enforceable in accordance with its terms and conditions,
subject to bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally.
(z) Delivery of Tax Opinion. With respect to the opinion to be delivered at the
Closing pursuant to ss.7(b)(ix) hereof, Holdings has been advised by Wolf,
Block, Schorr & Solis-Cohen that if the Merger were to be effected on the date
of this Agreement in accordance with the terms of this Agreement, such firm
would render the opinion described in ss.7(b)(ix) and has been advised by such
firm that it is not aware of any facts or circumstances existing as of the date
hereof or that would arise prior to the Closing Date that would prevent the
delivery of such opinion at the Closing.
5.Pre-Closing Covenants. The Parties agree as follows with respect to the period
between the execution of this Agreement and the Closing.
(a) Notices and Consents.
(i) The Buyer and Holdings (including the Company and the Subsidiaries) will use
commercially reasonable efforts to (A) give any required notices to third
parties and (B) to obtain any consents from any Governmental Authority or third
party necessary for the lawful consummation of the Closing, whether any of the
foregoing are referenced in ss.3(c) or ss.4(c) hereof, or otherwise. In
furtherance of the foregoing, the Buyer and Holdings agree to provide all
information (including financial information) that is reasonably requested by
any Person from whom any consent is necessary for lawful consummation of the
Closing.
(ii) Holdings and the Buyer have agreed that, subject to the provisions of this
ss.5(a)(ii), only any consent required under a Management Agreement, Tenant
Agreement, Lease Agreement or Government Agreement that involves revenue to
Holdings, the Company or any subsidiary in an amount in excess of $100,000 on an
annual basis will be required to be delivered at Closing (the "Material
Consents");
(b) Hart-Scott-Rodino Act Filing. If, after the date hereof, any filing of any
Notification and Report Forms with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice is required under
the Hart-Scott-Rodino Act, then each Party will make such filings and will use
commercially reasonable efforts to obtain (and Holdings will cause each of the
Company and its Subsidiaries to use commercially reasonable efforts to obtain)
an early termination of the applicable waiting period, and will make (and
Holdings will cause each of the Company and its Subsidiaries to make) any
further filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.
35
<PAGE> 41
(c) Operation of Business. Holdings will not cause or permit the Company or any
Subsidiary to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business, except where the failure to
comply with the foregoing would not have a Material Adverse Effect on Holdings.
Without limiting the generality of the foregoing, except as set forth in ss.5(c)
of the Disclosure Schedule, Holdings will not (without the Buyer's consent,
which shall not be unreasonably withheld), and will not (without the Buyer's
consent, which shall not be unreasonably withheld) cause or permit the Company
or any Subsidiary to, (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock, or (ii) otherwise engage in any practice, take
any action, or enter into any transaction of the sort described in ss.4(h)
above.
(d) Preservation of Business; Retention of Records. Holdings will and will cause
each of the Company and its Subsidiaries to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees. From and after the date hereof, Holdings shall, and
shall cause the Company and the Subsidiaries to, retain all Tax Returns and all
books, records and other financial information relating to any Tax or Tax Return
of Holdings, the Company and the Subsidiaries, and to abide by all record
retention agreements entered into with any Governmental Authority.
(e) Full Access.
(i) Holdings will permit, and Holdings will cause each of the Company and its
Subsidiaries to permit, representatives of the Buyer to have full access at all
reasonable times and upon reasonable advance written notice to Alexander L.
Gellman or Richard B. Stern, and in a manner so as not to interfere with the
normal business operations of Holdings, Company and the Subsidiaries, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to each of Holdings, the Company and
the Subsidiaries. The Buyer agrees to provide Holdings with prompt written
notice if the Buyer determines that, based upon information provided to the
Buyer or through its own investigation, Holdings is in breach of any
representation, warranty or covenant of Holdings set forth in this Agreement;
provided, however, that such notice by the Buyer will not constitute acceptance
by the Buyer to the items constituting the breach, as set forth in ss.5(f)
hereof, and will not constitute a waiver by the Buyer of the conditions to
Closing set forth in ss.7(a) hereof. If this Agreement is terminated, the Buyer
agrees to return or cause to be returned all such information provided to the
Buyer or its representatives within five (5) Business Days after the date of
such termination.
(ii) The Buyer will permit representatives of Holdings to have full access at
all reasonable times and upon reasonable advance written notice to Stephen H.
Clark, and in a manner so as not to interfere with the normal business
operations of the Buyer, to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to the Buyer.
If this Agreement is terminated, Holdings agrees to
36
<PAGE> 42
return or cause to be returned all such information provided to Holdings or its
representatives within five (5) Business Days after the date of such
termination.
(f) Notice of Developments. Holdings may, no later than three (3) days before
the Closing, supplement or amend the Disclosure Schedule attached hereto (or
create one or more additional sections of the Disclosure Schedule, if
appropriate) with respect to any matter that arises or is discovered after the
date of this Agreement that, if existing or known at the date of this Agreement,
would have been required to be set forth or listed in the Disclosure Schedule;
provided that, for purposes of determining the rights and obligations of the
parties under this Agreement (other than the obligations of Holdings under this
ss.5(f)), any such disclosure will be deemed to have been disclosed to the Buyer
as of the date of this Agreement and the Buyer shall be entitled to terminate
this Agreement pursuant to ss.9(a)(ii) hereof if: (i) the
supplementally-disclosed items have had or would reasonably be expected to have
a Material Adverse Effect on Holdings; or (ii) in case of
supplementally-disclosed items that arose from events, transactions and
occurrences after the date hereof, such supplementally-disclosed items
constitute violations of the covenants contained in ss.5(c). If the Buyer does
not terminate this Agreement as provided above and consummates the Closing, the
Buyer shall be deemed to have consented to any such disclosure.
(g) Exclusivity. Holdings will not cause or permit any of the Company and its
Subsidiaries, to (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets of
Holdings, the Company or any Subsidiary (including any acquisition structured as
a merger, consolidation, or share exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. Holdings will not vote
any of its shares in the Company and the Company will not vote any of its shares
in any Subsidiary, in favor of any such acquisition structured as a merger,
consolidation, or share exchange.
(h) Employees. At the Closing, each of the employees of Holdings, the Company or
its Subsidiaries listed in ss.5(h) of the Disclosure Schedule shall enter into
employment agreements with SpectraSite Communications in substantially the form
of the attached Exhibit A. Nothing contained in this Agreement shall confer upon
any employee of the Business any right with respect to continued employment by
the Surviving Corporation or the Buyer, except pursuant and subject to the terms
of such employment agreements entered into at the Closing. No provision of this
Agreement shall create any third party rights in any such employee, or any
beneficiary or dependent thereof, with respect to the compensation, terms and
conditions of employment and benefits that may be provided to such employee by
the Buyer or under any Employee Benefit Plan that the Buyer may maintain. On or
prior to the Closing Date, Holdings shall, or shall cause the Company or its
Subsidiaries, as applicable, to take such action as may be necessary to
terminate any defined contribution retirement plan sponsored or maintained by
Holdings, the Company or any Subsidiary effective as of a date no later than the
Closing Date. Within ten (10) days following the date of this Agreement, upon
delivery of
37
<PAGE> 43
written notice by the Buyer to Holdings, Holdings will, or will cause the
Company to, obtain (within five (5) Business Days after the Buyer delivers
written notice) the affected employee's consent to the termination, subject to
the consummation of the Merger, of any written employment agreements or
descriptions of any oral employment agreements set forth or required to be set
forth in ss.4(r) of the Disclosure Schedule and the continuation of employment
on an at-will basis without increase in compensation or benefits.
(i) Confidentiality. Each Party will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement. In the event that any
Party is requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, such Party
will notify the other Party promptly of the request or requirement so that the
other Party may seek an appropriate protective order or waive compliance with
the provisions of this ss.5(i). If, in the absence of a protective order or the
receipt of a waiver hereunder, any Party is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, such Party may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing Party shall use its reasonable
best efforts to obtain, at the reasonable request of the non-disclosing Party,
an order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the
non-disclosing Party shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure. If this Agreement is terminated
prior to the Closing Date as set forth in ss.9, the Buyer agrees not to hire or
solicit for employment any employees of Holdings or the Company, without the
written consent of Holdings, for a period of two years from the date of this
Agreement.
(j) Termination of Interests.
(i) On or before the Closing Date, all options, warrants, purchase rights,
proxies, voting trusts, and other contracts, agreements, commitments or
understandings required to be identified in ss.4(b) of the Disclosure Schedule
shall be terminated, except for the Options subject to ss.5(p) hereof.
(ii) Effective as of the Closing Date, the Company will terminate its
participation in the Preit-Rubin Profit Sharing 401(k) Plan.
(k) Distribution of BLEC. Holdings owns one hundred percent (100%) of the issued
and outstanding capital stock of BLEC Investment Company, Inc, a Delaware
corporation ("BLEC"). Prior to the Closing Date, Holdings will distribute the
outstanding capital stock of BLEC to the Stockholders of Holdings. The Buyer
shall be entitled to reimbursement from the Holdback Shares for any Tax cost to
Holdings, the Company or its Subsidiaries that arises as a result of the
distribution of BLEC.
38
<PAGE> 44
(l) Receipt of Releases. Holdings shall use its reasonable best efforts to
obtain, from each officer and director of Holdings, releases containing terms
reasonably satisfactory to the Buyer.
(m) Restricted Activities. The Buyer will not, and the Buyer will use its best
efforts to ensure that all persons whose actions or ownership interests would be
attributable to the Buyer will not, in any manner, directly or indirectly,
solicit, initiate, encourage or participate in bids, purchases or negotiations
with respect to any acquisition or other transaction that, if consummated, would
have the effect under any agreement or any Applicable Laws of preventing or
delaying the Buyer from consummating the Merger.
(n) Registration Rights Agreement. Prior to the Closing Date, the Buyer will
prepare, and receive all required approvals to enter into, a registration rights
agreement that grants registration rights (with respect to the Buyer Shares and
Additional Buyer Shares to be delivered hereunder) to the Stockholders (other
than Dissenting Stockholders) or its designee that are no less favorable to the
Stockholders than the registration rights given to the Buyer's current
stockholders pursuant to the terms of the Second Amended and Restated
Registration Rights Agreement, dated April 20, 1999, by and among the Buyer;
Whitney Equity; Whitney III; Whitney Strategic; Waller-Sutton; Kitty Hawk III;
Kitty Hawk IV; Eagle Creek; NCEF; Finley L.P.; certain affiliates of CIBC
Oppenheimer Corp.; certain affiliates and employees of Welsh Carson Anderson &
Stowe; Tower Parent Corp.; Gupton, Eckert, Stephen H. Clark and David P. Tomick,
including (i) "piggyback registration rights" corresponding to and in equal
priority to the Buyer's existing preferred stockholders, provided such rights
shall not be limited by references to, and the provisions of, the Stockholders'
Agreement among certain stockholders of the Buyer, (ii) registration rights on
any Registration Statement of the Buyer on Form S-3, (iii) subject to the
limitation requiring a demand by holders of 25% of the Buyer's stock, rights to
join in and cause a "required registration", (iv) indemnification rights and (v)
payment of the Stockholders' expenses.
(o) Delivery of Tax Returns. Within ten (10) days following the execution of
this Agreement, Holdings shall deliver to the Buyer correct and complete copies
of all Tax Returns filed by or on behalf of, and examination reports and
statements of deficiencies asserted against or agreed to by each of Holdings,
the Company and the Subsidiaries since December 31, 1996.
(p) Conversion of Options. As of the Closing, any outstanding options (the
"Options") granted by Holdings to its employees (such employee being referred to
hereinafter as an "Optionee") to acquire Holdings Shares shall be assumed by the
Buyer on the following terms:
(i) The Options shall be exchanged for options to acquire common stock of the
Buyer (the "New Options") with each Optionee receiving one or more New Options
in exchange for the Option or Options relinquished by such Optionee.
39
<PAGE> 45
(ii) Each New Option shall have substantially the same terms and conditions as
were contained in the Option for which such New Option is exchanged, and shall
not provide the Optionee with any additional benefits which such Optionee did
not have under the Option.
(iii) The number of shares of common stock of the Buyer subject to the New
Option, and the exercise price for each such share shall be set using an
exchange ratio, the intent of which is to provide that both of the following
conditions are met:
(A) The aggregate "fair market value" (as such term is used for purposes of Code
Sec. 422) of the shares of common stock of the Buyer subject to the New Option
immediately following the exchange of the New Option for the Option is equal to
the aggregate "fair market value" of the Holdings Shares subject to the Option
immediately prior the exchange of the New Option for the Option; and
(B) The excess of the aggregate fair market value of the shares of common stock
of the Buyer subject to the New Option immediately after the exchange of the New
Option for the Option over the aggregate option price for such shares of common
stock of the Buyer is not more than the excess of the aggregate fair market
value of the Holdings Shares subject to the Option immediately before the
exchange of the New Option for the Option over the aggregate option price of
such shares of capital stock of Holdings.
(q) Voting Agreement; Stockholder Approval. Within ten (10) Business Days after
the date hereof, Holdings will deliver to the Buyer a voting agreement, signed
by Stockholders having the right to vote at least fifty-one percent (51%) of the
outstanding Holdings Shares entitled to vote for the Merger, pursuant to which
such Stockholders will agree to approve the Merger and this Agreement, agree to
vote at a meeting all of their Holdings Shares entitled to vote thereon in favor
of the Merger (or approve the Merger by written consent), agree, if this
Agreement has not been terminated by its terms, not to vote any of their
Holdings Shares in favor of any competing transaction involving the sale of
Holdings, the Company and its Subsidiaries, and will waive any rights of
appraisal under the DGCL. In addition, within ten (10) Business Days of the date
hereof, Holdings will deliver its Stockholders either (i) a notice of a special
meeting of Stockholders (which will take place no later than twenty-one (21)
days after the delivery of such notice), at which the Stockholders will be asked
to vote to approve the Merger, or (ii) a written consent in lieu of meeting by
which the Stockholders will be asked to approve the Merger, together with notice
to the Stockholders pursuant to ss.262(d)(2) of the DGCL that the Merger has
been approved. Holdings will take all action necessary in accordance with
Applicable Laws and its Certificate of Incorporation and Bylaws either to
convene a meeting of its Stockholders to consider and vote upon the Merger and
this Agreement or to obtain approval of its Stockholders by written consent in
lieu of a meeting, and Holdings and its Board of Directors will take all lawful,
reasonable actions to solicit, and use all reasonable efforts to obtain, such
approval or consent from all of the Stockholders.
40
<PAGE> 46
(r) General. Each of the Parties will use his or its commercially reasonable
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in ss.7 below).
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ss.8 below).
Holdings acknowledges and agrees that from and after the Closing the Buyer will
be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to Holdings, the
Company and its Subsidiaries, provided, however, that the Buyer will provide to
Holdings reasonable access, at Holdings' cost and expense, necessary to permit
Holdings to comply with Applicable Laws.
(b) Restrictions on Sale of Buyer Shares; Delivery of Investor Representation
Letter. As a condition to receiving the Merger Consideration:
(i) The Stockholders will agree to be bound by the terms of any customary
lock-up agreement (not to exceed 180 days) required by the underwriters of an
initial public offering of the Buyer's common stock (the "Lock-Up Agreement").
Each certificate representing the Buyer Shares will bear substantially the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR
UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF ALL SUCH
LAWS.
(ii) Each Stockholder and each Optionee will deliver to the Buyer an investment
representation letter (to be provided by the Buyer and reasonably acceptable to
Holdings) in a form customary for private placement transactions. The investment
representation letter will contain provisions requesting the Stockholder or
Optionee to indicate whether the Stockholder or Optionee is an Accredited
Investor and other provisions necessary to permit the Buyer to conclude that the
issuance of the Buyer Shares and the New Options hereunder will qualify as an
offering exempt from the registration requirements of the Securities Act and
applicable state securities or "Blue Sky" laws under Regulation D of the
Securities Act.
41
<PAGE> 47
(c) Treatment as a Tax-Free Reorganization.
(i) Following the Merger, Holdings will hold at least ninety percent (90%) of
the fair market value of its net assets and at least seventy percent (70%) of
the fair market value of its gross assets and at least ninety percent (90%) of
the fair market value of Newco's net assets and at least seventy percent (70%)
of the fair market value of Newco's gross assets held immediately prior to the
Merger. For purposes of this ss.6(c)(i), amounts paid by Holdings or Newco to
Stockholders (or their designee) exercising appraisal rights under the DGCL,
amounts paid by Holdings or Newco to Stockholders (or their designee) who
receive cash or other property, amounts used by Holdings or Newco to pay
reorganization expenses, all redemptions and distributions made by Holdings
(including the distribution by Holdings of stock and/or other investments in
BLEC, but excluding any regular, normal dividends paid by Holdings) will be
included as assets of Holdings or Newco, respectively, immediately prior to the
Merger.
(ii) Following the Merger, Holdings will continue its historic business or use a
significant portion of its historic business assets in a business, each within
the meaning of section 1.368-1(d) of the Treasury Regulations.
(iii) With respect to the Holdback Shares and the Additional Buyer Shares: (A)
the Holdback Shares and the Additional Buyer Shares will appear as issued and
outstanding on the Buyer's balance sheet and such Holdback Shares and the
Additional Buyer Shares will be legally outstanding under Applicable Laws; (B)
all dividends paid on such Holdback Shares and the Additional Buyer Shares will
be distributed currently to the Stockholders or their designee; (C) all voting
rights of such Holdback Shares and Additional Buyer Shares of stock will be
exercisable by or on behalf of the Stockholders or their designee; and (D)
except as otherwise provided pursuant to the escrow of the Additional Buyer
Shares or the Escrow Agreement, no Holdback Shares and Additional Buyer Shares
will be subject to restrictions requiring their return to the issuing
corporation because of death, failure to continue employment, or similar
restrictions.
(iv) The Buyer intends that the transactions contemplated by this Agreement
qualify as a reorganization within the meaning of Code Secs. 368(a)(1)(A) and
368(a)(2)(E). The Buyer agrees that all positions it takes in its Tax Returns
and financial statements will be consistent with treating such transactions as a
reorganization within the meaning of Code Secs. 368(a)(1)(A) and 368(a)(2)(E),
unless otherwise required pursuant to a "determination" within the meaning of
Code Sec. 1313(a).
(d) Filing of Registration Statement. The Buyer agrees not to file with the SEC
any registration statement relating to its proposed initial public offering
until after the Closing Date, unless the Closing shall not have occurred
primarily because of Holdings' breach of any representation, warranty, or
covenant contained in this Agreement.
42
<PAGE> 48
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.4 above (other than
representations and warranties made as of a specific date) shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as if made at and as of the Closing Date (subject to Holdings'
right to supplement or amend the Disclosure Schedule as set forth in ss.5(f));
(ii) Holdings shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) there shall have been no Material Adverse Change in Holdings or the
Company since the date of this Agreement;
(iv) no action, suit, or proceeding shall be pending or threatened before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) Holdings shall have delivered to the Buyer a certificate, signed by its
chief executive officer, to the effect that each of the conditions specified
above in ss.7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and all of
the Material Consents shall have been procured;
(vii) the relevant parties shall have entered into the employment agreements in
form and substance as set forth in Exhibit A attached hereto and the same shall
be in full force and effect;
(viii) the Buyer shall have received confirmation, satisfactory to it, that (A)
the period in which to perfect appraisal rights under ss.262 of the DGCL has
expired and the Dissenting Stockholders would not have been entitled to receive
more than five percent (5%) of the Merger Consideration (before reduction
pursuant to ss.2(d)(iii) and ss.2(d)(vi), (B) Stockholders holding at least 95%
of the outstanding Holdings Shares shall have executed and delivered a release
of claims against the Surviving Corporation, the Company and its Subsidiaries
with terms
43
<PAGE> 49
reasonably satisfactory to the Buyer and (C) no more than thirty-five (35) of
the Stockholders and Optionees who are receiving Buyer Shares or New Options
hereunder are not Accredited Investors;
(ix) Holdings shall have received Stockholder approval for the Merger;
(x) there shall be no Security Interests (other than Permitted Interests and
Security Interests in favor of the Lender, which shall be governed by the Payoff
Letter) relating to or affecting any property of Holdings, the Company or any
Subsidiary that cannot be released by payment of money;
(xi) the Buyer shall have received an opinion of Kleinbard, Bell & Brecker LLP,
counsel to Holdings, in form and substance reasonably satisfactory to the Buyer,
including an opinion that the Merger has been approved by all necessary director
and Stockholder action;
(xii) the Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of Holdings, the Company and the
Subsidiaries other than those whom the Buyer shall have specified in writing at
least five (5) Business Days prior to the Anticipated Closing Date; and
(xiii) all actions to be taken by Holdings and the Stockholder Representatives
in connection with consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in this ss.7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Holdings. The obligation of Holdings to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b) above (other than
representations and warranties made as of a specific date) shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as if made at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) there shall have been no Material Adverse Change in the Buyer since the
date of this Agreement;
44
<PAGE> 50
(iv) no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(v) the Buyer shall have delivered to Holdings a certificate to the effect that
each of the conditions specified above in ss.7(b)(i)-(iv) is satisfied in all
respects;
(vi) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and all of
the Material Consents shall have been procured (provided, however, that the
condition regarding procurement of all of the Material Consents shall be
satisfied by the Buyer's waiver in writing of the requirement that the Material
Consents be procured prior to Closing);
(vii) the relevant parties shall have entered into the employment agreements in
form and substance as set forth in Exhibit A and the same shall be in full force
and effect (provided, however, that Holdings may not claim that this condition
has not been satisfied if the Buyer has presented for signature employment
agreements signed by the Buyer in form and substance as set forth in Exhibit A);
(viii) the Buyer shall have executed and delivered the Registration Rights
Agreement;
(ix) Holdings shall have received from Wolf, Block, Schorr & Solis-Cohen an
opinion substantially to the effect that, on the basis of facts, representations
and assumptions referenced in such opinion that are reasonably consistent with
the state of facts existing at the Closing Date, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Code Secs.
368(a)(1)(A) and 368(a)(2)(E). In rendering such opinion counsel may request and
rely upon representations contained in certificates of officers of the Parties
and the Parties shall use their best efforts to make available such truthful
certificates;
(x) Holdings shall have received an opinion of Dow, Lohnes & Albertson, PLLC,
counsel to the Buyer and Newco, in form and substance reasonably satisfactory to
Holdings;
(xi) the Buyer shall have delivered the New Options;
(xii) the average of the closing prices of the common stock of the Buyer on the
Nasdaq Stock Market for the five (5) trading day period ended on the trading day
immediately prior to the Anticipated Closing Date shall be higher than $6.00 per
share; and
45
<PAGE> 51
(xiii) all actions to be taken by the Buyer in connection with consummation of
the transactions contemplated hereby and all certificates, instruments, and
other documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Holdings.
Holdings may waive any condition specified in this ss.7(b) if they
execute a writing so stating at or prior to the Closing.
8.Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the representations,
warranties and covenants of the Parties contained in this Agreement shall
survive the Closing for a period of twelve (12) months and shall thereafter
terminate and be of no further force and effect, except for covenants and
agreements to be performed after the Closing Date, which shall survive in
accordance with their terms.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event Holdings breaches any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that the Buyer makes a written claim for
indemnification to the Stockholder Representatives pursuant to ss.10(f) below
within such survival period, then from and after the Closing Date, the Buyer
shall be indemnified out of the Holdback Shares from and against the entirety of
any Losses (including Losses of Holdings, the Company or any Subsidiary) the
Buyer may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
breach.
(ii) From and after the Closing Date, if there is an applicable survival
period pursuant to ss.8(a) above, provided that the Buyer makes a written claim
for indemnification to the Stockholder Representatives pursuant to ss.10(f)
below within such survival period, the Buyer shall be indemnified out of the
Holdback Shares from and against the entirety of any Losses (including Losses of
Holdings, the Company or any Subsidiary) the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability of any
of the Company and its Subsidiaries for the unpaid Taxes of any Person (other
than any of the Company and its Subsidiaries) under Treas. Reg. ss.1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(iii) If any Dissenting Stockholder properly exercises appraisal rights under
the DGCL, if there is an applicable survival period pursuant to ss.8(a) above,
provided that the Buyer makes a written claim for indemnification pursuant to
ss.10(f) below within such survival period, the Buyer shall be indemnified out
of the Holdback Shares from and against any Losses (including Losses of
Holdings, the Company or any Subsidiary) the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by such Stockholder's
46
<PAGE> 52
exercise of appraisal rights, but only to the extent such Losses are in excess
of the value of the Merger Consideration retained by the Buyer pursuant to
ss.2(d)(vi) hereof.
(c) Indemnification Provisions for Benefit of the Stockholders. In the event
the Buyer breaches any of its representations, warranties, and covenants
contained herein, and, if there is an applicable survival period pursuant to
ss.8(a) above, provided that the Stockholder Representatives make a written
claim for indemnification against the Buyer pursuant to ss.10(h) below within
such survival period, then, from and after the Closing Date, the Buyer agrees to
indemnify the Stockholders from and against the entirety of any Losses the
Stockholders may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by the breach.
(d) Procedures for Claims Between the Parties. If a claim (a "Claim") is to be
made by the party claiming indemnification (the "Claimant") against the other
party (the "Indemnifying Party"), the Claimant shall give written notice (a
"Claim Notice") to the Indemnifying Party as soon as practicable after the
Claimant becomes aware of the facts, condition or event that gave rise to Losses
for which indemnification is sought under this ss.8, provided that in no event
shall such notice be effective if given after the date that is twelve (12)
months after the Closing Date. Following receipt of the Claim Notice from the
Claimant, the Indemnifying Party shall have thirty (30) days to make such
investigation of the Claim as the Indemnifying Party deems necessary or
desirable. For the purposes of such investigation, the Claimant agrees to make
available to the Indemnifying Party and/or its authorized representative(s) the
information relied upon by the Claimant to substantiate the Claim. If the
Claimant and the Indemnifying Party agree at or prior to the expiration of said
thirty (30) day period to the validity and amount of such Claim, then, subject
to the provisions of ss.8(f), the Indemnifying Party shall pay to the Claimant
the amount of such Claim. If the Claimant and the Indemnifying Party do not
agree within said period, the Claimant may seek appropriate legal remedy.
(e) Defense of Third-Party Actions. If any lawsuit or enforcement action (a
"Third-Party Action") is filed against a Claimant entitled to the benefit of
indemnity hereunder, written notice thereof (the "Third-Party Action Notice")
shall be given by the Claimant to the Indemnifying Party as promptly as
practicable (and in any event within five (5) days after the service of the
citation or summons or other manner of process), provided that in no event shall
such notice be effective if given after the date that is twelve (12) months
after the Closing Date. After such notice, if the Indemnifying Party shall
acknowledge in writing to the Claimant that the Indemnifying Party shall be
obligated under the terms of its indemnity obligation hereunder in connection
with such Third-Party Action, then the Indemnifying Party shall be entitled, if
it so elects, (i) to take control of the defense and investigation of such
Third-Party Action, (ii) to employ and engage attorneys of its choice (and
reasonably satisfactory to the Claimant) to handle and defend the same, at the
Indemnifying Party's cost, risk and expense, and (iii) to compromise or settle
such Third-Party Action, which compromise or settlement shall be made only with
the written consent of the Claimant (such consent not to be unreasonably
withheld, conditioned or delayed) unless such compromise or settlement involves
only the payment of money damages
47
<PAGE> 53
and does not impose an injunction or other equitable relief upon the
Claimant, in which case no such consent shall be required. If the Claimant
desires to participate in, but not control, any such defense or settlement
the Indemnified Party may do so at its sole cost and expense. If the
Indemnifying Party fails to assume the defense of such Third-Party
Action within fifteen (15) days after receipt of the Third-Party Action
Notice, the Claimant will (upon delivering notice to such effect to the
Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such Third-Party Action; provided, however, that such Third-Party
Action shall not be compromised or settled without the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld,
conditioned or delayed. In the event the Claimant assumes the defense of the
Third-Party Action, the Claimant will keep the Indemnifying Party timely
informed of the progress of any such defense, compromise or settlement.
(f) Indemnification Limitations. Notwithstanding anything to the contrary set
forth in this Agreement or otherwise, the Indemnifying Party's obligations to
indemnify the Indemnified Party pursuant to this ss.8 shall be subject to the
following limitations:
(i) No indemnification shall be required to be made by an Indemnifying Party
until the aggregate amount of the Indemnified Party's Losses exceeds $600,000
(the "Deductible"), and then indemnification shall be required to be made by the
Indemnifying Party only to the extent of such aggregate Losses that exceed the
Deductible; provided, however, that the Deductible shall not apply to (A) the
Buyer's breach of its obligation to deliver the Merger Consideration or (B)
Buyer's right to indemnification for Losses incurred by the Buyer as a result of
any Stockholder exercising appraisal rights under the DGCL.
(ii) No indemnification shall be required to be made by an Indemnifying Party
for the amount of the Indemnified Party's Losses that are in excess of the value
of the Holdback Shares. The Buyer's maximum liability for its indemnification
obligations under this ss.8 is $3,000,000.
(iii) In connection with the satisfaction by the Indemnifying Party of a claim
with respect to which indemnification is made hereunder, the Indemnifying Party
shall be entitled to reimbursement from the Indemnified Party for the amount of
any (A) net reduction in federal, state, local or foreign income or franchise
tax liability actually realized by the Indemnified Party within two years from
the date the indemnification obligation is fulfilled by the Indemnifying Party,
(B) available insurance proceeds, and (C) of the Indemnified Party's Losses that
are subsequently recovered by the Indemnified Party pursuant to a settlement or
otherwise.
(iv) In no event shall the term "Losses" include any consequential, incidental
or indirect loss or damage to the Indemnified Party, whether or not based upon
events giving rise to indemnification hereunder, including claims brought by
third parties in connection with any public offering or damages based on a
multiple of earnings formula.
48
<PAGE> 54
(v) The Buyer shall not be entitled to recover Losses with respect to any
matter which was disclosed to the Buyer on the Disclosure Schedule prior to the
Closing Date.
(vi) From and after the Closing Date, (A) the indemnification rights contained
in this ss.8, and (B) any statutory, equitable, or common law remedy relating to
fraud, shall constitute the sole and exclusive remedies of the parties hereunder
and shall supersede and displace all other remedies that either party may have
under Applicable Laws.
9. Termination.
(a) Termination of Agreement. This Agreement may be terminated as provided
below:
(i) the Buyer and Holdings may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii)ab the Buyer may terminate this Agreement by giving written notice to the
Stockholder Representatives at any time prior to the Closing (A) in the event
Holdings has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, the Buyer has notified Holdings of the
breach, and the breach has continued without cure for a period of thirty (30)
days after the notice of breach (provided, that Holdings shall have no
opportunity to cure the breach of their obligation to deliver the Holdings
Shares to be delivered to the Buyer), or (B) the Buyer is entitled to terminate
this Agreement pursuant to ss.5(f);
(iii) Holdings may terminate this Agreement by giving written notice to the
Buyer at any time prior to the Closing in the event the Buyer has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, Holdings has notified the Buyer of the breach, and the breach
has continued without cure for a period of thirty (30) days after the notice of
breach (provided, that the Buyer shall have no opportunity to cure the breach of
its obligation to deliver any required portion of the Merger Consideration); and
(iv) if the Closing has not occurred before January 14, 2000, this Agreement
shall terminate automatically without any action by any Party.
(b) Effect of Termination. If this Agreement is terminated pursuant to ss.9(a)
above, all rights and obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach), except that the Buyer and Holdings will instruct
the Escrow Agent to return the Escrow Deposit to the Buyer promptly, except to
the extent Holdings makes a claim against the Buyer for a breach of this
Agreement.
49
<PAGE> 55
10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Stockholder Representatives; provided, however, that any Party may make
any public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will use its reasonable best efforts to advise
the other Parties prior to making the disclosure). Notwithstanding anything in
this Agreement to the contrary, no Party shall make any public disclosure prior
to the Closing Date, of the amount of Merger Consideration without the prior
written approval of the other Party.
(b) No Third-Party Beneficiaries. (b)ab This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Buyer and Holdings; provided, however, that the Buyer may (i) assign any
or all of its rights and interests hereunder to one or more of its Affiliates,
and (ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases the Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(d Counterparts; Facsimile Signatures. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. Facsimile signatures on
this Agreement and any of the agreements and documents executed in connection
with herewith shall be deemed original signatures.
(e) Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two Business
Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Holdings:
50
<PAGE> 56
Apex Site Management Holdings, Inc.
555 North Lane
Suite 6030
Conshohocken, PA 19428
Phone: (610) 260-3100
Fax: (610) 260-3138
Attn: Vice President and General Counsel
If to Stockholder Representatives:
Apex Site Management Holdings, Inc.
555 North Lane
Suite 6030
Conshohocken, PA 19428
Phone: (610) 260-3100
Fax: (610) 260-3138
Attn: Alexander L. Gellman
Apex Site Management Holdings, Inc.
555 North Lane
Suite 6030
Conshohocken, PA 19428
Phone: (610) 260-3100
Fax: (610) 260-3138
Attn: Bruce M. Hernandez
51
<PAGE> 57
With a required copy to:
Kleinbard, Bell & Brecker LLP
1900 Market Street
Suite 700
Philadelphia, PA 19103
Phone: (215) 568-2000
Fax: (215) 568-0140
Attn: Howard J. Davis, Esq.
If to the Buyer:
SpectraSite Holdings Inc.
100 Regency Forest Drive
Suite 400
Cary, North Carolina 27511
Phone: (919) 468-0112
Fax: (919) 388-9475
Attn: Stephen H. Clark
With a required copy to:
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, DC 20036
Phone: (202) 776-2000
Fax: (202) 776-2222
Attn: Timothy J. Kelley, Esq.
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the Commonwealth of Pennsylvania without
giving effect to any choice or conflict of law provision or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the Commonwealth of
Pennsylvania.
52
<PAGE> 58
(h) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Stockholder Representatives. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
(j) Expenses. Each of the Parties, the Company, and its Subsidiaries will bear
its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
Holdings agrees that none of the Company and its Subsidiaries has borne or will
bear any of Holdings' costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby and Holdings agrees that its expenses will be borne by the
Stockholders and not Holdings.
(k) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes,
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(l) Specific Performance. Each of the Parties agrees that the Buyer Shares and
the Holdings Shares are unique assets that cannot be readily obtained on the
open market and that each Party will be irreparably injured if this Agreement is
not specifically enforced. Each of the Parties acknowledges and agrees that the
other Parties would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity.
(m) Non-Recourse to Certain Persons. Notwithstanding anything to the contrary
contained herein or otherwise, this Agreement shall be recourse to Holdings and
the Holdback Shares (only to the extent set forth herein) but shall be
non-recourse to any members, officers, employees, partners, stockholders,
directors and Affiliates of the Stockholders.
53
<PAGE> 59
(n) Stockholder Representatives.
(i) Pursuant to the terms of this ss.10(n) and by executing an appropriate
agreement prior to the Closing Date (the "Stockholder Representative
Agreement"), each Stockholder will appoint Alexander L. Gellman and Bruce M.
Hernandez to act as such Stockholder's agents and representatives (the
"Stockholder Representatives") for purposes of receiving on his or its behalf
all notices under this Agreement, issuing on his or its behalf such notices
under this Agreement as the Stockholder Representatives shall determine in their
sole discretion to issue, and performing such other administrative and other
functions under this Agreement as may become necessary or desirable.
(ii) The Stockholder Representatives shall have full power and authority to
act for and on behalf of the Stockholders in regard to their rights under this
Agreement. Without limiting the foregoing, the Stockholder Representatives are
authorized to (A) resolve all claims for indemnification under this Agreement
and (B) retain counsel of its choosing, experts and other professionals as may
be necessary or desirable to assist in the resolution of any claim for
indemnification under this Agreement. The Stockholder Representatives shall have
no right to act as agent for service of process for any one of the Stockholders
except that any notice delivered to the Stockholder Representatives with respect
to any claim arising pursuant to ss.8 of this Agreement shall be deemed notice
to all the Stockholders with respect thereto.
(iii) The Stockholder Representatives shall be entitled to reasonable
compensation from the Stockholders for their services and reimbursement of all
expenses (including the cost of errors and omissions insurance) incurred in
their capacity as the Stockholder Representatives.
(iv) At any time after the date hereof, the Buyer shall be fully entitled in
acting on and relying upon any written notice, direction, request, waiver,
consent, receipt or other paper or document that the Buyer in good faith
believes to have been signed or presented by the Stockholder Representatives and
the Buyer will have no liability to any Stockholder if it acts in accordance
with the foregoing.
(v) The Stockholder Representatives shall be entitled to reimbursement by the
Stockholders (subject to the provisions of ss.8 hereof) of all reasonable
expenses (including the cost of errors and omissions insurance) incurred in
their capacity as Stockholder Representatives. The Stockholders shall, pursuant
to the terms of the Stockholder Representative Agreement, indemnify and hold
harmless the Stockholder Representatives from any and all costs, expenses, or
damages (paid or incurred) in connection with the performance of their
obligations pursuant to this Agreement, other than those arising from the gross
negligence or willful misconduct of the Stockholder Representatives. The
Stockholders shall, pursuant to the terms of the Stockholder Representative
Agreement, be jointly and severally liable to the Stockholder Representatives
for any liability arising out of this ss.10(n). Pursuant to the terms of
54
<PAGE> 60
the Stockholder Representative Agreement, the Stockholder Representatives will
be permitted to establish a trust account out of a portion of the Closing Cash
Payment to be delivered hereunder. Prior to distributing the Merger
Consideration to the Stockholders, the Stockholder Representatives shall deposit
in an interest-bearing trust account $500,000 (which shall be deducted from the
Merger Consideration to be distributed to the Stockholders hereunder), which
amount shall be available to the Stockholder Representatives only for
reimbursement of the Stockholder Representatives' costs, expenses, or damages
paid or incurred in connection with the performance of their obligations under
this Agreement. Following the final resolution of any indemnification claims and
following the distribution of all Holdback Shares held by the Escrow Agent
pursuant to the terms of the Escrow Agreement, the Stockholder Representatives
shall distribute to the Stockholders their pro rata portion of any funds held
pursuant to the terms of this ss.10(n)(v).
* * * * *
<PAGE> 61
[Signature Page to Merger Agreement and Plan of Reorganization]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
SPECTRASITE HOLDINGS INC.,
a Delaware corporation
By:/s/Stephen H. Clark
------------------------
Stephen H. Clark
Title:
NEWCO:
APEX MERGER SUB, INC.,
a Delaware corporation
By:/s/Stephen H. Clark
------------------------
Stephen H. Clark
Title:
HOLDINGS:
APEX SITE MANAGEMENT HOLDINGS, INC.,
a Delaware corporation
By:/s/Alexander L. Gellman
------------------------
Alexander L. Gellman
President
56
<PAGE> 1
Exhibit 2.5
STOCK PURCHASE AGREEMENT
BETWEEN
NORTHWEST BROADCASTING, L.P.
AND
SPECTRASITE HOLDINGS, INC.
Dated as of December 30, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 DEFINED TERMS............................................1
Section 1.1 Defined Terms.......................................1
Section 1.2 Terms Defined Elsewhere in this Agreement...........5
Section 1.3 Clarifications......................................5
ARTICLE 2 PURCHASE AND SALE OF SHARES..............................6
Section 2.1 Basic Transaction...................................6
Section 2.2 Purchase Price......................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER RELATING TO
SELLER..................................................6
Section 3.1 Organization........................................6
Section 3.2 Authorization of Transaction; Consents..............6
Section 3.3 Noncontravention....................................7
Section 3.4 Brokers' Fees.......................................7
Section 3.5 The Shares..........................................7
Section 3.6 Disclosure..........................................7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER..................7
Section 4.1 Organization of Buyer...............................7
Section 4.2 Authorization of Transaction; Consents..............8
Section 4.3 Noncontravention....................................8
Section 4.4 Brokers' Fees.......................................8
Section 4.5 Investment..........................................8
Section 4.6 SEC Filings.........................................9
Section 4.7 Disclosure..........................................9
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER CONCERNING THE
COMPANY.................................................9
Section 5.1 Organization, Qualification, and Corporate Power....9
Section 5.2 Capitalization......................................9
Section 5.3 Noncontravention; Consents.........................10
Section 5.4 Brokers' Fees......................................10
Section 5.5 Title to Assets....................................10
Section 5.6 Subsidiaries and Investments.......................11
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
Section 5.7 Financial Statements...............................11
Section 5.8 Events Subsequent to Most Recent Fiscal Year End...11
Section 5.9 Undisclosed Liabilities............................11
Section 5.10 Legal Compliance...................................12
Section 5.11 Tax Matters........................................12
Section 5.12 Governmental Licenses..............................13
Section 5.13 Real Property......................................13
Section 5.14 Intellectual Property..............................15
Section 5.15 Tangible Assets....................................15
Section 5.16 Contracts..........................................15
Section 5.17 Notes and Accounts Receivable; Accounts Payable....16
Section 5.18 Powers of Attorney.................................16
Section 5.19 Insurance..........................................16
Section 5.20 Litigation.........................................17
Section 5.21 Employees..........................................17
Section 5.22 Employee Benefits..................................18
Section 5.23 Guaranties.........................................20
Section 5.24 Environmental, Health and Safety Matters...........20
Section 5.25 Certain Business Relationships with the Company and
Its Affiliates....................................21
Section 5.26 Bank Accounts and Credits..........................21
Section 5.27 Inventory..........................................21
Section 5.28 Product and Service Warranty.......................21
Section 5.29 Year 2000 Compliance...............................22
Section 5.30 Disclosure.........................................22
ARTICLE 6 COVENANTS...............................................22
Section 6.1 Conduct of Business of the Company.................22
Section 6.2 Seller's Actions...................................24
Section 6.3 Other Actions......................................24
Section 6.4 Notification of Certain Matters....................24
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
Section 6.5 Access to Information..............................25
Section 6.6 Cooperation; Further Assurances....................25
Section 6.7 Public Announcements...............................25
Section 6.8 Confidentiality....................................25
Section 6.9 Expenses; Taxes....................................26
Section 6.10 Control of the Company's Operations................26
Section 6.11 Hart-Scott-Rodino Filing...........................26
Section 6.12 Other Buyer Transactions...........................26
Section 6.13 Consents...........................................27
Section 6.14 Employee Benefits Matters..........................27
Section 6.15 Real Estate Matters................................27
Section 6.16 Tax Matters........................................28
Section 6.17 Intercompany Accounts..............................29
Section 6.18 Standby Letter of Credit...........................29
Section 6.19 Schedule Updates...................................29
Section 6.20 Post-Closing Covenants.............................29
Section 6.21 Insurance..........................................30
Section 6.22 Release............................................30
ARTICLE 7 CONDITIONS TO BUYER'S OBLIGATIONS.......................31
Section 7.1 Performance by the Company and Seller..............31
Section 7.2 Truth of Representations and Warranties............31
Section 7.3 Receipt of Consents................................31
Section 7.4 HSR Act and other Governmental Authorizations......31
Section 7.5 Deliveries.........................................31
Section 7.6 Material Adverse Effect............................31
Section 7.7 Repayment of Indebtedness and Certain Other
Obligation........................................32
Section 7.8 Affiliate Loans....................................32
Section 7.9 Certain Proceedings................................32
Section 7.10 Seller Actions.....................................32
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF SELLER.................33
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
Section 8.1 Performance by Buyer...............................33
Section 8.2 Truth of Representations and Warranties............33
Section 8.3 HSR Act............................................33
Section 8.4 Deliveries.........................................33
Section 8.5 Certain Proceedings................................33
Section 8.6 Buyer Actions......................................33
ARTICLE 9 CLOSING.................................................33
Section 9.1 Closing............................................33
Section 9.2 Deliveries and Actions by Seller...................34
Section 9.3 Deliveries and Actions by Buyer....................35
ARTICLE 10 TERMINATION.............................................35
Section 10.1 Termination........................................35
Section 10.2 Effect of Termination..............................36
ARTICLE 11 INDEMNIFICATION.........................................37
Section 11.1 Survival of Representations and Warranties.........37
Section 11.2 Indemnification by Seller..........................37
Section 11.3 Indemnification by Buyer...........................38
Section 11.4 Procedure for Indemnification......................39
Section 11.5 Indemnification Escrow.............................40
Section 11.6 Limitations on Indemnification; Exclusive Remedy...41
ARTICLE 12 MISCELLANEOUS...........................................43
Section 12.1 Governing Law......................................43
Section 12.2 Successors and Assigns.............................43
Section 12.3 Entire Agreement; Amendment........................43
Section 12.4 Notices, Etc.......................................43
Section 12.5 Delays or Omissions................................44
Section 12.7 Severability.......................................44
Section 12.8 Headings...........................................45
Section 12.9 Arbitration........................................45
Section 12.10 Exclusive Benefit..................................45
-iv-
<PAGE> 6
TABLE OF CONTENTS
(continued)
Section 12.11 Construction.......................................45
Section 12.12 Exhibits and Schedules.............................45
Section 12.13 Time is of the Essence.............................45
-v-
<PAGE> 7
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of December
30, 1999, by and between NORTHWEST BROADCASTING, L.P., a Delaware limited
partnership (the "Seller"), and SPECTRASITE HOLDINGS, INC., a Delaware
corporation (the "Buyer").
RECITALS
Seller owns all of the issued and outstanding capital stock of
Stainless, Inc., a Pennsylvania corporation (the "Company"), which is engaged in
the business of fabricating communications towers. Seller desires to sell to
Buyer, and Buyer desires to acquire from Seller, all of the issued and
outstanding capital stock of the Company, and the parties desire to enter into
this Agreement to set forth the terms and conditions of such purchase and sale.
NOW, THEREFORE, intending to be bound legally, and in consideration of
the mutual covenants and agreements set forth herein, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINED TERMS
Section 1.1.......Defined Terms. All capitalized terms not otherwise defined
elsewhere in this Agreement shall have the meanings ascribed to such terms in
this Section 1.1.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person
and any officer, director, general partner or family member of such Person. For
purposes of this definition, "control" 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 such Person, whether through the
ownership of voting securities, by contract or otherwise. Without limiting the
foregoing, for purposes of this definition, SEPA shall be considered an
"Affiliate" of Seller and the Company.
