AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN TOWER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4899 65-0723837
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
116 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02116
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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STEVEN B. DODGE
AMERICAN TOWER CORPORATION
116 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02116
(617) 375-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copy to: Copy to:
NORMAN A. BIKALES, ESQ. STUART A. SHELDON, ESQ.
SULLIVAN & WORCESTER LLP DOW, LOHNES & ALBERTSON, PLLC
ONE POST OFFICE SQUARE 1200 NEW HAMPSHIRE AVENUE, NW
BOSTON, MASSACHUSETTS 02109 WASHINGTON, D.C. 20036-6802
(617) 338-2800 (202) 776-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
PROPOSED MAXIMUM OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2) PRICE(2) FEE(2)
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Class A Common Stock, $.01 par
value .................. 5,000,000 (2) (2) $3,826
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(1) The Securities registered hereby will be offered pursuant to the Amended
and Restated Agreement and Plan of Merger, dated as of December 18, 1998,
as may be amended from time to time, by and among the Registrant, American
Towers, Inc., ATC Merger Corporation and TeleCom Towers, L.L.C., The
amount to be registered is based upon an estimated 14,696,899 Units of
TeleCom Towers, L.L.C. issued and outstanding at the time of the merger
which amount includes 329,133 Units to be issued immediately prior to the
closing of the merger in satisfaction of certain contingent payment
obligations. (For more information, see the notes to the financial
statements of TeleCom Towers, L.L.C.) Upon completion of the merger, each
issued and outstanding Unit of TeleCom Towers, L.L.C. will be converted
into the right to receive a pro rata share of the merger consideration
consisting of cash and Class A Common Stock of the Registrant.
(2) Estimated solely for the purpose of determining the registration fee.
Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended,
the proposed maximum offering price per security, the proposed maximum
aggregate offering price and the registration fee have been determined by
the tangible book value of the Units of TeleCom Towers, L.L.C.
($13,761,286) on September 30, 1998.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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INFORMATION STATEMENT/PROSPECTUS
TELECOM TOWERS, L.L.C.
The Board of Directors of American Tower Corporation ("American Tower" or
"ATC") and the Management Committee of TeleCom Towers, L.L.C. ("TeleCom") have
agreed to merge TeleCom with a subsidiary of American Tower. If we complete the
merger and assuming no adjustments to the merger consideration, TeleCom members
will receive $4.05 in cash and .2858 shares of ATC Class A Common Stock for
each TeleCom Unit they own. The TeleCom merger agreement provides for
adjustment of the amount of cash and number of such shares.
Members of TeleCom owning a majority of the outstanding equity interests of
TeleCom and all of the Class B TeleCom Units have approved the merger. TeleCom
is delivering this document to provide you with important information about the
merger and how it will affect your equity interests in TeleCom. Because certain
governmental and other approvals are required, TeleCom and American Tower
expect to consummate the merger during the spring of this year.
AMERICAN TOWER CORPORATION
This document is also a Prospectus of American Tower. It provides information
about the offering of ATC Common Stock that is occurring as part of the Merger.
The ATC Class A Common Stock is listed on the New York Stock Exchange. The
New York Stock Exchange has approved the listing of the shares of American
Tower Class A Common Stock to be issued in the merger. The trading symbol for
such stock is "AMT". On January 11, 1999, the last reported sale price per
share of American Tower Class A Common Stock on the New York Stock Exchange was
$27.68.
Please read this document carefully for more detailed information about
TeleCom, American Tower and the merger. Also, please see "Where You Can Find
More Information" on page 115 for additional information about American Tower
on file with the Securities and Exchange Commission.
This document also contains information about the proposed merger of
OmniAmerica, Inc. with a subsidiary of American Tower. That merger is
independent from the TeleCom merger, although American Tower expects to
complete both mergers about the same time. Certain portions of this document
will be included in an Information Statement/Prospectus to be delivered to the
OmniAmerica stockholders. For that reason, portions of this document are
addressed to both TeleCom members and OmniAmerica stockholders.
YOU SHOULD CONSIDER CERTAIN IMPORTANT FACTORS REGARDING THE MERGER AND THE ATC
CLASS A COMMON STOCK. WE HAVE DESCRIBED THESE UNDER "RISK FACTORS" ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE AMERICAN TOWER CLASS A COMMON STOCK
TO BE ISSUED UNDER THIS INFORMATION STATEMENT/PROSPECTUS OR DETERMINED IF THIS
INFORMATION STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Information Statement/Prospectus is dated January 15, 1999 and is being
mailed to members of TeleCom beginning about January 20, 1999.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
TABLE OF CONTENTS
Note to Reader............................................................ (i)
Forward-Looking Statements................................................ (i)
Questions and Answers About the TeleCom Merger............................ 1
Summary................................................................... 3
Risk Factors.............................................................. 12
Risk Factors Relating to the OmniAmerica Merger and the TeleCom Merger... 12
Risk Factors Relating to American Tower.................................. 13
American Tower Capitalization............................................. 18
Market Prices and Dividend Policy......................................... 20
Comparative Market Price Data............................................ 20
Dividend Policy.......................................................... 21
Selected Financial Data................................................... 22
American Tower Selected Financial Data................................... 23
OmniAmerica Selected Financial Data...................................... 26
TeleCom Selected Financial Data.......................................... 27
Unaudited Pro Forma Condensed Consolidated Financial Statements of
OmniAmerica.............................................................. 30
Unaudited Pro Forma Condensed Consolidated Financial Statements of
American Tower........................................................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower............................................. 45
Industry Overview......................................................... 54
Business of American Tower................................................ 58
General................................................................. 58
Growth Strategy......................................................... 60
Products and Services................................................... 62
Customers............................................................... 64
Management Organization................................................. 65
History................................................................. 65
Recent Transactions..................................................... 66
Sales and Marketing..................................................... 70
Regulatory Matters...................................................... 70
Environmental Matters................................................... 71
Competition............................................................. 71
Properties.............................................................. 72
Legal Proceedings....................................................... 72
Employees............................................................... 72
Management of American Tower.............................................. 73
Executive Officers and Directors........................................ 73
Executive Compensation.................................................. 76
Director Compensation................................................... 77
Stock Option Information................................................ 77
Certain Transactions.................................................... 79
Principal Stockholders of American Tower.................................. 80
The OmniAmerica Merger.................................................... 84
General................................................................. 84
The Merger Agreement.................................................... 84
Interests of Certain Persons in the Merger.............................. 85
Certain Federal Income Tax Consequences of the Merger................... 85
Stockholder Approval.................................................... 89
Exchange Procedures..................................................... 89
Appraisal Rights of Stockholders........................................ 89
The TeleCom Merger........................................................ 91
General................................................................. 91
Background of the Merger:............................................... 92
TeleCom Reasons for Merger.............................................. 93
The Merger Agreement ................................................... 94
Interests of Certain Persons in the
Merger ................................................................ 95
Certain Federal Income Tax Consequences of the Merger................... 96
Stockholder and Member Approval......................................... 99
Exchange Procedures..................................................... 99
Appraisal Rights of Members............................................. 100
Indebtedness of American Tower............................................ 101
Description of American Tower Capital Stock............................... 103
General................................................................. 103
Preferred Stock......................................................... 103
Common Stock............................................................ 103
Dividend Restrictions................................................... 104
Delaware Business Combination Provisions................................ 105
Listing of Class A Common Stock......................................... 105
Transfer Agent and Registrar............................................ 105
Comparison of Rights of Stockholders of ATC and OmniAmerica and TeleCom
Members.................................................................. 106
Shares Eligible for Future Sale........................................... 112
Validity of the Shares.................................................... 113
Experts................................................................... 113
Where You Can Find More Information....................................... 115
Definition Cross Reference Sheet.......................................... 116
Index to Financial Statements............................................. F-1
Appendix I:
OmniAmerica Agreement and Plan of Merger
Appendix II:
TeleCom Amended and Restated Agreement and Plan of Merger
Appendix IIA:
Amendment to TeleCom Amended and Restated Agreement and Plan of Merger
Appendix III:
Description of OmniAmerica, Inc.
Appendix IV:
Description of TeleCom Towers, L.L.C.
Appendix V:
American Tower Form 10-Q for Quarter Ended September 30, 1998
NOTE TO READER
Basis of Presentation
The information in this document generally gives effect to all acquisitions
that American Tower has consummated since January 1, 1998 or which are subject
to a binding agreement, including the OmniAmerica Merger and the TeleCom
Merger. However, in certain instances the information refers only to American
Tower as it presently exists. We have attempted to make the distinction clear
in those cases. Moreover, certain pro forma financial information gives effect
only to the "ATC Pro Forma Transactions". These include the OmniAmerica Merger,
the TeleCom Merger, the CBS Merger, and certain major acquisitions completed by
American Tower; they do not include all acquisitions of communications sites
and related transactions or pending construction. They do, however, include,
American Tower's 1998 Common Stock financings which included the following:
. a private placement of 8.0 million shares of ATC Common Stock in January
1998 for an aggregate purchase price of $80.0 million (we refer to this
transaction as the "ATC Private Placement"); and
. the initial underwritten public offering of the Class A Common Stock,
$.01 par value per share of ATC (we refer to it as the "ATC Class A
Common Stock") in July 1998 (we refer to this transaction as the "ATC
IPO"). The ATC IPO resulted in net proceeds to American Tower of
approximately $625.1 million.
