As filed with the Securities and Exchange Commission on June 13, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SPECTRASITE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4899 56-2027322
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
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400 REGENCY FOREST DRIVE
CARY, NORTH CAROLINA 27511
(919) 468-0112
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
JOHN H. LYNCH
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
SPECTRASITE, INC.
400 REGENCY FOREST DRIVE
CARY, NORTH CAROLINA 27511
(919) 468-0112
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
RAPHAEL M. RUSSO, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If the
securities being registered on this Form are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE (1) REGISTRATION FEE (2)
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8 1/4% Senior Notes Due 2010 $200,000,000 100% $200,000,000 $16,180
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) of the Securities Act of 1933.
(2) The registration fee has been calculated pursuant to Rule 457(f) under the
Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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 preliminary prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted
SUBJECT TO COMPLETION, DATED JUNE 13, 2003
PRELIMINARY PROSPECTUS
SPECTRASITE, INC.
EXCHANGE OFFER FOR $200,000,000
8 1/4% SENIOR NOTES DUE 2010
We are offering to exchange all of our outstanding 8 1/4% Senior Notes due
2010, which were issued on May 21, 2003, and which We refer to as the initial
notes, for a like aggregate amount of our registered 8 1/4% Senior Notes due
2010, which we refer to as the exchange notes. We will pay interest on the
exchange notes semi-annually on May 15 and November 15 of each year, beginning
November 15, 2003. The exchange notes will mature on May 15, 2010.
We may redeem all or part of the exchange notes on or after May 15, 2006.
Prior to May 15, 2006, we may redeem up to 35% of the exchange notes from the
proceeds of certain equity offerings. Redemption prices are set forth under
"Description of the Notes -- Redemption -- Terms of Optional Redemption."
The exchange notes will be our senior unsecured obligations and will rank
equally with all of our existing and future senior unsecured debt and senior to
our future subordinated unsecured debt. The exchange notes also will effectively
rank junior to all of our existing and future secured debt and to all
liabilities of our subsidiaries. As of March 31, 2003, after giving effect to
the offering of the initial notes, our only debt outstanding would have been
$200.0 million of senior notes issued in the offering of the initial notes. Our
subsidiaries would have had approximately $512.9 million of secured debt and,
after giving effect to the amendment to our credit facility, the ability to
borrow up to an additional $200 million in secured debt and letters of credit
under our credit facility, subject to certain conditions. Our subsidiaries will
not guarantee the exchange notes.
TERMS OF THE EXCHANGE OFFER
o It will expire at 5:00 p.m., New York City time, on , 2003, unless we
extend it.
o If all the conditions to this exchange offer are satisfied, we will
exchange all of our initial notes that are validly tendered and not
withdrawn for exchange notes.
o You may withdraw your tender of initial notes at any time before the
expiration of this exchange offer.
o The exchange notes that we will issue to you in exchange for your
initial notes will be substantially identical to your initial notes
except that, unlike your initial notes, the exchange notes will have
no transfer restrictions or registration rights.
o The exchange notes that we will issue you in exchange for your initial
notes are new securities with no established market for trading.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 15.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes, where such initial notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
The date of this prospectus is , 2003.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.............................................................2
Risk Factors..................................................................15
Forward-Looking Statements....................................................24
Use of Proceeds...............................................................25
Capitalization................................................................25
Selected Historical Consolidated Financial and Other Data.....................26
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................29
Business......................................................................42
Management....................................................................49
Principal Stockholders........................................................54
Certain Relationships and Related Transactions................................55
Description of the Credit Facility............................................57
The Exchange Offer............................................................59
Description of the Notes......................................................68
Material U.S. Federal Income Tax Consequences................................107
Plan of Distribution.........................................................113
Legal Matters................................................................113
Experts......................................................................113
Where You Can Find More Information..........................................113
Index to Financial Statements................................................F-1
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE EXCHANGE NOTES. YOU SHOULD READ THIS
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
CONSOLIDATED FINANCIAL STATEMENTS. UNLESS THE CONTEXT INDICATES OR REQUIRES
OTHERWISE, THE TERMS "SPECTRASITE," "WE," "OUR" AND "COMPANY" REFER TO
SPECTRASITE, INC. (FORMERLY KNOWN AS SPECTRASITE HOLDINGS, INC.), THE ISSUER OF
THE NOTES, AND ITS WHOLLY OWNED SUBSIDIARIES AND ALL PREDECESSOR ENTITIES,
COLLECTIVELY. IN ADDITION, "COMMUNICATIONS" REFERS TO SPECTRASITE
COMMUNICATIONS, INC., A WHOLLY OWNED SUBSIDIARY OF SPECTRASITE. THE TERM
"INITIAL NOTES" REFERS TO THE 8 1/4% SENIOR NOTES DUE 2010 THAT WERE ISSUED ON
MAY 21, 2003 IN A PRIVATE OFFERING. THE TERM "EXCHANGE NOTES" REFERS TO THE 8
1/4% SENIOR NOTES DUE 2010 OFFERED BY THIS PROSPECTUS. THE TERM "NOTES" REFERS
TO THE INITIAL NOTES AND THE EXCHANGE NOTES, COLLECTIVELY.
SPECTRASITE
OVERVIEW
We are one of the largest wireless and broadcast tower operators in the
United States. Our businesses include the ownership and leasing of antenna sites
on wireless and broadcast towers, the ownership and leasing of distributed
antenna systems within buildings, managing rooftop telecommunications access on
commercial real estate and designing, constructing, modifying and maintaining
broadcast towers.
We operate in two business segments: wireless and broadcast.
WIRELESS. As of March 31, 2003, we owned or operated 7,414 wireless towers
and antenna sites, primarily located in the top 100 markets in the United
States. We have major metropolitan market clusters in Los Angeles, Chicago, San
Francisco, Philadelphia, Detroit and Dallas. Our principal business is the
leasing of space on our towers to wireless carriers, which represents more than
95% of our monthly wireless leasing revenues.
o TOWER OWNERSHIP, LEASING AND MANAGEMENT. We are one of the largest
independent owners and operators of wireless communications towers in
the United States. Our wireless leasing customers are leading wireless
service providers, including AT&T Wireless, Cingular, Nextel, Sprint
PCS, T-Mobile, Verizon Wireless and their affiliates. Together, these
customers account for more than 89% of our monthly wireless leasing
revenues.
o IN-BUILDING ACCESS. We are a leading provider of in-building neutral
host distributed antenna systems serving telecommunications carriers
in the United States. We have the exclusive rights to provide wireless
carriers access to in-building coverage in over 300 retail shopping
malls, casino/hotel resorts and office buildings in the United States.
o ROOFTOP MANAGEMENT. We provide rooftop management services to
telecommunications carriers in the United States. We are the exclusive
site manager for over 11,000 real estate properties, with significant
access clusters in major metropolitan areas.
BROADCAST. As of March 31, 2003, we owned and operated 74 broadcast towers.
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
represent approximately 50% of the existing broadcast tower infrastructure in
the United States.
o BROADCAST TOWER OWNERSHIP. We are one of the largest independent
owners and operators of broadcast towers in the United States. We
provide antenna site leasing services, which involve the leasing of
antenna space on our broadcast towers to broadcasters and wireless
carriers.
o BROADCAST TOWER SERVICES. We are a leading provider of broadcast tower
analysis, design, installation and technical services.
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COMPETITIVE STRENGTHS
We believe that we are distinguished by the following competitive
strengths:
o HIGH QUALITY ASSETS. We believe that our quality portfolio of tower
assets, including our tower clusters in major metropolitan areas,
makes us a preferred provider for the wireless industry.
o CONSERVATIVE CAPITAL STRUCTURE. We currently operate with the lowest
level of total debt among the publicly traded tower companies. We have
substantially completed the build-out of our wireless tower portfolio
and terminated our build-to-suit contracts with wireless carriers.
These measures have reduced our capital expense commitments and
reduced our future funding requirements. We have also reduced the
revolving portion of our credit facility from $300 million to $200
million.
o STABLE CORE LEASING BUSINESS. Our focus on the leasing of antenna
space on communications towers provides us with a recurring, stable
cash flow stream due to the long-term nature of our customer contracts
and the significant relocation costs for our existing tenants. Because
our tower operating expense generally does not grow as we add
co-location tenants, once a tower is built for an anchor tenant,
co-location tenants provide high incremental cash flow.
o EXPERIENCED MANAGEMENT. Our senior management team has been in place
for four years and has an average of over eleven years of experience
in the wireless industry. In addition, our senior management team
remained intact throughout our recent restructuring.
BUSINESS STRATEGY
The principal features of our business strategy are to:
o MAXIMIZE USE OF OUR TOWER CAPACITY. We believe that our highest
returns will be achieved by leasing additional space on our existing
towers. Because the costs of operating a tower are largely fixed,
increasing utilization will significantly improve our operating
margins.
o TAKE ADVANTAGE OF OUR MAJOR MARKET PRESENCE. 57% of our wireless
antenna sites are located in the top 50 markets in the United States.
We believe the increase in peak minutes of use in these markets
increases the likelihood that carriers will deploy more capital to
expand their network capacity in these markets than in other markets.
o LEVERAGE EXISTING RELATIONSHIPS WITH WIRELESS SERVICE PROVIDERS AND
THEIR PROGRAM MANAGEMENT COMPANIES. Maintaining and cultivating
relationships with wireless service providers is a critical focus of
our sales and marketing program. We have a dedicated group of sales
representatives that focus on establishing and maintaining
relationships with customers at both local and regional levels. In
addition, we employ an experienced national accounts team that works
closely with each wireless service provider's corporate headquarters
and senior management team to cultivate and ensure long-term
relationships.
o CAPITALIZE ON OUR INDUSTRY LEADING POSITION IN PROVIDING SHARED
INFRASTRUCTURE SOLUTIONS TO WIRELESS CARRIERS. We have the largest
operational base of distributed antenna systems providing in-building
wireless coverage in the tower industry. We also have a leading
position in distributed radio frequency transport. We believe wireless
carriers will commit greater financial resources to these areas as
they seek to improve network quality and provide high quality network
coverage.
RECENT DEVELOPMENTS
On November 15, 2002, we filed a voluntary petition for relief under
chapter 11 of the Bankruptcy Code. We emerged from bankruptcy on February 10,
2003. Our operating subsidiaries, including SpectraSite Communications, Inc.,
were not part of the bankruptcy reorganization. Our senior management team
remained with the company through the reorganization. Upon our emergence from
bankruptcy, our largest stockholders are affiliates of Apollo
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Management V, L.P. and certain funds managed by Oaktree Capital Management, LLC.
Members of our management team have options representing an aggregate of 10.0%
of our fully diluted common stock.
In order to focus on our core leasing business, we completed the sale of
our network services division on December 31, 2002. In connection with the sale,
we reduced our headcount by more than 1,000.
On February 10, 2003, we sold 545 towers to Cingular. We used the net
proceeds to repay approximately $73.5 million of outstanding term loans under
our credit facility. As of March 31, 2003, we had $707.0 million outstanding
under the credit facility.
Effective May 14, 2003, we amended our credit facility to, among other
things, reduce our unused $300 million commitment under our revolving credit
facility by $100 million in exchange for moderately increasing the ratios in our
leverage covenant in future periods.
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SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $200,000,000 aggregate principal amount of our
exchange notes for a like aggregate principal amount of our initial notes. In
order to exchange your initial notes, you must properly tender them and we must
accept your tender. We will exchange all outstanding initial notes that are
validly tendered and not validly withdrawn.
Exchange Offer.................. We will exchange our exchange notes for a
like aggregate principal amount of our
initial notes.
Expiration Date................. This exchange offer will expire at 5:00
p.m., New York City time, on ___________,
2003, unless we decide to extend it.
Conditions to the
Exchange Offer............... We will complete this exchange offer only
if:
o there is no change in the laws and
regulations which would impair our
ability to proceed with this
exchange offer;
o there is no change in the current
interpretation of the staff of the
Securities and Exchange Commission
which permits resales of the
exchange notes;
o there is no stop order issued by the
Securities and Exchange Commission
which would suspend the
effectiveness of the registration
statement which includes this
prospectus or the qualification of
the exchange notes under the Trust
Indenture Act of 1939;
o there is no litigation or threatened
litigation which would impair our
ability to proceed with this
exchange offer; and
o we obtain all the governmental
approvals we deem necessary to
complete this exchange offer.
For more information regarding the
conditions to this exchange offer, please
refer to the section in this prospectus
entitled "The Exchange Offer --
Conditions to the Exchange Offer."
Procedures for Tendering
Initial Notes................ To participate in this exchange offer,
you must complete, sign and date the
letter of transmittal or its facsimile
and transmit it, together with your
initial notes to be exchanged and all
other documents required by the letter of
transmittal, to The Bank of New York, as
exchange agent, at its address indicated
under "The Exchange Offer-- Exchange
Agent." In the alternative, you can
tender your initial notes by book-entry
delivery following the procedures
described in this prospectus. If your
initial notes are registered in the name
of a broker, dealer, commercial bank,
trust company or other nominee, you
should contact that person promptly to
tender your initial notes in this
exchange offer. For more information on
tendering your notes, please refer to the
section in this prospectus entitled "The
Exchange Offer-- Procedures for Tendering
Initial Notes."
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Special Procedures for
Beneficial Owners............ If you are a beneficial owner of initial
notes that are registered in the name of
a broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your initial notes in the exchange
offer, you should contact the registered
holder promptly and instruct that person
to tender on your behalf.
Guaranteed Delivery
Procedures................... If you wish to tender your initial notes
and you cannot get the required documents
to the exchange agent on time, you may
tender your notes by using the guaranteed
delivery procedures described under the
section of this prospectus entitled "The
Exchange Offer -- Procedures for
Tendering Initial Notes -- Guaranteed
Delivery
Procedure."
Withdrawal Rights............... You may withdraw the tender of your
initial notes at any time before 5:00
p.m., New York City time, on the
expiration date of the exchange offer. To
withdraw, you must send a written or
facsimile transmission notice of
withdrawal to the exchange agent at its
address indicated under "The Exchange
Offer-- Exchange Agent" before 5:00 p.m.,
New York City time, on the expiration
date of the exchange offer. For more
information on how to withdraw a tender
of initial notes, please refer to the
section of the prospectus entitled "The
Exchange Offer-- Withdrawal of Tenders."
Acceptance of Initial Notes and
Delivery of Exchange Notes... If all the conditions to the completion
of this exchange offer are satisfied, we
will accept any and all initial notes
that are properly tendered in this
exchange offer on or before 5:00 p.m.,
New York City time, on the expiration
date. We will return any initial note
that we do not accept for exchange to you
without expense promptly after the
expiration date. We will deliver the
exchange notes to you promptly after the
expiration date and acceptance of your
initial notes for exchange. Please refer
to the section in this prospectus
entitled "The Exchange Offer --
Acceptance of Initial Notes for Exchange;
Delivery of Exchange Notes."
Federal Income Tax
Considerations Relating to
the Exchange Offer........... Exchanging your initial notes for
exchange notes will not be a taxable
event to you for United States federal
income tax purposes. Please refer to the
section of this prospectus entitled
"Material U.S. Federal Income Tax
Consequences."
Exchange Agent.................. The Bank of New York is serving as
exchange agent in the exchange offer.
Fees and Expenses............... We will pay all expenses related to this
exchange offer. Please refer to the
section of this prospectus entitled "The
Exchange Offer -- Fees and Expenses."
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Use of Proceeds................. We will not receive any proceeds from the
issuance of the exchange notes. We are
making this exchange offer solely to
satisfy our obligations under our
registration rights agreement entered
into in connection with the offering of
the initial notes.
Consequences to Holders Who Do
Not Participate in the
Exchange Offer............. If you do not participate in this
exchange offer:
o except as set forth below, you will
not necessarily be able to require
us to register your initial notes
under the Securities Act of 1933;
o you will not be able to resell,
offer to resell or otherwise
transfer your initial notes unless
they are registered under the
Securities Act or unless you resell,
offer to resell or otherwise
transfer them under an exemption
from the registration requirements
of, or in a transaction not subject
to, the Securities Act; and
o the trading market for your initial
notes will become more limited to
the extent other holders of initial
notes participate in the exchange
offer.
You will not be able to require us to
register your initial notes under the
Securities Act unless:
o the initial purchasers request us to
register initial notes that are not
eligible to be exchanged for
exchange notes in the exchange
offer; or
o you are not eligible to participate
in the exchange offer or do not
receive freely tradable exchange
notes in the exchange offer.
In these cases, the registration rights
agreement requires us to file a
registration statement for a continuous
offering in accordance with Rule 415
under the Securities Act for the benefit
of the holders of the initial notes
described in this paragraph. We do not
currently anticipate that we will
register under the Securities Act any
notes that remain outstanding after
completion of the exchange offer.
Please refer to the section of this
prospectus entitled "The Exchange Offer
-- Your Failure to Participate in the
Exchange Offer
Will Have Adverse Consequences."
Resales......................... It may be possible for you to resell the
notes issued in the exchange offer
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, subject to the conditions
described under "-- Obligations of
Broker-Dealers" below.
To tender your initial notes in this
exchange offer and resell the exchange
notes without compliance with the
registration and prospectus delivery
requirements of the Securities Act, you
must make the following representations:
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o you are authorized to tender the
initial notes and to acquire
exchange notes, and that we will
acquire good and unencumbered title
thereto;
o the exchange notes acquired by you
are being acquired in the ordinary
course of business;
o you have no arrangement or
understanding with any person to
participate in a distribution of the
exchange notes and are not
participating in, and do not intend
to participate in, the distribution
of such exchange notes;
o you are not an "affiliate," as
defined in Rule 405 under the
Securities Act, of ours, or you will
comply with the registration and
prospectus delivery requirements of
the Securities Act to the extent
applicable;
o if you are not a broker-dealer, you
are not engaging in, and do not
intend to engage in, a distribution
of exchange notes; and
o if you are a broker-dealer, initial
notes to be exchanged were acquired
by you as a result of market-making
or other trading activities and you
will deliver a prospectus in
connection with any resale, offer to
resell or other transfer of such
exchange notes.
Please refer to the sections of this
prospectus entitled "The Exchange Offer
-- Procedures for Tendering Initial Notes
-- Proper Execution and Delivery of
Letters of Transmittal," "Risk Factors --
Risks Relating to the Exchange Offer --
Some persons who participate in the
exchange offer must deliver a prospectus
in connection with resales of the
exchange notes" and "Plan of
Distribution."
Obligations of
Broker-Dealers............... If you are a broker-dealer (1) that
receives exchange notes, you must
acknowledge that you will deliver a
prospectus in connection with any resales
of the exchange notes, (2) that acquired
the initial notes as a result of market
making or other trading activities, you
may use the exchange offer prospectus as
supplemented or amended, in connection
with resales of the exchange notes, or
(3) that acquired the initial notes
directly from the issuers in the initial
offering and not as a result of market
making and trading activities, you must,
in the absence of an exemption, comply
with the registration and prospectus
delivery requirements of the Securities
Act in connection with resales of the
exchange notes.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer.......................... SpectraSite, Inc.
Exchange Notes.................. $200,000,000 aggregate principal amount
of 8 1/4% senior notes due 2010. The
forms and terms of the exchange notes are
the same as the form and terms of the
initial notes except that the issuance of
the exchange notes is registered under
the Securities Act, will not bear legends
restricting their transfer and will not
be entitled to registration
8
rights under the registration rights
agreement. The exchange notes will
evidence the same debt as the initial
notes, and both the initial notes and the
exchange notes will be governed by the
same indenture.
Maturity Date................... May 15, 2010.
Interest........................ 8 1/4% per annum, payable semi-annually
in arrears on May 15 and November 15,
commencing November 15, 2003.
Security and Ranking............ The notes will be our unsecured senior
obligations and will rank equally with
all of our unsecured senior debt. The
notes will effectively rank junior to all
of the debt and other liabilities of our
subsidiaries. As of March 31, 2003, after
giving effect to the offering of the
initial notes, our only debt outstanding
would have been $200.0 million of senior
notes issued in the offering of the
initial notes. Our subsidiaries would
have had approximately $512.9 million of
secured debt and, after giving effect to
the amendment to our credit facility, the
ability to borrow up to an additional
$200 million in secured debt and letters
of credit under our credit facility,
subject to certain conditions.
Optional Redemption............. Except in the case of certain equity
offerings by us, we cannot redeem the
exchange notes until May 15, 2006. At any
time, which may be more than once, after
that date, we may redeem some or all of
the exchange notes at certain specified
prices, plus accrued interest. At any
time, which may be more than once, before
May 15, 2006, we can choose to buy back
up to 35% of the exchange notes with
money that we raise in certain equity
offerings, as long as:
o we pay 108.25% of the principal
amount of the exchange notes bought,
plus interest;
o we buy the exchange notes back
within 90 days of completing the
equity offering; and
o at least 65% of the exchange notes
originally issued remain outstanding
afterwards.
Please refer to the section of this
prospectus entitled "Description of the
Notes -- Redemption."
Change of Control............... Upon the occurrence of specified change
of control events, we will be required to
make an offer to repurchase all of the
exchange notes. The purchase price will
be 101% of the outstanding principal
amount of the exchange notes plus any
accrued and unpaid interest and
liquidated damages, if any, to the date
of repurchase. Please refer to the
section of this prospectus entitled
"Description of the Notes-- Change of
Control." Our ability to complete a
change of control repurchase may be
limited by the terms of our credit
facility or our other indebtedness and by
the availability of sufficient funds to
9
complete the repurchase.
Certain Covenants............... The indenture governing the exchange
notes will limit what we may do. The
provisions of the indenture will limit
our ability to:
o incur more debt;
o pay dividends and make
distributions;
o issue stock of subsidiaries;
o make certain investments;
o repurchase stock;
o create liens;
o enter into transactions with
affiliates;
o enter into sale-leaseback
transactions;
o merge or consolidate; and
o transfer and sell assets.
These covenants are subject to important
qualifications and exceptions, which are
described under "Description of the
Notes-- Certain Covenants."
Absence of a Public Market for
the Exchange Notes......... The exchange notes are new securities
with no established market for them. We
cannot assure you that a market for these
exchange notes will develop or that this
market will be liquid. We do not expect
to list the exchange notes on any
national securities exchange nor do we
intend to have the exchange notes
qualified to trade on any other market
system. Please refer to the section of
this prospectus entitled "Risk Factors--
Risks Relating to the Exchange Notes--
There may be no active trading market for
the notes."
Form of the Exchange Notes...... The exchange notes will be represented by
one or more permanent global securities
in registered form deposited on behalf of
The Depository Trust Company with The
Bank of New York, as custodian. You will
not receive exchange notes in
certificated form unless one of the
events described in the section of this
prospectus entitled "Description of the
Notes-- Exchange of Book-Entry Notes for
Certificated Notes" occurs. Instead,
beneficial interests in the exchange
notes will be shown on, and transfers of
these exchange notes will be effected
only through, records maintained in book
entry form by The Depository Trust
Company with respect to its participants.
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
some of the risks relating to participating in the exchange offer and investing
in the exchange notes.
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INFORMATION ABOUT SPECTRASITE
Our principal executive offices are located at 400 Regency Forest Drive,
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.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary historical consolidated financial
and other data. The periods prior to our emergence from chapter 11 have been
designated "predecessor company" and the periods subsequent to that date have
been designated "reorganized company." The balance sheet data as of December 31,
2000, 2001 and 2002 and the statement of operations data for the years ended
December 31, 2000, 2001 and 2002 are derived from our audited consolidated
financial statements. The balance sheet data as of March 31, 2002, January 31,
2003 and March 31, 2003 and the statement of operations data for the three
months ended March 31, 2002 and for the one month ended January 31, 2003 for the
predecessor company, the two months ended March 31, 2003 for the reorganized
company and the three months ended March 31, 2003 for the combined predecessor
and reorganized company have been derived from our unaudited financial
statements. In our opinion, they include all adjustments (consisting only of
normal recurring adjustments for the predecessor company for the three months
ended March 31, 2002 and normal recurring adjustments and fresh start accounting
adjustments for the predecessor company for the one month period ended January
31, 2003, for the reorganized company for the two months ended March 31, 2003
and for the combined predecessor and reorganized company for the three months
ended March 31, 2003) necessary to present fairly the information set forth
therein.
As a result of the implementation of fresh start accounting as of January
31, 2003, our financial statements after that date are not comparable to our
financial statements for prior periods because of the differences in the bases
of accounting and the capital structure for the predecessor company and the
reorganized company. Management believes that the presentation of operating
results for the combined predecessor and reorganized company for the three
months ended March 31, 2003 is useful to assist investors in evaluating our
first quarter 2003 operating results in comparison to our operating results for
the first quarter of 2002. Operating results for the one month ended January 31,
2003 for the predecessor company, the two months ended March 31, 2003 for the
reorganized company and the three months ended March 31, 2003 for the combined
predecessor and reorganized company are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003.
The information set forth below should be read in conjunction with "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this prospectus. Prior period
information has been restated to present the operations of the network services
division as a discontinued operation.
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COMBINED
PREDECESSOR
AND
REORGANIZED
REORGANIZED COMPANY
PREDECESSOR COMPANY(1) COMPANY (1) (1)(2)
----------------------------------------------------------- ---------- ------------
THREE THREE
MONTHS ONE MONTH TWO MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
------------------------------------ MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
2000 2001 2002 2002 2003 2003 2003
---------- ---------- ---------- ---------- --------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER TOWER DATA)
Statement of Operations Data:
Revenues:
Site leasing..................... $ 116,476 $ 221,614 $ 282,525 $ 65,952 $ 25,556 $ 51,069 $ 76,625
---------- ---------- ---------- -------- --------- -------- ---------
Broadcast services............... 38,593 38,211 26,809 6,452 1,237 3,575 4,812
Total revenues................ 155,069 259,825 309,334 72,404 26,793 54,644 81,437
---------- ---------- ---------- -------- --------- -------- ---------
Operating expenses:
Costs of operations (excluding
depreciation, amortization
and accretion expense):
Site leasing..................... 46,667 91,689 108,540 25,505 8,840 17,060 25,900
Broadcast services............... 26,245 29,538 21,158 5,370 1,492 2,889 4,381
Selling, general and
administrative expenses..... 51,825 72,431 58,037 15,520 4,280 8,686 12,966
Depreciation, amortization
and accretion expense(3).... 78,103 165,267 189,936 44,638 16,075 16,826 32,901
Restructuring and non-recurring
charges..................... -- 142,599 28,570 -- -- -- --
---------- ---------- ---------- -------- --------- -------- ---------
12
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COMBINED
PREDECESSOR
AND
REORGANIZED
REORGANIZED COMPANY
PREDECESSOR COMPANY(1) COMPANY (1) (1)(2)
----------------------------------------------------------- ---------- ------------
THREE THREE
MONTHS ONE MONTH TWO MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
-------------------------------------- MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
2000 2001 2002 2002 2003 2003 2003
---------- ---------- ---------- ---------- --------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER TOWER DATA)
Total operating expenses...... 202,840 501,524 406,241 91,033 30,687 45,461 76,148
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............. $ (47,771) $ (241,699) $ (96,907) $ (18,629) $ (3,894) $ 9,183 $ 5,289
Gain on debt discharge.............. -- -- -- -- 1,034,764 -- 1,034,764
Income (loss) from continuing
operations....................... $ (163,059) $ (660,627) $ (338,979) $ (77,790) $1,025,788 $ (1,692) $1,024,096
Statement of Cash Flows Data:
Net cash provided by (used in)
operating activities............. $ 11,365 $ (12,133) $ 36,286 $ 4,202 $ 5,892 $ 11,927 $ 17,819
Net cash provided by (used in)
investing activities............. (1,108,690) (984,724) (69,966) (39,768) (2,737) 78,873 76,136
Net cash provided by (used in)
financing activities............. 1,612,200 475,751 83,094 89,586 (10,884) (76,128) (87,012)
Capital expenditures................ 658,283 958,945 71,248 39,018 2,737 2,255 4,992
Balance Sheet Data (at end of period):
Cash, cash equivalents and short
term investments................. $ 552,653 $ 31,547 $ 80,961 $ 85,567 $ 73,442 $ 87,904 $ 87,904
Total assets........................ 3,054,105 3,203,425 2,578,456 2,834,032 2,577,575 1,597,487 1,597,487
Total long-term debt................ 1,709,055 2,326,177 792,083 2,446,833 783,442 707,383 707,383
Liabilities subject to compromise... -- -- 1,763,286 -- 1,763,286 -- --
Total shareholders' equity
(deficit)..................... 1,224,800 719,345 (75,127) 252,567 (96,678) 684,166 684,166
Selected Operating Data and Ratios
(at end of period):
EBITDA(4)........................... $ 32,904 $ (74,307) $ 93,724 $ 26,298 $ 12,181 $ 26,099 $ 38,190
Ratio of earnings to fixed
charges (5)...................... -- -- -- -- 133.1 -- 45.8
Deficiency of earnings to
cover fixed charges (5).......... (158,814) (613,580) (337,394) (77,962) -- (932) --
Number of owned or operated
towers........................... 5,030 7,925 8,036 8,015 8,035 7,488 7,488
---------------
(1) On February 10, 2003, we emerged from chapter 11. References to the
combined predecessor and reorganized company represent the one month period
ended January 31, 2003 for the predecessor company and the two months ended
March 31, 2003 for the reorganized company. In accordance with AICPA
Statement of Position 90-7 FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"), we adopted "fresh
start" accounting as of January 31, 2003 and our emergence from chapter 11
resulted in a new reporting entity. Under "fresh start" accounting, the
reorganization value of the entity is allocated to the entity's assets
based on fair values, and liabilities are stated at the present value of
amounts to be paid determined at appropriate current interest rates. The
net effect of all fresh start accounting adjustments resulted in a charge
of $644.7 million, which is reflected in the statement of operations for
the one month ended January 31, 2003. The effective date is considered to
be the close of business on January 31, 2003 for financial reporting
purposes. The periods presented prior to January 31, 2003 have been
designated "predecessor company" and the periods subsequent to January 31,
2003 have been designated "reorganized company." As a result of the
implementation of fresh start accounting as of January 31, 2003, our
financial statements after the effective date are not comparable to our
financial statements for prior periods because of differences in the bases
of accounting and the capital structure for the predecessor company and the
reorganized company.
(2) On February 10, 2003, we sold 545 towers to Cingular. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Tower Acquisitions and Dispositions" for a presentation of the three months
ended March 31, 2003, giving effect to the sale as if it had occurred on
January 1, 2003.
(3) Depreciation, amortization and accretion expense for the one-month and
two-month periods are not proportional
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because the predecessor company and the reorganized company used different
bases of accounting.
(4) EBITDA consists of operating income (loss) before depreciation,
amortization, accretion and non-cash compensation 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. We use this
measure to compare our operating performance with that of our competitors.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered as 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. We believe that EBITDA can assist in
comparing company performance on a consistent basis without regard to
amounts such as depreciation and amortization, which may vary significantly
depending on accounting methods or non-operating factors such as historical
cost bases. EBITDA was calculated as follows for the periods indicated:
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COMBINED
PREDECESSOR
AND
REORGANIZED
REORGANIZED COMPANY
PREDECESSOR COMPANY(1) COMPANY (1) (1)(2)
-------------------------------------------------------------- ---------- ------------
THREE THREE
MONTHS ONE MONTH TWO MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
-------------------------------------- MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
2000 2001 2002 2002 2003 2003 2003
---------- ---------- ---------- ---------- --------- ---------- ------------
(DOLLARS IN THOUSANDS)
Operating income (loss).............. $ (47,771) $(241,699) $ (96,907) $ (18,629) $ (3,894) $ 9,183 $ 5,289
Depreciation, amortization and
accretion expense................. 78,103 165,267 189,936 44,638 16,075 16,826 32,901
Non-cash compensation charges........ 2,572 2,125 695 289 -- -- --
--------- --------- ---------- --------- --------- ---------- ----------
EBITDA $ 32,904 $ (74,307) $ 93,724 $ 26,298 $ 12,181 $ 26,009 $ 38,190
--------- --------- ---------- --------- --------- ---------- ----------
(5) The ratio of earnings to fixed charges is computed by dividing income
(loss) before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest charges, amortization of debt discount and debt
issuance costs, and that portion of rental expense SpectraSite believes to
be representative of interest. Earnings were not sufficient to cover fixed
charges, and, therefore, the ratio is not meaningful, for all periods
presented in the table, except for the one month ended January 31, 2003 and
the three months ended March 31, 2003.
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RISK FACTORS
INVESTING IN THE EXCHANGE NOTES INVOLVES SUBSTANTIAL RISKS. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS BEFORE INVESTING IN THE EXCHANGE NOTES. CERTAIN STATEMENTS IN
"RISK FACTORS" ARE FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS."
RISKS RELATING TO OUR INDEBTEDNESS
OUR SUBSTANTIAL INDEBTEDNESS COULD IMPAIR OUR FINANCIAL CONDITION.
Even after our recent restructuring, we are, and will continue to be,
highly leveraged. As of March 31, 2003, after giving effect to the offering of
the initial notes, we would have had $712.9 million of consolidated debt. Our
high level of indebtedness could have important consequences to us. For example,
it could:
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to obtain additional financing;
o require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
o place us at a competitive disadvantage relative to less leveraged
competitors.
Our ability to generate sufficient cash flow from operations to pay the
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, including our obligations on
the exchange notes, 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.
In addition, we may be able to incur significant additional indebtedness in
the future. To the extent new debt is added to our current debt levels, the
substantial leverage risks described above would increase, which could have a
material adverse effect on us and may make it difficult for us to satisfy our
obligations on the exchange notes.
REPAYMENT OF THE PRINCIPAL OF OUR OUTSTANDING INDEBTEDNESS, INCLUDING
THE EXCHANGE NOTES, MAY REQUIRE ADDITIONAL FINANCING. WE ARE NOT CERTAIN OF
THE SOURCE OR AVAILABILITY OF ANY SUCH FINANCING AT THIS TIME.
Our ability to generate sufficient cash flow from operations to make
scheduled payments on our debt obligations, including the exchange notes, will
depend on our future financial performance, which will be affected by a range of
economic, competitive, regulatory, legislative and business factors, many of
which are beyond our control. In addition, we currently anticipate that, in
order to pay the principal of our outstanding indebtedness, including the
exchange notes, or to repay such indebtedness upon a change of control as
defined in the instruments governing our indebtedness, we may be required to
adopt one or more alternatives, such as refinancing our indebtedness or selling
our equity securities or the equity securities or assets of our subsidiaries. We
cannot assure you that we could affect any of the foregoing alternatives on
terms satisfactory to us, that any of the foregoing alternatives would enable us
to pay the interest or principal of our indebtedness or that any of such
alternatives would be permitted by the terms of our credit facility and other
indebtedness then in effect. See "Description of the Credit Facility" and
"Description of the Notes."
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THE TERMS OF OUR CREDIT FACILITY AND THE INDENTURE RELATING TO THE EXCHANGE
NOTES MAY RESTRICT OUR CURRENT AND FUTURE OPERATIONS, PARTICULARLY OUR
ABILITY TO RESPOND TO CHANGES IN OUR BUSINESS OR TO TAKE CERTAIN ACTIONS.
Our credit facility and the indenture relating to the exchange notes
contain, and any future indebtedness of ours would likely contain, a number of
restrictive covenants that will impose significant operating and financial
restrictions on us, including restrictions on our ability to, among other
things:
o incur additional debt;
o pay dividends and make other restricted payments;
o create liens;
o make investments;
o engage in sales of assets and subsidiary stock;
o enter into sale-leaseback transactions;
o enter into transactions with affiliates;
o transfer all or substantially all of our assets or enter into merger
or consolidation transactions; and
o make capital expenditures.
The credit facility also requires us to maintain certain financial ratios.
A failure by us to comply with the covenants or financial ratios contained in
the credit facility could result in an event of default under the facility which
could materially and adversely affect our operating results and our financial
condition. In the event of any default under our credit facility, the lenders
under our credit facility will not be required to lend any additional amounts to
us. The lenders also could elect to declare all borrowings outstanding, together
with accrued and unpaid interest and fees, to be due and payable, require us to
apply all of our available cash to repay these borrowings or prevent us from
making debt service payments on the exchange notes, any of which could result in
an event of default under the exchange notes. If the indebtedness under our
credit facility or the exchange notes were to be accelerated, there can be no
assurance that our assets would be sufficient to repay this indebtedness in
full.
See "Description of the Credit Facility" and "Description of the Notes."
RISKS RELATING TO OUR BUSINESS
WE RECENTLY EMERGED FROM A CHAPTER 11 BANKRUPTCY REORGANIZATION AND HAVE A
HISTORY OF LOSSES.
On November 15, 2002, we filed a voluntary petition for relief under
chapter 11 of the Bankruptcy Code. We emerged from bankruptcy on February 10,
2003. We incurred net losses of approximately $157.6 million in 2000, $654.8
million in 2001 and $775.0 million in 2002. We adopted "fresh start" accounting
as of January 31, 2003 and our emergence from chapter 11 resulted in a new
reporting entity. The net effect of all fresh start accounting adjustments
resulted in a charge of $644.7 million, which is reflected in the statement of
operations for the one month ended January 31, 2003. We cannot assure you that
we will grow or achieve profitability in the near future, or at all.
OUR HISTORICAL FINANCIAL INFORMATION IS NOT COMPARABLE TO OUR CURRENT
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As a result of our emergence from bankruptcy, we are operating our business
with a new capital structure. We also are subject to the "fresh start"
accounting prescribed by generally accepted accounting principles, and our
balance sheet as of January 31, 2003 reflects the application of these rules.
Accordingly, our financial condition and results of operations will not be
comparable to the financial condition and results of operations reflected in our
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historical financial statements contained in this prospectus, which may make it
difficult for you to assess our future prospects based on our historical
performance.
THE FINANCIAL AND OPERATING DIFFICULTIES IN THE WIRELESS TELECOMMUNICATIONS
SECTOR MAY NEGATIVELY AFFECT OUR CUSTOMERS AND OUR COMPANY.
Recently, the wireless telecommunications sector has been facing
significant challenges resulting from intense competition and financial
difficulties. As a result, some of our customers face uncertain financial
circumstances. The impact to us could include a reduced demand for
communications sites, higher bad debt expense, lower pricing on new customer
contracts and possible consolidation among our customers. In addition, because
we are considered to operate in the wireless telecommunications sector, we may
also be negatively impacted by limited access to debt and equity capital.
OUR BUSINESS DEPENDS ON 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 consumer 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. The extent to which
wireless service providers lease communications sites on our towers depends on,
among other things, the level of demand by consumers for wireless services, the
financial condition and access to capital of those providers, the strategy of
providers with respect to owning, leasing or sharing communications sites,
available spectrum and related infrastructure, consolidation among our customers
and potential customers, government regulation of communications licenses,
changes in telecommunications regulations, the characteristics of each company's
technology, and geographic terrain. The demand for communications sites may
decrease significantly or fail to grow from current levels, which could have a
material adverse effect on our business, financial condition or results of
operations.
CONSOLIDATION IN THE WIRELESS INDUSTRY COULD HAVE A NEGATIVE IMPACT ON THE
DEMAND FOR OUR SERVICES.
Various wireless service providers, which are our primary existing and
potential customers, could enter into mergers, acquisitions or joint ventures
with each other over time. Consolidation in the wireless industry could have a
negative impact on the demand for our services. Recent regulatory developments
have made consolidation in the wireless industry easier and more likely. Until
recently, cellular and PCS providers were subject to a spectrum aggregation cap
of 45 MHz in any geographic area. This rule limited the ability of wireless
carriers to consolidate. In November 2001, the Federal Communications
Commission, or "FCC," raised this limit to 55 MHz. On January 1, 2003, the
spectrum cap was eliminated completely in favor of a case-by-case review of
spectrum transactions. The FCC also lifted, for major metropolitan areas, a
previous rule limiting the ownership by a single entity of interests in both
cellular carriers in an overlapping cellular service area. In addition, in May
2003, the FCC adopted new rules authorizing spectrum leasing for a variety of
wireless radio services. It is possible that at least some wireless service
providers may take advantage of this relaxation of spectrum and ownership
limitations and consolidate their businesses. Industry consolidation could have
a material adverse impact on our business, financial condition or results of
operations.
THE INCREASE IN THE SPECTRUM AVAILABLE FOR WIRELESS SERVICES MAY IMPACT THE
DEMAND FOR OUR COMMUNICATION TOWERS.
It is expected that additional spectrum for the provision of wireless
services will be made available over the next few years. For example, the FCC is
required to make available for commercial use a portion of the frequency
spectrum currently reserved for government use. Some portion of this spectrum
may be used to create new land-mobile services or to expand existing offerings.
Further, the FCC has auctioned or announced plans to auction large blocks of
spectrum that will in the future be used to expand existing wireless networks
and create new or advanced wireless services. This additional spectrum could be
used to replace existing spectrum, and could be deployed in a manner that
reduces the need for communications towers to transmit signals over existing
spectrum. Any increased spectrum could have a material adverse impact on our
business, financial condition or results of operations.
17
A SIGNIFICANT PORTION OF OUR REVENUES DEPENDS ON NEXTEL AND CINGULAR.
Nextel and Cingular account for a significant portion of our total
revenues. Nextel and Cingular represented approximately 28% and 20%,
respectively, of our revenues for each of 2002 and the three months ended March
31, 2003. If Nextel or Cingular were to suffer financial difficulties or if
either Nextel or Cingular were unwilling or unable to perform its respective
obligations under its arrangements with us, our business, financial condition or
results of operations could be materially and adversely affected.
WE FACE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES.
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:
o 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;
o other independent tower operators; and
o owners of non-tower antenna sites, including rooftops, water towers
and other alternate structures.
COMPETING TECHNOLOGIES AND OTHER SERVICE OPTIONS OFFER ALTERNATIVES TO
GROUND-BASED ANTENNA SYSTEMS AND ALLOW OUR CUSTOMERS TO INCREASE WIRELESS
CAPACITY WITHOUT INCREASED USE OF GROUND-BASED FACILITIES, BOTH OF WHICH
COULD REDUCE THE DEMAND FOR OUR SERVICES.
Most types of wireless and broadcast services currently require
ground-based network facilities, including communications sites for transmission
and reception. The development and growth of communications technologies that do
not require ground-based sites could reduce the demand for space on our towers,
as could certain other alternatives.
In particular, the emergence of new technologies that do not require
ground-based antenna sites could have a negative impact on our operations. For
example, the growth in delivery of video, voice and data services by satellites,
which allow communication directly to users' terminals without the use of
ground-based facilities, could lessen demand for our services. Low earth orbit
satellite systems provide mobile voice and data services to consumers, as well
as to government and defense industry customers. Other geostationary orbit
satellite systems provide television and Internet access services directly to
home and small office users.
Moreover, the FCC has issued licenses for several additional satellite
systems (including low earth orbit systems) that are intended to provide more
advanced, high-speed data services directly to consumers. Although these
satellite systems are highly capital-intensive, they compete with land-based
wireless communications systems, thereby reducing the demand for the services
that we provide.
Technological developments are also making it possible for carriers to
expand their use of existing facilities to provide service without additional
tower facilities. The increased use by carriers of signal combining and related
technologies, which allow two or more carriers to provide services on different
transmission frequencies using the communications antenna and other facilities
normally used by only one carrier, could reduce the demand for tower-based
broadcast transmissions and antenna space. In addition to sharing transmitters,
carriers are, through joint ventures and other arrangements (such as Cingular's
infrastructure joint ventures with T-Mobile and AT&T Wireless), sharing (or
considering the sharing of) telecommunications infrastructure in ways that might
adversely impact the growth of our business.
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 antennas on
communications sites we own.
18
Any of the conditions and developments described above could reduce demand
for ground-based antenna sites and have a material adverse effect on our
business, financial condition or results of operations.
WE MAY BE UNABLE TO MODIFY TOWERS AND ADD NEW CUSTOMERS AS CONTEMPLATED BY
OUR BUSINESS PLAN.
Our business depends on our ability to modify towers and add new customers
as they expand their tower network infrastructure. Regulatory and other barriers
could adversely affect our ability to modify towers in accordance with the
requirements of our customers, and, as a result, we may not be able to meet our
customers' requirements. Our ability to modify towers and add new customers to
towers may be affected by a number of factors beyond our control, including
zoning and local permitting requirements, Federal Aviation Administration, or
"FAA," considerations, FCC tower registration procedures, availability of tower
components and construction equipment, availability of skilled construction
personnel, weather conditions and environmental compliance issues. In addition,
because the concern over tower proliferation has grown in recent years, many
communities now restrict tower modifications or delay granting permits required
for co-location.
We may not be able to overcome the barriers to modification or installation
of new customers. Our failure to complete the necessary modifications 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.
We have agreed to complete the sublease of 600 towers from SBC during the
period beginning May 2003 and ending August 2004. The process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties, divert managerial attention or require significant
financial resources. These subleases and other future acquisitions will require
us to incur additional indebtedness and contingent liabilities, which could have
a material adverse effect on our business, financial condition or results of
operations.
A SMALL NUMBER OF STOCKHOLDERS BENEFICIALLY OWN A SUBSTANTIAL AMOUNT OF OUR
COMMON STOCK AND COULD SIGNIFICANTLY AFFECT MATTERS REQUIRING A SHAREHOLDER
VOTE.
At March 31, 2003, affiliates of Apollo Management V L.P. own approximately
5.6 million shares, or 23.6%, of our common stock and certain funds managed by
Oaktree Capital Management, LLC own approximately 4.8 million shares, or 20.5%,
of our common stock. In addition, Apollo and Oaktree each have a representative
on our board of directors. As a result, Apollo and Oaktree are able to exert
significant influence over the management and policies of SpectraSite. Apollo or
Oaktree may have interests that are different from yours.
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, and our Chief Financial Officer, David P. Tomick.
Although each of these officers has an employment agreement with SpectraSite,
the loss of any of these key employees would likely have a significantly
detrimental effect on our business.
OUR OPERATIONS REQUIRE COMPLIANCE WITH AND APPROVAL FROM FEDERAL, STATE AND
LOCAL 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. These regulations
control the siting, marking, and lighting of towers and generally, based on the
characteristics of the tower, require registration of tower facilities with the
FCC. Wireless and broadcast communications antennas operating on towers are
separately regulated and independently authorized by the FCC based upon the
particular frequency used and the services provided. Any proposals to construct
new communications sites or modify existing communications sites that could
affect air traffic must be filed with and reviewed by the FAA to ensure that the
proposals will not present a hazard to aviation. Tower owners may have an
obligation to mark their towers or install lighting to conform to FCC and FAA
standards and to maintain such marking or lighting. Tower owners also bear
19
the responsibility for notifying the FAA of any tower lighting failure. We
generally outsource the monitoring of the lighting of our towers to contractors
that specialize in those services. However, under the FCC's rules, we remain
fully liable for the acts or omissions of our contractors. We generally
indemnify our customers against any failure by us to comply with applicable
standards. Failure to comply with applicable requirements (including as a result
of acts or omissions of our contractors, which may be beyond our control) may
lead to monetary forfeitures or other enforcement actions, as well as civil
penalties, contractual liability and/or tort liability, any of which could have
an adverse impact on our business.
Local regulations and restrictions include building codes and other local
ordinances, zoning restrictions and restrictive covenants imposed by community
developers. These regulations and restrictions vary greatly, but typically
require tower owners to obtain a permit or other approval from local officials
or community standards organizations prior to tower construction and prior to
modifications of towers, including installation of equipment for new customers.
Local regulations can delay or prevent new tower construction or modifications,
thereby limiting our ability to respond to customers' demands. In addition,
these regulations increase the costs associated with new tower construction and
modifications. Existing regulatory policies may adversely affect the timing or
cost of new tower construction and modification, and additional regulations may
be adopted that will increase these delays or result in additional costs to us.
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.
In October 2000, the FCC adopted rules and policies related to
telecommunications service providers' access to rooftops, other rights-of-way
and conduits in multi-tenant buildings. The FCC prohibited telecommunications
carriers in commercial settings from entering into new exclusive contracts with
building owners, required utilities, including local exchange carriers, to
afford telecommunications carriers and cable service providers reasonable and
nondiscriminatory access to utility-owned conduits and rights-of-way in customer
buildings, and gave building tenants the same ability to place on their leased
or owned property small satellite dishes for receiving telecommunications
signals that they currently have for receiving video services.
In June 2003, the FCC issued a Notice of Proposed Rulemaking seeking
comment on a draft agreement between the FCC, the Advisory Council on Historic
Preservation and the National Conference of State Historic Preservation
Officers that would tailor and streamline procedures for review of towers and
other FCC licensed communications facilities under the National Historic
Preservation Act of 1966, or "NHPA", and on related revisions to the FCC's
rules. The FCC has indicated that the intent of the agreement and the proposed
rule revisions is to improve compliance with the NHPA and streamline the review
process for construction of towers and other FCC licensed communications
facilities. We cannot predict with certainty whether, and if so when, the FCC's
proposals will be adopted, and, if they are, the effect they will have on our
business.
WE GENERALLY LEASE OR SUBLEASE 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 and sub-leasehold interests, private easements and licenses and
easements and rights-of-way granted by governmental entities. A loss of these
interests, including losses arising from the bankruptcy of one or more of our
significant lessors or from the default by one or more of our lessors under
their mortgage financing, 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:
o recover under title policies, the policy limits of which may be less
than the purchase price of a particular tower;
o 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;
o recover from landlords under title covenants contained in lease
agreements; and
o obtain so-called "non-disturbance agreements" from mortgagees and
superior lessors of the land under our towers.
20
Our inability to protect our rights to the land under our towers could have
a material adverse affect on our business, financial condition and results of
operations.
WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT REGARD TO
FAULT.
Owners and operators of communications towers are subject to environmental
laws and regulations. These regulations place responsibility on each applicant
to investigate potential environmental and other effects of operations and to
disclose any significant effects in an environmental assessment prior to
constructing a tower or co-locating a new tenant on a tower. In the event the
FCC determines that a proposed tower would have a significant environmental
impact, the FCC would be required to prepare an environmental impact statement.
This regulatory process could be costly and could significantly delay the
registration of a particular tower. In addition, we are subject to environmental
laws that 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, responding to petitions filed by
environmental protection groups, 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.
OUR TOWERS MAY BE DAMAGED BY DISASTERS.
Our towers are subject to risks associated with natural disasters such as
ice and wind storms, tornadoes, hurricanes and earthquakes as well as other
unforeseen damage. 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 sites are subject to FCC
requirements and other guidelines relating to radio frequency emissions. FCC
safety guidelines apply to all cellular and personal communications service
hand-held telephones that were authorized by the FCC after August 1, 1996. The
safety guidelines for radio frequency emissions from our sites require us to
undertake safety measures to protect workers whose activities bring them into
proximity with the emitters and to restrict access to our sites by others. If
radio frequency emissions were found harmful, our tenants and possibly we could
face lawsuits claiming damages from such emissions, and demand for wireless
services and new towers, and thus our business, financial condition and results
of operations could 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.
RISKS RELATING TO THE EXCHANGE NOTES
SPECTRASITE IS A HOLDING COMPANY AND ITS ONLY SOURCE OF CASH TO PAY INTEREST
ON, AND THE PRINCIPAL OF, THE EXCHANGE NOTES IS DISTRIBUTIONS FROM
COMMUNICATIONS.
SpectraSite is a holding company with no business operations of its own.
SpectraSite's only significant asset is and will be the outstanding capital
stock of its subsidiary, SpectraSite Communications. SpectraSite conducts all of
its business operations through its subsidiaries. Accordingly, SpectraSite's
only source of cash to pay interest on, and the principal of, the exchange notes
is distributions with respect to its ownership interest in Communications from
the earnings and cash flow generated by Communications. We currently expect that
Communications will retain and use available earnings and cash flow to support
its operations, including to service its debt obligations. We cannot assure you
that Communications will generate sufficient earnings and cash flow to pay
dividends or distributions to SpectraSite or that applicable state law and
contractual restrictions, including negative covenants contained in
Communications' debt instruments, will permit such dividends or distributions.
Communications' credit facility prohibits, subject to certain limited
exceptions, dividends or other distributions by Communications to SpectraSite.
The credit facility permits distributions to SpectraSite in an amount sufficient
to
21
pay scheduled interest payments on the exchange notes, so long as we remain in
compliance with applicable financial covenants and there is no default or event
of default outstanding under the credit facility. If Communications is unable to
make distributions to SpectraSite, we will have to pursue other alternatives to
make the scheduled interest payments on the exchange notes, which may include
refinancing the credit facility or seeking other sources of debt or equity
capital. We cannot assure you that we would be able to secure sources of capital
on terms acceptable to us or at all.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS EFFECTIVELY JUNIOR TO
CERTAIN EXISTING INDEBTEDNESS AND ALL FUTURE BORROWINGS OF OUR SUBSIDIARIES.
Communications is not a guarantor of the exchange notes. All of
Communications' indebtedness, including any borrowings under its credit facility
and other liabilities, will be structurally senior to the exchange notes. At
March 31, 2003, after giving effect to the offering of the initial notes and the
amendment to our credit facility, Communications had approximately $512.9
million of long-term debt and the ability to borrow up to $200 million,
including letters of credit, under its credit facility, subject to certain
conditions, all of which will be structurally senior in right of payment to the
notes.
In addition, Communications is permitted, under the terms of the indenture
governing the exchange notes, to incur certain additional indebtedness that may
restrict or prohibit it from making distributions, paying dividends or making
loans to SpectraSite and to guarantee other indebtedness of SpectraSite without
guaranteeing the exchange notes. If Communications or any or all of its or our
existing or future subsidiaries become subject to bankruptcy proceedings before
payment of the exchange notes, we do not expect the holders of the exchange
notes to have claims in the proceedings. Only after the applicable subsidiaries'
creditors are fully paid would any remaining value of the subsidiaries' assets
be available to us or our creditors, including the holders of the exchange
notes.
THE LENDERS UNDER COMMUNICATIONS' CREDIT FACILITY WILL BE ENTITLED TO
REMEDIES AVAILABLE TO A SECURED LENDER, WHICH GIVES THEM PRIORITY OVER YOU TO
COLLECT AMOUNTS DUE TO THEM.
The exchange notes will not be secured by any of our assets. Obligations
under Communications' credit facility are secured by substantially all the
tangible and intangible assets of Communications and its domestic subsidiaries,
a pledge of all of the capital stock of Communications and its domestic
subsidiaries and 66% of the capital stock of Communications' foreign
subsidiaries. If we become insolvent or are liquidated, or if there is a default
under the credit facility, the lenders under the credit facility will be
entitled to exercise the remedies available to a secured lender under applicable
law in addition to any remedies that may be available under documents pertaining
to the credit facility. Upon the occurrence of any default under the credit
facility (and even without accelerating the indebtedness under the credit
facility), the lenders may be able to prohibit the payment of the exchange
notes, including by limiting our ability to access Communications' cash flow.