"Business" means the business conducted by the Company, including the
engineering, fabrication, construction and maintenance of television and radio
transmission towers for entities in the broadcasting industry, and including the
business activities of the Company conducted at the Pine Forge facilities.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation Arrangement" means any plan or compensation arrangement
other than an Employee Plan, whether written or unwritten, which provides to
employees, former employees, officers, directors, independent contractors or
shareholders of the Company, any
<PAGE> 8
compensation or other benefits, whether deferred or not, in excess of base
salary or wages, including any bonus or incentive plan, stock rights plan,
deferred compensation arrangement, life insurance, stock purchase plan,
severance pay plan, change of control arrangements, and any other employee
fringe benefit plan.
"Consent" means the consents, permits and approvals of all Governmental
Authorities and other third parties (or notices to such parties) necessary to
consummate the sale of the Shares from Seller to Buyer and the other
transactions contemplated by this Agreement in a lawful manner and without
causing a default under, conflict with, or acceleration, violation or
termination of, any legal requirement or contract or agreement to which the
Seller or the Company is a party or bound, whether or not such consent is listed
on Schedule 3.2 or Schedule 5.3.
"Contracts" means all contracts, leases, non-governmental licenses and
other agreements and undertakings (including leases for personal or real
property and employment agreements), written or oral (including any amendments
and other modifications thereto) to which the Company is a party or which are
binding upon the Company or that relate to the assets or operations of the
business of the Company.
"Employee Plan" means any retirement or welfare plan or arrangement or
any other employee benefit plan as defined in Section 3(3) of ERISA which covers
employees, former employees, officers or directors of the Company, which the
Company or any ERISA Affiliate sponsors, maintains or by which the Company or
any ERISA Affiliate is bound on behalf of the employees, former employees,
officers or directors of the Company or to which the Company or any ERISA
Affiliate contributes or is required to contribute on behalf of the employees,
former employees, officers or directors of the Company.
"Environmental, Health and Safety Requirements" means all applicable
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders, all contractual obligations and all common law concerning public health
and safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and in effect at the time the
applicable representations and warranties and indemnities are made.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with the Company under Code ss.414(b), (c), (m), (n) or (o).
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
-2-
<PAGE> 9
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any federal, state, local political
subdivision or other governmental or regulatory department, court, commission,
board, bureau, agency, authority or instrumentality, foreign or domestic.
"Governmental Licenses" means all licenses, permits, authorizations,
determinations and registrations issued by the FCC, the FAA or any other
Governmental Authority to the Company in connection with the conduct of the
Business.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Liens" means any mortgage, pledge, lien, charge, claim, option,
conditional sales, security interest or other encumbrance, restriction or
limitation of any nature whatsoever.
"Material Adverse Effect" means any material adverse effect on, or
change in, the business, financial condition, net worth, assets, liabilities,
personnel, operations or results of operations of the Company or the ability of
Seller to execute, deliver or perform this Agreement and the other agreements
and documents contemplated hereby to which Seller is a party.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Multiemployer Plan" means a plan, as defined in ERISA ss.3(37) to
which Seller, the Company, or any ERISA Affiliate has contributed, is
contributing or is required to contribute.
-3-
<PAGE> 10
"Multiple Employer Plan" means a plan, as defined in ERISA Section
4063(a), which Seller, the Company, or any ERISA Affiliate sponsors or maintains
or to which Seller, the Company, or any ERISA Affiliate contributed, is
contributing or is required to contribute.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other type of
entity.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Real Property" means all real property, interests in real property,
leaseholds and subleaseholds, purchase options, easements, licenses, rights of
access, and rights of way and all buildings and other improvements owned,
leased, used or held by the Company, including the real property owned by SEPA
in Pine Forge, Pennsylvania, but excluding the real property owned by the
Company in Perkasie, Pennsylvania and the real property owned by SEPA in North
Wales, Pennsylvania.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"SEPA" means Stainless Enterprises of Pennsylvania, Inc.
"Shares" means the shares of common stock of the Company, par value
$1.00 per share.
"Subsidiary" means, with respect to the Company, any entity of which
the Company (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.
"Tax" or "Taxes" means any and all taxes, fees, duties, tariffs,
imposts and other charges of any kind imposed by any governmental or taxing
authority, including: federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, motor vehicle, ad valorem, value added,
production, sales, use, license, excise, franchise, capital, transfer,
recordation, payroll, employment, excise, severance, stamp, occupation, premium,
environmental (including taxes under Code ss.59A), customs duties, social
security (or similar), unemployment, disability, withholding, alternative or
add-on minimum, or other tax or governmental assessment, together with any
interest, additions, or penalties with respect thereto and any interest in
respect of such additions or penalties, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
information return or other statement or document (including any related or
supporting information, any schedule or
-4-
<PAGE> 11
attachment thereto and any amendment thereof) filed or required to be filed
with any federal, state, local or foreign taxing authority in connection with
the determination, assessment, collection, administration or imposition of an
Tax.
Section 1.2.......Terms Defined Elsewhere in this Agreement. In addition to the
defined terms in Section 1.1, the following is a list of defined terms used in
this Agreement and a reference to the Section hereof in which such term is
defined:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Buyer Preamble
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Buyer Indemnified Parties Section 11.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Consideration Section 2.2(b)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CERCLA Section 5.24(e)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Claimant Section 11.4(a)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Closing Section 9.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Closing Date Section 9.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COBRA Section 5.22(h)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Company Recitals
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Escrow Agent Section 11.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Financial Statements Section 5.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HSR Act Section 6.11
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Indemnification Funds Section 11.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Indemnifying Party Section 11.4(a)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Losses Section 11.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Material Consents Section 7.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Material Contracts Section 5.16
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Material Governmental Licenses Section 5.12
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Most Recent Financial Statements Section 5.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Most Recent Fiscal Month End Section 5.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Most Recent Fiscal Year End Section 5.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Permitted Liens Section 5.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Post-Closing Escrow Agreement Section 11.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Purchase Price Section 2.2(a)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Representatives Section 6.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEC Section 4.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Seller Preamble
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Seller Indemnified Parties Section 11.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SWDA Section 5.24(e)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Systems Section 5.29
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Termination Date Section 10.1(b)(i)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Treasury Regulations Section 5.11(f)
- -------------------------------------------------------------------------------
Section 1.3 Clarifications. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender and any other number as the context requires. Use of the word "including"
herein shall be deemed and
-5-
<PAGE> 12
construed to mean "including but not limited to."Except as specifically
otherwise provided in this Agreement in a particular instance, a reference
to a Section or Schedule is a reference to a Section of this Agreement or a
Schedule attached hereto, and the terms "hereof," "herein" and other like
terms refer to this Agreement as a whole, including the Schedules hereto, and
not solely to any particular part hereof.
ARTICLE 2
PURCHASE AND SALE OF SHARES
Section 2.1 Basic Transaction. Subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell to
Buyer, all of the issued and outstanding Shares, constituting all of the issued
and outstanding capital stock of the Company, free and clear of all Liens, for
the consideration specified in Section 2.2.
Section 2.2 Purchase Price. Subject to Section 6.15 and Section 7.7, Buyer
agrees to pay to Seller at the Closing Forty Million Dollars ($40,000,000) (the
"Purchase Price") in cash payable by wire transfer of immediately available
funds to an account designated by Seller in writing not later than two business
days before the Closing Date. The cash paid to Seller pursuant to this Section
2.2 may be referred to hereinafter as the "Cash Consideration."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER RELATING TO SELLER
Seller hereby represents and warrants to Buyer that the statements
contained in this Article 3 are true, correct and complete as of the date of
this Agreement.
Section 3.1 Organization . Seller is duly organized, validly existing and in
good standing as a limited partnership under the laws of the State of Delaware.
The ownership and structure chart (dated April 15, 1997) provided to Buyer with
respect to Seller and the Company is true and complete in all material respects
as of the date of this Agreement.
Section 3.2 Authorization of Transaction; Consents. Seller has full power and
authority to execute and deliver this Agreement and the agreements contemplated
hereby and to perform its obligations hereunder and thereunder. The execution,
delivery and performance by Seller of this Agreement and the other documents to
be delivered by Seller pursuant to this Agreement have been duly authorized by
all necessary partnership action on the part of Seller. This Agreement and the
other documents to be delivered by Seller pursuant to this Agreement have been
duly executed and delivered (or, in the case of any such documents to be
executed and delivered at Closing, when executed and delivered will be duly
executed and delivered) and constitute (or, in the case of any such documents to
be executed and delivered at Closing, when executed and delivered will
constitute) the valid and legally binding obligation of Seller, enforceable
against it in accordance with its terms and conditions. Except for any notices
that may be required pursuant to the HSR Act or as set forth in Schedule 3.2,
Seller does not need to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any
-6-
<PAGE> 13
Governmental Authority or other third party in order to consummate the
transactions contemplated by this Agreement and the agreements contemplated
hereby and the transactions contemplated hereby and thereby in a lawful manner
and without causing a default under, conflict with, or acceleration,
violation or termination of any material legal requirement or material
contract or agreement to which the Seller or the Company is a party or bound.
Section 3.3 Noncontravention. Except for any notices that may be required
pursuant to the HSR Act or as otherwise set forth in Schedule 3.2, neither the
execution and delivery of this Agreement and the agreements contemplated hereby
by Seller, nor the consummation of the transactions contemplated hereby and
thereby by Seller, will (A) violate any material statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
Governmental Authority to which Seller or the Company is subject or any
provision of their organizational documents or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any material agreement, contract, lease, license, instrument, or
other arrangement to which Seller or the Company is a party or by which either
of them is bound or to which any of their assets are subject.
Section 3.4 Brokers' Fees. Seller has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated hereby.
Section 3.5 The Shares. Seller owns beneficially and of record one hundred (100)
Shares, which constitute all of the issued and outstanding shares of capital
stock of the Company and are free and clear of any restrictions on transfer,
Taxes, Liens, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Seller is not a party to any option, warrant,
purchase right or other contract or commitment that could require it to sell,
transfer or otherwise dispose of any capital stock of the Company (other than
this Agreement) or that would require the Company to issue any capital stock of
the Company to any Person. Seller is not a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of any capital stock
of the Company, other than this Agreement, or any other agreement or
understanding relating to the Company or its capital stock.
Seller or its Affiliates acquired directly or indirectly the Shares on September
19, 1997.
Section 3.6 Disclosure. The representations and warranties contained in this
Article 3 do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements and information
in this Article 3 not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained
in this Article 4 are true, correct and complete as of the date of this
Agreement.
Section 4.1 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such
-7-
<PAGE> 14
qualification is required, except where the failure to be so qualified would
not have a material adverse effect on the business, financial condition, net
worth, assets, liabilities, personnel, operations or results of operation
of Buyer and its Subsidiaries taken as a whole or the ability of Buyer to
execute, deliver or perform this Agreement and the other agreements and
documents contemplated hereby to which Buyer is a party.
Section 4.2 Authorization of Transaction; Consents. Buyer has full power and
authority to execute and deliver this Agreement and the agreements contemplated
hereby and to perform its obligations hereunder and thereunder. The execution,
delivery and performance by Buyer of this Agreement and the other documents to
be delivered by Buyer pursuant to this Agreement have been duly authorized by
all necessary corporate action on the part of Buyer. This Agreement and the
other documents to be delivered by Buyer pursuant to this Agreement have been
duly executed and delivered (or, in the case of any such documents to be
executed and delivered at Closing, when executed and delivered will be duly
executed and delivered) and constitute (or, in the case of any such documents to
be executed and delivered at Closing, when executed and delivered will
constitute) the valid and legally binding obligation of Buyer, enforceable
against it in accordance with its terms and conditions. Except for any notices
that may be required pursuant to the HSR Act or as otherwise set forth on
Schedule 4.2, Buyer does not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any Governmental Authority
or other third party in order to consummate the transactions contemplated by
this Agreement and the agreements contemplated hereby in a lawful manner and
without causing a default under, conflict with, or acceleration, violation or
termination of any material legal requirement or material contract or agreement
to which the Buyer is a party or bound.
Section 4.3 Noncontravention. Except for any notices that may be required
pursuant to the HSR Act or as otherwise set forth on Schedule 4.2, neither the
execution and delivery by Buyer of this Agreement and the agreements
contemplated hereby, nor the consummation of the transactions contemplated
hereby and thereby by Buyer, will (A) violate any material statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Authority to which Buyer is subject or any provision of its
certificate of incorporation or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any material agreement, contract, lease, license, instrument, or
other arrangement to which Buyer is a party or by which it is bound or to which
any of its assets is subject.
Section 4.4 Brokers' Fees. Buyer has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement except for the broker fee payable to
Communications Equity Associates.
Section 4.5 Investment. Buyer (A) understands that the Shares, if any, have not
been, and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (B) is
acquiring the Shares solely for its own account for investment purposes and not
with a view to the distribution thereof, within the meaning of the Securities
Act, (C) is a sophisticated investor with knowledge and experience in business
and
-8-
<PAGE> 15
financial matters, (D) has received certain information concerning Seller
and the Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Shares, (E) is able to bear the economic risk and lack of liquidity inherent in
holding the Shares, and (F) is an Accredited Investor.
Section 4.6 SEC Filings. Buyer's filings with the Securities and Exchange
Commission (the "SEC") did not at the time they were filed contain any untrue
statement of a material fact or omit to state any material fact required to be
stated or necessary in order to make the statements made in those reports, in
light of the circumstances under which they were made, not misleading.
Section 4.7 Disclosure. The representations and warranties contained in this
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER CONCERNING THE COMPANY
Seller represents and warrants to Buyer that the statements contained
in this Article 5 are true, correct and complete as of the date of this
Agreement.
Section 5.1 Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Pennsylvania. The Company is duly authorized to
conduct business and is in good standing under the laws of the jurisdictions set
forth on Schedule 5.1. There are no jurisdictions where failure of the Company
to be so qualified would have a Material Adverse Effect. The Company has full
power and authority necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Schedule 5.1 lists the
directors and officers of the Company. Seller has delivered, or made available
on November 17, 1999 in the due diligence data room located at Sonnenschein Nath
& Rosenthal's Washington, D.C. offices, to Buyer correct and complete copies of
the articles of incorporation and bylaws of the Company (as amended to date) and
complete copies of the minute books (containing the records of meetings of the
stockholders, the board of directors and any committees of the board of
directors) for the period since September 19, 1997 and has afforded Buyer the
opportunity to inspect the minute books in the possession of Seller or the
Company for the period prior to September 19, 1997, the stock certificate books
and the stock record books of the Company. The Company is not in default under
or in violation of any provision of its articles of incorporation or bylaws.
Section 5.2 Capitalization. The entire authorized capital stock of the Company
consists of 1,000,000 shares of common stock, par value $1.00 per share, of
which 100 shares are issued and outstanding and held by Seller (and no shares
are held in treasury) and 1,000,000 shares of preferred stock, par value $0.10,
none of which is issued and outstanding. Other than as set forth in the
preceding sentence, there are no authorized or issued and outstanding capital
-9-
<PAGE> 16
stock or other securities of the Company. All of the Shares have been duly
authorized, are validly issued, fully paid and nonassessable, not subject to
preemptive rights and held of record and beneficially by Seller. All of the
Shares were issued in accordance with all applicable securities laws. There are
no outstanding or authorized options, warrants, purchase rights, redemption
rights, subscription rights, conversion rights, exchange rights or other
contracts or commitments of any character that could require the Company to
issue, sell or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of the capital stock of the Company or otherwise relating to the capital stock
of the Company.
Section 5.3 Noncontravention; Consents. Except for notices that may be required
pursuant to the HSR Act or as otherwise set forth in Schedule 5.3, neither the
execution and the delivery of this Agreement and the agreements contemplated
hereby by Seller, nor the consummation of the transactions contemplated hereby
and thereby by Seller, will (i) violate any material statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
Governmental Authority to which the Company is subject or any provision of the
articles of incorporation or bylaws or other similar governing instrument of the
Company or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
material agreement, contract, lease, license, instrument or other arrangement to
which the Company is a party or by which it is bound or to which any of its
assets is subject or result in the imposition of any Lien upon any of its
assets. Except as set forth in Schedule 5.3, the Company does not need to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any Governmental Authority or other third party in order for the
parties hereto to consummate the transactions contemplated by this Agreement in
a lawful manner and without causing a default under, conflict with, or
acceleration, violation or termination of, any material legal requirement or
material contract or agreement to which the Company is a party or bound.
Section 5.4 Brokers' Fees. The Company does not have any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
Section 5.5 Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the personal properties and assets used by it,
located on its premises, as shown on the Most Recent Balance Sheet or acquired
after the date thereof, free and clear of all Liens, except for (i) liens for
current taxes not yet due and payable or which are being contested in good faith
by appropriate proceedings and with respect to which appropriate reserves are
being maintained in accordance with GAAP, (ii) inchoate materialmen's,
mechanics', workmen's and repairmen's liens incurred in the Ordinary Course of
Business which are not yet due, (iii) easements and rights of way which do not
materially adversely affect the marketability or use or value of the applicable
parcel of real estate as presently used, and (iv) the Liens set forth in
Schedule 5.5 which shall be removed when indicated in Schedule 5.5 at or prior
to Closing (the "Permitted Liens").
-10-
<PAGE> 17
Section 5.6 Subsidiaries and Investments. The Company has no direct or indirect
Subsidiaries. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any Person.
Section 5.7 Financial Statements. Attached hereto as Schedule 5.7 are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of income, changes in stockholders' equity
and cash flow as of and for the fiscal years ended December 31, 1998 (the "Most
Recent Fiscal Year End") and for the period beginning September 19, 1997 and
ending December 31, 1997, for the Company; and (ii) unaudited balance sheets and
statements of income, changes in stockholders' equity and cash flow (the "Most
Recent Financial Statements") as of and for the ten month period ended October
31, 1999 (the "Most Recent Fiscal Month End") for the Company. The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods, are correct and complete
in all material respects, and are consistent with the books and records of the
Company (which books and records are correct and complete).
Section 5.8 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, no Material Adverse Effect has occurred. Without
limiting the generality of the foregoing, since that date, except as set forth
on Schedule 5.8:
(i) The Company has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, which are necessary for the operation of the
Business, other than for a fair consideration in the Ordinary Course of
Business;
(ii) The Company has not issued any note, bond or other debt security or
created, incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
(iii) The Company has not declared, set aside or paid any dividend or made any
distribution with respect to its capital stock or other equity interest (whether
in cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock or other equity;
(iv) The Company has not made any loan or advance to or made any distribution
to, or entered into any other transaction with, any of its directors, officers
or employees or with Seller or any of its Affiliates; and
(v) The Company has not committed to any of the foregoing.
Section 5.9 Undisclosed Liabilities. Except as set forth on Schedule 5.9, the
Company does not have any Liability, except for (i) Liabilities set forth on the
face of the Most Recent Balance Sheet and (ii) Liabilities which have arisen
after the date of the Most Recent Balance Sheet in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of or was caused by any breach of contract, breach of warranty, tort,
infringement or violation of law) (such Liabilities that are either set forth on
Schedule 5.9 or covered by clauses (i) or (ii) above are referred to as
"Disclosed Liabilities" and all other Liabilities of the Company are referred to
as "Undisclosed Liabilities"). Schedule 5.9 lists all
-11-
<PAGE> 18
capitalized lease or similar obligations of the Company. The Company is
not liable for any other indebtedness (including indebtedness for borrowed
money and purchase money financing arrangements).
Section 5.10 Legal Compliance. The Company has complied in all material respects
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of all
Governmental Authorities, and to the Knowledge of Seller, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against the Company alleging any failure so to
comply. To the Knowledge of Seller, the Company is not subject to FAA or FCC
licensing requirements or other rules and regulations.
Section 5.11 Tax Matters.
(a) The Company has (i) duly filed or caused to be filed in a timely manner all
Tax Returns that it was required to file with the appropriate Governmental
Authorities, and (ii) paid or made adequate provision in the Financial
Statements in accordance with GAAP for the payment of all Taxes owed by the
Company for all taxable periods or portions thereof through the Closing Date.
All of the Tax Returns referred to in clause (i) above are true, correct and
complete in all material respects. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(b) The Company has not executed any waiver or extension of any statute of
limitations on the assessment or collection of any Tax of the Company or with
respect to any liability arising therefrom. None of the Tax Returns filed by or
on behalf of the Company is currently being audited by any Governmental
Authority, and there are no other examinations, requests for information or
other administrative or judicial proceedings pending with respect to Taxes of
the Company. Neither the Internal Revenue Service nor any other Governmental
Authority has asserted any deficiency or claim for additional Taxes against, or
any adjustment of Taxes relating to, the Company. No claim has been made in
writing by any Governmental Authority in a jurisdiction where the Company does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(c) Schedule 5.11 lists, for the Company, all jurisdictions in which it is
required to file a state Tax Return and indicates, for each such jurisdiction,
whether it files a consolidated, combined or unitary Tax Return with another
entity.
(d) Seller has delivered to Buyer: (i) true, correct and
complete copies of all Tax Returns filed by or on behalf of the Company with
respect to taxable periods ending on or after December 31, 1996, and all backup
schedules and work papers related thereto, and (ii) all examination reports and
statements of deficiency asserted against or agreed to by or on behalf of the
Company with respect to Taxes since January 1, 1996.
(e) There are no proposed reassessments of any property owned
by the Company that would affect the Taxes of the Company after the Closing
Date. There are no Tax liens on any assets of the Company, other than liens for
current Taxes not yet due and payable.
-12-
<PAGE> 19
(f) Except as set forth on Schedule 5.11(f), the Company has
no liability for the Taxes of any Person (other than the Company) pursuant to
Section 1.1502-6 of the Treasury Regulations promulgated under the Code (the
"Treasury Regulations"), any comparable provisions of any state, local or
foreign Tax law in respect of a consolidated, combined or unitary Tax Return, or
by contract or otherwise. As of the Closing, there will be no tax sharing
agreements or similar arrangements in effect with respect to or involving the
Company.
(g) No consent under Section 341(f) of the Code has been
filed with respect to the Company.
(h) The Company does not have (i) any income or gain
reportable for a period ending after the Closing Date but attributable to a
transaction (e.g., an installment sale) occurring in, or a change in accounting
method made for, a taxable period ending on or prior to the Closing Date which
resulted in a deferred reporting of income or gain from such transaction or from
such change in accounting method, (ii) any income or gain that has been deferred
as a result of having arisen out of any "intercompany transaction," within the
meaning of Section 1.1502-13(b) of the Treasury Regulations, or (iii) any
"excess loss account," within the meaning of Section 1.1502-19(a) of the
Treasury Regulations, in the stock of any Subsidiary.
(i) The Company has not been a "United States real property
holding corporation," within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(j) The Company has not entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a non-deductible expense to the Company pursuant to Section 280G
of the Code.
Section 5.12 Governmental Licenses. Schedule 5.12 sets forth a list of all
material Governmental Licenses of the Company together with all amendments and
modifications thereto and all applications relating thereto (such Governmental
Licenses, the "Material Governmental Licenses"). The Material Governmental
Licenses constitute all of the licenses, permits and authorizations necessary to
conduct the business of the Company as currently operated in compliance in all
material respects with all laws, rules and regulations of all Governmental
Authorities. The Company is in compliance in all material respects with all of
the requirements of the Material Governmental Licenses. All of the Material
Governmental Licenses are valid and in full force and effect and no suspension,
cancellation or termination of any of the Material Governmental Licenses is
pending or, to the Knowledge of Seller, threatened. Except as set forth on
Schedule 5.12 and based solely on the terms of such Material Governmental
License, each Material Governmental License will continue to be valid and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby.
Section 5.13 Real Property. Schedule 5.13 lists all of the Real Property.
------------- -------------
(a) As of the Closing Date the Company will have good and marketable title to
the parcel of Real Property located in Pine Forge, Pennsylvania, free and clear
of any Liens, except for Permitted Liens;
-13-
<PAGE> 20
(b) With respect to any leased Real Property, the Company has a valid leasehold
interest to such parcel of Real Property, free and clear of any Liens other than
Permitted Liens, and assuming compliance by the Company with the terms of the
lease, the Company has a right of quiet enjoyment of such parcel of Real
Property;
(c) There are no pending or, to the Knowledge of Seller, threatened condemnation
proceedings, lawsuits or administrative actions relating to the Real Property or
other matters affecting adversely the current use, occupancy, or value thereof;
(d) To Seller's belief, the legal description for the Pine Forge parcel
contained in the deed transferring such parcel to the Company will describe such
parcel fully and adequately, the buildings and improvements are located within
the boundary lines of the described parcels of land, are not in violation of
applicable setback requirements, zoning laws and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted
non-conforming use" or "permitted non-conforming structure" classifications),
and do not encroach on any easement which may burden the land, and the land does
not serve any adjoining property for any purpose inconsistent with the use of
the land, and the property is not located within any flood plain or subject to
any similar type restriction for which any permits or licenses necessary to the
use thereof have not been obtained;
(e) Other than as disclosed on Schedule 5.13, there are no leases, subleases,
licenses, concessions or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion of such parcel of
Real Property other than the Company;
(f) With respect to the Pine Forge Real Property, there are no outstanding
options or rights of first refusal to purchase such parcel of Real Property, or
any portion thereof or interest therein;
(g) Other than as disclosed on Schedule 5.13, as of the Closing Date, there will
not be any parties (other than the Company) in possession of the Company's Real
Property;
(h) To Seller's belief: all facilities located on the Company's Real Property
are supplied with utilities and other services necessary for the operation of
such facilities, including gas, electricity, water, telephone, sanitary sewer
and storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules and regulations and are provided via public
roads or via permanent, irrevocable, appurtenant easements benefiting such
parcel of real property, the facilities are in good order and repair, and in a
good, safe, substantial condition, free from material defects; all plumbing,
heating, electrical and air conditioning systems and equipment and systems
therein are in good order and repair and operating condition; the facilities are
constructed and completed strictly in compliance with all applicable laws and
accepted standards of good materials and workmanship, all electrical, plumbing,
heating and air-conditioning and exterior drainage systems, in or on the Real
Property are in good condition and working order;
(i) To Seller's belief, all owned Real Property abuts on and has direct
vehicular access to a public road, or has access to a public road via a
permanent, irrevocable,
-14-
<PAGE> 21
appurtenant easement benefiting the parcel of real property, and access to
the property is provided by paved public right-of-way with adequate curb cuts
available;
(j) Seller has delivered to Buyer true and complete copies of any deed or lease
for the Real Property showing the current holder of such Real Property; and
(k) The Company does not own or hold title to any of the
parcels of real property located at the former corporate headquarters in North
Wales, Pennsylvania.
Section 5.14 Intellectual Property. Except as set forth on Schedule 5.14, the
Company owns or has the right to use pursuant to license, sublicense, agreement
or permission all Intellectual Property necessary for the operation of the
business of the Company as presently conducted. To the Knowledge of Seller, the
Company has not interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of third parties, and
the Company has not received any complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or violation (including any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of Seller, no third party
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of the Company. Schedule 5.14
identifies all registered or registrable Intellectual Property of the Company
and each pending application therefor and identifies each license, agreement or
other permission which the Company has granted to any third party with respect
to any of its Intellectual Property.
Section 5.15 Tangible Assets. The Company owns or leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of the
Business as presently conducted. The tangible assets are in a condition which is
reasonably satisfactory for the present operation of the Business. Schedule 5.15
sets forth a list of all items of tangible assets of the Company, including the
location thereof, having a book value of $25,000 or more.
Section 5.16 Contracts. Schedule 5.16 contains a true and complete list of all
Contracts for the construction of towers which have not been completed or which
have continuing obligations (including but not limited to indemnification or
warranty obligations), any executory Contract which involves expenditures or
receivables of more than $50,000 and any executory Contract which cannot be
terminated or completed within one (1) year from the Closing Date for less than
$10,000 ("Material Contracts"). Seller has delivered, or made available on
November 17, 1999 in the due diligence data room located at Sonnenschein Nath &
Rosenthal's Washington, D.C. offices, to Buyer a correct and complete copy of
each written Material Contract (as amended to date) and a written summary
setting forth the terms and conditions of each oral Material Contract. Each
Material Contract is legal, valid, binding, enforceable against the Company and,
to the Knowledge of Seller, each other party thereto, and in full force and
effect in accordance with its terms. Each Material Contract will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby.
Neither the Company, nor to the Knowledge of Seller, any other party thereto is
in material breach or default under any Material Contract, and to the Knowledge
of Seller, no event has occurred which with notice or lapse of time would
constitute a breach or default under any Material Contract, or permit
termination, modification or acceleration, or reduce the amount of payments due
the Company, or give rise to
-15-
<PAGE> 22
any liquidated damages, under any Material Contract. No party to any
Material Contract has repudiated any provision of such Contract.
Section 5.17 Notes and Accounts Receivable; Accounts Payable. All notes,
accounts receivable (except intercompany accounts that are being cancelled
pursuant to Section 6.17 hereof), unbilled work in process and other debts due
of the Company are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet. Since September 19, 1997, the Company has paid on a timely
basis all of their accounts payable and such accounts payable arose in the
Ordinary Course of Business.
Section 5.18 Powers of Attorney . Schedule 5.18 lists all outstanding
powers of attorney executed on behalf of the Company.
Section 5.19 Insurance. Schedule 5.19 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage:
(a) the name of the insurer, the name of the policyholder and the name of
each covered insured;
(b) the policy number and the period of coverage;
(c) the scope (including an indication of whether the coverage was on a claims
made, occurrence or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium adjustments or other loss-sharing
arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable and in full force and effect; (B) based solely on the terms
of the policy, the policy will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby; (C) neither the Company nor, to the
Knowledge of Seller, any other party to the policy is in breach or default
thereunder (including with respect to the payment of premiums or the giving of
notices), and to the Knowledge of Seller, no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration, under the policy; and (D) to
the Knowledge of Seller, no party to the policy has repudiated any provision
thereof. The Company has been covered since September 19, 1997 by insurance in
scope and amount, which, to Seller's good faith belief, is customary and
reasonable for the businesses in which it has engaged during such period.
Schedule 5.19 describes any self-insurance arrangements affecting the Company.
Since September 19, 1997, except as set forth on Schedule 5.19, the Company has
not been subject to, nor has any insurer defended or settled, on behalf of the
Company or paid out money on behalf of the Company with respect to any workers'
compensation claim or any claim under any insurance policy where the aggregate
amount at issue exceeded $10,000.
-16-
<PAGE> 23
Section 5.20 Litigation. Schedule 5.20 sets forth each instance in which the
Company (i) is subject to any outstanding injunction, judgment, order, decree,
ruling or charge or (ii) is a party to or, to the Knowledge of Seller, is
threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
Section 5.21 Employees.
(a) Schedule 5.21 contains a correct and complete list of (i)
the names and positions of each of the employees, officers and directors of the
Company and of each employee of the Seller or any affiliate of the Seller whose
services relate primarily to the Business, (ii) the annual salary or hourly wage
of each such person, and (iii) any oral or written contracts or agreements that
provide for employment of any individual as an employee or independent
contractor of the Company and which does not permit the termination of such
contract or agreement, without penalty, upon no more than 30 days prior notice.
Seller has provided to Buyer correct and complete copies (or descriptions, if
oral) of all contracts or agreements listed in Schedule 5.21.
(b) No employees of the Company are presently members of any
collective bargaining unit with respect to their employment with the Company.
There are no collective bargaining agreements and no contracts or agreements
with labor unions, relating to, involving or affecting the employees of any of
the Company to which the Company is a party or by which it is bound, and the
Company has no obligation to bargain with any labor organization with respect to
any such persons. The Company is not currently, nor since September 19, 1997,
has it been, the subject of any certification or decertification drive, and, to
the Knowledge of Seller, no such organizing activity is threatened. To the
Knowledge of Seller, no union or other collective bargaining representative
claims to represent, has been certified as representing or has requested that
the Company recognize such union or collective bargaining representative as
representing any of the employees of the Company for collective bargaining
purposes. Neither Seller nor the Company has recognized or agreed to recognize
or is required to recognize any union as the collective bargaining
representative for any employee of the Company.
(c) There are no unfair labor practice charges pending against
the Company and, to the Knowledge of Seller, there are neither any demands for
recognition or any other requests or demands from a labor organization for
representative status with respect to any persons employed by the Company and no
such activity is threatened. Neither the Company nor the Business is currently,
or since September 19, 1997, has been, the subject of any strike, work stoppage,
picketing or work slowdown, or any other labor dispute, controversy or
proceeding, and to the Knowledge of Seller, no such activity is threatened. The
Company has complied in all material respects with all laws relating to the
employment and safety of labor, including provisions relating to wages, hours,
benefits, collective bargaining, discrimination, the payment of social security
and other payroll expenses, and all applicable occupational safety and health
acts, laws and regulations. The Company is not subject to any investigation or
other challenge relating to the misclassification of employees as independent
contractors. The Company is not required to comply with any government
contractor affirmative action obligations.
-17-
<PAGE> 24
Section 5.22 Employee Benefits.
(a) Each Employee Plan and Compensation Arrangement is listed and described in
Schedule 5.22, and complete and accurate copies of (including any amendments to)
any such written Employee Plans and Compensation Arrangements (or related
insurance policies) have been furnished, or made available on November 17, 1999
in the due diligence data room located at Sonnenschein Nath & Rosenthal's
Washington, D.C. offices, to Buyer along with copies of any employee handbooks
or similar documents describing such Employee Plans and Compensation
Arrangements. Any unwritten Employee Plans or Compensation Arrangements also are
listed in Schedule 5.22, and complete descriptions have been furnished to Buyer.
Except as disclosed in Schedule 5.22, neither Seller nor the Company is a party
to and does not have in effect or to become effective after the date of this
Agreement any plan, arrangement or other scheme which will become an Employee
Plan or Compensation Arrangement (including any bonus, cash or deferred
compensation, severance, medical, pension, profit sharing or thrift, stock
option, employee stock ownership, life or group insurance, death benefit,
vacation, sick leave, disability or trust agreement or arrangement), or any
amendment to an Employee Plan or Compensation Arrangement. Except for the
participation by Bend Broadcasting, LLC in the Stainless, Inc. 401(k) Savings
Plan, no Employee Plan or Compensation Arrangement is sponsored by, maintained
by or contributed to by any ERISA Affiliate, and no Employee Plan or
Compensation Arrangement provides benefits to the employees, former employees or
independent contractors of any ERISA Affiliate with respect to services
performed for the ERISA Affiliate by such employees, former employees or
independent contractors
(b) Seller has furnished to Buyer the Forms 5500 filed for each of the Employee
Plans (including all attachments and schedules), actuarial reports, summaries of
material modifications, summary annual reports, and any other employer notices
(including, governmental filings and descriptions of material changes to
Employee Plans or Compensation Arrangements) relating to the Employee Plans for
the last three plan years, and the current summary plan descriptions.
(c) Except as set forth in Schedule 5.22, each Employee Plan and Compensation
Arrangement has been administered in compliance with its own terms and in
material compliance with the provisions of ERISA, the Code, the Age
Discrimination in Employment Act and any other applicable Federal or state laws.
(d) Neither the Company nor any ERISA Affiliate is contributing to, is required
to contribute to, or has contributed within the last five years to, any
Multiemployer Plan or Multiple Employer Plan, and neither the Company nor any
ERISA Affiliate has incurred within the last five years, or reasonably expects
to incur, any "withdrawal liability," as defined under Section 4201 et seq. of
ERISA. Neither the Company nor any ERISA Affiliate has terminated within the
last five years an employee pension benefit plan, as defined under Section 3(2)
of ERISA, which was subject to Title IV of ERISA. Neither the Company nor any
ERISA Affiliate has ever engaged in a transaction to evade liability, as
described under Section 4069 of ERISA.
-18-
<PAGE> 25
(e) At all times on or prior to the Closing, each Employee Plan, to the extent
such Employee Plan is intended to be tax-qualified, satisfies all minimum
coverage and minimum participation requirements, if any, imposed on such
Employee Plan by the applicable terms of the Code and ERISA.
(f) Neither Seller nor the Company is aware of the existence of any governmental
inspection, investigation, audit or examination of any Employee Plan or
Compensation Arrangement or of any facts which would lead them to believe that
any such governmental inspection, investigation, audit or examination is pending
or threatened. There exists no action, suit or claim (other than routine claims
for benefits) with respect to any Employee Plan or Compensation Arrangement
pending or, to the Knowledge of Seller, threatened against any of such plan or
arrangement, and neither Seller nor the Company possesses any knowledge of any
facts which could give rise to any such action, suit or claim.
(g) Neither the Company nor any ERISA Affiliate sponsors, maintains or
contributes to any Employee Plan or Compensation Arrangement that provides
medical benefit coverage to former employees of the Company, except to the
extent required by Section 4980B of the Code. Except as described in Schedule
5.22, neither the Company nor any ERISA Affiliate sponsors, maintains or
contributes to any Employee Plan or Compensation Arrangement that provides death
benefit coverage to former employees of the Company. To the extent any Employee
Plan or Compensation Arrangement provides death benefit coverage to former
employees of the Company, the benefits provided thereunder are fully insured and
have been provided in compliance with the applicable group term life insurance
policy.
(h) Except as described in Schedule 5.22, with respect to each Employee Plan
and, to the extent applicable, each Compensation Arrangement: (i) each Employee
Plan that is intended to be tax-qualified, and each amendment thereto, is the
subject of a favorable determination letter, and no plan amendment that is not
the subject of a favorable determination letter would affect the validity of an
Employee Plan's letter; (ii) no condition or event exists or is expected to
occur that could subject, directly or indirectly, the Company, Seller or any
ERISA Affiliate to any material liability, contingent or otherwise, or the
imposition of any Lien on the assets of the Company, Seller or any ERISA
Affiliate under the Code or Title IV of ERISA whether to the PBGC, the Internal
Revenue Service, or any other person; (iii) no Employee Plan is subject to
Section 302 or Title IV of ERISA; (iv) no Prohibited Transaction has occurred
which would subject the Company or any ERISA Affiliate to any liability; (v)
which provides severance or severance like benefits may be terminated by the
Company without any penalty and without any liability to pay severance benefits
in connection with any terminations of employment which occur after the date
such Employee Plan or Compensation Arrangement is terminated; (vi) which is a
"group health plan," as defined under Section 601 et seq of ERISA and 4980B of
the Code ("COBRA"), has provided "continuation coverage" to each "covered
employee" and "qualified beneficiary" entitled thereto (with each term as
defined under COBRA); and (vii) all contributions, premiums, payments or
liabilities accrued, in whole or in part, under each Employee Plan or
Compensation Arrangement or with respect thereto as of the Closing will be paid
by the Company or Seller, on or prior to Closing or shall be reflected on the
financial statements of the Company or Seller as of Closing and shall be paid
within the time period permitted by ERISA and the Code.
-19-
<PAGE> 26
(i) Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (i) result in any material payment
(including, without limitation, severance, or unemployment compensation)
becoming due to any director or employee of the Company; (ii) result in the
acceleration of vesting under any Employee Plan or Compensation Arrangement; or
(iii) materially increase any benefits otherwise payable under any Employee
Plan; and any such payment or increase in benefits is fully deductible under the
Code, including but not limited to Sections 162, 280G and 404 of the Code.
Section 5.23 Guaranties. Except for guaranties that are disclosed on Schedule
5.23 and that will be terminated prior to Closing, the Company is not a
guarantor or otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
Section 5.24 Environmental, Health and Safety Matters. Except as set forth on
Schedule 5.24 and except for any matter relating to the real property,
facilities or operations at Perkasie, Pennsylvania or the property in North
Wales, Pennsylvania owned by SEPA:
(a) The Company has complied in all material respects and is in compliance in
all material respects with all Environmental, Health and Safety Requirements and
to Seller's Knowledge, each predecessor of the Company has complied in all
material respects with all Environmental, Health and Safety Requirements.
(b) Without limiting the generality of the foregoing, the Company has obtained
and complied with, and is in compliance with, in all material respects all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health and Safety Requirements for the occupation of its
facilities and the operation of its business.
(c) The Company has not received any written or oral notice, report or other
information regarding any actual or alleged violation of Environmental, Health
and Safety Requirements or any Liability, including any investigatory, remedial
or corrective obligations, relating to any of them or its facilities arising
under Environmental, Health and Safety Requirements.
(d) To the Knowledge of Seller, none of the following exists at any property or
facility owned or operated by the Company: (i) underground storage tanks, (ii)
asbestos-containing material in any form or condition, (iii) materials or
equipment containing polychlorinated biphenyls, or (iv) landfills, surface
impoundments or regulated treatment, storage or disposal areas.
(e) None of the Company, or to Seller's Knowledge, the Company's predecessors
has treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any substance, including any hazardous
substance, or owned or operated any property or facility (and no such property
or facility is contaminated by any such substance) in a manner that has given or
could reasonably be expected to give rise to material liabilities of the
Company, including any such liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
-20-
<PAGE> 27
("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health and Safety Requirements.
(f) Neither this Agreement nor the consummation of the transaction that is the
subject of this Agreement will result in any obligations for site investigation
or cleanup, or notification to or consent of any Government Authorities or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health and Safety Requirements.
(g) The Company has not, either expressly or by operation of law, assumed or
undertaken any material liability, including any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health and
Safety Requirements.
Section 5.25 Certain Business Relationships with the Company and Its Affiliates.
Except as set forth in Schedule 5.25, neither Seller nor any Affiliate thereof
or of the Company has been involved in any business arrangement or relationship
with the Company within the past 12 months, and, except for the Pine Forge
property to be conveyed to the Company prior to Closing pursuant to Section
6.15(c), neither Seller nor any Affiliate thereof or of the Company owns or has
any right to use any asset, tangible or intangible, which is used in the
Business. There are no tax sharing agreements between the Company and Seller or
any of Seller's Affiliates.
Section 5.26 Bank Accounts and Credits . Schedule 5.26 lists all banks and
lending institutions with which the Company maintains any account or has a
credit facility, and sets forth the names of all individuals who have signing
authority for any such account.
Section 5.27 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged or
defective, subject only to the reserve for inventory writedown set forth on the
face of the Most Recent Financial Statements as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company.
Section 5.28 Product and Service Warranty. Each product manufactured, sold,
leased or delivered, and each service performed, by the Company has been in
conformity in all material respects with all applicable contractual commitments
and all express and implied warranties, and the Company has no Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Financial Statements as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company. No
product manufactured, sold, leased or delivered, and no service performed, by
the Company is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale, lease or service. Schedule
5.28 includes copies of the standard terms and conditions of sale and service
for the Company (containing applicable guaranty, warranty, and indemnity
provisions).
-21-
<PAGE> 28
Section 5.29 Year 2000 Compliance. Schedule 5.29 lists each of the computer
software programs, hardware, databases and embedded control systems used by the
Company (the "Systems") and describes the status of such Systems regarding their
ability (a) to accurately process 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 (b) operate accurately
with other software and hardware that use standard format (4 digits) for
representation of the year.
Section 5.30 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 5 not misleading.
ARTICLE 6
COVENANTS
Section 6.1 Conduct of Business of the Company. Except as contemplated by this
Agreement or with the prior written consent of Buyer, during the period from the
date of this Agreement to the Closing, Seller shall cause the Company to conduct
its operations only in the Ordinary Course of Business consistent with past
practice, and Seller will use its reasonable best efforts to, and will cause the
Company to, preserve intact the business and organization of the Company, to
keep available the services of the present officers and key employees of the
Company, and to preserve the good will of customers, suppliers and all other
persons having business relationships with the Company.
(a) Except as otherwise contemplated by this Agreement, prior to the Closing,
Seller shall not permit the Company to, without the prior written consent of
Buyer:
(i) adopt any amendment to the articles of incorporation or bylaws of the
Company;
(ii) issue, reissue or sell, or authorize the issuance, reissuance or sale of
any additional shares or other equity interest in the Company or securities
convertible into any rights, warrants or options to acquire any additional
shares or other equity interest in the Company;
(iii) declare, set aside or pay any dividend or make any other distribution
(whether in cash, securities or property or any combination thereof) other than
as provided in Section 6.15 of this Agreement or pay any obligations or
Liabilities of the Company other than in the Ordinary Course of Business;
(iv) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any of its
shares or other equity interest;
(v) increase the compensation or fringe benefits payable or to become payable to
its directors, officers or employees, or pay any benefit not required by any
existing
-22-
<PAGE> 29
Employee Plan or Compensation 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 Employee Plans or Compensation Arrangements), or enter into, review,
terminate, amend or waive any material provision of any employment or severance
agreement with, any director, officer or other employee of the Company or
establish, adopt, enter into, or amend any collective bargaining agreement,
employment agreement, termination agreement, Employee Plan, or Compensation
Arrangement;
(vi) acquire, sell, lease, license, transfer, pledge, encumber, grant or dispose
of (whether by merger, consolidation, purchase, sale or otherwise) any assets,
including any capital stock or equity interest in any Subsidiary (other than as
provided in Section 6.15 of this Agreement or 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);
(vii) incur or assume or prepay any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person, or make any
loans, advances or capital contributions to, or investments in, any other
Person;
(viii) change any accounting policies or procedures, other than in the Ordinary
Course of Business or as required by GAAP;
(ix) waive, release, assign, settle or compromise any material rights, claims or
litigation;
(x) take any action that would make any representation or warranty set forth in
Article 5 to become untrue in any material respect;
(xi) make any Tax election or settle or compromise any material federal, state,
local or foreign income Tax Liability;
(xii) enter into any Contract except for any Contract entered into in the
Ordinary Course of Business or amend or terminate any existing Material
Contract;
(xiii) incur any Liability except for Liabilities incurred by the Company in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of or was caused by any breach of contract, breach of
warranty, tort, infringement or violation of law);
(xiv) 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;
(xv) make any material increase in the size or materially change the
composition of the workforce of the Company; or
-23-
<PAGE> 30
(xvi) voluntarily recognize any union or other collective bargaining
representative as the collective bargaining representative for any of the
employees of the Company.