The "CBS Merger" refers to the merger of a subsidiary of CBS Corporation (we
refer to it as "CBS") into American Radio Systems Corporation (we refer to it
as "American Radio" or "ARS"). As a result of the CBS Merger, American Tower
became an independent publicly traded company; prior to that time it was a
subsidiary of American Radio.
Defined Terms
Certain terms in this document are used repeatedly and have a very specific
meaning that would be cumbersome to explain each time the term is used, or such
term lends itself to abbreviation due to its frequent use. For example, it
would be cumbersome to list all the transactions that comprise the "ATC Pro
Forma Transactions" each time we use that term. Accordingly, we have given such
term a defined meaning, as indicated by the initial capitalized letters of the
term. A list of such defined terms is set forth on page 116. It contains the
page reference where such terms are defined in this document, which is usually
the first place they are used.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of American Tower,
OmniAmerica or TeleCom. They also include statements concerning (a)
growth strategy, (b) liquidity and capital expenditures, (c) construction and
acquisition activities, (d) debt levels and the ability to obtain financing and
service debt, (e) competitive conditions in the communications site and
wireless carrier industries, (f) regulatory matters affecting the
communications site and wireless carrier industries, (g) projected growth of
the wireless communications and wireless carrier industries and (h) general
economic conditions. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect our companies in the future and could cause our
results to differ materially from those expressed in our forward-looking
statements contained in this document. For a discussion of some of these
factors that may cause actual results to differ materially from those
suggested by the forward-looking statements, please read carefully the
information under "Risk Factors".
i
QUESTIONS AND ANSWERS ABOUT THE TELECOM MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: We are proposing to merge our companies because we believe the combined
company will provide our equity owners with increased value and will enable
us to better serve our customers. You will become a stockholder in a more
diversified and broader-based tower company with the ability to provide a
complete range of services to its customers. To review the background and
reasons for the merger in greater detail, see pages 92 through 94. Also, the
merger involves certain risks. These risks are discussed on pages 12 through
17.
Q: WHAT DO I NEED TO DO NOW?
A: Nothing. TeleCom members owning all of the Class B TeleCom Units, which
represent more than a majority of all of the equity interests of TeleCom (we
sometimes refer to these as the "TeleCom Units"), have approved the merger.
Therefore, TeleCom will not hold a member meeting and TeleCom will not
solicit proxies.
After we complete the merger, we will send you written instructions about
receiving the merger consideration in exchange for your TeleCom Units.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Upon completion of the merger, which is subject to certain conditions, and
assuming there are no adjustments to the merger consideration, you will
receive $4.05 in cash and .2858 shares of ATC Class A Common Stock for each
TeleCom Unit you own.
American Tower will not issue fractional shares. Instead, you will receive
cash for any fractional share of ATC Class A Common Stock you would
otherwise receive.
Q: HAS SOMEONE DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF THE
TELECOM MEMBERS?
A: Yes. The Management Committee of TeleCom has determined that the merger is
in the best interest of the TeleCom members. The Management Committee has
also approved the merger and the merger agreement.
Q: DO I HAVE APPRAISAL RIGHTS IF I DON'T LIKE THE MERGER?
A: No. TeleCom is a Delaware limited liability company. Under Delaware law you
would have appraisal only if the limited liability company agreement of
TeleCom or the merger agreement provided for such rights. Neither of those
agreements provides for appraisal rights.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. The
principal closing condition that could affect our timing is the need to
obtain regulatory approvals. We hope to complete the merger during the
spring of this year.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The merger will be a taxable transaction to the TeleCom members for federal
income tax purposes. In general, TeleCom members will be taxed on the gain,
if any, from the exchange of their TeleCom Units for cash and ATC Class A
Common Stock pursuant to the merger. This tax treatment may not apply to
every TeleCom member. The actual tax consequences to you may be complicated
and will depend on your specific situation. You should consult with your own
tax advisor for a full understanding of the tax consequences of the merger
to you. To review the tax consequences to you in greater detail, see pages
96 through 99.
1
Q: I UNDERSTAND AMERICAN TOWER IS PROPOSING TO MERGE WITH OMNIAMERICA, INC. ARE
THE TELECOM AND OMNIAMERICA MERGERS DEPENDENT ON ONE ANOTHER?
A: No. Each of the mergers is independent of the other. They are not
conditioned on one another. We have presented information about OmniAmerica,
Inc. ("OmniAmerica") and its merger in this document so you can better
evaluate American Tower and what it will look like following both mergers.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this Information Statement/Prospectus,
or if you have questions about the merger, you should contact:
TeleCom Towers, L.L.C.
1525 Wilson Blvd., Suite 500
Arlington, Virginia 22209
Attention: Randall N. Smith
Phone Number: (703) 243-1257
2
SUMMARY
This summary highlights selected information about American Tower, OmniAmerica,
TeleCom and the two mergers described elsewhere in this document and does not
contain all of the information that is important to you. To understand the two
mergers fully and for a more complete description of the legal terms of each
merger, you should carefully read this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
115. We have included page references parenthetically to direct you to a more
complete description of the topics presented in this Summary.
THE COMPANIES
AMERICAN TOWER CORPORATION (PAGE 58)
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 375-7500
American Tower is a leading independent owner and operator of wireless
communications and broadcast towers in the United States. ATC's strategy is to
use its leading position to take advantage of the growth opportunities inherent
in the rapidly expanding and highly fragmented communications site industry.
ATC has grown in less than four years to a company which will operate more than
3,000 towers in 44 states and the District of Columbia, giving effect to all
pending mergers and acquisitions. Currently, ATC operates 2,300 towers (of
which 1,845 are owned and 455 are managed for third parties), OmniAmerica
operates 223 towers (of which 211 are owned and 12 are managed for third
parties), and TeleCom operates 392 towers (of which 271 are owned and 121 are
managed for third parties).
American Tower achieved its initial growth predominantly through acquisitions.
ATC will continue to pursue strategic acquisitions, including possible
transactions with large wireless service providers seeking to sell their
towers.
More recently, ATC has embarked on a major construction program. In 1998,
American Tower (exclusive of acquired or to be acquired companies) constructed
or had under construction more than 500 towers at an aggregate cost of
approximately $108.0 million. During 1999, American Tower (exclusive of
companies to be acquired) plans to build between approximately 750 and 1,000
towers at an estimated aggregate cost of between approximately $120.0 and
$200.0 million.
ATC estimates that the combined companies will build or commence construction
of between approximately 1,450 to 1,900 towers at an estimated aggregate cost
of between approximately $230.0 million and $340.0 million. The estimated
aggregate number of towers to be built in 1999 by American Tower, OmniAmerica
and TeleCom will probably decrease as a consequence of the merger because of,
among other things, financial and managerial resource limitations and of
certain planned towers may result in overbuilding in some markets.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, zoning and
other regulatory approvals, tower construction and antennae installation. ATC
also operates a video, voice, data and Internet transmission business in the
New York City to Washington, D.C. corridor and Texas.
ATC is geographically diversified with significant networks of communications
towers throughout the United States. Its largest networks are in California,
Florida and Texas. It owns and operates or is constructing tower networks in
cities such as Albuquerque, Atlanta, Austin, Baltimore, Boston, Charlotte,
Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft. Lauderdale,
Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San Francisco,
Tucson, Washington, D.C. and West Palm Beach.
For the year ended December 31, 1997, giving effect to the ATC Pro Forma
Transactions, ATC had net revenues of $177.3 million and EBITDA of $57.7
million. For the nine months ended September 30,
3
1998, giving effect to the ATC Pro Forma Transactions, ATC had net revenues of
$166.1 million and EBITDA of $47.3 million.
OMNIAMERICA, INC. (APPENDIX III)
12001 State Highway 14 North
Cedar Crest, New Mexico 87008
(505) 281-2197
OmniAmerica is a national independent owner and operator of wireless
communications and broadcast towers with 223 towers in 24 states, including 12
towers on 10 sites managed for third party owners. OmniAmerica has entered into
definitive acquisition agreements to acquire up to an additional 27 towers.
OmniAmerica's principal tower networks are located in Florida, Illinois,
Kentucky, New Mexico, Ohio, Oklahoma, Tennessee and Texas.
OmniAmerica is also a leading builder of wireless communications and broadcast
towers, providing a complete package of design, construction and installation
services. OmniAmerica also manufactures and sells wireless infrastructure
components used in the construction and maintenance of wireless communication
transmitting and receiving facilities.
In 1998, OmniAmerica acquired 168 towers (including rooftop sites) at an
aggregate cost of approximately $117.0 million and, as of early December 1998,
constructed or had under construction approximately 173 telecommunications
towers at an aggregate cost of approximately $12.0 million and three broadcast
towers at an aggregate cost of $11.3 million. Approximately 120 of these
telecommunications towers and two of these broadcast towers will require
additional capital to be expended in 1999. OmniAmerica has approximately 650
additional sites under development. While not all of these sites will result in
towers being constructed, OmniAmerica anticipates adding other sites during
1999.
For the fiscal year ended June 30, 1998 OmniAmerica had net revenues of $62.8
million and EBITDA of $5.0 million. For the three months ended September 30,
1998 OmniAmerica had net revenues of $24.4 million and EBITDA of $3.0 million.
TELECOM TOWERS, L.L.C. (APPENDIX IV)
1525 Wilson Blvd., Suite 500
Arlington, Virginia 22209
(703) 243-1257
TeleCom is a national owner and operator of communications sites, primarily
serving wireless providers. TeleCom owns 271 towers and manages an additional
121 revenue-generating sites in 27 states. Its principal tower networks are
located in Texas, Illinois, Ohio and Virginia.