See "Description of the Credit Facility" and "Description of the Notes."
WE MAY BE UNABLE TO REPURCHASE THE EXCHANGE NOTES UPON A CHANGE OF CONTROL.
If we experience a change of control, we will be required to offer to
purchase the exchange notes in cash at a price equal to 101% of the principal
amount of the exchange notes plus accrued interest to the date of purchase. A
change of control would also constitute an event of default under our credit
facility, providing the lenders under our credit facility with the right to
accelerate our borrowings under the facility and to prevent payments in respect
of the exchange notes until outstanding borrowings under the credit facility
were repaid in full. In the event of a change of control, we may not have
sufficient funds to purchase all the exchange notes and to repay the amounts
outstanding under our credit facility.
THERE MAY BE NO ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES.
The exchange notes will constitute a new issue of securities for which
there is no established trading market. We do not intend to list the notes on
any national securities exchange or to seek the admission of the notes for
quotation through the National Association of Securities Dealers Automated
Quotation System. The initial purchasers of the notes were Lehman Brothers Inc.,
Citigroup Global Markets Inc., CIBC World Markets Corp.,
22
BMO Nesbitt Burns Corp., Credit Suisse First Boston LLC and TD Securities (USA)
Inc. Although the initial purchasers have advised us that they currently intend
to make a market in the notes, they are not obligated to do so and may
discontinue such market making activity at any time without notice. In addition,
market-making activity will be subject to the limits imposed by the Securities
Act and the Securities Exchange Act of 1934, and may be limited during the
exchange offer and the pendency of any shelf registration statement. Following
the exchange offer, a market for the notes may not develop or be liquid. Holders
of the notes may not be able to sell their notes at acceptable prices or at all.
Moreover, the trading price of the notes depends on prevailing interest rates,
the market for similar securities and other factors, including economic
conditions and our financial condition, performance and prospects. Historically,
the market for non-investment grade debt has been subject to disruptions that
have caused substantial fluctuations in the prices of the securities.
RISKS RELATING TO THE EXCHANGE OFFER
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE
INITIAL NOTES.
To the extent the initial notes are tendered and accepted in the exchange
offer, the trading market for the untendered and tendered but unaccepted initial
notes could be adversely affected. Because we anticipate that most holders of
the initial notes will elect to exchange their initial notes for exchange notes
due to the absence of restrictions on the resale of exchange notes under the
Securities Act, we anticipate that the liquidity of the market for any initial
notes remaining after the completion of this exchange offer may be substantially
limited. Please refer to the section in this prospectus entitled "The Exchange
Offer -- Your Failure to Participate in the Exchange Offer Will Have Adverse
Consequences."
SOME PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS
IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES.
Based on interpretations of the staff of the Securities and Exchange
Commission contained in Exxon Capital Holdings Corp., SEC no-action letter (May
13, 1988), Morgan Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and
Shearman & Sterling, SEC no-action letter (July 2, 1993), we believe that you
may offer for resale, resell or otherwise transfer the exchange notes without
compliance with the registration and prospectus delivery requirements of the
Securities Act. However, in some instances described in this prospectus under
"Plan of Distribution," you will remain obligated to comply with the
registration and prospectus delivery requirements of the Securities Act to
transfer your exchange notes. In these cases, if you transfer any exchange note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your exchange notes under the
Securities Act, you may incur liability under this act. We do not and will not
assume, or indemnify you against, this liability.
23
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of
1934, as amended, and the Private Securities Litigation Reform Act of 1995 that
are subject to risks and uncertainties. You should not place undue reliance on
those statements because they are subject to numerous uncertainties and factors
relating to our operations and business environment, all of which are difficult
to predict and many of which are beyond our control. Forward-looking statements
include information concerning our possible or assumed future results of
operations, including descriptions of our business strategy. These statements
often include words such as "may," "believe," "expect," "anticipate," "intend,"
"plan," "estimate" or similar expressions. These statements are based on
assumptions that we have made in light of our experience in the industry as well
as our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the
circumstances. As you read and consider this prospectus, you should understand
that these statements are not guarantees of performance or results. They involve
risks, uncertainties and assumptions. Although we believe that these
forward-looking statements are based on reasonable assumptions, you should be
aware that many factors could affect our actual financial results or results of
operations and could cause actual results to differ materially from those in the
forward-looking statements. These factors include but are not limited to:
o substantial leverage and capital requirements, even after our
emergence from chapter 11;
o dependence on demand for wireless communications;
o our ability to co-locate additional tenants on our towers;
o material adverse changes in economic conditions in the markets we
serve;
o future regulatory actions and conditions in our operating areas;
o competition from others in the communications tower industry;
o technological innovation;
o the integration of our operations with those of towers or businesses
we have acquired or may acquire in the future and the realization of
the expected benefits; and
o other risks and uncertainties as may be detailed from time to time in
our public announcements and SEC filings.
You should keep in mind that any forward-looking statement made by us in
this prospectus, or elsewhere, speaks only as of the date on which we make it.
New risks and uncertainties come up from time to time, and it is impossible for
us to predict these events or how they may affect us. We have no duty to, and do
not intend to, update or revise the forward-looking statements in this
prospectus after the date of this prospectus. In light of these risks and
uncertainties, you should keep in mind that any forward-looking statement made
in this prospectus or elsewhere might not occur.
24
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding initial notes. We are making this exchange
solely to satisfy our obligations under the registration rights agreement
entered into in connection with the offering of the initial notes. In
consideration for issuing the exchange notes, we will receive initial notes in
like aggregate principal amount.
The net proceeds from the offering of the initial notes, after deducting
the initial purchasers' discounts, were approximately $194.5 million. We used
the net proceeds from the offering of the initial notes to repay a portion of
the outstanding term loans under our credit facility. The multiple draw term
loan and term loan that were repaid mature on June 30, 2007 and December 31,
2007, respectively. At March 31, 2003, the interest rates on the multiple draw
term loan and term loan that were repaid were 4.56% and 5.41%, respectively.
CAPITALIZATION
The following table sets forth our cash and capitalization as of March 31,
2003:
o on an actual basis; and
o on an as-adjusted basis to give effect to the issuance of $200 million
of the initial notes and the use of proceeds from the offering of the
initial notes.
--------------------------
AS OF MARCH 31, 2003
--------------------------
ACTUAL AS-ADJUSTED(1)
---------- -------------
(IN THOUSANDS)
Cash and cash equivalents(2) ................. $ 87,904 $ 86,904
---------- ----------
Long-term debt:
Credit facility(3) ........................ 706,955 512,455
8 1/4% senior notes due 2010 .............. -- 200,000
Other debt ................................ 428 428
---------- ----------
Total long-term debt ................... 707,383 712,883
---------- ----------
Shareholders' equity(4) ...................... 684,166 678,269
---------- ----------
Total capitalization ................ $1,391,549 $1,391,152
========== ==========
---------------
(1) For purposes of the "As-Adjusted" column, all of the net proceeds from the
offering of the initial notes were used to repay a portion of the
outstanding term loans under the credit facility.
(2) The expenses from the offering of the initial notes payable by us were
approximately $1.0 million.
(3) The credit facility includes a revolving credit facility, a multiple draw
term loan and a term loan. After giving effect to the amendment to our
credit facility, up to $200 million, including letters of credit, could be
drawn under the revolving credit facility, none of which was drawn as of
March 31, 2003. The revolving credit facility may be drawn at any time,
subject to the satisfaction of certain conditions precedent. The amount
available will be reduced (and, if necessary, the amounts outstanding must
be repaid) in quarterly installments beginning on June 30, 2004 and ending
on June 30, 2007. The $218.7 million multiple draw term loan is fully drawn
and must be repaid in quarterly installments beginning on March 31, 2006
and ending on June 30, 2007. The $293.8 million term loan is fully drawn
and must be repaid in quarterly installments beginning on September 30,
2007 and ending on December 31, 2007. The weighted average interest rate on
outstanding borrowings under the credit facility was 5.17% as of March 31,
2003 and 5.22% after giving effect to the offering of the initial notes and
the use of proceeds from the initial notes. See "Description of the Credit
Facility."
(4) In connection with the reduction of the revolving portion of the credit
facility and the repayment of the term loans with the proceeds from the
offering of the initial notes, we wrote off approximately $5.9 million of
associated debt issuance costs.
25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data. The periods prior to our emergence from chapter 11 have been
designated "predecessor company" and the periods subsequent to that date have
been designated "reorganized company." The balance sheet data as of December 31,
1998, 1999, 2000, 2001 and 2002 and the statement of operations data for the
years ended December 31, 1998, 1999, 2000, 2001 and 2002 are derived from our
audited consolidated financial statements. The balance sheet data as of March
31, 2002, January 31, 2003 and March 31, 2003 and the statement of operations
data for the three months ended March 31, 2002 and for the one month ended
January 31, 2003 for the predecessor company, the two months ended March 31,
2003 for the reorganized company and the three months ended March 31, 2003 for
the combined predecessor and reorganized company have been derived from our
unaudited financial statements. In our opinion, they include all adjustments
(consisting only of normal recurring adjustments for the predecessor company for
the three months ended March 31, 2002 and normal recurring adjustments and fresh
start accounting adjustments for the predecessor company for the one month
period ended January 31, 2003, for the reorganized company for the two months
ended March 31, 2003 and for the combined predecessor and reorganized company
for the three months ended March 31, 2003) necessary to present fairly the
information set forth therein.
As a result of the implementation of fresh start accounting as of January
31, 2003, our financial statements after that date are not comparable to our
financial statements for prior periods because of the differences in the bases
of accounting and the capital structure for the predecessor company and the
reorganized company. Management believes that the presentation of operating
results for the combined predecessor and reorganized company for the three
months ended March 31, 2003 is useful to assist investors in evaluating our
first quarter 2003 operating results in comparison to our operating results for
the first quarter of 2002. Operating results for the one month ended January 31,
2003 for the predecessor company, the two months ended March 31, 2003 for the
reorganized company and the three months ended March 31, 2003 for the combined
predecessor and reorganized company are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003.
The information set forth below should be read in conjunction with "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this prospectus. Prior period
information has been restated to present the operations of the network services
division as a discontinued operation.
----------------------------------------------------------------------------------------------------
COMBINED
PREDECESSOR
AND
REORGANIZED REORGANIZED
COMPANY COMPANY
PREDECESSOR COMPANY(1) (1) (1)(2)
---------------------------------------------------------------- ---------- -------- ----------
THREE TWO THREE
MONTHS ONE MONTH MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
----------------------------------------------------- MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
1998 1999 2000 2001 2002 2002 2003 2003 2003
-------- -------- --------- --------- --------- --------- ---------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER TOWER AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Site leasing................... $ 656 $ 46,515 $ 116,476 $ 221,614 $ 282,525 $ 65,952 $ 25,556 $ 51,069 $ 76,625
Broadcast services............. 8,142 12,624 38,593 38,211 26,809 6,452 1,237 3,575 4,812
-------- -------- --------- --------- --------- --------- ---------- -------- ---------
Total revenues................. 8,798 59,139 155,069 259,825 309,334 72,404 26,793 54,644 81,437
-------- -------- --------- --------- --------- --------- ---------- ------- ----------
Operating expenses:
Costs of operations (excluding
depreciation, amortization
and accretion expense):
Site leasing................... 299 17,825 46,667 91,689 108,540 25,505 8,840 17,060 25,900
Broadcast services............. 2,492 5,572 26,245 29,538 21,158 5,370 1,492 2,889 4,381
Selling, general and
administrative expenses..... 9,690 31,243 51,825 72,431 58,037 15,520 4,280 8,686 12,966
Depreciation, amortization
and accretion
expense(3).................. 1,268 32,038 78,103 165,267 189,936 44,638 16,075 16,826 32,901
Restructuring and
non-recurring charges....... -- 7,727 -- 142,599 28,570 -- -- -- --
-------- -------- --------- --------- --------- --------- ---------- ------- ----------
Total operating expenses....... 13,749 94,405 202,840 501,524 406,241 91,033 30,687 45,461 76,148
-------- -------- --------- --------- --------- --------- ---------- ------- ----------
Operating income (loss)........ $ (4,951) $(35,266) $ (47,771) $(241,699) $ (96,907) $ (18,629) $ (3,894) $9,183 $ 5,289
-------- -------- --------- --------- --------- --------- ---------- ------- ----------
Gain on debt discharge......... -- -- -- -- -- -- 1,034,764 -- 1,034,764
Income (loss) from
continuing operations....... $ (9,079) $(94,282) $(163,059 $(660,627) $(338,979) $ (77,790) $1,025,788 $(1,692) $ 1,024,0
Reorganization items:
Adjust accounts to fair value.. -- -- -- -- -- -- (644,688) -- (644,688)
Professional and other fees.... -- -- -- -- -- -- (23,894) -- (23,894)
Income (loss) from
discontinued operations..... -- (3,386) 5,443 5,858 (59,252) 2,012 -- -- --
Cumulative effect of change
in accounting principle..... -- -- -- -- (376,753) (376,753) (12,236) -- (12,236)
Net income (loss).............. $ (9,079) $(97,668) $(157,616) $(654,769 $(774,984) $(452,531) $ 344,970 $(1,692) $ 343,278
Net income (loss) applicable
to common shareholders...... $(11,235) $(98,428) $(157,616) $(654,769 $(774,984) $(452,531) $ 344,970 $(1,692) $ 343,278
-------- -------- --------- --------- --------- --------- ---------- ------- ----------
26
----------------------------------------------------------------------------------------------------
COMBINED
PREDECESSOR
AND
REORGANIZED REORGANIZED
COMPANY COMPANY
PREDECESSOR COMPANY(1) (1) (1)(2)
------------------------------------------------------------------ ---------- -------- ---------
THREE TWO THREE
MONTHS ONE MONTH MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
-------------------------------------------------------- MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
1998 1999 2000 2001 2002 2002 2003 2003 2003
-------- -------- --------- --------- --------- --------- ----------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER TOWER AMOUNTS)
Net loss per share (basic
and diluted).............. $(11.98) $(12.48) $ (1.31) $ (4.36) (5.03) $ (2.95) $ 2.24 $ (0.07) $ N/A
Weighted average common
shares outstanding
(basic and diluted)....... 938 7,886 120,731 150,223 153,924 153,654 154,014 23,587 N/A
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used
in) operating activities.. $(2,347) $17,555 11,365 $ (12,133) 36,286 $ 4,202 $ 5,892 $ 11,927 $17,819
Net cash provided by (used
in) investing activities.. (45,002) (813,225) (1,108,69 (984,724) (69,966) (39,768) (2,737) 78,873 76,136
Net cash provided by (used
in) financing activities.. 144,663 733,900 1,612,200 475,751 83,094 89,586 (10,884) (76,128) (87,012)
Capital expenditures......... 26,598 644,778 658,283 958,945 71,248 39,018 2,737 2,255 4,992
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash, cash equivalents and
short term investments....$114,962 37,778 $ 552,653 $ 31,547 $ 80,961 85,567 $ 73,442 $ 87,904 $87,904
Total assets................. 161,946 1,219,953 3,054,105 3,203,425 2,578,456 2,834,032 2,577,575 1,597,487 1,597,487
Total long-term debt......... 132,913 718,778 1,709,055 2,326,177 792,083 2,446,833 783,442 707,383 707,383
Liabilities subject to
compromise................ -- -- -- -- 1,763,286 -- 1,763,286 -- --
Redeemable convertible
preferred stock........... 40,656 -- -- -- -- -- -- -- --
Total shareholders' equity
(deficit)................. (14,067) 457,756 1,224,800 719,345 (75,127) 252,567 (96,678) 684,166 684,166
SELECTED OPERATING DATA AND
RATIOS (AT END OF PERIOD):
EBITDA(4).................... $(3,683) $(2,878) 32,904 $ (74,307) $ 93,724 $ 26,298 $ 12,181 $ 26,009 $38,190
Number of owned or operated
towers.................... 106 2,765 5,030 7,925 8,036 8,015 8,035 7,488 7,488
Ratio of earnings to fixed
charges(5)................ -- -- -- -- -- -- 133.1 -- 45.8
Deficiency of earnings to
cover fixed charges(5).... (9,176) (94,931) (158,814) (613,580) (337,394) (77,962) -- (932) --
---------------
(1) On February 10, 2003, we emerged from chapter 11. References to the
combined predecessor and reorganized company represent the one month period
ended January 31, 2003 for the predecessor company and the two months ended
March 31, 2003 for the reorganized company. In accordance with AICPA
Statement of Position 90-7 FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"), we adopted "fresh
start" accounting as of January 31, 2003 and our emergence from chapter 11
resulted in a new reporting entity. Under "fresh start" accounting, the
reorganization value of the entity is allocated to the entity's assets
based on fair values, and liabilities are stated at the present value of
amounts to be paid determined at appropriate current interest rates. The
net effect of all fresh start accounting adjustments resulted in a charge
of $644.7 million, which is reflected in the statement of operations for
the one month ended January 31, 2003. The effective date is considered to
be the close of business on January 31, 2003 for financial reporting
purposes. The periods presented prior to January 31, 2003 have been
designated "predecessor company" and the periods subsequent to January 31,
2003 have been designated "reorganized company." As a result of the
implementation of fresh start accounting as of January 31, 2003, our
financial statements after the effective date are not comparable to our
financial statements for prior periods because of differences in the bases
of accounting and the capital structure for the predecessor company and the
reorganized company.
(2) On February 10, 2003, we sold 545 towers to Cingular. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Tower Acquisitions and Dispositions" for a presentation of the three months
ended March 31, 2003, giving effect to the sale as if it had occurred on
January 1, 2003.
(3) Depreciation, amortization and accretion expense for the one-month and
two-month periods are not proportional because the predecessor company and
the reorganized company used different bases of accounting.
(4) EBITDA consists of operating income (loss) before depreciation,
amortization, accretion and non-cash compensation 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. We use this
measure to compare our operating performance with that of our competitors.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered as 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. We believe that EBITDA can assist in
comparing company performance on a consistent basis without regard to
amounts such as depreciation and amortization, which may
27
vary significantly depending on accounting methods or non-operating factors
such as historical cost bases. EBITDA was calculated as follows for the
periods indicated:
----------------------------------------------------------------------------------------------------
COMBINED
PREDECESSOR
AND
REORGANIZED REORGANIZED
COMPANY COMPANY
PREDECESSOR COMPANY(1) (1) (1)(2)
---------------------------------------------------------------------------- ---------- -----------
THREE TWO THREE
MONTHS ONE MONTH MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
--------------------------------------------------- MARCH 31, JANUARY 31, MARCH 31, MARCH 31,
1998 1999 2000 2001 2002 2002 2003 2003 2003
-------- -------- --------- --------- -------- --------- ----------- -------- ----------
(DOLLARS IN THOUSANDS
Operating income (loss).. $(4,951) $(35,266) $(47,771) $(241,699 $(96,907) $(18,629) $ (3,894) $ 9,183 $ 5,289
Depreciation,
amortization and
accretion expense..... 1,268 32,038 78,103 165,267 189,936 44,638 16,075 16,826 32,901
Non-cash compensation
charges............... -- 350 2,572 2,125 695 289 -- -- --
EBITDA................... $(3,683) $(2,878) $32,904 $ (74,307) $ 93,724 $ 26,298 $ 12,181 $26,009 $38,190
(5) The ratio of earnings to fixed charges is computed by dividing income
(loss) before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest charges, amortization of debt discount and debt
issuance costs, and that portion of rental expense SpectraSite believes to
be representative of interest. Earnings were not sufficient to cover fixed
charges, and, therefore, the ratio is not meaningul, for all periods
presented in the table, except for the one month ended January 31, 2003 and
the three months ended March 31, 2003.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH "SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA" AND OUR CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. SOME OF THE STATEMENTS IN THE
FOLLOWING DISCUSSION ARE FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING
STATEMENTS."
BUSINESS OVERVIEW
We are one of the largest wireless tower operators in the United States and
a leading provider of construction services to the broadcast industry in the
United States. Our businesses include the ownership and leasing of antenna sites
on towers, managing rooftop and in-building telecommunications access on
commercial real estate and designing, constructing, modifying and maintaining
broadcast towers in the United States. After the sale of 545 towers to Cingular,
we owned or operated 7,488 towers and antenna sites as of March 31, 2003, as
compared to 8,036 towers and antenna sites at December 31, 2002.
On December 31, 2002, we completed the sale of our network services
division. Network services' revenues for the years ended December 31, 2001 and
2002 were $213.1 million and $136.2 million, respectively, and $41.8 million for
the three months ended March 31, 2002. In conjunction with the sale, we recorded
a loss on disposal of the network services division of $47.0 million. The
results of the network services' operations have been reported separately as
discontinued operations in the statements of operations. Prior period financial
statements have been restated to present the operations of the division as a
discontinued operation.
On November 15, 2002, we filed a voluntary petition for relief under
chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of North Carolina, Raleigh Division.
On November 18, 2002, we filed a Proposed Plan of Reorganization and a
Proposed Disclosure Statement with the Bankruptcy Court. A plan confirmation
hearing was held on January 28, 2003 and the Proposed Plan of Reorganization, as
modified on that date (the "Plan of Reorganization"), was confirmed by the
Bankruptcy Court. All conditions precedent to the effectiveness of the Plan of
Reorganization were met by February 10, 2003, thereby allowing us to emerge from
bankruptcy.
Our Plan of Reorganization provides for the distribution of 23.75 million
shares of common stock, par value $0.01 per share (the "New Common Stock"), to
our general unsecured creditors and 1.25 million of new warrants to the holders
of our common stock, par value $0.001 per share (the "Old Common Stock"). In
addition, pursuant to the Plan of Reorganization, all outstanding shares of Old
Common Stock and all outstanding options and warrants to purchase Old Common
Stock that were outstanding on February 10, 2003 were cancelled. New options
representing an aggregate of 10.0% of our fully diluted common stock were issued
to our management.
The warrants distributed pursuant to the Plan of Reorganization entitle the
holders to purchase up to 1.25 million shares of common stock at a price of
$32.00 per share through February 10, 2010. The warrants were valued at $10.8
million for purposes of the Plan of Reorganization. Actual market prices of the
warrants following our emergence from chapter 11 may vary.
TOWER ACQUISITIONS AND DISPOSITIONS
Our portfolio has grown from 106 towers as of December 31, 1998 to 7,488
towers and antenna sites as of March 31, 2003. We have accomplished this growth
through acquisitions or new construction (principally pursuant to build-to-suit
arrangements). The majority of our towers were acquired from (or built under
agreements with) affiliates of SBC Communications and Nextel.
Our original agreement with SBC called for us to acquire approximately
3,900 towers over approximately two years and to commit to build towers for
Cingular, an affiliate of SBC. Subsequent amendments to these agreements have
resulted in a reduction in the number of towers to be purchased to approximately
3,306 towers and in the termination of the build-to-suit arrangement. In
November 2001, we paid a fee of $35 million in connection with the
29
first of these amendments. On February 10, 2003, we sold 545 SBC towers in
California and Nevada to Cingular for an aggregate purchase price of $81.0
million and paid SBC a fee of $7.5 million related to the last of the reductions
in the maximum number of towers that we will lease or sublease. The following
table shows the effects of the sale of the 545 SBC towers on operations for the
first quarter of 2003:
AMOUNTS
ADJUSTED FOR
ACTUAL 545 SBC 545 SBC
AMOUNTS TOWERS SOLD TOWERS SOLD
------- ----------- ------------
(IN THOUSANDS)
PREDECESSOR COMPANY
One month ended January 31, 2003:
Site leasing revenues ...................................... 25,556 (1,202) 24,354
Cost of site leasing operations, excluding
depreciation, amortization and accretion expense ..... 8,840 (465) 8,375
------- ------- -------
Tower cash flow ............................................... $16,716 $ (737) $15,979
------- ------- -------
REORGANIZED COMPANY
Two months ended March 31, 2003:
Site leasing revenues ...................................... 51,069 (368) 50,701
Cost of site leasing operations, excluding
depreciation, amortization and accretion expense ...... 17,060 (195) 16,865
------- ------- -------
Tower cash flow ............................................... $34,009 $ (173) $33,836
------- ------- -------
COMBINED PREDECESSOR AND REORGANIZED COMPANY
Three months ended March 31, 2003:
Site leasing revenues ...................................... 76,625 (1,570) 75,055
Cost of site leasing operations, excluding
depreciation, amortization and accretion expense ...... 25,900 (660) 25,240
------- ------- -------
Tower cash flow ............................................... $50,725 $ (910) $49,815
======= ======= =======
We remain contractually obligated to purchase an additional 600 towers from
SBC from May 2003 through August 2004 for an aggregate purchase price of
approximately $156 million. These commitments will require approximately $78
million in each of 2003 and 2004.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2002
On January 28, 2003, our Plan of Reorganization was confirmed by the
Bankruptcy Court and we emerged from bankruptcy on February 10, 2003. As a
result of the reorganization and implementation of fresh start accounting, our
results of operations after January 31, 2003 are not comparable to results
reported in prior periods because of differences in the bases of accounting and
the capital structure for the predecessor company and the reorganized company.
Management believes that the presentation of operating results for the combined
predecessor and reorganized company for the three months ended March 31, 2003 is
useful to assist investors in evaluating our first quarter 2003 operating
results in comparison to our operating results for the first quarter of 2002.
See the notes to our unaudited interim financial statements included elsewhere
in this prospectus for information on the consummation of the Plan of
Reorganization and implementation of fresh start accounting. References to the
three months ended March 31, 2003 refer to one month of the predecessor company
(January 1, 2003 -- January 31, 2003) plus two months of the reorganized company
(February 1, 2003 -- March 31, 2003).
Consolidated revenues for the three months ended March 31, 2003 were $81.4
million, an increase of $9.0 million from the three months ended March 31, 2002.
Revenues from site leasing increased to $76.6 million for the three months ended
March 31, 2003 from $66.0 million for the three months ended March 31, 2002. The
increase was primarily as a result of incremental revenue in 2003 from new
co-location tenants on towers that were part of our portfolio on March 31, 2002
and revenues derived from towers acquired or built subsequent to March 31, 2002,
30
offset by reductions in revenues relating to the 545 SBC towers sold in February
2003. Based on trailing twelve-months revenue on the towers that we owned or
operated as of March 31, 2002, same tower revenue growth was 16% and same tower
cash flow increased 22%. After the sale of 545 towers to Cingular, we owned or
operated 7,488 towers and antenna sites at March 31, 2003, as compared to 8,015
towers and antenna sites at March 31, 2002.
Revenues from broadcast services decreased to $4.8 million for the three
months ended March 31, 2003 compared to $6.5 million in the three months ended
March 31, 2002. The decrease was primarily due to a change in the service mix
from large broadcast tower installations to smaller broadcast tower
modifications resulting in lower tower fabrication revenues.
Costs of operations decreased to $30.3 million for the three months ended
March 31, 2003 from $30.9 million for the three months ended March 31, 2002.
Costs of operations for site leasing as a percentage of site leasing revenues
decreased to 33.8% for the three months ended March 31, 2003 from 38.7% for the
three months ended March 31, 2002. The decrease was primarily due to increased
revenues generated from new co-location tenants on existing towers. As our site
leasing operations mature we expect that additional tenants on towers will
generate increases in our margins for site leasing and in cash flow because a
significant percentage of tower operating costs are fixed and do not increase
with additional tenants. Costs of operations for broadcast services as a
percentage of broadcast services revenues increased to 91.0% for the three
months ended March 31, 2003 from 83.2% for the three months ended March 31,
2002, primarily due to lower revenue volumes in 2003.
Selling, general and administrative expenses decreased to $13.0 million for
the three months ended March 31, 2003 from $15.5 million for the three months
ended March 31, 2002. Selling, general and administrative expenses as a
percentage of revenues decreased to 15.9% for the three months ended March 31,
2003 from 21.4% for the three months ended March 31, 2002. Selling, general and
administrative expenses decreased in amount and as a percentage of revenues as a
result of significant cost cutting measures implemented in the second half of
2002.
Depreciation, amortization and accretion expenses decreased to $32.9
million for the three months ended March 31, 2003 from $44.6 million for the
three months ended March 31, 2002. The decrease was primarily the result of the
implementation of fresh start accounting which reduced the depreciable bases of
property and equipment by $957.2 million, resulting in decreased depreciation
expense, offset by an increase in amortization expense relating to customer
contracts and an increase in accretion of the asset retirement obligation.
Interest income increased to $0.4 million for the three months ended March
31, 2003 from $0.1 million in the three months ended March 31, 2002 due to
higher cash balances on hand. Interest expense decreased to $14.0 million during
the three months ended March 31, 2003 from $58.7 million for the three months
ended March 31, 2002. The decrease was due to the extinguishment of the
Liabilities Subject to Compromise and a reduction of amounts outstanding under
our credit facility.
On February 10, 2003, we emerged from bankruptcy and the holders of the
Liabilities Subject to Compromise received their pro rata share of 23.75 million
shares of New Common Stock in exchange for their notes. The excess of the
carrying value of the Liabilities Subject to Compromise, net of the related debt
issuance costs, over the reorganization value used in adopting fresh start
accounting was recorded as a gain on debt discharge of $1.03 billion.
Other income (expense) was a net expense of $1.7 million in the three
months ended March 31, 2003. Of this amount, $1.1 million was related to the
loss on sale of assets and $0.6 million related to losses from investments in
affiliates accounted for under the equity method. Other income (expense) was a
net expense of $0.4 million in the three months ended March 31, 2002. Of this
amount, $0.5 million related to losses from investments in affiliates accounted
for under the equity method and $0.1 million was related to the gain on sale of
assets.
Income from operations of the discontinued network services segment was
$2.0 million in the three months ended March 31, 2002. This segment was sold on
December 31, 2002.
31
YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001
Consolidated revenues increased to $309.3 million for the year ended
December 31, 2002 from $259.8 million for the year ended December 31, 2001.
Revenues from site leasing increased to $282.5 million for the year ended
December 31, 2002 from $221.6 million for the year ended December 31, 2001. The
increase was primarily a result of incremental revenue in 2002 from new
co-location tenants on towers that were part of our portfolio on December 31,
2001 and revenues derived from towers acquired in 2001 and 2002. Based on
trailing twelve-months revenue on the towers that we owned or operated as of
December 31, 2001, same tower revenue growth was 18% and same tower cash flow
increased 29%. We owned or operated 8,036 towers at December 31, 2002, as
compared to 7,925 towers at December 31, 2001.
Revenues from broadcast services decreased to $26.8 million for the year
ended December 31, 2002 compared to $38.2 million for the year ended December
31, 2001. The decrease was primarily due to a change in the service mix from
large broadcast tower fabrication and installations to smaller broadcast tower
modifications resulting in lower tower fabrication revenues.
Costs of operations increased to $129.7 million for the year ended December
31, 2002 from $121.2 million for the year ended December 31, 2001. The increase
was due to increases in site leasing costs attributable to operating costs of
the communications towers acquired or constructed during 2001 and 2002 partially
offset by a decrease in cost of operations for broadcast services resulting from
lower revenue volumes. Costs of operations for site leasing as a percentage of
site leasing revenues decreased to 38% for the year ended December 31, 2002 from
41% for the year ended December 31, 2001. The decrease was primarily due to
increased revenues generated from new co-location tenants on existing towers. As
our site leasing operations mature we expect that additional tenants on towers
will generate increases in our margins for site leasing and in cash flow because
a significant percentage of tower operating costs are fixed and do not increase
with additional tenants. Costs of operations for broadcast services as a
percentage of broadcast services revenues increased to 79% for the year ended
December 31, 2002 from 77% for the year ended December 31, 2001 primarily due to
lower revenue volumes in 2002.
Selling, general and administrative expenses decreased to $58.0 million for
the year ended December 31, 2002 from $72.4 million for the year ended December
31, 2001. Selling, general and administrative expenses as a percentage of
revenues decreased to 19% for the year ended December 31, 2002 from 28% for the
year ended December 31, 2001. Selling, general and administrative expenses
decreased in amount and as a percentage of revenues as a result of significant
cost cutting measures implemented in the second half of 2001 and early 2002. In
addition, for the year ended December 31, 2002, we recorded non-cash
compensation charges of $0.7 million related to the issuance of stock options
and restricted shares of common stock to employees compared to $2.1 million in
the year ended December 31, 2001.
Depreciation and amortization expense increased to $189.9 million for the
year ended December 31, 2002 from $165.3 million for the year ended December 31,
2001. The increase was primarily a result of the increased depreciation from the
towers we have acquired or constructed, partially offset by the $35.5 million
reduction in goodwill amortization as a result of the adoption of SFAS 142. See
"Description of Critical Accounting Policies -- Goodwill."
In May 2002, we announced that we would terminate our build-to-suit
programs with Cingular and other carriers and implement other cost-cutting
measures. As a result of these actions, we recorded restructuring charges of
$24.3 million. Of this amount, $16.4 million was related to the write-off of
work in progress related to sites in development that we plan to terminate, $3.2
million was related to the costs of closing offices and $4.7 million was related
to the costs of employee severance. In addition, we recorded a non-recurring
charge of $4.3 million to write-down the carrying value of 21 towers that are
not marketable.
In May 2001, we announced the consolidation of our rooftop management
operations and recorded a non-recurring charge of $35.8 million. Of this amount,
$29.6 million related to the write-off of goodwill, $5.1 million related to the
write-down of assets and $1.1 million was related to the costs of employee
severance and other costs related to the consolidation of those operations.
32
In June 2001, we announced that we would divest our operations in Mexico.
As a result, we recorded non-recurring charges of $32.2 million of which $10.7
million related to the write-off of goodwill, $17.6 million related to the
write-down of long-term assets and $3.9 million related to the costs of employee
severance and other costs related to the divestiture. Also in June 2001, we
announced that we would close operations from the purchase of Vertical
Properties. As a result, we recorded non-recurring charges of $4.3 million of
which $4.2 million was related to the write-off of goodwill and $0.1 million was
related to the costs of employee severance and other costs related to the
closing.
In November 2001, we announced that we would reduce our planned new tower
construction and acquisition programs for 2002. As a result of the reduced new
tower activity, we recorded restructuring charges of $70.3 million. Of this
amount, $27.7 million was related to the write-off of work in progress related
to sites in development that we terminated, $4.8 million was related to the
costs of closing certain offices and $2.8 million was related to the costs of
employee severance. In addition, we completed an amendment to our agreement to
acquire leasehold and sub-leasehold interests in approximately 3,900
communications towers from affiliates of SBC Communications. This amendment
provided for the number of towers to be leased or subleased to be reduced by 300
and for the lease or sublease date on at least 850 towers to be postponed to
2003 and January 2004. In exchange for these modifications, we paid a fee of
$35.0 million, which has been included as part of the restructuring charge.
As a result of the factors discussed above, our loss from operations was
$96.9 million for the year ended December 31, 2002, compared to a loss of $241.7
million for the year ended December 31, 2001.
Net interest expense increased to $225.7 million during the year ended
December 31, 2002 from $195.1 million for the year ended December 31, 2001. The
increase was due to increased accreted value of the senior discount notes and
increased amounts outstanding under our credit facility, as well as the
write-off of $4.5 million of debt issuance costs related to the decrease in the
maximum availability of the credit facility. This increase was partially offset
by not incurring interest expense of $24.4 million on the senior notes, senior
discount notes and senior convertible notes for the period from the date of the
chapter 11 filing (November 15, 2002) through December 31, 2002.
Other income (expense) was an expense of $10.9 million in the year ended
December 31, 2002, primarily due to expenses associated with the proposed bond
tender and exchange offers. Other income (expense) was a net expense of $223.2
million in the year ended December 31, 2001. Of this amount, $61.8 million
related to losses from investments in affiliates accounted for under the equity
method, primarily our investment in SpectraSite-Transco Communications, Ltd.,
$121.9 million related to the write-down of our investment in
SpectraSite-Transco and $20.0 million related to the write-off of a loan to
SpectraSite-Transco. We completed the sale of our interest in
SpectraSite-Transco in October 2001. In addition, $7.5 million related to a
write-off of our investment in Evolution Holdings, Inc., a network services
company that ceased operations in the second quarter. Other income (expense) for
2001 also includes $7.0 million related to the write-down of a loan to Concourse
Communications, Inc., an affiliate that provides in-building antenna sites
primarily in airports and other public sites in New York City.
Loss from operations of the discontinued network services segment was $12.3
million in the year ended December 31, 2002 compared to income from operations
of the discontinued segment of $5.9 million in the year ended December 31, 2001.
The loss from operations in 2002 was primarily due to lower revenues, fixed
costs that did not decline as revenues did and a more competitive environment
for these services that led to lower pricing and restructuring charges. On
December 31, 2002, we completed the sale of the network services segment
resulting in a loss on disposal of $47.0 million.
We performed the first of the impairment tests of goodwill required by SFAS
142 by comparing the fair value of each of our reporting units with its carrying
value. Fair value was determined using a discounted cash flow methodology. Based
on our impairment tests, we recognized an adjustment of $376.8 million to reduce
the carrying value of goodwill in our wireless services, broadcast tower,
broadcast services and building units to its implied fair value. The impairment
adjustment recognized at adoption of the new rules was reflected as a cumulative
effect of accounting change in our first quarter 2002 statement of operations.
Impairment adjustments recognized after adoption, if any, generally are required
to be recognized as an operating expense.
33
As a result of the factors discussed above, net loss was $775.0 million, or
$5.03 per share (basic and diluted), for the year ended December 31, 2002,
compared to a net loss of $654.8 million, or $4.36 per share (basic and
diluted), for the year ended December 31, 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
Consolidated revenues for the year ended December 31, 2001 increased to
$259.8 million for the year ended December 31, 2001 from $155.1 million for the
year ended December 31, 2000. Revenues from site leasing increased to $221.6
million for the year ended December 31, 2001 from $116.5 million for the year
ended December 31, 2000, primarily as a result of revenues derived from towers
which we acquired or constructed during 2000 and 2001. We owned or operated
7,925 towers at December 31, 2001, as compared to 5,030 towers at December 31,
2000. The remaining factor contributing to the increase is incremental revenue
in 2001 for towers that existed as of December 31, 2000 from new co-location
tenants.
Revenues from broadcast services remained relatively flat at $38.2 million
for the year ended December 31, 2001 compared to $38.6 million for the year
ended December 31, 2000.
Costs of operations increased to $121.2 million for the year ended December
31, 2001 from $72.9 million for the year ended December 31, 2000. The increase
in costs was primarily attributable to operating costs of the communications
towers acquired or constructed during 2000 and 2001, acquisitions in 2000 and
2001 and overall growth in operating activities. Costs of operations for site
leasing as a percentage of site leasing revenues increased to 41% for the year
ended December 31, 2001 from 40% for the year ended December 31, 2000. The
increase was primarily due to the addition of new towers and higher tower
operating expenses partially offset by increased revenues generated from new
co-location tenants on existing towers. As our site leasing operations mature,
we expect that additional tenants on a tower will generate increases in our
margins for site leasing and in cash flow because a significant percentage of
tower operating costs are fixed and do not increase with additional tenants.
Costs of operations for broadcast services as a percentage of broadcast services
revenues increased to 77% for the year ended December 31, 2001 from 68% for the
year ended December 31, 2000. This increase is primarily due to a shift in
revenue mix to lower margin tower fabrication revenues.
Selling, general and administrative expenses increased to $72.4 million for
the year ended December 31, 2001 from $51.8 million for the year ended December
31, 2000. The increase is a result of expenses related to additional corporate
overhead and field operations to manage and operate the growth of our ongoing
operations and acquisition activities. For the year ended December 31, 2001, we
recorded non-cash compensation charges of $2.1 million related to the issuance
of stock options and restricted shares of common stock to employees. We recorded
non-cash compensation charges of $2.6 million in the year ended December 31,
2000 related to stock options and restricted shares of common stock issued to
employees. Selling, general and administrative expenses as a percentage of
revenues decreased to 28% for the year ended December 31, 2001 from 33% for the
year ended December 31, 2000 primarily due to cost reduction efforts implemented
in the second quarter of 2001.
Depreciation and amortization expense increased to $165.3 million for the
year ended December 31, 2001 from $78.1 million for the year ended December 31,
2000, primarily as a result of the increased depreciation from towers we have
acquired or constructed and amortization of goodwill related to acquisitions.
In May 2001, we announced the consolidation of our rooftop management
operations and recorded a non-recurring charge of $35.8 million. Of this amount,
$29.6 million related to the write-off of goodwill, $5.1 million related to the
write-down of assets and $1.1 million was related to the costs of employee
severance and other costs related to the consolidation of those operations.
In June 2001, we announced that we would divest our operations in Mexico.
As a result, we recorded non-recurring charges of $32.2 million of which $10.7
million related to the write-off of goodwill, $17.6 million related to the
write-down of long-term assets and $3.9 million related to the costs of employee
severance and other costs related to the divestiture. Also in June 2001, we
announced that we would close operations from the purchase of Vertical
Properties. As a result, we recorded non-recurring charges of $4.3 million of
which $4.2 million was related to the write-off of goodwill and $0.1 million was
related to the costs of employee severance and other costs related to the
closing.
34
In November 2001, we announced that we would reduce our planned new tower
construction and acquisition programs for 2002. As a result of the reduced new
tower activity, we recorded restructuring charges of $70.3 million. Of this
amount, $27.7 million was related to the write-off of work in progress related
to sites in development that we terminated, $4.8 million was related to the
costs of closing certain offices and $2.8 million was related to the costs of
employee severance. In addition, we completed an amendment to our agreement to
acquire leasehold and sub-leasehold interests in approximately 3,900
communications towers from affiliates of SBC Communications. This amendment
provided for the number of towers to be leased or subleased to be reduced by 300
and for the lease or sublease date on at least 850 towers to be postponed to
2003 and January 2004. In exchange for these modifications, we paid a fee of
$35.0 million, which has been included as part of the restructuring charge.
As a result of the factors discussed above, our loss from operations was
$241.7 million for the year ended December 31, 2001, compared to a loss of $47.8
million for the year ended December 31, 2000.
Net interest expense increased to $195.1 million during the year ended
December 31, 2001 from $106.3 million for the year ended December 31, 2000. The
increase reflects additional interest expense due to the issuance of our 12 7/8%
senior discount notes due 2010 in March 2000, our 10 3/4% senior notes due 2010
in March 2000, our 6 3/4% senior convertible notes due 2010 in November 2000 and
our 12 1/2% senior notes due 2010 in December 2000, as well as additional
borrowings under our credit facility in 2001.
Other income (expense) was a net expense of $223.2 million in the year
ended December 31, 2001. Of this amount, $61.8 million related to losses from
investments in affiliates accounted for under the equity method, primarily our
investment in SpectraSite-Transco Communications, Ltd., $121.9 million related
to the write-down of our investment in SpectraSite-Transco and $20.0 million
related to the write-off of a loan to SpectraSite-Transco. We completed the sale
of our interest in SpectraSite-Transco in October 2001. In addition, $7.5
million related to a write-off of our investment in Evolution Holdings, Inc., a
network services company that ceased operations in the second quarter. Other
income (expense) for 2001 also includes $7.0 million related to the write-down
of a loan to Concourse Communications, Inc., an affiliate of ours that provides
in-building antenna sites primarily in airports and other public sites in New
York City. Other income (expense) was an expense of $8.6 million in the year
ended December 31, 2000 primarily due to our 50% equity in the net loss of
SpectraSite-Transco.
Income from operations of the discontinued network services segment
increased to $5.9 million in the year ended December 31, 2001 compared to income
from operations of discontinued segment of $5.4 million in the year ended
December 31, 2000 primarily as a result of increased revenues.
As a result of the factors discussed above, net loss was $654.8 million, or
$4.36 per share (basic and diluted), for the year ended December 31, 2001,
compared to a net loss of $157.6 million, or $1.31 per share (basic and
diluted), for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We are a holding company whose only significant asset is the outstanding
capital stock of its subsidiary, Communications. Our only source of cash to pay
our obligations is distributions from Communications.
CASH FLOWS
For the year ended December 31, 2002, cash flows provided by operating
activities were $36.3 million as compared to cash flows used in operating
activities of $12.1 million in the year ended December 31, 2001. The change is
primarily attributable to the $35.0 million fee paid in 2001 to SBC to amend our
agreement to acquire leasehold and sub-leasehold interests in wireless
communications towers and by improved operating performance, as measured by
operating income (loss) before depreciation, amortization, accretion and
non-cash compensation charges, or "EBITDA." EBITDA was $93.7 million in 2002
compared to a loss of $74.3 million in 2001.
For the three months ended March 31, 2003, cash flows provided by operating
activities were $17.8 million as compared to $4.2 million in the three months
ended March 31, 2002. The change is primarily attributable to decreased interest
payments, decreased accounts receivable, increased accounts payable and improved
operating
35
performance, as measured by EBITDA. EBITDA was $38.2 million in the three months
ended March 31, 2003 compared to $26.3 million in the three months ended March
31, 2002.
For the year ended December 31, 2002, cash flows used in investing
activities were $70.0 million compared to $984.7 million for the year ended
December 31, 2001. In the year ended December 31, 2002, we invested $71.2
million in purchases of property and equipment, primarily related to the
acquisition of communications towers. These expenditures were partially offset
by the net proceeds from the sale of an investment in an affiliate. In the year
ended December 31, 2001, we invested $958.9 million in acquisitions of property
and equipment, primarily related to the acquisition of communications towers.
For the three months ended March 31, 2003, cash flows provided by investing
activities were $76.1 million compared to cash flows used in investing
activities of $39.8 million for the three months ended March 31, 2002. Investing
activities for the three months ended March 31, 2003 consisted primarily of
proceeds received from the sale of the 545 SBC towers of $81.0 million. In
addition, we invested $5.0 million and $39.0 million in purchases of property
and equipment, primarily related to the acquisition and construction of
communications towers, in the three months ended March 31, 2003 and 2002,
respectively.
In the year ended December 31, 2002, cash flows provided by financing
activities were $83.1 million, as compared to $475.8 million in the year ended
December 31, 2001. The cash provided by financing activities in 2001 and 2002
was primarily attributable to draws on our credit facility.
In the three months ended March 31, 2003, cash flows used in financing
activities were $87.0 million, as compared to cash flows provided by financing
activities of $89.6 million in the three months ended March 31, 2002. Cash used
in financing activities for the three months ended March 31, 2003 consisted
primarily of $76.0 million of payments on our credit facility and payments on
capital leases of $11.0 million, which includes the prepayment of a capital
lease in connection with the exercise of our purchase option on our corporate
headquarters. The cash provided by financing activities in the three months
ended March 31, 2002 was primarily attributable to $90.0 million of draws on our
credit facility.
EBITDA is provided because it is a measure commonly used in the
communications site industry as a measure of a company's operating performance.
We use EBITDA to compare our operating performance with that of our competitors.
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.
We believe that EBITDA can assist in comparing company performance on a
consistent basis without regard to depreciation, amortization, accretion and
non-cash compensation charges, which may vary significantly depending on
accounting methods where acquisitions are involved or non-operating factors such
as historical cost bases. When evaluating EBITDA, investors should consider,
among other factors, (1) increasing or decreasing trends in EBITDA, (2) whether
EBITDA has remained at positive levels historically and (3) how EBITDA compares
to levels of debt and interest expense. EBITDA for the years ended December 31,
2001 and 2002 and the three months ended March 31, 2002 and 2003 was calculated
as follows:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------------
2001 2002 2002 2003
----------- ---------- ---------- ----------
(IN THOUSANDS)
Operating income (loss)............................. $ (241,699) $ (96,907) $ (18,629) $ 5,289
Depreciation, amortization and accretion expense.... 165,267 189,936 44,638 32,901
Non-cash compensation charges....................... 2,125 695 289 --
----------- ---------- ---------- ----------
EBITDA.............................................. $ (74,307) $ 93,724 $ 26,298 $ 38,190
----------- ---------- ---------- ----------
Free cash flow (deficit) consists of net cash provided by operating
activities less capital expenditures. Free cash flow (deficit) is provided
because it is a measure commonly used in the communications site industry as a
measure of a company's ability to generate cash from operations. Free cash flow
(deficit) is not a measurement of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
36
income or cash flows provided by (used in) operating activities as a measure of
performance, cash flows or liquidity. Free cash flow (deficit) is not
necessarily comparable with similarly titled measures for other companies. We
believe that free cash flow (deficit) can assist in comparing company
performance on a consistent basis. Free cash flow (deficit) for the three months
ended March 31, 2002 and 2003 was calculated as follows:
-----------------------
THREE MONTHS ENDED
MARCH 31,
-----------------------
2002 2003
-------- --------
(IN THOUSANDS)
Net cash provided by operating activities ........ $ 4,202 $ 17,819
Less: Capital expenditures ....................... (39,018) (4,992)
-------- --------
Free cash flow (deficit) ......................... $(34,816) $ 12,827
-------- --------
CREDIT FACILITY
Communications is party to an amended and restated credit facility totaling
approximately $712.5 million. The credit facility includes a $200.0 million
revolving credit facility, which may be drawn at any time, subject to the
satisfaction of certain conditions precedent. The amount available will be
reduced (and, if necessary, the amounts outstanding must be repaid) in quarterly
installments beginning on June 30, 2004 and ending on June 30, 2007. The credit
facility also includes a $218.7 million multiple draw term loan that is fully
drawn and which must be repaid in quarterly installments beginning on March 31,
2006 and ending on June 30, 2007 and a $293.8 million term loan that is fully
drawn and which must be repaid in quarterly installments beginning on September
30, 2007 and ending on December 31, 2007. See "Description of the Credit
Facility."
With the proceeds of the sale of 545 towers to Cingular, Communications
repaid $31.4 million of the multiple draw term loan and $42.1 million of the
term loan on February 11, 2003. In addition, Communications repaid $1.1 million
of the multiple draw term loan and $1.4 million of the term loan on February 19,
2003. In connections with these repayments, Communications wrote off $1.6
million in debt issuance costs. This charge is included in interest expense in
the unaudited condensed consolidated statement of operations. We used $194.5
million of the proceeds from the offering of the initial notes to repay amounts
outstanding under the credit facility and wrote off approximately $5.9 million
of associated debt issuance costs. As of March 31, 2003, after giving effect to
the offering of the initial notes and the use of proceeds therefrom,
Communications would have had approximately $512.5 million outstanding under the
credit facility.
Effective May 14, 2003, we amended our credit facility to, among other
things, reduce our unused former $300 million commitment under our revolving
credit facility by $100 million in exchange for moderately increasing the ratios
in our leverage covenant in future periods.
LIQUIDITY AND COMMITMENTS
We emerged from bankruptcy in February 2003. As a result, $1.8 billion of
previously outstanding indebtedness was cancelled. Communications, the borrower
under the credit facility, and our other subsidiaries were not part of the
bankruptcy. The credit facility has remained in place during, and since, the
reorganization.
We had cash and cash equivalents of $81.0 million at December 31, 2002 and
$87.9 million at March 31, 2003. We also had $783.0 million outstanding under
our credit facility at December 31, 2002, $707.0 million outstanding at March
31, 2003 and $512.5 million outstanding at March 31, 2003 after giving effect to
the offering of the initial notes and the use of proceeds from the initial
notes. The remaining $200.0 million under the credit facility was undrawn. Our
ability to borrow under the credit facility is limited by the financial
covenants regarding the total debt to EBITDA and interest and fixed charge
coverage ratios of Communications and its subsidiaries. After giving effect to
the offering of the initial notes, the use of proceeds from the initial notes
and the amendment to the credit facility, Communications could borrow
approximately $200.0 million of available funds under the revolving credit
facility as of March 31, 2003 while remaining in compliance with the credit
agreement's covenants. Our ability to borrow and
37
use cash under the credit facility financial covenants will increase or decrease
as our annualized EBITDA (as defined in the credit facility) increases or
decreases. The weighted average interest rate on outstanding borrowings under
the credit facility was 5.94% as of December 31, 2002, 5.17% as of March 31,
2003 and 5.22% after giving effect to the offering of the initial notes and the
use of proceeds from the initial notes.
While we have taken steps to reduce our capital commitments, we are
contractually obligated to purchase an additional 600 towers from SBC from May
2003 through August 2004. These commitments will require approximately $78
million in each of 2003 and 2004. In addition, we will continue to make capital
expenditures to improve our existing towers and to install new in-building
neutral host distributed antenna systems. We believe that cash flow from
operations, available cash on hand and anticipated borrowings under our credit
facility will be sufficient to fund our capital expenditures and other currently
anticipated cash needs for the foreseeable future. Our ability to meet these
needs from cash flow from operations will depend on the demand for wireless
services, developments in competing technologies and our ability to co-locate
new tenants, as well as general economic, financial, competitive, legislative,
regulatory and other factors, many of which are beyond our control. In addition,
if we make additional acquisitions or pursue other opportunities or if our
estimates prove inaccurate, we may seek additional sources of debt or equity
capital or reduce the scope of tower construction and acquisition activity.
The following table provides a summary of our material debt, lease and
other contractual commitments as of March 31, 2003.
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------
LESS THAN AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
------------------------- ---------- ---------- ---------- --------- ----------
(IN THOUSANDS)
Credit facility(1)....................... $ 706,955 $ -- $ 84,095 $ 622,860 $ --
Other long-term debt(2).................. -- -- -- -- --
Capital lease payments................... 1,109 771 338 -- --
Operating lease payments................. 304,209 63,142 100,620 50,655 89,792
SBC tower commitment(3).................. 156,000 104,000 52,000 -- --
---------- ---------- ---------- --------- ----------
Total contractual cash obligations....... $1,168,273 $ 167,913 $ 237,053 $ 673,515 $ 89,792
---------- ---------- ---------- --------- ----------
---------------
(1) After giving effect to the use of proceeds from the offering of the initial
notes we have $512.5 million outstanding under the credit facility, of
which approximately $32.2 million is due within 1-3 years and approximately
$480.3 million is due within 4-5 years.
(2) After giving effect to the offering of the initial notes, we have $200
million in other long-term debt, all of which is due after 5 years.
(3) Based on the estimated average purchase price of towers to be acquired from
SBC.
In addition, we had standby letters of credit of $6.3 million and
performance bonds of $14.5 million outstanding at March 31, 2003, most of which
expire within one year.
DESCRIPTION OF CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and judgments that affect our reported amounts of assets and liabilities,
revenues and expenses. We have identified the following critical accounting
policies that affect the more significant estimates and judgments used in the
preparation of our consolidated financial statements. On an on-going basis, we
evaluate our estimates, including those related to the matters described below.
These estimates are based on the information that is currently available to us
and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary from those estimates under different
assumptions or conditions.