(b) Seller shall cause the Company to do the following:
(i) maintain its assets in good operating condition (ordinary wear and tear
excepted), with inventories of spare parts and expendable supplies being
maintained at levels consistent with past practices and to make all repairs or
replacements necessary to restore any assets to the condition represented and
warranted in Article 5 of this Agreement;
(ii) maintain the existing insurance policies in full force and effect;
(iii) maintain the books and records of the Company in accordance with past
practices;
(iv) furnish to Buyer within twenty days after the end of each month monthly
financial statements for the month just ended containing balance sheets and
statements of income and cash flow for such period which shall comply with the
representations and warranties set forth in Section 5.7;
(v) comply in all material respects with all laws, rules, regulations and with
all Contracts and Governmental Licenses and keep in full force and effect all
Material Governmental Licenses;
(vi) pay all of the obligations and Liabilities of the Company in the
Ordinary Course of Business; and
(vii) preserve the corporate existence of the Company and the Subsidiaries.
Section 6.2 Seller's Actions. Seller shall not sell, transfer or encumber any of
the Shares and shall not enter into any commitment to sell, transfer or encumber
any of the Shares. Seller shall cause the Company to comply with all of the
terms of this Agreement applicable to them, including Section 6.1. To the extent
that any covenant or agreement in this Article 6 requires Seller to cause or to
not permit (or words of similar import) the Company to take a certain action,
such covenant or agreement of Seller shall not be deemed breached by Seller so
long as the action at issue is related to a matter which is principally in
control of the Company's management and so long as Seller used its "reasonable
best efforts" to cause or to not permit the Company to take such action.
Section 6.3 Other Actions. During the period from the date hereof to the
Closing, Seller shall not, and shall cause the Company not to, take any action
that would, or that would reasonably be expected to, result in any of the
conditions to the transactions contemplated hereby set forth in Article 7 or 8
hereof not being satisfied or satisfaction thereof being delayed.
Section 6.4 Notification of Certain Matters. During the period from the date
hereof to the Closing, Seller shall promptly notify Buyer of the occurrence of
any fact or event that
-24-
<PAGE> 31
would reasonably be expected (i) to cause any representation or warranty
of Seller contained in this Agreement to be untrue in any material respect,
(ii) to cause any covenant, condition or agreement of Seller hereunder not t
be complied with or satisfied in all material respects or (iii) to cause a
Material Adverse Effect. During the period from the date hereof to the
Closing, Buyer shall promptly notify Seller of the occurrence of any fact or
event that would reasonably be expected (i) to cause any representation
or warranty of Buyer to be untrue in any material respect or (ii) to cause any
covenant, condition or agreement of Buyer hereunder not to be complied with
or satisfied in all material respects.
Section 6.5 Access to Information. During the period from the date hereof to the
Closing, Seller shall cause the Company to: (i) provide to Buyer at Buyer's
expense (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 Seller to the assets and properties, personnel and the
books and records of the Company and (ii) furnish promptly such information
concerning the business, properties, contracts, assets, liabilities, personnel
and other aspects of the Company as Buyer or its Representatives may reasonably
request.
Section 6.6 Cooperation; Further Assurances. Subject to the terms and conditions
provided in this Agreement and to applicable legal requirements, each of the
parties hereto agrees to use its commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done 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 Articles 7 and 8 are satisfied and to
consummate and make effective the transactions contemplated by this Agreement.
No party to this Agreement shall take any action that is inconsistent with its
obligations under this Agreement. Notwithstanding the foregoing, Buyer shall not
be required to expend any monies to obtain any Consent to be obtained by Seller
or to accept any condition or change in terms (other than ministerial,
immaterial conditions or changes) to obtain any Consent to be obtained by
Seller.
Section 6.7 Public Announcements. The initial press release concerning the sale
of the Shares to Buyer shall be a joint press release reasonably acceptable to
both parties and, thereafter until the Closing, each party shall obtain the
consent of the other party (which consent will not be unreasonably withheld)
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 obtaining such consent, except to the extent public disclosure may be
required to comply with applicable law, including under the securities laws or
the requirements of any securities exchange, as determined by the disclosing
party in good faith and after prior written notice to the other party hereto
(provided that Buyer has already informed Seller that Buyer intends to file a
registration statement with the Securities Exchange Commission on or about
December 30, 1999 that will include certain disclosures regarding this
Agreement).
Section 6.8 Confidentiality. Except for such disclosures to officers, directors,
employees, advisors and representatives as may be appropriate in furtherance of
this transaction and except for disclosures that may be required to comply with
applicable law, including under
-25-
<PAGE> 32
the securities laws or the requirements of any securities exchange, each party
hereto shall keep, and cause its Affiliates, officers, directors, employees,
advisors and representatives to keep, confidential the terms and conditions
of this Agreement so long as they have not been made publicly available in
accordance with Section 6.7 hereof and all information of a confidential
nature obtained by it from the other party hereto or the Company in
connection with the transactions contemplated by this Agreement,regardless
of whether the Closing occurs (it being understood that after the Closing all
proprietary information of the Company shall be owned by and for the benefit
of Buyer). If this Agreement is terminated without a Closing, (i) each
party hereto will return to the other parties all documents and other
materials obtained from the other party in connection herewith and (ii) Buyer
shall not solicit or encourage or cause others to solicit or encourage any
employee of the Company to terminate his or her employment with the Company
and shall not hire any current or former employee of the Company for a period of
12 months after the end of the term of such employment.
Section 6.9 Expenses; Taxes. Whether or not the transaction contemplated by this
Agreement is consummated and except as otherwise expressly set forth herein, all
expenses, including brokers' fees, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that the filing fee under the HSR Act shall be entirely
borne by the Buyer and all such expenses of the Company shall be entirely borne
by Seller. All transfer Taxes payable as a result of this transaction shall be
borne entirely by Buyer, other than any transfer or other Taxes payable in
connection with or as a result of the real estate transfers contemplated by
Section 6.15 hereof, which shall be borne entirely by Seller.
Section 6.10 Control of the Company's Operations. Nothing contained in this
Agreement shall give Buyer, directly or indirectly, any right to control or
direct the Company's operations prior to the Closing.
Section 6.11 Hart-Scott-Rodino Filing. Seller and Buyer have filed the
pre-merger notifications which are required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
(the "HSR Act") with respect to the transactions contemplated hereby. Each party
shall furnish to the other such necessary information and reasonable assistance
as any other party may request in connection with its preparation of necessary
filings or submissions pursuant to the provisions of the HSR Act. If the Federal
Trade Commission or the Department of Justice requests additional information
from the parties or imposes any condition upon the transactions contemplated
hereby, the parties will cooperate with each other, the Federal Trade Commission
and the Department of Justice; provided, however, that nothing herein shall
compel either party or any affiliate of such party to comply with any condition
imposed upon such party or such affiliate that is adverse to the interests of
such party or its affiliates as determined by such party in the exercise of its
reasonable business judgment.
Section 6.12 Other Buyer Transactions. Notwithstanding anything to the contrary
in this Agreement, nothing in this Agreement shall prevent or restrict Buyer and
its subsidiaries from engaging in any merger, acquisition, business
-26-
<PAGE> 33
combination or other transaction (whether or not Buyer is the surviving
corporation), provided that such merger, acquisition, business
combination or other transaction would not prevent Buyer from complying with
or consummating its obligations under this Agreement.
Section 6.13 Consents. Seller shall, or shall cause the Company to, as soon as
practicable after the execution of this Agreement, give all notices of this
Agreement or the transaction contemplated hereby to Governmental Authorities and
other third parties to the extent required by any law, rule, regulation or
Contract. Except as disclosed on Schedule 5.3 (Item 3), Seller shall, and shall
cause the Company to, use commercially reasonable efforts to obtain, as soon as
practicable after the execution of this Agreement, all of the Consents without
any change in the terms of any Contract or License to which such Consent relates
(other than ministerial, immaterial changes or conditions). Seller shall
promptly notify Buyer of any difficulty in obtaining any Consents.
Section 6.14 Employee Benefits Matters.
(a) Prior to the Closing, Seller and the Company shall take any and all action
necessary or appropriate to (i) transfer to the Northwest Broadcasting Limited
Partnership 401(k) Savings Plan (the "Seller Plan") all of the assets and
liabilities of the Stainless, Inc. 401(k) Plan ("Company 401(k) Plan") which are
attributable to employees or former employees of any ERISA Affiliate which has
been a participating employer in the Company 401(k) Plan, including but not
limited to Bend Broadcasting, LLC, such transfer being conditioned upon the
receipt by Company 401(k) Plan of evidence reasonably acceptable to the trustee
of Company 401(k) Plan that the Seller Plan is intended to be tax-qualified
under Code Section 401(a), and (ii) terminate immediately prior to the Closing
the Company 401(k) Plan.
(b) If requested by Buyer, at the Closing Seller will cause the Company to pay
all normal year-end bonuses for 1999 to the Company employees (which Seller
estimates in good faith will be approximately $200,000). Notwithstanding the
previous sentence, Seller shall be entirely responsible for all payments that
may be due or may become due to Doug Standley and Bob Kramm as a result of the
consummation of the transactions contemplated hereby.
(c) Seller shall assume and maintain full responsibility for
all liabilities, including but not limited to any applicable penalties imposed
by the Department of Labor or Internal Revenue Service, with respect to the
Company's failure to file complete and accurate Internal Revenue Service Forms
5500 with respect to its cafeteria plan, or any employee benefit plan, as
defined in Section 3(3) of ERISA, which was filed or required to be filed on or
before December 31, 1999.
Section 6.15 Real Estate Matters.
(a) During the period after the execution hereof to the Closing, Seller shall
cause the Company to provide to Buyer at Buyer's expense reasonable access to
the Real Property and reasonable cooperation upon prior notice to the Company in
connection with Buyer's Real Property due diligence for the sole purpose of
allowing Buyer and its agents to reasonably prepare surveys and title
commitments or policies.
-27-
<PAGE> 34
(b) The real property parcel owned by the Company located in
Perkasie, Pennsylvania shall be transferred at or before the Closing to the
redevelopment agency of the local borough or to another person, at Seller's sole
cost and expense and without any cost or expense to Buyer or the Company. To the
extent any costs or expenses (including Taxes) resulting from such transfer are
known at Closing, such costs will be paid out of and reduce the Cash
Consideration paid to Seller at Closing.
(c) To the extent the real property parcel located in Pine
Forge, Pennsylvania is not owned by the Company, Seller shall cause it to be
transferred at or before the Closing to the Company, at Seller's sole cost and
expense and without any cost or expense to Buyer or the Company by means of a
capital contribution by Seller. To the extent any costs or expenses (including
Taxes) resulting from such transfer are known at Closing, such costs will be
paid out of and reduce the Cash Consideration paid to Seller at Closing. The
transfer shall be effected by a warranty deed in a form reasonably acceptable to
Buyer. As soon as practicable after the Closing Seller shall cause a
satisfactory release or other instrument to be delivered to Buyer that will
release of record in the real estate records the mortgage granted to Continental
Bank in or about 1971 that encumbers the title to the Pine Forge real property,
at Seller's sole cost and expense and without any cost or expense to Buyer or
the Company.
(d) To the extent still owned by the Company, Seller shall
cause the real property parcels located in North Wales, Pennsylvania to be
transferred out of the Company at or prior to Closing in a manner reasonably
acceptable to Buyer at Seller's sole cost and expense and without any cost or
expense to Buyer or the Company. To the extent any costs or expenses (including
Taxes) resulting from such transfer are known at Closing, such costs will be
paid out of and reduce the Cash Consideration paid to Seller at Closing.
(e) Seller shall cause the lease between the Company, as
landlord, and Nehemiah's Way of North Wales, Inc., as tenant, with respect to
the real property parcels located at 217 East Montgomery Avenue, North Wales,
Pennsylvania and all of the Company's duties and obligations thereunder, to be
assigned to SEPA or a third party at or prior to the Closing at Seller's sole
cost and expense and without any cost or expense to Buyer or the Company.
Section 6.16 Tax Matters.
(a) Tax Returns. Seller and the Company shall be responsible
for the preparation and filing of, and the payment of Taxes with respect to, all
Tax Returns of the Company that are required to be filed after the date hereof
and on or prior to the Closing Date; provided, however, that in preparing such
Tax Returns, Seller and the Company shall consult with Buyer in good faith and
shall provide Buyer with drafts of such Tax Returns (together with the relevant
back-up information) for review and consent by Buyer, which consent shall not be
unreasonably withheld, at least 20 days prior to filing. All such Tax Returns
shall be prepared and filed in a manner consistent with the past custom and
practice of the Company.
(b) Retention of Records. From and after the date hereof until
the Closing, Seller shall cause the Company to retain all Tax Returns and all
books, records and other information relating to any Tax or Tax Return of the
Company, and to abide by all record retention agreements entered into with any
Governmental Authority.
-28-
<PAGE> 35
(c) Within twenty (20) days following the Closing, Seller
shall (or shall cause the Company to) deliver to Buyer true, correct and
complete information, as of the end of the most recently concluded taxable year
of the Company, regarding: (i) the Tax basis of the assets of the Company and
the depreciation and amortization schedules relating to such assets, and (ii)
the earnings and profits, net operating loss carryovers, and other Tax
attributes, credits and carryover items (and any limitations applicable to any
of the foregoing) of the Company.
Section 6.17 Intercompany Accounts. Buyer and Seller hereby agree and
acknowledge that all of the receivables, payables and loans between the Company
(on the one hand) and Seller and its Affiliates (on the other hand) shall be
deemed automatically cancelled as of the Closing without further action by the
parties.
Section 6.18 Standby Letter of Credit. Buyer hereby agrees to take all
commercially reasonable actions necessary to assist Seller in obtaining a
release, subject to the occurrence of the Closing, of its obligation to maintain
a letter of credit in connection with the construction of a tower by the Company
in North Carolina.
Section 6.19 Schedule Updates. Following the execution of this Agreement, Seller
shall have the right to update the Schedules to this Agreement to disclose
matters that arise after and relate to the period following the execution of
this Agreement. If any such disclosed matters, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, Buyer will be
entitled to terminate this Agreement pursuant to Article 10. If Buyer does not
terminate this Agreement and closes the transactions contemplated by this
Agreement, such disclosed matters shall be deemed to have been disclosed on the
Schedules to this Agreement from the time of execution of this Agreement for all
purposes of Buyer's indemnification rights under Article 11.
Section 6.20 Post-Closing Covenants.
(a) General. If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article 11). Seller acknowledges and
agrees that from and after the Closing Buyer will be entitled to possession of
all documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company.
(b) Transition. Seller shall not take any action that is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier or
other business associate of the Company from maintaining the same business
relationships with the Company after the Closing as it maintained with the
Company prior to the Closing. Seller will refer all customer inquiries relating
to the businesses of the Company to the Buyer from and after the Closing.
-29-
<PAGE> 36
(c) Covenant Not to Compete. For a period of three years from and after the
Closing Date, neither Seller nor its general partner nor any of its direct or
indirect subsidiaries, nor its Class B or Class C limited partners will engage
directly or indirectly in the business of the engineering, fabrication,
construction and maintenance of television and radio transmission towers;
provided, however, that no owner of less than 5% of the outstanding stock of any
publicly-traded corporation shall be deemed to engage solely by reason thereof
in the prohibited business. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6.20(c) is
invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(d) Pine Forge Environmental Due Diligence.
(1) At no time before or after the Closing shall
Buyer or its Affiliates (including the Company after the Closing)
undertake, or cause to be undertaken, any environmental sampling
(whether intrusive or non-intrusive), or analysis of soil, groundwater,
soil gas, surface water or any other surface or subsurface condition
at, on or under the real property or facilities at Pine Forge,
Pennsylvania, except if any of the foregoing is compelled or required
by a Governmental Authority or the lenders of Buyer or its Affiliates,
it being understood that subject to Section 11.6(e)(2) hereof and
subject to Section 6.20(d)(2) below, this Section 6.20(d)(1) shall in
no way prohibit Buyer or the Company from discharging any legal
obligation imposed on Buyer or the Company to remediate any
environmental condition at, on or under the real property or facilities
at Pine Forge or from making a claim for indemnification therefor
against Seller pursuant to Section 11.2 hereof.
(2) In the event any third party (other than Buyer or
its Affiliates if compelled or required by a Governmental Authority or
the lenders of Buyer or its Affiliates, and other than any other Person
acting on behalf of such Governmental Authority or lenders) undertakes,
or causes to be undertaken, any environmental due diligence that would
be prohibited by Section 6.20(d)(1) above were Buyer or its Affiliates
undertaking such due diligence, the indemnification provided in
Sections 11.2(e) and Section 11.2(f) shall immediately terminate and be
of no further force and effect, except as to claims thereunder that
have already been made by Buyer prior to such time, in respect of which
Buyer's indemnification rights shall survive as in effect before giving
effect to this Section 6.20(d)(2).
Section 6.21 Insurance. The parties agree that the Company and Buyer will not be
required after the closing to retain SEPA as an insured party under the
Company's insurance policies.
Section 6.22 Release. Seller, in its capacity as a stockholder of the Company,
and all persons claiming by, through, for or under Seller in such capacity
(collectively, the "Seller
-30-
<PAGE> 37
Related Parties"), hereby agrees that except as provided in this Agreement
it has no claims or the basis for any claims against the Company or the
Company's respective present and former officers, directors, employees or
representatives, on account of any matter arising from the beginning of
time through the date of this Agreement, inclusive, and Seller agrees that
except as provided in this Agreement, neither Seller nor any Seller Related
Parties will ever bring any action or seek to recover upon or in respect of any
such matter arising from the beginning of time through the date of this
Agreement, inclusive.
ARTICLE 7
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for in
this Agreement are subject to all of the conditions set forth below in this
Article 7, any of which may be waived in writing by Buyer.
Section 7.1 Performance by the Company and Seller. The Company and Seller shall
have performed in all material respects all of their agreements and covenants
under this Agreement required to be performed by them at or prior to the
Closing, except that the covenants set forth in Sections 6.14(a) and 6.15 shall
have been performed in all respects.
Section 7.2 Truth of Representations and Warranties. Each of the representations
and warranties of Seller contained in this Agreement (i) which are expressly
stated to be made solely as of the date of this Agreement or another specified
date shall be true and correct in all respects as of such date, and (ii) all
other representations and warranties of Seller shall be true and correct in all
respects at and as of the time of the Closing as though made at and as of that
time, except in each case of clauses (i) and (ii) to the extent that the
aggregate effect of the inaccuracies in such representations and warranties as
of the applicable times could not reasonably be expected to result in a Material
Adverse Effect.
Section 7.3 Receipt of Consents. All of the Consents indicated as material on
Schedule 3.2 or 5.3, including the North Wales office lease (the "Material
Consents") shall have been obtained and delivered to Buyer and shall be in full
force and effect as of the Closing and shall be in form and substance reasonably
satisfactory to Buyer without any conditions or changes in the underlying
Contract or License to which such Material Consent relates (other than
ministerial or immaterial conditions or changes).
Section 7.4 HSR Act and other Governmental Authorizations . All waiting periods
required under the HSR Act shall have expired or otherwise shall have been
terminated prior to the Closing, and the parties and the Company shall have
received all other authorizations, consents and approvals of Governmental
Authorities required to consummate the transactions contemplated hereby in a
lawful manner.
Section 7.5 Deliveries. Seller and the Company shall have made all of the
deliveries required by Section 9.2.
Section 7.6 Material Adverse Effect. Since October 31, 1999, no Material
Adverse Effect shall have occurred.
-31-
<PAGE> 38
Section 7.7 Repayment of Indebtedness and Certain Other Obligations. All Company
indebtedness (including all indebtedness for borrowed money and purchase money
financing arrangements), and any obligations of the Company in the nature of
prepayment penalties, premiums, or termination penalties resulting from the
consummation of the transactions contemplated by this Agreement, shall have been
paid in full and discharged before the Closing at Seller's sole expense or
concurrently with the Closing out of the Cash Consideration otherwise payable to
Seller, except the capitalized lease of the Company. The guarantee of the
Company in favor of the Lenders under the Seller's credit facility shall have
been released and all claims of such lenders against the Company shall have been
released, such release to be reasonably satisfactory to Buyer.
Section 7.8 Affiliate Loans. All loans and other advances made by the Company to
Seller or any Affiliate thereof or to any employee, officer or director of the
Company or a family member thereof (excluding loans and advances to employees
for travel, business and moving expenses in the Ordinary Course of Business)
shall have been repaid, and Buyer shall have received evidence of such repayment
or shall have been cancelled in accordance with Section 6.17 hereof.
Section 7.9 Certain Proceedings. No writ, order, decree or injunction of a court
of competent jurisdiction or other Governmental Authority shall have been
entered against Buyer, Seller, or the Company that prohibits or restricts the
transactions contemplated hereby, limits or restricts the operation of the
Company's business as it is currently conducted, or otherwise restricts the
Company's exercise of full rights to own and operate its business after the
Closing, and no action, proceeding, investigation, regulation or legislation
shall have been instituted or threatened before any court or other Governmental
Authority which (i) questions the validity or legality of the transactions
contemplated hereby or seeks to enjoin, restrain, prohibit or obtain substantial
damages in respect of, or which is related to, or arising out of, this Agreement
or the consummation of the transactions contemplated hereby; (ii) seeks material
damages against Buyer, Seller, or the Company as a result of the transactions
contemplated hereby; or (iii) can otherwise reasonably be expected to materially
and adversely affect Buyer or the Company as a result of the consummation of the
transactions contemplated hereby.
Section 7.10 Seller Actions. All actions to be taken by Seller in connection
with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Buyer.
-32-
<PAGE> 39
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions provided for
in this Agreement are subject to all of the conditions set forth below in this
Article 8, any of which may be waived in writing by Seller.
Section 8.1 Performance by Buyer. Buyer shall have performed in all material
respects all of its agreements and covenants under this Agreement required to be
performed by it at or prior to the Closing.
Section 8.2 Truth of Representations and Warranties. Each of the representations
and warranties of Buyer contained in this Agreement (i) specifically qualified
by materiality, shall be true and complete as so qualified, and (ii) if not
qualified by materiality, shall be true and complete in all material respects,
in each such case, on and as of the Closing Date, with the same effect as if
then made, except where any such representation or warranty is as of a specific
earlier date in which event it shall remain true and correct (as qualified) as
of such earlier date.
Section 8.3 HSR Act. All waiting periods required under the HSR Act shall have
expired or otherwise shall have been terminated prior to the Closing.
Section 8.4 Deliveries. Buyer shall have made all of the deliveries set
forth in Section 9.3.
Section 8.5 Certain Proceedings. No writ, order, decree or injunction of a court
of competent jurisdiction or other Governmental Authority shall have been
entered against Seller or the Company that prohibits or restricts the
transaction contemplated hereby and no action, proceeding, investigation,
regulation or legislation shall have been instituted or threatened before any
court or any other Governmental Authority which (i) questions the validity or
legality of the transactions contemplated hereby or seeks to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to, or
arising out of, this Agreement or the consummation of the transactions
contemplated hereby, (ii) seeks material damages against Seller as a result of
the transactions contemplated hereby; or (iii) can otherwise reasonably be
expected to materially and adversely affect Seller as a result of the
consummation of the transactions contemplated hereby.
Section 8.6 Buyer Actions. All actions to be taken by Buyer in connection with
the consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
Seller.
ARTICLE 9
CLOSING
Section 9.1 Closing. Subject to satisfaction or waiver of all of the conditions
of closing set forth in Articles 7 and 8, the closing of the transactions
contemplated hereby (the
-33-
<PAGE> 40
"Closing") shall take place at the offices of Dow, Lohnes & Albertson, PLLC,
1200 New Hampshire Ave., N.W., Suite 800, Washington, D.C. 20036, at 10:00 a.m.,
local time, on the date specified by Buyer by notice to Seller, which
specified date shall be no later than ten business days after the conditions
of Closing set forth in Sections 7.3, 7.4, and 8.3 have been satisfied or
waived or on such other date as Buyer and Seller may mutually agree (the
"Closing Date").
Section 9.2 Deliveries and Actions by Seller. Seller shall deliver to
Buyer the following items at the Closing:
(a) Consents. Seller shall deliver to Buyer at Closing originals of the Material
Consents to be obtained by Seller or the Company and any other Consents which
have been obtained by them.
(b) Articles of Incorporation, Certified Bylaws and Certificates of Existence
and Good Standing for the Company. Seller shall deliver to Buyer at Closing (i)
copies of the articles of incorporation or other applicable governing
instruments and all amendments thereto of each of the Company and Seller
certified within twenty business days prior to the Closing by the Secretary of
State of the State in which such entity is organized, (ii) copies of the bylaws
or other applicable governing instruments of the Company certified by an
executive officer of the Company as being correct, complete and in full force
and effect on the Closing Date, and (iii) certificates of existence and good
standing of each of the Company and Seller dated within twenty business days of
the Closing Date issued by the Secretary of State of the State in which each
such entity is organized and in the case of the Company, qualified to conduct
business.
(c) Company's Closing Certificate. Seller shall deliver to Buyer at Closing a
certificate of an executive officer of Seller certifying (i) as to the
incumbency and signatures of the officers of Seller who executed this Agreement
and any other documents delivered pursuant to this Agreement, (ii) as to the
adoption of resolutions of its board of directors or corresponding governing
body and the board of directors of its corporate general partner which are in
full force and effect on the Closing Date without any amendments thereto
authorizing the execution and delivery of this Agreement and any other
agreements contemplated hereby and the performance of the obligations of Seller
hereunder and thereunder, and (iii) that the conditions to Buyer's obligations
to consummate the transactions contemplated by this Agreement set forth in
Sections 7.1 and 7.2 have been satisfied.
(d) Certificates. Seller shall deliver to Buyer the stock certificates
representing all of the issued and outstanding Shares duly endorsed for transfer
by Seller.
(e) Resignations and Releases. Seller shall deliver to Buyer resignations of the
officers and directors of the Company effective as of the Closing. Seller shall
deliver to Buyer releases of the officers and directors of the Company releasing
all claims they may have against the Company, in a form mutually satisfactory to
Buyer and Seller.
(f) Lien Searches. Seller shall deliver to Buyer lien, tax and judgment searches
in the Commonwealth of Pennsylvania and in the counties of Berks, Pennsylvania,
Bucks, Pennsylvania and Montgomery, Pennsylvania, and releases and terminations
of all Liens
-34-
<PAGE> 41
on the Shares and the assets of the Company that are not Permitted
Liens described in clauses (i), (ii) and (iii) of the definition of Permitted
Liens.
(g) Opinion of Counsel. Seller shall deliver the favorable opinion of
Sonnenschein Nath & Rosenthal substantially in the form of Exhibit A.
(h) Other Evidence. Seller shall deliver to Buyer such other evidence of the
performance of all the covenants and satisfaction of all the conditions required
of Seller by this Agreement at or before Closing as Buyer or its counsel may
reasonably request.
Section 9.3 Deliveries and Actions by Buyer. Buyer shall deliver to
Seller the following items at the Closing:
-------------------------------
(a) Certificates of Existence, Good Standing and
Qualification. Buyer shall deliver to Seller at Closing a certified copy of its
certificate of incorporation and a certificate of good standing with respect to
Buyer, dated within twenty business days of the Closing Date, issued by the
Secretary of State of the State of Delaware.
(b) Buyer's Closing Certificate. Buyer shall deliver to Seller
at Closing a certificate of an executive officer of Buyer certifying (i) as to
the incumbency and signatures of the officers of Buyer who executed this
Agreement and the agreements contemplated hereby on behalf of Buyer, (ii) as to
the adoption of resolutions of the board of directors of Buyer which are in full
force and effect on the Closing Date authorizing the execution and delivery of
this Agreement and the agreements contemplated hereby and the performance of the
obligations of Buyer hereunder and thereunder, (iii) as to Buyer's bylaws and
all amendments thereto as being correct, complete and in full force and effect
on the Closing Date, and (iv) that the conditions to Seller's obligations to
consummate the transactions contemplated by this Agreement set forth in Sections
8.1 and 8.2 have been satisfied.
(c) Purchase Price. Buyer shall deliver to Seller by wire
transfer of immediately available funds the Purchase Price, subject to
adjustment pursuant to the provisions of Section 6.15 and Section 7.7.
(d) Opinion of Counsel. Buyer shall deliver the favorable
opinion of Dow, Lohnes & Albertson, PLLC substantially in the form of Exhibit B.
(e) Other Evidence. Buyer shall deliver to Seller such other
evidence of the performance of all the covenants and satisfaction of all the
conditions required of Buyer by this Agreement at or before Closing as Seller or
its counsel may reasonably request.
ARTICLE 10
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time
prior to the Closing:
(a) by mutual written agreement of Seller and Buyer;
-35-
<PAGE> 42
(b) by either Seller or Buyer, if:
(i) the transaction contemplated hereby has not been consummated on or before
January 31, 2000 (the "Termination Date"); provided that the right to terminate
this Agreement pursuant to this Section 10.1(b)(i) shall not be available to a
party whose breach of any provision of this Agreement results in the failure of
such transaction to be consummated by the Termination Date; or
(ii) (A) there shall be any law or regulation that makes consummation of the
transaction contemplated hereby illegal or otherwise prohibited or (B) any
judgment, injunction, order or decree of any court or other Governmental
Authority having competent jurisdiction enjoining Seller or Buyer from
consummating such transaction is entered, and such judgment, injunction, order
or decree shall have become final.
(c) by Buyer if on any date determined for the Closing in accordance with
Section 9.1 each condition in Article 8 has been satisfied (or will be satisfied
by actions to be taken at the Closing) and either a condition set forth in
Article 7 has not been satisfied (or will not be satisfied by actions to be
taken at the Closing) or Seller has nonetheless refused to consummate the
Closing; provided that Buyer may not terminate pursuant to this Section 10.1(c)
if the failure of any condition set forth in Article 7 to be satisfied was
caused by Buyer's breach of or failure to perform any of its covenants and
agreements in accordance with this Agreement;
(d) by Seller if on any date determined for the Closing in accordance with
Section 9.1 each condition in Article 7 has been satisfied (or will be satisfied
by actions to be taken at the Closing) and either a condition set forth in
Article 8 has not been satisfied (or will not be satisfied by actions to be
taken at the Closing) or Buyer has nonetheless refused to consummate the
Closing; provided that Seller may not terminate pursuant to this Section 10.1(d)
if the failure of any condition set forth in Article 8 to be satisfied was
caused by Seller's breach of or failure to perform any of its covenants and
agreements in accordance with this Agreement; and
(e) by Buyer pursuant to its rights under Section 6.19 of
this Agreement.
The party desiring to terminate this Agreement pursuant to
this Section 10.1 (other than pursuant to Section 10.1(a)) shall give notice of
such termination to the other party hereto.
Section 10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall become void and of no effect without
liability of any party hereto to the other parties hereto, except that (a) the
agreements contained in this Section 10.2 and in Sections 6.8 and 6.9 of this
Agreement shall survive the termination hereof, and (b) no such termination
shall relieve any party of any liability or damages resulting from any material
breach by such party of any representation, warranty, covenant or agreement set
forth in this Agreement. Each party shall have all remedies available to it at
law, equity or otherwise in the event the other party wrongfully refuses to
consummate the Closing or otherwise breaches this Agreement.
-36-
<PAGE> 43
ARTICLE 11
INDEMNIFICATION
Section 11.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties hereto contained in this Agreement
shall survive the Closing hereunder (even if the damaged party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect until the latest of: (a)
the date that is one year after the Closing Date, (b) the date of final
resolution of a claim that has been asserted in writing to the other party prior
to the expiration of the applicable survival period, and (c) as to the
representations and warranties made in Sections 3.2, 3.5, 4.2, 5.1, 5.2, 5.11
and 5.22 the expiration of the applicable statute of limitations (including all
periods of extension thereof) or, if later as to the representations and
warranties made in Section 5.11, until the final resolution of any claim
asserted in writing by a Governmental Authority.
Section 11.2 Indemnification by Seller. From and after the Closing, Seller shall
indemnify Buyer and its Affiliates (including the Company), officers, directors,
employees, stockholders and agents (the "Buyer Indemnified Parties") against and
hold them harmless from any liability, claim, damage, Tax or expense (including
reasonable legal fees and expenses) ("Losses") suffered or incurred by any Buyer
Indemnified Party as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of Seller contained in
this Agreement or any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of Seller contained in this
Agreement;
(c) Undisclosed Liabilities resulting from or arising out of the conduct of the
Business prior to the Closing;
(d) the real property and facilities of the Company and its
Affiliates located in Perkasie, Pennsylvania and North Wales, Pennsylvania,
including any Environmental, Health and Safety Requirement matters relating
thereto and including Item 4 on Schedule 5.20 (Zoning Hearing Appeal);
(e) third party claims (i.e. claims by any Person other than
Buyer and its Affiliates, including the Company) as a result of, arising from or
relating to the presence of ground water contamination (as described in the
environmental surveys referred to in Item 1 of Schedule 5.24) at the real
property and facilities of the Company and its Affiliates located in Pine Forge,
Pennsylvania;
(f) any Environmental, Health and Safety Requirement matters
that relates to the real property and facilities of the Company and its
Affiliates located in Pine Forge, Pennsylvania and to the period prior to the
Closing that are not subject to indemnification pursuant to section 11.2(e)
above, including Item 3 on Schedule 5.24;
-37-
<PAGE> 44
(g) the real estate transfers contemplated in Section 6.15
hereof, including any Taxes resulting from the sale, exchange, distribution or
other disposition of the property and facilities referred to in Section 6.15;
(h) the Saudi tower litigation (including Item 2 on Schedule
5.20 and any related arbitration costs), the Louisiana tower litigation
(including Item 3 on Schedule 5.20), the Gateway suit (including Item 5 on
Schedule 5.20), and the SEPA shareholder suits (including Items 1 and 6 on
Schedule 5.20);
(i) expenses of the Seller and the Company relating to the
consummation of the transactions contemplated by this Agreement, including fees
and expenses of attorneys, accountants, financial advisors and broker fees;
(j) the payments to Doug Standley and Bob Kramm described
in Section 6.14(b);
(k) the Taxes of any Person for any taxable period beginning
on or before the Closing Date for which the Company is or becomes liable
pursuant to Section 1.1502-6 of the Treasury Regulations or pursuant to any
comparable provisions of state, local or foreign law, or by contract or
otherwise;
(l) dividends, distributions or payments made in violation of
the covenant set forth in Section 6.1(a)(iii);
(m) a breach of the covenants and agreements set forth in
Section 6.14(c);
(n) the Continental Bank mortgage referenced in Section
6.15(c); and
(o) any action, suit, proceeding, claim, demand, assessment or
judgment incident to the foregoing or incurred in investigating or to avoid the
same or to oppose the imposition thereof or in enforcing this indemnity.
Section 11.3 Indemnification by Buyer. From and after the Closing, Buyer shall
indemnify Seller and its Affiliates, officers, directors, employees,
stockholders and agents (the "Seller Indemnified Parties") against and hold them
harmless from any Losses suffered or incurred by any Seller Indemnified Parties
as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of Buyer contained in this
Agreement or in any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of Buyer contained in this
Agreement;
(c) liabilities of the Company resulting from or arising out
of the conduct of the Business by the Company after the Closing and Disclosed
Liabilities of the Company resulting from or arising out of the conduct of the
Business prior to the Closing, in each case
-38-
<PAGE> 45
unless and to the extent Buyer is entitled to indemnification therefore pursuant
to Section 11.2 hereof;
(d) any costs to Seller associated with the maintenance
of or payments under the Letter of Credit referenced in Section 6.18 hereof; and
(e) any action, suit, proceeding, claim, demand, assessment or
judgment incident to the foregoing or incurred investigating or to avoid the
same or to oppose the imposition thereof or in enforcing this indemnity.
Section 11.4 Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly give
notice to the party from which indemnification is claimed (the "Indemnifying
Party") of any claim, whether between the parties or brought by a third party,
specifying in reasonable detail the factual basis for the claim, the amount
thereof, estimated in good faith, and the method of computation of such claim,
all with reasonable particularity and containing a reference to the provisions
of this Agreement in respect of which such indemnification claim shall have
occurred. If the claim relates to an action, suit, or proceeding filed by a
third party against the Claimant, such notice shall be given by the Claimant
promptly after written notice of such action, suit, or proceeding was given to
the Claimant; provided, however, that any delay in giving the notice shall not
impair the Claimant's rights hereunder unless such delay prejudices the
Indemnifying Party's ability to defend such claim.
(b) With respect to claims solely between the parties, following receipt of
notice from the Claimant of a claim, the Indemnifying Party shall have thirty
days to make such investigation of the claim as the Indemnifying Party deems
necessary or desirable. For the purposes of such investigation, the Claimant
agrees to make available to the Indemnifying Party and its authorized
representatives the information relied upon by the Claimant to substantiate the
claim. If the Claimant and the Indemnifying Party agree prior to the expiration
of such thirty day period (or any mutually agreed upon extension thereof) to the
validity and amount of such claim, the Indemnifying Party shall immediately pay
to the Claimant the full amount of the claim. If the Claimant and the
Indemnifying Party do not agree within such thirty day period (or any mutually
agreed upon extension thereof), the Claimant may seek appropriate remedies
pursuant to Section 12.9.
(c) With respect to any claim by a third party as to which the Claimant is
entitled to indemnification under this Agreement, the Indemnifying Party shall
have the right at its own expense, to participate in or assume control of the
defense, compromise or settlement of such claim (including the selection of
counsel reasonably satisfactory to the Claimant). The Claimant shall cooperate
fully in all respects with the Indemnifying Party in any such defense,
compromise or settlement, including by making available to the Indemnifying
Party all pertinent information under its control, subject to reimbursement for
actual out-of-pocket expenses incurred by the Claimant as the result of a
request by the Indemnifying Party. If the Indemnifying Party elects to assume
control of the defense of any third-party claim, the Claimant shall have the
right to participate in such defense with legal counsel of the Claimant's own
-39-
<PAGE> 46
selection, but the fees and expenses of such counsel shall be Claimant's fees
and expenses unless (i) the Indemnifying Party has agreed to pay such fees and
expenses, (ii) the Indemnifying Party has failed to assume the defense of such
claim, within ten business days after receiving notice of such claim, (iii) the
employment of such counsel has been specifically authorized by the Indemnifying
Party, or (iv) the named parties to any proceeding in respect of the claim
(including any impleaded parties) include both the Indemnifying Party and the
Claimant and the Claimant has been advised by counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Indemnifying Party (in which case, if the Claimant
notifies the Indemnifying Party that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of the
Claimant, it being understood, however, that the Indemnifying Party shall not,
in connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Claimant). If the Indemnifying Party does not (or,
as provided in clause (iv) of the preceding sentence, cannot) elect to assume
control or otherwise participate in the defense of any third-party claim, then
the Claimant may defend through counsel of its own choosing and (so long as it
gives the Indemnifying Party at least five business days prior written notice of
the terms of any proposed settlement thereof and permits the Indemnifying Party
to then undertake the defense thereof) settle such claim, action or suit, and to
recover from the Indemnifying Party the amount of such settlement or of any
judgment and the reasonable costs and expenses of such defense. The Indemnifying
Party shall not compromise or settle any third party claim, action or suit
without the prior written consent of the Claimant, which consent will not be
unreasonably withheld or delayed; provided, however, that in the event such
consent is unreasonably withheld and the compromise or settlement includes as an
unconditional term thereof a release of the Claimant from all liability relating
to such matter, then the Indemnifying Party's liability to the Claimant under
this Article 11 shall be limited to the amount it would have been if Claimant
had not withheld its consent
(d) If a claim, whether between the parties or by a third party, requires
immediate action, the parties will make every reasonable effort to reach a
decision with respect thereto as expeditiously as practicable.
(e) Following the Closing, Seller shall have no right of contribution against
the Company for any indemnification payment made by Seller hereunder or
otherwise, and Seller hereby waives any and all rights of contribution that it
may have against the Company.
Section 11.5 Indemnification Escrow. On the Closing Date, Buyer, Seller and
Wachovia Bank, N.A. the ("Escrow Agent") shall execute a Post-Closing Escrow
Agreement substantially in the form attached as Exhibit C (the "Post-Closing
Escrow Agreement") in accordance with which, on the Closing Date, Buyer shall
deposit Two Million Dollars ($2,000,000) of the Purchase Price with the Escrow
Agent (such deposit and all amounts held from time to time by the Escrow Agent
in respect of such deposit, including any interest or other earnings in respect
of such deposit, the "Indemnification Funds") in order to provide a fund for the
payment of any claims for which Buyer is entitled to indemnification as provided
in this Article 11. The Indemnification Funds shall be held and disbursed in
accordance with the terms
-40-
<PAGE> 47
of this Agreement and the Post-Closing Escrow Agreement. On the first
business day following the one year anniversary of the Closing Date, any
Indemnification Funds not then subject to indemnification claims of Buyer
under this Agreement shall be released by the Escrow Agent to Seller. If at
any time before the one year anniversary of the Closing Date, Seller sells,
transfers or otherwise transfers all or substantially all of its assets, Seller
shall cause Six Million Dollars ($6,000,000) to be deposited with and held by
Union Bank of California in a segregated account that will not be available
to satisfy any obligations or liabilities of the Seller other than
obligations to Buyer pursuant to this Article 11, and Seller shall provide Buyer
with prompt reasonable evidence that such deposit has been made in accordance
with the foregoing. Seller shall cause the entire $6,000,000 to be so held in
such account until the one year anniversary of the Closing Date. If on the one
year anniversary of the Closing Date there are any outstanding claims for
indemnification by Buyer against Seller under this Article 11 and the stated
amount of such claims exceeds the amount of the Indemnification Funds then
remaining and being held by the Escrow Agent, Seller shall cause the amount of
such deficiency to continue to be so held in such account by Union Bank of
California until such time as the one or more claims giving rise to such
deficiency are resolved and Buyer has been paid any amounts to which it may be
entitled in connection therewith, and Seller may cause any amounts so held by
Union Bank of California in excess of such deficiency to be released to Seller.
So long as Seller is required to hold any monies in such account pursuant to
this Section 11.5, Seller shall provide Buyer with prompt reasonable evidence of
the amounts held in such account upon Buyer's request.
Section 11.6 Limitations on Indemnification; Exclusive Remedy.
(a) No claim for indemnification may be made under Sections 11.2(a) or 11.3(a)
(or under Sections 11.2 (o) or 11.3(e) to the extent such claim relates to a
claim under Sections 11.2(a) or 11.3(a)) unless made within the period of
survival of the applicable representation or warranty as described in Section
11.1. No claim for indemnification may be made under Sections 11.2(b), 11.2(c)
or 11.3(b) (or under Sections 11.2(o) or 11.3(e) to the extent such claim
relates to a claim under Sections 11.2(b), 11.2(c) or 11.3(b)) after the one
year anniversary of the Closing Date, excluding claims relating to covenants to
be performed after the Closing. No claim for indemnification may be made under
Section 11.2(f) (or under Section 11.2(o) to the extent such claim relates to a
claim under Section 11.2(f)) after the twenty-one (21) month anniversary of the
Closing Date. Claims for indemnification under the other provisions of Section
11.2 and 11.3 may be brought at any time after the Closing.
(b) Seller shall be obligated to indemnify Buyer under
Sections 11.2(a)-(c) only to the extent that the aggregate amount of any Losses
suffered or incurred by Buyer, as to which Buyer would be entitled to
indemnification thereunder, shall exceed $1,000,000, in which event any such
amounts shall be payable to the extent such amounts exceed $1,000,000.
(c) In no event shall Seller's aggregate liability under
Sections 11.2(a)-(c) exceed $8,000,000.
(d) The amount of any Losses for which indemnification is
provided under this Article shall be net of any amount actually recovered by the
Claimant under insurance policies with respect to such Losses. To the extent a
claim is covered by insurance, Claimant will diligently pursue recovery under
the appropriate insurance policies in order to mitigate any such
-41-
<PAGE> 48
Losses but shall be entitled to make a claim against the other party
pursuant to this Article 11 in order to preserve its rights under this Article
11.
(e) (1) The indemnification provided in Sections 11.2(e) and
11.2(f) is personal to Buyer and its Affiliates. Following the Closing, if Buyer
shall (A) assign its indemnification rights under Sections 11.2(e) or 11.2(f) to
any Person (other than to an Affiliate of Buyer), (B) if the Company sells,
leases, or disposes of all or a substantial portion of its ownership interest in
the facility or real property assets at Pine Forge Pennsylvania to any Person
(other than an Affiliate of Buyer), or (C) violates any of the provisions of
Section 6.20(d)(1) hereof, the indemnification provided in Sections 11.2(e) and
11.2(f) shall immediately terminate and be of no further force and effect except
as to claims thereunder that have already been made by Buyer prior to such time,
in respect of which Buyer's indemnification rights shall survive as in effect
before giving effect to this Section 11.6(e).
(2) Following the Closing, Seller (or one or
more designee(s) of Seller reasonably satisfactory to Buyer), at its sole
expense, shall have the right to assume control of any investigation,
remediation, or other response to an environmental condition in respect of
which Seller acknowledges (based on the then known facts and
circumstances and subject to confirming that the condition is not attributable
to the Company's actions after the Closing) that Buyer is entitled to
dollar-for-dollar indemnification under Sections 11.2(e) or 11.2(f) (and
provided that the Seller's acknowledgment will not create any indemnity rights
in favor of Buyer that Buyer would not have if Seller did not assume control
pursuant to this provision). Such control shall include the selection of
consultants reasonably satisfactory to Buyer and control over negotiations with
Governmental Authorities (subject to Buyer's and the Company's right to be
present at and participate in such negotiations). If Seller elects to assume
control of any such investigation, remediation, or other response, Seller shall
be entitled to pursue any approach for industrial property, including
institutional controls, that is then satisfactory to the applicable Governmental
Authorities, but shall in all cases comply with applicable Environmental, Health
and Safety Requirements, provided that Seller shall keep Buyer and the Company
reasonably informed as to the status of any such matter or claim and shall
consult with Buyer and the Company and obtain their consent (which consent shall
not be unreasonably withheld), prior to undertaking (or agreeing to undertake)
any action that could reasonably be expected to have any material impact or
effect on the conduct of the Company's business at the Pine Forge facility or
that could result in any liability to the Company for which it is not entitled
to indemnification from Seller hereunder. Buyer and the Company will cooperate
with Seller and its representatives in connection with any such matter,
including providing Seller and its representatives reasonable access to the real
property and facilities at Pine Forge, making available to Seller all pertinent
information under Buyer or the Company's control, and consulting with Seller
regarding any communications to or from Governmental Authorities and other
Persons concerning any such matter or claim. If Seller does not elect to assume
control of any such investigation, remediation, or other response within a
timely period or if Seller fails to proceed with due diligence or fails to
comply with or in good faith contest any obligation imposed on Buyer or the
Company with respect to any matter for which Seller has assumed control, Buyer
and the Company shall have the right to assume control of any such
investigation, remediation, or other response through consultants and
representatives of its own choosing and (so long as it gives Seller at least
five business days prior written notice of the terms of any proposed settlement
thereof and permits
-42-
<PAGE> 49
Seller to then assume control of such matter if time and circumstances
reasonably permit) settle such matter and recover from Seller all amounts to
which it is entitled under Article 11.