In 1998, TeleCom acquired 27 towers at an aggregate cost of approximately $15.6
million and constructed or had under construction 43 towers at an aggregate
cost of approximately $8.1 million, including capital to be expended in 1999 to
complete these projects.
For the year ended December 31, 1997, TeleCom had pro forma net revenues of
$7.9 million and pro forma EBITDA of $2.5 million. For the nine months ended
September 30, 1998, TeleCom had pro forma net revenue of $8.6 million and pro
forma EBITDA of $0.3 million.
OUR REASONS FOR THE MERGERS
By combining the complementary strengths and resources of American Tower,
OmniAmerica and TeleCom, we believe we will be able to create a company that
can offer a more diversified and broader base of services than any of the
companies individually is able to offer at the present time. We believe that
the availability of a complete range of services on a national basis is
important to our existing and potential customers, most of whom are large
national companies. The communications tower industry is undergoing a dramatic
change because of rapid consolidation. As a consequence, it is likely to become
increasingly competitive. We hope that the greater strength of the combined
company will enable us to better serve our customers and to provide our equity
owners with increased value.
To review the background and reasons for
the TeleCom Merger see pages 92 through 94. To review the risks of the mergers,
see pages 12 through 17.
4
Each merger is independent of the other and one may be consummated even if the
other is not. We have summarized certain information with respect to the
OmniAmerica merger under the caption "The OmniAmerica Merger" on page 8 and
pages 84 through 90.
THE TELECOM MERGER (PAGE 91)
If we complete the merger, a subsidiary of American Towers, Inc. (we sometimes
refer to it as "ATI") will be merged with TeleCom and TeleCom will become a
subsidiary of ATI. The merger is subject to certain rights of termination and
conditions described in this document and in the merger agreement. We have
attached the merger agreement as Appendices II and IIA to this document. It is
the actual document governing the merger. WE ENCOURAGE YOU TO READ THE MERGER
AGREEMENT.
WHAT MEMBERS WILL RECEIVE IN THE TELECOM MERGER (PAGE 91)
If we complete the merger you will receive your proportionate share of the
TeleCom Merger Consideration. The TeleCom Merger Consideration is $148.75
million less the amount by which TeleCom's debt at the time of the TeleCom
Merger is more than $30.0 million. We will increase the TeleCom Merger
Consideration by the aggregate costs incurred by TeleCom after November 16,
1998 for acquisitions, new tower construction and other capital expenditures.
The TeleCom Merger Consideration is payable 60% ($89.25 million, assuming no
adjustment) in shares of ATC Class A Common Stock and 40% ($59.50 million,
assuming no such adjustment) in cash. We will also increase or decrease the
cash portion based on the working capital of TeleCom at the time of the TeleCom
Merger.
We will base the number of shares of ATC Class A Common Stock to be delivered
is based on a per share price of $21.25. Such number is subject to adjustment
depending on such stock's trading levels prior to the TeleCom Merger and the
achievement of certain revenue growth targets for TeleCom.
Assuming no such adjustments, ATC will issue approximately 4.2 million shares
of ATC Class A Common Stock to the TeleCom members. Accordingly, you will
receive $4.05 in cash and .2858 shares of ATC Class A Common Stock for each
TeleCom Unit you own.
American Tower will not issue fractional shares. Instead, you will be paid cash
for any fractional shares of ATC Common Stock owed to you.
American Tower. After the merger, each share of American Tower Common Stock
will continue to represent one share of American Tower Common Stock of the same
class as it represented prior to the merger.
PRE-MERGER DISTRIBUTIONS
Prior to the completion of the TeleCom Merger, TeleCom will distribute its
beneficial interests in two subsidiaries, RCC Consultants, Inc. and Prime-
TeleCom Communications Co., pro rata to all TeleCom members.
DETERMINATIONS OF GOVERNING BOARDS (PAGE 92)
American Tower. The American Tower Board of Directors has unanimously approved
the merger and the merger agreement.
TeleCom. The TeleCom Management Committee believes that the TeleCom Merger is
fair to the TeleCom members and in their best interests and approved the Merger
and the Merger Agreement.
TeleCom's Management Committee based this determination and approval on a
number of factors, including:
. a review of the business, operations, financial condition, earnings and
prospects of American Tower;
. analysis of potential alternative transactions between TeleCom and other
possible strategic partners; and
. the structure, terms and conditions of the merger.
VOTES REQUIRED (PAGE 99)
American Tower. The merger does not require the approval of the American Tower
stockholders. ATI, as the sole stockholder of the subsidiary that will merge
into TeleCom, has approved the merger.
5
TeleCom. TeleCom members holding all of the outstanding Class B TeleCom Units,
which represent a majority of the TeleCom Units, approved the merger. No
further vote of the TeleCom members is required. Therefore, we will not hold a
member meeting and we will not solicit any proxies.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 96)
The merger will be a taxable transaction to the TeleCom members for federal
income tax purposes. In general, each TeleCom member will recognize gain or
loss from the exchange of such member's TeleCom Units for cash and ATC Class A
Common Stock pursuant to the merger equal to the difference between his or her
adjusted tax basis in such TeleCom Units and the sum of (i) the cash and fair
market value of the shares of ATC Class A Common Stock received pursuant to the
merger and (ii) such member's share of TeleCom's liabilities.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER
APPLICABLE TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF
THE MERGER APPLICABLE TO YOU.
ACCOUNTING TREATMENT (PAGE 94)
American Tower expects to treat the merger as a purchase for financial
reporting purposes. This means that the assets, liabilities and results of
operations of TeleCom will be included with those of American Tower only after
the merger is completed. It also means we will value the assets acquired and
liabilities assumed of TeleCom at their relative fair values based upon the
average market value of the ATC Class A Common Stock and the amount of cash to
be received by the TeleCom members in the merger.
REGULATORY APPROVALS
We are prohibited by certain U.S. antitrust laws (we referred to this as the
"HSR Act") from completing the merger until after we have furnished certain
information and materials to the Antitrust Division of the Department of
Justice and a required waiting period has ended. TeleCom and American Tower
filed the required notification and report forms. The waiting period will end
for the merger on February 4, 1999, unless extended by a request for additional
information. However, even after such period, the regulatory agencies continue
to have the authority to challenge the merger on antitrust grounds before or
after it is completed.
We cannot predict whether we will obtain all required regulatory approvals
before we complete the merger, or whether any approvals will include conditions
that would be detrimental to American Tower. However, we are not required, in
order to complete the merger, to obtain all required regulatory approvals, only
those that are material.
CONDITIONS TO THE MERGER (PAGE 94)
We will complete the merger only if TeleCom and American Tower satisfy or (in
some cases) waive several conditions, including the following:
. no legal action shall be pending seeking to enjoin, restrain, prohibit
or make illegal or impose any materially adverse conditions in
connection with the consummation of the merger;
. there is no material adverse change regarding the other company; and
. the waiting period applicable to the consummation of the merger under
the HSR Act shall have expired or been terminated.
TERMINATION OF THE MERGER AGREEMENT (PAGE 94)
The Board of Directors of American Tower and the Management Committee of
TeleCom can agree to terminate the merger agreement at any time. Either company
can terminate the merger agreement if:
. we do not complete the merger by September 30, 1999;
. a governmental authority permanently prohibits the merger; or
6
. the terminating party is not in material breach and either (i) the
merger has not been consummated by June 30, 1999 or (ii) the other party
is in material breach of the merger agreement or materially breaches its
representations or warranties resulting in its inability to satisfy
certain conditions to the completion of the merger.
If either party terminates because of the intentional or wilful breach by the
other, it is entitled to a termination fee of $10.0 million.
LISTING OF ATC CLASS A COMMON STOCK
The ATC Class A Common Stock is listed on the New York Stock Exchange (we
sometime refer to it as the "NYSE"). The NYSE has approved the listing of the
shares to be issued in connection with the merger. The trading symbol for the
ATC Class A Common Stock is "AMT".
APPRAISAL RIGHTS (PAGE 100)
TeleCom is a Delaware limited liability company. Under applicable Delaware law
and the applicable agreements, you have no appraisal rights.
COMPARATIVE RIGHTS OF HOLDERS OF TELECOM UNITS AND ATC CLASS A COMMON STOCK
(PAGE 106)
Holders of TeleCom Units and holders of ATC Class A Common Stock have generally
the same rights with respect to dividends and preemptive rights and on
liquidation. However, American Tower has two classes of voting stock. The Class
A Common Stock and the Class B Common Stock generally vote as a single class
with each share of Class A Common Stock entitled to one vote and each share of
Class B Common Stock entitled to ten votes. The holders of the Class A Common
Stock, voting as a separate class, are entitled to elect two independent
directors. Delaware corporate law (we sometimes refer to it as the "DGCL") and
the ATC Restated Certificate of Incorporation, as amended (we sometimes refer
to it as the "ATC Restated Certificate") require certain class votes. Other
rights of the holders of TeleCom Units and holders of ATC Class A Common Stock
are substantially similar.
OWNERSHIP OF ATC FOLLOWING THE MERGERS
We anticipate that OmniAmerica stockholders will receive approximately 17.7
million shares (assuming all options are exercised) and TeleCom members will
receive approximately 4.2 million shares of ATC Class A Common Stock in the
applicable merger. Based on those numbers, following the mergers existing
American Tower stockholders will own approximately 83.0%, former OmniAmerica
stockholders will own approximately 13.7%, and former TeleCom members will own
approximately 3.3% of the ATC Common Stock to be outstanding. Because of the
different voting rights of the three classes of ATC Stock, existing American
Tower stockholders will own approximately 89.4% of the voting power of all
classes of ATC Stock to be outstanding after the mergers.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 95)
TeleCom members should note that a certain members of senior management and
affiliates of members of the TeleCom Management Committee have interests in the
merger that are different from, or in addition to, yours as a TeleCom member.