38
REVENUE RECOGNITION
Site leasing revenues are recognized when earned based on lease agreements.
Rental increases based on fixed escalation clauses that are included in certain
lease agreements are recognized on a straight-line basis over the term of the
lease.
Broadcast services revenues related to construction activities are derived
from service contracts with customers that provide for billing on a time and
materials or fixed price basis. For time and material contracts, revenues are
recognized as services are performed. For fixed price contracts, we recognize
revenue and profit as work progresses using the percentage-of-completion method
of accounting, which relies on estimates of total expected contract revenues and
costs. We follow this method because reasonably dependable estimates of the
revenue and costs applicable to various stages of a contract can be made.
Because the financial reporting of these contracts depends on estimates, which
are assessed continually during the term of the contract, recognized revenues
and profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are reflected in the period in which the facts
that give rise to the revision become known. Accordingly, favorable changes in
estimates result in additional revenue and profit recognition, and unfavorable
changes in estimates result in the reversal of previously recognized revenue and
profits. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware that a specific
customer's ability to meet its financial obligations to us is in question (e.g.,
bankruptcy filings, substantial down-grading of credit ratings), we record a
specific allowance against amounts due to reduce the net recognized receivable
from that customer to the amount we reasonably believe will be collected. For
all other customers, we reserve a percentage of the remaining outstanding
accounts receivable balance based on a review of the aging of customer balances,
industry experience and the current economic environment. If circumstances
change (e.g., higher than expected defaults or an unexpected material adverse
change in one or more significant customer's ability to meet its financial
obligations to us), our estimates of the recoverability of amounts due us could
be reduced by a material amount.
PROPERTY AND EQUIPMENT
Property and equipment built, purchased or leased under long-term leasehold
agreements are recorded at cost and depreciated over their estimated useful
lives. We capitalize costs incurred in bringing property and equipment to an
operational state. Costs clearly associated with the acquisition, development
and construction of property and equipment are capitalized as a cost of the
assets. Indirect costs that relate to several assets are capitalized and
allocated to the assets to which the costs relate. Indirect costs that do not
clearly relate to projects under development or construction are charged to
expense as incurred. Estimates and cost allocations are reviewed at the end of
each financial reporting period. Costs are revised and reallocated as necessary
for material changes on the basis of current estimates. Depreciation on property
and equipment excluding towers is computed using the straight-line method over
the estimated useful lives of the assets ranging from three to fifteen years.
Depreciation on towers is computed using the straight-line method over the
estimated useful lives of 15 years for wireless towers and 30 years for
broadcast towers. Amortization of assets recorded under capital leases is
included in depreciation.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in purchase business combinations has been recorded as goodwill. Goodwill is
evaluated for impairment on an annual basis or as impairment indicators are
identified, in accordance with Statement of Financial Accounting Standards No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS. On an ongoing basis, we assess the
recoverability of goodwill by determining the ability of the specific assets
acquired to generate future cash flows sufficient to recover the unamortized
goodwill over the remaining useful life. We estimate future cash flows based on
the current performance of the acquired assets and our business plan for those
assets. Changes in business conditions, major customers or other factors could
result in changes in those estimates. Goodwill determined to be unrecoverable
based on future cash flows is written-off in the period in which such
determination is made.
39
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, goodwill and purchased
intangible assets, are evaluated for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. An
impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from
disposition of the asset (if any) are less than the carrying value of the asset.
When an impairment is identified, the carrying amount of the asset is reduced to
its estimated fair value. Effective January 1, 2002, potential impairment of
long-lived assets other than goodwill and purchased intangible assets with
indefinite useful lives is evaluated using the guidance provided by Statement of
Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS.
ACCOUNTING FOR INCOME TAXES
As part of the process of preparing our consolidated financial statements,
we are required to estimate income taxes in each of the jurisdictions in which
we operate. This process involves estimating the actual current tax liability
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income. To the extent that we
believe that recovery is not likely, we must establish a valuation allowance.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. We have recorded a valuation allowance
of $464.7 million as of December 31, 2002, due to uncertainties related to
utilization of deferred tax assets, primarily consisting of net operating losses
carryforwards, before they expire.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are accounted for in accordance with
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), as amended by Statement of
Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES ("SFAS 138") and as further amended by Statement of
Financial Accounting Standards No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. All derivative financial instruments are
recorded in the consolidated financial statements at fair value. Changes in the
fair values of derivative financial instruments are either recognized in
earnings or in shareholders' equity as a component of other comprehensive income
depending on whether the derivative financial instrument qualifies for hedge
accounting as defined by SFAS 133. Changes in fair values of derivatives not
qualifying for hedge accounting are reported in earnings as they occur.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143") which is
effective for fiscal years beginning after June 15, 2002. SFAS 143 requires
legal obligations associated with the retirement of long-lived assets to be
recognized at their fair value at the time that the obligations are incurred.
Upon initial recognition of a liability, that cost should be capitalized as part
of the related long-lived asset and allocated to expense over the useful life of
the asset. We adopted the new rules on asset retirement obligations on January
1, 2003. Application of the new rules is expected to result in an increase in
net property, plant and equipment of $23.2 million, recognition of an asset
retirement obligation of $35.4 million, and a cumulative effect of adoption that
will reduce net income and stockholders' equity (deficit) by $12.2 million.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, RESCISSION OF FASB STATEMENT NOS. 4, 44, AND 64, AMENDMENT OF FASB
STATEMENT NO. 13 AND TECHNICAL CORRECTIONS ("SFAS 145"). SFAS 145 amends or
rescinds a number of authoritative pronouncements, including Statement of
Financial Accounting Standards No. 4, REPORTING GAINS AND LOSSES FROM
EXTINGUISHMENT OF DEBT ("SFAS 4"). SFAS 4 required that gains and losses from
extinguishment of debt that were included in the determination of net income or
loss be aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect. Upon adoption of SFAS 145, gains and losses from
extinguishment of debt will no longer be classified as extraordinary items, but
rather will generally be classified as part of other income (expense) on our
consolidated statement of operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002. We adopted the
40
provisions of SFAS 145 on January 1, 2003. We do not expect the impact of
adopting this statement to have a material impact on our consolidated financial
position, results of operations or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS
146"). The statement requires costs associated with exit of disposal activities
to be recognized when they are incurred rather than at the date of a commitment
to an exit or disposal plan. The requirements of SFAS 146 are effective for exit
or disposal activities initiated after January 1, 2003. We adopted the
provisions of SFAS 146 on January 1, 2003. We do not expect the impact of
adopting this statement to have a material impact on our consolidated financial
position, results of operations or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION, TRANSITION AND
DISCLOSURE ("SFAS 148"). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format.
Additionally, SFAS 148 requires disclosure of the pro forma effect in interim
financial statements. The transition disclosure requirements of SFAS 148 are
effective for fiscal year 2002. The interim and annual disclosure requirements
are effective for the first quarter of 2003. We do not expect SFAS 148 to have a
material effect on our financial condition, results of operations or cash flows.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133, as previously amended by
SFAS 138. SFAS 149 clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative as discussed in SFAS
133. In addition, it clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. SFAS 149 amends
certain other existing pronouncements. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003, except as stated below and for
hedging relationships designated after June 30, 2003 and should be applied
prospectively. We do not expect the impact of adopting this statement to have a
material impact on our consolidated financial condition, results of operations
or cash flows.
INFLATION
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We use financial instruments, including fixed and variable rate debt, to
finance our operations. As of March 31, 2003 after giving effect to the offering
of the initial notes and the use of proceeds from the initial notes, we had
$512.5 million of variable rate debt outstanding under our credit facility at a
weighted average interest rate of 5.22%. A 1% increase in the interest rate on
our variable rate debt would have increased interest expense by approximately
$1.9 million in the three months ended March 31, 2003.
In addition, we have an interest rate cap on $375.0 million of the variable
rate debt outstanding under our credit facility, which caps LIBOR at 7.0% for
the next three years.
41
BUSINESS
INTRODUCTION
We are one of the largest wireless tower operators in the United States. We
also operate broadcast towers and are a leading provider of construction
services to the broadcast industry in the United States. Our businesses include
the ownership and leasing of antenna sites on wireless and broadcast towers, the
ownership and leasing of distributed antenna systems within buildings, managing
rooftop telecommunications access on commercial real estate and designing,
constructing, modifying and maintaining broadcast towers.
PRODUCTS AND SERVICES
We operate in two business segments: wireless and broadcast.
WIRELESS
As of March 31, 2003, we owned or operated 7,414 wireless antenna sites,
primarily located in the top 100 markets in the United States and with major
metropolitan market clusters in Los Angeles, Chicago, San Francisco,
Philadelphia, Detroit and Dallas. Our principal business is the leasing of space
on our towers to wireless carriers, which represents more than 95% of our
wireless revenues. Our site leasing customers are leading wireless service
providers, including AT&T Wireless, Cingular, Nextel, Sprint PCS, T-Mobile,
Verizon Wireless, and their affiliates. Together, these customers account for
more than 89% of our monthly wireless leasing revenues.
TOWER OWNERSHIP, LEASING AND MANAGEMENT
We are one of the largest independent owners and operators of wireless
communications towers in the United States. We provide antenna site leasing
services, which primarily involve the leasing of antenna space on our towers to
wireless carriers. In leasing antenna space, we generally receive monthly lease
payments from customers. Our customer leases typically have original terms of
five to ten years, with four or five renewal periods of five years each, and
usually provide for periodic rent increases. Monthly lease pricing varies with
the tower location and the number and type of antennas installed on a given
site.
IN-BUILDING ACCESS
We are a leading provider of in-building neutral host distributed antenna
systems serving telecommunications carriers in the United States. We have the
exclusive rights to provide to wireless carriers in-building systems in over 300
retail shopping malls, casino/hotel resorts and office buildings in the United
States. Our leases with property owners for the rights to install and operate
the in-building systems are generally for an initial period of ten years. Some
of these leases contain automatic extension provisions and continue after the
initial period unless terminated by us. Under these leases, we are the exclusive
operator of in-building neutral host distributed antenna systems for the term of
the lease. We are also responsible for marketing the property as part of our
portfolio of telecommunications sites and for installing, operating and
maintaining the distributed antenna system at the properties. We grant rights to
wireless service providers to attach their equipment to our in-building system
for a fee under licenses with the providers that typically have an initial term
of ten years. We typically share a portion of the collected fees with the
property owners.
The following chart shows the locations of our wireless towers and
in-building neutral host distributed antenna systems as of March 31, 2003:
STATE NUMBER
----- ------------
Texas....................................................... 1,003
California.................................................. 838
Illinois.................................................... 738
Ohio........................................................ 545
Michigan.................................................... 384
42
STATE NUMBER
----- ------------
Florida..................................................... 325
Missouri.................................................... 319
Georgia..................................................... 220
Pennsylvania................................................ 218
Alabama..................................................... 202
Oklahoma.................................................... 202
New York.................................................... 191
Louisiana................................................... 177
North Carolina.............................................. 169
Washington.................................................. 148
Indiana..................................................... 128
Wisconsin................................................... 122
Maryland.................................................... 117
Other....................................................... 1,368
Total....................................................... 7,414
ROOFTOP MANAGEMENT
We also provide rooftop management services to telecommunications carriers
in the United States. We are the exclusive site manager for over 11,000 real
estate properties, with significant access clusters in major metropolitan areas.
Wireless carriers utilize our managed rooftop sites as transmitting locations,
often where there are no existing towers for co-location or where new towers are
difficult to build. Our rooftop management contracts are generally for an
initial period of three to five years. These contracts contain automatic
extension provisions and continue after the initial period unless terminated by
either party. Under these contracts, we are engaged as the exclusive site
manager for rooftop management. For these services, we receive a percentage of
occupancy or license fees.
BROADCAST
We are one of the largest independent owners and operators of broadcast
towers in the United States. As of March 31, 2003 we owned and operated 74
broadcast towers. We provide antenna site leasing services, which involves the
leasing of antenna space on our broadcast towers to wireless carriers and
broadcasters. In leasing antenna space, we generally receive monthly lease
payments from customers.
We are also a leading provider of broadcast tower analysis, design,
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 represent approximately 50% of the existing
broadcast tower infrastructure in the United States.
Broadcast towers require a high level of technical design and erection
expertise, as they reach heights of up to 2,000 feet. 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 requiring the conversion of analog to digital
broadcast signals potentially creates significant infrastructure deployment
requirements 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, including our company.
COMPETITIVE STRENGTHS
We believe that we are distinguished by the following competitive
strengths:
o HIGH QUALITY ASSETS. We believe that our quality portfolio of tower
assets, including our tower clusters in major metropolitan areas,
makes us a preferred provider for the wireless industry.
43
o CONSERVATIVE CAPITAL STRUCTURE. We currently operate with the lowest
level of total debt among the publicly traded tower companies. We have
substantially completed the build-out of our wireless tower portfolio
and terminated our build-to-suit contracts with wireless carriers.
These measures have reduced our capital expense commitments and
reduced our future funding requirements. We have also reduced the
revolving portion of our credit facility from $300 million to $200
million.
o STABLE CORE LEASING BUSINESS. Our focus on the leasing of antenna
space on communications towers provides us with a recurring, stable
cash flow stream due to the long-term nature of our customer contracts
and the significant relocation costs for our existing tenants. Because
our tower operating expense generally does not grow as we add
co-location tenants, once a tower is built for an anchor tenant,
co-location tenants provide high incremental cash flow.
o EXPERIENCED MANAGEMENT. Our senior management team has been in place
for four years and has an average of over eleven years of experience
in the wireless industry. In addition, our senior management team
remained intact throughout our recent restructuring.
BUSINESS STRATEGY
The principal features of our business strategy are to:
o MAXIMIZE USE OF OUR TOWER CAPACITY. We believe that our highest
returns will be achieved by leasing additional space on our existing
towers. Because the costs of operating a tower are largely fixed,
increasing utilization will significantly improve our operating
margins.
o TAKE ADVANTAGE OF OUR MAJOR MARKET PRESENCE. 57% of our wireless
antenna sites are located in the top 50 markets in the United States.
We believe the increase in peak minutes of use in these markets
increases the likelihood that carriers will deploy more capital to
expand their network capacity in these markets than in other markets.
o LEVERAGE EXISTING RELATIONSHIPS WITH WIRELESS SERVICE PROVIDERS AND
THEIR PROGRAM MANAGEMENT COMPANIES. Maintaining and cultivating
relationships with wireless service providers is a critical focus of
our sales and marketing program. We have a dedicated group of sales
representatives that focus on establishing and maintaining
relationships with customers at both local and regional levels. In
addition, we employ an experienced national accounts team that works
closely with each wireless service provider's corporate headquarters
and senior management team to cultivate and ensure long-term
relationships.
o CAPITALIZE ON OUR INDUSTRY LEADING POSITION IN PROVIDING SHARED
INFRASTRUCTURE SOLUTIONS TO WIRELESS CARRIERS. We have the largest
operational base of distributed antenna systems providing in-building
wireless coverage in the tower industry. We also have a leading
position in distributed radio frequency transport. We believe wireless
carriers will commit greater financial resources to these areas as
they seek to improve network quality and provide high quality network
coverage.
CUSTOMERS
Our largest customers currently are Nextel and Cingular, which represented
approximately 28% and 20% of our revenues, respectively, for each of the year
ended December 31, 2002 and the three months ended March 31, 2003. Our other
customers include several of the largest wireless service providers in the
United States, including AT&T Wireless, Sprint, T-Mobile and Verizon Wireless.
We also have provided services to enhanced specialized mobile radio, specialized
mobile radio and cellular wireless providers. For the year ended December 31,
2001, Nextel and Cingular accounted for 30% and 13% of our revenues,
respectively. For the year ended December 31, 2000, Nextel accounted for 48% of
our revenues.
44
SALES AND MARKETING
We believe that our quality portfolio of tower assets, our strong customer
relationships and our operational excellence make us a preferred provider for
the wireless industry. Our sales and marketing goals are to:
o Leverage existing relationships and develop new relationships with
wireless service providers to lease antenna space on our tower,
rooftop and in-building assets; and
o Form relationships with wireless service providers' program management
companies to further broaden our channels of distribution.
Maintaining and cultivating relationships with wireless service providers
is a critical focus of our sales and marketing program. We have a dedicated
group of sales representatives that focus on establishing and maintaining
relationships with customers at both local and regional levels. In addition, we
employ an experienced national accounts team that works closely with each
wireless service provider's corporate headquarters and senior management team to
cultivate and ensure long-term relationships.
Our sales staff is compensated on new co-location revenue generation,
relocation/reconfiguration revenue, fee revenue and customer satisfaction. In
addition, our sales teams rely on the complementary functions of our field
support services and project management teams to further identify revenue
opportunities and enhance the customer experience.
COMPETITION
Our principal competitors include American Tower Corp., Crown Castle
International Corp., Pinnacle Holdings, Inc., SBA Communications Corp., Sprint
Sites USA, numerous independent tower operators and the many owners of non-tower
antenna sites, including rooftops, water towers and other alternate structures.
Wireless service providers, such as AT&T Wireless, Sprint PCS and T-Mobile, own
and operate their own tower networks and lease (or may in the future decide to
lease) antenna sites to other providers. We compete principally on the basis of
tower location and capacity, price, quality of service and density of service
within geographic market.
Technological developments are also making it possible for wireless
carriers to expand their use of existing facilities to provide service without
additional tower facilities. The increased use by carriers of signal combining
and related technologies, which allow two or more carriers to provide services
on different transmission frequencies using the communications antenna and other
facilities normally used by only one carrier, could reduce the demand for
tower-based broadcast transmissions and antenna space. In addition to sharing
transmitters, carriers are, through joint ventures and other arrangements (such
as Cingular's infrastructure joint ventures with T-Mobile and AT&T Wireless),
sharing (or considering the sharing of) telecommunications infrastructure in
ways that might adversely impact the growth of our business.
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 antennas on
communications sites we own.
EMPLOYEES
As of March 31, 2003, we had 623 employees. None of our employees are
represented by a collective bargaining agreement, and we consider our employee
relations to be good.
INTERNATIONAL
During 2001 we ceased development efforts in Europe and Mexico. In 2002, we
sold our network services operations in Canada. Our primary focus is on
operations in the United States.
45
REGULATORY AND ENVIRONMENTAL MATTERS
FEDERAL REGULATIONS
Both the FCC and the FAA regulate towers used for communications
transmitters and receivers. These regulations control the siting, marking and
lighting of towers and generally, based on the characteristics of the tower,
require registration of tower facilities with the FCC. Wireless and broadcast
communications antennas operating on towers are separately regulated and
independently authorized by the FCC based upon the particular frequency used and
the service provided. In addition to these regulations, SpectraSite must comply
with certain environmental laws and regulations.
Under the requirements of the Communications Act of 1934, as amended, the
FCC, in conjunction with the FAA, has developed standards for review of
proposals for new or modified antenna structures. 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
new communications sites or modify existing communications sites that could
affect air traffic must be filed with and reviewed by the FAA to ensure the
proposals 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 authorize the operation of communications
antennas 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 marking requirements. Owners
of towers on which communications antennas are located have an obligation to
maintain marking and lighting to conform to FCC standards. Tower owners also
bear the responsibility of notifying the FAA of any tower lighting failures. We
generally outsource the monitoring of the lighting of our towers to contractors
that specialize in those services. However, under the FCC's rules, we remain
fully liable for the acts and omissions of those contractors. We generally
indemnify our customers against any failure to comply with applicable standards.
Failure to comply with the applicable requirements (including as a result of
acts or omissions of our contractors, which may be beyond our control) may lead
to monetary forfeitures or other enforcement actions, as well as civil
penalties, contractual liability and/or tort liability.
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
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. It also
prohibits state or local restrictions based on the environmental effects of
radio frequency emissions to the extent the facilities comply with the FCC
regulations. The 1996 Act also requires the federal government to help licensees
of 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.
In October 2000, the FCC adopted rules and policies related to
telecommunications service providers' access to rooftops, other rights-of-way
and conduits in multi-tenant buildings. The FCC prohibited telecommunications
carriers in commercial settings from entering into new exclusive contracts with
building owners, including contracts that effectively restrict premises owners
or their agents from permitting access to other telecommunications service
providers. The FCC also established procedures to ensure that the demarcation
point in buildings, which marks the end of the incumbent local exchange
carrier's control over on-premises wiring and the beginning of the customer's or
building owner's control, will, at the premises owner's request, be at the
"minimum point of entry" to the structure rather than further inside the
premises. In addition, the FCC determined that, under the Communications Act,
utilities, including local exchange carriers, will be required to afford
telecommunications carriers and cable service providers reasonable and
nondiscriminatory access to conduits and rights-of-way in customer buildings, to
the extent such conduits and rights-of-way are owned or controlled by the
utility. Finally, the FCC amended its existing rules to give building tenants
the same ability to place on their leased or owned property small satellite
dishes for receiving telecommunications and other fixed wireless signals that
they currently have for receiving video services.
In the same October 2000 action, the FCC sought comment on a number of
related issues, including whether the prohibition on exclusive contracts should
be extended to residential buildings; whether it should be broadened to
46
prohibit preferences other than exclusive access, such as exclusive marketing
or landlord bonuses for tenants; whether the FCC should prohibit carriers from
enforcing exclusive access provisions in existing contracts for commercial or
residential multi-tenant buildings; and whether the agency has authority to
prohibit local exchange carriers from providing services to multi-tenant
buildings where the owners maintain policies unreasonably preventing competing
carriers from gaining access to potential customers within the building.
In June 2003, the FCC issued a Notice of Proposed Rulemaking seeking
comment on a draft agreement between the FCC, the Advisory Council on Historic
Preservation and the National Conference of State Historic Preservation
Officers that would tailor and streamline procedures for review of towers and
other FCC licensed communications facilities under the National Historic
Preservation Act of 1966, or "NHPA", and on related revisions to the FCC's
rules. The FCC has indicated that the intent of the agreement and the proposed
rule revisions is to improve compliance with the NHPA and streamline the review
process for construction of towers and other FCC licensed communications
facilities. We cannot predict with certainty whether, and if so when, the FCC's
proposals will be adopted, and, if they are, the effect they will have on our
business.
In 1996, the FCC mandated the conversion of analog television signals to
digital. As a result of several subsequent rulings by the FCC, each commercial
television station in the United States was required to complete construction of
new digital broadcasting facilities by May 1, 2002. Non-commercial stations were
given until May 1, 2003, to complete digital construction. By April 21, 2003,
all television stations were required to be simulcasting at least 50% of their
programming on both their analog and digital facilities and must convert to 100%
simulcasting within two years. The simulcasting transition is scheduled to end
in 2006, when television broadcasters will be required to terminate analog
service, unless that date has been extended based on satisfaction of statutory
standards demonstrating that significant portions of the viewing public do not
have the ability to receive digital television signals.
Although these deadlines have resulted from past extensions by the FCC of
previous deadlines, various broadcasters have requested that the FCC further
extend the current conversion deadlines. In December 2001, the FCC declined to
issue a blanket extension of the current deadlines, however, and instead agreed
to continue to consider extension requests by particular broadcasters on a
case-by-case basis, and made it easier for broadcasters to qualify for such
extensions. As of January 2003, approximately 93% of all television stations in
the United States have been granted a construction permit or a license for
digital television. More than 75% of the stations whose deadline to complete
their digital television broadcast facilities was May 1, 2002, requested an
extension of their completion deadline to November 1, 2002 and approximately 85%
of those requests were granted. Of those stations that were granted an initial
extension, nearly 78% requested an additional six-month extension and, to date,
the FCC has granted more than one-third of these extension requests. In April
2003, the FCC granted a six-month waiver on DTV simulcast requirements for all
public television stations.
In August 2002, the FCC adopted a rule requiring all TV receivers
manufactured in the United States with screen sizes greater than 13 inches, and
all TV receiving equipment, such as VCRs and DTV recorders, be capable of
receiving DTV signals over the air no later than July 1, 2007. We believe that
this increased penetration of digital television capability among the general
broadcast audience may also hasten the digital conversion and add to the demand
for digital television broadcast towers.
We believe that, although the planned conversion to digital might continue
to be delayed through FCC extensions or the failure of various broadcasters to
achieve the conversion in accordance with the established deadlines, if and when
the conversion occurs it will create significant potential for increased demand
for co-location on broadcast towers, including our towers. We believe that the
digital conversion will thus drive increased demand for our tower design and
installation services.
STATE AND LOCAL REGULATIONS
Most states regulate certain aspects of real estate acquisition and leasing
activities. Where required, we outsource site acquisition to licensed real
estate brokers or agents. Local regulations and restrictions include building
codes and other local ordinances, zoning restrictions and restrictive covenants
imposed by community developers. These regulations and restrictions vary
greatly, but typically require tower owners to obtain a permit or other approval
from local officials or community standards organizations prior to tower
construction and prior to
47
modifications of towers, including installation of equipment for new customers.
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 or modify towers have
encountered an array of obstacles arising from state and local regulation of
tower site construction and modification, including environmental assessments,
fall radius assessments, marking and lighting requirements, and concerns with
interference with 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 AND RELATED REGULATIONS
Owners and operators of communications towers are subject to 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, as well as the National
Historic Preservation Act, the Endangered Species Act and the American Indian
Religious Freedom Act. These regulations place responsibility on each applicant
to investigate potential environmental and other effects of operations and to
disclose any significant effects in an environmental assessment prior to
constructing a tower or co-locating a new tenant on a tower. In the event the
FCC determines that a 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. In addition, various environmental
groups routinely petition the FCC to deny applications to register new towers.
This regulatory process can be costly and could significantly delay the
registration of a particular tower. In addition, we are subject to environmental
laws that may require investigation and remediation 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, responding to petitions filed by
environmental protection groups, 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.
PROPERTIES
We are headquartered in Cary, North Carolina, where we currently occupy an
owned 109,570 square foot office facility on 19.7 acres of land and lease 61,071
square feet of office space. We own a 38,000 square foot broadcast tower
manufacturing facility located on 10 acres of land in Pine Forge, Pennsylvania.
We also own 9.5 acres of land in Visalia, California, on which a 57,000 square
foot broadcast tower manufacturing facility is located and 161.7 acres of land
in Mobile, Alabama, on which a 1,944 foot broadcast tower is located.
Our interests in communications sites are comprised of a variety of fee
interests, leasehold and sub-leasehold interests created by long-term lease or
sublease agreements, private easements, and 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 that 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. See "-- Products
and Services -- Wireless" for a list of the locations of our wireless towers.
LEGAL PROCEEDINGS
We emerged from bankruptcy on February 10, 2003. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Business Overview" for a discussion of our bankruptcy proceedings. Our
subsidiaries, including Communications, were not part of the bankruptcy
reorganization.
From time to time, we are 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.
48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding our directors and
executive officers:
--------------------------------------------------------------------------------
NAME AGE POSITION
--------------------------------------------------------------------------------
Stephen H. Clark............. 58 President, Chief Executive Officer,
Chairman and Director
Timothy G. Biltz............. 44 Chief Operating Officer
David P. Tomick.............. 51 Executive Vice President and Chief
Financial Officer
Dale A. Carey................ 38 President, Leasing Division
Thomas A. Prestwood, Jr...... 50 President, Broadcasting Division
Gabriela Gonzalez............ 41 Senior Vice President and Controller
John H. Lynch................ 45 Vice President, General Counsel and
Secretary
Paul M. Albert, Jr........... 60 Director
Gary S. Howard............... 52 Director
Robert Katz.................. 36 Director
Richard Masson............... 44 Director
STEPHEN H. CLARK is President, Chief Executive Officer and Chairman of the
Board of Directors of SpectraSite. He has been a director of SpectraSite since
its formation in May 1997 and Chairman since September 2002. Mr. Clark has 23
years of general management experience in high growth companies in the
communications, technology and manufacturing sectors.
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 and Chief Financial Officer.
Mr. Tomick joined SpectraSite in 1997. 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 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.
DALE A. CAREY is President of SpectraSite's Leasing Division. Mr. Carey
joined SpectraSite as Senior Vice President of Services and Operations in
February 2000 and assumed his current position in May 2002. Prior to joining
SpectraSite, Mr. Carey served as the Regional Vice President and General Manager
for the Pennsylvania Super System of Vanguard Cellular Systems.
THOMAS A. PRESTWOOD, JR. is President of SpectraSite's Broadcast Division.
Mr. Prestwood joined SpectraSite in November 2001. Mr. Prestwood has over 15
years of senior management experience and executive level work in the
telecommunications industry, most recently as Regional Vice President for
Telecorp PCS. Prior to joining Telecorp, Mr. Prestwood served as an Executive
Vice President for Highland Holdings and a Market Director for AT&T Wireless
Services. Mr. Prestwood was a Senior Vice President at Vanguard Cellular
Systems, Inc. from 1990 until the company was acquired by AT&T Wireless in 1999.
GABRIELA GONZALEZ is Senior Vice President and Controller. Prior to joining
SpectraSite in April 2000, Ms. Gonzalez served as Controller for Commercial
Operations for GlaxoWellcome (now GlaxoSmithKline). Before
49
joining GlaxoWellcome in 1998, Ms. Gonzalez served as Controller for Alyeska
Pipeline, the operator of the TransAlaskan Pipeline. Ms. Gonzalez is a Certified
Public Accountant in Alaska and North Carolina.
JOHN H. LYNCH is Vice President, General Counsel and Secretary. 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.
PAUL M. ALBERT, JR. has been a director of SpectraSite since February 2003.
Mr. Albert is a corporate director, a finance and capital markets consultant
primarily engaged in educating bankers at global financial institutions, and a
private investor. He has been a director of DigitalGlobe, Inc. since April 1999
and prior to the sale of the companies was a director of CAI Wireless Systems
from December 1998 to August 1999 and Teletrac Inc. from December 1999 to April
2001. In his capacity as a corporate director he has served on audit,
compensation, finance, and governance committees, usually as committee chairman,
and is a director of the New York Chapter of the National Association of
Corporate Directors. From 1970 to 1996 he was an investment banker, holding
senior officer positions at Morgan Stanley & Co. and Prudential Securities.
GARY S. HOWARD has been a director of SpectraSite since February 2003. Mr.
Howard has been Executive Vice President, Chief Operating Officer and a director
of Liberty Media, Inc. since July 1998. Mr. Howard served as Chief Executive
Officer of Liberty Satellite & Technology, Inc. from December 1996 to April
2000. Mr. Howard also served as Executive Vice President of TCI from December
1997 to March 1999. Previously, Mr. Howard served as Chief Executive Officer,
Chairman of the Board and a director of TV Guide, Inc., President and Chief
Executive Officer of TCI Ventures Group, LLC and President of Liberty Satellite
and Technology. Mr. Howard is also a director of Ascent Media, Liberty Satellite
& Technology, Inc., UnitedGlobalCom, Inc., and On Command Corporation. Mr.
Howard serves as Chairman of the Board of Liberty Satellite & Technology, Inc.
and On Command Corporation.
ROBERT KATZ has been a director of SpectraSite since February 2003. Mr.
Katz has been associated with Apollo Management, L.P. since 1990. Mr. Katz is
also a director of Vail Resorts, Inc.
RICHARD MASSON has been a director of SpectraSite since February 2003. Mr.
Masson is a Principal and co-founder of Oaktree Capital Management, LLC, an
investment advisory firm with over $25 billion of assets under management. He
serves as co-Head of Research for their distressed debt funds. Prior to that,
Mr. Masson was the head of the Special Credits analytic group at The TCW Group,
Inc.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid by
or incurred on behalf of SpectraSite to its Chief Executive Officer and four
other most highly compensated executive officers for the years ended December
31, 2000, 2001 and 2002.
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- ----------------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
OTHER RESTRICTED OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ANNUAL($)(B) STOCK($) SARS(#)(C) ($)(D)
----------------------------- ------ --------- -------- ------------ ---------- ---------- -------------
Stephen H. Clark............. 2002 375,000 367,500 -- -- -- 5,500
Chief Executive Officer 2001 375,000 300,000 -- -- 245,250 4,884
2000 323,077 325,000 -- -- 500,000 4,398
Timothy G. Biltz............. 2002 300,000 294,000 -- -- -- 5,500
Chief Operating Officer 2001 300,284 270,000 -- -- 140,000 5,100
2000 260,000 200,000 -- -- 300,000 5,100
David P. Tomick.............. 2002 235,000 230,300 -- -- -- 5,500
Chief Financial Officer 2001 228,654 89,725 -- -- 113,973 5,250
2000 219,615 77,150 -- -- 100,000 5,100
50
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- ----------------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
OTHER RESTRICTED OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ANNUAL($)(B) STOCK($) SARS(#)(C) ($)(D)
----------------------------- ------ --------- -------- ------------ ---------- ---------- -------------
Dale A. Carey(a)............. 2002 209,423 102,255 -- -- -- 5,500
President, Leasing 2001 202,500 90,839 -- -- 75,000 3,175
2000 146,058 53,885 15,214 -- 150,400 26,059
Thomas A. Prestwood, Jr.(a).. 2002 204,750 97,500 -- -- -- 5,000
President, Broadcast 2001 15,000 50,000 -- -- 150,000 --
---------------
(a) Mr. Carey joined SpectraSite in February 2000. Mr. Prestwood joined
SpectraSite in November 2001.
(b) The amount indicated for Mr. Carey in 2000 reflects tax gross ups on
relocation expenses.
(c) All options were terminated on February 10, 2003 under the Plan of
Reorganization without consideration.
(d) Amounts reported are SpectraSite's contribution under its 401(k) plan,
except the amount reported for Mr. Carey in 2000. The amount reported for
Mr. Carey in 2000 includes SpectraSite's contribution under its 401(k) plan
of $2,229 and a relocation reimbursement of $23,830.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no stock option grants to the executive officers named in the
Summary Compensation Table above during the fiscal year ended December 31, 2002.
AGGREGATED OPTIONS/SAR EXERCISES AND VALUE IN LAST FISCAL YEAR
The table below provides information as to the exercise of options during
the fiscal year ended December 31, 2002 and the number and value of unexercised
options held by the executive officers named in the Summary Compensation Table
above as of December 31, 2002.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS/SARS AT MONEY OPTIONS/SARS AT
SHARES FISCAL YEAR-END (#)(A) FISCAL YEAR-END ($)(A)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------- ------------ ---------- ----------- ------------ ---------- -------------
Stephen H. Clark............... -- -- 843,813 627,687 -- --
Timothy G. Biltz............... -- -- 485,000 355,000 -- --
David P. Tomick................ -- -- 292,108 197,730 -- --
Dale A. Carey.................. -- -- 93,950 131,450 -- --
Thomas A. Prestwood, Jr........ -- -- 37,500 112,500 -- --
---------------
(a) All options were terminated on February 10, 2003 under the Plan of
Reorganization without consideration.
EMPLOYMENT AGREEMENTS
SpectraSite has entered into employment agreements with each of Messrs.
Clark, Tomick and Biltz, effective as of February 10, 2003. The initial term of
the employment agreements is three years, with automatic one-year renewals
unless either party gives written notice of nonrenewal at least six months prior
to the end of the term. The annual base salaries for Messrs. Clark, Tomick, and
Biltz are determined pursuant to their respective employment agreements, and
they are each eligible to receive annual bonuses in amounts to be determined
based on SpectraSite's achievement of annual financial targets established by
the Board of Directors of SpectraSite. In connection with SpectraSite's
emergence from chapter 11 bankruptcy, Messrs. Clark and Tomick also received
cash bonuses on
51
February 10, 2003, in the amounts of $2,800,000 and $1,120,000, respectively. If
their employment is terminated as a result of their death or disability or is
terminated by SpectraSite without cause, or if they resign without good reason
during the thirteenth month following a change in control (as defined in the
employment agreements), Messrs. Clark, Tomick, and Biltz will be entitled to
receive continued salary, average annual bonus and benefits for a period of 24
months following the termination, provided that this period shall be extended to
36 months if they are terminated by SpectraSite without cause or if they resign
with good reason during the 24-month period following a change in control.
Messrs. Clark, Tomick, and Biltz have agreed that for a period of 24 months
following the termination of their employment with SpectraSite they generally
will not:
o engage in, or own any interest in or perform any services for any
business which engages in, competition with SpectraSite;
o solicit management employees of SpectraSite or otherwise interfere
with the employment relationship between SpectraSite and its
employees; or
o hire, engage or in any manner be associated with any supplier,
contractor or entity with a business relationship with SpectraSite, if
such action would have a material adverse effect on SpectraSite.
In connection with their employment agreements, Messrs. Clark, Tomick, and
Biltz were granted options to purchase 763,889, 277,778 and 486,111 shares of
New Common Stock, respectively. The exercise prices of these options are $29.82,
$30.18 and $26.15, respectively. The options were vested 20% on March 12, 2003
and, subject to the optionee's continued employment with SpectraSite, 50% will
vest ratably on a monthly basis during the next 36 months, and 30% will vest on
March 12, 2009, or earlier if the Company achieves annual financial targets
determined by the Board of Directors of SpectraSite.
SEVERANCE PLANS
Messrs. Carey and Prestwood participate in SpectraSite's Executive
Severance Plan B. This plan generally provides that, upon termination of a
participant's employment by SpectraSite other than for cause or by the
participant for good reason (which includes any termination by a participant
during the thirteenth month following a change in control), the participant will
be entitled to continued payments of base salary and target bonus, as well as
continued benefits, during the 18 months following termination if the
participant then has five or more years experience in current or equivalent
employment positions, and 12 months following termination if the participant has
less than five years of such experience. In the event of termination resulting
from a change in control or in the two-year period following a change in
control, the periods referred to above shall be increased to 24 months. For this
purpose, a change of control occurs upon (i) the acquisition, other than by the
principal stockholders of SpectraSite, of more than 35% of the total combined
voting power of SpectraSite's outstanding securities and such principal
stockholders own a lesser percentage of the voting power of SpectraSite's
outstanding securities than such acquiring person and cease to have the ability
to elect or designate for election a majority of SpectraSite's Board of
Directors; (ii) a change in the composition of the Board of Directors of
SpectraSite during any two-year period that results in the current directors (or
those directors approved by the Board of Directors) ceasing to constitute a
majority of the directors; (iii) a merger or consolidation of SpectraSite with
another entity unless the Company's outstanding voting securities are exchanged
for consideration including securities representing a majority of the voting
power of the surviving corporation; or (iv) a sale of all or substantially all
of SpectraSite's assets other than to the principal stockholders of SpectraSite
or persons controlled by such stockholders.
2003 EQUITY INCENTIVE PLAN
On March 12, 2003, subject to execution of definitive documentation,
options for 2,706,666 shares of New Common Stock were issued under the Equity
Incentive Plan, each having an exercise price of $26.15 per share, except for
the options granted to Messrs. Clark and Tomick, whose options have an exercise
price of $29.82 and $30.18, respectively. As of that date, approximately 293,334
shares of New Common Stock were available for future grants.
52
The following is a discussion of other features of the Plan.
PURPOSE OF PLAN. The nature and purpose of the Plan is to use
performance-based grants of long-term, equity-based incentives in the form of
stock options and other equity based awards in order to link total compensation
for management and key employees to SpectraSite's performance and stock price
appreciation and to allow SpectraSite to remain competitive and to retain top
performing employees over time. The Plan also permits awards to directors.
PLAN ADMINISTRATION. The Plan is administered by the Compensation Committee
of the Board of Directors of SpectraSite. The Compensation Committee has sole
discretion, subject to the terms of the Plan, to determine the amounts and types
of awards to be made, set the terms, conditions and limitations applicable to
each award, and prescribe the form of the instruments embodying any award. The
Board of Directors or the Compensation Committee may delegate to another
committee of the Board of Directors the authority to grant awards to certain
persons and the Compensation Committee may generally delegate the authority to
act on its behalf to certain officers of SpectraSite.
ELIGIBILITY. Awards may be granted under the Plan to any director, officer
or other employee of SpectraSite and its subsidiaries, and any individual
providing services as a consultant, advisor or otherwise as an independent
contractor to SpectraSite and its subsidiaries.
VESTING AND EXERCISE OF OPTIONS. Options become exercisable as set forth in
a participant's award agreement.
PAYMENT FOR OPTIONS. The exercise price of any stock option awarded under
the Plan will be determined by the Compensation Committee. Participants may
exercise an option by making payment in any manner specified by the Compensation
Committee.
RESTRICTED STOCK. The Compensation Committee may authorize awards of
restricted stock, including performance-based restricted stock. Awards of
restricted stock may be made for no consideration, or for an amount as is
determined by the Compensation Committee. Restricted stock is common stock that
generally is non-transferable and is subject to other restrictions determined by
the Compensation Committee for a specified period. Unless the Compensation
Committee determines otherwise, or specifies otherwise in an award agreement, if
the participant terminates employment during the restricted period, then any
unvested restricted stock will be forfeited. To date, no shares of restricted
stock have been awarded under the Plan.
OTHER AWARDS UNDER THE PLAN. The Compensation Committee may grant other
types of equity-based awards such as stock appreciation rights, deferred stock,
dividend equivalents and performance-based awards. Such awards and awards of
restricted stock may be subject to attainment of preestablished performance
goals based on, EBITDA, revenue, net income, operating income, cash plan, return
on assets, return on equity, return on capital or total shareholder return.
ESTIMATE OF BENEFITS. The number and terms of stock options and other
awards that will be granted to officers and other employees under the Plan in
the future is subject to the discretion of the Compensation Committee and is not
currently determinable.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS. The grant of a stock option
under the Plan will generally not have any immediate effect on the federal
income tax liability of SpectraSite or the participant. If the Compensation
Committee grants a non-qualified stock option, then the participant will
recognize ordinary income at the time he or she exercises the option in an
amount equal to the difference between the fair market value of the common stock
at the time of its exercise and the exercise price, and SpectraSite will receive
a deduction for the same amount.
If the Compensation Committee grants an incentive stock option, the
participant generally will not recognize any taxable income at the time he or
she exercises the incentive stock option, but will recognize income 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 employee will recognize income equal to the difference between
the exercise price 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 in connection with an incentive stock
53
option. However, if the employee sells the common stock either within two years
of the date of the grant, or within one year of the date of the 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 employee 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 employee.
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of March 31, 2003, information with respect
to the beneficial ownership of SpectraSite's New Common Stock by:
o each of the current directors and some of our executive officers
individually;
o each person who is known to be the beneficial owner of more than 5% of
any class or series of capital stock; and
o all directors and executive officers as a group.
The amounts and percentages of New Common Stock beneficially owned are
reported on the basis of regulations of the Securities and Exchange Commission
governing the determination of beneficial ownership of securities. Under these
rules, 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 the same securities.
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY TOTAL VOTING
NAME OF BENEFICIAL OWNER OWNED POWER
Stephen H. Clark(a)........................................................ 174,994 *
Timothy G. Biltz(b)........................................................ 110,725 *
David P. Tomick(c)......................................................... 65,229 *
Dale A. Carey(d)........................................................... 36,065 *
Thomas A. Prestwood, Jr.(e)................................................ 17,083 *
Paul M. Albert, Jr.(f)..................................................... 1,222 *
Gary S. Howard(f).......................................................... 1,222 *
Robert Katz(f)(g).......................................................... 1,222 *
Richard Masson(f)(h)....................................................... 4,834,359 20.5
Funds affiliated with Apollo Management V, L.P.(g)......................... 5,575,809 23.6
Funds managed by Oaktree Capital Management, LLC(f)(h)..................... 4,834,359 20.5
Capital Research and Management Company(i)................................. 3,320,693 14.1
All current directors and executive officers as a group (11 persons)(j).... 5,262,381 21.9
---------------
* Less than 1%.
(a) Includes 173,997 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days. Also includes 997 shares of
New Common Stock issuable upon the exercise of outstanding warrants
exercisable within 60 days.
(b) Includes 110,725 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(c) Includes 63,272 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days. Also includes 1,957 shares
of New Common Stock issuable upon the exercise of outstanding
54
warrants exercisable within 60 days, of which 602 are held by the Tomick
Family Trust.
(d) Includes 36,065 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(e) Includes 17,083 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(f) Includes 1,222 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(g) With respect to Apollo Management V, L.P., includes 5,575,809 shares of New
Common Stock held by AP Towers, LLC. Mr. Katz is associated with Apollo but
does not beneficially own any of the shares held by Apollo. The business
address for Mr. Katz and Apollo is 1301 Avenue of the Americas, New York,
New York 10019.
(h) Includes 3,195,905 shares of New Common Stock held by OCM Opportunities
Fund IV, L.P. and 1,637,232 shares held by OCM Opportunities Fund IVb, L.P.
Each of the funds is managed by Oaktree Capital Management, LLC, who
disclaims beneficial ownership of the shares except to the extent of its
pecuniary interest in the shares. Mr. Masson in a Principal of Oaktree and
disclaims beneficial ownership of the shares held by the Oaktree funds
except to the extent of his pecuniary interest in the shares. The business
address for Mr. Masson and the Oaktree funds is 333 S. Grand Avenue, 28th
Floor, Los Angeles, California 90071.
(i) Capital Research and Management Company is the beneficial owner of New
Common Stock, arising from the beneficial ownership by certain investment
companies, including 1,270,664 shares owned by American High-Income Trust,
registered under the Investment Company Act of 1940, which is advised by
Capital Research and Management, a registered investment adviser. Such
shares are held by American High-Income Trust and other funds, in their
capacity as investment companies and are beneficially held by Capital
Research and Management as an investment adviser. American High-Income
Trust and the other funds have sole voting power over the shares and
Capital Research and Management has sole dispositive power over the shares.
The business address for Capital Research and Management is 333 S. Hope
St., 55th Floor, Los Angeles, California 90071.
(j) Includes 426,276 shares of New Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days and 2,968 shares of New
Common Stock issuable upon the exercise of outstanding warrants exercisable
within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Plan of Reorganization, SpectraSite entered into a
Registration Rights Agreement with Oaktree Capital Management, LLC, as general
partner and/or investment manager of certain funds and accounts it manages, AP
Towers LLC, an affiliate of Apollo Management V, L.P., and Capital Research
Management Company providing for the registration of the New Common Stock. The
following is a summary of the material terms of that registration rights
agreement.
Under the registration rights agreement, the holders of SpectraSite's New
Common Stock that are party to the agreement may require SpectraSite to register
all or some of their shares under the Securities Act. The first two times each
holder that is a party to the agreement makes such request, SpectraSite is
obligated to register the shares set forth in such request. If a holder that is
party to the agreement makes more than two such requests, then the following
conditions must be met to trigger SpectraSite's registration obligation:
o SpectraSite must receive a request for registration from holders of at
least 5% of its outstanding stock covered by the registration rights
agreement; and
55
o the request must specify the number of shares to be disposed of and
the proposed plan of distribution therefor.
SpectraSite is only obligated to effect six such registrations except to
the extent necessary to ensure that each of the holders that are party to the
agreement may cause at least two such registrations during the term of the
agreement. SpectraSite has the right to include its shares in any registration
statement required by the registration rights agreement.
In addition to SpectraSite's registration obligations discussed above, if
SpectraSite registers any of its common stock under the Securities Act for sale
to the public for SpectraSite's account or for the account of others or both,
the registration rights agreement requires that it uses commercially reasonable
efforts to include in the registration statement common stock held by
stockholders that are party to the agreement who wish to participate in the
offering. Registrations by SpectraSite on Form S-4, Form S-8 or an offering to
existing security holders of SpectraSite pursuant to rights distributed to
existing security holders or pursuant to a dividend reinvestment plan will not
trigger this registration obligation.
TRANSACTIONS WITH EXECUTIVE OFFICERS
In August 1999, we loaned David P. Tomick $325,000 in connection with the
exercise of stock options to acquire Old Common Stock. The loan bears interest
at the applicable federal rate under the Internal Revenue Code, 5.36% per annum,
and matures in August 2004.
In September 1999, we loaned Timothy G. Biltz $500,000 to purchase a home
as a relocation incentive. This loan is secured by any shares of common stock
issued to Mr. Biltz upon his exercise of options or otherwise acquired by Mr.
Biltz and bears interest at 5.82% per annum and matures in September 2004.
In January 2000, we loaned Stephen H. Clark $1,100,000 in connection with
the exercise of stock options to acquire 512,500 shares of Old Common Stock. The
loan bears interest at 5.80% per annum and matures in December 2004.
56
DESCRIPTION OF THE CREDIT FACILITY
Communications, a wholly-owned subsidiary of SpectraSite, is party to an
amended and restated credit facility. The credit facility includes a $200.0
million revolving credit facility, which may be drawn at any time, subject to
the satisfaction of certain conditions precedent. The amount available will be
reduced (and, if necessary, the amounts outstanding must be repaid) in quarterly
installments beginning on June 30, 2004 and ending on June 30, 2007. The credit
facility also includes a $218.7 million multiple draw term loan that is fully
drawn and which must be repaid in quarterly installments beginning on March 31,
2006 and ending on June 30, 2007 and a $293.8 million term loan that is fully
drawn and which must be repaid in quarterly installments beginning on September
30, 2007 and ending on December 31, 2007.
Effective May 14, 2003, we amended our credit facility to, among other
things, reduce our unused former $300 million commitment under our revolving
credit facility by $100 million in exchange for moderately increasing the ratios
in our leverage covenant in future periods.
With the proceeds of the sale of 545 towers to Cingular, Communications
repaid $31.4 million of the multiple draw term loan and $42.1 million of the
term loan on February 11, 2003. In addition, Communications repaid $1.1 million
of the multiple draw term loan and $1.4 million of the term loan on February 19,
2003. In connection with these repayments, Communications wrote off $1.6 million
in debt issuance costs. This charge is included in interest expense in the
unaudited condensed consolidated statement of operations. In connection with the
reduction of the revolving portion of the credit facility and the repayment of
the term loans with the proceeds from the offering of the initial notes, we
wrote off approximately $5.9 million of associated debt issuance costs. As of
March 31, 2003, after giving effect to the offering of the initial notes and the
use of proceeds from the initial notes to repay a portion of the amounts
outstanding under the credit facility, Communications would have had $512.5
million outstanding under the credit facility. The remaining $200.0 million
under the credit facility was undrawn.
Under the terms of the credit facility, Communications could borrow
approximately $200.0 million under the revolving credit facility as of March 31,
2003, after giving effect to the offering of the initial notes and the use of
proceeds from the initial notes and the amendment to the credit facility, while
remaining in compliance with the applicable covenants.
The revolving credit loans and the multiple draw term loans bear interest,
at Communications' option, at either Canadian Imperial Bank of Commerce's base
rate plus an applicable margin ranging from 2.00% to 1.00% per annum or the
Eurodollar rate plus an applicable margin ranging from 3.25% to 2.25% per annum,
depending on Communications' leverage ratio at the end of the preceding fiscal
quarter.
The term loan bears interest, at Communications' option, at either Canadian
Imperial Bank of Commerce's base rate plus 2.75% per annum or the Eurodollar
rate plus 4.00% per annum.
The weighted average interest rate on outstanding borrowings under the
credit facility was 5.94% as of December 31, 2002, 5.17% as of March 31, 2003
and 5.22% after giving effect to the offing of the initials notes and the use of
proceeds from the initial notes.
Communications is required to pay a commitment fee of between 1.375% and
0.500% per annum in respect of the undrawn portions of the revolving credit
facility, depending on the undrawn amount. 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, certain
changes to the SBC transaction or the generation of excess cash flow.
SpectraSite and each of Communications' domestic subsidiaries have
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 domestic subsidiaries, a pledge of all of the capital
stock of Communications and its domestic subsidiaries and 66% of the capital
stock of Communications' foreign subsidiaries. The credit facility contains a
number of covenants that, among other things, restrict Communications' ability
to incur additional indebtedness; create liens on assets; make investments or
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
57
or make capital distributions. In addition, the credit facility requires
compliance with certain financial covenants, including a requirement that
Communications and its subsidiaries, on a consolidated basis, maintain a maximum
ratio of total debt to annualized EBITDA (as defined in the credit facility), a
minimum interest coverage ratio and a minimum fixed charge coverage ratio.
58
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to exchange our exchange notes for a like aggregate
principal amount of our initial notes.
The exchange notes that we propose to issue in this exchange offer will be
substantially identical to our initial notes except that, unlike our initial
notes, the exchange notes will have no transfer restrictions or registration
rights. You should read the description of the exchange notes in the section of
this prospectus entitled "Description of the Notes."
We reserve the right in our sole discretion to purchase or make offers for
any initial notes that remain outstanding following the expiration or
termination of this exchange offer and, to the extent permitted by applicable
law, to purchase initial notes in the open market or privately negotiated
transactions, one or more additional tender or exchange offers or otherwise. The
terms and prices of these purchases or offers could differ significantly from
the terms of this exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on ,
2003, unless we extend it in our reasonable discretion. The expiration date of
this exchange offer will be at least 20 business days after the commencement of
the exchange offer in accordance with Rule 14e-1(a) under the Securities
Exchange Act of 1934.
We expressly reserve the right to delay acceptance of any initial notes,
extend or terminate this exchange offer and not accept any initial notes that we
have not previously accepted if any of the conditions described below under "--
Conditions to the Exchange Offer" have not been satisfied or waived by us. We
will notify the exchange agent of any extension by oral notice promptly
confirmed in writing or by written notice. We will also notify the holders of
the initial notes by a press release or other public announcement communicated
before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date unless applicable laws require us to do
otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our
initial notes of the change, including providing public announcement or giving
oral or written notice to these holders. A material change in the terms of this
exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other changes in the terms of this exchange
offer. If we make any material change to this exchange offer, we will disclose
this change by means of a post-effective amendment to the registration statement
which includes this prospectus and will distribute an amended or supplemented
prospectus to each registered holder of initial notes. In addition, we will
extend this exchange offer for up to an additional five to ten business days as
required by the Exchange Act, depending on the significance of the amendment, if
the exchange offer would otherwise expire during that period. We will promptly
notify the exchange agent by oral notice, promptly confirmed in writing, or
written notice of any delay in acceptance, extension, termination or amendment
of this exchange offer.
PROCEDURES FOR TENDERING INITIAL NOTES
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL
To tender your initial notes in this exchange offer, you must use ONE OF
THE THREE alternative procedures described below:
(1) REGULAR DELIVERY PROCEDURE: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile together with the certificates
59
representing the initial notes being tendered and any other required
documents to the exchange agent so that they arrive by 5:00 p.m., New
York City time, on the expiration date.
(2) BOOK-ENTRY DELIVERY PROCEDURE: Send a timely confirmation of a
book-entry transfer of your initial notes, if this procedure is
available, into the exchange agent's account at The Depository Trust
Company in accordance with the procedures for book-entry transfer
described under "-- Book-Entry Delivery Procedure" below, on or before
5:00 p.m., New York City time, on the expiration date.