(f) The parties hereto agree that after Closing the sole
remedies of the parties are those set forth in this Article 11 (except with
respect to covenants to be performed after the Closing, including but not
limited to Section 6.20(c) and 11.5, in respect of a breach of which all
remedies of the parties shall be available, whether at law, equity or otherwise,
and except for the Escrow Agreement, which shall be governed in accordance with
its terms).
ARTICLE 12
MISCELLANEOUS
Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware, without regard to such state's conflict of
law rules.
Successors and Assigns. Except as otherwise expressly provided
herein, no party hereto may assign its or his rights and obligations hereunder
unless such party obtains the prior written consent of the other parties hereto;
provided, however, that Buyer shall have the right to assign to any of its
subsidiaries the right to acquire the Shares, but Buyer shall remain liable for
all of its obligations hereunder notwithstanding any such assignment. Except as
otherwise provided herein, this Agreement shall inure to the benefit of, and be
binding upon, the successors and permitted assigns of the parties hereto.
Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement among the parties with regard to the
subject matter hereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by facsimile, or by
reputable overnight delivery service, postage prepaid, or otherwise delivered by
hand or by messenger, addressed as follows:
to Seller: Northwest Broadcasting, L.P.
2193 Association Drive, Suite 300
Okemos, Michigan 28864
Attention: Brian Brady
Telephone: (517) 347-4141
Fax: (517) 347-4675
-43-
<PAGE> 50
with a copy to: Sonnenschein Nath & Rosenthal
1301 K St., N.W.
Suite 600, East Tower
Washington, D.C. 20005
Attention: Fred L. Levy, Esq.
Telephone: (202) 408-6400
Fax: (202) 408-6399
to Buyer: SpectraSite Holdings, Inc.
100 Regency Forest Drive, Suite 400
Cary, North Carolina 27511
Attention: Stephen H. Clark
Telephone: (919) 468-0112
Fax: (919) 468-8522
with a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036
Attention: Timothy J. Kelley, Esq.
Telephone: 202-776-2000
Fax: 202-776-2222
Notice shall be deemed to be given on the date on which such notice is sent, if
sent by facsimile or by hand or messenger, or the next business day if such
notice is sent by overnight delivery service. Any party hereto may change its
address specified for notices herein by designating a new address by notice in
accordance with this Section, provided that such a notice shall be deemed to be
given upon receipt.
Section 12.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy hereunder shall impair any such right, power or remedy of any
party hereto, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party hereto of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. Except as provided in Article 11, remedies, either under this
Agreement or by law or equity or otherwise afforded to any party hereto, shall
be cumulative and not alternative.
Section 12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
Section 12.7 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such
-44-
<PAGE> 51
severability shall be effective if it materially changes the economic benefit
of this Agreement to any party.
Section 12.8 Headings. The subject headings of the sections of this Agreement
are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
Section 12.9 Arbitration. Any dispute arising hereunder (other than a dispute
relating to a breach or potential breach of covenants to be performed after the
Closing, including Section 6.20(c) and 11.5, which may be brought before a
court) shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction. Such arbitration shall be conducted in Washington, D.C.
Section 12.10 Exclusive Benefit. Nothing in this Agreement is intended to confer
any rights or remedies, whether express or implied, under or by reason of this
Agreement, on any persons other than the parties hereto and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement.
Section 12.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
parties intend that each representation, warranty and covenant contained herein
shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
Section 12.12 Exhibits and Schedules. The Exhibits and Schedules identified in
this Agreement are incorporated herein by reference and made a part hereof. Any
item disclosed on a Schedule hereto shall be deemed to be disclosed on any other
applicable Schedule hereto if and to the extent such disclosure would reasonably
be deemed applicable to such other Schedule based on the text of such disclosure
(except that items disclosed on Schedule 5.9 shall not be deemed disclosed on
Schedule 5.16).
Section 12.13 Time is of the Essence.Time is of the essence in this Agreement.
-45-
<PAGE> 52
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be duly executed as of the day and year first above written.
NORTHWEST BROADCASTING, L.P.
By: Northwest Broadcasting, Inc., its general partner
By: /s/ Brian W. Brady
_______________________
Name: Brian W. Brady
_______________________
Title: President
_______________________
SPECTRASITE HOLDINGS, INC.
By: /s/ Stephen H. Clark
________________________
Name: Stephen H. Clark
________________________
Title: President and Chief
Executive Officer
________________________
<PAGE> 1
Exhibit 2.6
STOCK PURCHASE AGREEMENT
AMONG
DONALD DOTY,
JOHN PATRICK MOORE
AND
SPECTRASITE HOLDINGS, INC.
Dated as of December 30, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 DEFINED TERMS............................................1
Section 1.1 Defined Terms.......................................1
Section 1.2 Terms Defined Elsewhere in this Agreement...........5
Section 1.3 Clarifications......................................6
ARTICLE 2 PURCHASE AND SALE OF SHARES..............................6
Section 2.1 Basic Transaction...................................6
Section 2.2 Purchase Price......................................6
Section 2.3 Purchase Price Adjustments..........................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS RELATING TO
SELLERS.............................................9
Section 3.1 Authorization of Transaction; Consents..............9
Section 3.2 Noncontravention....................................9
Section 3.3 Brokers' Fees......................................10
Section 3.4 Investment.........................................10
Section 3.5 The Shares.........................................10
Section 3.7 Disclosure.........................................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER.................11
Section 4.1 Organization.......................................11
Section 4.2 Authorization of Transaction; Consents.............11
Section 4.3 Noncontravention...................................11
Section 4.4 Brokers' Fees......................................12
Section 4.5 Investment.........................................12
Section 4.6 SEC Filings........................................12
Section 4.7 Disclosure.........................................12
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLERS CONCERNING THE
COMPANIES..........................................12
Section 5.1 Organization, Qualification and Corporate Power....12
Section 5.2 Capitalization.....................................12
Section 5.3 Noncontravention; Consents.........................13
Section 5.4 Brokers' Fees......................................13
Section 5.5 Title to Assets....................................13
<PAGE> 3
TABLE OF CONTENTS
(continued)
Section 5.6 Subsidiaries.......................................13
Section 5.7 Financial Statements...............................13
Section 5.8 Events Subsequent to December 31, 1998.............14
Section 5.9 Undisclosed Liabilities............................15
Section 5.10 Legal Compliance...................................16
Section 5.11 Tax Matters........................................16
Section 5.12 Towers; Regulatory Requirements....................17
Section 5.13 Real Property......................................17
Section 5.14 Intellectual Property..............................18
Section 5.15 Tangible Assets....................................19
Section 5.16 Contracts..........................................19
Section 5.17 Notes and Accounts Receivable; Accounts Payable....19
Section 5.18 Powers of Attorney.................................19
Section 5.19 Insurance..........................................20
Section 5.20 Litigation.........................................20
Section 5.21 Employees..........................................20
Section 5.22 Employee Benefits..................................21
Section 5.23 Guaranties.........................................23
Section 5.24 Environmental, Health and Safety Matters...........23
Section 5.25 Certain Business Relationships with the Companies..24
Section 5.26 Bank Accounts and Credits..........................24
Section 5.27 Inventory..........................................24
Section 5.28 Product and Service Warranty.......................25
Section 5.29 Year 2000 Compliance...............................25
Section 5.30 Hart-Scott-Rodino..................................25
Section 5.31 Disclosure.........................................25
ARTICLE 6 COVENANTS...............................................25
Section 6.1 Conduct of Business of the Companies...............25
Section 6.2 Sellers' Actions...................................28
Section 6.3 Other Actions......................................28
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
Section 6.4 Notification of Certain Matters....................28
Section 6.5 Access to Information..............................28
Section 6.6 Cooperation; Further Assurances....................28
Section 6.7 Public Announcements...............................29
Section 6.8 Confidentiality....................................29
Section 6.9 Expenses; Taxes....................................29
Section 6.10 Control of the Companies' Operations...............29
Section 6.11 Other Buyer Transactions...........................29
Section 6.12 Consents...........................................30
Section 6.13 Employee Benefits Matters..........................30
Section 6.14 Tax Matters........................................30
Section 6.15 Additional Post-Closing Covenants..................31
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS of BUYER..................32
Section 7.1 Performance by the Companies and Sellers...........32
Section 7.2 Truth of Representations and Warranties............32
Section 7.3 Receipt of Consents................................32
Section 7.4 Governmental Authorizations........................32
Section 7.5 Deliveries.........................................33
Section 7.6 Material Adverse Effect............................33
Section 7.7 Amounts of Loans and Certain Other Obligations.....33
Section 7.8 Affiliate Loans....................................33
Section 7.9 Post-Closing Lock-Ups..............................33
Section 7.10 Employment Agreements..............................33
Section 7.11 Certain Proceedings................................33
Section 7.12 Buyer Investigation................................33
Section 7.13 Sellers Actions....................................33
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF SELLERS................34
Section 8.1 Performance by Buyer...............................34
Section 8.2 Truth of Representations and Warranties............34
Section 8.3 Deliveries.........................................34
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
Section 8.4 Certain Proceedings................................34
Section 8.5 Buyer Actions......................................34
ARTICLE 9 CLOSING.................................................34
Section 9.1 Closing............................................34
Section 9.2 Deliveries and Actions by Sellers..................35
Section 9.3 Deliveries by Buyer................................35
ARTICLE 10 TERMINATION.............................................36
Section 10.1 Termination........................................36
Section 10.2 Effect of Termination..............................37
Section 10.3 Injunctive Relief and Survival.....................37
ARTICLE 11 INDEMNIFICATION.........................................37
Section 11.1 Survival of Representations and Warranties.........37
Section 11.2 Indemnification by Sellers.........................38
Section 11.3 Indemnification by Buyer...........................39
Section 11.4 Procedure for Indemnification......................39
Section 11.5 Indemnification Escrow.............................40
ARTICLE 12 MISCELLANEOUS...........................................41
Section 12.1 Governing Law......................................41
Section 12.2 Successors and Assigns.............................41
Section 12.3 Entire Agreement; Amendment........................41
Section 12.4 Notices, Etc.......................................41
Section 12.5 Delays or Omissions................................42
Section 12.6 Counterparts.......................................42
Section 12.7 Severability.......................................42
Section 12.8 Headings...........................................42
Section 12.9 Waiver of Jury Trial...............................42
Section 12.10 Exclusive Benefit..................................42
Section 12.11 Construction.......................................43
Section 12.12 Exhibits and Schedules.............................43
-iv-
<PAGE> 6
LIST OF SCHEDULES
Schedule 3.1 Authorization of Transaction; Consents
Schedule 4.2 Authorization of Transaction; Consents
Schedule 5.1 Qualification; Management
Schedule 5.2 Capitalization
Schedule 5.3 Noncontravention; Consents
Schedule 5.5 Permitted Liens
Schedule 5.7 Financial Statements
Schedule 5.9 Undisclosed Liabilities
Schedule 5.11 Tax Matters
Schedule 5.13 Real Property
Schedule 5.14 Intellectual Property
Schedule 5.15 Tangible Assets
Schedule 5.16 Contracts
Schedule 5.19 Insurance
Schedule 5.20 Litigation
Schedule 5.21 Employees
Schedule 5.22 Employee Benefits
Schedule 5.25 Certain Business Relationships with the
Companies
Schedule 5.26 Bank Accounts and Credits
LIST OF EXHIBITS
Exhibit A: Apportionment of Consideration
Exhibit B: Employment Agreement
Exhibit C: Opinion Letter
Exhibit D: Escrow Agreement
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of December
30, 1999, by and among DONALD DOTY and JOHN PATRICK MOORE, each a resident of
the State of Texas (collectively the "Sellers" and individually a "Seller"), and
SPECTRASITE HOLDINGS, INC., a Delaware corporation (the "Buyer").
RECITALS
Sellers own all of the issued and outstanding capital stock of
Doty-Moore Tower Services, Inc., a Texas corporation ("DM Tower"), Doty-Moore
Equipment, Inc., a Texas corporation ("DM Equipment"), and Doty Moore RF
Services, Inc., a Texas corporation ("DM Services") (collectively referred to as
the "Companies" and individually as a "Company"). Sellers desire to sell to
Buyer, and Buyer desires to acquire from Sellers, all of the issued and
outstanding capital stock of the Companies, and the parties desire to enter into
this Agreement to set forth the terms and conditions of such purchase and sale.
IN CONSIDERATION of the foregoing recitals and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINED TERMS
a. Defined Terms. All capitalized terms not otherwise defined elsewhere in this
Agreement shall have the meanings ascribed to such terms in this Section 1.1.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person and any
officer, director, general partner or family member of such Person. For purposes
of this definition, "control" 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 such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction that forms or could form the basis for any
specified consequence.
"Business" means the business conducted by the Companies, including the
erection, modification, construction and maintenance of television and radio
transmission towers and similar structures for entities in the broadcasting
industry.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 8
"Compensation Arrangement" means any plan or compensation arrangement
other than an Employee Plan, whether written or unwritten, which provides to
employees, former employees, officers, directors, independent contractors or
stockholders of any Company any compensation or other benefits, whether deferred
or not, in excess of base salary or wages, including any bonus or incentive
plan, stock rights plan, deferred compensation arrangement, life insurance,
stock purchase plan, severance pay plan, change of control arrangements and any
other employee fringe benefit plan.
"Consent" means the consents, permits and approvals of all Governmental
Authorities and other third parties (or notices to such parties) necessary to
consummate the sale of the Shares from Sellers to Buyer and the other
transactions contemplated by this Agreement in a lawful manner and without
causing a default under, conflict with, or acceleration, violation or
termination of, any legal requirement or contract or agreement to which either
Seller or any Company is a party or bound, whether or not such consent is listed
on Schedule 3.1 or Schedule 5.3.
"Contracts" means all contracts, leases, non-governmental licenses and
other agreements and undertakings (including leases for personal or Real
Property and employment agreements), written or oral (including any amendments
and other modifications thereto) to which any of the Companies is a party or
which are binding upon any of the Companies or that relate to the assets or
operations of the business of the Companies.
"Employee Plan" means any retirement or welfare plan or arrangement or
any other employee benefit plan as defined in Section 3(3) of ERISA which any of
the Companies or any ERISA Affiliate sponsors, maintains or by which any of the
Companies or any ERISA Affiliate is bound or to which any of the Companies or
any ERISA Affiliate contributes or is required to contribute.
"Environmental, Health and Safety Requirements" means all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with any of the Companies under Code ss.414(b), (c), (m), (n) or (o).
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
-2-
<PAGE> 9
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any federal, state, local political
subdivision or other governmental or regulatory department, court, commission,
board, bureau, agency, authority or instrumentality, foreign or domestic.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Liens" means any mortgage, pledge, lien, charge, claim, option,
conditional sales, security interest or other encumbrance, restriction or
limitation of any nature whatsoever.
"Material Adverse Effect" means any material adverse effect on, or
change in, the business, financial condition, net worth, assets, liabilities,
personnel, operations, results of operations or prospects of any Company or the
ability of either Seller to execute, deliver or perform this Agreement and the
other agreements and documents contemplated hereby to which such Seller is a
party.
"Most Recent Balance Sheet" means, collectively, the balance sheets of
the Companies contained within the Most Recent Financial Statements.
"Multiemployer Plan" means a plan, as defined in ERISA ss.3(37) to
which any of the Companies or any ERISA Affiliate has contributed, is
contributing or is required to contribute.
-3-
<PAGE> 10
"Multiple Employer Plan" means a plan, as defined in ERISA Section
4063(a), which any of the Companies or any ERISA Affiliate sponsors or maintains
or to which any of the Companies or any ERISA Affiliate contributed, is
contributing or is required to contribute.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other type of
entity.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Real Property" means all real property, interests in real property,
leaseholds and subleaseholds, purchase options, easements, licenses, rights of
access, and rights of way and all buildings and other improvements thereon, of
any Company.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Shares" means the shares of common stock of DM Tower, par value $1.00
per share, the shares of common stock of DM Equipment, par value $0.01 per share
and the shares of common stock of DM Services, par value $1.00 per share.
"Subsidiary" means, with respect to the Companies, any entity of which
any of the Companies (either alone or through or together with any other Company
or 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.
"Tax" or "Taxes" means any and all taxes, fees, duties, tariffs,
imposts and other charges of any kind imposed by any governmental or taxing
authority, including: federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, motor vehicle, ad valorem, value added,
production, sales, use, license, excise, franchise, capital, transfer,
recordation, payroll, employment, excise, severance, stamp, occupation, premium,
environmental (including taxes under Code ss.59A), customs duties, social
security (or similar), unemployment, disability, withholding, alternative or
add-on minimum tax, or other tax or governmental assessment, together with any
interest, additions, or penalties with respect thereto and any interest in
respect of such additions or penalties, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
information return or other statement or document (including any related or
supporting information, any schedule or attachment thereto and any amendment
thereof) filed or required to be filed with any federal, state, local or foreign
taxing authority in connection with the determination, assessment, collection,
administration or imposition of any Tax.
"Transaction Expenses" means expenses incurred by Sellers or the
Companies in connection with the transaction contemplated by this Agreement in
an aggregate amount not to exceed $20,000.
-4-
<PAGE> 11
"Working Capital" means the aggregate amount of the Companies' current
assets minus the aggregate amount of the Companies' current liabilities
(excluding the current portion of any items described in Section 2.3(a)(2), (3)
or (4)), all as determined in accordance with GAAP.
b. Terms Defined Elsewhere in this Agreement. In addition to the defined terms
in Section 1.1, the following is a list of defined terms used in this Agreement
and a reference to the Section hereof in which such term is defined:
- ------------------------------------------------ ---------------------------
Accountant Section 2.3(c)(iii)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Adjustment Funds Section 2.3(b)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Buyer Indemnified Parties Section 11.2
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Buyer's Shares Section 2.2(c)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Cash Consideration Section 2.2(c)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
CERCLA Section 5.24 (e)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Claimant Section 11.4 (a)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Closing Section 9.1
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Closing Balance Sheet Section 2.3 (c)(i)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Closing Date Section 9.1
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
COBRA Section 5.22(h)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Company/Companies Recitals
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Employment Agreement Section 7.10
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Escrow Agent Section 11.5
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Indemnification Deposit Section 11.5
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Indemnifying Party Section 11.4 (a)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Lock-Up Agreements Section 7.9
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Losses Section 11.2
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
MADSP Section 6.14(a)(i)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Material Consents Section 7.3
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Most Recent Financial Statements Section 5.7
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Other Liabilities Section 2.3(a)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Permitted Liens Section 5.5
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Escrow Agreement Section 11.5
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Preliminary Balance Sheet Section 2.3(b)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Purchase Price Section 2.2(a)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Representatives Section 6.5
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Revised Preliminary Balance Sheet Section 2.3(b)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Section 338(h)(10) Elections Section 6.14(a)(i)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Section 338 Forms Section 6.14(a)(ii)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Seller/Sellers Preamble
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Seller Indemnified Parties Section 11.3
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Sellers' Dispute Report Section 2.3(c)(ii)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Stock Consideration Section 2.2(c)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Systems Section 5.29
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Termination Date Section 10.1 (b) (i)
- ------------------------------------------------ ---------------------------
-5-
<PAGE> 12
- ------------------------------------------------ ---------------------------
Treasury Regulations Section 5.11(f)
- ------------------------------------------------ ---------------------------
- ------------------------------------------------ ---------------------------
Year 2000 Compliant Section 5.29
- ------------------------------------------------ ---------------------------
Section 1.3 Clarifications. Words used herein, regardless of the gender
and numbe specifically used, shall be deemed and construed to include any
other gender and any other number as the context requires. Use of the word
"including" herein shall be deemed and construed to mean "including but not
limited to." Except as specifically otherwise provided in this Agreement
in a particular instance, a reference to a Section or Schedule is a reference
to a Section of this Agreement or a Schedule attached hereto, and the terms
"hereof," "herein" and other like terms refer to this Agreement as a whole,
including the Schedules hereto, and not solely to any particular part hereof.
ARTICLE 2
PURCHASE AND SALE OF SHARES
Section 2.1 Basic Transaction. Subject to the terms and conditions of this
Agreement, Buyer agrees to purchase from Sellers, and Sellers agree to sell to
Buyer, all of the issued and outstanding Shares, constituting all of the issued
and outstanding capital stock of the Companies, free and clear of all Liens, for
the consideration specified in Section 2.2.
Section 2.2 Purchase Price.
(a) Subject to Section 2.3, Buyer agrees to pay to Sellers at the Closing
$7,500,000 (the "Purchase Price") in the following manner:
(i) a payment of $2,500,000 in cash payable by wire transfer of immediately
available funds to an account designated by Sellers; and
(ii) delivery of 500,000 shares of Buyer's unregistered common stock,
certificates for which shall be delivered to Sellers by Buyer's stock transfer
agent as soon as practicable following Closing.
(b) Any shares of Buyer's common stock issued to Sellers pursuant to this
Section may be referred to hereinafter as "Buyer's Shares" or the "Stock
Consideration" and any cash paid to Sellers pursuant to this Section 2.2 may be
referred to hereinafter as the "Cash Consideration."
(c) Cash Consideration in the amount of $2,250,000 shall be paid by Buyer in
payment for all of the issued and outstanding shares of DM Equipment, and Cash
Consideration in the amount of $250,000 shall be paid by Buyer in payment for
all of the issued and outstanding shares of DM Services. The Stock Consideration
shall be paid by Buyer in payment for all of the issued and outstanding shares
of DM Tower. All payments and deliveries pursuant to Section 2.2(a) shall be
apportioned between Sellers in accordance with the schedule attached hereto as
Exhibit A.
-6-
<PAGE> 13
(d) The parties intend that Buyer's acquisition of the shares of DM Tower
solely in exchange for the Stock Consideration shall qualify as a tax-free
reorganization under the Code and that this Agreement shall constitute a plan of
reorganization within the meaning of the Code. In no event shall Sellers be
entitled to receive any Cash Consideration or other cash or property other than
the Stock Consideration in exchange for Sellers' shares in DM Tower.
Section 2.3 Purchase Price Adjustments.
(a) Other Liabilities. The Purchase Price shall be adjusted downward on a
dollar for dollar basis equal to the amount of the following liabilities as of
the Closing (the "Other Liabilities"): (1) expenses of the Companies (other than
Transaction Expenses) relating to the consummation of the transactions
contemplated by this Agreement, including fees and expenses of attorneys,
accountants, financial advisors and broker fees, to the extent such fees and
expenses are paid by the Companies; (2) all obligations of the Companies for
borrowed money; (3) all obligations of the Companies evidenced by bonds,
debentures, notes, indentures, mortgages and similar instruments; (4) all
capital lease obligations of the Companies; and (5) any amounts in the nature of
prepayment penalties or premiums resulting from the consummation of the
transactions contemplated by this Agreement or the discharge of any obligation
described in clauses (2), (3) or (4) above, which shall be paid in full at
Closing out of the Cash Consideration otherwise payable to Sellers hereunder;
provided, however, that the Purchase Price shall be adjusted only to the extent
the sum of the obligations described in clauses (2), (3), (4) and (5) exceeds
the sum of Working Capital plus $200,000. Any adjustment to the Purchase Price
pursuant to this Section 2.3(b) shall be effected by adjusting the amount of
Cash Consideration payable hereunder. The parties agree that Transaction
Expenses shall not be deemed to be Other Liabilities and shall be paid by DM
Services and DM Equipment after the Closing.
(b) Payment at Closing. At or prior to the Closing, Sellers shall prepare and
deliver to Buyer an estimated combined balance sheet of the Companies as of the
Closing Date (the "Preliminary Balance Sheet"). The Preliminary Balance Sheet
shall be prepared by Sellers in good faith and in accordance with GAAP applied
on a consistent basis and shall be accompanied by all information reasonably
necessary to determine the amount of Other Liabilities as of the Closing, to the
extent such amounts can be determined or estimated as of the date of the
Preliminary Balance Sheet, and such other information as may be reasonably
requested by Buyer. At the Closing, Buyer may provide Sellers with any
objections to the Preliminary Balance Sheet in writing. After considering
Buyer's objections, Sellers shall make such revisions to the Preliminary Balance
Sheet as are mutually acceptable to the parties in accordance with GAAP applied
on a consistent basis, and shall deliver a copy of such revised Preliminary
Balance Sheet (the "Revised Preliminary Balance Sheet") to Buyer. Subject to the
next sentence and the deposit of the Indemnification Deposit with the Escrow
Agent pursuant to Section 11.5, at the Closing Buyer shall pay to Sellers the
amount of Cash Consideration as adjusted in accordance with this Section 2.3, on
the basis of the Revised Preliminary Balance Sheet. In the case of any amount as
to which Sellers and Buyer do not agree prior to the Closing, at the Closing the
difference (if any) between the amount of the Cash Consideration that would be
determined using the estimates set forth in the Revised Preliminary Balance
Sheet and the amount of the Cash Consideration that would be determined using
the estimates of Buyer that remain in dispute will be transferred by Buyer to
the Escrow Agent, to be held and disbursed by the Escrow Agent in accordance
with the provisions of Section 2.3(d) and the Escrow Agreement
-7-
<PAGE> 14
(such amount and any interest or other earnings in respect of such amount held
by the Escrow Agent from time to time, the "Adjustment Funds").
(c) Post-Closing Payment of Cash Consideration Adjustments.
(i) Within 60 days after the Closing Date, Buyer shall prepare and deliver to
Sellers an unaudited combined balance sheet of the Companies as of the Closing
Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared
by Buyer in good faith and in accordance with GAAP applied on a consistent basis
and shall be accompanied by all information reasonably necessary to determine
the amount of Other Liabilities as of the Closing. Sellers shall cooperate with
Buyer in the preparation of the Closing Balance Sheet. In the event that Buyer
fails to deliver the Closing Balance Sheet within 60 days after the Closing
Date, the Preliminary Balance Sheet shall be deemed to be the Closing Balance
Sheet and shall be deemed to be delivered to Sellers by Buyer on the 60th day
following the Closing Date.
(ii) Buyer shall allow Sellers and their agents access at all reasonable times
after the Closing Date to the books, records and accounts of the Companies to
allow Sellers to examine the accuracy of the Closing Balance Sheet. Within 15
days after the date that the Closing Balance Sheet is delivered by Buyer to
Sellers, Sellers shall complete their examination thereof and may deliver to
Buyer a written report setting forth any proposed adjustments to the Closing
Balance Sheet (the "Sellers' Dispute Report"). If Sellers notify Buyer of their
acceptance of the amount of Other Liabilities as of the Closing shown on the
Closing Balance Sheet, or if Sellers fail to deliver a report of proposed
adjustments to the Closing Balance Sheet within the 15 day period specified in
the preceding sentence, the amount of Other Liabilities as of the Closing shown
on the Closing Balance Sheet shall be conclusive and binding on the parties as
of the last day of such 15 day period.
(iii) Buyer and Sellers shall use good faith efforts to resolve any dispute
involving the amount of Other Liabilities as of the Closing. If Sellers and
Buyer fail to agree on the amount of Other Liabilities as of the Closing within
15 days after Sellers' delivery of Sellers' Dispute Report, then Buyer and
Sellers shall each set forth in writing such party's determination of Other
Liabilities, and they hereby jointly designate Ernst & Young LLP (the
"Accountant") to resolve their dispute. The Accountant shall endeavor to resolve
the dispute as promptly as practicable and the Accountant's resolution of the
dispute shall be final and binding on the parties, and a judgment may be entered
thereon in any court of competent jurisdiction. Any fees of the Accountant shall
be shared by Buyer and Sellers in such percentage amounts as shall be determined
based upon the proportional differences between the net adjustment determined by
the Accountant and the respective net adjustments determined by Buyer and
Sellers.
(iv) If the Purchase Price as finally determined in accordance with this
Section 2.3 is less than the amount paid by Buyer to Sellers at the Closing
(including for this purpose the amount deposited in escrow pursuant to Sections
2.3(c) and 11.5), then Buyer and Sellers shall deliver to the Escrow Agent
written instructions signed by an authorized officer of Buyer and Sellers
instructing the Escrow Agent to release and pay over to Buyer the amount of such
difference out of the Adjustment Funds and, to the extent there is any
deficiency, Sellers shall pay to Buyer an amount equal to such deficiency by
wire transfer of immediately available
-8-
<PAGE> 15
funds, in each case within three days after the date on which the Purchase Price
adjustments are finally determined in accordance with this Section 2.3. Any
remaining Adjustment Funds, after the payment to Buyer pursuant to the preceding
sentence, shall be immediately released and paid over to Sellers. If the
Purchase Price as finally determined in accordance with this Section 2.3 is
greater than the amount paid by Buyer to Sellers at the Closing (excluding for
this purpose the amount deposited in escrow pursuant to Section 2.3(c)), then
Buyer and Sellers shall deliver to the Escrow Agent written instructions signed
by an authorized officer of Buyer and Sellers instructing the Escrow Agent to
release and pay over to Sellers the amount of such difference out of the
Adjustment Funds up to the total amount of the Adjustment Funds, within three
days after the date on which the Purchase Price adjustments are finally
determined in accordance with this Section 2.3. Any remaining Adjustment Funds,
after the payment to Sellers pursuant to the preceding sentence, shall be
immediately released and paid over to Buyer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS RELATING TO SELLERS
Each Seller hereby represents and warrants to Buyer that the statements
contained in this Article 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 3).
Section 3.1 Authorization of Transaction; Consents. Each Seller has full
power and authority to execute and deliver this Agreement and the agreements
contemplated hereby and to perform his obligations hereunder and thereunder.
This Agreement constitutes the valid and legally binding obligations of each
Seller, enforceable against him in accordance with its terms and conditions.
Except as set forth in Schedule 3.1, neither Seller needs to give any notice to,
make any filing with, or obtain any authorization, consent or approval of any
Governmental Authority or other third party in order to consummate the
transactions contemplated by this Agreement and the agreements contemplated
hereby and the transactions contemplated hereby and thereby in a lawful manner
and without causing a default under, conflict with, or acceleration, violation
or termination of any legal requirement and contract or agreement to which
either Seller or any Company is a party or bound.
Section 3.2 Noncontravention. Except as set forth in Schedule 3.1, neither
the execution and delivery of this Agreement and the agreements contemplated
hereby by either Seller, nor the consummation of the transactions contemplated
hereby and thereby by Sellers, will (A) violate any statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
Governmental Authority to which either Seller or any Company is subject or any
provision of any Company's organizational documents or (B) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which either Seller or any Company is a party or by which
any of them is bound or to which any of their assets are subject.
-9-
<PAGE> 16
Section 3.3 Brokers' Fees. Neither Seller has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated hereby.
Section 3.4 Investment. Each Seller (A) understands that the Buyer's Shares
have not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(B) is acquiring the Buyer's Shares solely for his own account for investment
purposes and not with a view to the distribution thereof, (C) is a sophisticated
investor with knowledge and experience in business and financial matters, (D)
has received certain information concerning Buyer and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Buyer's Shares, (E) is able to bear the economic
risk and lack of liquidity inherent in holding the Buyer's Shares, and (F) is an
Accredited Investor. Each Seller understands that he will be required to sign a
Lock-Up Agreement pursuant to Section 7.10 and that the Lock-Up Agreement will
contain certain restrictions on the transfer of the Shares. Each Seller
understands and agrees that the certificates representing the Buyer's Shares
will bear a legend substantially to the following effect:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 NOR UNDER APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY
HAVE BEEN REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THE CORPORATION IS AUTHORIZED TO ISSUE DIFFERENT CLASSES AND SERIES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH ANY SHAREHOLDER WITHOUT
CHARGE, UPON REQUEST IN WRITING, A STATEMENT OF THE DESIGNATIONS,
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS
OF CAPITAL STOCK OF THE CORPORATION AND OF VARIATIONS IN RIGHTS,
PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE VARIATIONS FOR
FUTURE SERIES.
Section 3.5 The Shares. The Shares constitute all of the issued and
outstanding shares of capital stock of each Company and are free and clear of
any restrictions on transfer, Taxes, Liens, options, warrants, purchase rights,
contracts, commitments, equities, claims and demands. Neither Seller is a party
to any option, warrant, purchase right or other contract or commitment that
could require him to sell, transfer or otherwise dispose of any capital stock of
any Company (other than this Agreement) or that would require any of the
Companies to issue any capital stock of such Company to any Person. Neither
Seller is a party to any voting trust, proxy or other agreement or understanding
with respect to the voting of any capital stock of any Company, other than this
Agreement, or any other agreement or understanding relating to any Company or
its capital stock.
-10-
<PAGE> 17
Section 3.6 Litigation. Neither Seller is subject to any outstanding
injunction, judgment, order, decree, ruling or charge or (ii) is a party to or,
to the Knowledge of such Seller, is threatened to be made a party to any action,
suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator that could result in any Material Adverse
Effect.
Section 3.7 Disclosure. The representations and warranties contained in this
Article 3 do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements and information
in this Article 3 not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that the statements contained
in this Article 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article 4).
Section 4.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Section 4.2 Authorization of Transaction; Consents. Buyer has full power and
authority to execute and deliver this Agreement and the agreements contemplated
hereby and to perform its obligations hereunder and thereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable
against it in accordance with its terms and conditions. Except for any notices
that may be required under federal or state securities laws or as otherwise set
forth on Schedule 4.2, Buyer does not need to give any notice to , make any
filing with, or obtain any authorization, consent or approval of any
Governmental Authority or other third party in order to consummate the
transactions contemplated by this Agreement and the agreements contemplated
hereby in a lawful manner and without causing a default under, conflict with, or
acceleration, violation or termination of any legal requirement or contract or
agreement to which Buyer is a party or bound.
Section 4.3 Noncontravention. Except for any notices that may be required
under federal or state securities laws or as otherwise set forth on Schedule
4.2, neither the execution and delivery by Buyer of this Agreement and the
agreements contemplated hereby, nor the consummation of the transactions
contemplated hereby and thereby by Buyer, will (A) violate any statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Authority to which Buyer is subject or any
provision of its certificate of incorporation or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel, or
require any notice under any agreement, contract, lease, license, instrument or
other arrangement to which Buyer is a party or by which it is bound or to which
any of its assets is subject.
-11-
<PAGE> 18
Section 4.4 Brokers' Fees. Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement except for the broker fee payable to
Communications Equity Associates.
Section 4.5 Investment. Buyer is not acquiring the Shares with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act.
Section 4.6 SEC Filings. Buyer's filings with the SEC since September 2,
1999, did not at the time they were filed contain any untrue statement of a
material fact or omit to state any material fact required to be stated or
necessary in order to make the statements made in those reports, in light of the
circumstances under which they were made, not misleading.
Section 4.7 Disclosure. The representations and warranties contained in this
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLERS CONCERNING THE COMPANIES
Each Seller represents and warrants to Buyer that the statements
contained in this Article 5 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 5).
Section 5.1 Organization, Qualification and Corporate Power. Each of the
Companies is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Each of the Companies is duly authorized
to conduct business and is in good standing under the laws of the jurisdictions
set forth on Schedule 5.1, which are the only jurisdictions where such
qualification is required except where failure to be so qualified would not have
a Material Adverse Effect. Each of the Companies has full power and authority
necessary to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. Schedule 5.1 lists the directors and
officers of each Company. Sellers have delivered to Buyer correct and complete
copies of the charter and bylaws of each Company (as amended to date) and
complete copies of the minute books (containing the records of meetings of the
stockholders, the board of directors and any committees of the board of
directors), the stock certificate books and the stock record books of each
Company. None of the Companies is in default under or in violation of any
provision of its charter or bylaws.
Section 5.2 Capitalization. The authorized capital stock of each of the
Companies is set forth in Schedule 5.2. Other than as set forth in Schedule 5.2,
there are no authorized or issued and outstanding capital stock or other
securities of any Company. All of the Shares have been duly authorized, are
validly issued, fully paid and nonassessable, not subject to preemptive rights
and held of record and beneficially by Sellers. All of the Shares were issued in
accordance with all applicable securities laws. There are no outstanding or
authorized options, warrants, purchase rights, redemption rights, subscription
rights, conversion rights, exchange rights or
-12-
<PAGE> 19
other contracts or commitments of any character that could require any Company
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to any Company. There are no
voting trusts, proxies or other agreements or understandings with respect to the
voting of the capital stock of any Company or otherwise relating to the capital
stock of any Company.
Section 5.3 Noncontravention; Consents. Except as set forth in Schedule 5.3 ,
neither the execution and the delivery of this Agreement and the agreements
contemplated hereby by Sellers, nor the consummation of the transactions
contemplated hereby and thereby by Sellers, will (i) violate any statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Authority to which any of the Companies is
subject or any provision of the charter or bylaws or other similar governing
instrument any of the Companies or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel , or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which any of the Companies is a party or by which it is bound or to which any
of its assets is subject or result in the imposition of any Lien upon any of its
assets. Except as set forth in Schedule 5.3, none of the Companies needs to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any Governmental Authority or other third party in order for the
parties hereto to consummate the transactions contemplated by this Agreement in
a lawful manner and without causing a default under, conflict with, or
acceleration, violation or termination of, any legal requirement or contract or
agreement to which any of the Companies is a party or bound.
Section 5.4 Brokers' Fees. None of the Companies has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
Section 5.5 Title to Assets. Each Company has good and marketable title to ,
or a valid leasehold interest in, the properties and assets used by it, all of
such properties and assets are located on its premises, as shown on the Most
Recent Balance Sheet or acquired after the date thereof, and are free and clear
of all Liens, except for (i) liens for current taxes not yet due and payable,
(ii) inchoate materialmen's, mechanics', workmen's and repairmen's liens
incurred in the Ordinary Course of Business and which are not in default , (iii)
recorded easements and rights of way which do not materially adversely affect
the marketability or use or value of the applicable parcel of real estate as
presently used, and (iv) the Liens set forth in Schedule 5.5 which shall be
removed when indicated in Schedule 5.5 at or prior to Closing (the "Permitted
Liens").
Section 5.6 Subsidiaries. No Company has any Subsidiary. None of the
Companies controls directly or indirectly or has any direct or indirect equity
participation in any Person.
Section 5.7 Financial Statements. Attached hereto as Schedule 5.7 are the
unaudited balance sheet and statement of income for each Company (the "Most
Recent Financial Statements") as of and for the period ended one business day
before the Closing Date. The Most Recent Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of
-13-
<PAGE> 20
each Company as of such dates and the results of operations of such Company for
such periods, are correct and complete, and are consistent with the books and
records of the Companies (which books and records are correct and complete).
Section 5.8 Events Subsequent to December 31, 1998. Since December 31, 1998,
no Material Adverse Effect has occurred. Without limiting the generality of
the foregoing, since that date, except as expressly set forth in the Most
Recent Financial Statements or as set forth on Schedule 5.25:
(i) none of the Companies has sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) none of the Companies has entered into any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) outside the Ordinary Course of Business;
(iii) none of the Companies has accelerated, terminated, modified or
cancelled any material agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses), other than prepayments of
indebtedness;
(iv) none of the Companies has imposed any Lien upon any of its assets,
tangible or intangible, other than Permitted Liens;
(v) none of the Companies has made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(vi) none of the Companies has made any capital investment in, any
loan or advance to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $25,000 or outside the Ordinary
Course of Business, other than certain loans to Sellers that have been repaid
in full;
(vii) none of the Companies has issued any note, bond or other debt
security or created, incurred, assumed or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
(viii) none of the Companies has delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(ix) none of the Companies has cancelled, compromised, waived or
released any right or claim (or series of related rights and claims) either
involving more than $25,000 or outside the Ordinary Course of Business;
(x) none of the Companies has granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
-14-
<PAGE> 21
(xi) there has been no change made or authorized in the charter or bylaws
of any of the Companies;
(xii) none of the Companies has issued, sold or otherwise disposed of any
of its capital stock or other equity interest, or granted any options,
warrants or other rights to purchase or obtain (including upon conversion,
exchange or exercise) any of its capital stock or other equity;
(xiii) none of the Companies has declared, set aside or paid any dividend or
made any distribution with respect to its capital stock or other equity
interest (whether in cash or in kind) or redeemed, purchased or otherwise
acquired any of its capital stock or other equity;
(xiv) none of the Companies has experienced any material damage,
destruction or loss (whether or not covered by insurance) to its property;
(xv) none of the Companies has made any loan or advance to, or entered into
any other transaction with, any of its directors, officers or employees or
with either Seller or any Affiliate of either Seller, outside the Ordinary
Course of Business, other than certain loans to Sellers that have been repaid in
full;
(xvi) none of the Companies has granted any increase in the base
compensation of any of its directors, officers, independent contractors or
employees outside the Ordinary Course of Business;
(xvii) none of the Companies has adopted, amended, modified or terminated
any Employee Plan or Compensation Arrangement (including any bonus,
profit-sharing, incentive, severance, termination, change of control or other
plan, contract or commitment for the benefit of any of its directors, officers
or employees);
(xviii) none of the Companies has made any other change in employment
terms or engagement terms for any of its directors, officers, independent
contractors or employees outside the Ordinary Course of Business;
(xix) none of the Companies has made or pledged to make any charitable or
other capital contribution;
(xx) there has not been any other material occurrence, event, incident,
action, failure to act or transaction outside the Ordinary Course of Business
involving any of the Companies; and
(xxi) none of the Companies has committed to any of the foregoing.
Section 5.9 Undisclosed Liabilities. Except as set forth on Schedule 5.9,
none of the Companies has any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against it giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet and (ii)
Liabilities which have arisen after the date of the Most Recent Balance
Sheet in the Ordinary Course of Business which in the aggregate do not exceed
$50,000 (none of
-15-
<PAGE> 22
which results from, arises out of, relates to, is in the nature of or was
caused by any breach of contract, breach of warranty, tort, infringement or
violation of law).
Section 5.10 Legal Compliance. Each Company has complied in all material
respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings and charges thereunder)
of all Governmental Authorities, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced against any of them alleging any failure so to comply.
Section 5.11 Tax Matters.
(a) Each Company has (i) duly filed or caused to be filed in a timely manner
all Tax Returns that it was required to file with the appropriate
Governmental Authorities, and (ii) paid or made adequate provision in the
Most Recent Financial Statements in accordance with GAAP for the payment of
all Taxes owed by such Company. All of the Tax Returns referred to in clause
(i), above, are true, correct and complete in all material respects.
Each of the Companies has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(b) None of the Companies has executed any waiver or extension of any statute
of limitations on the assessment or collection of any Tax of such Company or
with respect to any liability arising therefrom. None of the Tax Returns filed
by or on behalf of any Company is currently being audited by any
Governmental Authority, and there are no other examinations, requests for
information or other administrative or judicial proceedings pending with
respect to Taxes of any Company. Neither the Internal Revenue Service nor any
other Governmental Authority has asserted any deficiency or claim for
additional Taxes against, or any adjustment of Taxes relating to, any Company.
No claim has been made by any Governmental Authority in a jurisdiction where
any of the Companies does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. Sellers and the Companies do not expect any
Governmental Authority to assess any additional Taxes for any period of the
Companies for which Tax Returns have been filed.
(c) Schedule 5.11 lists, for each Company, all jurisdictions in which it is
required to file a state Tax Return and indicates, for each such jurisdiction,
whether it files a consolidated, combined or unitary Tax Return with another
entity.
(d) Sellers have delivered to Buyer: (i) true, correct and complete copies of
all Tax Returns filed by or on behalf of each Company with respect to taxable
periods ending on or after December 31, 1996, and (ii) all examination reports
and statements of deficiency asserted against or agreed to by each of the
Companies with respect to Taxes since January 1, 1996.
(e) There are no proposed reassessments of any property owned by any Company
that would affect the Taxes of any Company after the Closing Date. There are
no Tax liens on any assets of any Company, other than liens for current
Taxes not yet due and payable.
(f) None of the Companies has any liability for the Taxes of any Person
pursuant to Section 1.1502-6 of the Treasury Regulations promulgated under the
Code (the
-16-
<PAGE> 23
"Treasury Regulations"), any comparable provisions of any state,
local or foreign Tax law in respect of a consolidated, combined or unitary Tax
Return, or by contract or otherwise. As of the Closing, there will be no
tax sharing agreements or similar arrangements in effect with respect to or
involving any Company.
(g) No consent under Section 341(f) of the Code has been filed with respect to
any Company.
(h) None of the Companies has any income or gain reportable for a period
ending after the Closing Date but attributable to a transaction (e.g., an
installment sale) occurring in, or a change in accounting method made for, a
taxable period ending on or prior to the Closing Date which resulted in a
deferred reporting of income or gain from such transaction or from such change
in accounting method.
(i) None of the Companies has been a "United States real property holding
corporation," within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(j) None of the Companies has entered into any compensatory agreements
with respect to the performance of services which payment thereunder would
result in a non-deductible expense to such company pursuant to Section 280G of
the Code.
(k) Each of the Companies has been taxable as an "S corporation" within the
meaning of Section 1361(a) of the Code throughout its entire existence.
Section 5.12 Towers; Regulatory Requirements. No Company owns, leases,
operates or manages any television or radio transmission tower or similar
structures, and no Company holds, or is required to hold, any governmental
license, permit or authorization in connection with the conduct of the Business.