Those interests include a TeleCom Management Committee representative becoming
a director of American Tower and the Management Committee representatives and
officers being entitled to the continuation of certain indemnification
provisions.
EQUITY OWNERSHIP OF MANAGEMENT AND CERTAIN MEMBERS
American Tower (page 80). On December 31, 1998, directors and executive
officers of American Tower and their affiliates owned approximately 29.0% of
the shares (and 52.3% of the voting power) of the ATC Common Stock outstanding
on that date.
TeleCom (page IV-3 of Appendix IV). On December 31, 1998, affiliates of members
of the TeleCom Management Committee owned
7
10,377,283 Class B TeleCom Units, or approximately 72.0% of the TeleCom Units
outstanding on that date.
COMPARATIVE MARKET PRICES (PAGE 20)
November 13, 1998 was the last trading day prior to the announcement of the
merger. On that date, the last reported sale price per share of ATC Class A
Common Stock on the NYSE and the equivalent per Unit price of the TeleCom Units
(based on $4.05 and .2858 shares of ATC Class A Common Stock per TeleCom Unit)
were as follows:
ATC Common Stock......... $19.00
TeleCom Unit (equivalent,
inclusive of $4.05 per
unit in cash)........... $ 9.48
On January 11, 1999, the last reported sale price per share of ATC Class A
Common Stock on the New York Stock Exchange was $27.68. The TeleCom Units are
not publicly traded.
Stock prices can fluctuate dramatically and we urge you to check for recent
prices of ATC Class A Common Stock.
THE OMNIAMERICA MERGER (PAGE 84)
American Tower will issue an aggregate of approximately 17.7 million shares of
ATC Class A Common Stock upon completing the OmniAmerica merger (assuming all
options are exercised). In addition, it will assume ATC's then existing debt
which was approximately $64.2 million as of September 30, 1998 and is expected
to increase significantly prior to closing, principally because of acquisitions
and construction activity.
The provisions of the TeleCom Merger Agreement are substantially similar to
those contained in the OmniAmerica Merger Agreement. We have attached the
OmniAmerica Merger Agreement as Appendix I to this document. It is the legal
document governing the OmniAmerica Merger. WE ENCOURAGE YOU TO READ THE
OMNIAMERICA MERGER AGREEMENT.
Each merger is independent of the other and one may be consummated even if the
other is not.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of ATC, OmniAmerica
or TeleCom. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
You should note that many factors, some of which are discussed elsewhere in
this document, could affect our companies in the future and could cause our
results to differ materially from those expressed in our forward-looking
statements contained in this document. For a discussion of some of those
factors that may cause actual results to differ materially from those suggested
by the forward-looking statements, please read carefully the section entitled
"Risk Factors" immediately following and the more detailed and complete
information under "Risk Factors" on pages 12 through 17.
RISK FACTORS (PAGE 12)
You should be aware that certain risks are inherent in the types of business
that American Tower, OmniAmerica and TeleCom operate. These risks include the
following:
. those associated with substantial debt and inability to meet debt
service requirements;
. those inherent in an aggressive tower construction program;
. those involved in an active acquisition program, including the ability
to integrate acquisitions, including the mergers;
. those associated with the wireless provider industries and their rapid
growth and deployment;
. operating, environmental and regulatory risks, including those affecting
the wireless provider industries;
8
. economic, political and competitive forces affecting the tower business
and the various wireless provider industries; and
. the fact that our analyses of these risks and factors could be incorrect
and/or that the strategies we develop to meet them could be
unsuccessful.
We explain certain risks associated with both mergers, as well as those listed
above, in more detail on pages 12 though 17.
9
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
We have presented below summary unaudited pro forma financial information to
give you a better picture of what the results of operations and financial
position of the combined businesses of American Tower, OmniAmerica and TeleCom
might have been at December 31, 1997 and September 30, 1998 if the mergers and
certain other transactions (which we refer to as the "ATC Pro Forma
Transactions") had occurred at the beginning of those fiscal periods. We
prepared the unaudited pro forma statement of operations and balance sheet
information by adding or combining the historical pro forma results of each
company with certain adjustments. The companies may have performed differently
if they were combined. You should not rely on the unaudited pro forma
information as being indicative of the historical results that we would have
had or the future results we will experience after the mergers. See "Unaudited
Pro Forma Condensed Consolidated Financial Statements of American Tower" on
page 34.
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1998
----------------- -----------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net operating revenue...................... $177,267 $166,071
Operating expenses:
Operating expenses excluding
depreciation, amortization and corporate
general and administrative.............. 116,078 115,537
Depreciation and amortization............ 108,864 90,521
Tower separation costs................... -- 12,616
Corporate general and administrative..... 3,536 3,186
-------- --------
Total operating expenses............... 228,478 221,860
-------- --------
Operating (loss)........................... (51,211) (55,789)
Interest expense........................... -- 16,764
Loss before extraordinary items............ $(40,190) $(50,574)
OTHER OPERATING DATA:
Tower Cash Flow............................ $ 61,189 $ 50,534
EBITDA..................................... 57,653 47,348
EBITDA (margin)............................ 32.5% 28.5%
After-Tax Cash Flow........................ 68,674 39,947
SEPTEMBER 30, 1998
------------------
BALANCE SHEET DATA:
Working capital, excluding current portion of long-term
debt...................................................... $ 273,569
Total assets............................................... 2,262,792
Long-term debt, including current portion.................. 474,740
Total shareholders' equity................................. 1,539,662
We use the term "Tower Cash Flow" to mean operating income (loss) before
depreciation and amortization, tower separation costs, and corporate general
and administrative expenses. By "EBITDA" we mean operating income (loss) before
depreciation and amortization and tower separation costs. By "After-tax cash
flow" we mean income (loss) before extraordinary items, plus depreciation and
amortization, less preferred stock dividends. All of such terms include
deferred revenue attributable to certain leases. We do not consider Tower Cash
Flow, EBITDA and after-tax cash flow as a substitute for alternative measures
of operating results or cash flow from operating activities or as a measure of
ATC's profitability or liquidity. Although these measures of performance are
not calculated in accordance with generally accepted accounting principles
("GAAP"), we have included them because they are generally
10
used in the communications site industry as a measure of a company's operating
performance. More specifically, we believe they can assist in comparing company
performances on a consistent basis without regard to depreciation and
amortization. The concern is that depreciation and amortization can vary
significantly among companies depending on accounting methods, particularly
where acquisitions are involved, or non-operating factors such as historical
cost bases. We believe Tower Cash Flow is useful because it enables you to
compare tower performances before the effect of expenses (corporate general and
administrative) that do not relate directly to such performance.
COMPARATIVE PER SHARE INFORMATION
We have set forth below certain selected (i) historical per share (and, in case
of TeleCom, per Unit) data of American Tower, OmniAmerica and TeleCom, (ii) pro
forma per share data from continuing operations of those companies, giving
effect, in the case of American Tower, to the ATC Pro Forma Transactions, and
(iii) pro forma equivalent per share amounts giving effect to the ATC Pro Forma
Transactions, including the OmniAmerica Merger and the TeleCom Merger. The pro
forma equivalent information of OmniAmerica represents American Tower's pro
forma per share information multiplied by 1.1, the exchange ratio called for by
the OmniAmerica merger agreement. You should read the information set forth
below in conjunction with the audited and unaudited consolidated financial
statements of American Tower, OmniAmerica and TeleCom and the Unaudited Pro
Forma Condensed Consolidated Financial Statements of American Tower on page 34.
NINE MONTHS ENDED (OR AS
YEAR ENDED (OR AS OF) OF)
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------ -------------------------
AMERICAN OMNI- AMERICAN OMNI-
TOWER AMERICA TELECOM TOWER AMERICA TELECOM
-------- ------- ------- -------- ------- -------
Historical:
Income (loss) per diluted
share..................... $(0.05) $0.63 $(0.26) $(0.37) $(0.09) $(0.36)
Book value per share....... 4.30 $2.70 $ 2.17 $ 9.93 $ 9.15 $ 4.61
Pro Forma:
Income (loss) per diluted
share..................... $(0.31) $0.23 $(0.15) $(0.39) $(0.09) $(0.42)
Book value per share....... N/A $9.13 $ 1.90 $11.92 $ 9.14 $ 4.34
Pro Forma Equivalent:
Income (loss) per diluted
share..................... N/A $0.21 N/A N/A $(0.09) N/A
Book value per share....... N/A $8.30 N/A N/A $ 8.31 N/A
Assuming there are no adjustments to the merger consideration in the TeleCom
Merger, holders of TeleCom Units will also receive $4.05 in cash for each
TeleCom Unit they hold, subject to adjustment as set forth in the TeleCom
Merger Agreement.
11
RISK FACTORS
You should consider carefully the following factors, in addition to the other
information contained in this document, regarding American Tower, the
OmniAmerica Merger and the TeleCom Merger.