(3) GUARANTEED DELIVERY PROCEDURE: If time will not permit you to complete
your tender by using the procedures described in (1) or (2) above
before the expiration date and this procedure is available, comply
with the guaranteed delivery procedures described under "-- Guaranteed
Delivery Procedure" below.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your broker, dealer, commercial
bank, trust company or nominee to tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. A holder is any person in whose name initial notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your notes, you must contact that registered holder promptly
and instruct that registered holder to tender your notes on your behalf. If you
wish to tender your initial notes on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your initial
notes, either make appropriate arrangements to register the ownership of these
notes in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by:
(1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
(2) a commercial bank or trust company having an office or correspondent
in the United States; or
(3) an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Exchange Act,
UNLESS the initial notes are tendered:
(1) by a registered holder or by a participant in The Depository
Trust Company whose name appears on a security position listing
as the owner, who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal and only if the exchange notes are being
issued directly to this registered holder or deposited into this
participant's account at The Depository Trust Company; or
(2) for the account of a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or an eligible
guarantor institution within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934.
60
If the letter of transmittal or any bond powers are signed by:
(1) the recordholder(s) of the initial notes tendered, the signature must
correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever.
(2) a participant in The Depository Trust Company, the signature must
correspond with the name as it appears on the security position
listing as the holder of the initial notes.
(3) a person other than the registered holder of any initial notes, these
initial notes must be endorsed or accompanied by bond powers and a
proxy that authorize this person to tender the initial notes on behalf
of the registered holder, in form satisfactory to us as determined in
our sole discretion, in each case, as the name of the registered
holder or holders appears on the initial notes.
(4) trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when
signing. Unless waived by us, evidence satisfactory to us of their
authority to so act must also be submitted with the letter of
transmittal.
To tender your initial notes in this exchange offer, you must make the
following representations:
(1) you are authorized to tender, sell, assign and transfer the initial
notes tendered and to acquire exchange notes issuable upon the
exchange of such tendered initial notes, and that we will acquire good
and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse
claim when the same are accepted by us;
(2) any exchange notes acquired by you pursuant to the exchange offer are
being acquired in the ordinary course of business, whether or not you
are the holder;
(3) you or any other person who receives exchange notes, whether or not
such person is the holder of the exchange notes, does not have an
arrangement or understanding with any person to participate in a
distribution of such exchange notes within the meaning of the
Securities Act and is not participating in, and does not intend to
participate in, the distribution of such exchange notes within the
meaning of the Securities Act;
(4) you or such other person who receives exchange notes, whether or not
such person is the holder of the exchange notes, is not an
"affiliate," as defined in Rule 405 of the Securities Act, of ours, or
if you or such other person is an affiliate, you or such other person
will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable;
(5) if you are not a broker-dealer, you represent that you are not
engaging in, and do not intend to engage in, a distribution of
exchange notes; and
(6) if you are a broker-dealer that will receive exchange notes for your
own account in exchange for initial notes and the initial notes to be
exchanged for the exchange notes were acquired by you as a result of
market-making or other trading activities, you acknowledge that you
will deliver a prospectus in connection with any resale, offer to
resell or other transfer of such exchange notes.
You must also warrant that the acceptance of any tendered initial notes by
us and the issuance of exchange notes in exchange therefor shall constitute
performance in full by us of our obligations under the registration rights
agreement relating to the initial notes.
BOOK-ENTRY DELIVERY PROCEDURE
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of initial notes by causing The
Depository Trust Company to transfer these initial notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures
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for transfer. To effectively tender notes through The Depository Trust Company,
the financial institution that is a participant in The Depository Trust Company
will electronically transmit its acceptance through the Automatic Tender Offer
Program. The Depository Trust Company will then edit and verify the acceptance
and send an agent's message to the exchange agent for its acceptance. An agent's
message is a message transmitted by The Depository Trust Company to the exchange
agent stating that The Depository Trust Company has received an express
acknowledgment from the participant in The Depository Trust Company tendering
the notes that this participation has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce this agreement
against this participant. The exchange agent will make a request to establish an
account for the initial notes at The Depository Trust Company for purposes of
the exchange offer within two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "-- Exchange Agent" on or before the expiration date
unless the guaranteed delivery procedures described below are complied with.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (3) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
(1) you tender through a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in
the United States, or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Exchange Act;
(2) on or before the expiration date, the exchange agent receives a
properly completed and duly executed letter of transmittal or
facsimile of the letter of transmittal, and a notice of guaranteed
delivery, substantially in the form provided by us, with your name and
address as holder of the initial notes and the amount of notes
tendered, stating that the tender is being made by that letter and
notice and guaranteeing that within three New York Stock Exchange
trading days after the expiration date the certificates for all the
initial notes tendered, in proper form for transfer, or a book-entry
confirmation with an agent's message, as the case may be, and any
other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent; and
(3) the certificates for all your tendered initial notes in proper form
for transfer or a book-entry confirmation as the case may be, and all
other documents required by the letter of transmittal are received by
the exchange agent within three New York Stock Exchange trading days
after the expiration date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of initial notes will constitute an agreement between you and
us governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your initial notes tendered, or
a timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at The Depository Trust Company with an agent's message, or a
notice of guaranteed delivery from an eligible institution is received by the
exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
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We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender as to particular notes. If we waive a condition to this exchange offer,
the waiver will be applied equally to all note holders. Our interpretation of
the terms and conditions of this exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of initial
notes must be cured within such time as we shall determine. We, the exchange
agent or any other person will be under no duty to give notification of defects
or irregularities with respect to tenders of initial notes. We and the exchange
agent or any other person will incur no liability for any failure to give
notification of these defects or irregularities. Tenders of initial notes will
not be deemed to have been made until such irregularities have been cured or
waived. The exchange agent will return without cost to their holders any initial
notes that are not properly tendered and as to which the defects or
irregularities have not been cured or waived promptly following the expiration
date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled "-- Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if we give oral or
written notice of acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes tendered
pursuant to a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to us and the exchange
agent.
If any tendered initial notes are not accepted for any reason provided by
the terms and conditions of this exchange offer or if initial notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged initial notes will be returned without expense
to the tendering holder, or, in the case of initial notes tendered by book-entry
transfer procedures described above, will be credited to an account maintained
with the book-entry transfer facility, promptly after withdrawal, rejection of
tender or the expiration or termination of the exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes tendered. This
proxy will be considered coupled with an interest in the tendered notes. This
appointment will be effective only when, and to the extent that we accept your
notes in this exchange offer. All prior proxies on these notes will then be
deemed to be revoked and you will not be entitled to give any subsequent proxy.
Any proxy that you may give subsequently will not be deemed effective. Our
designees will be empowered to exercise all voting and other rights of the
holders as they may deem proper at any meeting of note holders or otherwise. The
initial notes will be validly tendered only if we are able to exercise full
voting rights with respect to the notes, including voting at any meeting of the
note holders, and full rights to consent to any action taken by the note
holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance of your tendered notes for exchange by
us.
Any notice of withdrawal must:
(1) specify the name of the person who tendered the initial notes to be
withdrawn;
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(2) identify the notes to be withdrawn, including, if applicable, the
registration number or numbers and total principal amount of these
notes;
(3) be signed by the person who tendered the initial notes to be withdrawn
in the same manner as the original signature on the letter of
transmittal by which these notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee for the initial notes to register the
transfer of these notes into the name of the person having made the
original tender and withdrawing the tender;
(4) specify the name in which any of these initial notes are to be
registered, if this name is different from that of the person having
tendered the initial notes to be withdrawn; and
(5) if applicable because the initial notes have been tendered through the
book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different
than that of the person having tendered the initial notes to be
withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties. Initial notes that are withdrawn will
be deemed not to have been validly tendered for exchange in this exchange offer.
The exchange agent will return without cost to their holders all initial
notes that have been tendered for exchange and are not exchanged for any reason,
promptly after withdrawal, rejection of tender or expiration or termination of
this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer by
following one of the procedures described under "-- Procedures for Tendering
Initial Notes" above at any time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) there is no change in the laws and regulations which would reasonably
be expected to impair our ability to proceed with this exchange offer;
(2) there is no change in the current interpretation of the staff of the
Securities and Exchange Commission which permits resales of the
exchange notes;
(3) there is no stop order issued by the Securities and Exchange
Commission or any state securities authority suspending the
effectiveness of the registration statement which includes this
prospectus or the qualification of the indenture for our exchange
notes under the Trust Indenture Act of 1939 and there are no
proceedings initiated or, to our knowledge, threatened for that
purpose;
(4) there is no action or proceeding instituted or threatened in any court
or before any governmental agency or body that would reasonably be
expected to prohibit, prevent or otherwise impair our ability to
proceed with this exchange offer; and
(5) we obtain all governmental approvals that we deem in our sole
discretion necessary to complete this exchange offer.
These conditions are for our sole benefit. We may assert any one of these
conditions regardless of the circumstances giving rise to it and may also waive
any one of them, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that it has not been satisfied, subject
to applicable law. Notwithstanding the foregoing, all conditions to the exchange
offer must be satisfied or waived before the expiration of this exchange offer.
If we waive a condition to this exchange offer, the waiver will be applied
equally to all note holders. We will not be deemed to have waived our rights to
assert or waive these conditions if we fail at any time to
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exercise any of them. Each of these rights will be deemed an ongoing right which
we may assert at any time and from time to time.
If we determine that we may terminate this exchange offer because any of
the conditions set forth above is not satisfied, we may:
(1) refuse to accept and return to their holders any initial notes that
have been tendered;
(2) extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes
to withdraw their tenders; or
(3) waive any condition that has not been satisfied and accept all
properly tendered notes that have not been withdrawn or otherwise
amend the terms of this exchange offer in any respect as provided
under the section in this prospectus entitled "-- Expiration Date;
Extensions; Amendments; Termination."
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the initial
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
EXCHANGE AGENT
We have appointed The Bank of New York as exchange agent for this exchange
offer. You should direct all questions and requests for assistance on the
procedures for tendering and all requests for additional copies of this
prospectus or the letter of transmittal to the exchange agent as follows:
By mail:
The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, New York 10286
Attention: Mr. Santino Ginocchietti
By hand/overnight delivery:
The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, New York 10286
Attention: Mr. Santino Ginocchietti
Facsimile Transmission: (212) 298-1915
Confirm by Telephone: (212) 815-6331
Attention: Mr. Santino Ginocchietti
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer. We will also pay brokerage houses and other custodians, nominees
and fiduciaries their reasonable out-of-pocket expenses for forwarding copies of
the prospectus, letters of transmittal and related documents to the beneficial
owners of the initial notes and for handling or forwarding tenders for exchange
to their customers.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes in accordance with this exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other persons, if:
(1) certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the initial notes tendered,
(2) tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal, or
(3) a transfer tax is payable for any reason other than the exchange of
the initial notes in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly the amount of these transfer taxes and will not deliver
initial notes or exchange notes giving rise to such transfer taxes until we are
satisfied that such taxes have been paid.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your initial notes in this exchange offer, you will not be able to
resell, offer to resell or otherwise transfer the initial notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act.
In addition, except as set forth in this paragraph, you will not be able to
obligate us to register the initial notes under the Securities Act. You will not
be able to require us to register your initial notes under the Securities Act
unless:
(1) the initial purchasers request us to register initial notes that are
not eligible to be exchanged for exchange notes in the exchange offer;
or
(2) you are not eligible to participate in the exchange offer or do not
receive freely tradable exchange notes in the exchange offer,
in which case the registration rights agreement requires us to file a
registration statement for a continuous offer in accordance with Rule 415 under
the Securities Act for the benefit of the holders of the initial notes described
in clauses (1) and (2) above. We do not currently anticipate that we will
register under the Securities Act any notes that remain outstanding after
completion of the exchange offer.
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DELIVERY OF PROSPECTUS
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes, where such initial notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
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DESCRIPTION OF THE NOTES
The following is a summary of the material terms of the indenture governing
the notes. This summary does not include all the provisions of the indenture,
nor does it include certain terms made a part of the indenture by the Trust
Indenture Act of 1939, as amended. You can find definitions of certain
capitalized terms used in the following summary under the subheading "-- Certain
Definitions." Certain terms contained in this summary but not capitalized in
this summary or defined under the subheading "-- Certain Definitions" are
defined in the indenture.
GENERAL
METHODS OF PAYMENT
The principal of, premium, if any, and interest on the notes will be
payable, and the notes may be exchanged or transferred, at the office or agency
of SpectraSite in the Borough of Manhattan, The City of New York. The initial
office for transfers is the office of the trustee, at 101 Barclay Street, New
York, New York 10286 Attention: Corporate Trust Operations, 7th Floor, East.
However, at SpectraSite's option, interest payments may be made by check mailed
to the registered holders of the notes at their registered addresses.
METHODS OF ISSUANCE
SpectraSite will issue the notes only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of a transfer or an exchange of
notes, but SpectraSite may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
Subject to the covenants described below under "-- Certain Covenants,"
SpectraSite may issue additional notes under the indenture, subject to the
limitation set forth under "-- Certain Covenants -- Limitation on Indebtedness,"
Any additional notes issued under the indenture will be treated as the same
class of notes initially issued under the indenture.
TERMS OF THE NOTES
The notes:
o are unsecured senior obligations of SpectraSite;
o are unlimited in aggregate principal amounts of which $200.0 million
in aggregate principal amount was issued in the offering of the
initial notes;
o are effectively subordinated in right of payment to all existing and
future secured Indebtedness of SpectraSite and all obligations,
including trade payables, of its subsidiaries;
o are senior in right of payment to any future subordinated Indebtedness
of SpectraSite; and
o mature on May 15, 2010.
The notes will accrue interest from the issue date, payable each May 15 and
November 15, commencing November 15, 2003. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.
REDEMPTION
TERMS OF OPTIONAL REDEMPTION
Prior to May 15, 2006, SpectraSite may redeem up to 35% of the principal
amount of the notes at any time and from time to time but only from the proceeds
of Equity Offerings. The redemption price for any such redemption
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will be 108.25% of the principal amount of the notes being redeemed, plus
accrued and unpaid interest and liquidated damages, if any, to the redemption
date. At least 65% of the principal amount of the notes originally issued
(excluding notes held by SpectraSite or any of its subsidiaries) must remain
outstanding after each such redemption, and each such redemption must occur
within 90 days after the date of closing of the related Equity Offering.
SpectraSite may redeem the notes at any time or from time to time on or
after May 15, 2006. SpectraSite shall pay accrued and unpaid interest and
liquidated damages, if any, on the principal amount of the notes being redeemed
to the redemption date. For any notes being redeemed in any twelve-month period
beginning on May 15 of the years indicated in Column A below, SpectraSite shall
pay a redemption price equal to the percentage of the principal amount of the
notes being redeemed set forth opposite such period in Column B below.
COLUMN A COLUMN B
PERIOD REDEMPTION PRICE
2006....................................................... 104.125%
2007....................................................... 102.750%
2008....................................................... 101.375%
2009 and thereafter........................................ 100.000%
PARTIAL REDEMPTION: SELECTION AND NOTICE
In the case of any partial redemption, the trustee will select the notes
for redemption:
o in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or
o if the notes are not so listed, on a pro rata basis, by lot or by such
other method as the trustee in its sole discretion shall deem to be
fair and appropriate. However, no note of $1,000 or less in original
principal amount will be redeemed in part.
SpectraSite will send notice by first class mail at least 30, but not more
than 60, days before the redemption date to each holder of a note to be redeemed
at its registered address. Notes called for redemption become due on the date
fixed for redemption. If any note is to be redeemed in part only, the notice of
redemption relating to such note shall state the portion of the principal amount
thereof to be redeemed. A new note, in principal amount equal to the unredeemed
portion of the partially redeemed note, will be issued in the name of the holder
thereof upon cancellation of the original note.
RANKING
The Indebtedness evidenced by the notes:
o is unsecured Indebtedness of SpectraSite;
o will rank ratably in right of payment with all existing and future
unsecured Senior Indebtedness of SpectraSite;
o will be senior in right of payment to all existing and future
Subordinated Obligations of SpectraSite; and
o will be effectively subordinated to all obligations, including trade
payables, of its subsidiaries.
In addition, the notes will be effectively subordinated to all existing and
future secured Indebtedness of SpectraSite to the extent of the value of the
assets securing such Indebtedness and will be structurally subordinated to all
existing and future Indebtedness and other liabilities of any of SpectraSite's
subsidiaries.
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At March 31, 2003, after giving effect to the offering of the initial notes
and the amendment to our credit facility, our only debt outstanding would have
been the $200.0 million of senior notes issued in the offering of the initial
notes and our subsidiaries would have had approximately $512.9 million of
secured debt and the ability to borrow up to an additional $200 million in
secured debt and letters of credit under our existing credit facility, subject
to certain conditions. Although the indenture contains limitations on the amount
of additional Indebtedness which SpectraSite and its subsidiaries may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness or Secured
Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness," "--
Certain Covenants -- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" and "Risk Factors -- Risks Relating to the Exchange
Notes -- Our substantial indebtedness could impair our financial condition."
SpectraSite conducts all of its operations through subsidiaries and,
therefore, SpectraSite depends upon the cash flow of its subsidiaries to meet
its obligations, including its obligations under the notes. SpectraSite's
subsidiaries will not be guarantors of the notes and are separate entities, with
no obligation to make payments on the notes or to make funds available therefor.
Generally, with respect to the assets and earnings of such subsidiaries,
priority will be given to claims of the subsidiaries' creditors, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by the subsidiaries, and claims of preferred stockholders, if any, of the
subsidiaries over the claims of SpectraSite's creditors, including holders of
the notes. The notes, therefore, will be effectively subordinated to all
Indebtedness, preferred stock, if any, and other liabilities and commitments of
SpectraSite's subsidiaries. The provisions of our credit facility contain
substantial restrictions on the ability of our subsidiaries to transfer cash or
assets to SpectraSite by dividend or distribution. These restrictions can be
changed without the consent of note holders. Although the indenture limits the
incurrence of Indebtedness and preferred stock of certain of SpectraSite's
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the indenture does not impose any limitation on the
subsidiaries' incurrence of liabilities that are not considered Indebtedness or
preferred stock under the indenture and does not restrict SpectraSite's
subsidiaries from guaranteeing other debt of SpectraSite. See "-- Certain
Covenants -- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" and "Risk Factors -- SpectraSite is a holding company and its only
source of cash to pay interest on, and the principal of, the notes is
distributions from Communications."
As of the date of the indenture, all of SpectraSite's subsidiaries, other
than SpectraSite International, Inc., are Restricted Subsidiaries. However,
under certain circumstances, SpectraSite may designate current or future
subsidiaries as Unrestricted Subsidiaries, which will not be subject to many of
the restrictive covenants set forth in the indenture.
CHANGE OF CONTROL
If a Change of Control Triggering Event occurs, each registered holder of
notes will have the right to require SpectraSite to repurchase all or any part
of such holder's notes, at a purchase price in cash equal to 101% of the
principal amount as of the repurchase date, plus accrued and unpaid interest, if
any, to the repurchase date.
Within 30 days following any Change of Control Triggering Event,
SpectraSite shall mail a notice to each holder, with a copy to the trustee,
stating:
o that a Change of Control Triggering Event has occurred and that each
holder has the right to require SpectraSite to purchase such holder's
notes at a purchase price in cash equal to 101% of the principal
amount as of the repurchase date plus accrued and unpaid interest and
liquidated damages, if any, to the repurchase date;
o the circumstances and relevant facts regarding such Change of Control,
including information with respect to pro forma historical income,
cash flow and capitalization, after giving effect to the Change of
Control;
o the repurchase date, which shall be no earlier than 30 days nor later
than 60 days, from the date such notice is mailed; and
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o the instructions SpectraSite determines, consistent with this
covenant, that a holder must follow in order to have its notes
purchased.
The definition of Change of Control includes the phrase "all or
substantially all" as used with respect to a sale of assets. The meaning of
"substantially all" varies according to the facts and circumstances of the
subject transaction. There is no clearly established meaning of "substantially
all" under New York law, the law governing the indenture, and the phrase thus is
subject to judicial interpretation. Accordingly, in certain circumstances, there
may be uncertainty about whether a particular transaction would involve a
disposition of all or substantially all of the assets of a person, and therefore
it may be unclear whether a Change of Control has occurred.
SpectraSite will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, SpectraSite will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue of its compliance with the law.
The indenture's provisions relative to SpectraSite's obligation to make an
offer to repurchase the notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the notes.
SpectraSite will not be required to make an offer, pursuant to this
covenant, upon a Change of Control, if a third party, in compliance with the
requirements set forth in the indenture applicable to SpectraSite's Change of
Control, makes an offer to purchase, and purchases, all notes validly tendered
and not withdrawn under such offer.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(1) SpectraSite shall not incur, directly or indirectly, any Indebtedness
unless on the date of such incurrence and after giving effect to such incurrence
and the application of the proceeds therefrom, the Indebtedness to Adjusted
EBITDA Ratio of SpectraSite would be equal to or less than 7.00:1. SpectraSite
may give pro forma effect to the incurrence of Indebtedness and the application
of proceeds from such incurrence when determining compliance with the ratio.
Accrual of interest, accretion or amortization of original issue discount and
the payment of interest in the form of additional Indebtedness will be deemed
not to be an incurrence of Indebtedness for purposes of this covenant.
(2) Despite the limitations described in paragraph (1), and regardless of
the amount of SpectraSite's outstanding Indebtedness, SpectraSite may incur any
or all of the following Indebtedness:
(a) Indebtedness of SpectraSite owing to and held by any Restricted
Subsidiary; PROVIDED, HOWEVER, that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary, or any
subsequent transfer of any such Indebtedness, except to another Restricted
Subsidiary, will be deemed to constitute an incurrence of such Indebtedness
by SpectraSite that is not permitted by this clause (a);
(b) Indebtedness represented by the notes issued on the Issue Date;
(c) any of SpectraSite's Indebtedness outstanding on the Issue Date;
(d) Indebtedness, including capital lease obligations, which
SpectraSite incurs to finance the acquisition, construction or improvement
of fixed or capital assets, in an aggregate principal amount, together with
the amount of any Indebtedness then outstanding and incurred pursuant to
clause (2)(f) of the "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" covenant, not to exceed the greater of:
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o $25.0 million; and
o an amount equal to 7.5% of SpectraSite's Consolidated Tangible
Assets, at any one time outstanding;
PROVIDED, that such Indebtedness is incurred within 180 days after the date of
such acquisition, construction or improvement, and does not exceed the fair
market value of such acquired, constructed or improved assets, as SpectraSite's
Board of Directors determines in good faith;
(e) Refinancing Indebtedness incurred in respect of any Indebtedness
incurred pursuant to paragraph (1) above, clause (2)(b) or (c) above or
this clause (2)(e);
(f) Indebtedness which is:
o in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds provided by SpectraSite in the
ordinary course of its business which do not secure other
Indebtedness; and
o incurred by SpectraSite under currency exchange protection
agreements and interest rate protection agreements which, at the
time of incurrence, are in the ordinary course of its business;
PROVIDED, HOWEVER, that the currency exchange protection
agreements and interest rate protection agreements are directly
related to Indebtedness which SpectraSite is permitted to incur
pursuant to the indenture;
(g) Indebtedness represented by guarantees by SpectraSite of
Indebtedness which any of SpectraSite's Restricted Subsidiaries otherwise
is permitted to incur pursuant to the indenture;
(h) Indebtedness of any other person, existing at the time such other
person is merged with or into SpectraSite, and outstanding on, or prior to,
the date on which such person was merged with or into SpectraSite, other
than Indebtedness incurred in connection with, or to provide all, or any
portion, of the funds or credit support utilized to consummate, the
transaction, or series of related transactions, pursuant to which such
person was merged with or into SpectraSite; provided, however, that on the
date of such merger and after giving it effect, SpectraSite either (x)
would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to paragraph (1) above or (y) would have had an Indebtedness to
Adjusted EBITDA Ratio immediately after giving effect to such merger no
greater than the Indebtedness to Adjusted EBITDA Ratio immediately prior to
such merger;
(i) Indebtedness not to exceed, at any one time outstanding, together
with the amount of any Indebtedness then outstanding and incurred pursuant
to clause (2)(i) of the "-- Limitation on Indebtedness and Preferred Stock
of Restricted Subsidiaries" covenant, 1.0 times:
o the sum of 100% of the aggregate Net Cash Proceeds and 50% of the
non-cash proceeds SpectraSite receives from the issue or sale of
its capital stock, other than Disqualified Stock, subsequent to
March 31, 2003, other than an issuance or sale to a SpectraSite
subsidiary or to an employee stock ownership plan or a trust
established by SpectraSite or any of its Restricted Subsidiaries,
less
o the aggregate amount of such Net Cash Proceeds used to make
Restricted Payments pursuant to clause (1)(c)(ii), or applied
pursuant to clause (2)(a)(ii), of the "-- Limitation on
Restricted Payments" covenant;
(j) other Indebtedness, in an aggregate principal amount outstanding at
any time, not to exceed $50.0 million, together with the amount of any
Indebtedness and preferred stock then outstanding and incurred pursuant to
clause (2)(j) of the "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" covenant;
(k) Indebtedness incurred by SpectraSite's subsidiaries in compliance
with the "-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant;
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(l) Indebtedness incurred under Credit Facilities, in an aggregate
principal amount outstanding at any time, together with the amount of any
Indebtedness then outstanding and incurred under clause (2)(a) of the "--
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries"
covenant, not to exceed the sum of:
o the product of $150,000 times the number of Completed Towers on
the date of such incurrence; and
o the product of $1,000,000 times the number of Completed Broadcast
Towers on the date of such incurrence; provided that the amount
of such indebtedness does not exceed 25% of the cost of acquiring
or constructing such Completed Broadcast Towers;
(m) Indebtedness representing the deferred payment of the purchase
price for any entity that is engaged in a Permitted Business and that
becomes a Restricted Subsidiary or the acquisition of any assets
constituting a business or line of business, as determined by the Board of
Directors, that is a Permitted Business, not to exceed at any one time
outstanding, together with any Indebtedness then outstanding and incurred
pursuant to clause 2(k) of the "-- Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries" covenant, 50% of the purchase price for
the related entity or business so acquired; provided, however, that after
giving effect to such acquisition and all Indebtedness incurred in
connection therewith, SpectraSite either (x) would be able to incur at
least $1.00 of additional Indebtedness under the "-- Limitation on
Indebtedness" covenant or (y) would have an Indebtedness to Adjusted EBITDA
Ratio no greater than prior to such transaction; and
(n) Indebtedness or acquired debt in aggregate principal amount not to
exceed $50.0 million at any one time outstanding together with any
Indebtedness then outstanding and incurred pursuant to clause 2(l) of the
"-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant, incurred or assumed in connection with the
acquisition of an entity that is engaged in a Permitted Business and that
becomes a Restricted Subsidiary or the acquisition of any assets
constituting a business or line of business, as determined by the Board of
Directors, that is a Permitted Business or incurred by such entity or the
owner of such assets and outstanding on the date of such acquisition.
(3) SpectraSite shall not incur any Indebtedness pursuant to the foregoing
paragraph (2) if it uses the proceeds thereof, directly or indirectly, to
refinance any Subordinated Obligations, unless such new Indebtedness shall:
(a) be subordinated to the notes to at least the same extent as such
Subordinated Obligations being refinanced; and
(b) have a Stated Maturity that is no earlier than the earlier of the
Stated Maturity of the notes or the Stated Maturity of the Subordinated
Obligations being refinanced.
(4) For purposes of determining compliance with this covenant:
(a) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, SpectraSite, in
its sole discretion, will classify (and may from time to time reclassify)
such Indebtedness, and only be required to include the amount and type of
such Indebtedness in one of the above clauses; and
(b) an item of Indebtedness may be divided and classified into more
than one of the types of Indebtedness described above.
LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
(1) SpectraSite shall not permit any Restricted Subsidiary to incur,
directly or indirectly, any Indebtedness or preferred stock unless, on the date
of and after giving effect to such incurrence and the application of the net
proceeds therefrom, the Indebtedness to Adjusted EBITDA Ratio of SpectraSite
would be equal to or less than 7.00:1. Accrual of interest, accretion or
amortization of original issue discount, and the payment of interest in the form
of additional Indebtedness, will be deemed not to be an incurrence of
Indebtedness for purposes of this covenant.
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(2) Despite the above paragraph (1), and regardless of the amount of the
Restricted Subsidiaries' outstanding Indebtedness, any Restricted Subsidiary may
incur any or all of the following Indebtedness:
(a) Indebtedness incurred under Credit Facilities, in an aggregate
principal amount outstanding at any time, together with the amount of any
Indebtedness then outstanding and incurred under clause (2)(l) of the "--
Limitation on Indebtedness" covenant, not to exceed the sum of (x) the
product of $150,000 times the number of Completed Towers on the date of
such incurrence and (y) the product of $1,000,000 times the number of
Completed Broadcast Towers on the date of such incurrence; provided that
the amount of such Indebtedness does not exceed 25% of the cost of
acquiring or constructing such Completed Broadcast Towers;
(b) Indebtedness or preferred stock of a Restricted Subsidiary issued
to, and held by, SpectraSite or a Restricted Subsidiary; provided, however,
that any subsequent issuance or transfer of any capital stock which results
in such Restricted Subsidiary ceasing to be a Restricted Subsidiary, or any
subsequent transfer of such Indebtedness or preferred stock, other than to
SpectraSite or a Restricted Subsidiary, shall be deemed to constitute an
incurrence of such Indebtedness or preferred stock by the issuer of such
preferred stock or Indebtedness;
(c) Indebtedness or preferred stock of a Restricted Subsidiary
incurred and outstanding on, or prior to, the date on which SpectraSite
acquired such Restricted Subsidiary, and Indebtedness or preferred stock of
an entity merged into a Restricted Subsidiary, other than, in either case,
Indebtedness or preferred stock incurred in connection with, or to provide
all, or any portion of, the funds or credit support utilized to consummate,
the transaction, or series of related transactions, pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or SpectraSite
acquired it or such entity was merged into such Restricted Subsidiary;
provided, however, that on the date of such acquisition or merger and after
giving it effect, SpectraSite either (x) would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (1) of the "--
Limitation on Indebtedness" covenant or (y) would have an Indebtedness to
Adjusted EBITDA Ratio immediately after giving effect to such merger or
acquisition no greater than the Indebtedness to Adjusted EBITDA Ratio
immediately prior to such transaction;
(d) Indebtedness or preferred stock outstanding on the Issue Date;
(e) Refinancing Indebtedness incurred in respect of Indebtedness or
preferred stock referred to in paragraph (1) above or clauses (2)(c) and
(d) above or this clause (e); provided that Indebtedness of SpectraSite may
not be refinanced pursuant to this clause (e);
(f) Indebtedness, including capital lease obligations, which a
subsidiary incurs to finance the acquisition, construction or improvement
of fixed or capital assets, in an aggregate principal amount at any one
time outstanding, together with the amount of any Indebtedness then
outstanding and incurred pursuant to clause (2)(d) of the "-- Limitation on
Indebtedness" covenant, not to exceed the greater of (x) $25.0 million and
(y) an amount equal to 7.5% of SpectraSite's Consolidated Tangible Assets;
provided, that such subsidiary incurs such Indebtedness within 180 days
after the date of such acquisition, construction or improvement, and that
the issue price of such Indebtedness does not exceed the fair market value
of such acquired, constructed or improved assets, as determined in good
faith by SpectraSite's Board of Directors;
(g) Indebtedness which is:
(i) in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds provided in the ordinary
course of its business, which do not secure other Indebtedness; and
(ii) incurred under currency exchange protection agreements and
interest rate protection agreements which, at the time of incurrence,
are in the ordinary course of business; provided, however, that the
currency exchange protection agreements and interest rate protection
agreements are directly related to Indebtedness which SpectraSite or
any of its subsidiaries is permitted to incur pursuant to the
indenture;
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(h) Indebtedness represented by guarantees by a subsidiary of
Indebtedness which SpectraSite or another subsidiary is otherwise permitted
to incur pursuant to the indenture;
(i) Indebtedness, not to exceed at any one time outstanding together
with the amount of any Indebtedness then outstanding and incurred pursuant
to clause (2)(i) of the "-- Limitation on Indebtedness" covenant, 1.0
times:
o the sum of 100% of the aggregate Net Cash Proceeds and 50% of the
non-cash proceeds SpectraSite receives from the issue or sale of its
capital stock, other than Disqualified Stock, subsequent to March 31,
2003, other than an issuance or sale to a SpectraSite subsidiary or to
an employee stock ownership plan or to a trust established by
SpectraSite or any of its Restricted Subsidiaries, less
o the amount of such Net Cash Proceeds used to make Restricted Payments
pursuant to clause (1)(c)(ii) of the "-- Limitation on Restricted
Payments" covenant, or applied pursuant to clause (2)(a)(ii)of the "--
Limitation on Restricted Payments" covenant;
(j) other Indebtedness and preferred stock, in an aggregate principal
and/or liquidation amount, not to exceed at any time outstanding $50.0
million, less the amount of any indebtedness then outstanding and incurred
pursuant to clause (2)(i) of the "-- Limitation on Indebtedness" covenant;
(k) Indebtedness representing the deferred payment of the purchase
price for any entity that is engaged in a Permitted Business and that
becomes a Restricted Subsidiary or the acquisition of any assets
constituting a business or line of business, as determined by the Board of
Directors, that is a Permitted Business, not to exceed at any one time
outstanding, together with any Indebtedness then outstanding and incurred
pursuant to clause 2(m) of the "-- Limitation on Indebtedness" covenant,
50% of the purchase price for the related entity or business so acquired;
provided, however, that after giving effect to such acquisition and all
Indebtedness incurred in connection therewith, SpectraSite either (x) would
be able to incur at least $1.00 of additional Indebtedness under the "--
Limitation on Indebtedness" covenant or (y) would have an Indebtedness to
Adjusted EBITDA Ratio no greater than prior to such transaction; and
(l) Indebtedness or acquired debt in aggregate principal amount not to
exceed $50.0 million at any one time outstanding, together with any
Indebtedness then outstanding and incurred pursuant to clause 2(n) of the
"-- Limitation on Indebtedness" covenant incurred or assumed in connection
with the acquisition of an entity that is engaged in a Permitted Business
and that becomes a Restricted Subsidiary or the acquisition of any assets
constituting a business or line of business, as determined by the Board of
Directors, that is a Permitted Business or incurred by such entity or the
owner of such assets and outstanding on the date of such acquisition.
(3) For purposes of determining compliance with this covenant:
(a) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, SpectraSite, in
its sole discretion, will classify (and may from time to time reclassify)
such Indebtedness, and only be required to include the amount and type of
such Indebtedness in one of the above clauses; and
(b) an item of Indebtedness may be divided and classified into more
than one of the types of Indebtedness described above.
(4) SpectraSite will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt.
LIMITATION ON RESTRICTED PAYMENTS
(1) SpectraSite will not make, and will not permit any Restricted
Subsidiary to make, directly or indirectly, any Restricted Payment, if at the
time SpectraSite or the Restricted Subsidiary makes the Restricted Payment:
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(a) a default or event of default will have occurred and be
continuing, or would result therefrom;
(b) except with respect to making an Investment, SpectraSite could not
incur at least $1.00 of additional Indebtedness under paragraph (i) of the
"-- Limitation on Indebtedness" covenant; or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments, which amount, if other than in cash, SpectraSite's
Board of Directors will determine in good faith, and will evidence such
determination by a Board of Directors' resolution, declared or made
subsequent to the Issue Date would exceed the sum of:
(i) the aggregate EBITDA (whether positive or negative) accrued
subsequent to March 31, 2003 to the most recent date for which
financial information is available to SpectraSite, taken as one
accounting period, less 1.4 times Consolidated Interest Expense for the
same period; plus
(ii) 100% of the aggregate Net Cash Proceeds, less the aggregate
amount of such Net Cash Proceeds used to incur Indebtedness pursuant to
clause (2)(i) of the "-- Limitation on Indebtedness" covenant and
clause (2)(i) of the "-- Limitation on Indebtedness and Preferred Stock
of Restricted Subsidiaries" covenant, plus 70% of the GAAP purchase
accounting valuation of Qualified Proceeds, with each such valuation
calculated as of the sale date of the capital stock received as
consideration therefor, in each case received by SpectraSite from the
issue or sale of capital stock, other than Disqualified Stock,
subsequent to March 31, 2003, other than an issuance or sale to one of
SpectraSite's subsidiaries, and other than an issuance or sale to an
employee stock ownership plan, or to a trust established by SpectraSite
or any of its Restricted Subsidiaries; plus
(iii) the amount by which SpectraSite's Indebtedness is reduced on
SpectraSite's balance sheet, upon conversion or exchange, other than by
a Restricted Subsidiary, subsequent to March 31, 2003 of any
SpectraSite Indebtedness which is convertible or exchangeable for
SpectraSite's capital stock, other than Disqualified Stock, less the
amount of any cash, or the fair value of any other property,
distributed by SpectraSite upon such conversion or exchange; plus
(iv) an amount equal to the sum of the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances, or other transfers of assets to
SpectraSite or any Restricted Subsidiary from Unrestricted
Subsidiaries, plus the portion, proportionate to SpectraSite's equity
interest in such subsidiary, of the fair market value of the net
assets of an Unrestricted Subsidiary, at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; plus
(v) dividends and distributions SpectraSite receives, subsequent
to March 31, 2003, from Unrestricted Subsidiaries, to the extent such
dividends and distributions are not otherwise included in calculating
EBITDA; plus
(vi) Net Cash Proceeds SpectraSite receives, subsequent to March
31, 2003, from Investments that are not Permitted Investments, to the
extent not otherwise included in calculating EBITDA.
The sum in clause (iv) above shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments SpectraSite or any Restricted
Subsidiary previously made in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments.
(2) The provisions of paragraph (1) of this covenant will not prohibit:
(a) any purchase, redemption, defeasance or other acquisition of
SpectraSite's capital stock or Subordinated Obligations made by exchange
for, or out of the net proceeds of the substantially concurrent sale of,
SpectraSite's capital stock, other than Disqualified Stock and other than
capital stock issued or sold to a SpectraSite subsidiary, or an employee
stock ownership plan, or a trust established by SpectraSite or any of its
subsidiaries; provided, however, that:
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(i) such purchase, redemption, defeasance or other acquisition
will be excluded in the calculation of the amount of Restricted
Payments; and
(ii) to the extent applied toward any such purchase, redemption,
defeasance or other acquisition, the Net Cash Proceeds from such sale
will be excluded from clause (1)(c)(ii) above, clause (2)(i) of the "--
Limitation on Indebtedness" covenant and clause (2)(i) of the "--
Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant;
(b) any purchase, redemption, defeasance or other acquisition of
Subordinated Obligations made by exchange for, or out of the net proceeds
of the substantially concurrent sale of, SpectraSite's Subordinated
Obligations; provided, however, that:
(i) the principal amount of such new Indebtedness does not
exceed the principal amount of the Subordinated Obligations being so
redeemed, repurchased, acquired or retired for value, plus the amount
of any premium required to be paid under the terms of the instrument
governing the Subordinated Obligations being so redeemed, repurchased,
acquired or retired;
(ii) such new Indebtedness is subordinated to the notes at least
to the same extent as the Subordinated Obligations so purchased,
exchanged, redeemed, repurchased, acquired or retired for value;
(iii) such new Indebtedness has a final scheduled maturity date
later than the earlier of the final scheduled maturity date of the
Subordinated Obligations being so redeemed, repurchased, acquired or
retired and the final scheduled maturity date of the notes;
(iv) such new Indebtedness has an Average Life equal to or
greater than the lesser of the Average Life of the Indebtedness being
so redeemed, repurchased, acquired or retired and the Average Life of
the notes; and
(v) any purchase, redemption, defeasance or other acquisition
made pursuant to this clause 2(b) will be excluded in the calculation
of the amount of Restricted Payments;
(c) dividends paid within 60 days after the date of their declaration,
if at such date of declaration such dividend would have complied with this
covenant;
(d) purchases of outstanding shares of SpectraSite's capital stock
from former employees, in an amount not to exceed $5.0 million in the
aggregate; and
(e) additional Restricted Payments in an aggregate principal amount
not to exceed $25.0 million.
Any Restricted Payment made pursuant to clause (2)(c), 2(d) or 2(e) above
will be included in the calculation of Restricted Payments.
The Restricted Payments described in clauses (2)(a), (b), (d) or (e) above
shall not be permitted if at the time of, and after giving effect to, such
Restricted Payments, a default or an event of default shall have occurred and be
continuing.
The amount of any Investment shall be measured on the date made and shall
not give effect to subsequent changes in value.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
SpectraSite will not, and will not permit any Restricted Subsidiary to,
create, or otherwise cause or permit to exist or become effective, any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
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(1) pay dividends or make any other distributions on its capital stock to
SpectraSite or to a Restricted Subsidiary, or pay any Indebtedness or other
obligation owed to SpectraSite;
(2) make any loans or advances to SpectraSite; or
(3) transfer any of its property or assets to SpectraSite or any
Restricted Subsidiary, except:
(a) any encumbrance or restriction pursuant to a Credit Facility or
any agreement in effect on the Issue Date;
(b) any encumbrance or restriction, with respect to a Restricted
Subsidiary, pursuant to an agreement relating to any Indebtedness or
capital stock that it incurred or issued on, or prior to, the date on which
SpectraSite or a Restricted Subsidiary acquired it, other than Indebtedness
or capital stock incurred or issued as consideration for, or to provide any
portion of the funds or credit support utilized to consummate, the
transaction, or series of related transactions, pursuant to which such
Restricted Subsidiary became a subsidiary, or SpectraSite or a Restricted
Subsidiary acquired it, and outstanding on such date;
(c) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Indebtedness incurred, pursuant to an agreement referred
to in clause (a) or (b) above, or contained in any amendment to an
agreement referred to in clause (a) or (b) above; provided, however, that
the encumbrances and restrictions contained in any such refinancing
agreement or amendment, taken as a whole, with respect to a Restricted
Subsidiary, are no less favorable to the holders of the notes than the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such predecessor agreements, as determined by SpectraSite's
Board of Directors in good faith;
(d) in the case of paragraph (3), any encumbrance or restriction that
restricts, in a customary manner, the subletting, assignment or transfer of
any property or asset that is subject to a lease, license or other contract
or such lease, license or other contract;
(e) in the case of paragraph (3), contained in security agreements or
mortgages securing a Restricted Subsidiary's Indebtedness, to the extent
such encumbrances or restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
(f) any restriction with respect to a Restricted Subsidiary, imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of such Restricted Subsidiary's capital stock or assets,
pending the closing of such sale or disposition;
(g) customary provisions with respect to the disposition or
distribution of assets or property in joint venture and other similar
agreements; and
(h) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
provided that the Board of Directors determines in good faith that such
restrictions will not have a material adverse impact on SpectraSite's
ability to make payments on the notes.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(1) SpectraSite will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(a) SpectraSite or such Restricted Subsidiary receives consideration,
at the time of such Asset Disposition, at least equal to the fair market
value, including as to the value of all non-cash consideration, as
SpectraSite's Board of Directors determines in good faith, of the shares
and assets subject to such Asset Disposition; and
(b) except in the case of a Tower Asset Exchange, at least 75% of the
consideration SpectraSite or such Restricted Subsidiary receives is in the
form of cash or cash equivalents.
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(2) Within 365 days after the receipt of any Net Available Cash from an
Asset Disposition, SpectraSite or the applicable Restricted Subsidiary may apply
such Net Available Cash to:
(a) prepay, repay, redeem or purchase Indebtedness, other than
Disqualified Stock, of a Restricted Subsidiary of SpectraSite, provided
that the applicable Restricted Subsidiary also may prepay, repay, redeem or
purchase its own outstanding Indebtedness, or Senior Indebtedness, in each
case other than Indebtedness owed to SpectraSite or an Affiliate of
SpectraSite;
(b) acquire all or substantially all of the assets of an entity
engaged in a Permitted Business;
(c) acquire Voting Stock of an entity engaged in a Permitted Business
from a person that is not a SpectraSite subsidiary; provided, that after
giving effect thereto, SpectraSite or its Restricted Subsidiary owns a
majority of such Voting Stock, and such acquisition otherwise is made in
accordance with the indenture, including, without limitation, the "--
Limitation on Restricted Payments" covenant; or
(d) make a capital expenditure or acquire other long-term assets that
are used or useful in a Permitted Business.
To the extent of the balance of such Net Available Cash, after application
in accordance with clause (2)(a), (b), (c) or (d) above, SpectraSite shall make
an offer to all holders of notes and all holders of other Indebtedness that is
PARI PASSU with the notes containing provisions similar to those set forth in
the indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of notes and such other
PARI PASSU Indebtedness that may be purchased out of the Net Available Cash
subject to, the conditions set forth below.
(3) Notwithstanding the foregoing provisions, SpectraSite and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance with this covenant, except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $10.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments or may be used to temporarily reduce revolving credit
borrowings under a Credit Facility.
(4) For the purposes of this covenant, the following are deemed to be
cash:
(a) the transferee's assumption of SpectraSite's Indebtedness, other
than SpectraSite's Disqualified Stock, and other than Indebtedness that is
subordinated to the notes, or any Restricted Subsidiary's Indebtedness and
the release of SpectraSite or the Restricted Subsidiary from all liability
on such Indebtedness in connection with the Asset Disposition;
(b) securities that SpectraSite or any Restricted Subsidiary receives
from the transferee that SpectraSite or the Restricted Subsidiary converts
into cash within 20 days of the applicable Asset Disposition, to the extent
of the cash received; and
(c) the transferee's assumption of any of SpectraSite's or any
Restricted Subsidiary's liabilities, as shown on SpectraSite's or such
Restricted Subsidiary's most recent balance sheet, other than contingent
liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee thereof, pursuant to a customary novation agreement
that releases SpectraSite or the Restricted Subsidiary from further
liability.
(5) In the event of an Asset Disposition that requires an offer to
purchase notes pursuant to paragraph (2) of this covenant, SpectraSite will be
required to purchase notes tendered, pursuant to SpectraSite's offer for the
notes, at a purchase price of:
o 100% of their principal amount as of the purchase date, without
premium, plus
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o accrued and unpaid interest and liquidated damages, if any, to the
purchase date, in accordance with the procedures, including prorating
in the event of oversubscription, set forth in the indenture.
If the aggregate purchase price for notes tendered pursuant to the offer is
less than the Net Available Cash allotted to the notes purchase, SpectraSite may
use any remaining Net Available Cash for general corporate purposes not
otherwise prohibited by the indenture.
If the aggregate purchase price of notes and other PARI PASSU Indebtedness
tendered into such offer exceeds the amount of Net Available Cash, the trustee
will select the notes and such other PARI PASSU Indebtedness to be purchased on
a pro rata basis. Upon completion of any required offer to the holders, the
amount of Net Available Cash will be reset at zero. SpectraSite shall not be
required to make an offer for notes pursuant to this covenant if the Net
Available Cash available therefor, after application of the proceeds as provided
in paragraph (2) of this covenant, is less than $10.0 million for all Asset
Dispositions, which lesser amounts shall be carried forward, for purposes of
determining whether an offer is required, with respect to the Net Available
Cash, from any subsequent Asset Disposition.
(6) SpectraSite will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with a notes repurchase pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, SpectraSite will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue of its compliance with the law.
(7) The provisions of this covenant shall not apply to any transaction
that is permitted under the provisions of the covenant described under "--
Merger and Consolidation."
LIMITATION ON TRANSACTIONS WITH AFFILIATES
(1) SpectraSite will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into or conduct any transaction, or series of
transactions, including the purchase, sale, lease or exchange of any property,
employee compensation arrangements, or the rendering of any service, with any
SpectraSite Affiliate unless:
(a) the terms of such transaction, taken as a whole, are no less
favorable to SpectraSite or such Restricted Subsidiary, as the case may be,
than those that could be obtained, at the time of such transaction, in
arm's-length dealings with a person who is not an Affiliate;
(b) in the event such affiliate transaction involves an aggregate
amount in excess of $5.0 million, the terms of such transaction are set
forth in writing and shall have been approved by a majority of the members
of the Board of Directors having no personal stake in such affiliate
transaction, and such majority determines that the affiliate transaction
satisfies the criteria in clause (1)(a) above; and
(c) in the event such affiliate transaction involves an aggregate
amount in excess of $10.0 million, SpectraSite has received a written
opinion from a nationally recognized independent investment banking firm
that such affiliate transaction is fair to SpectraSite and its Restricted
Subsidiaries from a financial point of view.
(2) The provisions of paragraph (1) above shall not prohibit:
(a) any Restricted Payment permitted to be made pursuant to the "--
Limitation on Restricted Payments" covenant;
(b) any securities issuance, or other payments, awards or grants in
cash, securities or otherwise, pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors, or any arrangements relating thereto;
(c) the grant of stock options or similar rights to SpectraSite's
employees and directors, pursuant to plans approved by the Board of
Directors;
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(d) loans or advances to employees, in the ordinary course of
business, in accordance with SpectraSite's or its Restricted Subsidiaries'
past practices;
(e) the payment of reasonable fees to directors of SpectraSite and its
Restricted Subsidiaries who are not employees of SpectraSite or its
Restricted Subsidiaries;
(f) any transaction between SpectraSite and a Restricted Subsidiary or
between Restricted Subsidiaries;
(g) the issuance or sale of any SpectraSite capital stock, other than
Disqualified Stock;
(h) any transaction consummated pursuant to the terms of any agreement
described in SpectraSite's Form 10-K for the year ended December 31, 2002,
or SpectraSite's Forms 10-Q or Forms 8-K filed prior to the Issue Date,
including the exhibits and documents included or incorporated by reference
therein, giving effect to any subsequent supplements, amendments,
modifications or alterations thereof that are approved by the disinterested
members of SpectraSite's Board of Directors;
(i) any transaction in the ordinary course of business between
SpectraSite or any Restricted Subsidiary and any Affiliate of SpectraSite
relating to the acquisition, management, construction, leasing or licensing
of towers; provided, however, that such transaction is on terms that are no
less favorable, taken as a whole, to SpectraSite or the relevant Restricted
Subsidiary than those that could have been obtained in a comparable
transaction by SpectraSite or such Restricted Subsidiary with an unrelated
person or is otherwise on terms that, taken as a whole, SpectraSite has
determined to be fair to SpectraSite or the relevant Restricted Subsidiary;
and
(j) any transaction between SpectraSite or any of its Restricted
Subsidiaries and any of its Affiliates involving ordinary course investment
banking, commercial banking or related activities.
LIMITATION ON LIENS
SpectraSite will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, or permit to exist, any Lien, other than
Permitted Liens, on any of its property or assets, including capital stock,
whether owned on the Issue Date or thereafter acquired, securing any obligation,
unless effective provision is made contemporaneously to secure the notes equally
and ratably with or, in the case of Subordinated Obligations, on a senior basis
to such obligation, for so long as the obligation is so secured.
LIMITATION ON SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
SpectraSite will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Restricted
Subsidiary's capital stock to any person, other than to SpectraSite or to a
Wholly Owned Subsidiary of SpectraSite, and will not permit any Restricted
Subsidiary to issue any of its capital stock to any person, other than to
SpectraSite or a subsidiary of SpectraSite, and other than shares of its capital
stock constituting directors' qualifying shares or the ownership by foreign
nationals of capital stock of any Restricted Subsidiary, to the extent necessary
or mandated by applicable law, unless in either case:
(a) SpectraSite's and its Restricted Subsidiaries' minority equity
interest in such person, after giving effect to any such disposition, would be
permitted under the "-- Limitation on Restricted Payments" covenant; and
(b) the net cash proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the "-- Limitation on Sales of
Assets and Subsidiary Stock" covenant.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
SpectraSite will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless:
(1) SpectraSite or such Restricted Subsidiary would be entitled to:
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(a) Incur Indebtedness in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, pursuant to
the "-- Limitation on Indebtedness" covenant; and
(b) create a Lien on such property securing such Attributable
Indebtedness, without equally and ratably securing the notes, pursuant to
the "-- Limitation on Liens" covenant;
(2) the net cash proceeds received by SpectraSite or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least equal
to the fair value of such property, as determined by SpectraSite's Board of
Directors in good faith; and
(3) the transfer of such property is permitted by, and SpectraSite or such
Restricted Subsidiary applies the proceeds of such transaction in compliance
with, the "-- Limitation on Sales of Assets and Subsidiary Stock" covenant.
SECURITIES AND EXCHANGE COMMISSION REPORTS
Notwithstanding that SpectraSite may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act,
SpectraSite will file with the Securities and Exchange Commission, unless the
Securities and Exchange Commission does not permit such filing, and provide the
trustee and note holders with, the annual reports and such information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act. SpectraSite also will comply with the other provisions, including
Section 314(a), of the Trust Indenture Act.
MERGER AND CONSOLIDATION
SpectraSite will not, in one transaction or a series of transactions,
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any person, unless:
(1) the resulting, surviving or transferee person (the Successor Issuer)
will be a person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia, and the Successor
Issuer, if not SpectraSite, will expressly assume, by supplemental indenture,
executed and delivered to the trustee, in form satisfactory to the trustee, all
of SpectraSite's obligations under the notes and the indenture;
(2) immediately after giving effect to such transaction on a pro forma
basis, and treating any Indebtedness which becomes an obligation of the
Successor Issuer, or any Restricted Subsidiary, as a result of such transaction,
as having been incurred by the Successor Issuer, or such Restricted Subsidiary,
at the time of such transaction, no default or event of default will have
occurred and be continuing;
(3) except in the case of (A) a merger of SpectraSite into a Wholly Owned
Subsidiary, (B) a merger SpectraSite enters into solely for the purpose of
reincorporating in another jurisdiction, or (C) a merger SpectraSite enters into
solely for the purpose of forming a holding company to hold all of the
outstanding capital stock of SpectraSite, immediately after giving effect to
such transaction, on a pro forma basis, as if such transaction had occurred at
the beginning of the applicable four quarter period, SpectraSite, or the person
formed by, or surviving, any such consolidation or merger, if other than
SpectraSite, or to which such conveyance, transfer, lease or other disposition
shall have been made, either (x) would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to paragraph (1) of the "--Limitation
on Indebtedness" covenant above or (y) would have had an Indebtedness to
Adjusted EBITDA Ratio immediately after giving effect to such consolidation,
merger, conveyance, transfer, lease or other disposition no greater than the
Indebtedness to Adjusted EBITDA Ratio immediately prior to such transaction; and
(4) SpectraSite will have delivered to the trustee an officer's
certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture, if any, comply with the
indenture, as set forth in the indenture.
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The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of, SpectraSite under the indenture, and the
predecessor issuer, in the case of a conveyance, transfer or lease of all or
substantially all of its assets, will be released from the obligations under the
indenture and the notes, including, without limitation, the obligation to pay
the principal of and interest on the notes.