Section 5.13 Real Property. Schedule 5.13 contain a true and complete
description of the Real Property. With respect to each parcel of Real Property:
(a) with respect to any owned parcel of Real Property, a Company has good and
marketable title to such parcel of Real Property, free and clear of any Liens,
except for Permitted Liens;
(b) with respect to any leased or subleased Real Property, a Company has a
valid leasehold or subleasehold interest to such parcel of Real Property,
free and clear of any Liens other than Permitted Liens, and assuming
compliance by such Company with the terms of the lease or sublease, such
Company has a right of quiet enjoyment of such parcel of Real Property;
(c) there are no pending or, to the Knowledge of Sellers or the Companies,
threatened condemnation proceedings, lawsuits or administrative actions relating
to such property or other matters affecting adversely the current use, occupancy
or value thereof;
-17-
<PAGE> 24
(d) the legal description for such parcel contained in the deed or lease or
sublease thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, zoning laws and
ordinances (and none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement which may
burden the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not located
within any flood plain or subject to any similar type restriction for which any
permits or licenses necessary to the use thereof have not been obtained;
(e) other than as disclosed on Schedule 5.13, there are no leases, subleases,
licenses, concessions or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion of such parcel of
Real Property other than the Companies;
(f) no Real Property owned by any Company is subject to any outstanding options
or rights of first refusal to purchase such parcel of Real Property, or any
portion thereof or interest therein, and no Company has any option or right of
first refusal to purchase any Real Property leased by any Company;
(g) there are no parties (other than the Companies) in possession of such
parcel of Real Property, other than tenants under any leases or licenses
disclosed in Schedule 5.13;
(h) all facilities located on such parcel of Real Property are supplied with
utilities and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer and storm sewer,
all of which services are adequate in accordance with all applicable laws,
ordinances, rules and regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefiting such parcel of Real
Property, the facilities are in good order and repair, and in a good, safe,
substantial condition, free from defects; all plumbing, heating, electrical and
air conditioning systems and equipment and systems therein are in good order and
repair and operating condition; the facilities are constructed and completed
strictly in compliance with all applicable laws and accepted standards of good
materials and workmanship, all electrical, plumbing, heating and
air-conditioning and exterior drainage systems, in or on the Real Estate are in
good condition and working order;
(i) such parcel of Real Property abuts on and has direct vehicular access to a
public road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefiting the parcel of Real Property, and access to the
property is provided by paved public right-of-way with adequate curb cuts
available; and
(j) Sellers have delivered to Buyer true and complete copies of any deed, lease
or sublease for such parcel of Real Property.
Section 5.14 Intellectual Property. Each Company owns or has the right to
use pursuant to license, sublicense, agreement or permission all Intellectual
Property necessary for
-18-
<PAGE> 25
the operation of the Business as presently conducted by it. None of the
Companies has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of third parties, and none
of the Companies has received any complaint, claim, demand or notice alleging
any such interference, infringement, misappropriation or violation (including
any claim that any of the Companies must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of Sellers
and the Companies, no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of any Company. Schedule 5.14 identifies all registered Intellectual
Property of the Companies and each pending application therefor and identifies
each license, agreement or other permission which any Company has granted to any
third party with respect to any of their Intellectual Property.
Section 5.15 Tangible Assets. Each Company owns or leases all buildings
, machinery, equipment and other tangible assets necessary for the conduct of
its business as presently conducted. Each such tangible asset is free from
material defects (patent and latent), has been maintained in accordance
with normal industry practice, is in good operating condition and repair
and is suitable for the purposes for which it presently is used. Schedule
5.15 sets forth a list of all material items of tangible assets of each Company.
Section 5.16 Contracts. Schedule 5.16 contains a true and complete list
of all Contracts except for Contracts entered into in the Ordinary Course
of Business which involve annual expenditures of no more than $20,000 per
year per Contract or $50,000 per year collectively for all such Contracts
which are not listed on Schedule 5.16. Sellers have made available to Buyer a
correct and complete copy of each written Contract (as amended to date) and a
written summary setting forth the terms and conditions of each oral Contract.
Each Contract is legal, valid, binding, enforceable against one of the
Companies and, to the Knowledge of Sellers and the Companies, each other party
thereto, and in full force and effect in accordance with its terms. Each
Contract will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby. Neither any of the Companies nor to the
Knowledge of Sellers or the Companies any other party thereto is in material
breach or default under any Contract, and to the Knowledge of Sellers and the
Companies, no event has occurred which with notice or lapse of time would
constitute a breach or default under any Contract, or permit termination,
modification or acceleration, or reduce the amount of payments due any
Company, or give rise to any liquidated damages, under any Contract. No
party to any Contract has repudiated any provision of such Contract.
Section 5.17 Notes and Accounts Receivable; Accounts Payable. All notes,
accounts receivable, unbilled work in process and other debts due any
Company are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will
be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet. Each Company has paid on a timely basis all of its
accounts payable and such accounts payable arose in the Ordinary Course of
Business.
Section 5.18 Powers of Attorney. No Company has issued or executed any
outstanding power of attorney.
-19-
<PAGE> 26
Section 5.19 Insurance. Schedule 5.19 sets forth the following information
with respect to each insurance policy (including policies providing
property, casualty, liability and workers' compensation coverage and bond
and surety arrangements) to which any of the Companies is a party, a named
insured or otherwise the beneficiary of coverage:
(a) the name of the insurer, the name of the policyholder and the name of
each covered insured;
(b) the policy number and the period of coverage;
(c) the scope (including an indication of whether the coverage was on a
claims made, occurrence or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium adjustments or other loss-
sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither any of the Companies nor, to the Knowledge of Sellers or the
Companies, any other party to the policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification or
acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Each of the Companies has been covered during the past
two years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during such period. Schedule 5.19 describes
any self-insurance arrangements affecting any of the Companies. Except as set
forth on Schedule 5.19, none of the Companies has been subject to, nor has any
insurer defended or settled, on behalf of any Company or paid out money on
behalf of any Company with respect to any workers compensation claim or any
claim under any insurance policy where the aggregate amount at issue exceeded
$5,000.
Section 5.20 Litigation. Schedule 5.20 sets forth each instance in which
any of the Companies (i) is subject to any outstanding injunction, judgment,
order, decree, ruling or charge or (ii) is a party to or, to the Knowledge of
Sellers or the Companies, is threatened to be made a party to any action,
suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator, and neither Seller nor any of
the Companies is aware of any Basis for the same. None of the actions, suits,
proceedings, hearings and investigations set forth in Schedule 5.20 could
result in any Material Adverse Effect. Neither Seller nor any Company has any
reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against any of the Companies.
Section 5.21 Employees.
(a) Schedule 5.21 contains a correct and complete list of (i) the names and
positions of each of the employees, officers and directors of each Company and
any affiliate
-20-
<PAGE> 27
of either Seller whose services relate primarily to the Business, (ii) the
annual salary or hourly wage of each such person, and (iii) any oral or written
contracts or agreements that provide for employment of any individual as an
employee or independent contractor of any Company and which does not permit
the termination of such contract or agreement, without penalty, upon no more
than 30 days prior notice. Sellers have provided to Buyer correct and complete
copies (or descriptions, if oral) of all contracts or agreements listed in
Schedule 5.21.
(b) No employees of any Company are presently members of any collective
bargaining unit with respect to their employment with such Company. There are no
collective bargaining agreements and no contracts or agreements with labor
unions, relating to, involving or affecting the employees of any of the
Companies to which any of the Companies is a party or by which it is bound, and
the none of the Companies has any obligation to bargain with any labor
organization with respect to any such persons. None of the Companies is
currently, nor during the past three years has it been, the subject of any
certification or decertification drive, and, to the Knowledge of Sellers and the
Companies, no such organizing activity is threatened. To the Knowledge of
Sellers and the Companies, no union or other collective bargaining
representative claims to represent, has been certified as representing or has
requested that the any of the Companies recognize such union or collective
bargaining representative as representing any of the employees of such Company
for collective bargaining purposes. Neither Seller nor any Company has
recognized or agreed to recognize or is required to recognize any union as the
collective bargaining representative for any employee of any Company.
(c) There are no unfair labor practice charges pending against any Company
and, to the Knowledge of Sellers and the Companies, there are neither any
demands for recognition or any other requests or demands from a labor
organization for representative status with respect to any persons employed
by any Company and no such activity is threatened. Neither any Company nor the
Business is currently, or during the past three years has been, the subject
of any strike, work stoppage, picketing or work slowdown, or any other labor
dispute, controversy or proceeding, and to the Knowledge of Sellers and the
Companies no such activity is threatened. Each Company has complied in all
material respects with all laws relating to the employment and safety of labor,
including provisions relating to wages, hours, benefits, collective bargaining,
discrimination, the payment of social security and other payroll expenses,
and all applicable occupational safety and health acts, laws and regulations.
None of the Companies is subject to any investigation or other challenge
relating to the misclassification of employees as independent contractors.
None of the Companies is required to comply with any government contractor
affirmative action obligations.
Section 5.22 Employee Benefits.
(a) Each Employee Plan and Compensation Arrangement is listed and described
in Schedule 5.22, and complete and accurate copies of (including any amendments
to) any such written Employee Plans and Compensation Arrangements (or related
insurance policies) have been furnished to Buyer, along with copies of any
employee handbooks or similar documents describing such Employee Plans and
Compensation Arrangements. Any unwritten Employee Plans or Compensation
Arrangements also are listed in Schedule 5.22, and complete descriptions have
been furnished to Buyer. Except as disclosed in Schedule 5.22, neither any
Company nor any ERISA Affiliate is a party to and does not have in effect or to
become
-21-
<PAGE> 28
effective after the date of this Agreement any plan, arrangement or other
scheme which will become an Employee Plan or Compensation Arrangement (including
any bonus, cash or deferred compensation, severance, medical, pension, profit
sharing or thrift, stock option, employee stock ownership, life or group
insurance, death benefit, vacation, sick leave, disability or trust agreement or
arrangement), or any amendment to an Employee Plan or Compensation Arrangement.
(b) Sellers have furnished to Buyer the Forms 5500 filed for each of the
Employee Plans (including all attachments and schedules), actuarial reports,
summaries of material modifications, summary annual reports and any other
employer notices (including, governmental filings and descriptions of material
changes to Employee Plans or Compensation Arrangements) relating to the Employee
Plans for the last three plan years, and the current summary plan descriptions.
(c) Each Employee Plan and Compensation Arrangement has been administered in
compliance with its own terms and in material compliance with the provisions of
ERISA, the Code, the Age Discrimination in Employment Act and any other
applicable federal or state laws.
(d) Neither any Company nor any ERISA Affiliate (i) is contributing to, is
required to contribute to, or has contributed within the last seven years to,
any Multiemployer Plan, Multiple Employer Plan or employee pension benefit plan,
as defined under Section 3(2) of ERISA, which was subject to Title IV of ERISA,
(ii) has incurred within the last seven years, or reasonably expects to incur,
any "withdrawal liability," as defined under Section 4201 et seq. of ERISA or
(iii) has ever engaged in a transaction to evade liability, as described under
Section 4069 of ERISA.
(e) At all times on or prior to the Closing, each Employee Plan, to the
extent such Employee Plan is intended to be tax-qualified, satisfies
all minimum coverage and minimum participation requirements, if any,
imposed on such Employee Plan by the applicable terms of the Code and ERISA.
(f) No Company nor either Seller is aware of the existence of any
governmental inspection, investigation, audit or examination of any
Employee Plan or Compensation Arrangement or of any facts which would
lead them to believe that any such governmental inspection, investigation,
audit or examination is pending or threatened. There exists no action, suit
or claim (other than routine claims for benefits) with respect to any Employee
Plan or Compensation Arrangement pending or, to the Knowledge of Sellers or the
Companies, threatened against any of such plan or arrangement, and no Company
nor either Seller possesses any knowledge of any facts which could give rise to
any such action, suit or claim.
(g) Except as described in Schedule 5.22, neither any of the Companies nor
any ERISA Affiliate sponsors, maintains or contributes to any Employee Plan or
Compensation Arrangement that provides medical or death benefit coverage to
former employees of any of the Companies, except to the extent required by
Section 4980B of the Code.
-22-
<PAGE> 29
(h) With respect to each Employee Plan and, to the extent applicable, each
Compensation Arrangement: (i) each Employee Plan that is intended to be
tax-qualified, and each amendment thereto, is the subject of a favorable
determination letter, and no plan amendment that is not the subject of a
favorable determination letter would affect the validity of an Employee Plan's
letter; (ii) no condition or event exists or is expected to occur that could
subject, directly or indirectly, any Company or any ERISA Affiliate to any
material liability, contingent or otherwise, or the imposition of any lien on
the assets of any of the Companies or any ERISA Affiliate under the Code or
Title IV of ERISA whether to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, or any other Person; (iii) no Prohibited Transaction
has occurred which would subject any of the Companies or any ERISA Affiliate to
any liability; (iv) which provides severance or severance like benefits, such
Employee Plan or Compensation Arrangement may be terminated by any Company or
any ERISA Affiliate without any penalty and without any liability to pay
severance benefits in connection with any terminations of employment which occur
after the date such Employee Plan or Compensation Arrangement is terminated; (v)
which is a "group health plan," as defined under Section 601 et seq. of ERISA
and 4980B of the Code ("COBRA"), has provided "continuation coverage" to each
"covered employee" and "qualified beneficiary" entitled thereto (with each term
as defined under COBRA); and (vi) all contributions, premiums, payments or
liabilities accrued, in whole or in part, under each Employee Plan or
Compensation Arrangement or with respect thereto as of the Closing will be paid
by the Companies or Sellers, on or prior to Closing, or shall be reflected on
the financial statements of the Companies or Sellers as of Closing and shall be
paid within the time period permitted by ERISA and the Code.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance or unemployment
compensation) becoming due to any director or employee of any Company or any
ERISA Affiliate; (ii) result in the acceleration of vesting under any
Employee Plan or Compensation Arrangement; or (iii) materially increase any
benefits otherwise payable under any Employee Plan; and any such payment or
increase in benefits is fully deductible under the Code, including but not
limited to Sections 162, 280G and 404 of the Code.
Section 5.23 Guaranties. None of the Companies is a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
Section 5.24 Environmental, Health and Safety Matters.
(a) Each Company has complied in all material respects, and each Company,
and each parcel of Real Property owned or leased by any Company, is in
compliance in all material respects with all Environmental, Health and Safety
Requirements and to Sellers' and the Companies' Knowledge, each predecessor of
the Companies has complied in all material respects with all Environmental,
Health and Safety Requirements. No Company has any material liability under
any Environmental, Health and Safety Requirements.
(b) Without limiting the generality of the foregoing, each of the Companies
has obtained and complied with, and is in compliance with, in all material
respects all permits,
-23-
<PAGE> 30
licenses and other authorizations that are required pursuant to Environmental,
Health and Safety Requirements for the occupation of its facilities and
the operation of its business.
(c) None of the Companies has received any written or oral notice, report or
other information regarding any actual or alleged violation of Environmental,
Health and Safety Requirements or any Liability, including any investigatory,
remedial or corrective obligations, relating to any of them or its facilities
arising under Environmental, Health and Safety Requirements.
(d) None of the following exists at any property or facility owned or
operated by any of the Companies: (i) underground storage tanks, (ii) asbestos-
containing material in any form or condition, (iii) materials or equipment
containing polychlorinated biphenyls, or (iv) landfills, surface impoundments
or disposal areas.
(e) None of the Companies, or to Sellers' or the Companies' Knowledge, their
respective predecessors has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled or released any substance,
including any hazardous substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to liabilities, including any liability
for response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended, or any other
Environmental, Health and Safety Requirements.
(f) Neither this Agreement nor the consummation of the transaction that is
the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of any Government
Authorities or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health and Safety Requirements.
(g) None of the Companies has, either expressly or by operation of law,
assumed or undertaken any liability, including any obligation for corrective
or remedial action, of any other Person relating to Environmental, Health
and Safety Requirements.
Section 5.25 Certain Business Relationships with the Companies. Except as set
forth in Schedule 5.25, neither a Seller nor any Affiliate thereof or of
the Companies has been involved in any business arrangement or relationship
with any of the Companies within the past 12 months, and neither a Seller
nor any Affiliate thereof or of the Companies owns any asset, tangible or
intangible, which is used in the Business of any Company. There are no tax
sharing agreements between any Company and either Seller or any of their
Affiliates.
Section 5.26 Bank Accounts and Credits. Schedule 5.26 lists all banks
and lending institutions with which any of the Companies maintains any
account or has a credit facility, and sets forth the names of all individuals
who have signing authority for any such account.
Section 5.27 Inventory. The inventory of each Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured, and none of
-24-
<PAGE> 31
which is slow-moving, obsolete, damaged or defective, subject only to the
reserve for inventory writedown set forth on the face of the Most Recent
Financial Statements (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Companies.
Section 5.28 Product and Service Warranty. Each product manufactured,
sold, leased or delivered, and each service performed, by any of the
Companies has been in conformity in all material respects with all applicable
contractual commitments and all express and implied warranties, and none
of the Companies has any Liability (and there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of them giving rise to any Liability)
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face
of the Most Recent Financial Statements (rather than in any notes thereto)
as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Companies. No product
manufactured, sold, leased or delivered, and no service performed, by any of
the Companies is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale, lease or service.
Section 5.29 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 any Company are Year 2000 Compliant. "Year 2000 Compliant"
means that the Systems (a) 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 (b) operate accurately with other software and hardware
that use standard format (4 digits) for representation of the year.
Section 5.30 Hart-Scott-Rodino. The Companies, individually and in the
aggregate, as reflected on the Most Recent Balance Sheet, had less than
$25,000,000 in assets, and the Companies, individually and in the aggregate, as
reflected in the Most Recent Financial Statements for the twelve month period
ended December 31, 1998, had annual net sales of less than $25,000,000.
Section 5.31 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 5 not misleading.
ARTICLE 6
COVENANTS
Section 6.1 Conduct of Business of the Companies. Except as contemplated
by this Agreement or with the prior written consent of Buyer, during the period
from the date of this Agreement to the Closing, Sellers shall cause each of the
Companies to conduct its operations only in the Ordinary Course of Business
consistent with past practice, and Sellers will use their reasonable best
efforts to, and will cause each of the Companies to, preserve intact
the business and organization of each Company, to keep available the
services of the present officers and key
-25-
<PAGE> 32
employees of each Company, and to preserve the good will of customers,
suppliers and all other Persons having business relationships with any
Company.
(a) Except as otherwise contemplated by this Agreement, prior to the
Closing,Sellers shall not permit any Company to, without the prior written
consent of Buyer:
(i) adopt any amendment to the certificate of incorporation or bylaws of
any of Companies;
(ii) issue, reissue or sell, or authorize the issuance, reissuance or sale
of any additional shares or other equity interest in any of the Companies or
securities convertible into any rights, warrants or options to acquire any
additional shares or other equity interest in any of the Companies;
(iii) declare, set aside or pay any dividend or make any other distribution
(whether in cash, securities or property or any combination thereof);
(iv) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any of its
shares or other equity interests;
(v) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, or pay any benefit not
required by any existing Employee Plan or Compensation 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 Employee Plans or Compensation Arrangements)
, or enter into, review, terminate, amend or waive any material provision of
any employment or severance agreement with, any director, officer or other
employee of any Company or establish, adopt, enter into or amend any
collective bargaining agreement, employment agreement, termination agreement
, Employee Plan or Compensation Arrangement;
(vi) acquire, sell, lease, license, transfer, pledge, encumber, grant or
dispose of (whether by merger, consolidation, purchase, sale or otherwise)
any assets (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);
(vii) incur or assume or prepay any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person,
or make any loans, advances or capital contributions to, or investments in,
any other Person except for loans and advances between any of the Companies;
(viii) change any accounting policies or procedures, other than in the
Ordinary Course of Business or as required by GAAP;
(vix) waive, release, assign, settle or compromise any material rights,
claims or litigation;
-26-
<PAGE> 33
(x) take any action that would make any representation or warranty set forth
in Article 5 to become untrue;
(xi) make any Tax election or settle or compromise any material federal,
state, local or foreign income Tax Liability;
(xii) enter into any Contract except for any Contract entered into in the
Ordinary Course of Business under which the consideration payable or receivable
by a Company does not exceed $20,000 per year per Contract or $50,000 per year
in the aggregate for all such Contracts or amend or terminate any existing
Contract;
(xiii) incur any Liability except for Liabilities incurred by the Companies
in the Ordinary Course of Business which in the aggregate for all such
Liabilities incurred between the date hereof and the Closing do not exceed
$50,000;
(xiv) 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;
(xv) make any material increase in the size or change the composition of the
workforce of any Company; or
(xvi) voluntarily recognize any union or other collective bargaining
representative as the collective bargaining representative for any of the
employees of any Company.
(b) Sellers shall cause the Companies to do the following:
(i) maintain their assets in good operating condition (ordinary wear and
tear excepted), with inventories of spare parts and expendable supplies being
maintained at levels consistent with past practices and to make all repairs or
replacements necessary to restore any assets to the condition represented in
Section 5 of this Agreement;
(ii) maintain the existing insurance policies in full force and effect;
(iii) maintain the books and records of each Company in accordance with past
practices;
(iv) furnish to Buyer within 20 days after the end of each month monthly
financial statements for the month just ended containing balance sheets and
statements of income and cash flow for such period which shall comply with the
representations set forth in Section 5.7;
(v) comply in all material respects with all laws, rules and regulations and
with all Contracts and keep in full force and effect all governmental licenses,
permits and authorizations;
(vi) pay all of the obligations and Liabilities of the Companies on a timely
basis; and
-27-
<PAGE> 34
(vii) preserve the corporate existence of each Company.
Section 6.2 Sellers' Actions. Sellers shall not sell, transfer or encumber
any of the Shares or grant or permit to exist any Lien on any of the Shares
and shall not enter into any commitment to sell, transfer, grant any Lien
or otherwise encumber any of the Shares. Sellers shall cause each Company to
comply with all of the terms of this Agreement applicable to them, including
Section 6.1.
Section 6.3 Other Actions. During the period from the date hereof to the
Closing, Sellers shall not, and shall cause the Companies not to, take any
action that would, or that would reasonably be expected to, result in any of
the conditions to the transactions contemplated hereby set forth in Article
7 or 8 hereof not being satisfied or satisfaction thereof being delayed.
Section 6.4 Notification of Certain Matters. Sellers shall promptly notify
Buyer of the occurrence of any fact or event that would reasonably be expected
(i) to cause any representation or warranty of either Seller contained in this
Agreement to be untrue, (ii) to cause any covenant, condition or agreement of
either Seller hereunder not to be complied with or satisfied or (iii) to
cause a Material Adverse Effect. Buyer shall promptly notify Sellers of the
occurrence of any fact or event that would reasonably be expected (i) to cause
any representation or warranty of Buyer to be untrue or (ii) to cause any
covenant, condition or agreement of Buyer hereunder not to be complied with or
satisfied.
Section 6.5 Access to Information. Sellers shall cause the Companies to: (i)
provide to Buyer (and its officers, directors, employees, accountants,
consultants, legal counsel, financial advisors, investment bankers,
agents and other representatives (collectively, "Representatives")) access
at reasonable times to the assets and properties, personnel and the books and
records of each Company and (ii) furnish promptly such information concerning
the business, properties, contracts, assets, liabilities, personnel and other
aspects of the Companies as Buyer or its Representatives may reasonably request.
No investigation conducted under this Section 6.5 shall affect or be deemed to
modify any representation or warranty made in this Agreement.
Section 6.6 Cooperation; Further Assurances.
(a) Subject to the terms and conditions provided in this Agreement and to
applicable legal requirements, each of the parties hereto agrees to use its
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done 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 Articles 7 and 8 are satisfied and to consummate and make effective
the transactions contemplated by this Agreement. No party to this Agreement
shall take any action that is inconsistent with its obligations under this
Agreement. Notwithstanding the foregoing, Buyer shall not be required to expend
any monies to obtain any Consent or to accept any adverse condition or change in
terms to obtain any Consent.
(b) Sellers will cooperate and will cause the Companies to cooperate in all
commercially reasonable respects with Buyer and its counsel and accountants in
connection with any filing to be made by Buyer with the SEC. Sellers shall
provide, and shall cause the
-28-
<PAGE> 35
Companies to provide, to Buyer such information relating to the Companies and
the Business as Buyer may reasonably request. All costs, expenses and fees
incurred in connection with the preparation and inclusion by Buyer of such
information in any such filing shall be borne by Buyer. Sellers hereby
consent, and Sellers will cause the Companies to consent, to the inclusion by
Buyer of financial statements of the Companies, if requested to be so included
by Buyer, in any filing to be made by Buyer with the SEC or pursuant to
applicable securities laws, including the Securities Act and the Securities
Exchange Act. All costs, expenses and fees incurred in connection with the
preparation and inclusion by Buyer of financial statements of the Companies
in any such filing shall be borne by Buyer. Sellers agree to use, and will
cause the Companies to use, commercially reasonable efforts to obtain the
consent of the independent public accountants of the Companies to the inclusion
of such financial statements in any filing to be made by Buyer.
Section 6.7 Public Announcements. The initial press release concerning the
sale of the Shares to Buyer shall be a joint press release and, thereafter,
the parties hereto 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 public disclosure may be required or
advisable under applicable law, including under the securities laws or
the requirements of any securities exchange, as determined by the disclosing
party in good faith.
Section 6.8 Confidentiality. Except for such disclosures to officers,
directors, employees, advisors and representatives as may be appropriate in
furtherance of this transaction and except for disclosures that may be required
to comply with applicable law, including under the securities laws or the
requirements of any securities exchange, each party hereto shall use
commercially reasonable efforts to keep confidential all information of a
confidential nature obtained by it from the other parties hereto in connection
with the transactions contemplated by this Agreement, and if this Agreement
is terminated without a Closing, each party hereto will return to the other
parties all documents and other materials obtained from the other party in
connection herewith.
Section 6.9 Expenses; Taxes. Whether or not the transaction contemplated by
this Agreement is consummated, all expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except as otherwise provided in Section 2.3(a). All
transfer Taxes, if any, payable as a result of this transaction shall be borne
by Sellers.
Section 6.10 Control of the Companies' Operations. Nothing contained in
this Agreement shall give Buyer, directly or indirectly, any right to
control or direct any Company's operations prior to the Closing.
Section 6.11 Other Buyer Transactions. Notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement shall prevent or
restrict Buyer and its subsidiaries from engaging in any merger, acquisition,
business combination or other transaction (whether or not Buyer is the surviving
corporation), provided that such merger, acquisition, business combination or
other transaction would not prevent Buyer from complying with its obligations
under this Agreement.
-29-
<PAGE> 36
Section 6.12 Consents. Sellers shall, or shall cause the Companies to, give
all notices of this Agreement or the transaction contemplated hereby to
Governmental Authorities and other third parties to the extent required by
any law, rule, regulation or Contract. Sellers shall, and shall cause the
Companies to, use commercially reasonable efforts to obtain, prior to Closing,
all of the Consents without any change in the terms of any Contract to which
such Consent relates. Sellers shall promptly notify Buyer of any difficulty in
obtaining any Consents.
Section 6.13 Employee Benefits Matters. Upon the request of Buyer,
Sellers and the Companies, prior to Closing, shall take any and all
action necessary or appropriate to terminate immediately prior to the
Closing any Employee Plan which includes a cash or deferred arrangement
tax-qualified under Code Section 401(k) and provides benefits solely to
employees of the Companies.
Section 6.14 Tax Matters.
(a) Section 338(h)(10) Elections.
(i) If requested by Buyer, each of the Sellers and Buyer shall make
timely and irrevocable elections under Section 338(h)(10) of the Code and any
corresponding provisions of state or local income Tax laws with respect to
the purchase and sale of the stock of each of DM Equipment and DM Services
hereunder (the "Section 338(h)(10) Elections"). If so requested by Buyer, then
(A) the Sellers will not, and will not cause or permit either of DM Equipment
or DM Services to take, cause or permit to be taken any action that would
disqualify the purchase and sale of the stock of DM Equipment and DM Services
as deemed sales of their assets pursuant to Section 338(h)(10) of the Code,
and (B) each of the Sellers and Buyer shall report such transactions consistent
with the Section 338(h)(10) Elections and shall take no position contrary
thereto. The Sellers and Buyer agree that any income or gain attributable to
the deemed sales of the assets of DM Equipment and DM Services resulting from
the Section 338(h)(10) Elections shall be included in the Tax Returns of each
of DM Equipment and DM Services for the taxable period that ends on the
Closing Date (or, under the Treasury Regulations, on the day before the
Closing Date), and the Sellers and Buyer agree that the Sellers shall
pay all Taxes attributable to such Section 338(h)(10) Elections.
(ii) As soon as practicable following the Closing, but in no event later
than 120 days after the Closing Date, each of the Sellers and Buyer shall have
negotiated in good faith to reach agreement as to the allocation of the
"modified Aggregate Deemed Sales Price" (as defined under the applicable
Treasury Regulations, the "MADSP"), with respect to the purchase and sale
of the stock of each of DM Equipment and DM Services, among the assets of
each such Company in accordance with the requirements of Sections 1060 and 338
of the Code. If the Sellers and Buyer have not reached agreement on such
allocation within such 120-day period, then such allocation shall be made in
accordance with the appraisal of a recognized appraisal firm chosen and
retained by mutual agreement of Buyer and the Sellers, the fees and expenses
of which shall be paid one-half by Sellers and one-half by Buyer. If Buyer
notifies the Sellers of Buyer's desire to make the Section 338(h)(10) Elections
pursuant to Section 6.14(a)(i), then: (A) each of the Sellers and Buyer shall
promptly prepare any and all forms necessary to effectuate the Section
338(h)(10) Elections (including, without limitation, Internal Revenue
Service Form 8023 (or any successor form) and any similar forms under applicable
state and local income Tax
-30-
<PAGE> 37
laws (the "Section 338 Forms")), (B) each of the Sellers and Buyer shall
cause the Section 338 Forms to be duly executed by an authorized Person and
duly and timely filed in accordance with applicable Tax laws and the terms of
this Agreement, (C) each of the Sellers and Buyer shall reflect the agreed
allocation of the MADSP in all applicable Tax Returns filed by any of them or
their Affiliates, including but not limited to the Section 338 Forms, and
(D) neither the Sellers nor Buyer (nor any of their Affiliates) shall take a
position before any Tax authority or otherwise (including in any Tax
Return) inconsistent with such allocation unless and to the extent required
to do so pursuant to a "determination" within the meaning of Section 1313(a) of
the Code.
(b) Tax Returns.
(i) The Sellers shall be responsible for the preparation and timely filing
of, and the payment of all Taxes due with respect to, all Tax Returns of each of
the Companies for all taxable periods that end on or prior to the Closing Date,
including Tax Returns of the Companies for periods that end on or prior to the
Closing Date but are required to be filed after the Closing Date; provided,
however, that the Sellers shall provide Buyer with drafts of such Tax Returns
(together with the relevant back-up information) for review and consent by Buyer
at least 20 days prior to filing. Such Tax Returns shall be prepared in a manner
consistent with the past practice of the Companies. The Sellers shall provide
Buyer with correct and complete copies of such Tax Returns in the form filed
within 15 days after the filing date.
(ii) Buyer shall be responsible for the preparation and timely filing of all
Tax Returns of each of the Companies for all taxable periods that end after
the Closing Date, including Tax Returns of the Companies for periods (if any)
that begin before and end after the Closing Date. Buyer shall be responsible for
the payment of all Taxes due with respect to such Tax Returns; provided,
however, that with respect to Taxes due for taxable periods that begin before
and end after the Closing Date, the Sellers shall be responsible for the payment
of the portion of such Tax that is attributable to the portion of such periods
that end on the Closing Date.
(c) Retention of Records. From and after the date hereof, Sellers shall
cause the Companies to retain all Tax Returns and all books, records and other
information relating to any Tax or Tax Return of the Companies, and to abide by
all record retention agreements entered into with any Governmental Authority.
(d) Following the Closing Date, Buyer shall not file an amended Tax Return
of any Company for any taxable period ending on or prior to the Closing Date
without the consent of the Sellers unless either: (i) Buyer determines in its
sole discretion that the filing of such an amendment is necessary or appropriate
to comply with applicable Tax law, or (ii) Buyer agrees to reimburse the Sellers
for Taxes due by Sellers as a result of such amendment.
Section 6.15 Additional Post-Closing Covenants.
(a) General. If at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement, each of the parties
will take such further action (including the execution and delivery of such
further instruments and documents) as any other party reasonably may request,
all at the sole cost and expense of the requesting party
-31-
<PAGE> 38
(unless the requesting party is entitled to indemnification therefor under
Article 11).Sellers acknowledge and agree that from and after the Closing Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements and financial data of any sort relating to any Company.
(b) Transition. Sellers shall not take any action that is designed or intended
to have the effect of discouraging any lessor, licensor, customer, supplier or
other business associate of any of the Companies from maintaining the same
business relationships with the Companies after the Closing as it maintained
with the Companies prior to the Closing. Sellers will refer all customer
inquiries relating to the businesses of the Companies to Buyer from and after
the Closing.
(c) Sellers shall, within thirty days of the Closing, deliver to Buyer the
following information, prepared as of the Closing Date: (i) the Tax basis of the
assets of each Company, and the depreciation and amortization schedules relating
to such assets, and (ii) the earnings and profits, net operating loss carryovers
and other Tax attributes, credits and carryover items (and any limitations
applicable to any of the foregoing) of each Company.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS of BUYER
The obligations of Buyer to consummate the transactions provided for in
this Agreement are subject to all of the conditions set forth below in this
Article 7, any of which may be waived in writing by Buyer.
Section 7.1 Performance by the Companies and Sellers. The Companies and
Sellers shall have performed in all material respects all of their agreements
and covenants under this Agreement required to be performed by them at or
prior to the Closing.
Section 7.2 Truth of Representations and Warranties. Each of the
representations and warranties of Sellers contained in this Agreement (i) if
specifically qualified by materiality, shall be true and complete as so
qualified, and (ii) if not qualified by materiality, shall be true and
complete in all material respects, in each such case, on and as of the Closing
Date, with the same effect as if then made, except where any such
representation or warranty is made as of a specific earlier date, in which
event it shall remain true and correct (as qualified) as of such earlier date.
Section 7.3 Receipt of Consents. All of the Consents indicated as material
on Schedule 3.1 or 5.3 (the "Material Consents") shall have been obtained and
delivered to Buyer and shall be in full force and effect as of the Closing and
shall be in form and substance reasonably satisfactory to Buyer without any
conditions or changes in the underlying Contract to which such Material Consent
relates.
Section 7.4 Governmental Authorizations. The parties and the Companies
shall have received all authorizations, consents and approvals of Governmental
Authorities required to consummate the transactions contemplated hereby in a
lawful manner.
-32-
<PAGE> 39
Section 7.5 Deliveries. Sellers and the Companies shall have made all of
the deliveries required by Section 9.2.
Section 7.6 Material Adverse Effect. No Material Adverse Effect shall
have occurred.
Section 7.7 Amounts of Loans and Certain Other Obligations.
Buyer shall have received evidence satisfactory to it of the amount of any
claims against the Companies described in clauses (2), (3), (4) and (5) of
Section 2.3(a) and that no Company shall have any indebtedness for borrowed
money or capital or financing leases other than as set forth in the Most Recent
Balance Sheet.
Section 7.8 Affiliate Loans. All loans and other advances made by any Company
to either Seller or any Affiliate thereof or to any employee, officer or
director of any Company or a family member thereof (excluding loans and
advances to employees for travel, business and moving expenses in the Ordinary
Course of Business) shall have been repaid, and Buyer shall have received
evidence of such repayment. All loans, advances and payables owing by any
Company to either Seller shall have been cancelled.
Section 7.9 Post-Closing Lock-Ups. Sellers shall deliver to Buyer lock-up
agreements in substantially the form requested by any underwriter from
Buyer's principal stockholders in connection with any offering of Buyer's
capital stock (the "Lock-Up Agreements").
Section 7.10 Employment Agreements. Each Seller shall have entered into an
employment agreement in substantially the form attached hereto as Exhibit
B (the "Employment Agreement").
Section 7.11 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or other Governmental Authority shall have been
entered against Buyer, either Seller or any Company that prohibits or restricts
the transactions contemplated hereby, limits or restricts the operation of any
Company's business as it is currently conducted, or otherwise restricts any
Company's exercise of full rights to own and operate its business after the
Effective Date, and no action, proceeding, investigation, regulation or
legislation shall have been instituted or threatened before any court or other
Governmental Authority which (i) questions the validity or legality of the
transactions contemplated hereby or seeks to enjoin, restrain, prohibit or
obtain substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated hereby;
(ii) seeks material damages against Buyer, either Seller or any Company as a
result of the transaction contemplated hereby; or (iii) can otherwise reasonably
be expected to materially and adversely affect Buyer or any Company as a result
of the consummation of the transactions contemplated hereby.
Section 7.12 Buyer Investigation. Buyer shall be reasonably satisfied with
the results of its due diligence investigation of the Companies and the Business
Section 7.13 Sellers Actions. All actions to be taken by Sellers in
connection with the consummation of the transactions contemplated hereby
and all certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to Buyer.
-33-
<PAGE> 40
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions provided for
in this Agreement are subject to all of the conditions set forth below in this
Article 8, any of which may be waived in writing by Sellers.
Section 8.1 Performance by Buyer. Buyer shall have performed in all material
respects all of its agreements and covenants under this Agreement required to be
performed by it at or prior to the Closing.
Section 8.2 Truth of Representations and Warranties. Each of the
representations and warranties of Buyer contained in this Agreement (i)
specifically qualified by materiality, shall be true and complete as so
qualified, and (ii) if not qualified by materiality, shall be true and
complete in all material respects, in each such case, on and as of the
Closing Date, with the same effect as if then made, except where any such
representation or warranty is as of a specific earlier date in which event it
shall remain true and correct (as qualified) as of such earlier date.
Section 8.3 Deliveries. Buyer shall have made all of the deliveries set forth
in Section 9.3.
Section 8.4 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or other Governmental Authority shall have been
entered against either Seller or any Company that prohibits or restricts the
transaction contemplated hereby and no action, proceeding, investigation,
regulation or legislation shall have been instituted or threatened before
any court or any other Governmental Authority which (i) questions the validity
or legality of the transactions contemplated hereby or seeks to enjoin,
restrain, prohibit or obtain substantial damages in respect of, or which is
related to, or arising out of, this Agreement or the consummation of the
transactions contemplated hereby, (ii) seeks material damages against
either Seller as a result of the transactions contemplated hereby;
or (iii) can otherwise reasonably be expected to materially and adversely affect
either Seller as a result of the consummation of the transaction contemplated
hereby.
Section 8.5 Buyer Actions. All actions to be taken by Buyer in connection
with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Sellers.
ARTICLE 9
CLOSING
Section 9.1 Closing. Subject to satisfaction or waiver of all of the
conditions of closing set forth in Articles 7 and 8, the closing of
the transactions contemplated hereby (the "Closing") shall take place at
the offices of Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire Ave., N.W.,
Suite 800, Washington, D.C. 20036, at 10:00 a.m., local time, on the date
specified by Buyer by notice to Sellers, which specified date shall be no later
than ten
-34-
<PAGE> 41
business days after the conditions of Closing set forth in Sections 7.3 and 7.4
have been satisfied or waived or on such other date as Buyer and Sellers may
mutually agree (the "Closing Date").
Section 9.2 Deliveries and Actions by Sellers. Sellers shall deliver
to Buyer the following items at the Closing:
(a) Consents. Sellers shall deliver to Buyer at Closing originals of the
Material Consents and any other Consents which have been obtained by them.
(b)Articles of Incorporation, Certified Bylaws and Certificates of Existence
and Good Standing for the Companies. Sellers shall deliver to Buyer at Closing
(i) copies of the certificate of incorporation or other applicable governing
instruments and all amendments thereto of each of the Companies certified within
ten business days prior to the Closing by the Secretary of State of the State of
Texas, (ii) copies of the bylaws or other applicable governing instruments of
each of the Companies certified by the respective Secretary or Assistant
Secretary of each such entity as being correct, complete and in full force and
effect on the Closing Date, and (iii) certificates of existence and good
standing of each of the Companies dated within ten business days of the Closing
Date issued by the Secretary of State of the State in which each such entity is
organized or qualified to conduct business.
(c) Certificates. Sellers shall deliver to Buyer the stock certificates
representing all of the issued and outstanding Shares duly endorsed for transfer
by Sellers.
(d) Resignations and Releases. Sellers shall deliver to Buyer resignations
and releases of Sellers, releasing all claims they may have against any Company,
in a form satisfactory to Buyer.
(e) Employment Agreements and Lock-Up Agreements. The applicable parties
thereto shall deliver to Buyer fully executed Employment Agreements and
Lock-Up Agreements.
(f) Lien Searches. Sellers shall deliver to Buyer lien, tax and judgment
searches in each state and county in which either Seller or any Company has
assets and releases and terminations of all Liens on the Shares and such assets
that are not Permitted Liens described in clauses (i), (ii) and (iii) of the
definition of Permitted Liens.
(g) Opinion of Counsel.Sellers shall deliver the favorable opinion of Goins,
Underkofler, Crawford & Langdon substantially in the form of Exhibit C.
(h) Tax Clearance Certificates. Sellers shall furnish Buyer with Tax
clearance certificates or similar documents issued by the taxing authorities in
each state in which any of the Companies is subject to Tax certifying that the
Companies have paid all Taxes that are due and payable as of a date as
close as practicable to the Closing Date.
Section 9.3 Deliveries by Buyer. Buyer shall deliver to Sellers the following
items at the Closing:
-35-
<PAGE> 42
(a) Certificates of Existence, Good Standing and Qualification. Buyer shall
deliver to Sellers at Closing a certified copy of its certificate of
incorporation and a certificate of good standing with respect to Buyer, dated
within ten business days of the Closing Date, issued by the Secretary of State
of the State of Delaware.
(b) Buyer's Closing Certificate. Buyer shall deliver to Sellers at Closing a
certificate of an executive officer of Buyer certifying (i) as to the incumbency
and signatures of the officers of Buyer who executed this Agreement and the
agreements contemplated hereby on behalf of Buyer, (ii) as to the adoption of
resolutions of the executive committee of the board of directors of Buyer which
are in full force and effect on the Closing Date authorizing the execution and
delivery of this Agreement and the agreements contemplated hereby and the
performance of the obligations of Buyer hereunder and thereunder, (iii) as to
Buyer's bylaws and all amendments thereto as being correct, complete and in full
force and effect on the Closing Date, and (iv) that the conditions to Sellers'
obligations to consummate the transactions contemplated by this Agreement set
forth in Sections 8.1 and 8.2 have been satisfied.
(c) Purchase Price. Buyer shall deliver to Sellers by wire transfer of
immediately available funds the Cash Consideration, subject to adjustment
pursuant to the provisions of Section 2.3 and, notwithstanding the foregoing,
certificates evidencing the Buyer's Shares are to be delivered pursuant to
Section 2.2(a)(ii).
ARTICLE 10
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual written agreement of Sellers and Buyer;
(b) by either Sellers or Buyer, if:
(i) the transaction contemplated hereby has not been consummated on or
before February 1, 2000 (the "Termination Date"); provided that the right to
terminate this Agreement pursuant to this Section 10.1(b)(i) shall not be
available to a party whose breach of any provision of this Agreement results in
the failure of such transaction to be consummated by the Termination Date; or
(ii) (A) there shall be any law or regulation that makes consummation of
the transaction contemplated hereby illegal or otherwise prohibited or (B) any
judgment, injunction, order or decree of any court or other Governmental
Authority having competent jurisdiction enjoining Sellers or Buyer from
consummating such transaction is entered, and such judgment, injunction, order
or decree shall have become final.
(c) by Buyer if on any date determined for the Closing in accordance with
Section 9.1 each condition in Article 8 has been satisfied (or will be satisfied
by actions to be taken at the Closing) and either a condition set forth in
Article 7 has not been satisfied (or will not be satisfied by actions to be
taken at the Closing) or Sellers have nonetheless refused to
-36-
<PAGE> 43
consummate the Closing; provided that Buyer may not terminate pursuant to this
Section 10.1(c)if the failure of any condition set forth in Article 7 to be
satisfied was principally caused by Buyer's breach of or failure to
perform any of its covenants and agreements in accordance with this Agreement;
(d) by Sellers if on any date determined for the Closing in accordance with
Section 9.1 each condition in Article 7 has been satisfied (or will be satisfied
by actions to be taken at the Closing) and either a condition set forth in
Article 8 has not been satisfied (or will not be satisfied by actions to be
taken at the Closing) or Buyer has nonetheless refused to consummate the
Closing; provided that Sellers may not terminate pursuant to this Section
10.1(d) if the failure of any condition set forth in Article 8 to be satisfied
was principally caused by Sellers' breach of or failure to perform any of its
covenants and agreements in accordance with this Agreement.
The party desiring to terminate this Agreement pursuant to
this Section 10.1 (other than pursuant to Section 10.1(a)) shall give notice of
such termination to the other parties hereto.
Section 10.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1, this Agreement shall become void and of no effect without
liability of any party hereto to the other parties hereto, except that (a) the
agreements contained in this Section 10.2 and in Section 10.3 of this
Agreement shall survive the termination hereof, and (b) no such termination
shall relieve any party of any liability or damages resulting from any
material breach by such party of any representation, warranty, covenant or
agreement set forth in this Agreement.
Section 10.3 Injunctive Relief and Survival. Sellers acknowledge that Buyer
would be irreparably damaged in the event any of the provisions of this
Agreement were not performed by them. Accordingly, Sellers expressly agree that,
in addition to any other right or remedy Buyer may have, Buyer hereto may
seek and obtain specific performance of the covenants and agreements set forth
in this Agreement and may seek and obtain temporary and permanent injunctive
relief to prevent any breach or violation hereof, and that no bond or other
security may be required from Buyer in connection therewith. If any action is
brought by Buyer to enforce this Agreement, Sellers hereby waive the defense
that there is an adequate remedy at law.