RISK FACTORS RELATING TO THE OMNIAMERICA MERGER AND THE TELECOM MERGER
DIFFICULTIES IN INTEGRATING COMPANIES
Management believes that the integration of OmniAmerica with American Tower may
present more difficult challenges than those of its prior acquisitions and
mergers. For example, OmniAmerica is engaged in several lines of business in
which American Tower is not. Also, OmniAmerica has recently experienced
dramatic changes with the merger of OmniAmerica and Specialty Teleconstructors,
Inc. ("Specialty") in April 1998 (the "April Merger") and the acquisition of
Arch Communications Group, Inc. ("Arch") towers during June and September of
1998. Many of the integration problems inherent in those changes are still in
the process of being resolved. To a significantly lesser extent, similar
integration problems may be faced with TeleCom since it too has undergone
significant changes in the past year. Efforts to solve such problems may result
in the loss of one or more key employees of OmniAmerica or TeleCom, or American
Tower, and may adversely affect American Tower in other ways. For example,
American Tower may incur significant unforeseen costs in integrating the
operations of OmniAmerica and, to a lesser extent, TeleCom. Integration
problems may also require considerable time and effort of senior management of
American Tower. To the extent they do, senior management might not be able to
concentrate on American Tower's growth activities, including the pursuit of
build to suit construction opportunities and other acquisitions.
FAILURE TO RECOGNIZE SYNERGIES OF THE MERGERS; FUTURE RESTRAINTS
Management of American Tower, OmniAmerica and TeleCom believes the mergers will
provide certain savings in administrative and other costs and certain growth
and expansion opportunities. However, the combined company may not be able to
realize all or some of such savings or growth. Moreover, American Tower may
incur additional costs as a consequence of combining the operations of the
three companies. In addition, the combined company's increased size and
financial resources may, because of antitrust restraints, preclude it from
pursing certain acquisition opportunities in the future.
RISK OF MERGERS NOT BEING CONSUMMATED
You should realize that a failure to consummate the merger of your company
could adversely affect your company. For example, the number of acquisition and
build to suit opportunities available may diminish because of the prospective
merger with American Tower. In addition, the applicable merger agreement
restricts the ability of your company to issue equity securities and incur
certain debt, and such restrictions could prevent it from pursuing certain
acquisition opportunities.
POTENTIAL LOSS OF KEY PERSONNEL
The pendency of the mergers may increase the risk that certain key employees of
OmniAmerica and TeleCom could decide to seek employment elsewhere. The
departure of key employees of OmniAmerica or TeleCom would harm ATC should the
mergers be consummated or OmniAmerica or TeleCom should its merger not be
consummated.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In reviewing the terms of the mergers, you should be aware that certain members
of management of each company may have interests in the applicable merger that
may present them with actual or potential conflicts of interest. See "The
OmniAmerica Merger--Interests of Certain Persons in the Merger" and "The
TeleCom Merger--Interests of Certain Persons in the Merger".
12
CHANGES IN ATC CLASS A COMMON STOCK TRADING LEVELS
OmniAmerica stockholders should be aware that their exchange ratio is fixed.
Therefore, the number of shares of ATC Class A Common Stock they will receive
will not be adjusted if the market price of such stock declines. TeleCom
members should be aware that the share adjustment provisions in the TeleCom
Merger Agreement are limited. Moreover, if the "Closing Date Share Price"
(i.e., an average of then recent prices ) of the ATC Class A Common Stock
exceeds $24.75 at the time of the TeleCom Merger, TeleCom members will receive
fewer shares.
RISK FACTORS RELATING TO AMERICAN TOWER
SUBSTANTIAL CAPITAL REQUIREMENTS AND HIGH DEBT LEVELS
ATC's acquisition and construction activities require substantial capital
resources. During 1998, ATC made capital investments aggregating approximately
$108.0 million for construction, predominantly for new towers. In addition, ATC
made acquisitions in the aggregate of approximately $877.0 million, of which
approximately $491.0 million was financed with cash and the balance through the
issue of ATC Class A Common Stock. ATC's business plan for 1999 is to construct
between approximately 750 and 1,000 towers at an estimated aggregate cost of
between approximately $120.0 and $200.0 million. In addition, ATC is actively
seeking several major build to suit projects and acquisitions that could
involve substantial capital expenditures. Giving effect to the OmniAmerica
Merger and the TeleCom Merger, the amount projected to be spent for tower
construction would be substantially greater. On a combined basis, the three
companies spent more than $130.0 million for construction of new towers and
other capital expenditures during 1998. The 1999 combined business plans of the
three companies call for construction of between approximately 1,450 and 1,900
towers at an estimated aggregate cost of between approximately $230.0 and
$340.0 million, although the actual number to be built will probably decrease
because of, among other things, financial and managerial resource limitations
and construction of certain planned towers may result in overbuilding in some
markets.
ATC has financed its capital requirements principally through bank borrowings
and sales of its common stock. As of December 31, 1998, on a pro forma basis,
giving effect to the OmniAmerica Merger and the TeleCom Merger, as well as all
of the other Recent Transactions (but not planned construction), ATC would have
had (i) aggregate borrowings of approximately $345.0 million, and (ii)
aggregate unused borrowing capacity of approximately $371.0 million. You should
be aware that ATC may not be able to implement its growth strategy as rapidly
as it hopes because of the limits on its borrowing capacity, unless it were
willing to sell equity securities. Moreover, American Tower may not be able to
sell its equity securities on favorable terms because such sales are subject,
among other things, to market conditions outside of ATC's control.
ATC expects that it will continue to borrow funds to finance construction and
acquisitions and to operate with substantial leverage. If ATC's revenues and
cash flow do not meet expectations, ATC may have reduced borrowing capacity.
More importantly, you should be aware that if cash flow is not sufficient to
meet debt service requirements, ATC might not be able to sell equity or debt
securities, refinance its obligations or dispose of operating assets on
favorable terms or at all.
ATI and ATLP (the "Borrower Subsidiaries") have a maximum borrowing capacity,
subject to compliance with certain financial ratios, of $900.0 million under
ATC's credit facilities with its senior lenders (we refer to such arrangements
as the "ATC Credit Facilities"). As of December 31, 1998, $125.0 million was
outstanding under a term loan. In addition, ATC (the parent holding company)
has a term loan of $150.0 million. The ATC Credit Facilities require ATC to
satisfy certain financial and operational covenants. Such provisions include
the maintenance of financial ratios and restrictions on additional
indebtedness, capital expenditures, use of borrowed funds, permitted
investments and cash distributions. The lenders under the ATC Credit Facilities
have a first priority security interest in substantially all of the operating
assets and property other than many of the towers of ATC and its subsidiaries.
13
Management believes that ATC will have sufficient available funds to finance
current construction plans and consummate pending acquisitions, including both
mergers. Such available funds may not be sufficient, however, to finance other
material construction or acquisition opportunities. Such opportunities might
require a substantial increase in the maximum borrowing levels under the ATC
Credit Facilities. That, however, would be dependent on ATC's ability to meet
various financial leverage ratios. Alternatively, ATC might issue other debt
securities (which would require the consent of ATC's senior lenders), senior
equity securities (which would increase leverage) or, most likely, particularly
in the case of a major acquisition or construction opportunity with a wireless
carrier seeking to divest, ATC Class A Common Stock, convertible securities or
warrants (which would dilute the proportionate ownership of ATC by its then
existing common stockholders). ATC may not be able to secure any such financing
on favorable terms or at all.
DEPENDENCE ON DEMAND FOR TOWER SPACE
A substantial portion of ATC's revenues are, and following the mergers will be,
dependent on the demand for rental space on its towers. Many factors affect the
demand for tower space rental, most of which are beyond the control of American
Tower. The demand for tower space may be affected by, among other things:
. consumer demand for wireless services;
. the financial condition of wireless service providers and their preference
for owning or leasing antennae sites;
. governmental licensing of broadcast rights, zoning, environmental and
other governmental regulations;
. national and regional economic conditions, including a slowdown in the
growth of wireless communications, a downturn in a particular wireless
segment, or a decrease in the number of carriers, nationally or locally, in
a particular segment; and
. technological changes.
Demand could also be adversely affected by "roaming" and "resale" arrangements.
These arrangements enable a provider to serve customers outside its license
area, to give licensed providers the right to enter into arrangements to serve
overlapping license areas and to permit nonlicensed providers to enter the
wireless marketplace. Wireless providers might consider such roaming and resale
arrangements as superior to constructing their own facilities or leasing
antennae space from ATC. Any material decrease in demand or proliferation of
"roaming" and "resale" arrangements could have a material adverse effect on
ATC.
The demand for antenna space is dependent, to a significantly lesser extent, on
the needs of television and radio broadcasters. Among other things, certain
technological advances, including the development of satellite-delivered radio,
may reduce the need for tower-based broadcast transmission. ATC could also be
affected adversely should the development of digital television be delayed or
impaired, or if demand for it were to be less than anticipated because of
delays, disappointing technical performance or cost to the consumer.
CONSTRUCTION OF NEW TOWERS; COMPETITION
ATC's growth strategy is highly dependent on its ability to complete tower
construction in a timely and cost effective manner. ATC cannot control the
principal factors that can prevent, delay and increase the cost of such
construction. Such factors include zoning and local permitting requirements,
environmental group opposition, availability of skilled construction personnel
and construction equipment, adverse weather conditions and federal regulations.
As the pace of tower construction has increased in recent years, the required
manpower and equipment have been in increasing demand. The anticipated increase
in construction activity, for both ATC and the industry, could significantly
increase costs and delay time schedules associated with tower construction,
either of which could have a material adverse effect on ATC. The construction
of towers to accommodate the introduction of digital television service could
be particularly affected by a potential shortage of construction capability.