DEFAULTS
An Event of Default is defined in the indenture as:
(1) a default in the payment of interest or liquidated damages, if any,
when due, on any note, continued for 30 days;
(2) a default in the payment of principal, when due, of any note at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise;
(3) SpectraSite's failure to comply with its obligations under "-- Merger
and Consolidation;"
(4) SpectraSite's failure to comply, for 30 days after notice, with any of
its obligations under the covenants described under "-- Change of Control" or
"-- Certain Covenants;"
(5) SpectraSite's failure to comply, for 60 days after notice, with its
other agreements contained in the notes or the indenture;
(6) SpectraSite's failure, or the failure of any of SpectraSite's
Significant Subsidiaries, to pay any Indebtedness within any applicable grace
period, after final maturity, or the acceleration of any such Indebtedness by
the holders thereof, because of a default, if the total amount of such
Indebtedness, unpaid or accelerated, exceeds $10.0 million or its foreign
currency equivalent (the cross-acceleration provision);
(7) certain events of bankruptcy, insolvency or reorganization of
SpectraSite or any of SpectraSite's Significant Subsidiaries (the bankruptcy
provisions); or
(8) any final judgment or decree, for the payment of money in excess of
$10.0 million, is rendered against SpectraSite or any of SpectraSite's
Significant Subsidiaries, net of any amounts with respect to which a
creditworthy insurance company has acknowledged full liability, subject to any
deductible amounts of less than $10.0 million required to be paid by SpectraSite
or such Significant Subsidiary in accordance with the applicable insurance
policy, and either:
(a) an enforcement proceeding has been commenced by any creditor upon
such judgment or decree; or
(b) such judgment or decree remains outstanding for a period of 60
days following the judgment and is not discharged, waived or stayed within
10 days after notice (the judgment default provision).
The foregoing will constitute events of default whatever the reason for any
such event of default, and whether it is voluntary or involuntary, or is
effected by operation of law, or pursuant to any judgment, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body.
However, a default under clauses (4), (5) and (8) above will not constitute
an event of default until the trustee or the holders of 25%, in aggregate
principal amount, of the outstanding notes notify SpectraSite, as provided in
the indenture, of the default and SpectraSite does not cure such default within
the time specified in clauses (4), (5) and (8) above, after it receives notice.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25%, in aggregate principal amount, of the outstanding notes, by
notice to SpectraSite, may declare the principal amount of, and accrued but
unpaid interest on, all the notes to be due and payable. Upon such a
declaration, such principal amount and interest will be due and payable
immediately. If an event of default relating to certain events of bankruptcy,
insolvency or
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reorganization of SpectraSite occurs and is continuing, the principal amount of,
and accrued interest on, all the notes automatically will become due and payable
immediately, without any declaration or other act on the part of the trustee or
any holders. Under certain circumstances, the holders of a majority, in
aggregate principal amount, of the outstanding notes may rescind any such
acceleration, with respect to the notes, and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture, at the request or direction of any of the holders of notes, unless
such holders shall have offered to the trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder may
pursue any remedy with respect to the indenture or the notes unless:
o such holder shall have previously given the trustee notice that an
event of default is continuing;
o holders of at least 25%, in aggregate principal amount, of the
outstanding notes shall have requested the trustee to pursue the
remedy;
o such holders shall have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
o the trustee shall not have complied with such request, within 60 days
after the receipt of the request and the offer of security or
indemnity; and
o the holders of a majority, in principal amount, of the outstanding
notes shall not have given the trustee a direction inconsistent with
such request within such 60-day period.
Subject to certain restrictions, the holders of a majority, in principal
amount, of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee,
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture, or that the trustee determines is unduly prejudicial to the rights of
any other holder of notes, or that would involve the trustee in personal
liability.
The indenture provides that if a default occurs and is continuing, and is
known to the trustee, the trustee must mail to each holder notice of the
default, within the earlier of 90 days after it occurs, or 30 days after it is
known to a trust officer or written notice of it is received by the trustee.
Except in the case of a default in the payment of principal of, premium, if any,
or interest on any note, the trustee may withhold notice, if and so long as a
committee of its trust officers in good faith determines that withholding notice
is not opposed to the interests of the note holders. In addition, SpectraSite is
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any default
that occurred during the previous year. SpectraSite also is required to deliver
to the trustee, within 30 days after its knowledge of the occurrence of such
event, written notice of any event which would constitute certain defaults,
their status, and what action SpectraSite is taking, or proposes to take, in
respect of such event.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended, and any past
default or compliance with any provision may be waived, with the consent of the
holders of a majority, in principal amount, of the notes then outstanding,
including consents obtained in connection with a tender offer or exchange for
the notes. However, without the consent of each holder of an outstanding note
affected, no amendment may, among other things:
o reduce the amount of notes whose holders must consent to an amendment;
o reduce the rate of, or extend the time for, payment of interest on any
note;
o reduce the principal of, or extend the Stated Maturity of, any note;
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o reduce the premium payable upon the redemption of any note, or change
the time at which any note may be redeemed, as described under "--
Redemption -- Terms of Optional Redemption;"
o make any note payable in money other than that stated in the note;
o impair the right of any holder to receive payment of principal of, and
interest on, such holder's notes on or after the due dates therefor,
or to institute suit for the enforcement of any payment on, or with
respect to, such holder's notes; or
o make any change in the amendment provisions which require each
holder's consent, or in the waiver provisions.
Without the consent of any holder, SpectraSite and the trustee may amend
the indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of SpectraSite's
obligations under the indenture, to provide for uncertificated notes in addition
to, or in place of, certificated notes, PROVIDED that the uncertificated notes
are issued in registered form for purposes of Section 163(f) of the Internal
Revenue Code, or in a manner such that the uncertificated notes are as described
in Section 163(f)(2)(B) of the Internal Revenue Code, to add guarantees with
respect to the notes, to secure the notes, to add to SpectraSite's covenants for
the benefit of the note holders, or to surrender any right or power conferred
upon SpectraSite, to make any change that does not, in the good faith opinion of
SpectraSite's Board of Directors, materially adversely affect the rights of any
holder, and to comply with any requirement of the Securities and Exchange
Commission in connection with the qualification of the indenture under the Trust
Indenture Act.
The holders' consent is not necessary, under the indenture, to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, SpectraSite is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
Upon any transfer or exchange, the registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents, and SpectraSite may require a holder to pay any taxes required by law
or permitted by the indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. SpectraSite is not required
to transfer or exchange any note selected for redemption, or to transfer or
exchange any note for a period of 15 days prior to a selection of notes to be
redeemed. The notes will be issued in registered form, and the registered holder
of a note will be treated as the owner of such note for all purposes.
DEFEASANCE
SpectraSite at any time may terminate all its obligations under the notes
and the indenture (legal defeasance), except for certain obligations, including:
o those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes;
o the obligation to replace mutilated, destroyed, lost or stolen notes;
and
o maintenance of a registrar and paying agent in respect of the notes.
SpectraSite at any time may terminate its obligations under:
o the covenants described under "--Certain Covenants," other than the
covenant described under "--Merger and Consolidation;"
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o the operation of the cross-acceleration provision;
o the bankruptcy provisions with respect to Significant Subsidiaries and
the judgment default provision described under "-- Defaults;" and
o the limitations contained in clause (3) under "--Merger and
Consolidation" (covenant defeasance).
SpectraSite may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If SpectraSite exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an event of default with respect thereto. If SpectraSite exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
event of default as specified in clauses (4), (5), (6), (7) with respect to
Significant Subsidiaries only, or (8) under "-- Defaults," or because of
SpectraSite's failure to comply with clause (3) under "-- Merger and
Consolidation."
In order to exercise either defeasance option, SpectraSite must deposit, or
cause to be deposited, irrevocably in trust (the defeasance trust) with the
trustee, money or U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof, in accordance with their
terms, will provide cash at such times and in such amounts as will be sufficient
to pay principal and interest and liquidated damages, if any, when due, on all
such notes, except lost, stolen or destroyed notes which have been replaced or
repaid, to maturity or redemption, as the case may be. SpectraSite must comply
with certain other conditions, including delivery to the trustee of an opinion
of counsel to the effect that holders of such notes will not recognize income,
gain or loss, for federal income tax purposes, as a result of such deposit and
defeasance, and will be subject to federal income tax on the same amounts, in
the same manner, and at the same times as would have been the case if such
deposit and defeasance had not occurred and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose payment
money has been deposited in trust and thereafter repaid to SpectraSite,
have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise or will become due and payable within one
year and SpectraSite has irrevocably deposited or caused to be deposited
with the trustee as trust funds in trust solely for the benefit of the
holders of the notes, cash in U.S. dollars, non-callable U.S. Government
Obligations, or a combination of cash in U.S. dollars and non-callable U.S.
Government Obligations, in amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and liquidated damages, if any, and
accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the deposit
will not result in a breach or violation of or constitute a default under any
other instrument to which SpectraSite is a party or by which SpectraSite is
bound;
(3) SpectraSite has paid or caused to be paid all sums payable by it under
the indenture; and
(4) SpectraSite has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the notes
at maturity or a redemption date, as the case may be.
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In addition SpectraSite must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No SpectraSite director, officer, employee, incorporator or stockholder, as
such, shall have any liability for any of SpectraSite's obligations under the
notes or the indenture, or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each note holder, by accepting a note,
waives and releases all such liability. This waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal or state securities law, and it is the view
of the Securities and Exchange Commission that such a waiver is against public
policy.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee for the indenture, and SpectraSite has
appointed it as registrar and paying agent with regard to the notes.
The holders of a majority, in principal amount, of the outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that if an event of default occurs
and is not cured, the trustee will be required, in the exercise of its power, to
use the degree of care of a prudent person in the conduct of his or her own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
note holder, unless such holder shall have offered to the trustee security and
indemnity satisfactory to it, against any loss, liability or expense, and then
only to the extent required by the terms of the indenture.
GOVERNING LAW
The indenture provides that it and the notes are governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms.
"Adjusted EBITDA" as of any date of determination, means the sum of:
(1) SpectraSite's EBITDA for the four most recent full fiscal quarters
ending prior to such date, less SpectraSite's Tower EBITDA for such four-quarter
period; plus
(2) the product of four times SpectraSite's Tower EBITDA for the most
recent quarter. The Tower EBITDA for the most recent quarter shall be determined
on a pro forma basis after giving effect to:
(a) all acquisitions or dispositions of assets SpectraSite and its
subsidiaries make, from the beginning of such quarter through, and
including, the date of determination, including any related financing
transactions, as if the acquisitions and dispositions had occurred at the
beginning of the quarter;
(b) any new lease or Site Management Contract SpectraSite or any
Restricted Subsidiary enters into in the ordinary course of business, with
respect to Tower Assets, from the beginning of the quarter through, and
including, such date of determination, as if such new lease or Site
Management Contract had been signed at the beginning of the quarter, and
SpectraSite or a Restricted Subsidiary had received the rent required by
the terms of such lease or Site Management Contract for such quarter during
the quarter;
87
(c) the loss from the beginning of the quarter through, and including,
the date of determination of any lease or Site Management Contract
SpectraSite or a Restricted Subsidiary has entered into, with respect to
any Tower Assets, that was in effect on the first day of the quarter, as if
the lease or Site Management Contract had not been in effect during such
quarter, and no rent under the lease had been received during the quarter;
and
(d) any rent increases SpectraSite or any Restricted Subsidiary
receives, during the period beginning on the first day of the quarter and
ending on the date of determination related to leases or Site Management
Contracts on Tower Assets, as if the increased rental rate had been in
effect at the beginning of the quarter and SpectraSite or a Restricted
Subsidiary had received the increased amount of rent during such quarter.
For purposes of making the computation referred to above:
(i) acquisitions that SpectraSite or any of its Restricted Subsidiaries
has made, including through mergers or consolidations, and including any related
financing transactions, during the reference period, or subsequent to such
reference period, and on or prior to the date of determination, shall be deemed
to have occurred on the first day of the reference period, and EBITDA for the
reference period shall be calculated without giving effect to clause (2) of the
proviso set forth in the definition of Consolidated Net Income; and
(ii) the EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the date
of determination, shall be excluded.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by, or under direct or indirect common
control with, such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract, or otherwise, and the terms
"controlling" and "controlled" have correlative meanings.
"Asset Disposition" means any sale, lease, transfer, or other disposition,
or series of related sales, leases, transfers, or dispositions, by SpectraSite
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction, of:
(1) any shares of a Restricted Subsidiary's capital stock, other than
directors' qualifying shares, or shares required, by applicable law, to be held
by a Person other than SpectraSite or a Restricted Subsidiary;
(2) all or substantially all the assets of any of SpectraSite's or any
Restricted Subsidiary's division or line of business; or
(3) any other of SpectraSite's or any Restricted Subsidiary's assets
outside of the ordinary course of business;
other than in the case of clauses (1), (2) and (3) above:
o a disposition by a Restricted Subsidiary, to SpectraSite, or by
SpectraSite or a Restricted Subsidiary to another Restricted
Subsidiary;
o a disposition that constitutes a Restricted Payment permitted by the
covenant described under "--Limitation on Restricted Payments;"
o a disposition of assets with a fair market value of less than $5.0
million;
o any transaction not prohibited by the covenant under "--Limitation on
Restricted Payments" or that constitutes a Permitted Investment;
o grants of leases or licenses in the ordinary course of business; and
o disposals of cash equivalents.
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"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded annually, of the total obligations
of the lessee, for rental payments during the remaining term of the lease
included in the Sale/Leaseback Transaction, including any period for which the
lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or preferred stock, the quotient obtained by dividing:
(1) the sum of the product of the numbers of years, from the date of
determination to the dates of each successive scheduled principal payment,
of such Indebtedness, or redemption, or similar payment with respect to
such preferred stock, times the amount of such payment;
(2) the sum of all such payments.
"Board of Directors" means SpectraSite's Board of Directors, or any
committee thereof duly authorized to act on behalf of the Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Change of Control" means the occurrence of any of the following events:
(1) any person, as such term is used in Exchange Act Sections 13(d)
and 14(d), other than one or more Permitted Holders, is or becomes the
beneficial owner, as defined in Exchange Act Rules 13d-3 and 13d-5, except
that for purposes of this paragraph (1) such person shall be deemed to have
beneficial ownership of all shares that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, directly or indirectly, of more than 50% of the total
voting power of SpectraSite's Voting Stock; provided that if such person is
a group of investors that includes one or more Permitted Holders, the
shares of SpectraSite's Voting Stock beneficially owned by the Permitted
Holders that are part of such group shall not be counted for purposes of
determining whether this clause (1) is triggered;
For purposes of this paragraph (1) it shall not be deemed a Change of
Control if a holding company owns or becomes the owner of all of
SpectraSite's Voting Stock, provided that no person, other than one or more
Permitted Holders, is or becomes the beneficial owner, as defined in
Exchange Act Rules 13d-3 and 13d-5, except that for purposes of this
paragraph (1) such person shall be deemed to have beneficial ownership of
all shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, directly or
indirectly, of more than 50% of the total voting power of such holding
company; provided that if such person is a group of investors that includes
one or more Permitted Holders, the shares of SpectraSite's or such holding
company's Voting Stock beneficially owned by the Permitted Holders that are
part of such group shall not be counted for purposes of determining whether
this clause (1) is triggered;
(2) during any period of two consecutive years, or, in the case this
event occurs within the first two years after the Issue Date, such shorter
period as shall have begun on the Issue Date, individuals who at the
beginning of such period constituted SpectraSite's Board of Directors,
together with any new directors whose election by SpectraSite's Board of
Directors or whose nomination for election by SpectraSite's shareholders
was approved by a vote of a majority of SpectraSite's directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority of the SpectraSite Board of
Directors then in office;
(3) SpectraSite's merger or consolidation with or into another person
or the merger of another person with or into SpectraSite, if SpectraSite's
securities that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of SpectraSite's Voting
Stock are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent
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immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation; and
(4) the sale of all or substantially all of SpectraSite's assets to
another person, other than a Permitted Holder or a person that is
controlled by the Permitted Holders.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Completed Broadcast Tower" means a communications tower of at least 500
feet, other than a Completed Tower, with, as of the date of any determination:
o at least one broadcast tenant that has executed a definitive lease or
Site Management Contract with SpectraSite or any of its Restricted
Subsidiaries; and
o capacity for at least one other tenant.
"Completed Tower" means a communications transmission tower or in-building
site with, as of any date of determination:
o at least one anchor tenant that has executed a definitive lease or
Site Management Contract with SpectraSite or any of its Restricted
Subsidiaries; and
o capacity for at least three tenants.
"Consolidated Indebtedness" as of any date of determination means, without
duplication:
o the total amount of Indebtedness of SpectraSite and its Restricted
Subsidiaries;
o the total amount of Indebtedness of any other person, to the extent
that such Indebtedness has been guaranteed by SpectraSite or one or
more of its Restricted Subsidiaries; and
o the aggregate liquidation value of all of SpectraSite's Disqualified
Stock and all preferred stock of SpectraSite's Restricted Subsidiaries
not owned by SpectraSite or a Restricted Subsidiary, in each case
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense of SpectraSite and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by SpectraSite or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases and to leases
constituting part of a Sale/Leaseback Transaction;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts, and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net costs associated with hedging obligations, including
amortization of fees;
(7) preferred stock dividends paid in respect of all of SpectraSite's
and its subsidiaries' preferred stock, held by persons other than
SpectraSite or a Wholly Owned Subsidiary of SpectraSite;
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(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other person, to the
extent such Indebtedness is guaranteed by, or secured by the assets of,
SpectraSite or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust, to the extent such contributions are used by such plan or
trust to pay interest or fees to any person, other than SpectraSite, in
connection with Indebtedness incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income or loss of
SpectraSite and its consolidated Subsidiaries. The following, however, shall not
be included in such Consolidated Net Income:
(1) any net income or loss of any person, other than SpectraSite, if
such person is not a Restricted Subsidiary, except that, subject to the
exclusion contained in clause (4) below, SpectraSite, equity in the net
income of any such person for such period, shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such person during such period, to SpectraSite or a
Restricted Subsidiary, as a dividend or other distribution, subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (3) below;
(2) any net income or loss of any person, acquired by SpectraSite or a
subsidiary, in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any Restricted Subsidiary's net income, if the Restricted
Subsidiary is subject to restrictions, other than any restrictions
permitted in the "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries" covenant, directly or indirectly, on the payment
of dividends or the making of distributions, directly or indirectly, to
SpectraSite, except that:
(a) subject to the exclusion contained in clause (4) below,
SpectraSite's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by the
Restricted Subsidiary during such period to SpectraSite or another
Restricted Subsidiary as a dividend or other distribution, subject, in
the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause; and
(b) solely for purposes of calculating the Indebtedness to
Adjusted EBITDA Ratio, SpectraSite's equity in a net loss of any such
Restricted Subsidiary, for such period, shall be included in
determining such Consolidated Net Income;
(4) any gain or loss realized upon the sale or other disposition of
any assets of SpectraSite, its consolidated subsidiaries, or any other
person, including pursuant to any Sale/Leaseback Transaction, which are not
sold or otherwise disposed of in the ordinary course of business, and any
gain or loss realized upon the sale or other disposition of any capital
stock of any person;
(5) any Unrestricted Subsidiary's net income or loss, except to the
extent distributed to SpectraSite or one of its subsidiaries;
(6) any extraordinary gain or loss;
(7) the cumulative effect of a change in accounting principles;
(8) non-cash compensation charges or other non-cash expenses or
charges arising from the grant of or issuance or repricing of stock, stock
options or other equity-based awards or any amendment, modification,
substitution or change of any such stock, stock options or other
equity-based awards;
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(9) any non-cash goodwill impairment charges subsequent to the Issue
Date resulting from the application of SFAS No. 142; and
(10) any amortization or write-offs of debt issuance or deferred
financing costs and premiums and prepayment penalties, in each case, to the
extent attributable to the incurrence of Refinancing Indebtedness;
Notwithstanding the foregoing, only for the purposes of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
there shall be excluded from Consolidated Net Income, any dividends, repayments
of loans or advances, or other transfers of assets, from Unrestricted
Subsidiaries, to SpectraSite or a Restricted Subsidiary, to the extent such
dividends, repayments, or transfers increase the amount of Restricted Payments
permitted under such covenant, pursuant to clause (1)(c)(iv) thereof.
"Consolidated Tangible Assets" means, with respect to SpectraSite, the
total consolidated tangible assets of SpectraSite and its Restricted
Subsidiaries, as shown on the most recent internal consolidated balance sheet of
SpectraSite and the Restricted Subsidiaries, calculated on a consolidated basis
in accordance with GAAP.
"Credit Facility" means any debt or credit facility, commercial paper
facility providing for revolving credit loans, term loans, accounts receivable
financing, including through the sale of accounts receivable to such lenders or
to special purpose entities formed to borrow from such lenders against such
accounts receivable, letters of credit, other debt securities or other form of
debt financing, in each case, as amended, restated, supplemented, extended,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time, including any amendment, restatement, supplement, extension,
modification, renewal, refunding, replacement or refinancing that increases the
amount borrowable under any such facility or alters the maturity of any such
facility.
"Disqualified Stock" means, with respect to any person, any capital stock
which, by its terms, or by the terms of any security into which it is
convertible, or for which it is exchangeable, or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in
part;
in each case on or prior to the 91st day after the Stated Maturity of the notes.
Capital stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such person to
repurchase or redeem such capital stock, upon the occurrence of an asset sale or
change of control occurring prior to the 91st day after the Stated Maturity of
the notes, shall not constitute Disqualified Stock, if the asset sale or change
of control provisions applicable to such capital stock are not materially more
favorable taken as a whole to the holders of such capital stock than the
provisions described under "-- Change of Control" and "-- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock."
"EBITDA" for any period, means the sum of Consolidated Net Income, plus the
following, to the extent deducted in calculating such Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) all income tax expense of SpectraSite and its consolidated
Restricted Subsidiaries;
(3) depreciation expense of SpectraSite and its consolidated
Restricted Subsidiaries;
(4) amortization expense of SpectraSite and its consolidated
Restricted Subsidiaries, excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period;
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(5) all other non-cash charges of SpectraSite and its consolidated
Restricted Subsidiaries, excluding any such non-cash charge to the extent
that it represents an accrual of, or reserve for, cash expenditures in any
future period; and
(6) any premium or penalty paid in connection with repurchasing,
redeeming, retiring, defeasing or acquiring any Indebtedness prior to
maturity, to the extent deducted in calculating Consolidated Net Income, in
each case, for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary, shall be added to Consolidated Net Income to compute
EBITDA only to the extent, and in the same proportion, that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income,
and only if a corresponding amount would be permitted, at the date of
determination, to be paid to SpectraSite in the form of a dividend by the
Restricted Subsidiary without prior approval, that has not been obtained,
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders, without in any event giving effect to
any restrictions or limitations permitted in the "-- Limitation on Restrictions
on Distributions from Restricted Subsidiaries" covenant.
"Equity Offering" means a public or private issuance by SpectraSite of its
common stock for cash.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the Securities and Exchange
Commission governing the inclusion of financial statements, including pro
forma financial statements, in periodic reports required to be filed
pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements
from the accounting staff of the Securities and Exchange Commission.
"Indebtedness" means, with respect to any person on any date of
determination, without duplication:
(1) the principal in respect of:
(a) indebtedness of such person for money borrowed; and
(b) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is responsible
or liable, including, in each case, any premium on such indebtedness,
to the extent such premium has become due and payable;
(2) all capital lease obligations of such person, and all Attributable
Indebtedness in respect of Sale/ Leaseback Transactions entered into by
such person;
(3) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement, but
excluding trade accounts payable, arising in the ordinary course of
business;
(4) all obligations of such person, for the reimbursement of any
obligor, on any letter of credit, banker's acceptance or similar credit
transaction, other than obligations with respect to letters of credit and
other
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contingent liabilities, but only to the extent such contingent liabilities
are not reflected as liabilities on the consolidated balance sheet of such
person, securing obligations, other than obligations described in clauses
(1) through (3) above, entered into in the ordinary course of business of
such person, to the extent such letters of credit are not drawn upon, or,
if and to the extent drawn upon, such drawing is reimbursed no later than
the tenth Business Day following payment on the letter of credit;
(5) the amount of all obligations of such person with respect to the
redemption, repayment, or other repurchase of any Disqualified Stock, or,
with respect to any subsidiary of such person, the liquidation preference
with respect to any preferred stock, but excluding, in each case, any
accrued dividends;
(6) all obligations of the type referred to in clauses (1) through (5)
above, of other persons, and all dividends of other persons for the payment
of which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
above, of other persons, secured by any Lien on any property or asset of
such person, whether or not such obligation is assumed by such person, the
amount of such obligation being deemed to be the lesser of the value of
such property or assets, or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, hedging
obligations of such person.
The amount of Indebtedness of any person at any date shall be the
outstanding balance, at such date, of all unconditional obligations, as
described above, or the accreted value of such Indebtedness in the case of
Indebtedness issued with original issue discount and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
"Indebtedness to Adjusted EBITDA Ratio" as of any date of determination
means the ratio of:
o Consolidated Indebtedness as of such date; to
o Adjusted EBITDA.
"Investment" in any person means any direct or indirect advance, loan,
other than advances to customers, lessees or licensees in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
person, or other extension of credit, including by way of guarantee or similar
arrangement, or capital contribution by means of any transfer of cash or other
property to others, or any payment for property or services for the account or
use of others, or any purchase or acquisition of, capital stock, Indebtedness or
other similar instruments issued by such person. For purposes of the definitions
of "Unrestricted Subsidiary" and "Restricted Payment" and the "Limitation on
Restricted Payments" covenant:
(1) Investment shall include the portion, proportionate to
SpectraSite's equity interest in such subsidiary of the fair market value
of the net assets of any of SpectraSite's subsidiaries at the time that
such subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such subsidiary as a Restricted
Subsidiary, SpectraSite shall be deemed to continue to have a permanent
Investment in an Unrestricted Subsidiary of an amount, if positive, equal
to:
(a) SpectraSite's Investment in such subsidiary at the time of
such redesignation; less
(b) the portion, proportionate to SpectraSite's equity interest
in such subsidiary, of the fair market value of the net assets of the
subsidiary at the time the subsidiary is so re-designated a Restricted
Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as the Board of Directors determines in good faith, and evidenced
by a Board of Directors resolution.
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"Issue Date" means the date on which the notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including any conditional sale or other title retention
agreement, or lease in the nature thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal, pursuant to a note or installment receivable or otherwise and
proceeds from the sale, or other disposition, of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring person, of
Indebtedness or other obligations relating to such properties or assets, or
received in any other non-cash form, from such Asset Disposition, in each case
net of:
(1) all legal, title, accounting, investment banking and recording tax
expenses, commissions and other fees and expenses incurred, and all
federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset
Disposition;
(2) all payments made on any Indebtedness, which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon, or other security arrangement of any kind with respect to,
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries or joint ventures as a
result of such Asset Disposition;
(4) the deduction of appropriate amounts to be provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition, and retained by
SpectraSite or any Restricted Subsidiary after such Asset Disposition; and
(5) any reserves established in respect of the sales price of such
asset for post-closing adjustments, indemnification purposes or employee
termination expenses.
"Net Cash Proceeds," with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale, net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees and expenses
actually incurred in connection with such issuance or sale, and net of taxes
paid or payable as a result thereof.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither SpectraSite nor any Restricted Subsidiary:
(a) provides any guarantee or credit support of any kind,
including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness; or
(b) is directly or indirectly liable, as a guarantor or
otherwise; and
(2) as to which no default, including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit, upon notice, lapse of time or both, any holder of
any other SpectraSite's or any Restricted Subsidiary's Indebtedness, to
declare a default under such other Indebtedness, or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Permitted Business" means any business SpectraSite and its Restricted
Subsidiaries conducted on the Issue Date and any other business related,
ancillary or complementary to any such business.
"Permitted Holders" means (i) Apollo Investment Fund V, L.P., a Delaware
limited partnership, or any fund, investment vehicle or account managed, advised
or controlled by Apollo Advisors, L.P., a Delaware limited
95
partnership, or any of its Affiliates or (ii) Oaktree Capital Management, LLC
and its Affiliates, including any partnerships, separate accounts or other
entities managed by Oaktree Capital Management, LLC.
"Permitted Investment" means any of SpectraSite's or a Restricted
Subsidiary's Investment in:
(1) SpectraSite, a Restricted Subsidiary, or a person which will, upon
the making of such Investment, become a Restricted Subsidiary;
(2) another person if, as a result of such Investment, such other
person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, SpectraSite or a Restricted Subsidiary;
provided, however, that such person's primary business is a Permitted
Business;
(3) Temporary Cash Investments;
(4) receivables owing to SpectraSite or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include concessionary trade terms which
SpectraSite or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected, at the time of such advances, ultimately to be treated as
expenses for accounting purposes, and that are made in the ordinary course
of business;
(6) loans or advances to employees made in the ordinary course of
business, consistent with the past practices of SpectraSite or such
Restricted Subsidiary, but in any event not to exceed $2.0 million in the
aggregate outstanding at any one time;
(7) stock, obligations, or securities, received in settlement of debts
created in the ordinary course of business and owing to SpectraSite or any
Restricted Subsidiary, or in satisfaction of judgments or pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of a debtor;
(8) any person, to the extent such investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock;"
(9) SpectraSite's or any Restricted Subsidiary's capital stock,
purchased, redeemed or otherwise acquired or retired for value from members
of SpectraSite's management or employees, but in any event not to exceed
$2.0 million in the aggregate in any twelve-month period;
(10) other Investments in Permitted Businesses not to exceed, at any
one time outstanding, the sum of $10.0 million and 10% of SpectraSite's
Consolidated Tangible Assets;
(11) any interest rate protection agreement or currency exchange
protection agreement;
(12) any acquisition of assets, to the extent the consideration
therefor consists of SpectraSite's capital stock, other than Disqualified
Stock;
(13) prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits;
(14) deposits of proceeds from Asset Dispositions with a qualified
intermediary, qualified trustee or similar person for purposes of
facilitating a like-kind exchange made in accordance with the applicable
provisions of the Internal Revenue Code; provided, however, that the making
of any Permitted Investment pursuant to this clause (14) will not in any
manner violate the covenant described under "-- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock;"
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(15) Investments in an amount not to exceed the Net Cash Proceeds or
Qualified Proceeds of the issuance or sale, other than to a subsidiary of
SpectraSite, of Capital Stock of SpectraSite, other than Disqualified
Stock, to the extent that such Net Cash Proceeds or Qualified Proceeds have
not been applied to make a Restricted Payment or to effect other
transactions pursuant to the covenant "-- Certain Covenants -- Limitation
on Restricted Payments" or to the extent such Net Cash Proceeds or
Qualified Proceeds have not been used to incur Indebtedness; and
(16) other Investments not to exceed, at any one time outstanding,
$50.0 million.
"Permitted Liens" means, with respect to any person:
(1) pledges or deposits by such person, under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts, other than for the
payment of Indebtedness, or leases to which such person is a party, or
deposits to secure public or statutory obligations of such person, or
deposits or cash or United States government bonds to secure surety or
appeal bonds to which such person is a party, or deposits as security for
contested taxes or import duties, or for the payment of rent, in each case
incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's,
landlords' and mechanics' Liens, in each case for sums not yet due, or
being contested in good faith by appropriate proceedings, or judgment Liens
not giving rise to an Event of Default so long as any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated, or the period within which
such proceedings may be initiated shall not have expired;
(3) Liens for property taxes not yet subject to penalties for
non-payment, or which are being contested in good faith by appropriate
proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of, and for the account of, such person in
the ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real properties, or Liens incidental to
the conduct of the business of such person, or to the ownership of its
properties, which were not incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such person;
(6) Liens securing hedging obligations, so long as the related
Indebtedness is, and the indenture permits it to be, secured by a Lien on
the same property securing such hedging obligations;
(7) leases and subleases of real property which do not interfere with
SpectraSite's or any of its Restricted Subsidiaries' ordinary conduct of
business and Liens securing the obligations, other than Indebtedness, of
SpectraSite or any of its Restricted Subsidiaries under any such leases and
subleases of real property;
(8) Liens existing as of the date on which the notes are originally
issued, and Liens which the indenture created;
(9) Liens created solely for the purpose of securing the payment of
all, or a part of, the purchase price of assets or property acquired or
constructed in the ordinary course of business, after the date on which the
notes are originally issued; PROVIDED, HOWEVER, that:
(a) the Indebtedness secured by such Liens is Indebtedness which
the indenture otherwise permits to be incurred; and
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(b) such Liens shall not encumber any other of SpectraSite's or
any of its Restricted Subsidiaries' assets or property;
(10) Liens on a Restricted Subsidiary's assets or property, existing
at the time such Restricted Subsidiary became a SpectraSite subsidiary, and
not incurred as a result of, in connection with, or in anticipation of such
Restricted Subsidiary becoming a SpectraSite subsidiary; PROVIDED, HOWEVER,
that:
(a) any such Lien does not by its terms cover any property or
assets after the time such Restricted Subsidiary becomes a subsidiary,
which were not covered immediately prior to such transaction;
(b) the Indebtedness secured by such Liens is Indebtedness which
the indenture otherwise permits to be incurred; and
(c) such Liens do not extend to or cover any other property or
assets of SpectraSite or any of its Restricted Subsidiaries;
(11) Liens securing Indebtedness outstanding under a Credit Facility
and any other Liens securing Indebtedness permitted under the indenture to
be incurred by a Restricted Subsidiary;
(12) Liens extending, renewing or replacing, in whole or in part, a
Lien the indenture permits; PROVIDED, HOWEVER, that:
(a) such Liens do not extend beyond the property subject to the
existing Lien, and improvements and construction on such property; and
(b) the Indebtedness the Lien secures may not exceed the
Indebtedness the existing Lien secured at the time;
(13) Liens incurred in the ordinary course of business, by SpectraSite
or any Restricted Subsidiary of SpectraSite, with respect to obligations
that do not exceed $25.0 million at any one time outstanding, and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances of credit, other than trade credit in the
ordinary course of business; and
(b) do not, in the aggregate, materially detract from the value of
the property, or materially impair the use thereof in the operation of
business by SpectraSite or such Restricted Subsidiary;
(14) Liens in favor of SpectraSite or a Restricted Subsidiary of
SpectraSite;
(15) any interest in or title of a lessor to any property subject to a
capital lease obligation the indenture permits to be incurred;
(16) Liens on Unrestricted Subsidiaries' capital stock;
(17) the Liens granted pursuant to the terms of the Security and
Subordination Agreement, as amended, modified or supplemented from time to
time, entered into pursuant to the terms of the Agreement and Plan of
Merger, dated as of February 10, 1999, among SpectraSite, SpectraSite
Communications Inc., SHI Merger Sub, Inc., Nextel and certain of its
subsidiaries;
(18) Liens, rights of set-off or similar rights and remedies as to
deposit accounts or other funds maintained with a depository or other
financial institution;
(19) Liens on property subject to capital leases to the extent the
related capitalized lease obligation is permitted to be incurred under the
"-- Limitation on Indebtedness" and "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries" covenants;
98
(20) Liens on property of the Issuer or a Restricted Subsidiary at the
time the Issuer or Restricted Subsidiary acquired the property, including
any acquisition by means of a merger or consolidation with or into the
Issuer or any Restricted Subsidiary; PROVIDED, HOWEVER, that such Liens are
not created, incurred or assumed in connection with, or in contemplation
of, such acquisition; PROVIDED, FURTHER, HOWEVER, that such Liens may not
extend to any other property owned by the Issuer or any Restricted
Subsidiary; and
(21) Liens on government securities that secure Indebtedness, to the
extent that such government securities are purchased with the proceeds of
such Indebtedness.
"Principal" of a note means the principal of the note plus the premium, if
any, payable on the note, which is due or overdue or is to become due at the
relevant time.
"Qualified Proceeds" means assets that are used or useful in, or capital
stock of any person engaged in, a Permitted Business.
"Rating Agencies" means:
(a) S&P;
(b) Moody's; or
(c) if S&P or Moody's or both shall not make a rating of the notes
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by SpectraSite, which shall be
substituted for S&P or Moody's or both, as the case may be.
"Rating Category" means:
(a) with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D (or equivalent successor categories);
(b) with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D (or equivalent successor categories); and
(c) the equivalent of any such category of S&P or Moody's used by
another Rating Agency.
In determining whether the rating of the notes has decreased by one or more
gradation, gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for
Moody's; or the equivalent gradations for another Rating Agency) shall be taken
into account (E.G., with respect to S&P, a decline in a rating from BB+ to BB,
as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Decline" means (i) a decrease of one or more gradations (including
gradations within Rating Categories as well as between Rating Categories) in the
rating of the notes by either Rating Agency or (ii) a withdrawal of the rating
of the notes by either Rating Agency; PROVIDED, HOWEVER, that such decrease or
withdrawal occurs on, or within 90 days following, the date of public notice of
the occurrence of a Change of Control or of the intention by us to effect a
Change of Control, which period shall be extended so long as the rating of the
notes is under publicly announced consideration for downgrade by either Rating
Agency.
"Refinancing Indebtedness" means Indebtedness that refinances any of
SpectraSite, or any Restricted Subsidiary's Indebtedness existing on the date of
the indenture, or incurred in compliance with the indenture, including any of
SpectraSite's Indebtedness that refinances any Restricted Subsidiary's
Indebtedness, and any Restricted Subsidiary's Indebtedness that refinances
another Restricted Subsidiary's Indebtedness, including Indebtedness that
refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the earlier of the Stated Maturity of the notes and the Stated Maturity of
the Indebtedness being refinanced;
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(2) the Refinancing Indebtedness has an Average Life, at the time such
Refinancing Indebtedness is incurred, that is equal to or greater than the
lesser of the Average Life of the Indebtedness being refinanced and the
Average Life of the notes; and
(3) such Refinancing Indebtedness is incurred in an aggregate
principal amount, or if issued with original issue discount, an aggregate
issue price, that is equal to or less than the sum of the aggregate
principal amount, or if issued with original issue discount, the aggregate
accreted value, then outstanding or committed, plus fees and expenses,
including any premium and defeasance costs, under the Indebtedness being
refinanced; provided, however, that Refinancing Indebtedness shall not
include:
(a) any of a subsidiary's Indebtedness that refinances any of
SpectraSite's Indebtedness; or
(b) any of SpectraSite's or a subsidiary's Indebtedness that
refinances an Unrestricted Subsidiary's Indebtedness.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its capital stock, or similar
payment to the direct or indirect holders of its capital stock, other than
(a) dividends or distributions payable solely in its capital stock, other
than Disqualified Stock, (b) dividends or distributions payable solely to
SpectraSite or a Restricted Subsidiary, and (c) pro rata dividends or other
distributions, made by a subsidiary that is not a Wholly Owned Subsidiary
of SpectraSite, to minority stockholders, or owners of an equivalent
interest, in the case of a subsidiary that is an entity other than a
corporation;
(2) the purchase, redemption or other acquisition or retirement for
value of any of SpectraSite's capital stock held by any person, or of any
of a Restricted Subsidiary's capital stock held by any person, other than
SpectraSite or a Restricted Subsidiary, other than the exercise by
SpectraSite of any option to convert or exchange any capital stock into
Indebtedness so long as such Indebtedness is permitted to be incurred as of
the date of such exercise under the indenture, and other than as permitted
by clause (9) of the definition of Permitted Investments;
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of, any Subordinated
Obligations, other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition; or
(4) the making of any Investment in any person, other than a Permitted
Investment.
"Restricted Subsidiary" means any subsidiary of SpectraSite that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired, whereby SpectraSite or a Restricted Subsidiary
transfers such property to a person, and SpectraSite or a Restricted Subsidiary
leases it from such person.
"Secured Indebtedness" means any of SpectraSite's Indebtedness secured by a
Lien.
"Senior Indebtedness" means:
(1) any of SpectraSite's Indebtedness, whether outstanding on the
Issue Date or thereafter incurred; and
(2) accrued and unpaid interest, including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to SpectraSite, to the extent post-filing interest is allowed in
such proceeding, in respect of:
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(a) Indebtedness for money SpectraSite borrowed; and
(b) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments which SpectraSite is responsible or liable to make
payment for;
unless, in the case of clauses (1) and (2) above, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the notes.
Senior Indebtedness shall not include:
o any obligation SpectraSite has to any subsidiary;
o any liability for federal, state, local or other taxes SpectraSite
owed or owes;
o any accounts payable or other liability to trade creditors arising in
the ordinary course of business, including guarantees thereof or
instruments evidencing such liabilities;
o any of SpectraSite's Indebtedness, and any accrued and unpaid interest
in respect thereof, which is subordinate or junior in any respect to
any other SpectraSite's Indebtedness or other obligation; or
o that portion of any Indebtedness which, at the time of incurrence, is
incurred in violation of the indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
Significant Subsidiary of SpectraSite within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Securities and Exchange Commission.
"Site Management Contract" means any agreement pursuant to which
SpectraSite, or any of its Restricted Subsidiaries, has the right to
substantially control Tower Assets and the revenues derived from the rental or
use thereof.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision, but excluding any provision providing for the repurchase of such
security at the holder's option upon the happening of any contingency beyond
SpectraSite's control, unless such contingency has occurred.
"Subordinated Obligation" means any of SpectraSite's Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, which is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof, or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of acquisition
thereof, issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, having capital, surplus
and undivided profits aggregating in excess of $500.0 million, or the
foreign currency equivalent thereof, and whose long-term debt is rated A,
or such similar equivalent rating or higher by at least one nationally
recognized statistical rating organization, as defined in Rule 436 under
the Securities Act, or any money market fund sponsored by a registered
broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above, entered
into with a bank, meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation, other than a
SpectraSite Affiliate, organized and in existence under the laws of the
United
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States of America or any foreign country recognized by the United States of
America, with a rating at the time of investment of at least P-1 according
to Moody's Investors Service, Inc. or at least A-1 according to Standard &
Poor's Ratings Group; and
(5) investments in securities with maturities of one year or less from
the date of acquisition, issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least A by
Standard & Poor's Ratings Group or A by Moody's Investors Service, Inc.
"Tower Asset Exchange" means any transaction in which SpectraSite or a
Restricted Subsidiary exchanges assets for Tower Assets, or Tower Assets and
cash or cash equivalents, where the fair market value (evidenced by a Board of
Directors resolution) of the Tower Assets and cash or cash equivalents which
SpectraSite and its Restricted Subsidiaries received in such exchange is at
least equal to the fair market value of the assets disposed of in such exchange.
"Tower Assets" means communication transmission towers or in-building sites
and related assets that are located on the site of a transmission tower or
in-building site.
"Tower EBITDA" means, for any period, the EBITDA of SpectraSite and its
Restricted Subsidiaries for such period that is directly attributable to site
rental revenue or license or management fees, paid to manage, lease or sublease
space on communication sites owned, leased or managed by SpectraSite
(collectively, "site leasing revenues"), all determined on a consolidated basis
and in accordance with GAAP. Tower EBITDA will not include revenue derived from
the sale of assets. In allocating corporate, general, administrative and other
operating expenses that are not allocated to any particular line of business in
SpectraSite's financial statements, such expenses shall be allocated to
SpectraSite's site leasing business in proportion to the percentage of
SpectraSite's total revenues, for the applicable period, that were site leasing
revenues.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of the indenture.
"Unrestricted Subsidiary" means:
(1) SpectraSite International, Inc. and any other SpectraSite
subsidiary that, at the time of determination, shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided
below; and
(2) any subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any SpectraSite subsidiary, including
any newly acquired or newly formed SpectraSite subsidiary, to be an Unrestricted
Subsidiary unless such subsidiary, or any of its subsidiaries, owns any capital
stock or Indebtedness of, or owns or holds any Lien on any property of,
SpectraSite or any other SpectraSite Restricted Subsidiary, that is not a
subsidiary of the subsidiary to be so designated; PROVIDED, HOWEVER, that
either:
(a) the subsidiary designated as an Unrestricted Subsidiary has total
consolidated assets of $1,000 or less; or
(b) if such subsidiary has consolidated assets greater than $1,000,
then such designation would be permitted under "-- Certain Covenants --
Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, as long as:
o immediately after giving effect to such designation no default shall
have occurred and be continuing; and
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o such designation shall be deemed to be an incurrence of Indebtedness
by a Restricted Subsidiary of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted
if such Indebtedness is permitted under the indenture.
Any such designation by the Board of Directors shall be evidenced to the
trustee by promptly filing with the trustee a copy of the Board of Directors
resolution giving effect to such designation, and an officer's certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality of the United States for the
payment of which the full faith and credit of the United States of America is
pledged and which are not callable or redeemable at SpectraSite's option.
"Voting Stock" of a person means all classes of capital stock or other
interests, including partnership interests, of such person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of directors, managers, or trustee thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of SpectraSite of
which SpectraSite, or another Wholly Owned Subsidiary owns all the capital
stock, other than directors' qualifying shares, of such Restricted Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in
the form of one or more exchange notes in global form without interest coupons.
We will deposit each global note on the date of the closing of this exchange
offer with, or on behalf of, The Depository Trust Company in New York, New York,
and register the exchange notes in the name of The Depository Trust Company or
its nominee, or will leave these notes in the custody of the trustee.
Except as set forth below, the global notes may be transferred, in whole
but not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for new
notes in certificated form except in the limited circumstances described below.
See "-- Exchange of Book-Entry Notes for Certificated Notes." In addition,
transfer of beneficial interests in the global notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and Clearstream, Luxembourg),
which may change from time to time.
DEPOSITORY PROCEDURES
For your convenience, we are providing you with a description of the
operations and procedures of The Depository Trust Company, Euroclear Bank,
S.A./N.V., as operator of the Euroclear System, and Clearstream, Luxembourg.
These operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. We are not responsible
for these operations and procedures and urge you to contact the system or its
participants directly to discuss these matters.
DTC has advised SpectraSite that DTC is a limited-purpose trust company
created to hold securities for its participating organizations and to facilitate
the clearance and settlement of transactions in those securities between the
participants through electronic book-entry changes in accounts of the
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through the participants or the indirect participants. The ownership
interest and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
participants and the indirect participants.
DTC has also advised SpectraSite that pursuant to procedures established by
it:
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(1) upon deposit of the global notes, DTC will credit the accounts of
participants designated by the initial purchasers with portions of the principal
amount of the global notes and
(2) ownership of such interests in the global notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the participants) or by the participants and
the indirect participants (with respect to other owners of beneficial interests
in the global notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and Clearstream, Luxembourg) which are
participants in such system. Investors in the global notes may hold their
interests therein through Euroclear or Clearstream, Luxembourg, if they are
accountholders in such systems, or indirectly through organizations which are
accountholders in such systems. Investors may also hold interests in the global
notes through organizations other than Euroclear and Clearstream, Luxembourg
that are participants in the DTC system. Euroclear and Clearstream, Luxembourg
will hold interests in the global notes on behalf of their participants through
their respective depositories, which in turn will hold such interests in the
global note customers' securities accounts in their respective names on the
books of DTC. Euroclear Bank S.A./N.V. will initially act as depository for
Euroclear, and Citibank, N.A. will initially act as depository for Clearstream,
Luxembourg. All interests in a global note, including those held through
Euroclear or Clearstream, Luxembourg, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream,
Luxembourg may also be subject to the procedures and requirements of such
system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited to
that extent. Because DTC can act only on behalf of the participants, which in
turn act on behalf of the indirect participants and certain banks, the ability
of a person having beneficial interests in a global note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS
THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on a global note registered in the name of DTC or its nominee will be payable to
DTC or its nominee in its capacity as the registered holder under the indenture.
Under the terms of the indenture, SpectraSite and The Bank of New York, as
trustee, will treat the persons in whose names the notes, including the global
notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, none of
SpectraSite, the trustee, nor any agent of SpectraSite or the trustee has or
will have any responsibility or liability for (i) any aspect or accuracy of
DTC's records or any participant's or indirect participant's records relating to
the beneficial ownership or (ii) any other matter relating to the actions and
practices of DTC or any of the participants or the indirect participants.
DTC has advised SpectraSite that its current practice, upon receipt of any
payment in respect of securities such as the new notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
SpectraSite in principal amount of beneficial interests in the relevant security
as shown on the records of DTC. Payments by the participants and the indirect
participants to the beneficial owners of new notes will be governed by standing
instructions and customary practices and will not be the responsibility of DTC,
the trustee or SpectraSite. Neither SpectraSite nor the trustee will be liable
for any delay by DTC or any of the participants in identifying the beneficial
owners of the new notes, and SpectraSite and the trustee may conclusively rely
on and will be protected in relying on instructions from DTC or its nominee as
the registered owner of the global notes for all purposes.
Except for trades involving only Euroclear and Clearstream, Luxembourg
participants, interests in the global notes will trade in DTC's same-day funds
settlement system and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and the participants.
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Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
account holders in Euroclear and Clearstream, Luxembourg will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the new
notes described herein, cross-market transfers between the account holders in
DTC, on the one hand, and directly or indirectly through Euroclear or
Clearstream, Luxembourg account holders, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, Luxembourg, as the case may be, by its respective depository;
however, such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream, Luxembourg, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Clearstream,
Luxembourg, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant global note in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear and Clearstream, Luxembourg account holders may not deliver
instructions directly to the depositories for Euroclear or Clearstream,
Luxembourg.
Because of time zone differences, the securities account of a Euroclear or
Clearstream, Luxembourg account holder purchasing an interest in a global note
from an account holder in DTC will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream, Luxembourg participant,
during the securities settlement processing day (which must be a business day
for Euroclear or Clearstream, Luxembourg) immediately following the settlement
date of DTC. Cash received in Euroclear or Clearstream, Luxembourg as a result
of sales of interests in a global note by or through a Euroclear or Clearstream,
Luxembourg account holder to a participant in DTC will be received with value on
the settlement date of DTC but will be available in the relevant Euroclear or
Clearstream, Luxembourg cash account only as of the business day for Euroclear
or Clearstream, Luxembourg following DTC's settlement date.
DTC has advised SpectraSite that it will take any action permitted to be
taken by a holder of new notes only at the direction of one or more participants
to whose account with DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of the new notes as to
which such participant or participants has or have given such direction.
However, if any of the events described under "-- Exchange of Book-Entry Notes
for Certificated Notes" occurs, DTC reserves the right to exchange the global
notes for new notes in certificated form and to distribute such registered new
notes to its participants.
The information in the section concerning DTC, Euroclear and Clearstream,
Luxembourg and their book-entry systems has been obtained from sources that
SpectraSite believes to be reliable, but SpectraSite takes no responsibility for
the accuracy thereof.
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the
foregoing procedures to facilitate transfers of interests in the global note
among account holders in DTC and account holders of Euroclear and Clearstream,
Luxembourg, they are under no obligation to perform or to continue to perform
such procedures, and such procedures may be discontinued at any time. None of
SpectraSite or the trustee, nor any agent of SpectraSite or the trustee will
have any responsibility for the performance by DTC, Euroclear or Clearstream,
Luxembourg or their respective participants, indirect participants or account
holders of their respective obligations under the rules and procedures governing
their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
The global notes are exchangeable for definitive notes in registered
certificated form if
(1) DTC (x) notifies SpectraSite that it is unwilling or unable to
continue as depository for the global notes and SpectraSite thereupon fails to
appoint a successor depository or (y) has ceased to be a clearing agency
registered under the Exchange Act,
105
(2) SpectraSite, at its option, notifies the trustee in writing that it
elects to cause the issuance of the registered new notes in certificated form or
(3) there shall have occurred and be continuing a default or an event of
default with respect to the new notes.
In all cases, registered certificated new notes delivered in exchange for
any global note or beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures).
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain material U.S. federal income
tax consequences to U.S. and non-U.S. holders, each as defined below, of the
exchange of initial notes for exchange notes pursuant to the exchange offer, as
well as the ownership and disposition of exchange notes by such holders that
acquire exchange notes pursuant to the exchange offer. This discussion is based
on the Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions, existing and proposed Treasury Regulations,
and interpretations of the foregoing, all as of the date hereof. All of the
foregoing authorities are subject to change (possibly with retroactive effect)
and any such change may result in U.S. federal income tax consequences to a
holder that are materially different from those described below. The U.S.
Internal Revenue Service ("IRS") may not take a similar view of the consequences
described below.
The following discussion does not purport to be a full description of all
U.S. federal income tax consequences that may be relevant to a holder in light
of such holder's particular circumstances and only addresses holders that hold
notes as capital assets within the meaning of Section 1221 of the Code.
Furthermore, this discussion does not address the U.S. federal income tax
consequences applicable to holders subject to special rules, such as certain
financial institutions, tax-exempt entities, real estate investment trusts,
regulated investment companies, insurance companies, partnerships or other
pass-through entities, persons who have ceased to be U.S. citizens or to be
taxed as resident aliens, dealers in securities or currencies, persons holding
notes in connection with a hedging transaction, "straddle," conversion
transaction or a synthetic security or other integrated transaction and holders
whose "functional currency" is not the U.S. dollar. In addition, except as
otherwise indicated, this discussion does not include any description of any
alternative minimum tax consequences, or estate and gift tax consequences, or
the tax laws of any state, local or foreign government that may be applicable to
the exchange notes.
As used in this prospectus, a "U.S. holder" means a beneficial owner of an
exchange note that is, for U.S. federal income tax purposes:
o a citizen or individual resident of the U.S.;
o a corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized in or under the laws
of the U.S. or any of its political subdivisions;
o an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
o a trust if either (A) a court within the U.S. is able to exercise
primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial
decisions of the trust, or (B) the trust has a valid election in
effect under applicable Treasury regulations to be treated as a U.S.
person.
As used in this summary, the term "non-U.S. holder" means a beneficial
owner of an exchange note that is, for U.S. federal income tax purposes, a
nonresident alien, individual or a corporation, trust or estate that is not a
U.S. holder. Holders of initial notes that are considering the exchange of
initial notes for exchange notes pursuant to the exchange offer that are
partnerships or that would hold the exchange notes through a partnership or
similar pass-through entity should consult their tax advisors regarding the U.S.
federal income tax consequences to them of holding exchange notes.