ARTICLE 11
INDEMNIFICATION
Section 11.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties hereto contained in this Agreement
shall survive the Closing hereunder (even if the damaged party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at
the time of Closing) and continue in full force and effect until the latest of:
(a) the date that is two years after the Closing Date, (b) the date of final
resolution of a claim that has been asserted in writing to the other party
prior to the ending of such two year period, and (c) as to the representations
and warranties made in Sections 3.1, 3.5, 4.1, 4.2, 5.1, 5.2, 5.7, 5.9, 5.11,
5.22 and 5.24, 60 days after the expiration of the applicable statute of
limitations (including all periods of extension thereof) or, if later as to the
representations and
-37-
<PAGE> 44
warranties made in Section 5.11, until the final resolution of any claim
asserted in writing by a Governmental Authority.
Section 11.2 Indemnification by Sellers. From and after the Closing,
Sellers shall indemnify Buyer and its affiliates, officers, directors, employees
, stockholders and agents (the "Buyer Indemnified Parties") against and hold
them harmless from any liability, claim, damage, Tax or expense (including
reasonable legal fees and expenses) ("Losses") suffered or incurred by any Buyer
Indemnified Party as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of Sellers contained in
this Agreement or any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of Sellers contained in this
Agreement;
(c) any breach of any covenant or agreement of the Companies contained in
this Agreement relating to the period prior to the Closing;
(d) liabilities of any Company resulting from or arising out of the conduct
of the Business prior to the Closing, including without limitation any claim
listed on Schedule 5.20, to the extent such liabilities are not reflected in the
Most Recent Balance Sheet;
(e) any claim arising out of any breach or violation or alleged breach or
violation of any Environmental, Health and Safety Requirement relating to any
Real Property owned or leased by any Company or its predecessors, which breach
or violation occurred or allegedly occurred prior to the Closing, and any
judgment or other adverse determination or settlement or claim arising out of
any suit, action or proceeding arising out of the conduct of the Business prior
to the Closing;
(f) expenses of either Seller or any Company, other than Transaction
Expenses, relating to the consummation of the transactions contemplated by this
Agreement, including fees and expenses of attorneys, accountants, financial
advisors and broker fees;
(g) the Taxes of any of the Companies for any taxable period or portion
thereof ending on or prior to the Closing Date;
(h) any action, suit, proceeding, claim, demand, assessment or judgment
incident to the foregoing or incurred in investigating or to avoid the same or
to oppose the imposition thereof or in enforcing this indemnity; and
(i) any Tax,cost or other expense (including any amounts imposed as a result
of the application of Section 481 of the Code) resulting from any change in
accounting method or any change in the accounting treatment of any item of any
of the Companies, from the method or treatment used by such Company for taxable
periods beginning prior to the Closing Date, which change Buyer deems necessary
or appropriate, in Buyer's sole discretion, to comply with applicable Tax law.
Sellers shall be obligated to indemnify Buyer under this Section 11.2
only in the event
-38-
<PAGE> 45
that the aggregate amount of any Losses suffered or incurred by Buyer, as to
which Buyer would be entitled to indemnification thereunder,shall exceed, in
the aggregate, $50,000, in which event Buyer shall be entitled to recover all
such Losses including such $50,000.
Section 11.3 Indemnification by Buyer.From and after the Closing, Buyer shall
indemnify Sellers and their affiliates, officers, directors, employees,
stockholders and agents (the "Seller Indemnified Parties") against and hold
them harmless from any Losses suffered or incurred by any Seller Indemnified
Parties as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of Buyer contained in this
Agreement or in any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of Buyer contained in this
Agreement;
(c) liabilities of the Companies resulting from or arising out of the
conduct of the Business by the Companies after the Closing, unless and to the
extent Buyer is entitled to indemnification therefore pursuant to Section 11.2;
and
(d) any action, suit, proceeding, claim, demand, assessment or judgment
incident to the foregoing or incurred investigating or to avoid the same or to
oppose the imposition thereof or in enforcing this indemnity.
Section 11.4 Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly give
notice to the party from which indemnification is claimed (the "Indemnifying
Party") of any claim, whether between the parties or brought by a third party,
specifying in reasonable detail the factual basis for the claim, the amount
thereof, estimated in good faith, and the method of computation of such claim,
all with reasonable particularity and containing a reference to the provisions
of this Agreement in respect of which such indemnification claim shall have
occurred. If the claim relates to an action, suit or proceeding filed by a third
party against the Claimant, such notice shall be given by the Claimant promptly
after written notice of such action, suit or proceeding was given to the
Claimant; provided, however, that any delay in giving the notice shall not
impair the Claimant's rights hereunder unless such delay has a material adverse
effect on the Indemnifying Party's ability to defend such claim.
(b) With respect to claims solely between the parties, following receipt of
notice from the Claimant of a claim, the Indemnifying Party shall have 30 days
to make such investigation of the claim as the Indemnifying Party deems
necessary or desirable. For the purposes of such investigation, the Claimant
agrees to make available to the Indemnifying Party and its authorized
representatives the information relied upon by the Claimant to substantiate the
claim. If the Claimant and the Indemnifying Party agree prior to the expiration
of such 30 day period (or any mutually agreed upon extension thereof) to the
validity and amount of such claim, the Indemnifying Party shall immediately pay
to the Claimant the full amount of the claim. If the Claimant and the
Indemnifying Party do not agree within such 30 day period (or any
-39-
<PAGE> 46
mutually agreed upon extension thereof), the Claimant may seek appropriate
remedies at law or equity, as applicable.
(c) With respect to any claim by a third party as to which the Claimant is
entitled to indemnification under this Agreement, the Indemnifying Party shall
have the right at its own expense, to participate in or assume control of the
defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in such
defense with legal counsel of the Claimant's own selection, but the fees and
expenses of such counsel shall be its fees and expenses unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense of such claim, within five
business days after receiving notice of such claim, (iii) the remedies sought
against the Claimant include any remedy that is not solely a claim for monetary
damages or (iv) the named parties to any proceeding in respect of the claim
(including any impleaded parties) include both the Indemnifying Party and the
Claimant and the Claimant has been advised by counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Indemnifying Party (in which case, if the Claimant
notifies the Indemnifying Party that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of the
Claimant, it being understood, however, that the Indemnifying Party shall not,
in connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Claimant). If the Indemnifying Party does not (or,
as provided in clause (iv) of the preceding sentence, cannot) elect to assume
control or otherwise participate in the defense of any third-party claim, then
the Claimant may defend through counsel of its own choosing and (so long as it
gives the Indemnifying Party at least five days prior written notice of the
terms of any proposed settlement thereof and permits the Indemnifying Party to
then undertake the defense thereof) settle such claim, action or suit, and to
recover from the Indemnifying Party the amount of such settlement or of any
judgment and the costs and expenses of such defense. The Indemnifying Party
shall not compromise or settle any third party claim, action or suit without the
prior written consent of the Claimant, which consent will not be unreasonably
withheld or delayed.
(d) If a claim, whether between the parties or by a third party, requires
immediate action, the parties will make every reasonable effort to reach a
decision with respect thereto as expeditiously as practicable.
(e) Following the Closing, Sellers shall have no right of contribution against
any Company for any indemnification payment made by Sellers hereunder or
otherwise, and Sellers hereby waive any and all rights of contribution that they
may have against any Company.
Section 11.5 Indemnification Escrow. On the Closing Date, Buyer, Sellers and
First Union National Bank (the "Escrow Agent") shall execute an Escrow Agreement
substantially in the form attached as Exhibit D (the "Escrow Agreement") in
accordance with which, promptly
-40-
<PAGE> 47
following the Closing Date, Buyer shall cause its transfer agent to deposit
37,500 shares of Buyer's common stock included in the Stock Consideration with
the Escrow Agent (such deposit and all amounts held from time to time by the
Escrow Agent in respect of such deposit, including any interest or other
earnings in respect of such deposit, the "Indemnification Deposit") in
order to provide a fund for the payment of any claims for which Buyer is
entitled to indemnification as provided in this Article 11. The
Indemnification Deposit shall be held and disbursed in accordance with the terms
of the Escrow Agreement.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Delaware, without regard to such state's conflict of
law rules.
Section 12.2 Successors and Assigns. Except as otherwise expressly provided
herein, no party hereto may assign its or his rights and obligations hereunder
unless such party obtains the prior written consent of the other parties hereto;
provided, however, that Buyer shall have the right to assign to any of its
subsidiaries the right to acquire the Shares, but Buyer shall remain liable for
all of its obligations hereunder notwithstanding any such assignment. Except as
otherwise provided herein, this Agreement shall inure to the benefit of, and
be binding upon, the successors and permitted assigns of the parties hereto.
Section 12.3 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement among the parties with regard to the
subject matter hereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
Section 12.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, or by reputable overnight delivery service, postage prepaid, or
otherwise delivered by hand or by messenger, addressed as follows:
to Sellers: Donald Doty
John Patrick Moore
1570 West Beltline Road
Cedar Hill, Texas 75104
with a copy to: Goins, Underkofler, Crawford & Langdon
1601 Elm Street
Suite 3300
Dallas, Texas 75201
Attention: Jack Langdon, Esq.
Telephone: (214) 969-5454
Fax: (214) 969-5902
-41-
<PAGE> 48
to Buyer: SpectraSite Holdings, Inc.
100 Regency Forest Drive
Suite 400
Cary, North Carolina 27511
Attention: President, with a copy to
General Counsel
Telephone: (919) 468-0112
Fax: (919) 468-8522
with a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036
Attention: Timothy J. Kelley, Esq.
Telephone: (202) 776-2000
Fax: (202) 776-2222
Notice shall be deemed to be given upon receipt.
Section 12.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy hereunder shall impair any such right, power or remedy of
any party hereto, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party hereto of any provisions or
conditions of this Agreement, must be in writing and shall be effective only
to the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any party hereto, shall be cumulative and not alternative.
Section 12.6 Counterparts. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each of which shall be deemed
an original, and all of which taken together shall constitute one and the same
instrument.
Section 12.7 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
Section 12.8 Headings. The subject headings of the sections of this Agreement
are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
Section 12.9 Waiver of Jury Trial. Each party hereto hereby waives any right
to a trial by jury with respect to any action relating to this Agreement.
Section 12.10 Exclusive Benefit. Nothing in this Agreement is intended to
confer any rights or remedies, whether express or implied, under or by reason
of this Agreement, on any persons other than the parties hereto and their
respective successors and assigns, nor is anything
-42-
<PAGE> 49
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to any party to this Agreement.
Section 12.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party
has breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty
or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
Section 12.12 Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof. Nothing in any Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless
such Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or other item itself).
[THE NEXT PAGE IS THE SIGNATURE PAGE]
-43-
<PAGE> 50
IN WITNESS WHEREOF, each party hereto has caused this Stock Purchase
Agreement to be duly executed as of the day and year first above written.
/s/Donald Doty
-------------------------------------
DONALD DOTY
/s/John Patrick Moore
-------------------------------------
JOHN PATRICK MOORE
SPECTRASITE HOLDINGS, INC.
By: /s/Stephen H. Clark
-------------------------------------
Name: Stephen H. Clark
Title: President and Chief Executive Officer
<PAGE> 51
EXHIBIT A
Apportionment of Consideration
- --------------------- ------------------------- ------------------------
Name Stock Cash
- --------------------- ------------------------- ------------------------
- --------------------- ------------------------- ------------------------
Donald Doty 50% 50%
4013 Elganza Court
Plano, TX 75023
- --------------------- ------------------------- ------------------------
- --------------------- ------------------------- ------------------------
John Patrick Moore 50% 50%
11 Key Drive
Heath, TX 75032
- --------------------- ------------------------- ------------------------
<PAGE> 52
EXHIBIT B
Employment Agreement
<PAGE> 53
EXHIBIT C
Opinion Letter
<PAGE> 54
EXHIBIT D
Escrow Agreement
<PAGE> 1
Exhibit 2.7
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
AMONG
SPECTRASITE HOLDINGS, INC.,
VPI MERGER SUB, INC.,
VERTICAL PROPERTIES, INC.
AND
THE STOCKHOLDERS OF VERTICAL PROPERTIES, INC.
Dated as of December 30, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 DEFINED TERMS............................................1
Section 1.1 Defined Terms.......................................1
Section 1.2 Terms Defined Elsewhere in this Agreement...........5
Section 1.3 Clarifications......................................7
ARTICLE 2 THE MERGER AND THE MERGER CONSIDERATION..................7
Section 2.1 The Merger..........................................7
Section 2.2 [Intentionally omitted.]...........................10
Section 2.3 [Intentionally omitted.]...........................10
Section 2.4 Qualifying Lease and Qualifying LOI Payments.......10
Section 2.5 Supplemental Payments..............................15
Section 2.6 Tax Treatment of Payments..........................15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
RELATINGTO THE STOCKHOLDERS............................15
Section 3.1 Authorization of Transaction; Consents.............15
Section 3.2 Noncontravention...................................16
Section 3.3 Brokers' Fees......................................16
Section 3.4 Investment.........................................16
Section 3.5 The Shares.........................................17
Section 3.6 Litigation.........................................17
Section 3.7 Disclosure.........................................17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB..17
Section 4.1 Organization of Buyer and Merger Sub...............17
Section 4.2 Authorization of Transaction; Consents.............18
Section 4.3 Noncontravention...................................18
Section 4.4 Brokers' Fees......................................18
Section 4.5 Share Validity.....................................18
Section 4.6 Securities Law Compliance..........................18
Section 4.7 SEC Filings........................................19
Section 4.8 Disclosure.........................................19
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
CONCERNING COMPANY.....................................19
Section 5.1 Organization, Qualification, Corporate Power,
Authorization of Transaction......................19
Section 5.2 Capitalization.....................................20
Section 5.3 Noncontravention; Consents.........................20
Section 5.4 Brokers' Fees......................................21
Section 5.5 Title to Assets....................................21
Section 5.6 Subsidiaries.......................................21
Section 5.7 Financial Statements...............................21
Section 5.8 Events Subsequent to Most Recent Fiscal Year End...21
Section 5.9 Undisclosed Liabilities............................23
Section 5.10 Legal Compliance...................................23
Section 5.11 Tax Matters........................................23
Section 5.12 Broadcast Towers; Regulatory Requirements..........25
Section 5.13 Real Property......................................25
Section 5.14 Intellectual Property..............................27
Section 5.15 Tangible Assets....................................27
Section 5.16 Contracts..........................................27
Section 5.17 Notes and Accounts Receivable; Accounts Payable....28
Section 5.18 Powers of Attorney.................................28
Section 5.19 Insurance..........................................28
Section 5.20 Litigation.........................................29
Section 5.21 Employees..........................................29
Section 5.22 Employee Benefits..................................30
Section 5.23 Guaranties.........................................32
Section 5.24 Environmental, Health and Safety Matters...........32
Section 5.25 Certain Business Relationships with the Company....33
Section 5.26 Bank Accounts and Credits..........................33
Section 5.27 Inventory..........................................33
Section 5.28 Product and Service Warranty.......................33
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
Section 5.29 Year 2000 Compliance...............................33
Section 5.30 Hart-Scott-Rodino..................................34
Section 5.31 Disclosure.........................................34
ARTICLE 6 COVENANTS...............................................34
Section 6.1 Conduct of Business of the Company.................34
Section 6.2 The Stockholders' Actions..........................36
Section 6.3 Other Actions......................................36
Section 6.4 Notification of Certain Matters....................36
Section 6.5 Access to Information..............................37
Section 6.6 Cooperation; Further Assurances....................37
Section 6.7 Public Announcements...............................37
Section 6.8 Confidentiality....................................38
Section 6.9 Expenses; Taxes....................................38
Section 6.10 Control of the Company's Operations................38
Section 6.11 Hart-Scott-Rodino Filing...........................38
Section 6.12 Other Buyer Transactions...........................38
Section 6.13 Consents...........................................38
Section 6.14 Employee Benefits Matters..........................39
Section 6.15 Tax Matters........................................39
Section 6.16 Additional Post-Closing Covenants..................40
ARTICLE 7 CONDITIONS TO BUYER'S OBLIGATIONS.......................41
Section 7.1 Performance by the Company and the Stockholders....41
Section 7.2 Truth of Representations and Warranties............41
Section 7.3 Receipt of Consents................................41
Section 7.4 Hart-Scott-Rodino Act and other Governmental
Authorizations....................................41
Section 7.5 Deliveries.........................................41
Section 7.6 Material Adverse Effect............................41
Section 7.7 Payment of Company Liabilities.....................41
Section 7.8 Affiliate Loans....................................41
Section 7.9 Post-Closing Lock-Ups..............................42
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
Section 7.10 Employment Agreement...............................42
Section 7.11 Certain Proceedings................................42
Section 7.12 Buyer Investigation................................42
Section 7.13 Stockholders' Actions..............................42
Section 7.14 Certificate of Merger..............................42
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY................................................42
Section 8.1 Performance by Buyer...............................42
Section 8.2 Truth of Representations and Warranties............43
Section 8.3 Deliveries.........................................43
Section 8.4 Certain Proceedings................................43
Section 8.5 Buyer Actions......................................43
Section 8.6 Certificate of Merger..............................43
ARTICLE 9 CLOSING.................................................43
Section 9.1 Closing............................................43
Section 9.2 Deliveries and Actions by the Stockholders and the
Company...........................................43
Section 9.3 Deliveries by Buyer................................45
ARTICLE 10 TERMINATION.............................................45
Section 10.1 Termination........................................45
Section 10.2 Effect of Termination..............................46
ARTICLE 11 INDEMNIFICATION.........................................46
Section 11.1 Survival of Representations and Warranties.........46
Section 11.2 Indemnification by the Stockholders................47
Section 11.3 Indemnification by Buyer...........................48
Section 11.4 Procedure for Indemnification......................48
Section 11.5 Indemnification Escrow.............................50
Section 11.6 Basket Amount......................................50
ARTICLE 12 MISCELLANEOUS...........................................50
Section 12.1 Governing Law......................................50
Section 12.2 Successors and Assigns.............................50
-iv-
<PAGE> 6
TABLE OF CONTENTS
(continued)
Section 12.3 Entire Agreement; Amendment........................50
Section 12.4 Notices, Etc.......................................50
Section 12.5 Delays or Omissions................................51
Section 12.6 Counterparts.......................................52
Section 12.7 Severability.......................................52
Section 12.8 Headings...........................................52
Section 12.9 Waiver of Jury Trial...............................52
Section 12.10 Exclusive Benefit..................................52
Section 12.11 Construction.......................................52
Section 12.12 Exhibits and Schedules.............................52
Section 12.13 Enforcement of Agreement...........................52
Section 12.14 Acquisition of Buyer...............................53
Section 12.15 Stockholders' Representative.......................53
-v-
<PAGE> 7
TABLE OF CONTENTS
(continued)
LIST OF SCHEDULES
Schedule A Per Share Merger Consideration
Schedule 2.4 Apportionment of Payments Among the
Stockholders
Schedule 3.2 Authorizations for Transaction;
Noncontravention; Consents
Schedule 4.2 Authorizations of Transaction;
Noncontravention; Consents
Schedule 5.1 Organization, Qualification, Corporate
Power, Authorization of Transaction
Schedule 5.2 Capitalization Stockholders Who Are Also
Employees
Schedule 5.3 Noncontravention; Consents
Schedule 5.5 Permitted Liens
Schedule 5.7(a) Financial Statements
Schedule 5.7(b) Indebtedness for Borrowed Money, Trade
Payables and Consulting Fees
Schedule 5.8 Events Subsequent to Most Recent Fiscal Year
End
Schedule 5.9 Undisclosed Liabilities
Schedule 5.11 Tax Matters
Schedule 5.12(b) Broadcast Towers; Regulatory Requirements
Schedule 5.13 Real Property
Schedule 5.14 Intellectual Property
Schedule 5.15 Tangible Assets
Schedule 5.16 Contracts
Schedule 5.18 Powers of Attorney
Schedule 5.19 Insurance
Schedule 5.20 Litigation
Schedule 5.21 Employees
Schedule 5.22 Employee Benefits
Schedule 5.23 Guaranties
Schedule 5.24 Environmental, Health and Safety Matters
Schedule 5.25 Certain Business Relationships with the
Company
Schedule 5.26 Bank Accounts and Credits
Schedule 5.28 Product and Service Warranty
Schedule 11.2 Indemnification by the Stockholders
LIST OF EXHIBITS
Exhibit A: Stockholders of Vertical Properties, Inc.
Exhibit B: Apportionment of Consideration
Exhibit C: Qualifying Lease and Qualifying LOI Payments;
Operating Budget
Exhibit D: Form of Employment Agreement
Exhibit E: Form of Opinion Letter
Exhibit F: Form of Post-Closing Escrow Agreement
-vi-
<PAGE> 8
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
This Merger Agreement and Plan of Reorganization is made and entered
into as of December 30, 1999 by and among SpectraSite Holdings, Inc., a Delaware
corporation (the "Buyer"), VPI Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Buyer ("Merger Sub"), Vertical Properties, Inc., a
New York Corporation (the "Company"), and the Stockholders listed on Exhibit A
hereto (the "Stockholders").
RECITALS
The Stockholders own all of the outstanding capital stock of the
Company. The Company is engaged in site acquisition and leasing for television
and radio transmission broadcast towers for entities in the broadcasting
industry (the "Business").
This Agreement contemplates a transaction in which Merger Sub will
merge with and into the Company (the "Merger") pursuant to this Agreement, the
Certificate of Merger and the applicable provisions of the laws of the State of
Delaware and the State of New York.
The Boards of Directors of each of the Buyer, Merger Sub and the
Company have approved this Agreement and the transactions contemplated by this
Agreement and the Boards of Directors of Merger Sub and the Company have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (as hereinafter
defined). The Stockholders have approved this Agreement and the transactions
contemplated by this Agreement.
IN CONSIDERATION of the foregoing recitals and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINED TERMS
Section 1.1 Defined Terms. All capitalized terms not otherwise defined elsewhere
in this Agreement shall have the meanings ascribed to such terms in this Section
1.1.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person
and any officer, director, general partner or family member of such Person. For
purposes of this definition, "control" 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 such Person, whether through the
ownership of voting securities, by contract or otherwise.
<PAGE> 9
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Common Stock" means the common stock, no par value per share,
of the Company.
"Compensation Arrangement" means any plan or compensation arrangement
other than an Employee Plan, whether written or unwritten, which provides to
employees, former employees, officers, directors, independent contractors or
shareholders of the Company, any compensation or other benefits, whether
deferred or not, in excess of base salary or wages, including any bonus or
incentive plan, stock rights plan, deferred compensation arrangement, life
insurance, stock purchase plan, severance pay plan, change of control
arrangements, and any other employee fringe benefit plan.
"Consent" means the consents, permits and approvals of all Governmental
Authorities and other third parties (or notices to such parties) necessary in
order to consummate the transactions contemplated by this Agreement, including,
without limitation, the Merger, in a lawful manner and without causing a default
under, conflict with, or acceleration, violation or termination of, any legal
requirement or contract or agreement to which any Stockholder or the Company is
a party or bound, whether or not such consent is listed on Schedule 3.2 or
Schedule 5.3.
"Contracts" means all contracts, leases, non-governmental licenses,
options to purchase, options to lease, letters of intent, commitment letters and
other agreements and undertakings (including leases for personal or real
property and employment agreements), written or oral (including any amendments
and other modifications thereto) to which the Company is a party or which are
binding upon the Company or that relate to the assets or operations of the
business of the Company.
"Effective Time" means the time at which the Merger becomes effective,
which shall be the later of the times when the Certificate of Merger is filed in
the Office of the Secretary of State of the State of Delaware and the Office of
the Secretary of State of the State of New York on the Closing Date.
"Employee Plan" means any retirement or welfare plan or arrangement or
any other employee benefit plan as defined in Section 3(3) of ERISA which any
company or any ERISA Affiliate sponsors, maintains or by which any company or
any ERISA Affiliate is bound or to which any company or any ERISA Affiliate
contributes or is required to contribute.
"Environmental, Health and Safety Requirements" means all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing,
-2-
<PAGE> 10
discharge, release, threatened release, control or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each
as amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with the Company under Code ss.414(b), (c), (m), (n) or (o).
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any federal, state, local political
subdivision or other governmental or regulatory department, court, commission,
board, bureau, agency, authority or instrumentality, foreign or domestic.
"Indebtedness" means (a) all indebtedness of the Company for borrowed
money, secured or unsecured, outstanding immediately prior to the Effective Time
(the "Adjustment Time"), including, without limitation, the aggregate principal
amount thereof, plus all accrued and unpaid interest thereon as of the
Adjustment Time, (b) any other costs, expenses or payments related to such
indebtedness, (c) the amount outstanding in respect of any capitalized lease
obligations of the Company as of the Adjustment Time as determined in accordance
with GAAP, (d) the amount of any guarantees by the Company of the indebtedness
or any other obligation of any other Person, (e) any drawings by the Company
under letters of credit, surety bonds or similar instruments that have not been
reimbursed or repaid as of the Adjustment Time, and (f) the amount of any
prepayment penalty or premium, change of control penalty or premium or other
payment, cost, expense or liability payable in respect of any item set forth in
clauses (a), (b), (c), (d) and (e) hereof arising out of or resulting from the
consummation of the transactions contemplated by this Agreement, including the
discharge at Closing of all Company Liabilities pursuant to Section 7.7.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and
-3-
<PAGE> 11
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" means all licenses, permits, authorizations, determinations
and registrations issued by the FCC, the FAA or any other Governmental Authority
to the Company in connection with the conduct of the Business, including all FAA
determinations of no hazard for each broadcast tower and all FCC registrations
for each broadcast tower.
"Liens" means any mortgage, pledge, lien, charge, claim, option,
conditional sales, security interest or other encumbrance, restriction or
limitation of any nature whatsoever.
"Material Adverse Effect" means any material adverse effect on, or
change in, the business, financial condition, net worth, assets, liabilities,
personnel, operations, results of operations or prospects of the Company or the
ability of the Company or any Stockholder to execute, deliver or perform this
Agreement and the other agreements and documents contemplated hereby to which
the Company or any Stockholder is a party.
"Multiemployer Plan" means a plan, as defined in ERISA ss.3(37) to
which the Company or any ERISA Affiliate has contributed, is contributing or is
required to contribute.
"Multiple Employer Plan" means a plan, as defined in ERISA Section
4063(a), which the Company or any ERISA Affiliate sponsors or maintains or to
which the Company or any ERISA Affiliate contributed, is contributing or is
required to contribute.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Buyer Common Stock" means the common stock, par value $0.001 per
share, of Buyer.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other type of
entity.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Real Property" means all real property, interests in real property,
leaseholds and subleaseholds, purchase options for real property, lease options
for real property, easements,
-4-
<PAGE> 12
licenses, rights of access, and rights of way and all buildings and other
improvements thereon, of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Shares" means the shares of common stock of the Company, no par value
per share.
"Subsidiary" means, with respect to the Company, any entity of which
the Company (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.
"Tax" or "Taxes" means any and all taxes, fees, duties, tariffs,
imposts and other charges of any kind imposed by any governmental or taxing
authority, including: federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, motor vehicle, ad valorem, value added,
production, sales, use, license, excise, franchise, capital, transfer,
recordation, payroll, employment, excise, severance, stamp, occupation, premium,
environmental (including taxes under Code ss.59A), customs duties, social
security (or similar), unemployment, disability, withholding, alternative or
add-on minimum, or other tax or governmental assessment, together with any
interest, additions, or penalties with respect thereto and any interest in
respect of such additions or penalties, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
information return or other statement or document (including any related or
supporting information, any schedule or attachment thereto and any amendment
thereof) filed or required to be filed with any federal, state, local or foreign
taxing authority in connection with the determination, assessment, collection,
administration or imposition of any Tax.
Section 1.2 Terms Defined Elsewhere in this Agreement. In addition to the
defined terms in Section 1.1, the following is a list of defined terms used in
this Agreement and a reference to the Section hereof in which such term is
defined:
Acquiror...........................................................Section 12.14
Acquiror Capital Stock.............................................Section 12.14
Adjustment Time.................................................... Section 1.1
Agreement.......................................................... Preamble
Bartered Revenue.............................................Section 2.4(f)(iii)
Bartered Value...............................................Section 2.4(f)(iii)
Basket Amount...................................................... Section 11.6
Business........................................................... Recitals
Buyer.............................................................. Preamble
Buyer Indemnified Parties.......................................... Section 11.2
CERCLA...........................................................Section 5.24(e)
Certificates......................................................Section 2.1(g)
Change of Control Transaction......................................Section 12.14
-5-
<PAGE> 13
Claimant........................................................ Section 11.4(a)
Closing ........................................................ Section 9.1
Closing Date.................................................... Section 9.1
COBRA........................................................... Section 5.22(h)
Commencement Date............................................Section 2.4(f)(iii)
Company......................................................... Preamble
Company Liabilities............................................. Section 2.1(e)
DGCL............................................................ Section 2.1(c)
Employee Stockholders........................................... Section 5.2
Employment Agreement............................................ Section 7.10
Escrow Agent...................................................Section 2.1(f)(i)
Financial Statements............................................ Section 5.7
Hart-Scott-Rodino Act........................................... Section 6.11
Indemnification Funds........................................... Section 11.5
Indemnifying Party.............................................. Section 11.4(a)
Lock-Up Agreements.............................................. Section 7.9
Losses.......................................................... Section 11.2
Material Consents............................................... Section 7.3
Merger.......................................................... Recitals
Merger Sub...................................................... Preamble
Merger Consideration............................................ Section 2.1(d)
Most Recent Fiscal Year End..................................... Section 5.7
NYBCL..........................................................Section 2.1(b)(i)
Original Appraisers..........................................Section 2.4(f)(iii)
Per Share Merger Consideration.................................. Section 2.1(d)
Permitted Liens................................................. Section 5.5
Post-Closing Escrow Agreement................................... Section 11.5
Project Cost.................................................... Section 2.4(f)
Qualifying Lease................................................ Section 2.4(f)
Qualifying LOI.................................................. Section 2.4(f)
Qualifying Lease Payment Due.................................... Section 2.4(f)
Qualifying Lease Value.......................................... Section 2.4(a)
Qualifying LOI Payment Due...................................... Section 2.4(f)
Qualifying LOI Value............................................ Section 2.4(b)
Qualifying Project.............................................. Section 2.4(f)
Real Property Fair Market Value..............................Section 2.4(f)(iii)
Real Property Options........................................... Section 5.13(g)
Representatives................................................. Section 6.5
Stockholders.................................................... Preamble
Stockholders' Indemnified Parties............................... Section 11.3
Stockholders' Representative.................................... Section 12.15
Surviving Corporation........................................... Section 2.1(a)
SWDA............................................................ Section 5.24(e)
Systems......................................................... Section 5.29
Termination Date..............................................Section 10.1(b)(i)
Third Appraiser..............................................Section 2.4(f)(iii)
-6-
<PAGE> 14
Treasury Regulations............................................ Section 5.11(f)
Value........................................................... Section 2.4(f)
VPI Markets..................................................... Section 2.4(f)
Year 2000 Compliant............................................. Section 5.29
Year 5.......................................................... Section 2.4(f)
Year 5 Cash Flow................................................ Section 2.4(f)
Section 1.3 Clarifications. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender and any other number as the context requires. Use of the word "including"
herein shall be deemed and construed to mean "including but not limited to."
Except as specifically provided otherwise in this Agreement in a particular
instance, a reference to a Section or Schedule is a reference to a Section of
this Agreement or a Schedule attached hereto, and the terms "hereof," "herein"
and other like terms refer to this Agreement as a whole, including the Schedules
hereto, and not solely to any particular part hereof.
ARTICLE 2
THE MERGER AND THE MERGER CONSIDERATION
Section 2.1 The Merger.
(a) The Merger. On and subject to the terms and conditions of this Agreement, at
the Effective Time, Merger Sub shall be merged with and into the Company
pursuant to this Agreement. Subject to the provisions of this Agreement, the
parties shall cause a Certificate of Merger as contemplated by Section 252 of
the DGCL and Section 907 of the NYBCL (the "Certificate of Merger") to be filed
in the Office of the Secretary of State of the State of Delaware and the Office
of the Secretary of State of the State of New York on the Closing Date, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation").
(b) Certificate of Incorporation; Bylaws; Directors and Officers. At the
Effective Time:
(i) The Certificate of Incorporation of the Company shall continue as the
Certificate of Incorporation of the Surviving Corporation, unless and until
thereafter amended as provided therein and under the Business Corporation Law of
the State of New York (the "NYBCL").
(ii) The Bylaws of the Company shall continue as the Bylaws of the Surviving
Corporation, unless and until thereafter amended as provided therein and under
the NYBCL.
(iii) The directors and officers of the Surviving Corporation shall be the
individuals designated by Buyer as of the Effective Time, until their successors
are elected and qualified.
-7-
<PAGE> 15
(c) Effects of the Merger. The Merger shall have the effects provided therefor
by the Delaware General Corporation Law ("DGCL") and the NYBCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time (i)
all the rights, privileges, immunities, powers and franchises, of a public as
well as of a private nature, and all property, real, personal and mixed, and all
debts due on whatever account, including without limitation subscriptions to
shares, and all other choices in action, and all and every other interest of or
belonging to or due to the Company or Merger Sub shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, immunities, powers and franchises
and all and every other interest shall be thereafter the property of the
Surviving Corporation, as they were of the Company and Merger Sub, and (ii) all
debts, liabilities, duties and obligations of the Company and Merger Sub shall
become the debts, liabilities, duties and obligations of the Surviving
Corporation and the Surviving Corporation shall thenceforth be responsible and
liable for all the debts, liabilities, duties and obligations of the Company and
Merger Sub and neither the rights of creditors nor any liens upon the property
of the Company or Merger Sub shall be impaired by the Merger, and may be
enforced against the Surviving Corporation.
(d) Manner of Conversion of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Merger Sub or the Company,
the shares of capital stock of Merger Sub and the Company shall be converted as
follows:
(i) Capital Stock of Merger Sub. Each issued and outstanding share of capital
stock of Merger Sub shall be converted into and exchanged for one fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.
(ii) Cancellation of Certain Shares of Capital Stock of the Company. All shares
of capital stock of the Company that are owned directly or indirectly by the
Company shall be canceled and no consideration shall be delivered in exchange
therefor.
(iii) Conversion of Certain Other Shares of Capital Stock of the Company. All of
the issued and outstanding shares of the Company Common Stock that are issued
and outstanding immediately prior to the Effective Time shall be converted into
the right to receive the Per Share Merger Consideration as set forth herein and
subject to the terms and provisions of the Post-Closing Escrow Agreement.
(iv) [Intentionally omitted.]
(v) Adjustments to the Merger Consideration. If, on or prior to the Effective
Time, Buyer should split or combine the Buyer Common Stock, or pay a stock
dividend or other stock distribution on the Buyer Common Stock, or otherwise
change the Buyer Common Stock into any other securities, or make any other
dividend or distribution on the Buyer Common Stock (other than normal quarterly
dividends, as the same may be adjusted from time to time and in the ordinary
course), then the number of the shares of Buyer Common Stock issuable as the
Merger Consideration will be appropriately adjusted to reflect such split,
combination, dividend or other distribution or change.
-8-
<PAGE> 16
(vi) "Per Share Merger Consideration" means a number of shares of Buyer Common
Stock equal to the Merger Consideration, divided by the number of shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time, which is set forth on Schedule 5.2 hereto (rounded up or down to the
nearest whole number of shares of Buyer Common Stock).
(vii) "Merger Consideration" means 225,000 shares of Buyer Common Stock.
(e) At the Closing, Buyer shall pay each of the Persons identified on Schedule
5.7(b) the amount set forth opposite such Person's name thereon (collectively,
the "Company Liabilities") by wire transfer of immediately available funds to
the account of such Person specified on Schedule 5.7(b), such amounts
representing repayment or satisfaction in full of all amounts owed by the
Company to each such Person.
(f) At the Effective Time, Buyer shall give written instructions to its transfer
agent to deliver certificates representing the Merger Consideration to the
Persons set forth below as follows:
(i) as soon as practicable following the Merger, to Wachovia Bank, as escrow
agent (the "Escrow Agent") pursuant to the Post-Closing Escrow Agreement, a
certificate representing 22,500 shares of Buyer Common Stock, to be held
pursuant to the Post-Closing Escrow Agreement and delivered to the Stockholders
and/or Buyer in accordance therewith; and
(ii) as soon as practicable after receipt by such transfer agent of each
Stockholder's certificate representing its shares of Company Common Stock, to
each Stockholder, a certificate representing a number of shares of Buyer Common
Stock equal to 202,500, multiplied by the fraction set forth opposite such
Stockholder's name on Schedule 5.2 hereto.
(g) Certificate Delivery Requirements. At the Effective Time, each Stockholder
shall deliver to Buyer the certificates (the "Certificates") representing the
shares of Company Common Stock held by him or her, accompanied by blank stock
powers duly executed and with all necessary transfer tax and other revenue
stamps, acquired at such Stockholder's expense, affixed and canceled. The
Stockholders shall promptly cure any deficiencies with respect to the stock
powers accompanying such Certificates. The Certificates so delivered shall
forthwith be delivered by Buyer to its transfer agent and thereupon canceled.
Until canceled as contemplated by this Section 2.1(g), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the number of shares of Buyer Common Stock as provided by, and in
accordance with, this Agreement.
(h) No Further Ownership Rights in Capital Stock of the Company. All shares of
Buyer Common Stock to be delivered upon the surrender of Certificates
representing the shares of Company Common Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares, and following the Effective Time, the Stockholders
shall have no further rights to, or ownership in, shares of
-9-
<PAGE> 17
capital stock of the Company or the Surviving Corporation. There shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 2.1.
(i) Lost, Stolen or Destroyed Certificates. If any Certificates evidencing
shares of Company Common Stock shall have been lost, stolen or destroyed, then
Buyer shall give written instructions to its transfer agent to deliver a portion
of the Merger Consideration in exchange for such lost, stolen or destroyed
Certificates as calculated in accordance with this Section 2.1, upon the
delivery to Buyer and its transfer agent by the relevant Stockholder of an
affidavit of that fact by the holder thereof; provided, however, that Buyer may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver an indemnity
bond having such terms as it may reasonably direct as indemnity against any
claim that may be made against Buyer and its transfer agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
Section 2.2 [Intentionally omitted.]
Section 2.3 [Intentionally omitted.]
Section 2.4 Qualifying Lease and Qualifying LOI Payments.
(a) Qualifying Lease Payment. On the Qualifying Lease Payment Date, if there are
one or more Qualifying Leases, Buyer will make a payment to the Stockholders, in
the aggregate, equal to four times the Value of each Qualifying Lease (the
"Qualifying Lease Value"). Subject to Section 2.4(c), such payment shall be made
by the delivery to the Stockholders of, at Buyer's option, either (i) cash, in
an amount equal to the Qualifying Lease Value, by wire transfer of immediately
available funds to the accounts of the Stockholders designated by the
Stockholders' Representative in writing not later than two business days prior
to the Qualifying Lease Payment Date or (ii) shares of Buyer Common Stock in an
amount determined in accordance with the following sentence or (iii) any
combination of cash (by wire transfer of immediately available funds to the
accounts of the Stockholders designated by the Stockholders' Representative in
writing not later than two business days prior to the Qualifying Lease Payment
Date) and shares of Buyer Common Stock, with an aggregate value equal to the
Qualifying Lease Value on the Qualifying Lease Payment Date (with the value of
each share of Buyer Common Stock determined in accordance with the following
sentence) as determined by Buyer in its sole discretion. If Buyer elects to
deliver shares of Buyer Common Stock, the number of shares shall be determined
by dividing the Qualifying Lease Value on the Qualifying Lease Payment Date by
the weighted average daily closing price for the shares of Buyer Common Stock as
quoted on the Nasdaq National Market and reported to The Wall Street Journal
during the period of thirty consecutive trading days ending on the third
business day prior to the Qualifying Lease Payment Date. Any fractional shares
resulting from such calculation shall be rounded up or down to the nearest whole
share.
(b) Qualifying LOI Payment. On the Qualifying LOI Payment Date, if there are one
or more Qualifying Leases which resulted from Qualifying LOI's for which Buyer
did
-10-
<PAGE> 18
not make a payment to the Stockholders pursuant to Section 2.4(a), Buyer
will make a payment to the Stockholders, in the aggregate, equal to four times
the Value of each Qualifying Lease (other than a Qualifying Lease in respect of
which a payment has been made pursuant to Section 2.4(a)) resulting from a
Qualifying LOI (the "Qualifying LOI Value"). Subject to Section 2.4(c), such
payment shall be made by the delivery to the Stockholders of, at Buyer's option,
either (i) cash, in an amount equal to the Qualifying LOI Value by wire transfer
of immediately available funds to an account designated by the Stockholders'
Representative in writing not later than two business days prior to the
Qualifying LOI Payment Date (ii) shares of Buyer Common Stock, in an amount
determined in accordance with the following sentence or (iii) any combination of
cash (by wire transfer of immediately available funds to the accounts of the
Stockholders designated by the Stockholders' Representative in writing not later
than two business days prior to the Qualifying LOI Payment Date) and shares of
Buyer Common Stock, with an aggregate value equal to the Qualifying LOI Value on
the Qualifying LOI Payment Date (with the value of each share of Buyer Common
Stock determined in accordance with the following sentence) as determined by
Buyer in its sole discretion. If Buyer elects to deliver shares of Buyer Common
Stock the number of shares shall be determined by dividing the Qualifying LOI
Value by the weighted average closing price for the shares of Buyer Common Stock
as quoted on the Nasdaq National Market and reported in The Wall Street Journal
during the period of thirty consecutive trading days ending on the third
business day prior to the Qualifying LOI Payment Date. Any fractional shares
resulting from such calculation shall be rounded up or down to the nearest whole
share.
(c) Any payments to be made to the Stockholders pursuant to Sections 2.4(a) and
2.4(b) shall be made such that the aggregate amount of cash paid to the
Stockholders pursuant to Section 2.4(a) and 2.4(b) shall not exceed 20% of the
aggregate value of all consideration received by such Stockholders pursuant to
Sections 2.1(d), 2.4(a) and 2.4(b).
(d) Payments and Deliveries. All payments and deliveries to be made pursuant to
Sections 2.4(a) and (b) shall be apportioned among the Stockholders in
accordance with Schedule 5.2 hereto.
(e) Operations Pending Payment. The Stockholders and Buyer agree as follows with
respect to the operations of the Surviving Corporation and the matters
contemplated by this Section 2.4:
(i) the Surviving Corporation will, for at least the twenty-four (24) month
period following Closing, operate as the development department of Buyer's
Broadcast Division, subject to the provisions of this Agreement, including
clause (iii) below;
(ii) For the twenty-four (24) month period following Closing, Buyer will
authorize an annual operating budget for the Surviving Corporation at least
equal to that set forth in Part 1 of Exhibit C annexed hereto and shall provide
the Surviving Corporation with funds consistent therewith.
(iii) Buyer shall be entitled to conduct its and its subsidiaries' business and
operations, and the business and operations of the Surviving Corporation in a
manner consistent with the judgment of Buyer's Board of Directors and Buyer's
management as to the
-11-
<PAGE> 19
best interest of Buyer and its subsidiaries (including the Surviving
Corporation) and may take actions consistent with such judgment, including,
without limitation, making any of the determinations called for by this
Agreement, acquiring any assets, stock or other ownership interests of any
person or entity (by purchase of assets or equity interests, merger,
consolidation or otherwise) or selling or otherwise disposing of all or any part
of the assets or equity interests of Buyer or its subsidiaries (including the
Surviving Corporation) and Buyer shall have no obligation or liability to the
Stockholders in respect of any such actions. Notwithstanding the foregoing, no
such actions taken by Buyer shall relieve Buyer from its obligations to provide
funds pursuant to Section 2.4(e)(ii) and to make the payments pursuant to
Sections 2.4(a) and 2.4(b), if any. Without limiting the generality of the
foregoing, the Stockholders acknowledge and agree that no representations,
warranties, covenants or agreements have been made to the Stockholders as to the
expected performance of Buyer or the Surviving Corporation, as to the expected
amount of the Qualifying Lease Value, the Qualifying LOI Value or the payments
to be made pursuant to Sections 2.4(a) and 2.4(b), or any guarantee as to the
amount of the Qualifying Lease Value, the Qualifying LOI Value or the payments
to be made pursuant to Sections 2.4(a) and 2.4(b).
(iv) Buyer shall cause the Surviving Corporation to commence construction of
each broadcast tower for each project which is a Qualifying Project within 60
days after obtaining all necessary governmental permits and Licenses for the
construction and completion thereof.
(f) Definitions. For purposes of this Agreement, the following terms shall have
the meanings set forth below:
"Project Cost" means in respect of any applicable Qualifying
Project the entire projected wholesale cost of a Qualifying Project, as
determined in the reasonable discretion of Buyer, taking into account the type
of tower to be built, and relevant economic and market factors and other matters
customarily taken into account in the tower business in determining the cost of
a project, and which amount shall include $200,000 in respect of general and
administrative costs of the Company allocable to each such Qualifying Project.
"Qualifying Lease" shall mean a lease associated with a
Qualifying Project, executed by a tenant and one of Buyer's subsidiaries (a)
within seventeen (17) months following the Closing Date or (b) within 23 months
following the Closing as a result of a Qualifying LOI if such lease is not a
lease described in clause (a) hereof, and, in any such case, otherwise meeting
the criteria set forth in Part 2 of Exhibit C hereto.
"Qualifying LOI" means a letter of intent (in form and
substance reasonably satisfactory to Buyer) executed by the proposed tenant and
one of Buyer's subsidiaries within seventeen (17) months following the Closing
Date with respect to entry into a Qualifying Lease and which in fact results in
execution by the tenant and such subsidiary of a Qualifying Lease within
twenty-three (23) months following the Closing Date.
"Qualifying Lease Payment Date" means the date eighteen (18)
months following the Closing Date (and if such date is not a business day on the
first business day thereafter).
-12-
<PAGE> 20
"Qualifying LOI Payment Date" means the date twenty-four (24)
months following the Closing Date (and if such date is not a business day on the
first business day thereafter).