14
The scope of ATC's forecasted construction program is substantially greater
than the combined past construction programs of ATC and the various companies
it has acquired. As a consequence, ATC may not have sufficient experienced and
qualified personnel resources to ensure the timely and efficient implementation
of its construction program in a cost effective manner. Personnel shortages may
also affect ATC's ability to manage effectively the substantially increased
number of towers it is constructing and acquiring.
ATC competes for new tower construction sites with wireless service providers,
site developers and other independent communications site operating companies.
ATC believes that competition for tower construction sites will increase and
that additional competitors will enter the communications site market, certain
of which may have greater financial and other resources than ATC. Such
increased competition will probably result in increased acquisition or leasing
costs to ATC.
In addition to competing for new tower construction sites, ATC faces strong
competition for build to suit opportunities, principally from other independent
communications site operators and site developers. Certain of those competitors
(such as OmniAmerica) have more extensive experience and offer a broader range
of services, principally in constructing towers rather than managing the
construction of others. ATC has not, to date, itself constructed towers, but
rather managed the construction activities of independent third parties. The
absence of an in-house construction capability may create problems, if the
OmniAmerica merger is not consummated, in times of industry shortages.
American Tower, and others in the industry, are increasingly devoting their
construction activities to "build to suit" projects. Under these arrangements
ATC, and others, agree with a major wireless provider to build a network of a
significant number of towers to the provider's specification. Build to suit
activities involve certain additional risks. Although such projects involve an
"anchor" tenant, ATC may not be able to secure a sufficient number of
additional tenants to ensure adequate investment returns. This may be
particularly true for the larger build to suit projects that ATC is seeking. In
fact, one of the reasons providers may be entering into build to suit
arrangements (rather than, as in the past, undertaking their own construction)
is that many of the proposed sites may be expensive or difficult to build on or
in undesirable locations for many other wireless service providers. Such
projects also entail the additional risk of a greater dependence on a single
customer with, in many instances, more favorable lease and control provisions
than those made available generally by ATC to its tenants. In addition, as
explained above, ATC's experience has been limited principally to projects of
considerably smaller scope than those it is now undertaking and others on which
it will be bidding.
See "--Risk Factors Relating to American Tower--Substantial Capital
Requirements and High Debt Levels" for additional risks associated with
financing major construction projects.
As a consequence of all of the foregoing factors, ATC's construction program,
including one or more of its build to suit projects, might have a material
adverse effect on ATC.
ACQUISITION STRATEGY
The success of ATC's growth continues to be dependent, although to a lesser
extent than in the past, on its ability to implement its acquisition strategy.
Such strategy involves substantial risks, including increasing leverage and
debt service requirements, combining disparate company cultures and facilities,
and operating towers on a national and possibly international basis in many
diverse markets. For information concerning potential integration problems
involving OmniAmerica, see "Risk Factors Relating to the OmniAmerica Merger and
the TeleCom Merger--Difficulties in Integrating Companies" above. Certain of
these risks may be increased with larger acquisitions, particularly those
involving divestitures by wireless service providers. Such transactions will
entail the additional risk of dependence on a single customer with, most
likely, more favorable lease and control provisions than those made available
generally by ATC to its tenants. In addition, management will be responsible
for an increasingly larger pool of assets and may not be able to recruit and
retain a sufficient number of experienced and qualified senior and regional
managers.
15
ATC competes for tower and site acquisitions principally with other independent
tower owners and operators. Increased competition, which ATC has experienced
and believes may intensify, has resulted in substantially higher prices,
particularly for towers being divested by wireless service providers. ATC may
not, therefore, be able to complete acquisitions on as favorable terms as in
the past, and may, under certain circumstances, be required to pay higher
prices or agree to less favorable terms than it would otherwise have desired.
You should also be aware that, assuming consummation of the two mergers,
American Tower may be impeded in its future acquisition activities by antitrust
constraints, either in local markets or on a regional or national basis.
See "--Risk Factors Relating to American Tower--Substantial Capital
Requirements and High Debt Levels" for additional risks associated with
financing major acquisitions.
For all of the reasons discussed above, ATC's past or future acquisitions,
individually or in combination, may have a material adverse effect on it.
DEPENDENCE ON KEY PERSONNEL
ATC's growth strategy is dependent on the efforts of ATC's Chief Executive
Officer, Steven B. Dodge, and its other executive officers. ATC has not entered
into employment agreements with any of its executive officers, other than J.
Michael Gearon, Jr., the former principal stockholder and chief executive
officer of Gearon & Co., Inc., and Douglas Wiest, the Chief Operating Officer.
Many of the executive, regional and other officers have options to purchase
shares of ATC Common Stock, subject generally to five-year vesting provisions.
ATC may not, however, be able to retain such officers, the loss of whom could
have a material adverse effect upon it, or to prevent them from competing in
the event of their departure. ATC does not maintain key man life insurance of
any significance on the lives of any of such officers.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, an owner, lessee or
operator of real estate may be liable for the costs of investigation, removal
or remediation of soil and groundwater contaminated by certain hazardous
substances or wastes. Certain of such laws impose responsibility and liability
even if the owner, lessee or operator was unaware of or not responsible for the
contamination. Such liability often continues even if the property has been
sold. The owner, lessee or operator of contaminated real estate may also be
subject to common law claims by third parties based on damages resulting from
off-site migration of the contamination. ATC may be potentially liable for such
environmental expenses which in light of the number of properties owned or
leased by it could be substantial.
CONTROL BY THE PRINCIPAL STOCKHOLDERS; RESTRICTIONS ON CHANGE OF CONTROL
On December 31, 1998, giving pro forma effect to the consummation of the two
mergers, the directors and executive officers of ATC, together with their
affiliates, owned "beneficially" approximately 47.3% of the combined voting
power of the ATC Common Stock. Mr. Dodge, together with his affiliates, owned
"beneficially" approximately 30.1% of the combined voting power. See "Principal
Stockholders of American Tower". Accordingly, Mr. Dodge, together with a
limited number of other directors, may be able to control the vote on all
matters submitted to a vote of the holders of the ATC Common Stock, except with
respect to (i) the election of two independent directors, and (ii) those
matters that the ATC Restated Certificate or the DGCL requires a 66 2/3% vote
or a class vote. Control by Mr. Dodge and others may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of ATC.
The ATC Restated Certificate also contains provisions limiting the aggregate
voting ownership of Mr. Dodge (and his Controlled Entities as defined therein)
and provides for the automatic conversion of all of his (and their) Class B
Common Stock to Class A Common Stock should his voting percentage fall below
certain specified amounts.
16
The ATC Credit Facilities provide that a "Change of Control" (as defined
therein) of ATC constitutes an "Event of Default". In addition, the
Communications Act of 1934, as amended, and the rules of the FCC require the
prior consent of the Federal Communications Commission ("FCC") for any change
of control of ATC. Finally, certain provisions of the DGCL may have the effect
of discouraging a third party from making an acquisition proposal for ATC and
may thereby inhibit a change of control.
RISK ASSOCIATED WITH NEW TECHNOLOGIES
The emergence of new technologies could reduce the need for tower-based
transmission and reception and may, thereby, have a negative impact on ATC's
operations. For example, the FCC has granted license applications for several
low-earth orbiting satellite systems that are intended to provide mobile voice
and/or data services. In November 1998, a company became the first to offer
commercially a service intended to provide global satellite phone coverage.
Although such systems are highly capital-intensive and do not yet have an
extensive commercial record, mobile satellite systems could compete with land-
based wireless communications systems, thereby reducing the demand for the
infrastructure services provided by ATC. Additionally, the growth in delivery
of video services by direct broadcast satellites and the development and
implementation of signal combining technologies (which permit one antenna to
service two different frequencies of transmission and, thereby, two customers)
and satellite-delivery systems may reduce the need for tower-based broadcast
transmission. The occurrence of any of these factors could have a material
adverse effect on ATC.
YEAR 2000 RELATED RISKS
ATC, like all companies, faces certain risks associated with the fact that many
computers and computer software programs were not designed to recognize the
change from 1999 to 2000 or are otherwise unable to process dates related to
the turn of the millennium. These computers (and the systems they control)
might malfunction or cease to work unless they are reprogrammed or replaced by
the end of 1999. Y2K-related problems could cause ATC's tower structures light
systems to fail which would create a hazard to air navigation. Computer-
controlled devices, such as those found in automatic monitoring and control
systems used for antenna structure lighting, are vulnerable to Y2K-related
malfunctions and may fail. Commercial electric power sources may also fail
leaving antenna structures vulnerable to blackouts. Tower owners, such as ATC,
are responsible for tower lighting in compliance with FCC and Federal Aviation
Administration ("FAA") requirements. While ATC intends to take the necessary
steps to address the Y2K problems, it may not be successful in its efforts and
any massive power failures, occasioned by Y2K problems, could pose a serious
threat to the safe maintenance and operation of ATC's tower structures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Appendix III and "TeleCom
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Appendix IV.
CERTAIN PERCEIVED HEALTH RISKS
ATC and the lessees of antennae sites on its towers are subject to government
regulations relating to radio frequency (we sometimes refer to it as "RF")
emissions. In recent years, there have been several substantial studies by the
scientific community investigating the potential connection between RF
emissions and possible negative health effects, including cancer. The results
of these studies have, to date, been inconclusive. ATC has not been subject to
any claims relating to RF emissions, although it is possible that such claims
may arise in the future. Because ATC does not maintain any significant
insurance with respect to such matters, such claims, if substantiated, could
have a material adverse effect on ATC.