HOLDERS OF INITIAL NOTES THAT ARE CONSIDERING THE EXCHANGE OF INITIAL NOTES
FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER SHOULD CONSULT THEIR TAX
ADVISORS WITH REGARD TO THE APPLICATION OF U.S. FEDERAL TAX LAWS TO THEIR
PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
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U.S. HOLDERS
THE EXCHANGE OFFER
The exchange of initial notes for exchange notes pursuant to the exchange
offer will not be treated as an exchange or otherwise as a taxable event to U.S.
holders. Consequently, (1) no gain or loss will be realized by a holder upon
receipt of an exchange note, (2) the holding period of the exchange note will
include the holding period of the initial note exchanged therefor and (3) the
adjusted tax basis of the exchange note will be the same as the adjusted tax
basis of the initial note exchanged therefor immediately before the exchange.
Further, any market discount or bond premium (as discussed below) applicable to
the initial notes should carry over to the exchange notes. The U.S. federal
income tax consequences of holding and disposing of an exchange note generally
should be the same as the U.S. federal income tax consequences of holding and
disposing of an initial note.
PAYMENTS OF INTEREST ON EXCHANGE NOTES
Subject to the following paragraph, interest paid on an exchange note
generally will be taxable to a U.S. holder as ordinary interest income at the
time it accrues or is received in accordance with the U.S. holder's method of
accounting for U.S. federal income tax purposes.
In certain circumstances (see "Description of the Notes -- Redemption --
Terms of Optional Redemption" and "Description of the Notes -- Change of
Control"), we may be obligated to pay a holder additional amounts in excess of
stated interest or principal on the exchange notes. According to Treasury
Regulations, the possibility that any such payments in excess of stated interest
or principal will be made will not affect the amount of interest income to be
currently recognized by a holder if there is only a remote chance as of the date
such notes were issued that any of the circumstances that would give rise to the
payment of such additional amounts (considered individually and in the
aggregate) will occur. Because we believe the likelihood that we will be
obligated to make any such payments is remote, we do not intend to treat the
potential payment of any such amounts as part of the yield to maturity of any
exchange notes. In the event such a contingency occurs, it would affect the
amount and timing of the income that a holder must recognize. Our determination
that these contingencies are remote is binding on a holder unless such holder
discloses a contrary position in the manner required by applicable Treasury
Regulations. Our determination is not, however, binding on the IRS and if the
IRS were to challenge this determination, a holder might be required to accrue
income on the exchange notes in excess of stated interest, and to treat as
ordinary income rather than capital gain any income realized on the taxable
disposition of an exchange note before the resolution of the contingencies. The
remainder of this disclosure assumes that our determination is correct.
MARKET DISCOUNT AND BOND PREMIUM
If a U.S. holder purchased an initial note prior to this exchange offer for
an amount that is less than its principal amount, then, subject to a statutory
de minimis rule, the difference generally will be treated as market discount. If
a U.S. holder exchanges an initial note, with respect to which there is market
discount, for an exchange note pursuant to the exchange offer, the market
discount applicable to the initial note should carry over to the exchange note
so received. In that case, any partial principal payment on, or any gain
realized on the sale, exchange, retirement or other disposition of (including
dispositions which are nonrecognition transactions under certain provisions of
the Code), the exchange note will be included in gross income and characterized
as ordinary income to the extent of the market discount that (1) has not
previously been included in income and (2) is treated as having accrued on the
exchange note prior to the payment or disposition. Market discount generally
accrues on a straight-line basis over the remaining term of the exchange note.
Upon an irrevocable election, however, market discount will accrue on a constant
yield basis. A U.S. holder might be required to defer all or a portion of the
interest expense on indebtedness incurred or continued to purchase or carry an
exchange note. If a U.S. holder elects to include market discount in gross
income currently as it accrues, the preceding rules relating to the recognition
of market discount and deferral of interest expense will not apply. An election
made to include market discount in gross income as it accrues will apply to all
debt instruments acquired by the U.S. holder on or after the first day of the
taxable year to which the election applies and may be revoked only with the
consent of the IRS.
If a U.S. holder purchased an initial note prior to this exchange offer for
an amount that is in excess of all amounts payable on the initial note after the
purchase date, other than payments of qualified stated interest, the
108
excess will be treated as bond premium. If a U.S. holder exchanges an initial
note, with respect to which there is a bond premium, for an exchange note
pursuant to the exchange offer, the bond premium applicable to the initial note
should carry over to the exchange note so received. In general, a U.S. holder
may elect to amortize bond premium over the remaining term of the exchange note
on a constant yield method. The amount of bond premium allocable to any accrual
period is offset against the qualified stated interest allocable to the accrual
period. If, following the offset determination described in the immediately
preceding sentence, there is an excess allocable bond premium remaining, that
excess may, in some circumstances, be deducted. An election to amortize bond
premium applies to all taxable debt instruments held at the beginning of the
first taxable year to which the election applies and thereafter acquired by the
U.S. holder and may be revoked only with the consent of the IRS.
SALE, EXCHANGE OR DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange or other disposition of an exchange note, a U.S.
holder will generally recognize capital gain or loss in an amount equal to the
difference between:
o the amount of cash plus the fair market value of any property received
(other than any amount received attributable to accrued but unpaid
interest not previously included in income, which will be taxable as
ordinary interest income); and
o such holder's adjusted tax basis in the exchange note.
A U.S. holder's tax basis in an exchange note will generally be such
holder's cost for the initial note, increased by any accrued market discount
previously included in income, and decreased by any amortized bond premium and
any payments that are not payments of stated interest. Subject to the discussion
of market discount above, such gain or loss will be long-term capital gain or
loss if at the time of sale, exchange or other taxable disposition of the
exchange note, the holder held such note for more than one year. The
deductibility of capital losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal and interest on, and the proceeds of disposition of, an exchange note
to U.S. holders other than certain exempt recipients such as corporations. In
general, backup withholding at the then applicable rate (currently at a rate of
28%) will be applicable to a U.S. holder that is not an exempt recipient, such
as a corporation, if such U.S. holder:
o fails to provide a correct taxpayer identification number (which, for
an individual, would generally be his or her Social Security Number);
o is notified by the IRS that it has failed to properly report payments
of interest or dividends;
o fails to certify that the holder is exempt from withholding; or
o otherwise fails to comply with applicable requirements of the backup
withholding rules.
Any amount withheld from payment to a holder under the backup withholding
rules will be allowed as a credit against the holder's federal income tax
liability and may entitle the holder to a refund, provided the required
information is furnished to the IRS. Holders of exchange notes should consult
their tax advisors regarding the application of backup withholding in their
particular situation, the availability of an exemption from backup withholding
and the procedure for obtaining such an exemption, if available.
NON-U.S. HOLDERS
The rules governing U.S. federal income taxation of non-U.S. holders are
complex. Non-U.S. holders should consult with their own tax advisors to
determine the effect of federal, state, local and foreign income tax laws, as
109
well as treaties, with regard to the exchange of initial notes for exchange
notes pursuant to the exchange offer as well as the ownership and disposition of
exchange notes by such holders, including any reporting requirements.
THE EXCHANGE OFFER
The exchange of initial notes for exchange notes pursuant to the exchange
offer by a non-U.S. holder will not be treated as an exchange or otherwise as a
taxable event.
PAYMENTS OF INTEREST ON EXCHANGE NOTES
Subject to the discussion below concerning backup withholding, payments of
interest on the exchange notes by us or our paying agent to a non-U.S. holder
will generally not be subject to U.S. federal income tax or withholding tax, if:
o such interest is not effectively connected with the conduct of a U.S.
trade or business by such non-U.S. holder;
o the non-U.S. holder does not own, actually or constructively, for U.S.
federal income tax purposes, 10% or more of the total combined voting
power of all classes of our voting stock;
o the non-U.S. holder is not, for U.S. federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to us
through stock ownership under applicable rules of the Code;
o the non-U.S. holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; and
o the certification requirement, as described below, has been fulfilled
with respect to the beneficial owner.
The certification requirement referred to above will be fulfilled if either
(A) the non-U.S. holder provides to us or our paying agent an IRS Form W-8BEN
(or successor form), signed under penalties of perjury, that includes such
holder's name and address and a certification as to its non-U.S. status, or (B)
the non-U.S. holder or its intermediary has otherwise established its non-U.S.
status.
The gross amount of payments of interest that do not qualify for the
exception from withholding described above (the "portfolio interest exemption")
will be subject to U.S. withholding tax at a rate of 30% unless (A) the non-U.S.
holder provides a properly completed IRS Form W-8BEN (or successor form)
claiming an exemption from or reduction in withholding under an applicable tax
treaty, or (B) such interest is effectively connected with the conduct of a U.S.
trade or business by such non-U.S. holder and such holder provides a properly
completed IRS Form W-8ECI (or successor form).
If a non-U.S. holder is engaged in a trade or business in the U.S. and if
interest on an exchange note or gain realized on the disposition of an exchange
note is effectively connected with the conduct of such trade or business, the
non-U.S. holder generally will be subject to regular U.S. federal income tax on
the interest or gain on a net basis in the same manner as if it were a U.S.
holder, unless an applicable treaty provides otherwise. In addition, if the
non-U.S. holder is a foreign corporation, it may also be subject to a branch
profits tax at a rate of 30% on its earnings and profits for the taxable year,
subject to certain adjustments, unless reduced or eliminated by an applicable
tax treaty. Even though such effectively connected income is subject to income
tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the non-U.S. holder satisfies the certification requirements
described above.
As more fully described above under "Description of the Notes -- Redemption
-- Terms of Optional Redemption" and "Description of the Notes -- Change of
Control" upon the occurrence of certain enumerated events, we may be required to
make additional payments to holders of the exchange notes. Such payments may be
treated as interest, subject to the rules described above, or as other income
subject to U.S. federal withholding tax. Non-U.S. holders should consult their
tax advisors as to the tax considerations relating to debt instruments that
provide for one or more contingent payments, in particular as to the
availability of the portfolio interest exemption,
110
and the ability of non-U.S. holders to claim the benefits of income tax treaty
exemptions from U.S. withholding tax on interest, in respect of any such
additional payments.
SALE, EXCHANGE OR DISPOSITION OF THE EXCHANGE NOTES
Subject to the discussion below concerning backup withholding, a non-U.S.
holder of an exchange note generally will not be subject to U.S. federal income
tax on gain realized on the sale, exchange or other taxable disposition of such
note unless:
o such holder is an individual who is present in the U.S. for 183 days
or more in the taxable year of disposition, and certain other
conditions are met;
o such gain represents accrued but unpaid interest not previously
included in income, in which case the rules regarding interest would
apply; or
o such gain is effectively connected with the conduct by such non-U.S.
holder of a trade or business in the U.S.
FEDERAL ESTATE TAX
An exchange note held (or treated as held) by an individual who is a
non-U.S. holder at the time of his or her death will not be subject to U.S.
federal estate tax, provided the interest on the exchange note is exempt from
withholding of U.S. federal income tax under the "portfolio interest exemption"
described above (without regard to the certification requirement). If you are an
individual, you should consult with your tax advisor regarding the possible
application of the U.S. federal estate tax to your particular circumstances,
including the effect of any applicable treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Unless certain exceptions apply, we must report annually to the IRS and to
each non-U.S. holder any interest paid to the non-U.S. Holder. Copies of these
information returns may also be made available under the provisions of a
specific treaty or other agreement to the tax authorities of the country in
which the non-U.S. holder resides.
Under current U.S. federal income tax law, backup withholding tax will not
apply to payments of interest by us or our paying agent on an exchange note if
the certifications described above under "-- Payments of Interest" are received,
provided that we or our paying agent, as the case may be, do not have actual
knowledge or reason to know that the payee is a U.S. person.
Payments on the sale, exchange or other disposition of an exchange note
made to or through a foreign office of a foreign broker generally will not be
subject to backup withholding or information reporting. However, if such broker
is for U.S. federal income tax purposes:
o a U.S. person;
o a controlled foreign corporation;
o a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year
period; or
o or a foreign partnership with certain connections to the U.S.;
then information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a U.S. person and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption. Backup withholding may apply to any payment that such broker is
required to report if the broker has actual knowledge or reason to know that the
payee is a U.S. person. Payments to or through the U.S.
111
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies, under penalties of perjury, that it is
not a U.S. person or otherwise establishes an exemption.
Backup withholding is not an additional tax: any amounts withheld from a
payment to a non-U.S. holder under the backup withholding rules will be allowed
as a credit against such holder's U.S. federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS. Non-U.S. holders of exchange notes should consult their
tax advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
from backup withholding and the procedure for obtaining such an exemption, if
available.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF EXCHANGING INITIAL NOTES FOR EXCHANGE NOTES PURSUANT
TO THE EXCHANGE OFFER, AS WELL AS THE OWNERSHIP AND DISPOSITION OF EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-U.S.
TAX LAWS AND ANY TAX TREATY AND ANY RECENT OR PROSPECTIVE CHANGES IN ANY
APPLICABLE TAX LAWS OR TREATIES.
112
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for initial notes where such initial notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 90 days after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 2003, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date, or until all
broker-dealers who exchange initial notes which were acquired as a result of
market making activities for exchange notes have sold all exchange notes held by
them, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. We have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the notes, but excluding fees and expenses of counsel to any
underwriters in connection with a shelf registration statement, other than
reasonable fees and expenses related to blue sky qualification of exchange notes
covered by such underwritten shelf registration; PROVIDED, HOWEVER, that
notwithstanding the foregoing, we shall not be responsible for underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of notes by a holder). We will indemnify the holders of the notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, has
passed upon the validity of the exchange notes.
EXPERTS
The consolidated financial statements of SpectraSite, Inc. and its
subsidiaries as of December 31, 2002 and 2001 and for the three years in the
period ended December 31, 2002, included in this prospectus have been audited by
Ernst & Young LLP, independent auditors, as stated in their report appearing
herein.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Securities and Exchange Commission. We have also filed with
the Securities and Exchange Commission a registration statement on Form S-4 to
register the exchange notes. This prospectus, which forms part of the
registration statement, does not contain all of the information included in that
registration statement. For further information about us and the exchange notes
offered in this prospectus, you
113
should refer to the registration statement and its exhibits. You may read and
copy the registration statement and any other document we file with the
Securities and Exchange Commission at the Securities and Exchange Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. In addition, the
Securities and Exchange Commission maintains a web site that contains
registration statements, reports, proxy statements and other information
regarding registrants, such as us, that file electronically with the Securities
and Exchange Commission. The address of this web site is http://www.sec.gov.
Anyone who receives a copy of this prospectus may obtain a copy of the
indenture relating to the notes and the letter of transmittal relating to the
exchange offer without charge by contacting us in writing or by telephone at our
principal executive office: SpectraSite, Inc., Secretary, 400 Regency Forest
Drive, Cary, North Carolina 27511, Telephone: (919) 468-0112. TO OBTAIN TIMELY
DELIVERY OF ANY COPIES OF FILINGS REQUESTED, PLEASE WRITE OR TELEPHONE NO LATER
THAN ____________, 2003, FIVE DAYS PRIOR TO THE TERMINATION OF THIS EXCHANGE
OFFER.
114
[SPECTRASITE LOGO OMITTED]
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus, and, if given or
made, any information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
these securities in any circumstances in which this offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made under this
prospectus shall, under any circumstances, create any implication that there has
been no change in the affairs of SpectraSite since the date of this prospectus.
We will update the information contained in this prospectus to the extent
required by law during such time as this prospectus is required to be in use.
Broker-dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the broker-dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
INDEX TO FINANCIAL STATEMENTS
I. SPECTRASITE, INC. ANNUAL FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2002........... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 2001 and 2002.................................. F-4
Consolidated Statements of Convertible Preferred Stock and
Shareholders' Equity (Deficit) for the years ended
December 31, 2000, 2001 and 2002.................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002.................................. F-6
Notes to Consolidated Financial Statements............................. F-8
II. SPECTRASITE, INC. INTERIM FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets as of March 31, 2003
(unaudited; reorganized company) and December 31, 2002
(predecessor company)............................................. F-35
Unaudited Condensed Consolidated Statements of Operations for the
two months ended March 31, 2003 (reorganized company),
the month ended January 31, 2003 (predecessor company) and
the three months ended March 31, 2002 (predecessor company)....... F-36
Unaudited Condensed Consolidated Statements of Cash Flows for the
two months ended March 31, 2003 (reorganized company),
the month ended January 31, 2003 (predecessor company) and
the three months ended March 31, 2002 (predecessor company)....... F-37
Notes to the Unaudited Condensed Consolidated Financial Statements..... F-39
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SpectraSite, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
SpectraSite, Inc. (formerly known as SpectraSite Holdings, Inc.) and
subsidiaries as of December 31, 2001 and 2002 and the related consolidated
statements of operations, convertible preferred stock and shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2002. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SpectraSite, Inc. and subsidiaries at December 31, 2001 and 2002 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the
Company emerged from Chapter 11 bankruptcy on February 10, 2003. Effective
February 1, 2003, the Company will change its basis of financial statement
presentation to reflect the adoption of fresh start accounting in accordance
with the American Institute of Certified Public Accountants' Statement of
Position 90-7, "Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code".
As discussed in Note 3 to the consolidated financial statements, in
2002 the Company adopted Statement of Financial Accounting Standard No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS and changed its method of accounting for
goodwill.
/s/ ERNST & YOUNG LLP
February 11, 2003
Raleigh, North Carolina
F-2
SPECTRASITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
2001 2002
------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 31,547 $ 80,961
Accounts receivable, net of allowance of $4,982 and $11,431, respectively.. 22,375 15,180
Costs and estimated earnings in excess of billings......................... 1,940 2,169
Inventories................................................................ 8,355 7,878
Prepaid expenses and other................................................. 11,505 16,696
Assets held for sale....................................................... 113,015 --
------------ ------------
Total current assets.................................................... 188,737 122,884
Property and equipment, net................................................... 2,443,046 2,292,945
Goodwill, net................................................................. 437,350 60,626
Other assets.................................................................. 134,292 102,001
------------ ------------
Total assets............................................................ $ 3,203,425 $ 2,578,456
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 36,608 $ 13,029
Accrued and other expenses................................................. 69,067 66,280
Billings in excess of costs and estimated earnings......................... 2,763 703
Current portion of credit facility......................................... -- 2,244
Liabilities held for sale.................................................. 36,102 --
------------ ------------
Total current liabilities............................................... 144,540 82,256
Long-term portion of credit facility.......................................... 695,000 780,711
Senior notes.................................................................. 400,000 --
Senior convertible notes...................................................... 200,000 --
Senior discount notes......................................................... 1,020,332 --
Other long-term liabilities................................................... 24,208 27,330
------------ ------------
Total long-term liabilities............................................. 2,339,540 808,041
------------ ------------
Liabilities subject to compromise (Note 2).................................... -- 1,763,286
------------ ------------
Commitments and Contingencies
Shareholders' equity (deficit):
Common stock, $0.001 par value, 300,000,000 shares authorized, 153,424,509 153 154
and 154,013,917 issued and outstanding, respectively.......................
Additional paid-in-capital................................................. 1,622,089 1,624,939
Accumulated other comprehensive income (loss).............................. 21,984 (355)
Accumulated deficit........................................................ (924,881) (1,699,865)
------------ ------------
Total shareholders' equity (deficit).................................... 719,345 (75,127)
------------ ------------
Total liabilities and shareholders' equity (deficit).................... $ 3,203,425 $ 2,578,456
============ ============
See accompanying notes.
F-3
SPECTRASITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 2001 2002
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Site leasing............................................. $ 116,476 $ 221,614 $ 282,525
Broadcast services....................................... 38,593 38,211 26,809
------------ ------------ ------------
Total revenues...................................... 155,069 259,825 309,334
------------ ------------ ------------
Operating expenses:
Cost of operations, excluding depreciation and
amortization expense:
Site leasing.......................................... 46,667 91,689 108,540
Broadcast services.................................... 26,245 29,538 21,158
Selling, general and administrative expenses............. 51,825 72,431 58,037
Depreciation and amortization expense.................... 78,103 165,267 189,936
Restructuring and non-recurring charges.................. -- 142,599 28,570
------------ ------------ ------------
Total operating expenses............................ 202,840 501,524 406,241
------------ ------------ ------------
Operating loss.............................................. (47,771) (241,699) (96,907)
------------ ------------ ------------
Other income (expense):
Interest income.......................................... 28,391 17,037 855
Interest expense......................................... (134,664) (212,174) (226,536)
Reorganization expense................................... -- -- (4,329)
Other income (expense)................................... (8,571) (223,236) (10,929)
------------ ------------ ------------
Total other income (expense)........................ (114,844) (418,373) (240,939)
------------ ------------ ------------
Loss from continuing operations before income taxes......... (162,615) (660,072) (337,846)
Income tax expense.......................................... 444 555 1,133
------------ ------------ ------------
Loss from continuing operations............................. (163,059) (660,627) (338,979)
Discontinued operations:
Income (loss) from operations of discontinued segment, 5,443 5,858 (12,268)
net of income tax expense.............................
Loss on disposal of discontinued segment................. -- -- (46,984)
------------ ------------ ------------
Loss before cumulative effect of change in accounting (157,616) (654,769) (398,231)
principle................................................
Cumulative effect of change in accounting for goodwill...... -- -- (376,753)
------------ ------------ ------------
Net loss.................................................... $ (157,616) $ (654,769) $ (774,984)
============ ============ ============
Basic and diluted earnings per share:
Loss from continuing operations.......................... $ (1.35) $ (4.40) $ (2.20)
Discontinued operations.................................. 0.04 0.04 (0.38)
Cumulative effect of change in accounting for goodwill... -- -- (2.45)
------------ ------------ ------------
Net loss................................................. $ (1.31) $ (4.36) $ (5.03)
============ ============ ============
Weighted average common shares outstanding:
Basic and diluted........................................ 120,731 150,223 153,924
============ ============ ============
See accompanying notes.
F-4
SPECTRASITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------------------------------------------------------
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED COMMON STOCK ADDITIONAL
STOCK STOCK STOCK ------------------------ PAID-IN
SERIES A SERIES B SERIES C SHARES AMOUNT CAPITAL
----------- ----------- ----------- ------------- --------- ------------
Balance at December 31, 1999 $ 10,000 $ 28,000 $ 301,494 20,191,604 $ 20 $ 230,546
Net loss -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- --
adjustment
Unrealized holding gains arising -- -- -- -- -- --
during period
Total comprehensive loss
Issuance of common stock, net of -- -- -- 53,973,255 54 906,584
stock issuance costs of
$37,150
Issuance of warrants -- -- -- -- -- 13,720
Non-cash compensation charges -- -- -- -- -- 2,572
Conversion of preferred stock to
common stock (10,000) (28,000) (301,494) 70,749,625 71 339,423
----------- ----------- ----------- ------------- --------- ------------
Balance at December 31, 2000 -- -- -- 144,914,484 145 1,492,845
Net loss -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- --
adjustment
Unrealized holding gains arising -- -- -- -- -- --
during period
Total comprehensive loss
Issuance of common stock, net of -- -- -- 8,510,025 8 127,119
stock issuance costs of $296
Non-cash compensation charges -- -- -- -- -- 2,125
Balance at December 31, 2001 -- -- -- 153,424,509 153 1,622,089
----------- ----------- ----------- ------------- --------- ------------
Net loss -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- --
adjustment
Unrealized holding losses -- -- -- -- -- --
arising during period
Total comprehensive loss
Issuance of common stock, net of -- -- -- 589,408 1 2,155
stock issuance costs of $6
Non-cash compensation charges -- -- -- -- -- 695
----------- ----------- ----------- ------------- --------- ------------
Balance at December 31, 2002 $ -- $ -- $ -- 154,013,917 $ 154 $1,624,939
=========== =========== =========== ============= ========= ============
SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE ACCUMULATED
INCOME (LOSS) INCOME (LOSS) DEFICIT TOTAL
------------- ------------- ----------- -----------
Balance at December 31, 1999 $ 192 $ (112,496) $ 457,756
Net loss $(157,616) -- (157,616) (157,616)
Foreign currency translation (14,946) (14,946) -- (14,946)
adjustment
Unrealized holding gains arising 16,676 16,676 -- 16,676
during period -------------
Total comprehensive loss $(155,886)
=============
Issuance of common stock, net of -- -- 906,638
stock issuance costs of
$37,150
Issuance of warrants -- -- 13,720
Non-cash compensation charges 2,572
Conversion of preferred stock to -- -- --
common stock ------------- ----------- -----------
Balance at December 31, 2000 1,922 (270,112) 1,224,800
Net loss $(654,769) -- (654,769) (654,769)
Foreign currency translation 13,558 13,558 -- 13,558
adjustment
Unrealized holding gains arising 6,504 6,504 -- 6,504
during period -------------
Total comprehensive loss $(634,707)
=============
Issuance of common stock, net of -- -- 127,127
stock issuance costs of $296
Non-cash compensation charges -- -- 2,125
Balance at December 31, 2001 21,984 (924,881) 719,345
------------- ----------- -----------
Net loss $(774,984) -- (774,984) (774,984)
Foreign currency translation 1,173 1,173 -- 1,173
adjustment
Unrealized holding losses (23,512) (23,512) -- (23,512)
arising during period -------------
Total comprehensive loss $(797,323)
=============
Issuance of common stock, net of -- -- 2,156
stock issuance costs of $6
Non-cash compensation charges -- -- 695
------------- ----------- -----------
Balance at December 31, 2002 $ (355) $(1,699,865) $ (75,127)
============= =========== ===========
See accompanying notes.
F-5
SPECTRASITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 2001 2002
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net loss..................................................... $ (157,616) $ (654,769) $ (774,984)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 65,368 149,371 186,706
Amortization of goodwill and other intangibles............ 31,366 36,853 3,218
Amortization of debt issuance costs....................... 5,507 10,113 14,321
Amortization of senior discount notes..................... 92,018 112,089 109,371
Non-cash compensation charges............................. 2,572 2,125 695
Write-off of goodwill..................................... -- 44,476 376,753
Loss on disposal of assets................................ -- 53,379 83,683
Gain on sale of affiliate................................. -- -- (1,364)
Write-off of loan to and investments in affiliates........ -- 156,433 --
Equity in net loss of an affiliate........................ 8,748 62,402 59
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................... (57,738) 665 47,345
Costs and estimated earnings in excess of billings, net (13,608) 408 325
Inventories............................................ (3,759) (5,396) 241
Prepaid expenses and other............................. (8,179) (8,316) (8,370)
Accounts payable....................................... 27,721 21 (32,017)
Other liabilities...................................... 18,965 28,013 30,304
------------- ------------- -------------
Net cash provided by (used in) operating activities.. 11,365 (12,133) 36,286
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of property and equipment.......................... (658,283) (958,945) (71,248)
Acquisitions, net of cash acquired........................... (224,518) (7,600) --
Disposal of discontinued segment, net of cash sold........... -- -- (6,751)
Proceeds from the sale of assets............................. -- -- 1,283
Investment in affiliates..................................... (198,039) (6,626) --
Loans to affiliates.......................................... (4,850) (27,400) (750)
Proceeds from repayment of loan to affiliate................. -- 5,000 --
Proceeds from sale of investment in affiliate................ -- 4,000 7,500
Refunds of (deposits on) acquisitions........................ (23,000) 6,847 --
------------- ------------- -------------
Net cash used in investing activities................ (1,108,690) (984,724) (69,966)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock....................... 790,397 4,617 483
Stock issuance costs......................................... (37,150) (296) (6)
Proceeds from issuance of long-term debt and credit facility. 895,900 495,000 90,000
Debt issuance costs.......................................... (35,526) (23,065) (2,648)
Repayment of debt............................................ (1,421) (505) (4,735)
------------- ------------- -------------
Net cash provided by financing activities............ 1,612,200 475,751 83,094
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents......... 514,875 (521,106) 49,414
Cash and cash equivalents at beginning of period............. 37,778 552,653 31,547
------------- ------------- -------------
Cash and cash equivalents at end of period................... $ 552,653 $ 31,547 $ 80,961
============= ============= =============
See accompanying notes.
F-6
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 2001 2002
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest....................................... $ 35,372 $ 99,908 $ 85,536
Cash paid for income taxes................................... 1,106 2,207 1,661
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued for acquisitions and property and
equipment................................................. $ 167,004 $ 122,806 $ 1,679
Capital lease obligations incurred for the purchase of
property and equipment.................................... -- 16,893 1,304
See accompanying notes.
F-7
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SpectraSite, Inc. ("SpectraSite"), formerly known as SpectraSite Holdings,
Inc., and its wholly owned subsidiaries (collectively referred to as the
"Company") are principally engaged in providing services to companies operating
in the telecommunications and broadcast industries, including leasing antenna
sites on multi-tenant towers, managing rooftop and in-building
telecommunications access on commercial real estate and designing, constructing,
modifying and maintaining broadcast towers in the United States.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
SpectraSite and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
The consolidated financial statements have been prepared assuming
SpectraSite, Inc. will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. SpectraSite, Inc. has incurred recurring operating losses, and it
has working capital and shareholders' deficits as of December 31, 2002. On
November 15, 2002 (the "Petition Date"), SpectraSite filed a voluntary petition
for relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the Eastern District of North Carolina,
Raleigh Division (the "Bankruptcy Court"). On November 18, 2002, SpectraSite
filed a Proposed Plan of Reorganization and a Proposed Disclosure Statement with
the Bankruptcy Court. A plan confirmation hearing was held on January 28, 2003
and the Proposed Plan of Reorganization, as modified on that date, (the "Plan of
Reorganization") was confirmed by the Bankruptcy Court. All conditions precedent
to the effectiveness of the Plan of Reorganization were met by February 10, 2003
(the "Effective Date"), thereby allowing SpectraSite to emerge from bankruptcy.
From the Petition Date until the Effective Date, SpectraSite operated as a
debtor-in-possession under the Bankruptcy Code. The restructuring plan involves
SpectraSite, Inc. and not SpectraSite Communications, Inc. ("Communications") or
any of Communications' subsidiaries. The restructuring plan also did not
constitute an event of default under or otherwise adversely affect
Communications' credit facility, which will continue to be serviced from
operating cash flow by Communications.
The consolidated financial statements are presented on a going concern
basis and do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classifications of liabilities that might be necessary should SpectraSite, Inc.
be unable to continue as a going concern. See Note 2 Plan of Reorganization for
a presentation of the unaudited pro forma balance sheet illustrating the effect
of the Company's Plan of Reorganization and the effect of implementing certain
fresh start accounting adjustments.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
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.
REVENUE RECOGNITION
Site leasing revenues are recognized when earned based on lease agreements.
Rental increases based on fixed escalation clauses that are included in certain
lease agreements are recognized on a straight-line basis over the term of the
lease. Broadcast service revenues related to construction activities are derived
from service contracts with customers
F-8
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
that provide for billing on a time and materials or fixed price basis. For the
time and materials contracts, revenues are recognized as services are performed.
For fixed price contracts, revenues are recognized using the
percentage-of-completion method, measured by the percentage of contract costs
incurred to date compared to estimated total contract costs. Costs and estimated
earnings in excess of billings on uncompleted contracts represent revenues
recognized in excess of amounts billed. Billings in excess of costs and
estimated earnings 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.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
The Company evaluates the collectibility of accounts receivable based on a
combination of factors. In circumstances where a specific customer's ability to
meet its financial obligations to us is in question, the Company records a
specific allowance against amounts due to reduce the net recognized receivable
from that customer to the amount it reasonably believes will be collected. For
all other customers, the Company reserves a percentage of the remaining
outstanding accounts receivable balance based on a review of the aging of
customer balances, industry experience and the current economic environment.
Activity in the allowance for uncollectible accounts consisted of the following.
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 2001 2002
-------- --------- ---------
(IN THOUSANDS)
Beginning allowance....................... $ 1,053 $ 1,674 $ 4,982
Charges to revenues....................... 1,310 6,111 12,100
Write-offs of uncollectible accounts...... (689) (2,803) (5,651)
-------- --------- ---------
Ending allowance.......................... $ 1,674 $ 4,982 $ 11,431
======== ========= =========
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 IN AFFILIATES
An investment in an entity of which the Company owns more than 20% and up
to 50% and on which the Company has the ability to exercise significant
influence is accounted for using the equity method. Under the equity method, the
investment is stated at cost adjusted for 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 consolidated
statements of operations. An investment in an entity in which the Company owns
less than 20% and on which the Company does not have the ability to exercise
significant influence is accounted for using the cost method.
Other-than-temporary impairments of investments in affiliates are recognized if
the fair value of the investment is below its cost basis for an extended period.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are classified as "Other assets" and are
stated at fair value, with the unrealized gains and losses reported in other
comprehensive income. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in "Other
income (expense)." Unrealized holding gains (losses) related to these securities
were $6.5 million and $(23.5 million) for the years ended December 31, 2001 and
2002, respectively. The fair value of the Company's available-for-sale
securities was $24.8 million and $1.3 million at December 31, 2001 and 2002,
respectively.
F-9
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Towers built, purchased or leased under long-term leasehold agreements are
recorded at cost and depreciated over their estimated useful lives. The Company
capitalizes costs incurred in bringing towers to an operational state. Costs
clearly associated with the acquisition, development and construction of towers
are capitalized as a cost of the towers. Indirect costs that relate to several
towers are capitalized and allocated to the towers to which the costs relate.
Indirect costs that do not clearly relate to projects under development or
construction are charged to expense as incurred. Approximately $16.9 million and
$1.2 million of interest was capitalized into the cost of property and equipment
for the years ended December 31, 2001 and 2002, respectively. Depreciation on
property and equipment excluding towers is computed using the straight-line
method over the estimated useful lives of the assets ranging from three to
fifteen years. Depreciation on towers is computed using the straight-line method
over the estimated useful lives of 15 years for wireless towers and 30 years for
broadcast towers. Amortization of assets recorded under capital leases is
included in depreciation.
GOODWILL
The Company has classified as goodwill the excess of purchase price over
the fair value of net assets acquired in business combinations. Through December
31, 2001, goodwill was amortized on a straight-line basis over fifteen years for
purchase business combinations consummated prior to June 30, 2001. For purchase
business combinations consummated subsequent to June 30, 2001, goodwill is not
amortized but is evaluated for impairment on an annual basis or as impairment
indicators are identified, in accordance with SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. For each entity acquired, the Company is able to monitor cash
flows at the entity level, which is the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of the
other groups of assets. On an ongoing basis, the Company assesses the
recoverability of its goodwill by determining the ability of the specific entity
acquired to generate future cash flows sufficient to recover the unamortized
cost of the assets and related goodwill. Goodwill determined to be unrecoverable
based on future cash flows is written-off in the period in which such
determination is made.
DEBT ISSUANCE COSTS
The Company capitalized costs relating to the issuance of long-term debt,
senior notes, senior convertible notes and senior discount notes. The costs are
amortized using the straight-line method over the term of the related debt.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, goodwill and purchased
intangible assets, are evaluated for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. An
impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from
disposition of the asset (if any) are less than the carrying value of the asset.
When an impairment is identified, the carrying amount of the asset is reduced to
its estimated fair value. Effective January 1, 2002, potential impairment of
long-lived assets other than goodwill and purchased intangible assets with
indefinite useful lives is evaluated using the guidance provided by Statement of
Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS.
ACCOUNTING FOR 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.
As part of the process of preparing our consolidated financial statements
the Company is required to estimate income taxes in each of the jurisdictions in
which it operates. This process involves estimating the actual current tax
F-10
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liability together with assessing temporary differences resulting from differing
treatment of items, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities. The Company must then assess the likelihood
that its deferred tax assets will be recovered from future taxable income. To
the extent that the Company believes that recovery is not likely, it must
establish a valuation allowance. Significant management judgment is required in
determining the provision for income taxes, deferred tax assets and liabilities
and any valuation allowance recorded against net deferred tax assets. The
Company has recorded a valuation allowance of $464.7 million as of December 31,
2002, due to uncertainties related to utilization of deferred tax assets,
primarily consisting of net operating losses carryforwards, before they expire.
DISCONTINUED OPERATIONS
On December 31, 2002, the Company sold its network services division.
Network services revenues for the years ended December 31, 2000, 2001 and 2002
were $191.8 million, $213.1 million and $136.2 million, respectively. Network
services income (loss) before taxes for the years ended December 31, 2000, 2001
and 2002 were $7.2 million, $7.9 million and $(11.0) million, respectively. The
Company recorded a loss on disposal of the network services division of $47.0
million in 2002. The results of the network services division's operations have
been reported separately as discontinued operations in the Statements of
Operations. Prior period financial statements have been restated to present the
operations of the division as a discontinued operation.
Assets and liabilities held for sale consist of the following:
DECEMBER 31,
2001
-------------
(IN THOUSANDS)
Accounts receivable.......................................... $ 68,401
Costs and estimated earnings in excess of billings........... 18,464
Inventories.................................................. 6,036
Prepaid expenses and other................................... 264
Property and equipment, net.................................. 19,057
Other assets................................................. 793
-------------
Assets held for sale...................................... $ 113,015
=============
Accounts payable............................................. $ 17,977
Accrued and other expenses................................... 7,575
Billings in excess of costs and estimated earnings........... 7,737
Other long-term liabilities.................................. 2,813
-------------
Liabilities held for sale.................................. $ 36,102
=============
As permitted under Statement of Financial Accounting Standards No. 95,
STATEMENT OF CASH FLOWS, the statements of cash flows do not separately disclose
the cash flows related to discontinued operations.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value
for these instruments. The estimated fair values of the credit facility, senior
notes, senior convertible notes and senior discount notes are based on the
quoted market prices. The estimated fair values of the Company's financial
instruments, along with the carrying amounts of the related assets
(liabilities), are as follows:
F-11
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 DECEMBER 31, 2002
--------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
Cash and cash equivalents............. $ 31,547 $ 31,547 $ 80,961 $ 80,961
Credit Facility....................... (695,000) (695,000) (782,955) (665,512)
Senior Notes.......................... (400,000) (200,000) (400,000) (147,750)
Senior Convertible Notes.............. (200,000) (83,250) (200,000) (44,000)
Senior Discount Notes................. (1,020,332) (351,416) (1,129,703) (392,807)
LOSS PER SHARE
Basic and diluted loss per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. The
Company has potential common stock equivalents related to its convertible notes,
warrants and outstanding stock options and had potential common stock
equivalents related to its convertible preferred stock until all such preferred
stock converted into common stock in February 2000. These potential common stock
equivalents were not included in diluted loss per share for all periods because
the effect would have been antidilutive. Accordingly, basic and diluted net loss
per share are the same for all periods presented.
COSTS OF OPERATIONS
Costs of operations for site leasing 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 does not include
depreciation and amortization expense on the related assets. Costs of operations
for broadcast services consist of direct costs incurred to provide the related
services excluding depreciation and amortization expense.
SIGNIFICANT CUSTOMERS
The Company's customer base consists of businesses operating in the
wireless telecommunications and broadcast industries, primarily in the United
States. The Company's exposure to credit risk consists primarily of unsecured
accounts receivable from these customers.
For the years ended December 31, 2000, 2001 and 2002, one wireless
customer, which is a significant stockholder of the Company, accounted for 48%,
30% and 28% of the Company's revenues, respectively. This customer also
accounted for 13% of accounts receivable at December 31, 2001. In addition,
another wireless customer, which is an affiliate of a significant stockholder of
the Company, accounted for 13% and 20% of the Company's revenues in 2001 and
2002, respectively. This customer also accounted for 12% and 21% of accounts
receivable at December 31, 2001 and 2002, respectively.
F-12
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 2001 2002
---------- ----------- ----------
Write-down of investments in affiliates............ $ -- $ (129,404) $ --
Expenses related to proposed tender offers......... -- -- (10,905)
Equity in net loss of affiliates................... (8,748) (62,402) (59)
Write-off of loans to affiliates................... -- (26,980) --
Other.............................................. 177 (4,450) 35
---------- ----------- ----------
$ (8,571) $ (223,236) $ (10,929)
========== =========== ==========
STOCK OPTIONS
The Company has elected under the provisions of Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION ("SFAS
123"), as amended by SFAS 148, to account for its employee stock options under
the intrinsic value method in accordance with Accounting Principle Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"). Companies that
account for stock based compensation arrangements for their employees under APB
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 and SFAS 148.
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 $0.9 million, $2.1 million and
$1.1 million for the years ended December 31, 2000, 2001 and 2002, respectively.
COMMITMENTS AND CONTINGENCIES
The Company is subject to various lawsuits and other legal proceedings,
including regulatory, judicial and administrative matters, all of which have
arisen in the ordinary course of business. Management accrues an estimate of
expense for any matters that are considered probable of occurring based on the
facts and circumstances. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 2001 consolidated
financial statements to conform to the 2002 presentation. These
reclassifications had no effect on net loss or shareholders' equity as
previously reported.
2. PLAN OF REORGANIZATION
On November 15, 2002 (the "Petition Date"), SpectraSite filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Eastern District of North
Carolina, Raleigh Division (the "Bankruptcy Court"). On November 18, 2002,
SpectraSite filed a Proposed Plan of Reorganization and a Proposed Disclosure
Statement with the Bankruptcy Court. A plan confirmation hearing was held on
January 28, 2003 and the Proposed Plan of Reorganization, as modified on that
date (the "Plan"), was confirmed by
F-13
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Bankruptcy Court. All conditions precedent to the effectiveness of the Plan
of Reorganization were met by February 10, 2003 (the "Effective Date"), thereby
allowing SpectraSite to emerge from bankruptcy.
The Plan provides that, among other things, (i) in exchange for their
notes, the holders of the 12 1/2% Senior Notes due 2010, the 6 3/4% Senior
Convertible Notes due 2010, the 10 3/4% Senior Notes due 2010, the 11 1/4%
Senior Discount Notes due 2009, the 12 7/8% Senior Discount Notes due 2010 and
the 12% Senior Discount Notes due 2008 will receive their pro rata share of
23.75 million shares of common stock, par value $0.01 per share ("New Common
Stock"); (ii) the holders of 166,158,298 shares of common stock, par value
$0.001 per share, outstanding as of the Effective Date (the "Old Common Stock")
will receive warrants immediately exercisable into 1.25 million shares of New
Common Stock at a price of $32.00 per share; and (iii) all other equity
interests at the Effective Date, including outstanding warrants and options,
will be cancelled.
The consolidated financial statements include adjustments and
reclassifications to reflect affected liabilities as "Liabilities Subject to
Compromise." These liabilities will be settled in accordance with the Plan. The
liabilities subject to compromise as of December 31, 2002 were as follows:
10 3/4% Senior Notes Due 2010................................. $ 200,000
12 1/2% Senior Notes Due 2010................................. 200,000
6 3/4% Senior Convertible Notes Due 2010...................... 200,000
12% Senior Discount Notes Due 2008, net of discount........... 208,479
11 1/4% Senior Discount Notes Due 2009, net of discount....... 502,644
12 7/8% Senior Discount Notes Due 2010, net of discount....... 418,580
Accrued interest.............................................. 33,583
Total liabilities subject to compromise....................... $ 1,763,286
SpectraSite incurred costs directly associated with the chapter 11
proceedings of $4.3 million in the year ended December 31, 2002. These costs are
included in reorganization expense in the statement of operations.
In accordance with AICPA Statement of Position 90-7 FINANCIAL REPORTING BY
ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"), the Company
will adopt "fresh start accounting" as of February 1, 2003 and the Company's
emergence from chapter 11 will result in a new reporting entity. The financial
statements prepared as of December 31, 2002 do not give effect to any
adjustments to the carrying value of assets or amounts and classifications of
liabilities that will be necessary when adopting fresh start accounting. Upon
the adoption of fresh start accounting, all assets and liabilities will be
recorded at their estimated fair values and the Company's accumulated deficit
will be eliminated.
The following unaudited pro forma balance sheet illustrates the effect of
the Company's Plan and the effect of implementing certain fresh start accounting
adjustments as if the Plan had been effective on December 31, 2002. The
adjustments are limited to presenting (i) the Company's reorganized capital
structure; (ii) the effect of discharging the Senior Notes, Senior Discount
Notes and Senior Convertible Notes; (iii) the reduction in property and
equipment due to the net assets of the Company exceeding the reorganization
value; (iv) the elimination of rent receivables recognized on leases with fixed
rental increases; (v) the adoption of SFAS 143; (vi) the reduction of goodwill,
other assets and the credit facility to fair market value and (vii) the
elimination of the Company's accumulated deficit. The reorganization value used
in preparing the unaudited pro forma balance sheet was $690.4 million based on
the fair market value of the senior notes, senior discount notes and senior
convertible notes at the Effective Date, the date these instruments were
exchanged for New Common Stock and the value of warrants issued on that date
based on the Black-Scholes option pricing model.
F-14
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONFIRMATION
ACTUAL ADJUSTMENTS REF PRO FORMA
------------- -------------- -------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents......................... $ 80,961 $ (16,802) (2) $ 64,159
Accounts receivable............................... 15,180 -- 15,180
Costs and estimated earnings in excess of billings 2,169 -- 2,169
Inventories....................................... 7,878 -- 7,878
Prepaid expenses and other........................ 16,696 -- 16,696
------------- -------------- -----------
Total current assets........................... 122,884 (16,802) 106,082
Property and equipment, net.......................... 2,292,945 (1,035,143) (3) 1,257,802
Goodwill, net........................................ 60,626 (60,626) (4) --
Other assets......................................... 102,001 122,182 (1),(4) 224,183
------------- -------------- -----------
Total assets................................... $ 2,578,456 $ (990,389) $1,588,067
============= ============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 13,029 $ $ 13,029
Accrued and other expenses........................ 66,280 38,456 (5) 104,736
Billings in excess of costs and estimated earnings 703 -- 703
Current portion of credit facility................ 2,244 -- 2,244
------------- -------------- -----------
Total current liabilities...................... 82,256 38,456 120,712
============= ============== ===========
Long-term portion of credit facility................. 780,711 (96,772) (4) 683,939
Other long-term liabilities.......................... 27,330 65,694 (5),(6) 93,024
------------- -------------- -----------
Total long-term liabilities.................... 808,041 (31,078) 776,963
============= ============== ===========
Liabilities subject to compromise.................... 1,763,286 (1,763,286) (1) --
------------- -------------- -----------
Shareholders' equity (deficit):
Common stock, $0.001 par value, 300,000,000
shares authorized 154,013,917 issued and
outstanding actual at December 31, 2002;
$0.01 par value, 250,000,000 shares
authorized 23,500,000 issued and
outstanding pro forma at December 31, 2002..... 154 84 (1) 238
Additional paid-in-capital and warrants........... 1,624,939 (934,785) (1) 690,154
Accumulated other comprehensive income............ (355) 355 (7) --
Accumulated deficit............................... (1,699,865) 1,699,865 (7)
------------- -------------- -----------
Total shareholders' equity (deficit)........... (75,127) 765,519 690,392
------------- -------------- -----------
Total liabilities and shareholders' equity $ 2,578,456 $ (990,389) $ 1,588,067
(deficit).................................. ============= ============== ===========
References:
(1) To reflect the discharge of the Senior Notes, Senior Discount Notes and
Senior Convertible Notes including the related debt issuance costs included
in other assets; the cancellation of Old Common Stock and warrants; and the
issuance of the New Common Stock and warrants.
F-15
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) To reflect estimated cash requirements for reorganization costs.
(3) To record property and equipment at fair value.
(4) To record goodwill, other assets and the credit facility at fair value.
(5) To record liabilities associated with unfavorable contracts at fair value.
(6) To record an asset retirement obligation upon adoption of SFAS 143.
(7) To reflect the elimination of the accumulated other comprehensive income
and accumulated deficit as of December 31, 2002.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS
("SFAS 141") and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS 142").
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. SFAS 141 also includes new criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS 141 are
effective for any business combination accounted for by the purchase method that
is completed after June 30, 2001. The application of SFAS 141 did not affect any
of our previously reported amounts included in goodwill or other intangible
assets.
Effective January 1, 2002, the Company adopted SFAS 142 that establishes
new accounting and reporting requirements for goodwill and other intangible
assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are
no longer amortized but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
estimated useful lives. The nonamortization provisions of SFAS 142 apply to
goodwill and indefinite lived intangible assets acquired after June 30, 2001.
With respect to goodwill and intangible assets acquired prior to July 1, 2001,
we ceased amortization on January 1, 2002.
The Company performed the first of the required impairment tests of
goodwill by comparing the fair value of each of our reporting units with its
carrying value. Fair value was determined using a discounted cash flow
methodology. Based on our impairment tests, the Company recorded a charge of
$376.8 million, or $2.45 per share, to reduce the carrying value of goodwill in
our wireless services, broadcast tower, broadcast services and building units to
its implied fair value. In accordance with SFAS 142, the impairment adjustment
recognized at adoption of the new rules was reflected as a cumulative effect of
accounting change in our first quarter 2002 statement of operations. Impairment
adjustments recognized after adoption, if any, generally are required to be
recognized as an operating expense.
Actual results of operations and pro forma results of operations for the
years ended December 31, 2000, 2001 and 2002 had we applied the nonamortization
provisions of SFAS 142 in that period are as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
(IN THOUSANDS)
Reported net loss.......................... $ (157,616) $ (654,769) $ (774,984)
Goodwill amortization...................... 30,883 35,515 --
----------- ----------- -----------
Adjusted net loss.......................... $ (126,733) $ (619,254) $ (774,984)
=========== =========== ===========
F-16
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
(IN THOUSANDS)
Basic and diluted loss per share:
Reported net loss.......................... $ (1.31) $ (4.36) $ (5.03)
Goodwill amortization...................... 0.26 0.24 --
----------- ----------- -----------
Adjusted net loss.......................... $ (1.05) $ (4.12) $ (5.03)
=========== =========== ===========
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143") which is
effective for fiscal years beginning after June 15, 2002. SFAS 143 requires
legal obligations associated with the retirement of long-lived assets to be
recognized at their fair value at the time that the obligations are incurred.
Upon initial recognition of a liability, that cost should be capitalized as part
of the related long-lived asset and allocated to expense over the useful life of
the asset. The Company will adopt the new rules on asset retirement obligations
on January 1, 2003. Application of the new rules is expected to result in an
increase in net property, plant and equipment of $23.2 million, recognition of
an asset retirement obligation of $35.4 million, and a cumulative effect of
adoption that will reduce net income and stockholders' equity (deficit) by $12.2
million.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, RESCISSION OF FASB STATEMENT NOS. 4, 44, AND 64, AMENDMENT OF FASB
STATEMENT NO. 13 AND TECHNICAL CORRECTIONS ("SFAS 145"). SFAS 145 amends or
rescinds a number of authoritative pronouncements, including Statement of
Financial Accounting Standards No. 4, REPORTING GAINS AND LOSSES FROM
EXTINGUISHMENT OF DEBT ("SFAS 4"). SFAS 4 required that gains and losses from
extinguishment of debt included in the determination of net income or loss be
aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. Upon adoption of SFAS 145, gains and losses from
extinguishment of debt will no longer be classified as extraordinary items, but
rather will generally be classified as part of other income (expense) on the
Company's consolidated statement of operations. The provisions of SFAS 145 are
effective for fiscal years beginning after May 15, 2002. The Company will adopt
the provisions of SFAS 145 on January 1, 2003. The Company does not expect the
impact of adopting this statement to have a material impact on its consolidated
financial position, results of operations or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS
146"). The statement requires costs associated with exit or disposal activities
to be recognized when incurred rather than at the date of a commitment to an
exit or disposal plan. The requirements of SFAS 146 are effective for exit or
disposal activities initiated after January 1, 2003. The Company will adopt the
provisions of SFAS 145 on January 1, 2003. The Company does not expect the
impact of adopting this statement to have a material impact on its consolidated
financial position, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION, TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the fair value method
of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS 148 requires disclosure
of the pro forma effect in interim financial statements. The transition
disclosure requirements of SFAS 148 are effective for fiscal year 2002. The
interim and annual disclosure requirements are effective for the first quarter
of 2003. The Company does not expect SFAS 148 to have a material effect on its
financial condition, results of operations or cash flows.
F-17
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-LIVED ASSETS
Property and equipment consist of the following:
DECEMBER 31,
-----------------------------------
2001 2002
-------------- --------------
(IN THOUSANDS)
Towers.................................................. $ 2,483,049 $ 2,548,712
Equipment............................................... 30,261 39,181
Land.................................................... 16,378 18,081
Buildings............................................... 32,792 32,219
Other................................................... 38,572 38,217
-------------- --------------
2,601,052 2,676,410
Less accumulated depreciation........................... (220,209) (401,467)
-------------- --------------
2,380,843 2,274,943
Construction in progress................................ 62,203 18,002
Property and equipment, net............................. $ 2,443,046 $ 2,292,945
============== ==============
Other assets consist of the following:
DECEMBER 31,
-----------------------------------
2001 2002
-------------- --------------
(IN THOUSANDS)
Debt issuance costs..................................... $ 77,865 $ 66,192
Other................................................... 56,427 35,809
-------------- --------------
$ 134,292 $ 102,001
============== ==============
5. DEBT
Debt not classified as subject to compromise consists of the following:
DECEMBER 31,
-----------------------------------
2001 2002
-------------- --------------
(IN THOUSANDS)
Credit facility......................................... $ 695,000 $ 782,955
10 3/4% Senior Notes Due 2010........................... 200,000 --
12 1/2% Senior Notes Due 2010........................... 200,000 --
6 3/4% Senior Convertible Notes Due 2010................ 200,000 --
12% Senior Discount Notes Due 2008, net of discount..... 188,222 --
11 1/4% Senior Discount Notes Due 2009, net of discount. 456,810 --
12 7/8% Senior Discount Notes Due 2010, net of discount. 375,300 --
Total debt.............................................. 2,315,332 782,955
Less current portion.................................... -- 2,244
Long-term debt.......................................... $ 2,315,332 $ 780,711
============== ==============
CREDIT FACILITY
SpectraSite Communications, Inc. ("Communications"), a wholly-owned
subsidiary of SpectraSite, is party to an amended and restated credit facility.
In August 2002, Communications amended its credit facility to provide, among
other things, for a reduction in the aggregate borrowing capacity from $1.3
billion to $1.085 billion. The August 2002
F-18
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amendment also provided for an overall loosening of certain of the credit
facility's financial covenants and an increase in the interest rates under the
credit facility by 50 basis points per annum until the completion of
SpectraSite's restructuring of its high yield indebtedness on February 10, 2003.
The credit facility includes a $300.0 million revolving credit facility, which
may be drawn at any time, subject to the satisfaction of certain conditions
precedent (including the absence of a materially adverse effect, as defined in
the credit agreement, and the absence of any defaults). The amount available
will be reduced (and, if necessary, the amounts outstanding must be repaid) in
quarterly installments beginning on June 30, 2004 and ending on June 30, 2007.
The credit facility also includes a $335.0 million multiple draw term loan that
is fully drawn and which must be repaid in quarterly installments beginning on
June 30, 2005 and ending on June 30, 2007 and a $450.0 million term loan that is
fully drawn and which will, from September 30, 2003 through June 30, 2007,
amortize at a rate of 0.25% per quarter and be payable in quarterly installments
and, from July 1, 2007 through December 31, 2007, amortize at a rate of 48% per
quarter and be payable on September 30, 2007 and December 31, 2007.