"Qualifying Project" means a project for the construction of a
tower facility located within a VPI Market that meets each of the following
criteria:
(i) All tenants for the project must be reasonably satisfactory to Buyer and
credit-worthy and at least one such tenant must be a television and/or radio
broadcaster.
(ii) With respect to each project, there must be a minimum lease Value for the
first full year of the lease term greater than or equal to twelve percent (12%)
of Project Cost.
(iii) If a project includes deferred rent associated with land barter, capital
contribution, or other barter type agreements or other non-cash terms, all such
arrangements and terms shall be reasonably satisfactory to Buyer. Without
limiting the foregoing, with respect to any project for which the Company
acquires or leases real property from any Person in exchange for deferred or
free rental payments for tower space by the Person from which the Company
acquires or leases such real property, "Bartered Revenue" means the Bartered
Value divided by the number of years of deferred or free rental payments for
tower space (provided, however, that if such free rental is perpetual, the
Bartered Value shall be divided by 30). Bartered Value shall be determined as
follows. Buyer and Sellers' Representative shall negotiate in good faith to
establish the value of any real property acquired or leased by the Company in
exchange for deferred or free rental payments for tower space on such project
(the "Bartered Value"). If Buyer and Sellers' Representative are unable to reach
agreement on such Bartered Value within 15 days of the commencement of
discussions to establish such value (such fifteenth day, the "Commencement
Date"), each of Buyer and Sellers' Representative shall select an appraiser of
real estate of good reputation in the market in question (the "Original
Appraisers") to determine the value of such real property, which shall be the
fair market value thereof at which a willing seller would sell and willing buyer
would buy, in the case of real property acquired by the Company, and the value
thereof at which a willing lessor and a willing lessee would lease for such
term, in the case of real property leased by the Company, and, in each case,
without being under compulsion to buy, sell or lease, as applicable, and each
having all material information related to the property, and based, among other
things, upon the use to be made of such real property and the uniqueness of such
property for such use in the relevant market (the "Real Property Fair Market
Value"), and the Bartered Value of such real property shall be the average of
the Real Property Fair Market Value determined by such appraisers; provided,
however, that if the Real Property Fair Market Value determined by one Original
Appraiser is ten percent (10%) greater or less than the Real Property Fair
Market Value determined by the other Original Appraiser, the Original Appraisers
shall select a third appraiser of real estate of good reputation in the market
in question (the "Third Appraiser") to determine the Real Property Fair Market
Value, and the Bartered Value shall be the average of the two Real Property Fair
Market Value determinations which are closer in value to each other. The costs
and expenses of all such appraisers shall be paid one-half by Buyer and one-half
by Sellers. The Original Appraisers shall complete their determination of the
Real Property Fair Market Value
-13-
<PAGE> 21
by the 30th day after the Commencement Date and the Third Appraiser, if any,
shall complete its determination of the Real Property Fair Market Value by
the 30th day following its selection.
(iv) The proposed site of the tower facility must at the time of determination
either (x) be in receipt of all necessary governmental permits or licenses for
the construction and completion of the project and be in compliance with all
applicable zoning laws, ordinances, rules and regulations; or (y) there must be
a zoning feasibility study, completed by a person or entity reasonably
satisfactory to Buyer, in form and substance reasonably satisfactory to Buyer,
that demonstrates, to the reasonable satisfaction of Buyer that all necessary
governmental permits or licenses for the construction and completion of the
project can be obtained within a reasonable period of time and that there are no
conflicts with zoning laws, ordinances, rules or regulations that could not be
expected to be resolved satisfactorily (as determined in the reasonable
discretion of Buyer within a reasonable period of time.
(v) The project must be projected to produce an unlevered, compounded internal
rate of return equal to 25%, based upon Project Cost, a terminal value of twelve
times Year 5 Cash Flow and a term of five (5) years, calculated in good faith by
Buyer, as illustrated in Part 3 of Exhibit C hereto.
It is understood and agreed that Buyer may, but shall have no
obligation to, agree that a project is a Qualifying Project, even if such
project fails to meet one or more of the foregoing criteria, and that
commencement of construction of a project within 24 months of the Closing Date
shall constitute such agreement.
"Value" means, for purposes of a Qualifying Lease, the first
year lease revenue, including, without limitation, any management fees in
respect thereof payable to the Company and any Bartered Revenue of a Qualifying
Lease, net of (a) recurring expenses (including, without limitation, land rent,
taxes and maintenance costs in the case of a "triple net" lease to the extent
included in the calculation of lease revenue and land rent, taxes and
maintenance costs in the case of a "gross" lease), such expenses as reasonably
determined by Buyer, and (b) any prepaid rent for periods subsequent to such
first year.
"VPI Markets" means those markets described in Part 4 of
Exhibit C hereto.
"Year 5 Cash Flow" with respect to any project shall mean the
projected cash flow (i.e., net income associated with such project before
interest, taxes, depreciation and amortization) from leases for tower space on
such project for the fifth (5th) full year of the lease term for such project,
as such completion date is determined Buyer ("Year Five"), from (i) radio and
television broadcasters and (ii) any other Person with which the Surviving
Corporation has entered into a binding letter of intent or binding agreement for
the rental of tower space on such project which includes Year Five, determined
in the reasonable discretion of Buyer.
(f) Determinations. It is understood and agreed that all
determinations of Buyer made pursuant to this Section 2.4 shall be made in good
faith and the reasonable discretion of Buyer and so long as made in good faith
and reasonably, shall be final and binding on the Stockholders for all purposes
of this Agreement and otherwise and shall not be subject to challenge by the
Stockholders.
-14-
<PAGE> 22
Section 2.5 Supplemental Payments. The parties agree that the payments to be
made to the Stockholders in exchange for their shares of Company Common Stock
pursuant to Section 2.4 are being made with respect to the initial exchange, but
are being delayed from the Closing because of the difficulty in determining the
value of the Company as of the Closing and for other valid business reasons.
Such payments (i) are not being made as compensation, royalties or other
consideration other than as consideration for the shares of Company Common
Stock, (ii) are not subject to adjustment by reason of any tax audit of the
Company or Stockholders and (iii) shall be made no later than five (5) years
from the Closing Date. The parties further agree that the rights to receive any
payments pursuant to this Article 2 shall not be assignable except by operation
of law. Any shares of Buyer Common Stock deposited with the Escrow Agent
pursuant to Section 2.1(f)(i) shall be reflected as issued and outstanding on
Buyer's balance sheet, and all dividends with respect to such shares of Buyer
Common Stock shall be for the account of the party receiving such shares of
Buyer Common Stock upon distribution by the Escrow Agent pursuant to the
Post-Closing Escrow Agreement, and all voting rights with respect to such shares
of Buyer Common Stock shall be exercisable by the Stockholders unless
distributed by the Escrow Agent to Buyer. The Stockholders' receipt of such
shares of Buyer Common Stock shall not be subject to employment conditions, and
such shares of Buyer Common Stock shall be released from escrow no later than
five (5) years from the Closing Date.
Section 2.6 Tax Treatment of Payments. The parties intend that the transaction
being contemplated by this Agreement will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and that they
will reasonably cooperate in taking any actions required or appropriate in order
to qualify for such treatment, including, without limitation, the filing of
appropriate reports, elections and declarations with the Internal Revenue
Service with respect to the transaction characterizing it as such.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS RELATING TO
THE STOCKHOLDERS
Each of the Stockholders hereby represents and warrants to Buyer that
the statements contained in this Article 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article 3).
Section 3.1 Authorization of Transaction; Consents. Each Stockholder has full
power and authority to execute and deliver this Agreement and the agreements
contemplated hereby and to perform his obligations hereunder and thereunder.
This Agreement constitutes the valid and legally binding obligation of each
Stockholder, enforceable against him or her in accordance with its terms and
conditions. Except as set forth in Schedule 3.2, none of the Stockholders needs
to give any notice to, make any filing with, or obtain any authorization,
consent or approval of any Governmental Authority or other third party in order
to consummate the transactions contemplated by this Agreement and the agreements
contemplated hereby and the transactions contemplated hereby and thereby in a
lawful manner and without causing a
-15-
<PAGE> 23
default under, conflict with, or acceleration, violation or termination of
any legal requirement and contract or agreement to which any Stockholder or the
Company is a party or bound.
Section 3.2 Noncontravention. Except for any notices that may be required
pursuant to the Hart-Scott-Rodino Act or as otherwise set forth in Schedule 3.2,
neither the execution and delivery of this Agreement and the agreements
contemplated hereby by any Stockholder, nor the consummation of the transactions
contemplated hereby and thereby by any Stockholder, will (A) violate any
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any Governmental Authority to which any Stockholder or
the Company is subject or any provision of the Company's organizational
documents or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any Stockholder or the Company is a party or by which any of them is bound or to
which any of their assets are subject.
Section 3.3 Brokers' Fees. None of the Stockholders has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated hereby.
Section 3.4 Investment. Each of the Stockholders (A) understands that the shares
of Buyer Common Stock to be delivered to them pursuant to this Agreement have
not been, and will not be, registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (B) is
acquiring the shares of Buyer Common Stock to be acquired by it pursuant to this
Agreement solely for his own account for investment purposes and not with a view
to the distribution thereof, (C) is a sophisticated investor with knowledge and
experience in business and financial matters, (D) has received certain
information concerning Buyer and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the shares of Buyer Common Stock to be acquired by it pursuant to this
Agreement, (E) is able to bear the economic risk and lack of liquidity inherent
in holding the shares of Buyer Common Stock to be acquired by it pursuant to
this Agreement, and (F) is an Accredited Investor. Each of the Stockholders
understands that he will be required to sign a Lock-Up Agreement pursuant to
Section 7.9 and that the Lock-Up Agreement will contain certain restrictions on
the transfer of the shares of Buyer Common Stock to be acquired by it pursuant
to this Agreement. Each of the Stockholders understands and agrees that the
certificates representing the shares of Buyer Common Stock to be acquired by it
pursuant to this Agreement will bear a legend substantially to the following
effect:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 NOR UNDER APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY
HAVE BEEN REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
-16-
<PAGE> 24
THE CORPORATION IS AUTHORIZED TO ISSUE DIFFERENT CLASSES AND SERIES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH ANY SHAREHOLDER WITHOUT
CHARGE, UPON REQUEST IN WRITING, A STATEMENT OF THE DESIGNATIONS,
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS
OF CAPITAL STOCK OF THE CORPORATION AND OF VARIATIONS IN RIGHTS,
PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE VARIATIONS FOR
FUTURE SERIES.
Section 3.5 The Shares. The shares of Company Common Stock held by the
Stockholders and set forth on Exhibit A hereto constitute all of the issued and
outstanding shares of capital stock of the Company and are free and clear of any
restrictions on transfer, Taxes, Liens, options, warrants, purchase rights,
contracts, commitments, equities, claims and demands. None of the Stockholders
is a party to any option, warrant, purchase right or other contract or
commitment that could require him to sell, transfer or otherwise dispose of any
capital stock of the Company (other than this Agreement) or that would require
the Company to issue any capital stock of the Company to any Person. None of the
Stockholders is a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of the Company,
other than this Agreement, or any other agreement or understanding relating to
the Company or its capital stock.
Section 3.6 Litigation. None of the Stockholders is (i) subject to any
outstanding injunction, judgment, order, decree, ruling or charge or (ii) is a
party to or, to the Knowledge of such Stockholder, is threatened to be made a
party to, any action, suit, proceeding, hearing or investigation of, in or
before any court or quasi judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator that could result
in a Material Adverse Effect.
Section 3.7 Disclosure. The representations and warranties contained in this
Article 3 do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements and information
in this Article 3 not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
Each of Buyer and Merger Sub represents and warrants to the Company and
the Stockholders as to itself only that the statements contained in this Article
4 are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Article 4).
Section 4.1 Organization of Buyer and Merger Sub. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger
-17-
<PAGE> 25
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
Section 4.2 Authorization of Transaction; Consents. Each of Buyer and Merger Sub
has full power and authority to execute and deliver this Agreement and the
agreements contemplated hereby and to perform its obligations hereunder and
thereunder. This Agreement constitutes the valid and legally binding obligation
of each of Buyer and Merger Sub, enforceable against them in accordance with its
terms and conditions. Except for any notices that may be required pursuant to
the Hart-Scott-Rodino Act or under federal or state securities laws or as
otherwise set forth on Schedule 4.2, neither Buyer nor Merger Sub needs to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any Governmental Authority or other third party in order to
consummate the transactions contemplated by this Agreement and the agreements
contemplated hereby in a lawful manner and without causing a default under,
conflict with, or acceleration, violation or termination of any legal
requirement or contract or agreement to which Buyer or Merger Sub is a party or
bound.
Section 4.3 Noncontravention. Except for any notices that may be required
pursuant to the Hart-Scott-Rodino Act or under federal or state securities laws
or as otherwise set forth on Schedule 4.2, neither the execution and delivery by
each of Buyer and Merger Sub of this Agreement and the agreements contemplated
hereby, nor the consummation of the transactions contemplated hereby and thereby
by Buyer and Merger Sub, will (A) violate any statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
Governmental Authority to which Buyer or Merger Sub is subject or any provision
of its certificate of incorporation or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer or Merger Sub is a party or by which it is bound or
to which any of its assets is subject.
Section 4.4 Brokers' Fees. Neither Buyer nor Merger Sub has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement, except for the
broker fee payable to Communications Equity Associates.
Section 4.5 Share Validity. The shares of Buyer Common Stock issuable to the
Stockholders pursuant to this Agreement shall be, upon issuance in accordance
with this Agreement duly authorized, validly issued, fully paid and
nonassessable, and free and clear of any liens and preemptive and other similar
rights.
Section 4.6 Securities Law Compliance. Buyer has given the Stockholders'
Representative and his agents, and agrees to continue to give the Stockholders'
Representative and his agents through the Closing Date, the opportunity to ask
questions of, and receive answers from, executive officers of Buyer concerning
Buyer and the shares of Buyer Common Stock issuable to the Stockholders pursuant
to this Agreement. Neither Buyer nor, to Buyer's Knowledge, any Person acting on
its behalf has, in connection with the shares of Buyer Common Stock to be issued
pursuant to this Agreement engaged in (A) any form of general solicitation or
-18-
<PAGE> 26
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (B) any action involving a public offering within the
meaning of Section 4(2) of the Securities Act, or (C) any action that would
require the registration under the Securities Act of the offering and sale of
the shares of Buyer Common Stock to be issued pursuant to this Agreement or that
would violate applicable state securities or "Blue Sky" laws. The Buyer has not
made and will not prior to the Closing make, directly or indirectly, any offer
or sale of securities of the same or a similar class as the shares of Buyer
Common Stock to be issued pursuant to this Agreement if as a result the issuance
of the shares of Buyer Common Stock to be issued pursuant to this Agreement
would fail to be entitled to exemption from the registration requirements of the
Securities Act. As used in this Section 4.6, the terms "offer" and "sale" have
the meanings specified in Section 2(3) of the Securities Act.
Section 4.7 SEC Filings. Buyer's filings with the Securities and Exchange
Commission since September 2, 1999, did not at the time they were filed contain
any untrue statement of a material fact or omit to state any material fact
required to be stated or necessary in order to make the statements made in those
reports, in light of the circumstances under which they were made, not
misleading.
Section 4.8 Disclosure. The representations and warranties contained in this
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
CONCERNING COMPANY
Each Stockholder and the Company represents and warrants to Buyer that
the statements contained in this Article 5 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article 5).
Section 5.1 Organization, Qualification, Corporate Power, Authorization of
Transaction.
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of New York. The Company is duly authorized
to conduct business and is in good standing under the laws of the jurisdictions
set forth on Schedule 5.1, which are the only jurisdictions where such
qualification is required except where failure to be so qualified would not have
a Material Adverse Effect. The Company has full power and authority necessary to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Schedule 5.1 lists the directors and officers of the
Company. The Company has delivered to Buyer correct and complete copies of the
charter and bylaws of the Company (as amended to date) and complete copies of
the minute books (containing the records of meetings of the stockholders, the
board of directors and any committees of the board
-19-
<PAGE> 27
of directors), the stock certificate books and the stock record books of the
Company. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) The Company has full corporate power and authority to execute and deliver
this Agreement and the agreements contemplated hereby and to perform its
obligations hereunder and thereunder. The execution and the delivery of this
Agreement and the agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Board of Directors and the Stockholders,
which constitutes all corporate and stockholder action necessary on the part of
the Company and its stockholders to authorize the execution and delivery of this
Agreement and the agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby by the Company. The Company has
provided Buyer with a true, correct and complete copies of unanimous written
consents of its Board of Directors and Stockholders authorizing the execution
and delivery of this Agreement and the agreements contemplated hereby and the
consummation of the transactions contemplated hereby and thereby and such
unanimous written consents remain in full force and effect, and have not been
amended, modified or rescinded. No Stockholder has exercised or perfected its
rights to receive payment for shares pursuant to Section 910 of Chapter 855 of
the NYBCL.
Section 5.2 Capitalization. The entire authorized capital stock of the Company
consists of 200 shares of Company Common Stock, of which 100 shares are issued
and outstanding and held by the Stockholders (and no shares are held in
treasury). Each of the Stockholders owns, legally and beneficially, the number
of shares of Company Common Stock set forth opposite his or her name on Schedule
5.2. The Stockholders whose names are marked with an asterisk on Schedule 5.2
are the only employees of the Company who hold any securities of the Company
(the "Employee Stockholders"). Other than as set forth in the first sentence of
this Section 5.2, there are no authorized or issued and outstanding capital
stock or other securities of the Company. All of the shares of Company Common
Stock have been duly authorized, are validly issued, fully paid and
nonassessable, not subject to preemptive or similar rights and are held of
record and beneficially by the Stockholders. All of the shares of Company Common
Stock were issued in accordance with all applicable securities laws. There are
no outstanding or authorized options, warrants, purchase rights, redemption
rights, subscription rights, conversion rights, exchange rights or other
contracts or commitments of any character that could require the Company to
issue, sell or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of the capital stock of the Company or otherwise relating to the capital stock
of the Company.
Section 5.3 Noncontravention; Consents. Except as set forth in Schedule 5.3,
neither the execution and the delivery of this Agreement and the agreements
contemplated hereby by the Stockholders, nor the consummation of the
transactions contemplated hereby and thereby by the Stockholders, will (i)
violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any Governmental Authority to which the
Company is subject or any provision of the charter or bylaws or other similar
governing instrument of the Company or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or
-20-
<PAGE> 28
cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which the Company is a party or
by which it is bound or to which any of its assets is subject or result in the
imposition of any Lien upon any of its assets. Except as set forth in Schedule
5.3, the Company does not need to give any notice to, make any filing with, or
obtain any authorization, consent or approval of any Governmental Authority
or other third party in order for the parties hereto to consummate the
transactions contemplated by this Agreement in a lawful manner and without
causing a default under, conflict with, or acceleration, violation or
termination of, any legal requirement or contract or agreement to which the
Company is a party or bound.
Section 5.4 Brokers' Fees. The Company has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
Section 5.5 Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, all of such
properties and assets are located on its premises, as shown on the Most Recent
Balance Sheet or acquired after the date thereof, and are free and clear of all
Liens, except for (i) liens for current taxes not yet due and payable, (ii)
inchoate materialmen's, mechanics', workmen's and repairmen's liens incurred in
the Ordinary Course of Business and which are not in default, (iii) recorded
easements and rights of way which do not materially adversely affect the
marketability or use or value of the applicable parcel of real estate as
presently used and (iv) the Liens set forth in Schedule 5.5 which shall be
removed when indicated in Schedule 5.5 at or prior to Closing (the "Permitted
Liens").
Section 5.6 Subsidiaries. The Company has no Subsidiaries and has no
direct or indirect equity participation in any Person.
Section 5.7 Financial Statements. Attached hereto as Schedule 5.7(a) are the
unaudited balance sheets and statements of income, changes in stockholders'
equity and cash flow (the "Financial Statements") as of and for the twelve month
period ended December 28, 1999 (the "Most Recent Fiscal Year End") for the
Company. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
Section 5.8 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, no Material Adverse Effect has occurred. Without
limiting the generality of the foregoing, since that date, except as set forth
on Schedule 5.8:
(i) The Company has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
-21-
<PAGE> 29
(ii) the Company has not entered into any agreement, contract, lease or license
(or series of related agreements, contracts, leases and licenses) outside the
Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified or cancelled any
material agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses);
(iv) the Company has not imposed any Lien upon any of its assets, tangible or
intangible, other than Permitted Liens;
(v) the Company has not made any capital expenditure (or series of related
capital expenditures) either involving more than $25,000 or outside the Ordinary
Course of Business;
(vi) the Company has not made any capital investment in, any loan or advance to,
or any acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) either involving more
than $25,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond or other debt security or
created, incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
(viii) the Company has not delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of Business;
(ix) the Company has not cancelled, compromised, waived or released any right or
claim (or series of related rights and claims) either involving more than
$25,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any rights under or
with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or bylaws of the
Company;
(xii) the Company has not issued, sold or otherwise disposed of any of its
capital stock or other equity interest, or granted any options, warrants or
other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock or other equity;
(xiii) the Company has not declared, set aside or paid any dividend or made any
distribution with respect to its capital stock or other equity interest (whether
in cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock or other equity;
(xiv) the Company has not experienced any damage, destruction or loss (whether
or not covered by insurance) to its property;
-22-
<PAGE> 30
(xv) except as set forth on Schedule 5.7(b), the Company has not made any loan
or advance to, or entered into any other transaction with, any of its directors,
officers or employees or with any of the Stockholders or any of its Affiliates,
outside the Ordinary Course of Business;
(xvi) the Company has not granted any increase in the base compensation of any
of its directors, officers, independent contractors or employees outside the
Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified or terminated any Employee
Plan or Compensation Arrangement (including any bonus, profit-sharing,
incentive, severance, termination, change of control or other plan, contract or
commitment for the benefit of any of its directors, officers or employees);
(xviii) the Company has not made any other change in employment terms or
engagement terms for any of its directors, officers, independent contractors or
employees outside the Ordinary Course of Business;
(xix) the Company has not made or pledged to make any charitable or other
capital contribution;
(xx) there has not been any other material occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course of Business involving
the Company; and
(xxi) the Company has not committed to any of the foregoing.
Section 5.9 Undisclosed Liabilities. Except as set forth on Schedule 5.7(b), the
Company has no Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against it giving rise to any Liability), except for (i) Liabilities set
forth on the face of the Financial Statements and (ii) Liabilities which have
arisen after the date of the Most Recent Fiscal Year End in the Ordinary Course
of Business which in the aggregate do not exceed $25,000 (none of which results
from, arises out of, relates to, is in the nature of or was caused by any breach
of contract, breach of warranty, tort, infringement or violation of law). The
Liabilities described in clauses (i) and (ii) of the preceding sentence include
the Company Liabilities.
Section 5.10 Legal Compliance. The Company has complied in all material respects
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of all
Governmental Authorities, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against it alleging any failure so to comply.
Section 5.11 Tax Matters.
(a) The Company has (i) duly filed or caused to be filed in a timely manner all
Tax Returns that it was required to file with the appropriate Governmental
Authorities, and (ii) paid or made adequate provision in the Financial
Statements in accordance with GAAP for the
-23-
<PAGE> 31
payment of all Taxes owed by the Company. All of the Tax Returns referred to
in clause (i), above, are true, correct and complete in all material respects.
The Company has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(b) The Company has not executed any waiver or extension of any statute of
limitations on the assessment or collection of any Tax of the Company or with
respect to any liability arising therefrom. None of the Tax Returns filed by or
on behalf of the Company is currently being audited by any Governmental
Authority, and there are no other examinations, requests for information or
other administrative or judicial proceedings pending with respect to Taxes of
the Company. Neither the Internal Revenue Service nor any other Governmental
Authority has asserted any deficiency or claim for additional Taxes against, or
any adjustment of Taxes relating to the Company. No claim has been made by any
Governmental Authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. Neither
the Stockholders nor the Company expect any Governmental Authority to assess any
additional Taxes for any period of the Company for which Tax Returns have been
filed.
(c) Schedule 5.11 lists all jurisdictions in which the Company is required
to file a state Tax Return.
(d) The Company has delivered to Buyer: (i) true, correct and complete copies of
all Tax Returns filed by or on behalf of the Company with respect to taxable
periods ending on or after December 31, 1996, and (ii) all examination reports
and statements of deficiency asserted against or agreed to by the Company with
respect to Taxes since January 1, 1996. Schedule 5.11 contains true, correct and
complete information, as of the end of the most recently concluded taxable year
of the Company, regarding: (i) the Tax basis of the assets of the Company, and
the depreciation and amortization schedules relating to such assets, (ii) the
Tax basis in the stock of the Company and (iii) the earnings and profits, net
operating loss carryovers, and other Tax attributes, credits and carryover items
(and any limitations applicable to any of the foregoing) of the Company.
(e) There are no proposed reassessments of any property owned
by the Company that would affect the Taxes of the Company after the Closing
Date. There are no Tax liens on any assets of the Company, other than liens for
current Taxes not yet due and payable.
(f) The Company has no liability for the Taxes of any person
or entity (other than the Company) pursuant to Section 1.1502-6 of the Treasury
Regulations promulgated under the Code (the "Treasury Regulations"), any
comparable provisions of any state, local or foreign Tax law in respect of a
consolidated, combined or unitary Tax Return, or by contract or otherwise. As of
the Closing, there will be no tax sharing agreements or similar arrangements in
effect with respect to or involving the Company.
(g) No consent under Section 341(f) of the Code has been
filed with respect to the Company.
-24-
<PAGE> 32
(h) The Company does not have any income or gain reportable
for a period ending after the Closing Date but attributable to a transaction
(e.g., an installment sale) occurring in, or a change in accounting method made
for, a taxable period ending on or prior to the Closing Date which resulted in a
deferred reporting of income or gain from such transaction or from such change
in accounting method.
(i) The Company has not been a "United States real property
holding corporation," within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(j) The Company has not entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a non-deductible expense to such company pursuant to Section
280G of the Code.
(k) The Company has been taxable as an "S Corporation" within
the meaning of Section 1361(a) of the Code throughout its entire existence.
Section 5.12 Broadcast Towers; Regulatory Requirements.
(a) [Intentionally omitted.]
(b) Schedule 5.12(b) sets forth a list of all Licenses of the Company together
with all amendments and modifications thereto and all applications by or on
behalf of the Company for Licenses. Such Licenses constitute all of the
licenses, permits and authorizations necessary to conduct the business of the
Company as currently operated in compliance with all laws, rules and regulations
of all Governmental Authorities. The Company is in compliance with all of the
requirements of the Licenses. If required by the rules and regulations of the
FAA and FCC, the Company has received for each broadcast tower an FAA
Determination of No Hazard and has registered each broadcast tower with the FCC.
All such Licenses are valid and in full force and effect and no suspension,
cancellation or termination of any of the Licenses is pending or, to the
Knowledge of the Stockholders and the Company, threatened. There are no pending
or, to the Knowledge of the Stockholders and the Company, threatened complaints
or other objections concerning any broadcast tower before the FAA, the FCC or
any other Governmental Authority. The Company has filed all returns, reports and
statements required to be filed by it with the FCC, the FAA and any other
Governmental Authority. All of such returns, reports and statements are complete
and correct as filed. The broadcast towers are in compliance with and have been
operated and maintained in accordance with all requirements of the FAA, the FCC
and other Governmental Authorities.
Section 5.13 Real Property. Schedule 5.13 contains a true and complete
description of the Real Property. With respect to each parcel of Real Property:
(a) with respect to any owned parcel of Real Property, the Company has good and
marketable title to such parcel of Real Property, free and clear of any Liens,
except for Permitted Liens;
(b) with respect to any leased or subleased Real Property, the Company has a
valid leasehold or subleasehold interest to such parcel of Real Property, free
and clear of any
-25-
<PAGE> 33
Liens other than Permitted Liens, and assuming compliance by the Company with
the terms of the lease or sublease, the Company has a right of quiet enjoyment
of such parcel of Real Property;
(c) there are no pending or, to the Knowledge of the Stockholders and the
Company, threatened condemnation proceedings, lawsuits or administrative actions
relating to such property or other matters affecting adversely the current use,
occupancy, or value thereof;
(d) the legal description for such parcel contained in the deed or lease or
sublease thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, zoning laws and
ordinances (and none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement which may
burden the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not located
within any flood plain or subject to any similar type restriction for which any
permits or licenses necessary to the use thereof have not been obtained;
(e) other than as disclosed on Schedule 5.13, there are no leases, subleases,
licenses, concessions or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion of such parcel of
real property other than the Company;
(f) with respect to any Real Property owned by the Company, there are no
outstanding options or rights of first refusal to purchase such parcel of real
property, or any portion thereof or interest therein, and the Company has no
option or right of first refusal to purchase any Real Property leased by the
Company;
(g) there are no parties (other than the Company and, with respect to parcels of
Real Property for which the Company holds an option to lease or to purchase such
Real Property (a "Real Property Option"), the Person granting such option to
lease or option to purchase, as applicable) in possession of such parcel of Real
Property, other than tenants under any leases or licenses disclosed in Schedule
5.13;
(h) all facilities located on such parcel of Real Property are supplied with
utilities and other services, including gas, electricity, water, telephone,
sanitary sewer and storm sewer, in accordance with all applicable laws,
ordinances, rules and regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefiting such parcel of real
property, the facilities are in good order and repair, and in a good, safe,
substantial condition, free from defects; all plumbing, heating, electrical and
air conditioning systems and equipment and systems therein are in good order and
repair and operating condition; the facilities are constructed and completed
strictly in compliance with all applicable laws and accepted standards of good
materials and workmanship, all electrical, plumbing, heating and
air-conditioning and exterior drainage systems, in or on the Real Property are
in good condition and working order, all facilities located on such parcel of
Real Property (other than any parcel subject to a Real Property Option) are
supplied with utilities and other services necessary for the
-26-
<PAGE> 34
operation of such facilities, including gas, electricity, water, telephone,
sanitary sewer and storm sewer, all of which are adequate;
(i) such parcel of Real Property abuts on and has direct vehicular access to a
public road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefiting the parcel of real property, and access to the
property is provided by paved public right-of-way with adequate curb cuts
available;
(j) the Company has delivered to Buyer true and complete copies of any deed,
lease, sublease or agreement setting forth a Real Property Option; and
(k) each Real Property Option may be terminated at the election of the Company
on no more than 90 days' prior notice and without the payment of any penalty,
fee, expenses or other amounts to any other Person.
Section 5.14 Intellectual Property. The Company owns or has the right to use
pursuant to license, sublicense, agreement or permission all Intellectual
Property necessary for the operation of the business of the Company as presently
conducted. The Company has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of third
parties, and the Company has not received any complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or violation
(including any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of the
Stockholders and the Company, no third party has interfered with, infringed
upon, misappropriated or otherwise come into conflict with any Intellectual
Property rights of the Company. Schedule 5.14 identifies all registered
Intellectual Property of the Company and each pending application therefor and
identifies each license, agreement or other permission which the Company has
granted to any third party with respect to any of its Intellectual Property.
Section 5.15 Tangible Assets. The Company owns or leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of its
business as presently conducted. Each such tangible asset is free from material
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair and is suitable for
the purposes for which it presently is used. Schedule 5.15 sets forth a list of
all material items of tangible assets of the Company, including the location
thereof.
Section 5.16 Contracts. Schedule 5.16 contains a true and complete list of all
Contracts, except for Contracts entered into in the Ordinary Course of Business
which involve annual expenditures of no more than $20,000 per year per Contract
or $50,000 per year collectively for all such Contracts which are not listed on
Schedule 5.16 (other than any Contracts constituting Real Property Options, all
of which are listed on Schedule 5.16). The Company has delivered to Buyer a
correct and complete copy of each written Contract (as amended to date) and a
written summary setting forth the terms and conditions of each oral Contract.
Each Contract is legal, valid, binding, enforceable against the Company and, to
the Knowledge of the Stockholders and the Company, each other party thereto, and
in full force and effect in accordance with its terms. Each Contract will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms following the consummation of the
-27-
<PAGE> 35
transactions contemplated hereby. Neither the Company, nor to the Knowledge
of the Stockholders and the Company, any other party thereto is in material
breach or default under any Contract, and, to the Knowledge of the Stockholders
and the Company, no event has occurred which with notice or lapse of time
would constitute a breach or default under any Contract, or permit termination,
modification or acceleration, or reduce the amount of payments due the Company,
or give rise to any liquidated damages, under any Contract. No party to any
Contract has repudiated any provision of such Contract.
Section 5.17 Notes and Accounts Receivable; Accounts Payable. All notes,
accounts receivable, unbilled work in process and other debts due the Company
are reflected properly on its books and records, are valid receivables subject
to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet. The Company has paid on a timely basis all of its accounts payable and
such accounts payable arose in the Ordinary Course of Business.
Section 5.18 Powers of Attorney. Schedule 5.18 lists all outstanding powers
of attorney executed on behalf of the Company.
Section 5.19 Insurance. Schedule 5.19 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage:
(a) the name of the insurer, the name of the policyholder and the name of
each covered insured;
(b) the policy number and the period of coverage;
(c) the scope (including an indication of whether the coverage was on a claims
made, occurrence or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium adjustments or other loss-sharing
arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor, to the Knowledge of the Stockholders and
the Company, any other party to the policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification or
acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past 2 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during such period. Schedule 5.19 describes any
self-insurance arrangements affecting the Company. Except as set forth on
Schedule 5.19, the Company has not been subject to, nor has any insurer
-28-
<PAGE> 36
defended or settled, on behalf of the Company, or paid out money on behalf of
the Company with respect to any workers' compensation claim or any claim under
any insurance policy where the aggregate amount at issue exceeded $5,000.
Section 5.20 Litigation. Schedule 5.20 sets forth each instance in which the
Company (i) is subject to any outstanding injunction, judgment, order, decree,
ruling or charge or (ii) is a party to or, to the Knowledge of the Stockholders
and the Company, is threatened to be made a party to any action, suit,
proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator, and neither the Stockholders nor the
Company is aware of any Basis for the same. None of the actions, suits,
proceedings, hearings and investigations set forth in Schedule 5.20 could result
in any Material Adverse Effect. Neither the Stockholders nor the Company has any
reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against any of the Stockholders or
the Company.
Section 5.21 Employees.
(a) Schedule 5.21 contains a correct and complete list of (i) the names and
positions of each of the employees, officers and directors of the Company and of
any affiliate of any Stockholder whose services relate primarily to the
Business, (ii) the annual salary or hourly wage of each such person, and (iii)
any oral or written contracts or agreements that provide for employment of any
individual as an employee or independent contractor of the Company and which
does not permit the termination of such contract or agreement, without penalty,
upon no more than 30 days prior notice. The Stockholders have provided to Buyer
correct and complete copies (or descriptions, if oral) of all contracts or
agreements listed in Schedule 5.21.
(b) No employees of the Company are presently members of any collective
bargaining unit with respect to their employment with the Company. There are no
collective bargaining agreements and no contracts or agreements with labor
unions, relating to, involving or affecting the employees of the Company to
which the Company is a party or by which it is bound, and the Company has no
obligation to bargain with any labor organization with respect to any such
persons. The Company is not currently, nor during the past three years has it
been, the subject of any certification or decertification drive, and, to the
Knowledge of the Stockholders and the Company, no such organizing activity is
threatened. To the Knowledge of the Stockholders and the Company, no union or
other collective bargaining representative claims to represent, has been
certified as representing or has requested that the Company recognize such union
or collective bargaining representative as representing any of the employees of
the Company for collective bargaining purposes. Neither the Stockholders nor the
Company has recognized or agreed to recognize or is required to recognize any
union as the collective bargaining representative for any employee of the
Company.
(c) There are no unfair labor practice charges pending against
the Company and, to the Knowledge of the Stockholders and the Company, there are
neither any demands for recognition or any other requests or demands from a
labor organization for representative status with respect to any persons
employed by the Company and no such activity is threatened. Neither the Company
nor the Business is currently, or during the past three years has been, the
subject of any strike, work stoppage, picketing or work slowdown, or any other
labor dispute,
-29-
<PAGE> 37
controversy or proceeding, and to the Knowledge of the Stockholders and
the Company no such activity is threatened. The Company has complied in all
material respects with all laws relating to the employment and safety of labor,
including provisions relating to wages, hours, benefits, collective
bargaining, discrimination, the payment of social security and other payroll
expenses, and all applicable occupational safety and health acts, laws and
regulations. The Company is not subject to any investigation or other
challenge relating to the misclassification of employees as independent
contractors. The Company is not required to comply with any government
contractor affirmative action obligations.
Section 5.22 Employee Benefits.
(a) Each Employee Plan and Compensation Arrangement is listed and described in
Schedule 5.22, and complete and accurate copies of (including any amendments to)
any such written Employee Plans and Compensation Arrangements (or related
insurance policies) have been furnished to Buyer, along with copies of any
employee handbooks or similar documents describing such Employee Plans and
Compensation Arrangements. Any unwritten Employee Plans or Compensation
Arrangements also are listed in Schedule 5.22, and complete descriptions have
been furnished to Buyer. Except as disclosed in Schedule 5.22, neither the
Company nor any ERISA Affiliate is a party to and does not have in effect or to
become effective after the date of this Agreement any plan, arrangement or other
scheme which will become an Employee Plan or Compensation Arrangement (including
any bonus, cash or deferred compensation, severance, medical, pension, profit
sharing or thrift, stock option, employee stock ownership, life or group
insurance, death benefit, vacation, sick leave, disability or trust agreement or
arrangement), or any amendment to an Employee Plan or Compensation Arrangement.
(b) The Company has furnished to Buyer the Forms 5500 filed for each of the
Employee Plans (including all attachments and schedules), actuarial reports,
summaries of material modifications, summary annual reports, and any other
employer notices (including, governmental filings and descriptions of material
changes to Employee Plans or Compensation Arrangements) relating to the Employee
Plans for the last three plan years, and the current summary plan descriptions.
(c) Each Employee Plan and Compensation Arrangement has been administered in
compliance with its own terms and in material compliance with the provisions of
ERISA, the Code, the Age Discrimination in Employment Act and any other
applicable Federal or state laws.
(d) Neither the Company nor any ERISA Affiliate (i) is contributing to, is
required to contribute to, or has contributed within the last seven years to,
any Multiemployer Plan, Multiple Employer Plan, or, employee pension benefit
plan, as defined under Section 3(2) of ERISA, which was subject to Title IV of
ERISA, (ii) has incurred within the last seven years, or reasonably expects to
incur, any "withdrawal liability," as defined under Section 4201 et seq. of
ERISA or (iii) has ever engaged in a transaction to evade liability, as
described under Section 4069 of ERISA.
-30-
<PAGE> 38
(e) At all times on or prior to the Closing, each Employee Plan, to the extent
such Employee Plan is intended to be tax-qualified, satisfies all minimum
coverage and minimum participation requirements, if any, imposed on such
Employee Plan by the applicable terms of the Code and ERISA.
(f) Neither the Stockholders nor the Company is aware of the existence of any
governmental inspection, investigation, audit or examination of any Employee
Plan or Compensation Arrangement or of any facts which would lead them to
believe that any such governmental inspection, investigation, audit or
examination is pending or threatened. There exists no action, suit or claim
(other than routine claims for benefits) with respect to any Employee Plan or
Compensation Arrangement pending or, to the Knowledge of the Stockholders and
the Company, threatened against any of such plan or arrangement, and neither the
Stockholders nor the Company possesses any knowledge of any facts which could
give rise to any such action, suit or claim.
(g) Except as described in Schedule 5.22, neither the Company nor any ERISA
Affiliate sponsors, maintains or contributes to any Employee Plan or
Compensation Arrangement that provides medical or death benefit coverage to
former employees of the Company, except to the extent required by Section 4980B
of the Code.
(h) With respect to each Employee Plan and, to the extent applicable, each
Compensation Arrangement: (i) each Employee Plan that is intended to be
tax-qualified, and each amendment thereto, is the subject of a favorable
determination letter, and no plan amendment that is not the subject of a
favorable determination letter would affect the validity of an Employee Plan's
letter; (ii) no condition or event exists or is expected to occur that could
subject, directly or indirectly, the Company or any ERISA Affiliate to any
material liability, contingent or otherwise, or the imposition of any lien on
the assets of the Company or any ERISA Affiliate under the Code or Title IV of
ERISA whether to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, or any other person; (iii) no Prohibited Transaction has occurred which
would subject the Company or any ERISA Affiliate to any liability; (iv) which
provides severance or severance like benefits such Employee Plan or Compensation
Arrangement may be terminated by the Company without any penalty and without any
liability to pay severance benefits in connection with any terminations of
employment which occur after the date such Employee Plan or Compensation
Arrangement is terminated; (v) which is a "group health plan," as defined under
Section 601 et seq of ERISA and 4980B of the Code ("COBRA"), has provided
"continuation coverage" to each "covered employee" and "qualified beneficiary"
entitled thereto (with each term as defined under COBRA); and (vi) all
contributions, premiums, payments or liabilities accrued, in whole or in part,
under each Employee Plan or Compensation Arrangement or with respect thereto as
of the Closing will be paid by the Company or the Stockholders, on or prior to
Closing or shall be reflected on the financial statements of the Company as of
Closing and shall be paid within the time period permitted by ERISA and the
Code.
(i) Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (i) result in any material payment
(including, without limitation, severance, or unemployment compensation)
becoming due to any director or employee of the Company or any ERISA Affiliate;
(ii) result in the acceleration of
-31-
<PAGE> 39
vesting under any Employee Plan or Compensation Arrangement; or (iii)
materially increase any benefits otherwise payable under any Employee Plan; an
any such payment or increase in benefits is fully deductible under the Code,
including but not limited to Sections 162, 280G and 404 of the Code.
Section 5.23 Guaranties. Except for guarantees that are disclosed on Schedule
5.23 and that will be terminated prior to Closing, the Company is not a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
Section 5.24 Environmental, Health and Safety Matters.
(a) The Company has complied in all material respects, and the Company, and each
parcel of Real Property owned or leased by the Company (other than Real Property
Options), is in compliance in all material respects with all Environmental,
Health and Safety Requirements and to the Stockholders' and the Company's
Knowledge, each predecessor of the Company has complied in all material respects
with all Environmental, Health and Safety Requirements. The Company has no
material liability under any Environmental, Health and Safety Requirements.
(b) Without limiting the generality of the foregoing, the Company has obtained
and complied with, and is in compliance with, in all material respects all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health and Safety Requirements for the occupation of its
facilities and the operation of its business.
(c) Except as set forth in Schedule 5.24, the Company has not received any
written or oral notice, report or other information regarding any actual or
alleged violation of Environmental, Health and Safety Requirements or any
Liability, including any investigatory, remedial or corrective obligations,
relating to any of them or its facilities arising under Environmental, Health
and Safety Requirements.
(d) Except as set forth in Schedule 5.24, none of the following exists at any
property or facility owned or operated by the Company: (i) underground storage
tanks, (ii) asbestos-containing material in any form or condition, (iii)
materials or equipment containing polychlorinated biphenyls or (iv) landfills,
surface impoundments or disposal areas.
(e) Except as set forth in Schedule 5.24, neither the Company nor, to the
Stockholders' or the Company's Knowledge, its predecessors has treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled or
released any substance, including any hazardous substance, or owned or operated
any property or facility (and no such property or facility is contaminated by
any such substance) in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health and Safety Requirements.
(f) Except as set forth in Schedule 5.24, neither this Agreement nor the
consummation of the transaction that is the subject of this Agreement will
result in any
-32-
<PAGE> 40
obligations for site investigation or cleanup, or notification to or consent of
any Government Authorities or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health and Safety Requirements.
(g) The Company has not, either expressly or by operation of law, assumed or
undertaken any liability, including any obligation for corrective or remedial
action, of any other Person relating to Environmental, Health and Safety
Requirements.
Section 5.25 Certain Business Relationships with the Company. Except as set
forth in Schedule 5.25, none of the Stockholders nor any Affiliate thereof or of
the Company has been involved in any business arrangement or relationship with
the Company within the past 12 months, and neither any Stockholder nor any
Affiliate thereof or of the Company owns any asset, tangible or intangible,
which is used in the business of the Company. There are no tax sharing
agreements between the Company and any Stockholder or any Stockholder's
Affiliates.
Section 5.26 Bank Accounts and Credits. Schedule 5.26 lists all banks and
lending institutions with which the Company maintains any account or has a
credit facility, and sets forth the names of all individuals who have signing
authority for any such account.
Section 5.27 Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged or
defective, subject only to the reserve for inventory writedown set forth on the
face of the Financial Statements (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company.
Section 5.28 Product and Service Warranty. Each product manufactured, sold,
leased or delivered, and each service performed, by the Company has been in
conformity in all material respects with all applicable contractual commitments
and all express and implied warranties, and the Company does not have any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Financial Statements (rather than
in any notes thereto) as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company. No product
manufactured, sold, leased or delivered, and no service performed, by the
Company is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale, lease or service. Schedule
5.28 includes copies of the standard terms and conditions of sale and service
for the Company (containing applicable guaranty, warranty, and indemnity
provisions).
Section 5.29 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
are Year 2000 Compliant. "Year 2000 Compliant" means that the Systems (a)
accurately process date and time data (including calculating, comparing and
sequencing) from, into and between the twentieth
-33-
<PAGE> 41
and twenty-first centuries, the years 1999 and 2000, and leap year calculations
and (b) operate accurately with other software and hardware that use
standard format (4 digits) for representation of the year.
Section 5.30 Hart-Scott-Rodino. The Company, as reflected on the Most Recent
Balance Sheet, had less than $25,000,000 in assets, and the Company, as
reflected in the Financial Statements for the twelve-month period ended December
31, 1998, had annual net sales of less than $25,000,000.
Section 5.31 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 5 not misleading.