LACK OF DIVIDENDS; RESTRICTIONS ON PAYMENT OF DIVIDENDS AND REPURCHASE OF
COMMON STOCK
ATC does not expect to pay cash dividends for the foreseeable future. Rather,
ATC intends to retain any available earnings for the growth of its business. In
addition, the ATC Credit Facilities restrict the payment of cash dividends or
other distributions and the repurchase, redemption or other acquisition of
equity securities of ATC.
17
AMERICAN TOWER CAPITALIZATION
The following table sets forth the capitalization of ATC as of September 30,
1998, and as adjusted to give effect to the ATC Pro Forma Transactions,
including the OmniAmerica Merger, the TeleCom Merger and the Wauka Transaction
as if American Tower had consummated all of the foregoing on September 30,
1998. For information with respect to the capitalization of ATC assuming
consummation of the merger of your company with American Tower but not the
other merger, please see Note (a) of Notes to the "Unaudited Pro Forma
Condensed Consolidated Balance Sheet of American Tower".
Management believes that the assumptions used provide a reasonable basis on
which to present such pro forma capitalization. You should read the
capitalization table below in conjunction with the historical financial
statements of ATC included elsewhere in this document, "Management's Discussion
and Analysis of Financial Condition and Results of Operations of American
Tower" and "Unaudited Pro Forma Condensed Consolidated Financial Statements of
American Tower". We have provided the capitalization table below for
informational purposes only and (i) it is not necessarily indicative of ATC's
capitalization or financial condition had we consummated the transactions and
events referred to above on the date assumed, and (ii) it is not necessarily
indicative of ATC's future capitalization or financial condition.
SEPTEMBER 30, 1998
----------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
Cash and cash equivalents............................... $ 313,454 $ 314,517
========== ==========
Long term debt, including current portion(1)(2):
Borrowings under the ATC Credit Facilities............ $ 275,000 $ 467,586
Other long-term debt.................................. 6,605 7,154
---------- ----------
Total long-term debt................................ 281,605 474,740
---------- ----------
Redeemable Class A Common Stock......................... 8,574 8,574
---------- ----------
Stockholders' equity(3):
Common Stock(4)
Class A Common Stock................................ 944 1,168
Class B Common Stock................................ 91 91
Class C Common Stock................................ 33 33
Additional paid-in capital.......................... 1,097,359 1,576,024
Accumulated deficit................................. (37,654) (37,654)
---------- ----------
Total stockholders' equity.......................... 1,060,773 1,539,662
---------- ----------
Total capitalization ............................... $1,350,952 $2,022,976
========== ==========
- --------
(1) For additional information, see "Unaudited Pro Forma Condensed Consolidated
Financial Statements of American Tower" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of American
Tower--Liquidity and Capital Resources".
(2) See Notes to Consolidated Financial Statements and "Indebtedness of
American Tower" for additional information regarding the components and
terms of ATC's long-term debt. Approximately $21.2 million is expected to
be required (on a net basis) to finance the balance of the purchase price
of the OPM Transaction. We have discussed the OPM Transaction, as well as
certain other transactions, in the Notes to the Consolidated Financial
Statements of American Tower.
(3) Consists of (a) Preferred Stock, par value $.01 per share, 20,000,000
authorized shares, none issued or outstanding; (b) ATC Class A Common
Stock, par value $.01 per share, 300,000,000 authorized shares; shares
issued and outstanding: 94,396,556 (historical), 116,754,366 (pro forma);
(c) ATC Class B Common Stock, par value $.01 per share, 50,000,000
authorized shares; shares issued and outstanding:
18
9,107,962 (historical and pro forma); and (d) ATC Class C Common Stock, par
value $.01 per share, 10,000,000 authorized shares; shares issued and
outstanding: 3,295,518 (historical and pro forma). Outstanding share numbers
do not give effect to subsequent conversions of shares of ATC Class B Common
Stock or ATC Class C Common Stock to ATC Class A Common Stock. The
outstanding share information gives effect to all consummated Recent
Transactions.
(4) The number of outstanding shares does not include, except as otherwise
indicated: (a) shares of ATC Class A Common Stock issuable upon conversion
of ATC Class B Common Stock or ATC Class C Common Stock, (b) shares
issuable upon exercise of options currently outstanding to purchase an
aggregate of 11,206,261 shares of Common Stock, or (c) shares issuable
pursuant to certain pending Recent Transactions. See the Notes to
Consolidated Financial Statements of American Tower and "Business of
American Tower--Recent Transactions--Pending Acquisitions".
19
MARKET PRICES AND DIVIDEND POLICY
COMPARATIVE MARKET PRICE DATA
On February 27, 1998, the ATC Class A Common Stock commenced trading on a
"when-issued" basis on the inter-dealer bulletin board of the over-the-counter
market. During the period from February 27, 1998 through June 4, 1998, the
range of the high and low per share bid prices in such "when-issued" market was
$26.125 and $15.50. The ATC Class A Common Stock commenced trading on the New
York Stock Exchange on June 5, 1998 (the day following consummation of the CBS
Merger). The Common Stock, $.01 par value per share of OmniAmerica (the
"OmniAmerica Common Stock") is traded on the Nasdaq National Market. The
following table presents trading information for the ATC Class A Common Stock
and OmniAmerica Common Stock for the periods indicated, on the NYSE Composite
Transaction Tape and the Nasdaq National Market, respectively. TeleCom is a
privately owned company and its equity interests are not traded or quoted on
any exchange or market.
HIGH LOW
------- -------
ATC CLASS A COMMON STOCK
FISCAL YEAR ENDED
DECEMBER 31, 1998
Fiscal Quarter Ended
March 31 (commencing
February 27, 1998)..... $20.25 $15.50
Fiscal Quarter Ended
June 30................ 26.125 18.75
Fiscal Quarter Ended
September 30........... 28.63 14.375
Fiscal Quarter Ended
December 31............ 29.625 13.25
FISCAL YEAR ENDING
DECEMBER 31, 1999
For the period from
January 1 to January
11, 1999 .............. $29.50 $27.50
OMNIAMERICA COMMON STOCK
FISCAL YEAR ENDED JUNE
30, 1997
Fiscal Quarter Ended
December 31............ $10.063 $ 6.75
Fiscal Quarter Ended
March 31............... 16.25 8.125
Fiscal Quarter Ended
June 30................ 15.563 8.75
FISCAL YEAR ENDED JUNE
30, 1998:
Fiscal Quarter Ended
September 30........... $19.875 $13.375
Fiscal Quarter Ended
December 31............ 17.375 11.25
Fiscal Quarter Ended
March 31............... 36.50 12.75
Fiscal Quarter Ended
June 30................ 48.50 33.375
FISCAL YEAR ENDING JUNE
30, 1999:
Fiscal Quarter Ended
September 30........... $43.00 $17.375
Fiscal Quarter Ended
December 31............ 32.25 11.563
For the period from
January 1 to January
11, 1999............... 32.00 29.25
As of January 1, 1999, there were 96,620,615 shares of ATC Class A Common Stock
and 15,106,360 shares of OmniAmerica Common Stock outstanding. On November 13,
1998, the last trading day prior to the announcement of the OmniAmerica Merger
and the TeleCom Merger, the last reported sale price per share of
20
ATC Class A Common Stock on the NYSE Composite Transaction Tape was $19.00 and
the last reported sale price per share of OmniAmerica Common Stock on the
Nasdaq National Market was $17.50. On January 11, 1999, the last reported sale
price per share of ATC Class A Common Stock on the NYSE Composite Transaction
Tape was $27.68, and the last reported sale price per share of OmniAmerica
Common Stock on the Nasdaq National Market was $29.75.
The market prices of shares of ATC Class A Common Stock and OmniAmerica Common
Stock fluctuate. As a result, we urge you to obtain current market quotations.
DIVIDEND POLICY
ATC has not paid a dividend on any class of its Common Stock and anticipates
that it will retain future earnings, if any, to fund the development and growth
of its business and will not pay cash dividends on the ATC Class A Common Stock
in the foreseeable future. In addition, the ATC Credit Facilities restrict the
ability of ATC to pay cash dividends on any class of its capital stock. See
"Description of American Tower Capital Stock--Dividend Restrictions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of American Tower--Liquidity and Capital Resources".
21
SELECTED FINANCIAL DATA
We have presented on the following pages selected financial data of each of
American Tower, OmniAmerica and TeleCom. In the case of the American Tower
data, we have also presented certain pro forma financial data giving effect to,
among other things, each of the mergers. We expect that both of the mergers
will be accounted for as purchases. This means that for accounting and
financial reporting purposes, the results of OmniAmerica and TeleCom will be
included with those of American Tower only from and after the applicable
merger. It also means that the assets and liabilities of OmniAmerica and of
TeleCom will be valued at fair value with the purchase costs determined based
on the average market value of the ATC Class A Common Stock at the time of the
execution of its merger agreement, and, in the case of the TeleCom Merger, the
amount of cash, to be delivered in the applicable merger plus the amount of
liabilities of OmniAmerica and of TeleCom, at the time of the applicable
merger.
We have presented below unaudited pro forma condensed combined financial
information that reflects the purchase method of accounting. We have included
this information to give you a better picture of what the results of operations
and financial position of the combined businesses of American Tower and
OmniAmerica and/or TeleCom might have been had the mergers occurred on an
earlier date. The unaudited pro forma condensed combined statement of
operations data combines information from the historical consolidated
statements of operations of American Tower and OmniAmerica and/or TeleCom
giving effect to each of the mergers as of the beginning of the respective
periods. The unaudited pro forma condensed combined statement of financial
condition data combines information from the historical consolidated balance
sheet of American Tower and the historical consolidated balance sheet of
OmniAmerica and/or TeleCom giving effect to each of the mergers as if we had
completed them on September 30, 1998.