Communications repaid $0.9 million of the multiple draw term loan and $1.1
million of the term loan on December 31, 2002. Communications has $783.0 million
outstanding under the credit facility at December 31, 2002. The remaining $300.0
million under the credit facility was undrawn. Under the terms of the credit
facility, the Company could borrow approximately $230 million of available funds
under the revolving credit facility as of December 31, 2002 while remaining in
compliance with the credit agreement's covenants. With the proceeds of the sale
of towers to Cingular discussed in Note 11, Communications repaid $31.4 million
of the multiple draw term loan and $42.1 million of the term loan on February
11, 2003 leaving a total of $709.5 million outstanding under the credit
facility. In addition, the overall loosening of covenants under the August 2002
amendment to the credit facility terminated when SpectraSite emerged from
chapter 11 on February 10, 2003. As a result, Communications could borrow
approximately $33 million of available funds under the revolving credit facility
as of February 11, 2003 while remaining in compliance with the credit
agreement's covenants.
At December 31, 2002, amounts due under the credit facility are as follows:
Maturities
(In thousands)
2003................................................... $ 2,244
2004................................................... 4,488
2005................................................... 89,052
2006................................................... 129,270
2007................................................... 557,901
Total.................................................. $ 782,955
==================
Prior to February 10, 2003, the revolving credit loans and the multiple
draw term loan bear interest, at Communications' option, at either Canadian
Imperial Bank of Commerce's base rate plus an applicable margin of 2.50% per
annum or the Eurodollar rate plus an applicable margin of 3.75% per annum. After
February 10, 2003, the revolving credit loans and the multiple draw term loans
bear interest, at Communications' option, at either Canadian Imperial Bank of
Commerce's base rate plus an applicable margin ranging from 2.00% to 1.00% per
annum or the Eurodollar rate plus an applicable margin ranging from 3.25% to
2.25% per annum, depending on Communications' leverage ratio at the end of the
preceding fiscal quarter.
The weighted average interest rate on outstanding borrowings under the
credit facility as of December 31, 2002 was 5.94%. Prior to February 10, 2003,
the term loan bears interest, at Communications' option, at either Canadian
Imperial Bank of Commerce's base rate plus 3.25% per annum or the Eurodollar
rate plus 4.50% per annum. After February 10, 2003, the term loan bears
interest, at Communications' option, at either Canadian Imperial Bank of
Commerce's base rate plus 2.75% per annum or the Eurodollar rate plus 4.00% per
annum.
Communications is required to pay a commitment fee of between 1.375% and
0.500% per annum in respect of the undrawn portions of the revolving credit
facility, depending on the undrawn amount. Communications may be required
F-19
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
certain changes to the SBC transaction or the generation of excess cash flow.
SpectraSite and each of Communications' domestic subsidiaries have
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 domestic subsidiaries, a pledge of all of the capital
stock of Communications and its domestic subsidiaries and 66% of the capital
stock of Communications' foreign subsidiaries. The credit facility contains a
number of covenants that, among other things, restrict Communications' ability
to incur additional indebtedness; create liens on assets; make investments or
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. In addition, the credit facility
requires compliance with certain financial covenants, including a requirement
that Communications and its subsidiaries, on a consolidated basis, maintain a
maximum ratio of total debt to annualized EBITDA, a minimum interest coverage
ratio and a minimum fixed charge coverage ratio.
12 7/8% SENIOR DISCOUNT NOTES DUE 2010 (THE "12 7/8% DISCOUNT NOTES") AND 10
3/4% SENIOR NOTES DUE 2010 (THE "10 3/4% SENIOR NOTES")
On March 15, 2000, SpectraSite issued $559.8 million aggregate principal
amount at maturity of its 12 7/8% Discount Notes for gross proceeds of $300.0
million and $200.0 million aggregate principal amount of its 10 3/4% Senior
Notes. The 12 7/8% Discount Notes will not pay any interest until March 15,
2005, at which time semi-annual interest payments will commence and become due
on each March 15 and September 15 thereafter. Semi-annual interest payments for
the 10 3/4% Senior Notes are due on each March 15 and September 15. The Company
is required to comply with certain covenants under the terms of the 12 7/8%
Discount Notes and the 10 3/4% Senior Notes that restrict the Company's ability
to incur additional indebtedness, make certain payments and issue preferred
stock, among other things.
12 1/2% SENIOR NOTES DUE 2010 (THE "12 1/2% SENIOR NOTES")
On December 20, 2000, SpectraSite issued $200.0 million aggregate principal
amount at maturity of 12 1/2% Senior Notes for proceeds of $195.9 million, net
of original issue discount of $4.1 million. Semi-annual interest payments for
the 12 1/2% Senior Notes are due on each May 15 and November 15. The Company is
required to comply with certain covenants under the terms of the 12 1/2% Senior
Notes that restrict the Company's ability to incur additional indebtedness, make
certain payments, and issue preferred stock, among other things.
6 3/4% SENIOR CONVERTIBLE NOTES DUE 2010 (THE "6 3/4% CONVERTIBLE NOTES")
On November 20, 2000, SpectraSite issued $200.0 million aggregate principal
amount of 6 3/4% Convertible Notes. Semi-annual interest payments for these
notes are due on each May 15 and November 15. The 6 3/4% Convertible Notes may
be converted into common stock at any time on or before November 15, 2010 at a
conversion price of $21.5625 per share, subject to adjustment. The trading price
of the Company's common stock on the commitment date was $15.00 per share.
12% SENIOR DISCOUNT NOTES DUE 2008 (THE "12% DISCOUNT NOTES")
On June 26, 1998, the Company issued $225.2 million aggregate principal
amount at maturity of 12% Discount Notes for gross proceeds of $125.0 million.
The 12% Discount Notes will not pay any interest until July 15, 2003, at which
time semi-annual interest payments will commence and become due on each January
15 and July 15 thereafter. The Company is required to comply with certain
covenants under the terms of the 12% Discount Notes that restrict the Company's
ability to incur indebtedness, make certain payments and issue preferred stock,
among other things.
F-20
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 1/4% SENIOR DISCOUNT NOTES DUE 2009 (THE "11 1/4% DISCOUNT NOTES")
On April 20, 1999, the Company issued $586.8 million aggregate principal
amount at maturity of 11 1/4% Discount Notes for gross proceeds of $340.0
million. The 11 1/4% Discount Notes will not pay any interest until April 15,
2004, at which time semi-annual interest payments will commence and become due
on each April 15 and October 15 thereafter. The Company is required to comply
with certain covenants under the terms of the 11 1/4% Discount Notes that
restrict the Company's ability to incur additional indebtedness, make certain
payments and issue preferred stock, among other things.
SpectraSite did not pay $10.8 million of interest due September 15, 2002 on
its 10 3/4% senior notes. On October 15, 2002, the 30-day grace period for such
non-payment expired, creating an event of default that is continuing. On
November 15, 2002, SpectraSite did not pay $12.5 million of interest due on its
12 1/2% senior notes and $6.75 million due on its 6 3/4% senior convertible
notes. On December 14, 2002, the 30-day grace period for such non-payment
expired, creating an event of default that is continuing. In addition,
SpectraSite announced that it has reached agreements with beneficial holders of
approximately 66% of the SpectraSite Notes to support a restructuring plan as
discussed in Note 2. As a result, $400 million principal amount of Senior Notes,
$1.1 billion accreted value of Senior Discount Notes, $200 million of Senior
Convertible Notes and accrued interest of $33.6 million have been classified as
liabilities subject to compromise in the balance sheet as of December 31, 2002.
In addition, we had standby letters of credit of $6.3 million and
performance bonds of $14.6 million outstanding at December 31, 2002, most of
which expire within one year.
6. CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CONVERTIBLE VOTING PREFERRED STOCK
At December 31, 1998, SpectraSite had mandatorily redeemable convertible
preferred stock consisting of Series A and Series B cumulative redeemable
preferred stock, each with a $0.001 par value, 10.5 million shares authorized in
the aggregate and 3.5 million and 7.0 million shares issued and outstanding,
respectively. In connection with closing the Nextel tower acquisition in April
1999, 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
convertible preferred stock in shareholders' equity in the balance sheet as of
December 31, 1999. In connection with closing the Nextel tower acquisition,
SpectraSite sold 46.3 million shares of Series C preferred stock at a price of
$5.00 per share. In addition, Nextel received 14.0 million shares of Series C
preferred stock. At December 31, 1999, SpectraSite had 60.3 million of $0.001
par value Series C shares authorized, issued and outstanding. Each share of
Series A, B and C preferred stock was convertible into one share of common stock
and entitled the holder to vote on an as-converted basis with holders of common
stock. Contemporaneously with the closing of an underwritten public offering of
common stock, the outstanding shares of Series A, B and C preferred stock
automatically converted to common stock on February 4, 2000.
On November 16, 2000, SpectraSite's shareholders authorized the issuance of
40.0 million shares of preferred stock for such times, for such purposes and for
such consideration as the Board of Directors may determine. No preferred stock
had been issued at December 31, 2002.
COMMON STOCK AND WARRANTS
On February 4, 2000, SpectraSite completed an underwritten public offering
of 25.6 million shares of common stock for net proceeds of approximately $411.3
million. As a result of the offering, all outstanding shares of Series A, B and
C preferred stock automatically converted to common stock on a share-for-share
basis.
F-21
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 28, 2000, SpectraSite completed an underwritten public offering of
11.0 million shares of common stock for net proceeds of approximately $220.2
million. On August 2, 2000, the underwriters purchased an additional 1.65
million shares of common stock pursuant to the exercise of their overallotment
option for net proceeds of $33.2 million.
On November 20, 2000, SpectraSite completed a private placement of 4.0
million shares of common stock for proceeds of $75.0 million. In addition, the
purchasing shareholders received warrants to purchase an additional 1.5 million
shares of common stock. The warrants were immediately exercisable; the exercise
price for 0.6 million shares was $21.56 per share, the exercise price for 0.45
million shares was $23.86 per share and the exercise price for the remaining
0.45 million shares was $28.00 per share. All outstanding warrants were
cancelled without consideration upon emergence from chapter 11 on February 10,
2003.
STOCK OPTIONS
During 1997, the Company adopted a stock option plan that provides for the
purchase of common stock by key employees, directors, advisors and consultants
of the Company. The maximum number of shares, which may be issued under the
plan, as amended, may not exceed 20.0 million shares. Stock options are granted
under various stock option agreements. Each stock option agreement contains
specific terms.
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 or five-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 using the Black-Scholes option pricing model with the following
weighted average assumptions for the years ended December 31, 2000, 2001 and
2002: dividend yield of 0.0%; volatility of .70; risk free interest rate of
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 and net
loss per share would have been as follows.
YEAR ENDED DECEMBER 31,
----------------------------------------------
2000 2001 2002
------------ ------------ ------------
(IN THOUSANDS)
Reported net loss........................................... $ (157,616) $ (654,769) $ (774,984)
Non-cash compensation charges included in net loss.......... 2,572 2,125 695
Stock-based employee compensation cost that would have been
included in net loss under the fair value method......... (14,119) (19,412) (11,113)
------------ ------------ ------------
Adjusted net loss........................................... $ (169,163) $ (672,056) $ (785,402)
============ ============ ============
Basic and diluted loss per share:
Reported net loss........................................... $ (1.31) $ (4.36) $ (5.03)
Non-cash compensation charges included in net loss.......... 0.02 0.02 --
Stock-based employee compensation cost that would have been
included in net loss under the fair value method......... (0.11) (0.13) (0.07)
------------ ------------ ------------
Adjusted net loss........................................... $ (1.40) $ (4.47) $ (5.10)
============ ============ ============
Option activity under the Company's plans is summarized below:
F-22
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
WEIGHTED
AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------------- --------------
Outstanding at December 31, 1999............. 5,723,791 $ 6.02
Granted...................................... 7,962,616 12.56
Exercised.................................... (2,182,968) 5.74
Canceled..................................... (791,227) 10.35
Options assumed in Apex acquisition.......... 191,359 3.58
-------------- --------------
Outstanding at December 31, 2000............. 10,903,571 10.48
Granted...................................... 4,011,485 4.86
Exercised.................................... (379,927) 9.85
Canceled..................................... (1,411,894) 12.61
-------------- --------------
Outstanding at December 31, 2001............. 13,123,235 8.56
Granted...................................... 553,680 0.35
Exercised.................................... -- --
Canceled..................................... (4,035,801) 9.37
-------------- --------------
Outstanding at December 31, 2002............. 9,641,114 $ 7.74
============== ==============
There were 1.7 million, 4.0 million, and 6.1 million options exercisable
under the stock option plan at December 31, 2000, 2001 and 2002, respectively.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
EXERCISE PRICES WEIGHTED WEIGHTED WEIGHTED
--------------- AVERAGE AVERAGE NUMBER AVERAGE
NUMBER REMAINING EXERCISE EXERCISABLE EXERCISE
OUTSTANDING CONTRACTUAL PRICE AS OF PRICE
AS OF 12/31/02 LIFE PER SHARE 12/31/02 PER SHARE
-------------- ----------- ---------- ----------- ----------
$ 0.17 -- 4.00........................ 2,885,881 6.86 $ 2.51 1,573,802 $ 2.16
$ 4.10 -- 7.37........................ 2,168,385 6.42 5.07 1,558,938 4.96
$ 7.40 -- 11.51........................ 2,339,942 7.10 10.33 1,657,990 10.38
$ 11.81 -- 22.22......................... 2,246,906 7.61 14.35 1,344,147 14.37
-------------- -----------
$ 0.42 -- 22.22........................ 9,641,114 6.99 7.74 6,134,877 7.77
============== ===========
The weighted average remaining contractual life of the stock options
outstanding was 8.97 years, 8.41 years and 6.99 years at December 31, 2000, 2001
and 2002, respectively. All outstanding options were cancelled without
consideration upon emergence from chapter 11 bankruptcy on February 10, 2003,
and the Company adopted the 2003 Equity Incentive Plan to grant equity based
incentives in New Common Stock to employees and directors. The Company plans to
issue approximately 2.7 million options to purchase New Common Stock under this
plan in March 2003.
EMPLOYEE STOCK PURCHASE PLAN
In August 1999, SpectraSite adopted the SpectraSite, Inc. Employee Stock
Purchase Plan. The Board of Directors reserved and authorized one million shares
of common stock for issuance under the plan. Eligible employees may purchase a
number of shares of common stock equal to the total dollar amount contributed by
the employee to a payroll deduction account during each six-month offering
period divided by the purchase price per share. The price of the shares offered
to employees under the plan will be 85% of the lesser of the fair market value
at the beginning or end of each six-month offering period. SpectraSite initiated
the first offering period on September 1, 2000 and issued 0.3 million shares
under the plan in 2001 and 0.4 million shares under the plan in 2002. The
Employee Stock Purchase Plan was terminated upon the Company's emergence from
chapter 11 bankruptcy on February 10, 2003.
F-23
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved shares of its authorized shares of Old Common
Stock for future issuance as follows:
AS OF
DECEMBER 31,
2002
------------
Reserved for issuance in SBC transaction................... 15,198,049
Outstanding stock options.................................. 9,641,114
Outstanding senior convertible notes....................... 9,275,362
Possible future issuance under stock option plans.......... 7,345,985
Outstanding warrants....................................... 1,500,000
Employee stock purchase plan............................... 293,567
------------
Total................................................... 43,254,077
============
7. LEASES
AS LESSEE
The Company leases communications towers, land ("ground leases"), office
space and equipment under noncancelable operating and capital leases. Ground
leases are generally for terms of five years and are renewable at the option of
the Company. Rent expense was approximately $33.0 million, $65.1 million and
$75.5 million for the years ended December 31, 2000, 2001 and 2002 respectively.
Lease payments for the Company's tower capital lease assets are made upon
inception of the lease, and, accordingly, no capital lease obligation exists for
those assets as of December 31, 2002. Obligations related to other capital
leases total $12.3 million and are included in accrued and other expenses and
other long-term liabilities in the accompanying balance sheets. As of December
31, 2002, the future minimum lease payments for these leases are as follows:
CAPITAL OPERATING
LEASES LEASES
------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
2003.................................................................. $ 2,001 $ 66,320
2004.................................................................. 1,881 62,753
2005.................................................................. 1,571 46,427
2006.................................................................. 1,568 31,372
2007.................................................................. 1,615 19,443
Thereafter............................................................ 10,600 92,007
------------- --------------
Total.............................................................. 19,236 $ 318,322
============= ==============
Less amount representing imputed interest............................. (6,937)
-------------
Present value of net minimum lease payments under capital leases...... $ 12,299
=============
Assets recorded under capital leases, which are included in property and
equipment in the accompanying balance sheets, consist of:
F-24
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2001 2002
------------ ------------
(IN THOUSANDS)
Towers.......................................... $ 1,001,161 $ 1,024,934
Other........................................... 12,888 13,674
------------ ------------
1,014,049 1,038,608
Less accumulated depreciation................... (51,226) (121,193)
------------ ------------
$ 962,823 $ 917,415
============ ============
AS LESSOR
The Company currently leases antenna space on multi-tenant towers to a
variety of wireless service providers and broadcasters under non-cancelable
operating leases. The tenant leases are generally for initial terms of five to
ten years and include options for renewal. The approximate future minimum rental
receipts under operating leases that have initial or remaining non-cancelable
terms in excess of one year are as follows:
AS OF
DECEMBER 31,
2002
---------------
(IN THOUSANDS)
2003............................................. $ 283,309
2004............................................. 274,125
2005............................................. 232,453
2006............................................. 182,701
2007............................................. 137,165
Thereafter....................................... 478,098
---------------
Total......................................... $ 1,587,851
===============
Approximately 53% of these future minimum rental receipts are due from two
significant stockholders and their affiliates.
8. INCOME TAXES
The provision for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31,
-------------------------------
2000 2001 2002
------- ------- --------
(IN THOUSANDS)
Current:
State............................................. $ 444 $ 555 $ 1,133
Federal........................................... -- -- --
------- ------- --------
Total provision for income taxes............... $ 444 $ 555 $ 1,133
======= ======= ========
The reconciliation of income taxes computed at the U.S. federal statutory
rate to income tax expense is as follows:
F-25
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 2001 2002
------- ------- -------
Federal income tax benefit at statutory rate................ (35.0)% (35.0)% (35.0)%
Non-deductible reorganization expenses...................... -- -- 0.4
Non-deductible goodwill amortization........................ 3.4 2.1 --
Non-deductible interest expense............................. 0.1 0.1 --
State taxes................................................. 0.3 0.1 0.3
Non-cash compensation charges............................... 0.6 0.1 0.1
Change in valuation allowance............................... 30.9 32.7 34.5
------- ------- -------
Effective income tax rate................................... 0.3% 0.1% 0.3%
======= ======= =======
The components of net deferred taxes are as follows:
AS OF DECEMBER 31,
----------------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS)
Deferred tax assets:
Tax loss carryforwards...................................... $ 39,326 $ 188,031 $ 205,276
Accreted interest on senior discount notes.................. 56,077 92,486 162,959
Capital loss carryforwards.................................. -- 71,890 75,302
Accrued liabilities......................................... 1,920 179 23,856
Goodwill.................................................... -- -- 10,065
Bad debt reserves........................................... 1,416 3,417 4,886
---------- ---------- ----------
Total deferred tax assets................................... 98,739 356,003 482,344
---------- ---------- ----------
Deferred tax liabilities:
Tax deferred revenue........................................ -- (5,570) (4,225)
Depreciation................................................ -- (13,068) (13,435)
---------- ---------- ----------
Total deferred tax liabilities.............................. -- (18,638) (17,660)
---------- ---------- ----------
Net deferred tax assets before valuation allowance..... 98,739 337,365 464,684
Valuation allowance......................................... (98,739) (337,365) (464,684)
---------- ---------- ----------
Net deferred tax assets................................ $ -- $ -- $ --
========== ========== ==========
The Company has a federal net operating loss carryforward of approximately
$521 million that begins to expire in 2012. Also, the Company has state tax loss
carryforwards of approximately $515 million that expire beginning in 2003. The
Internal Revenue Code places limitations upon the future availability of net
operating losses based upon the changes in the equity in the Company. If these
changes occur, the ability for the Company to offset future income with existing
net operating losses may be limited. In addition, the Company anticipates that
its emergence from bankruptcy will reduce the net operating loss carryforwards
by approximately $159 million. Based on the Company's history of losses to date,
management has provided a valuation allowance to fully offset the Company's
deferred tax assets.
The Company receives an income tax deduction related to stock options
calculated as the difference between the fair market value of the stock issued
at the time of exercise and the option price, tax effected. The amount of these
benefits generated during 2001 was approximately $0.7 million. There was no
benefit generated in 2002. The Company has provided a 100% valuation reserve
against this asset as of December 31, 2002. The benefits resulting from these
deductions will be credited directly to shareholders' equity if and when
realized.
9. OTHER RELATED PARTY TRANSACTIONS
Affiliates of a financial institution that owns 7% of the Company's common
stock, have provided, and may continue to provide, investment banking services
to the Company. One affiliate of the financial institution is acting as agent
and
F-26
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
lender under the Company's credit facility and receives customary fees for the
performance of these activities. In addition, the affiliate was an initial
purchaser of the 12% Discount Notes, the 11 1/4% Discount Notes, the 10 3/4%
Senior Notes, the 12 7/8% Discount Notes and the 12 1/2% Senior Notes and was an
underwriter of the Company's public offerings of common stock in February and
July 2000. The Company has $783.0 million outstanding under the credit facility
at December 31, 2002.
Certain investors participating in an investment group are also affiliates
of the financial institution discussed above. In November 2000, this investment
group purchased 4.0 million shares of the Company's common stock in a private
placement at a purchase price of $18.75 per share and received warrants to
purchase 1.5 million shares of common stock at exercise prices ranging from
$21.56 per share to $28.00 per share.
The Company has loans to officers totaling $1.9 million at December 31,
2001 and 2002. Of these amounts, $0.5 million was loaned to an officer to
purchase a home as a relocation incentive. The remaining loans were made to
officers in connection with the exercise of stock options. These loans have been
recorded as a reduction of shareholders' equity. The loans bear interest at the
applicable federal rate under the Internal Revenue Code ranging from 5.36% to
5.82% and have maturities ranging from August 2004 to December 2004. The Company
had interest income of $0.1 million from amounts outstanding under the loans in
2000, 2001 and 2002.
10. INVESTMENTS IN AFFILIATES
On April 7, 2000, the Company acquired Ample Design, Ltd. for approximately
$20.2 million. Ample Design provides wireless network development services in
the United Kingdom. On June 8, 2000, the Company completed a joint venture with
Lattice Group, the former arm of BG Group plc, which runs Britain's natural gas
network. The Company and Lattice Group each owned 50% of the joint venture.
Lattice Group transferred existing operational communications towers and
industrial land suitable for construction of new towers into the joint venture,
and the Company provided intellectual property and wireless network development
skills. The Company contributed $164.1 million in cash to be used for future
developments and possible acquisitions. The Company also contributed Ample
Design to the joint venture. In May 2001, the Company loaned the joint venture
$25.0 million to fund acquisitions. In October 2001, the Company sold its
ownership interest in the joint venture to Lattice Group for $4.0 million and
agreed to accept $5.0 million as payment in full for the loan. As a result, the
Company recorded a loss on the investment in the joint venture of $121.9 million
and a loss in the loan to the joint venture of $20.0 million in other expense in
2001. In addition, the Company recorded $7.7 million and $61.1 million in other
expense related to its equity in the net loss of the joint venture in 2000 and
2001, respectively. As of December 31, 2002, the Company had no remaining
investment in the joint venture and no remaining outstanding loan balance.
The Company had a revolving loan arrangement with an affiliate under which
the affiliate may borrow up to $14.4 million. The loan accrues interest at 12%
and is collateralized by property, equipment, investments, contracts and other
assets of the affiliate. The affiliate owed $12.0 million, including accrued
interest, to the Company under the loan at December 31, 2001. The Company had
interest income of $0.6 million and $1.2 million from amounts outstanding under
the loan in 2000 and 2001, respectively. The affiliate primarily provides
wireless communications access to facilities owned by the New York Port
Authority. The affiliate's business plan was negatively impacted by the attack
on the World Trade Center in September 2001. As a result, the Company recorded a
$7.0 million charge in other income (expense) to reduce the book value of the
loan to its estimated net realizable value in the year ended December 31, 2001.
In July 2002, the Company sold all its interests in the affiliate and recorded a
gain of $1.4 million. As of December 31, 2002, the Company had no remaining
investment in the affiliate and no remaining outstanding loan balance or
commitment.
11. ACQUISITION ACTIVITY
GENERAL -- Acquisition activity, asset acquisitions and business
combinations were accounted for using the purchase method of accounting. For
business combinations, the purchase prices have been allocated to the net assets
acquired, principally tangible and intangible assets, and the liabilities
assumed based on their estimated fair values at the
F-27
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
date of acquisition. The excess of the purchase price over the estimated fair
value of the net assets acquired has been recorded as goodwill and other
intangible assets and, prior to the adoption of SFAS 142 as discussed in Note 2,
was being amortized on a straight-line basis over 15 years. The operating
results of these acquisitions have been included in the Company's consolidated
results of operations from the date of acquisition. For asset acquisitions, the
cost was assigned to the assets acquired.
2002 ACQUISITIONS -- SBC TRANSACTION -- On August 25, 2000, the Company
entered into an agreement to acquire leasehold and sub-leasehold interests in
approximately 3,900 wireless communications towers from affiliates of SBC
Communications (collectively, "SBC") in exchange for $982.7 million in cash and
$325.0 million in common stock. Under the agreement, and assuming the sublease
of all 3,900 towers, the stock portion of the consideration was initially
approximately 14.3 million shares valued at $22.74 per share. The stock
consideration was subject to an adjustment payment to the extent the average
closing price of SpectraSite's common stock during the 60-day period immediately
preceding December 14, 2003 (the third anniversary of the initial closing)
decreased from $22.74 down to a floor of $12.96. The adjustment payment would be
accelerated if there were a change of control of SpectraSite or upon the
occurrence of certain specified liquidity events. In any case, the adjustment
payment was payable, at the Company's option, in the form of cash or shares of
common stock. The maximum amount potentially payable to satisfy the adjustment
payment was approximately 10.8 million shares of common stock or $139.8 million
in cash. The Company and SBC entered into a Lease and Sublease Agreement
pursuant to which the Company manages, maintains and leases available space on
the SBC towers and has the right to co-locate tenants on the towers. The average
term of the sublease for all sites at the inception of the agreement was
approximately 27 years, assuming renewals or extensions of the underlying ground
leases for the sites. SBC is an anchor tenant on all of the towers and pays a
monthly fee per tower of $1,544, subject to an annual adjustment. In addition,
the Company had agreed to build towers for Cingular, an affiliate of SBC,
through 2005 under an exclusive build-to-suit agreement, but this agreement was
terminated on May 15, 2002.
Subject to the conditions described in the sublease, SBC also has the right
to substitute other available space on the tower for the reserved space, and a
right of first refusal as to available space that the Company intends to
sublease to a third party. For the first 300 times SBC exercises its right of
first refusal, SBC is required to pay the Company rent for the applicable space
equal to the lesser of the rent that would have been charged to the proposed
third-party and a rent that is proportional to the monthly fee under the
sublease. After the first 300 times that SBC exercises its right of first
refusal, SBC is required to pay the Company rent for the applicable space equal
to the rent that would have been charged to the third-party.
The Company will have the option to purchase the sites subject to the
sublease upon the expiration of the sublease as to those sites. The purchase
price for each site will be a fixed amount stated in the sublease for that site
plus the fair market value of certain alterations made to the related tower by
SBC. The aggregate purchase option price for the towers subleased to date was
approximately $219.3 million as of December 31, 2002 and will accrete at a rate
of 10% per year to the applicable expiration of the sublease of a site. In the
event that the Company purchases such sites, SBC shall have the right to
continue to lease the reserved space for successive one year terms at a rent
equal to the lesser of the agreed upon market rate and the then current monthly
fee, which monthly fee shall be subject to an annual increase based on changes
in the consumer price index.
On November 14, 2001, the Company completed an amendment to the SBC
acquisition agreements. This amendment reduced the maximum number of towers that
the Company is committed to lease or sublease by 300 towers, from 3,900 in the
original agreement to 3,600 towers in the agreement as amended. In addition,
pursuant to the amendment, the Company receives all new co-location revenue on
the towers remaining to be subleased after February 25, 2002. As consideration
for entering into the amendment, the Company paid SBC a fee of $35.0 million
that was expensed as part of the related restructuring charge. On November 14,
2002, the Company completed a further amendment to the SBC acquisition
agreements. This amendment further reduced the maximum number of towers that the
Company is committed to lease or sublease by 294 towers, from 3,600 in the
amended agreement to 3,306 towers in the agreement as further amended. In
addition, on February 10, 2003, the Company sold 545 SBC towers in California
and Nevada to Cingular for an aggregate purchase price of $81.0 million and paid
SBC a fee of $7.5 million related to the 294 reduction in the maximum number of
towers that it is committed to lease or sublease.
F-28
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
From the initial closing on December 14, 2000 through a closing on February
25, 2002, the Company leased or subleased a total of 2,706 towers under the
terms of the amended agreement. The parties agreed to complete the lease or
sublease of the remaining 600 towers during the period beginning May 2003 and
ending August 2004. The total purchase price for the 600 towers is expected to
be approximately $156 million.
In 2002, the Company subleased 41 towers, for which it paid $10.1 million
in cash and issued 146,569 shares of common stock valued at $1.7 million.
As of December 31, 2002, the Company had issued approximately 9.9 million
shares of common stock to SBC pursuant to the SBC acquisition agreements. As
part of the Plan of Reorganization discussed in Note 2, on February 10, 2003 the
Company issued to SBC 12.1 million shares of Old Common Stock in full
satisfaction of any obligation to issue SBC further stock or make any further
adjustment payment. Of the 12.1 million shares, the Company issued 7.5 million
shares of Old Common Stock in connection with the adjustment payment described
above and 4.7 million shares of Old Common Stock as an advance payment on the
purchase of the remaining 600 towers. All of these shares of Old Common Stock
were exchanged for new warrants under the Plan of Reorganization. As a result,
at all future closings with SBC, the stock portion of the payment for each site
has been paid in full.
2001 ACQUISITIONS -- During the year ended December 31, 2001, the Company
consummated transactions involving the acquisition of various communications
sites and two service providers for an aggregate purchase price of $722.8
million, including the issuance of approximately 7.9 million shares of common
stock valued at $122.8 million. The principal transactions were as follows:
AIRTOUCH TRANSACTION -- On February 16, 2000, the Company entered into an
agreement with AirTouch Communications (now Verizon Wireless) and several of its
affiliates, under which the Company agreed to lease or sublease up to 430
communications towers located throughout southern California for $155.0 million.
As partial security for obligations under the agreement to sublease, the Company
deposited $23.0 million into escrow. Under the terms of the agreement, the
Company will manage, maintain and lease the available space on the AirTouch
towers covered by the agreement. AirTouch will pay a monthly fee per site for
its cellular, microwave and paging facilities. The Company also has the right to
lease available tower space to co-location tenant in specified situations. In
addition, the Company entered into a three-year exclusive build-to-suit
agreement with AirTouch in southern California. Under the terms of the
build-to-suit agreement, the Company will develop and construct locations for
wireless communications towers on real property designated by AirTouch.
The AirTouch transaction closed in stages with the initial closing
occurring on August 15, 2000 and the final closing under the original agreement
occurring on February 15, 2001. At each respective closing, the Company made its
lease or sublease payments for towers included in that closing according to a
formula contained in the master sublease. The final closing of 69 towers
occurred on February 15, 2001 for aggregate cash consideration of $24.8 million,
including $3.7 million released from the deposit escrow. The leases for the
remaining 128 towers contemplated in the original agreement were not closed. As
a result, the remaining $6.8 million escrow deposit was returned to the Company.
In March 2001, the Company agreed to amend the agreement with AirTouch and
extend the opportunity to sublease the remaining 128 towers through the second
quarter of 2001. On June 29, 2001, the Company subleased 6 towers for aggregate
consideration of $2.0 million.
SBC TRANSACTION -- As discussed above, in 2000 the Company entered into an
agreement to acquire lease or sublease interests in communications towers from
SBC and several of its affiliates. In the year ended December 31, 2001, the
Company subleased 1,926 towers, for which it paid $493.9 million in cash and
issued 7.2 million shares of common stock valued at $121.2 million.
PAXSON -- On December 19, 2001 the Company acquired 21 broadcast towers and
management rights to 15 broadcast towers from Paxson for $34.0 million in cash.
F-29
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEXTEL ACQUISITIONS -- During 1999, the Company acquired 2,000
communications towers from affiliates of Nextel and also entered into a master
site commitment agreement with these affiliates. Under the terms of this
agreement, Nextel offered SpectraSite exclusive opportunities relating to the
purchase or construction of up to 2,111 communications sites. During 2001, the
Company acquired 192 wireless communications towers from Nextel and its
affiliates under this agreement for a total purchase price of $33.7 million in
cash. In 2002, the number of sites purchased or constructed or made available
for co-location under the master site commitment agreement reached 2,111, and
the agreement terminated.
Pursuant to the tower acquisitions and entering into the master site
commitment agreement in 1999, SpectraSite and Nextel and SpectraSite and Nextel
Partners entered into master site lease agreements. Under these agreements,
SpectraSite has agreed to lease to Nextel and Nextel Partners space on wireless
communications towers or other transmission space. These lease agreements
provide for a monthly rental payment of $1,600 per month. On each annual
anniversary of a given lease's commencement, the rent owed under the lease will
increase by 3%.
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 some
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.
SpectraSite and Nextel also 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 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 Communications' credit facility.
2000 ACQUISITIONS -- During the year ended December 31, 2000, the Company
consummated transactions involving the acquisition of various communications
sites and service providers for an estimated purchase price of $765.1 million,
including the issuance of approximately 9.2 million shares of the Company's
common stock valued at $165.0 million. The purchase price also includes the
issuance of 191,465 options to purchase the Company's common stock at a price of
$3.58 per share. These options were valued at $2.0 million using the
Black-Scholes option-pricing model. The principal transactions were as follows:
APEX TRANSACTION -- On January 5, 2000, the Company acquired Apex Site
Management Holdings, Inc. in a merger transaction for 4.5 million shares of
SpectraSite's common stock valued at $55.8 million and 191,465 options to
purchase common stock at an exercise price of $3.58 per share. SpectraSite also
used approximately $6.2 million in cash to repay outstanding indebtedness and
other obligations of Apex in connection with the merger. Apex provides rooftop
and in-building access to wireless carriers.
ITI TRANSACTION -- On January 28, 2000, the Company acquired substantially
all of the assets of International Towers Inc. and its subsidiaries ("ITI"),
including S&W Communications Inc. ITI owned a broadcast tower manufacturing
facility and, through S&W Communications, provided integrated services for the
erection of broadcast towers, foundations and multi-tenant transmitter
buildings. The Company paid $5.4 million and issued 350,000 shares of
SpectraSite's common stock, valued at $7.1 million, in connection with this
acquisition.
AIRTOUCH TRANSACTION -- As discussed above, in 2000 the Company entered
into an agreement to lease or sublease communications towers from AirTouch and
several of its affiliates. During 2000, the Company subleased 233 towers for
aggregate cash consideration of $83.9 million, including $12.5 million released
from the deposit escrow.
F-30
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LODESTAR TRANSACTION -- On May 18, 2000, the Company acquired Lodestar
Towers, Inc. for approximately $178.6 million in cash. As of May 18, 2000,
Lodestar owned 110 wireless towers and 11 broadcast towers, and managed an
additional 120 wireless towers and 10 broadcast towers.
PEGASUS ACQUISITION -- On July 17, 2000, the Company acquired 11 broadcast
towers from Pegasus Communications for approximately 1.4 million shares of
common stock valued at $37.5 million.
GOCOM ACQUISITION -- On August 24, 2000, the Company acquired 12 broadcast
towers and 14 other communications towers from GOCOM Holdings, LLC and its
subsidiaries for $28.2 million in cash.
SBC TRANSACTION -- As discussed above, in 2000 the Company entered into an
agreement to acquire leasehold and sub-leasehold interests in communications
towers from affiliates of SBC. The initial closing occurred on December 14, 2000
and involved 739 towers, for which the company paid $175.0 million in cash and
issued 2.5 million shares of common stock valued at $57.9 million.
NEXTEL ACQUISITIONS -- During 1999, the Company entered into a master site
commitment agreement with certain of Nextel's subsidiaries. During 2000, the
Company acquired 479 wireless communications towers from Nextel and its
affiliates under this agreement for a total purchase price of $86.9 million in
cash.
U.S. REALTEL TRANSACTION -- On December 8, 2000, the Company purchased
substantially all of the United States assets and operations of U.S. RealTel,
Inc. for a purchase price of $16.5 million in cash. U.S. RealTel is an
international provider of rooftop and in-building telecommunications access.
12. RESTRUCTURING AND NON-RECURRING CHARGES
In May 2002, the Company announced that it would terminate its
build-to-suit programs with Cingular and other carriers and implement other
cost-cutting measures as a part of the curtailment of tower development
activities. As a result of these actions, the Company recorded restructuring
charges of $24.3 million. Of this amount, $16.4 million was related to the
write-off of work in progress related to sites in development that were
terminated, $3.2 million was related to the costs of closing offices and $4.7
million was related to the costs of severance for 155 employees. In addition, we
recorded a non-recurring impairment charge of $4.3 million to write-down the
carrying value of 21 towers that are not marketable. The charge was based on the
estimated discounted cash flows of the towers.
In May 2001, the Company announced that it would consolidate its rooftop
management operations and recorded a non-recurring charge of $35.8 million. Of
this amount, $29.6 million related to the write-off of goodwill, determined
using the present value of estimated cash flows, $5.1 million related to the
write-down of long-term assets and $1.1 million related to the costs of
severance of 80 employees and other costs related to the consolidation of these
operations.
In June 2001, the Company announced that it would divest its site leasing
operations in Mexico. As a result, the Company recorded non-recurring charges of
$32.2 million of which $10.7 million related to the write-off of goodwill, $17.6
million related to the write-down of long-term assets and $3.9 million related
to the costs severance of 21 employees and other costs related to the
divestiture. Also in June 2001, the Company announced that it would close
operations from the purchase of Vertical Properties. As a result, the Company
recorded non-recurring charges of $4.3 million of which $4.2 million was related
to the write-off of goodwill and $0.1 million was related to the costs of
severance of 2 employees and other costs related to the closing.
In November 2001, the Company announced that it would reduce its planned
new tower acquisition and construction programs for 2002. As a result of the
reduced new tower activity, the Company recorded restructuring charges of $70.3
million. Of this amount, $27.7 million was related to the write-off of work in
progress related to sites in development that the Company terminated, $4.8
million was related to the costs of closing certain offices and $2.8 million was
related to the costs of severance of 201 employees. The Company also completed
an amendment to modify its agreement to
F-31
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquire leasehold and sub-leasehold interests in approximately 3,900
communications towers from affiliates of SBC Communications. This amendment
provides for the number of towers to be subleased to be reduced by 300 and for
the sublease date on at least 850 towers to be postponed to 2003 and January
2004. In exchange for these modifications, the Company paid a contract amendment
fee of $35.0 million that has been included in the restructuring charge in 2001.
The following table displays activity related to the accrued restructuring
liability. Such liability is reflected in accrued and other expenses in the
accompanying condensed consolidated balance sheets.
LIABILITY LIABILITY
AS OF ADDITIONAL AS OF
DECEMBER 31, RESTRUCTURING CASH DECEMBER 31,
2001 CHARGES PAYMENTS 2002
------------ -------------- ---------- ------------
(IN THOUSANDS)
Accrued restructuring liabilities:
Employee severance................................. $ 2,431 $ 4,667 $ (3,882) $ 3,216
Lease termination and office closing costs......... 2,419 3,245 (2,103) 3,561
------------ -------------- ---------- ------------
Total........................................... $ 4,850 $ 7,912 $ (5,985) $ 6,777
============ ============== ========== ============
13. BUSINESS SEGMENTS
Prior to its decision to sell its network services division, the Company
operated in two business segments: site leasing and network services. As a
result of the decision to sell network services, the Company has changed its
internal organization so that it now operates in two different business
segments: wireless and broadcast. Prior period information has been restated to
conform to the current organization. The wireless segment provides for leasing
and subleasing of antenna sites on multi-tenant towers for a diverse range of
wireless communication services. The broadcast segment offers leasing and
subleasing of antenna sites for broadcast communication services and a broad
range of broadcast development services, including broadcast tower design and
construction and antenna installation.
In evaluating financial performance, management focuses on operating profit
(loss), excluding depreciation and amortization and restructuring and
non-recurring 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 each reportable segment 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
non-recurring charges and interest. In addition, "Other" also includes corporate
assets such as cash and cash equivalents, certain tangible and intangible assets
and income tax accounts that have not been allocated to a specific segment.
WIRELESS BROADCAST OTHER TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
Year ended December 31, 2002 Revenues............... $ 261,189 $ 48,145 $ -- $ 309,334
Loss from continuing operations before income taxes. 132,890 17,147 (487,883) (337,846)
Assets.............................................. 2,195,775 174,902 207,779 2,578,456
Goodwill............................................ 60,626 -- -- 60,626
Additions to property and equipment................. 52,020 14,395 7,816 74,231
Year ended December 31, 2001 Revenues............... $ 210,187 $ 49,638 $ -- $ 259,825
Loss from continuing operations before income taxes. 87,820 10,215 (758,107) (660,072)
Assets.............................................. 2,195,775 174,902 207,779 2,578,456
F-32
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
WIRELESS BROADCAST OTHER TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
Goodwill................................................ 102,976 122,445 211,929 437,350
Additions to property and equipment..................... 966,087 54,775 77,782 1,098,644
Year ended December 31, 2000 Revenues................... $ 112,730 $ 42,339 $ -- $ 155,069
Loss from continuing operations before income taxes..... 44,414 5,972 (213,001) (162,615)
Assets.................................................. 2,195,775 174,902 207,779 2,578,456
Goodwill................................................ 150,855 132,925 221,821 505,601
Additions to property and equipment..................... 700,877 97,180 27,230 825,287
Net revenues were located in geographic areas as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS)
United States................................................ $ 154,246 $ 258,549 $ 308,675
Canada....................................................... 823 1,139 659
Mexico....................................................... -- 137 --
---------- ---------- ----------
Consolidated net revenues.................................... $ 155,069 $ 259,825 $ 309,334
========== ========== ==========
Long-lived assets were located in geographic areas as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2002
------------- -------------
(IN THOUSANDS)
United States......................................................... $ 3,011,744 $ 2,452,569
Canada................................................................ 2,944 3,003
------------- -------------
Consolidated long-lived assets........................................ $ 3,014,688 $ 2,455,572
============= =============
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 2001 and
2002 is as follows:
THREE MONTHS ENDED
----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2002
Revenues.......................................... $ 72,404 $ 75,869 $ 79,340 $ 81,721
Operating loss before restructuring and (18,629) (21,922) (16,167) (11,619)
non-recurring charges(1).......................
Restructuring and non-recurring charges........... -- (28,570) -- --
Income (loss) from discontinued operations........ 2,012 (4,797) (51,147) (5,320)
Net loss(2)....................................... (452,531) (127,568) (134,592) (60,293)
Net loss per common share, basic and diluted...... $ (3.03) $ (0.83) $ (0.87) $ (0.39)
2001
Revenues.......................................... $ 55,312 $ 65,199 $ 66,590 $ 72,724
Operating loss before restructuring and (19,745) (24,169) (25,914) (29,272)
non-recurring charges(1).......................
Restructuring and non-recurring charges........... -- (72,323) -- (70,276)
Income from discontinued operations............... 1,216 499 3,073 1,070
Net loss.......................................... (63,898) (187,033) (241,140) (162,698)
Net loss per common share, basic and diluted...... $ (0.44) $ (1.24) $ (1.59) $ (1.06)
F-33
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
---------------
(1) Represents revenues less operating expenses excluding restructuring and
non-recurring charges.
(2) Includes a charge in the quarter ended March 31, 2002 of $376,753, or $2.45
per share, for the cumulative effect of a change in accounting for goodwill
related to the adoption of SFAS 142.
F-34
SPECTRASITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2003 AND DECEMBER 31, 2002
REORGANIZED PREDECESSOR
COMPANY COMPANY
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 87,904 $ 80,961
Accounts receivable, net of allowance of $10,109 and $11,431, 8,647 15,180
respectively...............................................
Costs and estimated earnings in excess of billings.............. 3,184 2,169
Inventories..................................................... 7,696 7,878
Prepaid expenses and other...................................... 15,468 16,696
-------------- -----------------
Total current assets......................................... 122,899 122,884
Property and equipment, net.......................................... 1,252,260 2,292,945
Goodwill, net........................................................ -- 60,626
Other assets......................................................... 222,328 102,001
-------------- -----------------
Total assets................................................. $ 1,597,487 $ 2,578,456
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ $ 20,420 $ 13,029
Accrued and other expenses...................................... 103,556 66,280
Billings in excess of costs and estimated earnings.............. 502 703
Current portion of credit facility.............................. -- 2,244
-------------- -----------------
Total current liabilities....................................... 124,478 82,256
-------------- -----------------
Long-term portion of credit facility............................ 706,955 780,711
Other long-term liabilities..................................... 81,888 27,330
-------------- -----------------
Total long-term liabilities.................................. 788,843 808,041
-------------- -----------------
Liabilities subject to compromise (Note 2)........................... -- 1,763,286
-------------- -----------------
Shareholders' equity (deficit):
Common stock, $0.001 par value, 300,000,000 shares authorized, -- 154
154,013,917 issued and outstanding at December 31, 2002....
Common stock, $0.01 par value, 250,000,000 shares authorized, 236 --
23,587,085 issued and outstanding at March 31, 2003........
Additional paid-in-capital...................................... 685,494 1,624,939
Accumulated other comprehensive income (loss)................... 128 (355)
Accumulated deficit............................................. (1,692) (1,699,865)
-------------- -----------------
Total shareholders' equity (deficit)......................... 684,166 (75,127)
-------------- -----------------
Total liabilities and shareholders' equity (deficit)......... $ 1,597,487 $ 2,578,456
============== =================
See accompanying notes.
F-35
SPECTRASITE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR
REORGANIZED COMPANY ONE PREDECESSOR
COMPANY TWO MONTH ENDED COMPANY THREE
MONTHS ENDED JANUARY 31, MONTHS ENDED
MARCH 31, 2003 2003 MARCH 31, 2002
-------------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Site leasing................................................ $ 51,069 $ 25,556 $ 65,952
Broadcast services.......................................... 3,575 1,237 6,452
-------------- ----------- --------------
Total revenues........................................... 54,644 26,793 72,404
-------------- ----------- --------------
Operating Expenses:
Costs of operations, excluding depreciation, amortization
and accretion expense:
Site leasing............................................. 17,060 8,840 25,505
Broadcast services....................................... 2,889 1,492 5,370
Selling, general and administrative expenses................ 8,686 4,280 15,520
Depreciation, amortization and accretion expenses........... 16,826 16,075 44,638
-------------- ----------- --------------
Total operating expenses.............................. 45,461 30,687 91,033
-------------- ----------- --------------
Operating income (loss)........................................ 9,183 (3,894) (18,629)
-------------- ----------- --------------
Other income (expense):
Interest income............................................. 217 137 84
Interest expense............................................ (9,261) (4,721) (58,697)
Gain on debt discharge...................................... -- 1,034,764 --
Other expense............................................... (1,229) (493) (387)
-------------- ----------- --------------
Total other income (expense).......................... (10,273) 1,029,687 (59,000)
-------------- ----------- --------------
Income (loss) from continuing operations before income taxes... (1,090) 1,025,793 (77,629)
Income tax expense............................................. 602 5 161
-------------- ----------- --------------
Income (loss) from continuing operations....................... (1,692) 1,025,788 (77,790)
Reorganization items:
Adjust accounts to fair value............................... -- (644,688) --
Professional and other fees................................. -- (23,894) --
-------------- ----------- --------------
Total reorganization items............................ -- (668,582) --
-------------- ----------- --------------
Income (loss) before discontinued operations................... (1,692) 357,206 (77,790)
Discontinued operations:
Income from operations of discontinued segment, net of income -- -- 2,012
tax expense................................................. -------------- ----------- --------------
Income (loss) before cumulative effect of change in accounting (1,692) 357,206 (75,778)
principle...................................................
Cumulative effect of change in accounting principle............ -- (12,236) (376,753)
-------------- ----------- --------------
Net income (loss).............................................. $ (1,692) $ 344,970 $ (452,531)
============== =========== ==============
Basic and diluted earnings per share:
Income (loss) from continuing operations.................... $ (0.07) $ 6.66 $ (0.51)
Reorganization items........................................ -- (4.34) --
Discontinued operations..................................... -- -- 0.01
Cumulative effect of change in accounting................... -- (0.08) (2.45)
-------------- ----------- --------------
Net income (loss)........................................... $ (0.07) $ 2.24 $ (2.95)
============== =========== ==============
Weighted average common shares outstanding (basic and diluted). 23,587 154,014 153,654
============== =========== ==============
See accompanying notes.
F-36
SPECTRASITE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR
REORGANIZED COMPANY ONE PREDECESSOR
COMPANY TWO MONTH ENDED COMPANY THREE
MONTHS ENDED JANUARY 31, MONTHS ENDED
MARCH 31, 2003 2003 MARCH 31, 2002
-------------- ----------- --------------
(DOLLARS IN THOUSANDS)
Operating activities
Net income (loss)................................................ $ (1,692) $ 344,970 $ (452,531)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................ 13,889 15,609 45,559
Cumulative effect of change in accounting principle......... -- 12,236 376,753
Amortization of intangible assets........................... 2,509 252 516
Amortization of debt issuance costs......................... 790 425 2,633
Amortization of asset retirement obligation................. 429 214
Amortization of senior discount notes....................... -- -- 29,941
Writeoff of debt issuance costs............................. 1,614 -- --
Non-cash compensation charges............................... -- -- 289
(Gain) loss on disposal of assets........................... 1,203 (84) 70
Gain on debt discharge...................................... -- (1,034,764) --
Adjust accounts to fair value............................... -- 644,688 --
Equity in net loss of affiliates............................ -- -- 459
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable...................................... 1,488 5,045 31,003
Costs and estimated earnings in excess of billings, net.. (944) (272) (8,245)
Inventories.............................................. 184 (2) (1,158)
Prepaid expenses and other............................... (1,003) (2,238) (1,289)
Accounts payable......................................... (6,170) 13,549 (15,177)
Other liabilities........................................ (370) 6,264 (4,621)
-------------- ----------- --------------
Net cash provided by operating activities................ 11,927 5,892 4,202
-------------- ----------- --------------
Investing activities
Purchases of property and equipment.............................. (2,255) (2,737) (39,018)
Loans to affiliates.............................................. -- -- (750)
Proceeds from the sale of assets................................. 81,128 -- --
-------------- ----------- --------------
Net cash provided by (used in) investing activities...... 78,873 (2,737) (39,768)
-------------- ----------- --------------
Financing activities
Proceeds from issuance of common stock, net of issuance costs.... -- -- 478
Proceeds from issuance of long-term debt......................... -- -- 90,000
Repayments of debt............................................... (76,128) (10,884) (867)
Debt issuance costs.............................................. -- -- (25)
-------------- ----------- --------------
Net cash provided by (used in) financing activities...... (76,128) (10,884) 89,586
-------------- ----------- --------------
Net increase (decrease) in cash and cash equivalents..... 14,672 (7,729) 54,020
Cash and cash equivalents at beginning of period................. 73,232 80,961 31,547
-------------- ----------- --------------
Cash and cash equivalents at end of period....................... $ 87,904 $ 73,232 $ 85,567
============== =========== ==============
See accompanying notes.
F-37
PREDECESSOR
REORGANIZED COMPANY ONE PREDECESSOR
COMPANY TWO MONTH ENDED COMPANY THREE
MONTHS ENDED JANUARY 31, MONTHS ENDED
MARCH 31, 2003 2003 MARCH 31, 2002
-------------- ----------- --------------
(DOLLARS IN THOUSANDS)
Supplemental disclosures of cash flow information:
Cash paid during the period for interest......................... $ 3,263 $ 4,265 $ 23,718
Cash paid during the period for income taxes..................... 602 5 685
Supplemental disclosures of noncash investing and financing
activities:
Common stock issued for deposits................................. $ -- $ 408 $ --
Common stock issued for property and equipment................... -- -- 1,678
Capital lease obligations incurred for the purchase of property
and equipment................................................. 68 -- 4,357
See accompanying notes.
F-38
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
SpectraSite, Inc. ("SpectraSite"), formerly known as SpectraSite Holdings,
Inc., and its wholly owned subsidiaries (collectively referred to as the
"Company") are principally engaged in providing services to companies operating
in the telecommunications and broadcast industries, including leasing antenna
sites on multi-tenant towers, the leasing of distributed antenna systems within
buildings, managing rooftop telecommunications access on commercial real estate
and designing, constructing, modifying and maintaining broadcast towers in the
United States.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
SpectraSite and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
In accordance with AICPA Statement of Position 90-7 FINANCIAL REPORTING BY
ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"), the Company
adopted "fresh start" accounting as of January 31, 2003 and the Company's
emergence from chapter 11 resulted in a new reporting entity. Under "fresh
start" accounting, the reorganization value of the entity is allocated to the
entity's assets based on fair values, and liabilities are stated at the present
value of amounts to be paid determined at appropriate current interest rates.
The effective date is considered to be the close of business on January 31, 2003
for financial reporting purposes. The periods presented prior to January 31,
2003 have been designated "Predecessor Company" and the periods subsequent to
January 31, 2003 have been designated "Reorganized Company." As a result of the
implementation of fresh start accounting, the financial statements of the
Company after the effective date are not comparable to the Company's financial
statements for prior periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in the unaudited
condensed consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Site leasing revenues are recognized when earned based on lease agreements.
Rental increases based on fixed escalation clauses that are included in certain
lease agreements are recognized on a straight-line basis over the term of the
lease. Broadcast service revenues related to construction activities are derived
from service contracts with customers that provide for billing on a time and
materials or fixed price basis. For the time and materials contracts, revenues
are recognized as services are performed. For fixed price contracts, revenues
are recognized using the percentage-of-completion method, measured by the
percentage of contract costs incurred to date compared to estimated total
contract costs. Costs and estimated earnings in excess of billings on
uncompleted contracts represent revenues recognized in excess of amounts billed.