ARTICLE 6
COVENANTS
Section 6.1 Conduct of Business of the Company. Except as contemplated by this
Agreement or with the prior written consent of Buyer, during the period from the
date of this Agreement to the Effective Time, the Company shall conduct its
operations only in the Ordinary Course of Business consistent with past
practice, and the Company will preserve intact the Business and organization of
the Company, to keep available the services of the present officers and key
employees of the Company and to preserve the good will of customers, suppliers
and all other persons having business relationships with the Company.
(a) Except as otherwise contemplated by this Agreement, prior to the Effective
Time, the Company shall not, without the prior written consent of Buyer:
(i) adopt any amendment to the certificate of incorporation or bylaws of
the Company;
(ii) issue, reissue or sell, or authorize the issuance, reissuance or sale of
any additional shares or other equity interest in the Company or securities
convertible into any rights, warrants or options to acquire any additional
shares or other equity interest in the Company;
(iii) declare, set aside or pay any dividend or make any other distribution
(whether in cash, securities or property or any combination thereof);
(iv) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any of its
shares or other equity interest;
(v) increase the compensation or fringe benefits payable or to become payable to
its directors, officers or employees, or pay any benefit not required by any
existing Employee Plan or Compensation Arrangement (including the granting of
stock options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance
-34-
<PAGE> 42
or termination pay to (except pursuant to existing Employee Plans or
Compensation Arrangements), or enter into, review, terminate, amend or waive any
material provision of any employment or severance agreement with, any director,
officer or other employee of the Company or establish, adopt, enter into, or
amend any collective bargaining agreement, employment agreement, termination
agreement, Employee Plan, or Compensation Arrangement;
(vi) acquire, sell, lease, license, transfer, pledge, encumber, grant or dispose
of (whether by merger, consolidation, purchase, sale or otherwise) any assets
(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);
(vii) incur or assume or prepay any Indebtedness, assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person, or make any loans, advances
or capital contributions to, or investments in, any other Person;
(viii) change any accounting policies or procedures, other than in the Ordinary
Course of Business or as required by GAAP;
(ix) waive, release, assign, settle or compromise any material rights, claims or
litigation;
(x) take any action that would make any representation or warranty set
forth in Article 5 to become untrue;
(xi) make any Tax election or settle or compromise any material federal, state,
local or foreign income Tax Liability;
(xii) enter into any Contract except for any Contract entered into in the
Ordinary Course of Business under which the consideration payable or receivable
by the Company does not exceed $20,000 per year per Contract or $50,000 per year
in the aggregate for all such Contracts or amend or terminate any existing
Contract;
(xiii) incur any Liability except for Liabilities incurred by the Company in the
Ordinary Course of Business which in the aggregate for all such Liabilities
incurred between the date hereof and the Effective Time do not exceed $50,000;
(xiv) 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;
(xv) make any material increase in the size or
change the composition of the workforce of the Company; or
(xvi) voluntarily recognize any union or other
collective bargaining representative as the collective bargaining representative
for any of the employees of the Company.
-35-
<PAGE> 43
(b) The Company shall do the following:
(i) maintain its assets in good operating condition (ordinary wear and tear
excepted), with inventories of spare parts and expendable supplies being
maintained at levels consistent with past practices and to make all repairs or
replacements necessary to restore any assets to the condition represented in
Section 5 of this Agreement;
(ii) maintain the existing insurance policies in full force and effect;
(iii) maintain the books and records of the Company in accordance with past
practices;
(iv) furnish to Buyer, within twenty days after the end of each month, monthly
financial statements for the month just ended containing balance sheets and
statements of income and cash flow for such period which shall comply with the
representations set forth in Section 5.7;
(v) comply in all material respects with all laws, rules and regulations and
with all Contracts and keep in full force and effect all Licenses;
(vi) pay all of the obligations and Liabilities of the Company on a timely
basis; and
(vii) preserve the corporate existence of the Company.
Section 6.2 The Stockholders' Actions. During the period from the date of this
Agreement to the Effective Time, the Stockholders shall not sell, transfer or
encumber any of their shares of Company Common Stock or grant or permit to exist
any Lien on any of their shares of Company Common Stock and shall not enter into
any commitment to sell, transfer, grant any Lien or otherwise encumber any of
their shares of Company Common Stock. The Stockholders shall cause the Company
to comply with all of the terms of this Agreement applicable to them, including
Section 6.1.
Section 6.3 Other Actions. During the period from the date hereof to the
Effective Time, the Stockholders shall not, and shall cause the Company not to,
take any action that would, or that would reasonably be expected to, result in
any of the conditions to the transactions contemplated hereby set forth in
Article 7 or 8 hereof not being satisfied or satisfaction thereof being delayed.
Section 6.4 Notification of Certain Matters. The Stockholders and the Company
shall promptly notify Buyer of the occurrence of any fact or event that would
reasonably be expected (i) to cause any representation or warranty of any
Stockholder or the Company contained in this Agreement to be untrue, (ii) to
cause any covenant, condition or agreement of any Stockholder or the Company
hereunder not to be complied with or satisfied or (iii) to cause a Material
Adverse Effect. Buyer shall promptly notify the Stockholders and the Company of
the occurrence of any fact or event that would reasonably be expected (i) to
cause any representation or warranty of Buyer to be untrue or (ii) to cause any
covenant, condition or agreement of Buyer hereunder not to be complied with or
satisfied.
-36-
<PAGE> 44
Section 6.5 Access to Information. The Company shall: (i) provide to Buyer (and
its officers, directors, employees, accountants, consultants, legal counsel,
financial advisors, investment bankers, agents and other representatives
(collectively, "Representatives")) access at reasonable times to the assets and
properties, personnel and the books and records of the Company and (ii) furnish
promptly such information concerning the business, properties, contracts,
assets, liabilities, personnel and other aspects of the Company as Buyer or its
Representatives may reasonably request. No investigation conducted under this
Section 6.5 shall affect or be deemed to modify any representation or warranty
made in this Agreement.
Section 6.6 Cooperation; Further Assurances.
(a) Subject to the terms and conditions provided in this Agreement and to
applicable legal requirements, each of the parties hereto agrees to use its
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done 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 Articles 7 and 8 are satisfied and to consummate and make effective
the transactions contemplated by this Agreement. No party to this Agreement
shall take any action that is inconsistent with its obligations under this
Agreement. Notwithstanding the foregoing, Buyer shall not be required to expend
any monies to obtain any Consent or to accept any adverse condition or change in
terms to obtain any Consent.
(b) The Stockholders and the Company will cooperate in all commercially
reasonable respects with Buyer and its counsel and accountants in connection
with any filing to be made by Buyer with the SEC. The Stockholders shall provide
to Buyer such information relating to the Company and the Business as Buyer may
reasonably request. All costs, expenses and fees incurred in connection with the
preparation and inclusion by Buyer of such information in any such filing shall
be borne by Buyer. The Stockholders and the Company hereby consent to the
inclusion by Buyer of financial statements of the Company, if requested to be so
included by Buyer, in any filing to be made by Buyer with the SEC or pursuant to
applicable securities laws, including the Securities Act and the Securities
Exchange Act. All costs, expenses and fees incurred in connection with the
preparation and inclusion by Buyer of financial statements of the Company in any
such filing shall be borne by Buyer. The Stockholders and the Company agree to
use commercially reasonable efforts to obtain the consent of the independent
public accountants of the Company to the inclusion of such financial statements
in any filing to be made by Buyer.
Section 6.7 Public Announcements. The initial press release concerning the
transactions contemplated by this Agreement shall be a joint press release and,
thereafter, the parties hereto 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 public disclosure may be required or advisable under
applicable law, including under the securities laws or the requirements of any
securities exchange, as determined by the disclosing party in good faith.
-37-
<PAGE> 45
Section 6.8 Confidentiality. Except for such disclosures to officers, directors,
employees, advisors and representatives as may be appropriate in furtherance of
this transaction and except for disclosures that may be required to comply with
applicable law, including under the securities laws or the requirements of any
securities exchange, each party hereto shall use commercially reasonable efforts
to keep confidential all information of a confidential nature obtained by it
from the other parties hereto in connection with the transactions contemplated
by this Agreement, and if this Agreement is terminated without a Closing, each
party hereto will return to the other parties all documents and other materials
obtained from the other party in connection herewith.
Section 6.9 Expenses; Taxes. Whether or not the transaction contemplated by this
Agreement is consummated, all expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except that the filing fee under the Hart-Scott-Rodino
Act, if any, shall be shared equally by the Stockholders and Buyer. All expenses
of the Company payable as a result of this Section 6.9 shall be borne by the
Stockholders.
Section 6.10 Control of the Company's Operations. Nothing contained in this
Agreement shall give Buyer, directly or indirectly, any right to control or
direct the Company's operations prior to the Effective Time.
Section 6.11 Hart-Scott-Rodino Filing. Within ten days after the execution of
this Agreement, the Stockholders and Buyer shall make any and all filings which
are required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder (the "Hart-Scott-Rodino Act") with
respect to the transactions contemplated hereby. Each party shall furnish to the
other such necessary information and reasonable assistance as any other party
may request in connection with its preparation of necessary filings or
submissions pursuant to the provisions of the Hart-Scott-Rodino Act. If the
Federal Trade Commission or the Department of Justice requests additional
information from the parties or imposes any condition upon the transactions
contemplated hereby, the parties will cooperate with each other, the Federal
Trade Commission and the Department of Justice; provided, however, that nothing
herein shall compel either party or any affiliate of such party to comply with
any condition imposed upon such party or such affiliate that is adverse to the
interests of such party or its affiliates as determined by such party in the
exercise of its reasonable business judgment. The filing fees required under the
Hart-Scott-Rodino Act shall be shared equally by the Stockholders and Buyer.
Section 6.12 Other Buyer Transactions. Notwithstanding anything to the contrary
in this Agreement, nothing in this Agreement shall prevent or restrict Buyer and
its subsidiaries from engaging in any merger, acquisition, business combination
or other transaction (whether or not Buyer is the surviving corporation),
provided that such merger, acquisition, business combination or other
transaction would not prevent Buyer from complying with its obligations under
this Agreement.
Section 6.13 Consents. The Stockholders and the Company shall give all notices
of this Agreement or the transaction contemplated hereby to Governmental
Authorities and other third parties to the extent required by any law, rule,
regulation or Contract. The Stockholders
-38-
<PAGE> 46
and the Company shall use commercially reasonable efforts to obtain, prior to
Closing, all of the Consents without any change in the terms of any Contract or
License to which such Consent relates. Notwithstanding anything in this
Agreement to the contrary, Buyer shall not be required to expend any monies to
obtain any Consent or to accept any adverse condition or change in terms to
obtain any Consent. The Stockholders and the Company shall promptly notify
Buyer of any difficulty in obtaining any Consents.
Section 6.14 Employee Benefits Matters.
(a) Prior to the Closing, the Stockholders and the Company shall take any and
all action necessary or appropriate to terminate immediately prior to the
Closing any Employee Plan which includes a cash or deferred arrangement
tax-qualified under Code Section 401(k) and provides benefits solely to
employees of the Company.
(b) The Stockholders and the Company shall (i) obtain the written, irrevocable
resignations of any employee of the Company identified by Buyer at least one (1)
day prior to Closing, which resignation shall be effective as of the Effective
Time, (ii) discharge in full on or prior to Closing any and all liabilities owed
by the Company to such employees (including but not limited to, any liability
for stay bonus, severance pay, pay in lieu of advance notice, or deferred
compensation benefits), other than any liabilities to provide future benefits to
such employees under any tax-qualified Benefit Plan or under ERISA Section 601,
(iii) obtain from such employees a general release of any and all claims,
including but not limited to any claims under the Age Discrimination in
Employment Act, that such employees may have with respect to their employment
with the Company or any of the Stockholders' Affiliates through Closing, which
general release shall be irrevocable as of Closing and shall be in a form
reasonably acceptable to Buyer, and (iv) obtain from such employees covenants of
non-competition and non-interference in a form reasonably acceptable to Buyer.
Section 6.15 Tax Matters.
(a) Tax Returns.
(i) The Stockholders shall be responsible for
the preparation and timely filing of, and the payment of all Taxes due with
respect to, all Tax Returns of the Company for all taxable periods that end
on or prior to the Closing Date, including Tax Returns of the Company for
periods that end on or prior to the Closing Date but are required to be filed
after the Closing Date; provided, however, that the Stockholders shall
provide Buyer with drafts of such Tax Returns (together with the relevant
back-up information) for review and consent by Buyer at least 20 days prior to
filing. Such Tax Returns shall be prepared in a manner consistent with the past
practice of the Company. The Stockholders shall provide Buyer with correct and
complete copies of such Tax Returns in the form filed within 15 days after the
filing date.
(ii) Buyer shall be responsible for the
preparation and timely filing of all Tax Returns of the Company for all taxable
periods that end after the Closing Date, including Tax Returns of the Company
for periods (if any) that begin before and end after the Closing Date. Buyer
shall be responsible for the payment of all Taxes due with respect to such Tax
Returns; provided, however, that with respect to Taxes due for taxable periods
that begin before
-39-
<PAGE> 47
and end after the Closing Date, the Stockholders shall be responsible for the
payment of the portion of such Tax that is attributable to the portion of such
periods that end on the Closing Date.
(b) Retention of Records; Cooperation. From and after the date
hereof, the Company shall retain all Tax Returns and all books, records and
other information relating to any Tax or Tax Return of the Company, and to abide
by all record retention agreements entered into with any Governmental Authority.
The Stockholders, the Company and Buyer shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to this Section 6.15 and any audit, litigation, or other
proceeding with respect to Taxes of the Company. The Stockholders, the Company
and Buyer agree that if any of them receives any notice of an audit or
examination from any taxing authority with respect to Taxes of the Company for
any taxable period or portion thereof ending on or prior to the Closing Date,
then the recipient of such notice shall, within three (3) days of the receipt
thereof, notify and provide copies of such notice to the other parties, as the
case may be, in accordance with the notice provisions of Section 12.4.
Section 6.16 Additional Post-Closing Covenants.
(a) General. If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article 11). The Stockholders and the
Company acknowledge and agree that from and after the Closing Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
(b) Transition. The Stockholders and the Company shall not take any action that
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. The Stockholders will refer
all customer inquiries relating to the business of the Company to Buyer from and
after the Closing.
(c) Covenant Not to Compete. For a period of three years from and after the
Closing Date, neither the Employee Stockholders nor any of their Affiliates will
engage directly or indirectly in the Business; provided, however, that no owner
of less than 1% of the outstanding stock of any publicly-traded corporation
shall be deemed to engage solely by reason thereof in the Business. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section 6.16(c) is invalid or unenforceable, the parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
-40-
<PAGE> 48
ARTICLE 7
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for in
this Agreement are subject to all of the conditions set forth below in this
Article 7, any of which may be waived in writing by Buyer.
Section 7.1 Performance by the Company and the Stockholders. The Company and the
Stockholders shall have performed in all material respects all of their
agreements and covenants under this Agreement required to be performed by them
at or prior to the Closing.
Section 7.2 Truth of Representations and Warranties. Each of the representations
and warranties of the Company and the Stockholders contained in this Agreement
(i) if specifically qualified by materiality, shall be true and complete as so
qualified, and (ii) if not qualified by materiality, shall be true and complete
in all material respects, in each such case, on and as of the Closing Date, with
the same effect as if then made, except where any such representation or
warranty is made as of a specific earlier date, in which event it shall remain
true and correct (as qualified) as of such earlier date.
Section 7.3 Receipt of Consents. All of the Consents indicated as material on
Schedule 3.2, 4.2 or 5.3 (the "Material Consents") shall have been obtained and
delivered to Buyer and shall be in full force and effect as of the Closing and
shall be in form and substance reasonably satisfactory to Buyer without any
conditions or changes in the underlying Contract or License to which such
Material Consent relates.
Section 7.4 Hart-Scott-Rodino Act and other Governmental Authorizations. All
waiting periods required under the Hart-Scott-Rodino Act shall have expired or
otherwise shall have been terminated prior to the Closing, and the parties and
the Company shall have received all other authorizations, consents and approvals
of Governmental Authorities required to consummate the transactions contemplated
hereby in a lawful manner.
Section 7.5 Deliveries. The Stockholders and the Company shall have made
all of the deliveries required by Section 9.2.
Section 7.6 Material Adverse Effect. No Material Adverse Effect shall
have occurred.
Section 7.7 Payment of Company Liabilities . All Company Liabilities shall be
paid simultaneously with Closing and Buyer shall have received evidence of such
payments and releases from each Person receiving a payment pursuant to Section
2.1(e) hereof of all claims it has or may have against the Company, other than
pursuant to this Agreement.
Section 7.8 Affiliate Loans. Subject to payment by Buyer of the Company
Liabilities pursuant to Section 2.1(e), all loans, advances and payables owing
by the Company to any Stockholder shall have been cancelled by each such
Stockholder and Buyer shall have received a certificate to such effect duly
executed by such Stockholder.
-41-
<PAGE> 49
Section 7.9 Post-Closing Lock-Ups. Each Stockholder shall have delivered to
Buyer lock-up agreements in substantially the form requested by any underwriter
from Buyer's principal stockholders in connection with any offering of Buyer's
capital stock (the "Lock-Up Agreements").
Section 7.10 Employment Agreement. William B. Yeomans shall have entered
into an employment agreement in substantially the form attached hereto as
Exhibit D (the "Employment Agreement").
Section 7.11 Certain Proceedings. No writ, order, decree or injunction of a
court of competent jurisdiction or other Governmental Authority shall have been
entered against Buyer, any Stockholder or the Company that prohibits or
restricts the transactions contemplated hereby, limits or restricts the
operation of the Company's business as it is currently conducted, or otherwise
restricts the Company's exercise of full rights to own and operate its business
after the Effective Date, and no action, proceeding, investigation, regulation
or legislation shall have been instituted or threatened before any court or
other Governmental Authority which (i) questions the validity or legality of the
transactions contemplated hereby or seeks to enjoin, restrain, prohibit or
obtain substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated hereby;
(ii) seeks material damages against Buyer, any Stockholder or the Company as a
result of the transactions contemplated hereby; or (iii) can otherwise
reasonably be expected to materially and adversely affect Buyer or the Company
as a result of the consummation of the transactions contemplated hereby.
Section 7.12 Buyer Investigation. Buyer shall be reasonably satisfied with
the results of its due diligence investigation of the Company and the Business.
Section 7.13 Stockholders' Actions. All actions to be taken by the Stockholders
in connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to Buyer.
Section 7.14 Certificate of Merger. The Certificate of Merger shall have
become effective under the DGCL and the NYBCL.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the Stockholders and the Company to consummate the
transactions provided for in this Agreement are subject to all of the conditions
set forth below in this Article 8, any of which may be waived in writing by the
Stockholders and the Company.
Section 8.1 Performance by Buyer. Buyer shall have performed in all material
respects all of its agreements and covenants under this Agreement required to be
performed by it at or prior to the Closing.
-42-
<PAGE> 50
Section 8.2 Truth of Representations and Warranties. Each of the representations
and warranties of Buyer contained in this Agreement (i) specifically qualified
by materiality, shall be true and complete as so qualified, and (ii) if not
qualified by materiality, shall be true and complete in all material respects,
in each such case, on and as of the Closing Date, with the same effect as if
then made, except where any such representation or warranty is as of a specific
earlier date in which event it shall remain true and correct (as qualified) as
of such earlier date.
Section 8.3 Deliveries. Buyer shall have made all of the deliveries set
forth in Section 9.3.
Section 8.4 Certain Proceedings. No writ, order, decree or injunction of a court
of competent jurisdiction or other Governmental Authority shall have been
entered against any Stockholder or the Company that prohibits or restricts the
transaction contemplated hereby and no action, proceeding, investigation,
regulation or legislation shall have been instituted or threatened before any
court or any other Governmental Authority which (i) questions the validity or
legality of the transactions contemplated hereby or seeks to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to, or
arising out of, this Agreement or the consummation of the transactions
contemplated hereby, (ii) seeks material damages against any Stockholder as a
result of the transactions contemplated hereby or (iii) can otherwise reasonably
be expected to materially and adversely affect any Stockholder as a result of
the consummation of the transaction contemplated hereby.
Section 8.5 Buyer Actions. All actions to be taken by Buyer in connection with
the consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Stockholders.
Section 8.6 Certificate of Merger. The Certificate of Merger shall have
become effective under the DGCL and the NYBCL.
ARTICLE 9
CLOSING
Section 9.1 Closing. Subject to satisfaction or waiver of all of the conditions
of closing set forth in Articles 7 and 8, the closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of Dow,
Lohnes & Albertson, PLLC, 1200 New Hampshire Ave., N.W., Suite 800, Washington,
D.C. 20036, at 10:00 a.m., local time, on the date specified by Buyer by notice
to the Stockholders and the Company, which specified date shall be no later than
ten business days after the conditions of Closing set forth in Sections 7.3 and
7.4 have been satisfied or waived by the party entitled to the benefit thereof
or on such other date as Buyer, the Stockholders and the Company may mutually
agree (the "Closing Date").
Section 9.2 Deliveries and Actions by the Stockholders and the Company. The
Stockholders and/or the Company as applicable, shall deliver to Buyer the
following items at the Closing:
-43-
<PAGE> 51
(a) Consents. The Stockholders and the Company shall deliver to Buyer at Closing
originals of the Material Consents and any other Consents which the Stockholders
and the Company shall obtain.
(b) Articles of Incorporation, Certified Bylaws and Certificates of Existence
and Good Standing for the Company. The Company shall deliver to Buyer at Closing
(i) copies of the certificate of incorporation or other applicable governing
instruments and all amendments thereto of the Company certified within ten
business days prior to the Closing by the Secretary of State of the State of New
York, (ii) copies of the bylaws or other applicable governing instruments of the
Company certified by the Secretary or Assistant Secretary of the Company as
being correct, complete and in full force and effect on the Closing Date, and
(iii) certificates of existence and good standing of the Company dated within
ten business days of the Closing Date issued by the Secretary of State of the
State in which the Company is organized or qualified to conduct business.
(c) Certificates. The Stockholders shall deliver to Buyer the stock certificates
representing all of the issued and outstanding shares of Company Common Stock in
blank in accordance with Section 2.1(g).
(d) Resignations and Releases. The Company shall deliver to Buyer resignations
of the officers and directors of the Company effective as of the Closing. The
Stockholders shall deliver to Buyer releases of the officers and directors of
the Company and their respective Affiliates releasing all claims they may have
against the Company, in a form satisfactory to Buyer.
(e) Employment Agreement and Lock-Up Agreements. The applicable parties thereto
shall deliver to Buyer fully executed Employment Agreement and Lock-Up
Agreements.
(f) Opinion of Counsel. The Company shall deliver the favorable opinion of
Hiscock & Barclay, LLP substantially in the form of Exhibit E hereto.
(g) Post-Closing Escrow Agreement. The Company and the Stockholders shall
deliver to Buyer and the Escrow Agent the Post-Closing Escrow Agreement, duly
executed by the Stockholders.
(h) Stockholders and Company Closing Certificate. The Stockholders and the
Company shall deliver to Buyer at Closing a certificate executed by the
Stockholders' Representative and the Company certifying (i) as to the incumbency
and signatures of the Stockholders and officers of the Company who executed this
Agreement and the agreements contemplated hereby on behalf of the Stockholders
and the Company, (ii) as to the adoption of the unanimous written consents of
the Board of Directors of the Company and the Stockholders which are in full
force and effect on the Closing Date authorizing the execution and delivery of
this Agreement and the agreements contemplated hereby and the performance of the
obligations of the Company hereunder and thereunder, (iii) as to the Company's
bylaws and all amendments thereto as being correct, complete and in full force
and effect on the Closing Date and (iv) that the conditions to the Buyer's
obligation to consummate the transactions contemplated by this
-44-
<PAGE> 52
Agreement set forth in Sections 7.1 and 7.2 have been satisfied (the
"Stockholders and Company Closing Certificate").
Section 9.3 Deliveries by Buyer. Buyer shall deliver to the Stockholders
and the Company the following items at the Closing:
(a) Certificates of Existence, Good Standing and Qualification. Buyer shall
deliver to the Stockholders and the Company at Closing a certified copy of its
certificate of incorporation and a certificate of good standing with respect to
Buyer, dated within ten business days of the Closing Date, issued by the
Secretary of State of the State of Delaware.
(b) Buyer's Closing Certificate. Buyer shall deliver to the Stockholders and the
Company at Closing a certificate of an executive officer of Buyer certifying (i)
as to the incumbency and signatures of the officers of Buyer who executed this
Agreement and the agreements contemplated hereby on behalf of Buyer, (ii) as to
the adoption of resolutions of the executive committee of the board of directors
of Buyer which are in full force and effect on the Closing Date authorizing the
execution and delivery of this Agreement and the agreements contemplated hereby
and the performance of the obligations of Buyer hereunder and thereunder, (iii)
as to Buyer's bylaws and all amendments thereto as being correct, complete and
in full force and effect on the Closing Date and (iv) that the conditions to the
Stockholders' and the Company's obligations to consummate the transactions
contemplated by this Agreement set forth in Sections 8.1 and 8.2 have been
satisfied.
(c) Consideration. Buyer shall deliver to the Stockholders a copy of its written
instructions to its transfer agent to be delivered pursuant to Section 2.1(f).
(d) Company Liabilities. Buyer shall have made the payments required pursuant to
Section 2.1(e).
(e) Post-Closing Escrow Agreement. Buyer shall deliver to the Stockholders and
the Escrow Agent the Post-Closing Escrow Agreement, duly executed by Buyer.
ARTICLE 10
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual written agreement of the Stockholders, the Company and Buyer;
(b) by either the Stockholders, the Company or Buyer, if:
(i) the transaction contemplated hereby has not been consummated on or before
February 1, 2000 (the "Termination Date"); provided that the right to terminate
this Agreement pursuant to this Section 10.1(b)(i) shall not be available to a
party whose breach of
-45-
<PAGE> 53
any provision of this Agreement results in the failure of such transaction to
be consummated by the Termination Date; or
(ii) (A) there shall be any law or regulation that makes consummation of the
transaction contemplated hereby illegal or otherwise prohibited or (B) any
judgment, injunction, order or decree of any court or other Governmental
Authority having competent jurisdiction enjoining the Stockholders, the Company
or Buyer from consummating such transaction is entered, and such judgment,
injunction, order or decree shall have become final.
(c) by Buyer if on any date determined for the Closing in accordance with
Section 9.1 each condition in Article 8 has been satisfied (or will be satisfied
by actions to be taken at the Closing) and either a condition set forth in
Article 7 has not been satisfied (or will not be satisfied by actions to be
taken at the Closing) or the Stockholders and/or the Company have nonetheless
refused to consummate the Closing; provided that Buyer may not terminate
pursuant to this Section 10.1(c) if the failure of any condition set forth in
Article 7 to be satisfied was principally caused by Buyer's breach of or failure
to perform any of its covenants and agreements in accordance with this
Agreement;
(d) by the Stockholders and/or the Company if on any date determined for the
Closing in accordance with Section 9.1 each condition in Article 7 has been
satisfied (or will be satisfied by actions to be taken at the Closing) and
either a condition set forth in Article 8 has not been satisfied (or will not be
satisfied by actions to be taken at the Closing) or Buyer has nonetheless
refused to consummate the Closing; provided that the Stockholders and the
Company may not terminate pursuant to this Section 10.1(d) if the failure of any
condition set forth in Article 8 to be satisfied was principally caused by the
Stockholders' or the Company's breach of or failure to perform any of its
covenants and agreements in accordance with this Agreement.
The party desiring to terminate this Agreement pursuant to
this Section 10.1 (other than pursuant to Section 10.1(a)) shall give notice of
such termination to the other parties hereto.
Section 10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall become void and of no effect without
liability of any party hereto to the other parties hereto, except that (a) the
agreements contained in this Section 10.2 shall survive the termination hereof,
and (b) no such termination shall relieve any party of any liability or damages
resulting from any material breach by such party of any representation,
warranty, covenant or agreement set forth in this Agreement.
ARTICLE 11
INDEMNIFICATION
Section 11.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties hereto contained in this Agreement
shall survive the Closing hereunder (even if the damaged party knew or had
reason to know of any misrepresentation or
-46-
<PAGE> 54
breach of warranty or covenant at the time of Closing) and continue in full
force and effect until the latest of: (a) the date that is two years after
the Closing Date, (b) the date of final resolution of a claim that has been
asserted in writing to the other party prior to the ending of such two year
period, and (c) as to the representations and warranties made in Sections
3.1, 3.5, 4.1, 4.2, 5.1, 5.2, 5.7, 5.9, 5.11, 5.22 and 5.24, 60 days after the
expiration of the applicable statute of limitations (including all periods
of extension thereof) or, if later as to the representations and
warranties made in Section 5.11, until the final resolution of any claim
asserted in writing by a Governmental Authority.
Section 11.2 Indemnification by the Stockholders. From and after the Closing,
the Stockholders shall indemnify Buyer and its affiliates, officers, directors,
employees, stockholders and agents (the "Buyer Indemnified Parties") against and
hold them harmless from any liability, claim, damage, Tax or expense (including
reasonable legal fees and expenses) ("Losses") suffered or incurred by any Buyer
Indemnified Party as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of the Stockholders
contained in this Agreement or any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of the Stockholders contained in
this Agreement, including, without limitation, the actions or inactions of the
Stockholders' Representative;
(c) any breach of any covenant or agreement of the Company contained in this
Agreement relating to the period prior to the Effective Time;
(d) liabilities of the Company resulting from or arising out of the conduct of
the Business prior to the Effective Time to the extent such liabilities are not
included as adjustments in the determination of the Purchase Price pursuant to
Section 2.3;
(e) any claim arising out of any breach or violation or alleged breach or
violation of any Environmental, Health and Safety Requirement relating to any
Real Property owned or leased by the Company or its predecessors, which breach
or violation occurred or allegedly occurred prior to the Effective Time, or
arising out of any environmental matters described on Schedule 11.2, and any
judgment or other adverse determination or settlement or claim arising out of
any suit, action or proceeding arising out of the conduct of the Business prior
to the Effective Time, including those claims and other matters described on
Schedule 11.2;
(f) expenses of any Stockholder or the Company relating to the consummation of
the transactions contemplated by this Agreement, including fees and expenses of
attorneys, accountants, financial advisors and broker fees;
(g) any Taxes of the Company for any taxable period or portion thereof ending on
or prior to the Closing Date;
(h) any Lien, other than Permitted Liens, or any assets of the Company arising
prior to the Effective Time or as a result of any action or inaction by the
Company or the Stockholders prior to the Effective Time, which are set forth in
Lien, Tax and judgment searches
-47-
<PAGE> 55
obtained by Buyer in each state and country in which any Stockholder or the
Company has assets; and
(i) any action, suit, proceeding, claim, demand, assessment or judgment incident
to the foregoing or incurred in investigating or to avoid the same or to oppose
the imposition thereof or in enforcing this indemnity.
Section 11.3 Indemnification by Buyer. From and after the Closing, Buyer shall
indemnify the Stockholders and their affiliates, officers, directors, employees,
stockholders and agents (the "Stockholders' Indemnified Parties") against and
hold them harmless from any Losses suffered or incurred by any Stockholders'
Indemnified Parties as a result of, arising from or relating to the following:
(a) any breach of any representation or warranty of Buyer contained in this
Agreement or in any certificate delivered pursuant hereto;
(b) any breach of any covenant or agreement of Buyer contained in this
Agreement;
(c) liabilities of the Company resulting from or arising out of the conduct of
the Business by the Company after the Closing, unless and to the extent Buyer is
entitled to indemnification therefore pursuant to Section 11.2; and
(d) any action, suit, proceeding, claim, demand, assessment or judgment incident
to the foregoing or incurred investigating or to avoid the same or to oppose the
imposition thereof or in enforcing this indemnity.
Section 11.4 Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly give
notice to the party from which indemnification is claimed (the "Indemnifying
Party") of any claim, whether between the parties or brought by a third party,
specifying in reasonable detail the factual basis for the claim, the amount
thereof, estimated in good faith, and the method of computation of such claim,
all with reasonable particularity and containing a reference to the provisions
of this Agreement in respect of which such indemnification claim shall have
occurred. If the claim relates to an action, suit, or proceeding filed by a
third party against the Claimant, such notice shall be given by the Claimant
promptly after written notice of such action, suit, or proceeding was given to
the Claimant; provided, however, that any delay in giving the notice shall not
impair the Claimant's rights hereunder unless such delay has a material adverse
effect on the Indemnifying Party's ability to defend such claim.
(b) With respect to claims solely between the parties, following receipt of
notice from the Claimant of a claim, the Indemnifying Party shall have thirty
days to make such investigation of the claim as the Indemnifying Party deems
necessary or desirable. For the purposes of such investigation, the Claimant
agrees to make available to the Indemnifying Party and its authorized
representatives the information relied upon by the Claimant to substantiate the
claim. If the Claimant and the Indemnifying Party agree prior to the expiration
of such thirty day
-48-
<PAGE> 56
period (or any mutually agreed upon extension thereof) to the validity and
amount of such claim, the Indemnifying Party shall immediately pay to the
Claimant the full amount of the claim. If the Claimant and the
Indemnifying Party do not agree within such thirty day period (or any mutually
agreed upon extension thereof), the Claimant may seek appropriate remedies at
law or equity, as applicable.
(c) With respect to any claim by a third party as to which the Claimant is
entitled to indemnification under this Agreement, the Indemnifying Party shall
have the right at its own expense, to participate in or assume control of the
defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in such
defense with legal counsel of the Claimant's own selection, but the fees and
expenses of such counsel shall be its fees and expenses unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense of such claim, within five
business days after receiving notice of such claim, (iii) the remedies sought
against the Claimant include any remedy that is not solely a claim for monetary
damages or (iv) the named parties to any proceeding in respect of the claim
(including any impleaded parties) include both the Indemnifying Party and the
Claimant and the Claimant has been advised by counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Indemnifying Party (in which case, if the Claimant
notifies the Indemnifying Party that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of the
Claimant, it being understood, however, that the Indemnifying Party shall not,
in connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Claimant). If the Indemnifying Party does not (or,
as provided in clause (iv) of the preceding sentence, cannot) elect to assume
control or otherwise participate in the defense of any third-party claim, then
the Claimant may defend through counsel of its own choosing and (so long as it
gives the Indemnifying Party at least five days prior written notice of the
terms of any proposed settlement thereof and permits the Indemnifying Party to
then undertake the defense thereof) settle such claim, action or suit, and to
recover from the Indemnifying Party the amount of such settlement or of any
judgment and the costs and expenses of such defense. The Indemnifying Party
shall not compromise or settle any third party claim, action or suit without the
prior written consent of the Claimant, which consent will not be unreasonably
withheld or delayed.
(d) If a claim, whether between the parties or by a third party, requires
immediate action, the parties will make every reasonable effort to reach a
decision with respect thereto as expeditiously as practicable.
(e) Following the Closing, the Stockholders shall have no right of contribution
against the Company for any indemnification payment made by the Stockholders
hereunder or otherwise, and the Stockholders hereby waive any and all rights of
contribution that they may have against the Company.
-49-
<PAGE> 57
Section 11.5 Indemnification Escrow. On the Closing Date, Buyer, the
Stockholders and the Escrow Agent shall execute a Post-Closing Escrow Agreement
substantially in the form attached as Exhibit F hereto (the "Post-Closing Escrow
Agreement") in accordance with which Buyer shall deposit 22,250 shares of Buyer
Common Stock with the Escrow Agent (such shares and all amounts and other
property held from time to time by the Escrow Agent in respect of such shares,
including any dividends, stock dividends or other earnings in respect thereof,
the "Indemnification Funds") in order to provide a fund for the payment of any
claims for which Buyer is entitled to indemnification as provided in this
Article 11. The Indemnification Funds shall be held and disbursed in accordance
with the terms of the Post-Closing Escrow Agreement.
Section 11.6 Basket Amount. The Stockholders' and Buyer's obligations under
Sections 11.2(a) and 11.3(a) shall not be payable by the Stockholders or Buyer,
as the case may be, unless and until the amount of the Stockholders' obligations
(in the case of claims pursuant to Section 11.2) and the amount of the Buyer's
obligations (in the case of claims pursuant to Section 11.3) exceeds Fifty
Thousand Dollars ($50,000) (the "Basket Amount") in the aggregate; provided,
that once the aggregate amount of Losses suffered or incurred by the Buyer
Indemnified Parties, in the aggregate, or the Stockholders' Indemnified Parties,
in the aggregate, exceeds the Basket Amount, indemnification shall be made by
the Stockholders and the Buyer, respectively, for all Losses suffered or
incurred by the Buyer Indemnified Parties or the Stockholders' Indemnified
Parties, respectively, without regard to the Basket Amount.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware, without regard to such state's
conflict of law rules.
Section 12.2 Successors and Assigns. Except as otherwise expressly provided
herein, no party hereto may assign its or his rights and obligations hereunder
unless such party obtains the prior written consent of the other parties hereto.
Except as otherwise provided herein, this Agreement shall inure to the benefit
of, and be binding upon, the successors and permitted assigns of the parties
hereto.
Section 12.3 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement among the parties with regard to the
subject matter hereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
Section 12.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, or by reputable overnight delivery service, postage prepaid, or
otherwise delivered by hand or by messenger, addressed as follows:
-50-
<PAGE> 58
to the Stockholders Vertical Properties, Inc.
and the Company: 221 Walton Street
Syracuse, New York 13202
Attention: William B. Yeomans
Telephone: (315) 476-2812
Fax: (315) 476-3408
with a copy to: Hiscock & Barclay, LLP
Financial Plaza
221 South Warren Street
Syracuse, New York 13202
Attention: George S. Deptula, Esq.
Telephone: (315) 425-2725
Fax: (315) 425-8545
to Buyer: SpectraSite Holdings, Inc.
100 Regency Forest Drive, Suite 400
Cary, North Carolina 27511
Attention: John H. Lynch
Telephone: (919) 468-0112
Fax: (919) 468-8522
with a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036
Attention: Timothy J. Kelley, Esq.
Telephone: 202-776-2000
Fax: 202-776-2222
Notice shall be deemed to be given upon receipt.
Section 12.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy hereunder shall impair any such right, power or remedy of any
party hereto, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party hereto of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any party hereto, shall be cumulative and not alternative.
Section 12.6 Counterparts. This Agreement may be executed in any number of
counterparts, by original or facsimile signature, each of which shall be deemed
an original, and all of which taken together shall constitute one and the same
instrument.
-51-
<PAGE> 59
Section 12.7 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
Section 12.8 Headings. The subject headings of the sections of this Agreement
are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
Section 12.9 Waiver of Jury Trial. Each party hereto hereby waives any right to
a trial by jury with respect to any action relating to this Agreement.
Section 12.10 Exclusive Benefit. Nothing in this Agreement is intended to confer
any rights or remedies, whether express or implied, under or by reason of this
Agreement, on any persons other than the parties hereto and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement.
Section 12.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
parties intend that each representation, warranty and covenant contained herein
shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
Section 12.12 Exhibits and Schedules. The Exhibits and Schedules identified in
this Agreement are incorporated herein by reference and made a part hereof.
Nothing in any Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless such Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself).
Section 12.13 Enforcement of Agreement. The parties 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 hereof 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
-52-
<PAGE> 60
at law or in equity. In the event of any action to enforce this Agreement,
the breaching party hereby waives the defense that there is an adequate remedy
at law and no bond or other security shall be required for the party seeking to
enforce this Agreement pursuant to this Section 12.13..
Section 12.14 Acquisition of Buyer. Notwithstanding anything in this Agreement
to the contrary, if the Buyer consummates a Change of Control Transaction, Buyer
or its successor in such Change of Control Transaction may, at its election,
deliver to the Stockholders shares of Acquiror Capital Stock having a value,
determined on the basis of the weighted average closing price for the shares of
the Acquiror's Capital Stock so delivered as quoted on the principal national
securities exchange or automated quotation system on which such Acquiror Capital
Stock is traded and reported in the Wall Street Journal during the period of
thirty consecutive trading days ending on the third business day prior to the
Qualifying Lease Payment Date or Qualifying LOI Payment Date, as the case may
be, equal to the amount to be delivered pursuant to Section 2.4(a) or 2.4(b), as
the case may be, in lieu of shares of Buyer Common Stock. For purposes hereof, a
"Change of Control Transaction" means a transaction or series of transactions
pursuant to which a Person (the "Acquiror") acquires all or substantially all of
the outstanding capital stock of Buyer in full or partial consideration of the
delivery by the Acquiror to the stockholders of Buyer of shares of capital stock
of the Acquiror ("Acquiror Capital Stock").
Section 12.15 Stockholders' Representative.
(a) Pursuant to the terms of this Section 12.15, each Stockholder hereby
appoints William B. Yeomans to act as such Stockholder's agent and
representative (the "Stockholders' Representative") for purposes of receiving on
his or her behalf all notices under this Agreement, issuing on his or her behalf
such notices under this Agreement as the Stockholders' Representative shall
determine in his sole discretion to issue, and performing such other
administrative and other functions under this Agreement as may become necessary
or desirable.
(b) The Stockholders' Representative shall have full power and authority to act
for and on behalf of the Stockholders in regard to their rights under this
Agreement. Without limiting the foregoing, the Stockholders' Representative is
authorized to (i) resolve all claims for indemnification under this Agreement,
(ii) retain counsel of his choosing, experts and other professionals as may be
necessary or desirable to assist in the resolution of any claim for
indemnification under this Agreement, and (iii) execute and deliver the
Stockholders and Company Closing Certificate on behalf of the Stockholders. The
Stockholders' Representative shall have no right to act as agent for service of
process for any one of the Stockholders, except that any notice delivered to the
Stockholders' Representative with respect to any claim arising pursuant to
Section 11.2 of this Agreement shall be deemed notice to all the Stockholders
with respect thereto.
(c) The Stockholders' Representative shall be entitled to reasonable
compensation from the Stockholders for his services and reimbursement of all
expenses, including the cost of error and omissions insurance incurred in his
capacity as the Stockholders' Representative.
-53-
<PAGE> 61
(d) At any time after the date hereof, Buyer shall be fully entitled in acting
on and relying upon any written notice, direction, request, waiver, consent,
receipt or other paper or document that Buyer in good faith believes to have
been signed or presented by the Stockholders' Representative and Buyer will have
no liability to any Stockholder if it acts in accordance with the foregoing.
(e) The Stockholders' Representative shall be entitled to reimbursement by the
Stockholders of all reasonable expenses (including the cost of errors and
omissions insurance) incurred in his capacity as Stockholders' Representative.
The Stockholders shall indemnify and hold harmless the Stockholders'
Representative from any and all costs, expenses, or damages (paid or incurred)
in connection with the performance of his obligations pursuant to this
Agreement, other than those arising from the gross negligence or willful
misconduct of the Stockholders' Representative. The Stockholders shall be
jointly and severally liable to the Stockholders' Representative for any
liability arising out of this Section 12.15.
-54-
<PAGE> 62
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be duly executed as of the day and year first above written.
SPECTRASITE HOLDINGS, INC.
By:/s/Stephen H. Clark
----------------------------
Stephen H. Clark
Chief Executive Officer and President
VPI MERGER SUB, INC.
By:/s/Stephen H. Clark
-------------------------------------
Stephen H. Clark
President
VERTICAL PROPERTIES, INC.
By:/s/William B. Yeomans
-------------------------------------
William B. Yeomans
Chief Executive Officer
/s/William B. Yeomans
-------------------------------------
William B. Yeomans
/s/Robert E. Sundius
------------------------------------
Robert E. Sundius
/s/M. Cain Prater
-----------------------------------
M. Cain Prater
<PAGE> 63
/s/W.Thomas Thornton
------------------------------------
W. Thomas Thornton
/s/Stephen DiMarco
------------------------------------
Stephen DiMarco
/s/Patrick M. Kilmartin
--------------------------------
Patrick M. Kilmartin
/s/Stephen Smith
--------------------------------
Stephen Smith
/s/David DiMarco
--------------------------------
David DiMarco
/s/James Gray
--------------------------------
James Gray
/s/Monica Farren
--------------------------------
Monica Farren
/s/William B. Yeomans
--------------------------------
William B. Yeomans, as Stockholders'
Representative
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. SpectraSite Communications, Inc. ("SCI"), a Delaware corporation and wholly
owned subsidiary of the Registrant.
2. Tower Merger Vehicle, Inc. ("TMV"), a Delaware corporation and wholly owned
subsidiary of SCI.
3. Tower Asset Sub, Inc., a Delaware corporation and wholly owned subsidiary
of TMV.
4. Vertical Properties, Inc., a New York corporation and wholly owned
subsidiary of SCI.
5. Westower Corporation ("Westower"), a Washington corporation and wholly
owned subsidiary of SCI.
6. SpectraSite Construction, Inc., a Delaware corporation and wholly owned
subsidiary of Westower.
7. CNG Communications, Inc., a Delaware corporation and wholly owned
subsidiary of Westower.
8. Westower Communications, Inc., a Texas corporation and wholly owned
subsidiary of Westower.
9. Cypress Real Estate Services, Inc., a Florida corporation and wholly owned
subsidiary of Westower.
10. Teletronics Management Services, Inc., a Washington corporation and wholly
owned subsidiary of Westower.
11. Teletronics Realty Services, Inc., a Washington corporation and wholly
owned subsidiary of Westower.
12. Westower Communications, Inc., a Washington corporation and wholly owned
subsidiary of Westower.
13. Westower Design, Inc., a Florida corporation and wholly owned subsidiary of
Westower.
14. Westower Leasing, Inc., a Wyoming corporation and wholly owned subsidiary
of Westower.
15. Westower Communications Ltd., a Canadian Federal corporation.
16. Westower Leasing Canada Inc., a Canadian Federal corporation and wholly
owned subsidiary of Westower.
17. Westower Acquisitions Canada, Inc. ("Acquisitions"), a Canadian Federal
corporation and wholly owned subsidiary of Westower.
18. Acier Filteau Inc., a Province Quebec corporation and wholly owned
subsidiary of Acquisitions.
19. Jovin Telecommunications, Inc., a Canadian Federal corporation and wholly
owned subsidiary of Acquisitions.
20. Telecommunication R. David Inc., a Province Quebec corporation and wholly
owned subsidiary of Acquisitions.