Billings in excess of costs and estimated earnings 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.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
The Company evaluates the collectibility of accounts receivable based on a
combination of factors. In circumstances where a specific customer's ability to
meet its financial obligations to us is in question, the Company records a
specific allowance against amounts due to reduce the net recognized receivable
from that customer to the amount it reasonably believes will be collected. For
all other customers, the Company reserves a percentage of the
F-39
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
remaining outstanding accounts receivable balance based on a review of the aging
of customer balances, industry experience and the current economic environment.
The allowance for uncollectible accounts, computed based on the above
methodology, was $11.4 million and $10.1 million as of December 31, 2002 and
March 31, 2003, respectively.
SIGNIFICANT CUSTOMERS
The Company's customer base consists of businesses operating in the
wireless telecommunications and broadcast industries, primarily in the United
States. The Company's exposure to credit risk consists primarily of unsecured
accounts receivable from these customers.
One customer, which was a significant shareholder of the Predecessor
Company's common stock, accounted for 31%, 28% and 29% of revenues in the three
months ended March 31, 2002, the one month ended January 31, 2003 and the two
months ended March 31, 2003, respectively. In addition, another customer, which
is an affiliate of a former significant shareholder of the Predecessor Company's
common stock, accounted for 20%, 22% and 19% of the Company's revenues in the
three months ended March 31, 2002, the one month ended January 31, 2003 and the
two months ended March 31, 2003, respectively. This customer also accounted for
21% and 14% of accounts receivable at December 31, 2002 and March 31, 2003,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment built, purchased or leased under long-term leasehold
agreements are recorded at cost and depreciated over their estimated useful
lives. The Company capitalizes costs incurred in bringing property and equipment
to an operational state. Costs clearly associated with the acquisition,
development and construction of property and equipment are capitalized as a cost
of the assets. Indirect costs that relate to several assets are capitalized and
allocated to the assets to which the costs relate. Indirect costs that do not
clearly relate to projects under development or construction are charged to
expense as incurred. Depreciation on property and equipment excluding towers is
computed using the straight-line method over the estimated useful lives of the
assets ranging from three to fifteen years. Depreciation on towers is computed
using the straight-line method over the estimated useful lives of 15 years for
wireless towers and 30 years for broadcast towers. Amortization of assets
recorded under capital leases is included in depreciation.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in purchase business combinations has been recorded as goodwill. Goodwill is
evaluated for impairment on an annual basis or as impairment indicators are
identified, in accordance with Statement of Financial Accounting Standards No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS. On an ongoing basis, the Company
assesses the recoverability of goodwill by determining the ability of the
specific assets acquired to generate future cash flows sufficient to recover the
unamortized goodwill over the remaining useful life. The Company estimates
future cash flows based on the current performance of the acquired assets and
our business plan for those assets. Changes in business conditions, major
customers or other factors could result in changes in those estimates. Goodwill
determined to be unrecoverable based on future cash flows is written-off in the
period in which such determination is made.
On January 1, 2002, the Company performed the first of the required
impairment tests of goodwill by comparing the fair value of each of our
reporting units with its carrying value. Fair value was determined using a
discounted cash flow methodology. Based on our impairment tests, we recognized
an adjustment of $376.8 million, or $2.45 per share, to reduce the carrying
value of goodwill in our wireless services, broadcast tower, broadcast services
and building units to its implied value. In accordance with SFAS 142, the
impairment adjustment recognized at adoption of the new rules was reflected as a
cumulative effect of accounting change in our first quarter
F-40
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
2002 statement of operations. In connection with the Company's adoption of fresh
start accounting on January 31, 2003, impairment tests of goodwill were
performed. As a result, the remaining $60.6 million of goodwill related to our
wireless tower unit was written off. This charge is included in Reorganization
items in the consolidated financial statements.
CUSTOMER CONTRACTS
Upon completion of the Company's reorganization and the implementation of
fresh start accounting, the Company recorded intangible assets relating to the
fair value of customer contracts in the amount of $190.9 million as of January
31, 2003. These contracts are amortized over the lesser of the remaining life of
the lease contract or the remaining life of the related tower asset, not to
exceed 15 years for wireless towers and 30 years for broadcast towers. Customer
contracts, less accumulated amortization, were $188.7 million as of March 31,
2003 and are classified as other assets in the unaudited condensed consolidated
financial statements.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company accounts for derivative financial instruments in accordance
with Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), as amended by
Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES ("SFAS 138") and as further amended
by Statement of Financial Accounting Standards No. 149, AMENDMENT OF STATEMENT
133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Company records
derivative financial instruments in the consolidated financial statements at
fair value. Changes in the fair values of derivative financial instruments are
either recognized in earnings or in shareholders' equity as a component of other
comprehensive income depending on whether the derivative financial instrument
qualifies for hedge accounting as defined by SFAS 133. Changes in fair values of
derivatives not qualifying for hedge accounting are reported in earnings as they
occur.
In February 2003, the Company entered into an interest rate cap agreement
in order to limit exposure to fluctuations in interest rates on its variable
rate credit facility. This transaction is designated as a fair value hedge.
Accordingly, gains and losses from the change in the fair value of this
instrument are recognized in other income and expense. As of March 31, 2003, the
carrying amount and fair value of this instrument was $0.8 million and is
included in Other Assets in the unaudited condensed consolidated financial
statements.
RESTRUCTURING AND NON-RECURRING CHARGES
The following table displays activity related to the accrued restructuring
liability. Such liability is reflected in accrued and other expenses in the
accompanying condensed consolidated balance sheets.
LIABILITY AS CASH PAYMENTS CASH PAYMENTS
OF FOR THE ONE FOR THE TWO LIABILITY AS
DECEMBER 31, MONTH ENDED MONTHS ENDED OF MARCH 31,
2002 JANUARY 31, 2003 MARCH 31, 2003 2003
------------ ---------------- -------------- ------------
(IN THOUSANDS)
Accrued restructuring liabilities:
Employee severance.......................... $ 3,216 $ (182) $ (375) $ 2,659
Lease termination and office closing costs.. 3,561 (421) (267) 2,873
------------ ---------------- -------------- ------------
Total....................................... $ 6,777 $ (603) $ (642) $ 5,532
=========== ================ ============== ============
F-41
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
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.
EARNINGS PER SHARE
Basic and diluted earnings (loss) per share are calculated in accordance
with Statement of Financial Accounting Standards No. 128 "Earnings per Share."
During the three months ended March 31, 2002 and the one month ended January 31,
2003, the Company had potential common stock equivalents related to its
convertible notes, warrants and outstanding stock options. Upon completion of
the Company's reorganization, the convertible notes were exchanged for shares of
common stock, par value $0.01 per share ("New Common Stock") and all outstanding
warrants and stock options were cancelled. These potential common stock
equivalents were not included in diluted earnings (loss) per share for the three
months ended March 31, 2002 and the one month ended January 31, 2003 because the
effect would have been antidilutive. Accordingly, basic and diluted net income
(loss) per share are the same for the three months ended March 31, 2002 and for
the one month ended January 31, 2003.
As discussed in Note 2, under the Plan of Reorganization, the holders of
166,158,298 shares of common stock, par value $0.001 per share, outstanding as
of February 10, 2003 (the "Old Common Stock") received new warrants which were
immediately exercisable into 1.25 million shares of New Common Stock at a price
of $32.00 per share. In addition, on February 10, 2003, the Company adopted the
2003 Equity Incentive Plan to grant equity based incentives in New Common Stock
to employees and directors. Approximately 2.7 million options to purchase new
common stock were granted under this plan in March 2003. During the two months
ended March 31, 2003, the Company had potential common stock equivalents related
to its new warrants and outstanding stock options on New Common Stock. These
potential common stock equivalents were not included in diluted earnings (loss)
per share for the two months ended March 31, 2003 because the effect would have
been antidilutive. Accordingly, basic and diluted net loss per share are the
same for the two months ended March 31, 2003.
COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists of foreign currency translation
adjustments and unrealized holding gains (losses) as follows (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
--------------- ------------------------------
ONE MONTH
TWO MONTHS ENDED THREE MONTHS
ENDED JANUARY 31, ENDED MARCH 31,
MARCH 31, 2003 2003 2002
--------------- ------------- ---------------
Reported net income (loss).................................. $ (1,692) $ 344,970 $ (452,531)
Foreign currency translation adjustment..................... (5) (129) 6
Unrealized holding gains (losses) arising during the period. 133 (200) (16,675)
--------------- ------------- ---------------
Comprehensive income (loss)................................. $ (1,564) $ (344,641) $ (469,200)
=============== ============= ===============
CONTINGENCIES
The Company is involved in certain legal actions arising in the normal
course of business. In the opinion of management, based on a review of such
legal proceedings, the ultimate outcome of these actions will not have a
material effect on the consolidated financial statements.
F-42
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 condensed consolidated
financial statements to conform to the 2003 presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity (deficit).
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 for the Predecessor Company for the three months ended March 31,
2002 and normal recurring adjustments and fresh start accounting adjustments for
the Predecessor and Reorganized Companies for the three months ended March 31,
2003), which are, in the opinion of management, necessary for a fair
presentation of results for interim periods. As a result of the implementation
of fresh start accounting as of January 31, 2003, the financial statements after
that date are not comparable to the financial statements for prior periods.
Results of interim periods are not necessarily indicative of the results to be
expected for a full year.
2. PLAN OF REORGANIZATION
On November 15, 2002 (the "Petition Date"), SpectraSite filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Eastern District of North
Carolina, Raleigh Division (the "Bankruptcy Court"). On November 18, 2002,
SpectraSite filed a Proposed Plan of Reorganization and a Proposed Disclosure
Statement with the Bankruptcy Court. A plan confirmation hearing was held on
January 28, 2003 and the Proposed Plan of Reorganization, as modified on that
date (the "Plan"), was confirmed by the Bankruptcy Court. All conditions
precedent to the effectiveness of the Plan were met by February 10, 2003 (the
"Effective Date"), thereby allowing SpectraSite to emerge from bankruptcy.
The Plan provided that, among other things, (i) in exchange for their
notes, the holders of the 12 1/2% Senior Notes due 2010, the 6 3/4% Senior
Convertible Notes due 2010, the 10 3/4% Senior Notes due 2010, the 11 1/4%
Senior Discount Notes due 2009, the 12 7/8% Senior Discount Notes due 2010 and
the 12% Senior Discount Notes due 2008 received their pro rata share of 23.75
million shares of common stock, par value $0.01 per share ("New Common Stock");
(ii) the holders of 166,158,298 shares of common stock, par value $0.001 per
share, outstanding as of the Effective Date (the "Old Common Stock") received
warrants immediately exercisable into 1.25 million shares of New Common Stock at
a price of $32.00 per share; and (iii) all other equity interests at the
Effective Date, including outstanding warrants and options, were cancelled.
The consolidated financial statements as of December 31, 2002 include
adjustments and reclassifications to reflect affected liabilities as
"Liabilities Subject to Compromise." These liabilities were settled in
accordance with the Plan. The liabilities subject to compromise as of December
31, 2002 were as follows (in thousands):
F-43
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
10 3/4% Senior Notes Due 2010................................... $ 200,000
12 1/2% Senior Notes Due 2010................................... 200,000
6 3/4% Senior Convertible Notes Due 2010........................ 200,000
12% Senior Discount Notes Due 2008, net of discount............. 208,479
11 1/4% Senior Discount Notes Due 2009, net of discount......... 502,644
12 7/8% Senior Discount Notes Due 2010, net of discount......... 418,580
Accrued interest................................................ 33,583
------------
Total liabilities subject to compromise......................... $ 1,763,286
============
SpectraSite incurred costs directly associated with the chapter 11
proceedings of $23.9 million in the one month ended January 31, 2003. These
costs are included in reorganization expense in the unaudited condensed
consolidated statement of operations.
In accordance with AICPA Statement of Position 90-7 FINANCIAL REPORTING BY
ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"), the Company
adopted "fresh start" accounting as of January 31, 2003 and the Company's
emergence from bankruptcy resulted in a new reporting entity. Under fresh start
accounting, the reorganization value of the entity is allocated to the entity's
assets based on fair values, and liabilities are stated at the present value of
amounts to be paid determined at appropriate current interest rates. The net
effect of all fresh start accounting adjustments resulted in a charge of $644.7
million, which is reflected in the unaudited condensed consolidated statement of
operations for the one month ended January 31, 2003. The effective date is
considered to be the close of business on January 31, 2003 for financial
reporting purposes. The periods presented prior to January 31, 2003 have been
designated "Predecessor Company" and the periods subsequent to January 31, 2003
have been designated "Reorganized Company." As a result of the implementation of
fresh start accounting, the financial statements of the Company after January
31, 2003 are not comparable to the Company's financial statements for prior
periods.
The reorganization value used in adopting fresh start accounting was $685.7
million based on the fair market value of the senior notes, senior discount
notes and senior convertible notes at the Effective Date, the date these
instruments were exchanged for New Common Stock and the value of warrants issued
on that date based on the Black-Scholes option pricing model. The reorganization
and the adoption of fresh start accounting resulted in the following adjustments
to the Company's Unaudited Condensed Consolidated Balance Sheet as of January
31, 2003:
PREDECESSOR REORGANIZED
COMPANY REORGANIZATION COMPANY
JANUARY 31, AND FRESH START JANUARY 31,
2003 ADJUSTMENTS REF 2003
----------- ---------------- ----------- -------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.................... $ 73,442 $ (210) (1) $ 73,232
Accounts receivable.......................... 10,134 -- 10,134
Costs and estimated earnings in excess of
billings................................ 2,198 -- 2,198
Inventories.................................. 7,880 -- 7,880
Prepaid expenses and other................... 17,903 (531) (2) 17,372
Total current assets...................... 111,557 (741) 110,816
Property and equipment, net..................... 2,303,368 (957,210) (3) 1,346,158
Goodwill, net................................... 60,626 (60,626) (2) --
Other assets.................................... 102,024 122,181 (2),(4) 224,205
----------- ---------------- -------------
Total assets.............................. $2,577,575 $ (896,396) $ 1,681,179
=========== ================ =============
F-44
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
PREDECESSOR REORGANIZED
COMPANY REORGANIZATION COMPANY
JANUARY 31, AND FRESH START JANUARY 31,
2003 ADJUSTMENTS REF 2003
----------- ---------------- ----------- -------------
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 10,407 $ 16,184 (1) $ 26,591
Accrued and other expenses................... 65,039 38,047 (5) 103,086
Billings in excess of costs and estimated
earnings................................ 458 -- 458
Current portion of credit facility........... 2,244 -- 2,244
----------- ---------------- -------------
Total current liabilities................. 78,148 54,231 132,379
----------- ---------------- -------------
Long-term portion of credit facility............ 780,711 -- 780,711
Other long-term liabilities..................... 52,108 30,251 (5) 82,359
----------- ---------------- -------------
Total long-term liabilities............... 832,819 30,251 863,070
----------- ---------------- -------------
Liabilities subject to compromise............... 1,763,286 (1,763,286) (4) --
----------- ---------------- -------------
Shareholders' equity (deficit):
Common stock, $0.001 par value,
300,000,000 shares authorized
154,013,917 issued and outstanding
actual at January 31, 2003
(Predecessor Company); $0.01 par
value, 250,000,000 shares authorized
23,587,085 issued and outstanding at
January 31, 2003 (Reorganized Company) 154 82 (4) 236
Additional paid-in-capital and warrants......... 1,624,93 (939,445) (4) 685,494
Accumulated other comprehensive income.......... (684) 684 (6) --
Accumulated deficit............................. (1,721,087) 1,721,087 (6) --
----------- ---------------- -------------
Total shareholders' equity (deficit)...... (96,678) 782,408 685,730
----------- ---------------- -------------
Total liabilities and shareholders'
equity (deficit)...................... $2,577,575 $ (896,396) $ 1,681,179
=========== ================ =============
References:
(1) To reflect cash requirements for reorganization costs paid in January 2003
and accrual for remaining reorganization costs.
(2) To record prepaid expenses and other, goodwill, and other assets at fair
value.
(3) To record property and equipment at fair value.
(4) To reflect the discharge of the Senior Notes, Senior Discount Notes and
Senior Convertible Notes including the related debt issuance costs included
in other assets; the cancellation of Old Common Stock and warrants; and the
issuance of the New Common Stock and warrants.
(5) To record liabilities associated with unfavorable contracts at fair value.
F-45
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(6) To reflect the elimination of the accumulated other comprehensive income
and accumulated deficit as of January 31, 2003.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
REORGANIZED COMPANY PREDECESSOR COMPANY
MARCH 31, 2003 DECEMBER 31, 2002
------------------- -------------------
(IN THOUSANDS)
Towers.............................. $ 1,195,977 $ 2,548,712
Equipment........................... 15,027 39,181
Land................................ 16,200 18,081
Buildings........................... 26,914 32,219
Other............................... 4,625 38,217
------------------- -------------------
1,258,743 2,676,410
Less accumulated depreciation....... (13,880) (401,467)
------------------- -------------------
1,244,863 2,274,943
Construction in progress............ 7,397 18,002
------------------- -------------------
Property and equipment, net......... $ 1,252,260 $ 2,292,945
=================== ===================
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, FASB issued Statement of Financial Accounting Standards No.
143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143"). SFAS 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. The Company adopted SFAS
143 on January 1, 2003 in connection with certain ground leases which require
removal of the tower upon expiration. Application of the new rules resulted in
an increase in net property, plant and equipment of $23.2 million, recognition
of an asset retirement obligation of $35.4 million, and a cumulative effect of
change in accounting principle of $12.2 million. The following table displays
activity related to the asset retirement obligation:
LIABILITY AS REVISIONS IN LIABILITY AS
OF JANUARY 1, ACCRETION ESTIMATED CASH OF MARCH 31,
2003 EXPENSE FLOWS 2003
------------- ----------- -------------- -------------
(IN THOUSANDS)
Asset retirement obligation.............. $ 35,442 $ 643 $ (8) $ 36,077
============= =========== ============== =============
F-46
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
Pro forma results of operations for the three months ended March 31, 2002
had we adopted SFAS 143 on January 1, 2002 are as follows:
PREDECESSOR COMPANY
THREE MONTHS ENDED
MARCH 31, 2002
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Reported net loss....................................... $ (452,531)
Additional depreciation of property and equipment....... (462)
Accretion of asset retirement obligation................ (590)
---------------------
Adjusted net loss....................................... $ (453,583)
=====================
Basic and diluted earnings per share:
Reported net loss per share............................. $ (2.95)
Additional depreciation of property and equipment....... --
Accretion of asset retirement obligation................ --
---------------------
Adjusted net loss per share............................. $ (2.95)
=====================
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, RESCISSION OF FASB STATEMENT NOS. 4, 44, AND 64, AMENDMENT OF FASB
STATEMENT NO. 13 AND TECHNICAL CORRECTIONS ("SFAS 145"). SFAS 145 amends or
rescinds a number of authoritative pronouncements, including Statement of
Financial Accounting Standards No. 4, REPORTING GAINS AND LOSSES FROM
EXTINGUISHMENT OF DEBT ("SFAS 4"). SFAS 4 required that gains and losses from
extinguishment of debt included in the determination of net income or loss be
aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. Upon adoption of SFAS 145, gains and losses from
extinguishment of debt will no longer be classified as extraordinary items, but
rather will generally be classified as part of other income (expense) on the
Company's consolidated statement of operations. The Company adopted the
provisions of SFAS 145 on January 1, 2003. The adoption of this statement did
not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS
146"). The statement requires costs associated with exit or disposal activities
to be recognized when incurred rather than at the date of a commitment to an
exit or disposal plan. The requirements of SFAS 146 are effective for exit or
disposal activities initiated after January 1, 2003. The Company adopted the
provisions of SFAS 146 on January 1, 2003. The adoption of this statement did
not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION, TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the fair value method
of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS 148 requires disclosure
of the pro forma effect in interim financial statements. The transition
disclosure requirements of SFAS 148 were effective for fiscal year 2002. The
interim and annual disclosure requirements are effective for the first quarter
of 2003. The adoption of SFAS 148 did not have a material effect on the
Company's financial condition, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133, as
F-47
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
previously amended by SFAS 138. SFAS 149 clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as discussed in SFAS 133. In addition, it clarifies when a derivative contains a
financing component that warrants special reporting in the statement of cash
flows. SFAS 149 amends certain other existing pronouncements. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, with
certain exceptions and for hedging relationships designated after June 30, 2003
and should be applied prospectively. The Company does not expect the adoption of
this statement to have a material impact on its consolidated financial
condition, results of operations, or cash flows.
5. ACQUISITION ACTIVITIES
SBC TRANSACTION -- On August 25, 2000, the Company entered into an
agreement to acquire leasehold and sub-leasehold interests in approximately
3,900 wireless communications towers from affiliates of SBC Communications
(collectively, "SBC") in exchange for $982.7 million in cash and $325.0 million
in common stock. Under the agreement, and assuming the sublease of all 3,900
towers, the stock portion of the consideration was initially approximately 14.3
million shares valued at $22.74 per share. The stock consideration was subject
to an adjustment payment to the extent the average closing price of
SpectraSite's common stock during the 60-day period immediately preceding
December 14, 2003 (the third anniversary of the initial closing) decreased from
$22.74 down to a floor of $12.96. The adjustment payment would be accelerated if
there were a change of control of SpectraSite or upon the occurrence of certain
specified liquidity events. In any case, the adjustment payment was payable, at
the Company's option, in the form of cash or shares of common stock. The maximum
amount potentially payable to satisfy the adjustment payment was approximately
10.8 million shares of common stock or $139.8 million in cash. The Company and
SBC entered into a Lease and Sublease Agreement pursuant to which the Company
manages, maintains and leases available space on the SBC towers and has the
right to co-locate tenants on the towers. The average term of the sublease for
all sites at the inception of the agreement was approximately 27 years, assuming
renewals or extensions of the underlying ground leases for the sites. SBC is an
anchor tenant on all of the towers and pays a monthly fee per tower of $1,544,
subject to an annual adjustment. In addition, the Company had agreed to build
towers for Cingular, an affiliate of SBC, through 2005 under an exclusive
build-to-suit agreement, but this agreement was terminated on May 15, 2002.
Subject to the conditions described in the sublease, SBC also has the right
to substitute other available space on the tower for the reserved space, and a
right of first refusal as to available space that the Company intends to
sublease to a third party. For the first 300 times SBC exercises its right of
first refusal, SBC is required to pay the Company rent for the applicable space
equal to the lesser of the rent that would have been charged to the proposed
third-party and a rent that is proportional to the monthly fee under the
sublease. After the first 300 times that SBC exercises its right of first
refusal, SBC is required to pay the Company rent for the applicable space equal
to the rent that would have been charged to the third-party.
The Company will have the option to purchase the sites subject to the
sublease upon the expiration of the sublease as to those sites. The purchase
price for each site will be a fixed amount stated in the sublease for that site
plus the fair market value of certain alterations made to the related tower by
SBC. The aggregate purchase option price for the towers subleased to date was
approximately $190.1 million as of March 31, 2003 and will accrete at a rate of
10% per year to the applicable expiration of the sublease of a site. In the
event that the Company purchases such sites, SBC shall have the right to
continue to lease the reserved space for successive one year terms at a rent
equal to the lesser of the agreed upon market rate and the then current monthly
fee, which monthly fee shall be subject to an annual increase based on changes
in the consumer price index.
On November 14, 2001, the Company completed an amendment to the SBC
acquisition agreements. This amendment reduced the maximum number of towers that
the Company is committed to lease or sublease by 300 towers, from 3,900 in the
original agreement to 3,600 towers in the agreement as amended. In addition,
pursuant to the amendment, the Company receives all new co-location revenue on
the towers remaining to be subleased after February 25, 2002. As consideration
for entering into the amendment, the Company paid SBC a fee of $35.0 million
F-48
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
that was expensed. On November 14, 2002, the Company completed a further
amendment to the SBC acquisition agreements. This amendment further reduced the
maximum number of towers that the Company is committed to lease or sublease by
294 towers, from 3,600 in the amended agreement to 3,306 towers in the agreement
as further amended. In addition, on February 10, 2003, in connection with the
Plan of Reorganization, the Company sold 545 SBC towers in California and Nevada
to Cingular for an aggregate purchase price of $81.0 million and paid SBC a fee
of $7.5 million related to the 294 reduction in the maximum number of towers
that it is committed to lease or sublease. This fee is included in
Reorganization Items -- Professional and Other Fees in the Condensed
Consolidated Financial Statements. Because these 545 towers were adjusted to
fair value as part of fresh start accounting, no gain or loss was recognized on
the sale. In the one month ended January 31, 2003, revenues and costs of site
leasing operations, excluding depreciation, amortization and accretion expense,
related to the 545 towers, were $1.2 million and $0.5 million, respectively. In
the two months ended March 31, 2003, comparable revenues and costs of site
leasing operations, excluding depreciation, amortization and accretion expense,
related to the 545 towers, were $0.4 million and $0.2 million, respectively.
From the initial closing on December 14, 2000 through a closing on February
25, 2002, the Company leased or subleased a total of 2,706 towers under the
terms of the amended agreement. The parties agreed to complete the lease or
sublease of the remaining 600 towers during the period beginning May 2003 and
ending August 2004. The total purchase price for the 600 towers is expected to
be approximately $156 million.
In the quarter ended March 31, 2002, the Company subleased 41 towers, for
which it paid $10.1 million in cash and issued 146,569 shares of common stock
valued at $1.7 million. The Company did not sublease any towers in the quarter
ended March 31, 2003.
As of December 31, 2002, the Company had issued approximately 9.9 million
shares of common stock to SBC pursuant to the SBC acquisition agreements. As
part of the Plan of Reorganization discussed in Note 2, on February 10, 2003 the
Company issued to SBC 12.1 million shares of Old Common Stock in full
satisfaction of any obligation to issue SBC further stock or make any further
adjustment payment. Of the 12.1 million shares, the Company issued 7.5 million
shares of Old Common Stock in connection with the adjustment payment described
above and 4.7 million shares of Old Common Stock as an advance payment on the
purchase of the remaining 600 towers. All of these shares of Old Common Stock
were exchanged for new warrants under the Plan of Reorganization. As a result,
at all future closings with SBC, the stock portion of the payment for each site
has been paid in full.
6. FINANCING TRANSACTIONS
CREDIT FACILITY
SpectraSite Communications, Inc. ("Communications"), a wholly-owned
subsidiary of SpectraSite, is party to an amended and restated credit facility
totaling $1.0 billion. The credit facility includes a $300.0 million revolving
credit facility, which may be drawn at any time, subject to the satisfaction of
certain conditions precedent. The amount available will be reduced (and, if
necessary, the amounts outstanding must be repaid) in quarterly installments
beginning on June 30, 2004 and ending on June 30, 2007. The credit facility also
includes a $301.7 million multiple draw term loan that is fully drawn and which
must be repaid in quarterly installments beginning on June 30, 2005 and ending
on June 30, 2007 and a $405.3 million term loan that is fully drawn and which
must be repaid in quarterly installments beginning on September 30, 2007 and
ending on December 31, 2007.
With the proceeds of the sale of towers to Cingular discussed in Note 5,
Communications repaid $31.4 million of the multiple draw term loan and $42.1
million of the term loan on February 11, 2003. In addition, Communications
repaid $1.1 million of the multiple draw term loan and $1.4 million of the term
loan on February 19, 2003. In connection with these repayments, Communications
wrote off $1.6 million in debt issuance costs. This charge is included in
interest expense in the unaudited condensed consolidated statement of
operations.
F-49
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
As of March 31, 2003, Communications has $707.0 million outstanding under the
credit facility. The remaining $300.0 million under the credit facility was
undrawn. Under the terms of the credit facility, the Company could borrow
approximately $191 million under the revolving credit facility as of March 31,
2003 while remaining in compliance with the debt covenants.
At March 31, 2003, amounts due under the credit facility are as follows:
MATURITIES
----------------
(IN THOUSANDS)
2003............................................... $ --
2004............................................... --
2005............................................... 53,010
2006............................................... 124,342
2007............................................... 529,603
Total.............................................. $ 706,955
================
Prior to February 10, 2003, the revolving credit loans and the multiple
draw term loan bore interest, at Communications' option, at either Canadian
Imperial Bank of Commerce's base rate plus an applicable margin of 2.50% per
annum or the Eurodollar rate plus an applicable margin of 3.75% per annum. After
February 10, 2003, the revolving credit loans and the multiple draw term loans
bear interest, at Communications' option, at either Canadian Imperial Bank of
Commerce's base rate plus an applicable margin ranging from 2.00% to 1.00% per
annum or the Eurodollar rate plus an applicable margin ranging from 3.25% to
2.25% per annum, depending on Communications' leverage ratio at the end of the
preceding fiscal quarter.
The weighted average interest rate on outstanding borrowings under the
credit facility as of December 31, 2002 was 5.94%. Prior to February 10, 2003,
the term loan bore interest, at Communications' option, at either Canadian
Imperial Bank of Commerce's base rate plus 3.25% per annum or the Eurodollar
rate plus 4.50% per annum. After February 10, 2003, the term loan bears
interest, at Communications' option, at either Canadian Imperial Bank of
Commerce's base rate plus 2.75% per annum or the Eurodollar rate plus 4.00% per
annum.
Communications is required to pay a commitment fee of between 1.375% and
0.500% per annum in respect of the undrawn portions of the revolving credit
facility, depending on the undrawn amount. 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, certain
changes to the SBC transaction or the generation of excess cash flow.
SpectraSite and each of Communications' domestic subsidiaries have
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 domestic subsidiaries, a pledge of all of the capital
stock of Communications and its domestic subsidiaries and 66% of the capital
stock of Communications' foreign subsidiaries. The credit facility contains a
number of covenants that, among other things, restrict Communications' ability
to incur additional indebtedness; create liens on assets; make investments or
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. In addition, the credit facility
requires compliance with certain financial covenants, including a requirement
that Communications and its subsidiaries, on a consolidated basis, maintain a
maximum ratio of total debt to annualized EBITDA, a minimum interest coverage
ratio and a minimum fixed charge coverage ratio.
The agent banks under the Company's credit facility have advised the
Company that they have approved a proposed amendment to the facility that will,
among other things, reduce our unused $300 million commitment
F-50
SPECTRASITE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
under our revolving credit facility by $100 million in exchange for increasing
the ratios in our leverage covenant in certain future periods.
7. STOCK OPTIONS
The Company accounts for stock based employee compensation under APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and has not adopted the
fair value method of accounting for stock based employee compensation. During
1997, the Company adopted a stock option plan that provided for the purchase of
common stock by key employees, directors, advisors and consultants of the
Company. In connection with the Plan of Reorganization discussed in Note 2, all
options issued under this plan were cancelled on February 10, 2003. 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 income (loss) and net income (loss) per share for the one month
ended January 31, 2003 and the three months ended March 31, 2002 would have been
as follows (in thousands):
PREDECESSOR ONE COMPANY THREE
MONTH ENDED MONTHS ENDED
JANUARY 31, 2003 MARCH 31, 2002
---------------- --------------
Reported net income (loss)........................................... $ 344,970 $ (452,531)
Non-cash compensation charges included in net income (loss).......... -- 289
Stock-based employee compensation cost that would have been included
in net loss under the fair value method........................... (694) (3,913)
---------------- --------------
Adjusted net income (loss)........................................... $ 344,276 $ (456,155)
================ ==============
Basic and diluted income (loss) per share:
Reported net income (loss)........................................... $ 2.24 $ (2.95)
Non-cash compensation charges included in net income (loss).......... -- --
Stock-based employee compensation cost that would have been included
in net loss under the fair value method........................... -- (0.02)
---------------- --------------
Adjusted net income (loss)........................................... $ 2.24 $ (2.97)
================ ==============
Also on February 10, 2003, the Company adopted the 2003 Equity Incentive
Plan to grant equity based incentives in New Common Stock to employees and
directors. In March 2003, the Company granted approximately 2.7 million options
to purchase New Common Stock under this plan. Had compensation cost for the
Company's stock options to purchase New Common Stock been determined based on
the fair value at the date of grant consistent with the provisions of SFAS 123,
the Company's net loss and net loss per share for the two months ended March 31,
2003 would have been as follows (in thousands):
REORGANIZED COMPANY
TWO MONTHS ENDED
MARCH 31, 2003
-------------------
Reported net loss...................................................................... $ (1,692)
Stock-based employee compensation cost that would have been included in net loss under
the fair value method............................................................... (343)
-------------------
Adjusted net loss...................................................................... $ (2,035)
===================
Basic and diluted loss per share:
Reported net loss...................................................................... $ (0.07)
Stock-based employee compensation cost that would have been included in net loss under
the fair value method............................................................... (0.02)
-------------------
Adjusted net loss...................................................................... $ (0.09)
===================
F-51
8. DISCONTINUED OPERATIONS
On December 31, 2002, the Company sold its network services division.
Network services revenues for the three months ended March 31, 2002 were $41.8
million. Network services income before taxes for the three months ended March
31, 2002 was $2.1 million. The Company recorded a loss on disposal of the
network services division of $47.0 million in 2002. The results of the network
services division's operations have been reported separately as discontinued
operations in the Statements of Operations. Prior period financial statements
have been restated to present the operations of the division as a discontinued
operation.
9. BUSINESS SEGMENTS
The Company operates in two business segments: wireless and broadcast. The
wireless segment provides for leasing and subleasing of antenna sites on
multi-tenant towers and distributed antenna systems for a diverse range of
wireless communication services. The broadcast segment offers leasing and
subleasing of antenna sites for broadcast communication services and a broad
range of broadcast development services, including broadcast tower design and
construction and antenna installation.
Summarized financial information concerning the reportable segments as of
and for the two months ended March 31, 2003, the one month ended January 31,
2003 and the three months ended March 31, 2002 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 that have
not been allocated to a specific segment. All reported segment revenues are
generated from external customers as intersegment revenues are not significant.
WIRELESS BROADCAST OTHER TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
TWO MONTHS ENDED MARCH 31, 2003
(REORGANIZED COMPANY)
Revenues...................................................... $ 47,417 $ 7,227 $ -- $ 54,644
Income (loss) from continuing operations before income taxes.. 25,860 3,213 (30,163) (1,090)
Assets........................................................ 1,400,737 88,219 108,531 1,597,487
Additions to property and equipment........................... 972 908 443 2,323
ONE MONTH ENDED JANUARY 31, 2003
(PREDECESSOR COMPANY)
Revenues...................................................... $ 23,843 $ 2,950 $ -- $ 26,793
Income from continuing operations before income taxes......... 13,069 892 1,011,832 1,025,793
Assets........................................................ 1,354,877 133,324 96,206 1,584,407
Additions to property and equipment........................... 124 1,003 1,610 2,737
THREE MONTHS ENDED MARCH 31, 2002
(PREDECESSOR COMPANY)
Revenues...................................................... $ 61,867 $ 10,537 $ -- $ 72,404
Income (loss) from continuing operations before income taxes.. 30,115 2,718 (110,462) (77,629)
Assets........................................................ 2,320,724 177,089 336,219 2,834,032
Goodwill...................................................... 60,626 -- -- 60,626
Additions to property and equipment........................... 37,313 4,983 2,757 45,053
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
agent against reasonable expenses (including attorneys' fees) incurred by him in
connection with any proceeding brought by or on behalf of the corporation and
against judgments, fines, settlements and reasonable expenses (including
attorneys' fees) incurred by him in connection with any other proceeding, if (a)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, however, no indemnification is to be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
corporation.
Section 7 of our amended and restated certificate of incorporation provides
that we shall indemnify and hold harmless, to the fullest extent permitted by
applicable law as it presently exists or may hereafter be amended, any person
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was at any time from and
after the effective date of our plan of reorganization, a director or officer of
the corporation or, while a director or officer of the corporation, is or was at
any time from and after the effective date of our plan of reorganization,
serving at the written request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person; PROVIDED,
HOWEVER, that we shall be required to indemnify a person in connection with a
proceeding (or part thereof) initiated by such person only if the commencement
of such proceeding (or part thereof) was authorized by our board of directors.
Section 102 of the DGCL permits the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of the law, (iii) breaches under section 174 of the DGCL, which relates to
unlawful payments of dividends or unlawful stock repurchase or redemptions, and
(iv) any transaction from which the director derived an improper personal
benefit.
Section 6 of our amended and restated certificate of incorporation limits
the personal liability of our directors to the fullest extent permitted by
section 102 of the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
We maintain directors' and officers' liability insurance for our officers
and directors.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement to Sublease, dated as of February 16, 2000, by and
between AirTouch Communications, Inc. and the other parties named
therein as Sublessors, California Tower, Inc. and the Registrant.
Incorporated by reference to exhibit no. 2.9 to the Registrant's
Form 10-K for the year ended December 31, 1999.
2.2 Amendment to the AirTouch Agreement, dated as of March 8, 2001.
Incorporated by reference to exhibit no. 2.4 to the Registrant's
Form 10-Q for the quarterly period ended March 31, 2001.
2.3 Agreement to Sublease, dated as of August 25, 2000, by and among
SBC Wireless, Inc. and certain of its affiliates, the Registrant,
and Southern Towers, Inc. (the "SBC Agreement"). Incorporated by
reference to exhibit no. 10.1 to the Registrant's Form 8-K dated
August 25, 2000 and filed August 31, 2000.
2.4 Amendment No. 1 to the SBC Agreement, dated December 14, 2000.
Incorporated by reference to exhibit no. 2.8 to the registration
statement on Form S-3 of the Registrant, file no. 333-45728.
2.5 Amendment No. 2 to the SBC Agreement, dated November 14, 2001.
Incorporated by reference to exhibit no. 2.5 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.6 Amendment No. 3 to the SBC Agreement, dated January 31, 2002.
Incorporated by reference to exhibit no. 2.6 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.7 Amendment No. 4 to the SBC Agreement, dated February 25, 2002.
Incorporated by reference to exhibit no. 2.7 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.8 SpectraSite Newco Purchase Agreement, dated as of May 15, 2002, by
and among Cingular Wireless LLC ("Cingular"), the Registrant,
Southern Towers, Inc., SpectraSite Communications, Inc. and CA/NV
Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.6
to the Registrant's Form 8-K dated May 22, 2002.
2.9 November Agreement, dated as of November 14, 2002, by and among
Cingular Wireless LLC ("Cingular"), the Registrant, Southern
Towers, Inc. and CA/NV Tower Holdings, LLC. Incorporated by
reference to exhibit no. 10.1 to the Registrant's Form 8-K dated
November 19, 2002.
2.10 Amended and Restated Consent and Modification, dated as of
November 14, 2002, by and among Southern Towers, Inc., CA/NV Tower
Holdings, LLC, SBC Tower Holdings LLC, the Registrant and SBC
Wireless LLC. Incorporated by reference to exhibit no. 10.2 to the
Registrant's Form 8-K dated November 19, 2002.
2.11 Amended and Restated Unwind Side Letter, dated as of November 14,
2002, by and among Cingular, SBC Wireless LLC, SBC Tower Holdings
LLC, the Registrant, Southern Towers, Inc. and SpectraSite
Communications, Inc. Incorporated by reference to exhibit no. 10.3
to the Registrant's Form 8-K dated November 19, 2002.
2.12 Proposed Plan of Reorganization of the Registrant under chapter 11
of the Bankruptcy Code. Incorporated by reference to exhibit no.
2.1 to the Registrant's Form 8-K dated November 19, 2002.
3.1 Third Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to exhibit no. 2.1 to the
Registrant's Form 8-K dated February 11, 2003.
3.2 Second Amended and Restated By-laws of the Registrant.
Incorporated by reference to exhibit no. 2.2 to the Registrant's
Form 8-K dated February 11, 2003.
II-2
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1* Indenture, dated as of May 21, 2003, by and between the Registrant
and The Bank of New York.
4.2* Registration Rights Agreement, dated as of May 21, 2003, by and
among the Registrant, Lehman Brothers Inc., Citigroup Global
Markets Inc., CIBC World Markets Corp., BMO Nesbitt Burns Corp.,
Credit Suisse First Boston LLC, and TD Securities (USA) Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP as to
validity of the exchange notes.
8.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP as to
certain tax matters.
10.1 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and Stephen H.
Clark. Incorporated by reference to exhibit no. 10.1 to the
Registrant's Form 8-K dated February 11, 2003.
10.2 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and David P.
Tomick. Incorporated by reference to exhibit no. 10.2 to the
Registrant's Form 8-K dated February 11, 2003.
10.4 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and Timothy G.
Biltz. Incorporated by reference to exhibit no. 10.3 to the
Registrant's Form 8-K dated February 11, 2003.
10.5 Credit Agreement, dated as of February 22, 2001, by and among
SpectraSite Communications, Inc., as Borrower; the Registrant, as
a Guarantor; CIBC World Markets Corp. and Credit Suisse First
Boston, as Joint Lead Arrangers and Bookrunners; CIBC World
Markets Corp., Credit Suisse First Boston, Bank Of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Arrangers; Credit
Suisse First Boston, as Syndication Agent; Bank Of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Co-Documentation
Agents; Canadian Imperial Bank Of Commerce, as Administrative
Agent and Collateral Agent; and the other credit parties party
thereto (the "Credit Agreement"). Incorporated by reference to
exhibit no. 10.6 to the Registrant's Form 10-K for the year ended
December 31, 2000.
10.6 Amendment No. 1 to the Credit Agreement, dated October 31, 2001.
Incorporated by reference to exhibit no. 10.7 to the Registrant's
Form 10-K for the year ended December 31, 2001.
10.7 Amendment No. 2 to the Credit Agreement, dated August 14, 2002.
Incorporated by reference to exhibit no. 10.4 to the Registrant's
Form 10-Q for the quarterly period ended September 30, 2002.
10.8 Amendment No. 3 to the Credit Agreement, dated May 15, 2003, by
and among SpectraSite Communications, Inc., as Borrower; the
Registrant, as a Guarantor; CIBC World Markets Corp. and Credit
Suisse First Boston, as Joint Lead Arrangers and bookrunners; CIBC
World Markets Corp., Credit Suisse First Boston, Bank of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Arrangers; Credit
Suisse First Boston, as Syndication Agent; Bank of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Co-Documentation
Agents; Canadian Imperial Bank of Commerce, as Administrative
Agent and Collateral Agent; and the other credit parties thereto.
Incorporated by reference to exhibit no. 10.1 to the Registrant's
Form 8-K dated May 21, 2003.
10.9 2003 Equity Incentive Plan of the Registrant. Incorporated by
reference to exhibit no. 10.6 to the Registrant's Form 8-K dated
February 11, 2003.
10.10 Security & Subordination Agreement, dated as of April 20,1999,
with Nextel Communications, Inc. ("Nextel"). Incorporated by
reference to exhibit no. 10.32 to the Registrant's registration
statement on Form S-4, file no. 333-67043.
II-3
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11 Master Site Commitment Agreement, dated as of April 20, 1999, with
Nextel. Incorporated by reference to exhibit no. 10.33 to the
Registrant's registration statement on Form S-4, file no.
333-67043.
10.12 Master Site Lease Agreement, dated as of April 20, 1999, with
Nextel. Incorporated by reference to exhibit no. 10.34 to the
Registrant's registration statement on Form S-4, file no.
333-67043.
10.13 Lease and Sublease, dated as of December 14, 2000, by and among
SBC Tower Holdings LLC, for itself and as agent for certain
affiliates of SBC, Southern Towers, Inc. and SBC Wireless, LLC and
the Registrant, as guarantors. Incorporated by reference to
exhibit no. 10.2 to the Registrant's Form 10-Q for the quarterly
period ended March 31, 2001.
10.14 Executive Severance Plans of the Registrant. Incorporated by
reference to exhibit no. 10.17 to the Registrant's Form 10-K for
the year ended December 31, 2001.
10.15 Amendment to Severance Plan B of the Registrant. Incorporated by
reference to exhibit no. 10.14 to the Registrant's Form 10-K for
the year ended December 31, 2002.
10.16 Registration Rights Agreement, dated as of February 10, 2003, by
and among the Registrant and the Holders (as defined therein).
Incorporated by reference to exhibit no. 10.5 to the Registrant's
Form 8-K dated February 11, 2003.
12.1* Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant. Incorporated by reference to
exhibit no. 21.1 to the Registrant's Form 10-K for the year ended
December 31, 2002.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Paul, Weiss, Rifkind, Wharton & Garrison LLP (included
in Exhibits 5.1 and 8.1 to this Registration Statement).
24* Powers of Attorney (included on signature pages of this Part II).
25* Form T-1 Statement of Eligibility of The Bank of New York to act
as trustee under the Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
---------------
*Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
II-4
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities begin registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the registrants
pursuant to the foregoing 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 registrants 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 registrant 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.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cary, State of North
Carolina, on June 13, 2003.
SPECTRASITE, INC.
By: /s/ Stephen H. Clark
------------------------------------
Stephen H. Clark
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints each of Stephen H. Clark and David
P. Tomick, acting singly, his true and lawful agent, proxy and attorney-in-fact,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to (i) act on, sign and file with
the Securities and Exchange Commission any and all amendments (including
post-effective amendments) to this registration statement together with all
schedules and exhibits thereto and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto, (ii) act on, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, (iii) act on and file any supplement to any
prospectus included in this registration statement or any such amendment or any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and (iv) take any and all actions which may
be necessary or appropriate in connection therewith, granting unto such agents,
proxies and attorneys-in-fact full power and authority to do and perform each
and every act and thing necessary or appropriate to be done, as fully for all
intents and purposes as he might or could do in person, hereby approving,
ratifying and confirming all that such agents, proxies and attorneys-in-fact or
any of their substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on June 13, 2003, by the following
persons in the capacities indicated.
SIGNATURE TITLE
/s/ Stephen H. Clark President, Chief Executive Officer and
----------------------------- Chairman of the Board of Directors
Stephen H. Clark (Principal Executive Officer)
/s/ David P. Tomick Executive Vice President and Chief
----------------------------- Financial Officer (Principal Financial
David P. Tomick Officer)
/s/ Gabriela Gonzalez Senior Vice President and Corporate
----------------------------- Controller (Principal Accounting
Gabriela Gonzalez Officer)
/s/ Paul M. Albert, Jr. Director
----------------------------
Paul M. Albert, Jr.
Director
----------------------------
Gary S. Howard
/s/ Robert Katz Director
----------------------------
Robert Katz
/s/ Richard Masson Director
----------------------------
Richard Masson
II-6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement to Sublease, dated as of February 16, 2000, by and
between AirTouch Communications, Inc. and the other parties named
therein as Sublessors, California Tower, Inc. and the Registrant.
Incorporated by reference to exhibit no. 2.9 to the Registrant's
Form 10-K for the year ended December 31, 1999.
2.2 Amendment to the AirTouch Agreement, dated as of March 8, 2001.
Incorporated by reference to exhibit no. 2.4 to the Registrant's
Form 10-Q for the quarterly period ended March 31, 2001.
2.3 Agreement to Sublease, dated as of August 25, 2000, by and among
SBC Wireless, Inc. and certain of its affiliates, the Registrant,
and Southern Towers, Inc. (the "SBC Agreement"). Incorporated by
reference to exhibit no. 10.1 to the Registrant's Form 8-K dated
August 25, 2000 and filed August 31, 2000.
2.4 Amendment No. 1 to the SBC Agreement, dated December 14, 2000.
Incorporated by reference to exhibit no. 2.8 to the registration
statement on Form S-3 of the Registrant, file no. 333-45728. 2.5
Amendment No. 2 to the SBC Agreement, dated November 14, 2001.
Incorporated by reference to exhibit no. 2.5 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.6 Amendment No. 3 to the SBC Agreement, dated January 31, 2002.
Incorporated by reference to exhibit no. 2.6 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.7 Amendment No. 4 to the SBC Agreement, dated February 25, 2002.
Incorporated by reference to exhibit no. 2.7 to the Registrant's
Form 10-K for the year ended December 31, 2001.
2.8 SpectraSite Newco Purchase Agreement, dated as of May 15, 2002, by
and among Cingular Wireless LLC ("Cingular"), the Registrant,
Southern Towers, Inc., SpectraSite Communications, Inc. and CA/NV
Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.6
to the Registrant's Form 8-K dated May 22, 2002.
2.9 November Agreement, dated as of November 14, 2002, by and among
Cingular Wireless LLC ("Cingular"), the Registrant, Southern
Towers, Inc. and CA/NV Tower Holdings, LLC. Incorporated by
reference to exhibit no. 10.1 to the Registrant's Form 8-K dated
November 19, 2002.
2.10 Amended and Restated Consent and Modification, dated as of
November 14, 2002, by and among Southern Towers, Inc., CA/NV Tower
Holdings, LLC, SBC Tower Holdings LLC, the Registrant and SBC
Wireless LLC. Incorporated by reference to exhibit no. 10.2 to the
Registrant's Form 8-K dated November 19, 2002.
2.11 Amended and Restated Unwind Side Letter, dated as of November 14,
2002, by and among Cingular, SBC Wireless LLC, SBC Tower Holdings
LLC, the Registrant, Southern Towers, Inc. and SpectraSite
Communications, Inc. Incorporated by reference to exhibit no. 10.3
to the Registrant's Form 8-K dated November 19, 2002.
2.12 Proposed Plan of Reorganization of the Registrant under chapter 11
of the Bankruptcy Code. Incorporated by reference to exhibit no.
2.1 to the Registrant's Form 8-K dated November 19, 2002.
II-7
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Third Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to exhibit no. 2.1 to the
Registrant's Form 8-K dated February 11, 2003.
3.2 Second Amended and Restated By-laws of the Registrant.
Incorporated by reference to exhibit no. 2.2 to the Registrant's
Form 8-K dated February 11, 2003.
4.1* Indenture, dated as of May 21, 2003, by and between the
Registrant, and The Bank of New York.
4.2* Registration Rights Agreement, dated as of May 21, 2003, by and
among the Registrant, Lehman Brothers Inc., Citigroup Global
Markets Inc., CIBC World Markets Corp., BMO Nesbitt Burns Corp.,
Credit Suisse First Boston LLC, and TD Securities (USA) Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP as to
validity of the exchange notes.
8.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP as to
certain tax matters.
10.1 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and Stephen H.
Clark. Incorporated by reference to exhibit no. 10.1 to the
Registrant's Form 8-K dated February 11, 2003.
10.2 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and David P.
Tomick. Incorporated by reference to exhibit no. 10.2 to the
Registrant's Form 8-K dated February 11, 2003.
10.4 Employment Agreement, dated as of February 10, 2003, by and among
the Registrant, SpectraSite Communications, Inc. and Timothy G.
Biltz. Incorporated by reference to exhibit no. 10.3 to the
Registrant's Form 8-K dated February 11, 2003.
10.5 Credit Agreement, dated as of February 22, 2001, by and among
SpectraSite Communications, Inc., as Borrower; the Registrant, as
a Guarantor; CIBC World Markets Corp. and Credit Suisse First
Boston, as Joint Lead Arrangers and Bookrunners; CIBC World
Markets Corp., Credit Suisse First Boston, Bank Of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Arrangers; Credit
Suisse First Boston, as Syndication Agent; Bank Of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Co-Documentation
Agents; Canadian Imperial Bank Of Commerce, as Administrative
Agent and Collateral Agent; and the other credit parties party
thereto (the "Credit Agreement"). Incorporated by reference to
exhibit no. 10.6 to the Registrant's Form 10-K for the year ended
December 31, 2000.
10.6 Amendment No. 1 to the Credit Agreement, dated October 31, 2001.
Incorporated by reference to exhibit no. 10.7 to the Registrant's
Form 10-K for the year ended December 31, 2001.
10.7 Amendment No. 2 to the Credit Agreement, dated August 14, 2002.
Incorporated by reference to exhibit no. 10.4 to the Registrant's
Form 10-Q for the quarterly period ended September 30, 2002.
10.8 Amendment No. 3 to the Credit Agreement, dated May 15, 2003, by
and among SpectraSite Communications, Inc., as Borrower; the
Registrant, as a Guarantor; CIBC World Markets Corp. and Credit
Suisse First Boston, as Joint Lead Arrangers and bookrunners; CIBC
World Markets Corp., Credit Suisse First Boston, Bank of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Arrangers; Credit
Suisse First Boston, as Syndication Agent; Bank of Montreal,
Chicago Branch and TD Securities (USA) Inc., as Co-Documentation
Agents; Canadian Imperial Bank of Commerce, as Administrative
Agent and Collateral Agent; and the other credit parties thereto.
Incorporated by reference to exhibit no. 10.1 to the Registrant's
Form 8-K dated May 21, 2003.
10.9 2003 Equity Incentive Plan of the Registrant. Incorporated by
reference to exhibit no. 10.6 to the Registrant's Form 8-K dated
February 11, 2003.
10.10 Security & Subordination Agreement, dated as of April 20,1999,
with Nextel Communications, Inc. ("Nextel"). Incorporated by
reference to exhibit no. 10.32 to the Registrant's registration
statement on Form S-4, file no. 333-67043.
II-8
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11 Master Site Commitment Agreement, dated as of April 20, 1999, with
Nextel. Incorporated by reference to exhibit no. 10.33 to the
Registrant's registration statement on Form S-4, file no.
333-67043.
10.12 Master Site Lease Agreement, dated as of April 20, 1999, with
Nextel. Incorporated by reference to exhibit no. 10.34 to the
Registrant's registration statement on Form S-4, file no.
333-67043.
10.13 Lease and Sublease, dated as of December 14, 2000, by and among
SBC Tower Holdings LLC, for itself and as agent for certain
affiliates of SBC, Southern Towers, Inc. and SBC Wireless, LLC and
the Registrant, as guarantors. Incorporated by reference to
exhibit no. 10.2 to the Registrant's Form 10-Q for the quarterly
period ended March 31, 2001.
10.14 Executive Severance Plans of the Registrant. Incorporated by
reference to exhibit no. 10.17 to the Registrant's Form 10-K for
the year ended December 31, 2001.
10.15 Amendment to Severance Plan B of the Registrant. Incorporated by
reference to exhibit no. 10.14 to the Registrant's Form 10-K for
the year ended December 31, 2002.
10.16 Registration Rights Agreement, dated as of February 10, 2003, by
and among the Registrant and the Holders (as defined therein).
Incorporated by reference to exhibit no. 10.5 to the Registrant's
Form 8-K dated February 11, 2003.
12.1* Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant. Incorporated by reference to
exhibit no. 21.1 to the Registrant's Form 10-K for the year ended
December 31, 2002.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Paul, Weiss, Rifkind, Wharton & Garrison LLP (included
in Exhibits 5.1 and 8.1 to this Registration Statement).
24* Powers of Attorney (included on signature pages of this Part II).
25* Form T-1 Statement of Eligibility of The Bank of New York to act
as trustee under the Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
---------------
*Filed herewith.
II-9