We are providing the pro forma information for illustrative purposes only. It
does not necessarily reflect what the results of operations or financial
position of the combined company would have been if the mergers had actually
occurred at the beginning of the earliest period presented. This information
also does not necessarily indicate what the combined company's future operating
results or consolidated financial position will be. This information does not
reflect, for example, (a) the effect of any potential changes in revenues or
any operating synergies which we may achieve by combining the resources of our
companies, (b) investment banking, legal and miscellaneous transaction costs
related to the mergers, which we will reflect as an expense in the period we
complete the mergers, and (c) costs associated with the combining of our
companies which we cannot presently estimate.
22
AMERICAN TOWER SELECTED FINANCIAL DATA
The financial data set forth below has been derived from the consolidated
financial statements of American Tower included elsewhere in this document. The
data as of and for the nine months ended September 30, 1998 is unaudited.
However, management believes it contains all adjustments, consisting only of
normal recurring accruals, necessary to present such information fairly. The
data should be read in conjunction with American Tower's audited and unaudited
financial statements and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of American Tower". The pro forma
financial data with respect to the year ended December 31, 1997 and the nine
months ended September 30, 1998 reflects certain adjustments, as explained
elsewhere in this document. Therefore any comparison of such pro forma
financial data with the financial data for periods prior to 1997 is
inappropriate. Such pro forma financial data gives effect to the ATC Pro Forma
Transactions (which includes the OmniAmerica Merger, the TeleCom Merger, the
CBS Merger, the Diablo Transaction, the Meridian Transaction, the Gearon
Transaction, the OPM Transaction, the Micronet Transaction, the Old ATC Merger,
the Wauka Transaction, the ATC Private Placement, and the ATC IPO). However,
the data does not reflect all of the consummated or pending acquisitions or
pending construction. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements of American Tower".
You should also realize that prior to June 4, 1998, American Tower operated as
a subsidiary of American Radio and not as an independent company. Therefore,
the results of operations and the financial condition shown below for such
period may be different from what they might have been had ATC operated as a
separate, independent company. The information is also not necessarily
indicative of ATC's future results of operations or financial condition.
23
AMERICAN TOWER CORPORATION
SELECTED FINANCIAL DATA(/1/)
YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, SEPTEMBER 30, 1998
------------------------ ------------------- ------------------
HISTORICAL
-------------------
JULY 17, 1995 YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, 1995 1996 HISTORICAL PRO FORMA(2) 1997 1998 PRO FORMA(2)
----------------- ------------ ---------- ------------ -------- --------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net operating reve-
nues.................. $ 163 $2,897 $ 17,508 $177,267 $ 7,902 $ 71,485 $166,071
----- ------ --------- -------- -------- --------- --------
Operating expenses:
Operating expenses ex-
cluding
depreciation, amorti-
zation and corporate
general and
administrative....... 60 1,362 8,713 116,078 3,589 42,526 115,537
Depreciation and
amortization......... 57 990 6,326 108,864 2,706 32,998 90,521
Tower separation
costs................ 12,616 12,616
Corporate general and
administrative....... 230 830 1,536 3,536 919 3,186 3,186
----- ------ --------- -------- -------- --------- --------
Total operating ex-
penses............... 347 3,182 16,575 228,478 7,214 91,326 221,860
----- ------ --------- -------- -------- --------- --------
Operating income
(loss)................ (184) (285) 933 (51,211) 688 (19,841) (55,789)
Interest (income) ex-
pense, net............ -- (36) 2,789 1,318 17,023 16,764
Other expense (in-
come)................. -- -- 15 15 (94) (6,283)
Minority interest in
net earnings (losses)
of subsidiaries(3).... -- 185 178 (257) 221 255 (273)
----- ------ --------- -------- -------- --------- --------
Loss before income
taxes and
extraordinary items... (184) (434) (2,049) (50,969) (757) (30,836) (72,280)
Benefit (provision) for
income
taxes................. 74 (46) 473 10,779 49 4,934 21,706
----- ------ --------- -------- -------- --------- --------
Loss before extraordi-
nary item............. $(110) $ (480) $ (1,576) $(40,190) $ (708) $ (25,902) $(50,574)
===== ====== ========= ======== ======== ========= ========
Basic and diluted pro
forma loss per common
share before
extraordinary
item(4)............... $ (0.03) $ (0.31) $ (0.01) $ (0.37) $ (0.39)
========= ======== ======== ========= ========
Basic and diluted pro
forma common shares
outstanding........... 48,732 129,494 48,732 70,103 129,494
========= ======== ======== ========= ========
OTHER OPERATING DATA:
Tower cash flow(5)..... $ 103 $1,535 $ 8,795 $61,189 $ 4,313 $ 28,959 $ 50,534
EBITDA(5).............. (127) 705 7,259 57,653 3,394 25,773 47,348
EBITDA margin(5)....... (N/A) 24.3% 41.5% 32.5% 43.0% 36.1% 28.5%
After-tax cash
flow(5)............... (53) 510 4,750 68,674 1,998 7,096 39,947
Cash provided by (used
for)
operating activities.. (51) 2,229 9,913 -- 3,118 2,878 --
Cash (used for) invest-
ing activities........ -- -- (216,783) -- (74,318) (227,915) --
Cash provided by fi-
nancing
activities............ 63 132 209,092 -- 71,122 533,895 --
1995 1996 1997 1998
---- ---- ---- -----
TOWER DATA(6):
Towers operated at beginning of period................. -- 3 269 682
Towers acquired(7).................................... 3 265 310 1,969
Towers constructed.................................... -- 1 81 272
--- --- --- -----
Towers operated at end of period....................... 3 269 682 2,923
=== === === =====
Aggregate towers constructed(8)........................ 3 31 240 718
=== === === =====
24
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1998
------------------------ -----------------------
HISTORICAL HISTORICAL PRO FORMA(2)
------------------------ ---------- ------------
1995 1996 1997
------ ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 1 $ 2,373 $ 4,596 $ 313,454 $ 314,517
Working capital (deficiency),
excluding current portion of
long-term debt.............. (40) 663 (2,209) 252,442 273,569
Property and equipment, net.. 3,759 19,710 117,618 388,315 560,815
Total assets................. 3,863 37,118 255,356 1,435,754 2,262,792
Long-term debt, including
current portion............. -- 4,535 90,177 281,605 474,740
Total stockholders' equity... 3,769 29,728 153,207 1,060,773 1,539,662
- --------
(1) ATI was organized on July 17, 1995 and American Radio contributed all of
the issued and outstanding capital stock of ATI to ATC on September 24,
1996. Year-to-year comparisons are significantly affected by the timing of
acquisitions of communications sites and related businesses and
construction of towers, both of which have been numerous during the period.
The principal acquisitions made in 1996, 1997 and 1998 are described in
"Business of American Tower--Recent Transactions" and the Consolidated
Financial Statements of American Tower.
(2) The December 31, 1997 and September 30, 1998 pro forma information gives
effect to "ATC Pro Forma Transactions" as if they had occurred on January
1, 1997 and January 1, 1998, respectively. "ATC Pro Forma Transactions"
means collectively, the OmniAmerica Merger, the TeleCom Merger, the CBS
Merger, the Diablo Transaction, the Gearon Transaction, the Meridian
Transaction, the MicroNet Transaction, the Old ATC Merger, the OPM
Transaction, the Wauka Transaction, the ATC Private Placement and the ATC
IPO, as if each of the foregoing had occurred on January 1, 1997 and
January 1, 1998, respectively. The unaudited pro forma Balance Sheet Data
as of September 30, 1998 gives effect to the OmniAmerica Merger, the
TeleCom Merger and the Wauka Transaction (the only ATC Pro Forma
Transactions not then consummated), as if each of the foregoing had
occurred on September 30, 1998. ATC Pro Forma Transactions do not include
all of the consummated or pending acquisitions or pending construction. See
"Business of American Tower--Recent Transactions" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements of American Tower". For pro
forma information with respect to American Tower, assuming consummation of
one but not both of the mergers, see the Unaudited Pro Forma Condensed
Consolidated Balance Sheet, and Note (d) of Notes to Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December
31, 1997 and the nine months ended September 30, 1998.
(3) Represents the elimination of the 49.9% member's earnings of ATS Needham,
LLC, in which American Tower, L.P., an indirect wholly-owned subsidiary of
ATC ("ATLP") held a 50.1% interest at September 30, 1998 (80% interest in
October 1998), and the elimination of the 30% member's loss of ATS/PCS
(formerly Communications Systems Development LLC), in which ATLP holds a
70% interest.
(4) Pro forma basic and diluted loss per share has been computed using (a) in
the case of historical information, the number of shares outstanding
following the CBS Merger and (b) in the case of pro forma information, the
number of shares expected to be outstanding following the CBS Merger and
the transactions discussed in Note (2) above and the Notes to the Unaudited
Pro Forma Condensed Consolidated Statement of Operations.
(5) We use the term "Tower Cash Flow" to mean operating income (loss) before
depreciation and amortization, corporate general and administrative
expenses and tower separation costs. "EBITDA" is used by us to mean
operating income (loss) before depreciation and amortization and tower
separation costs. "After-tax cash flow" means income (loss) before
extraordinary items, plus depreciation and amortization, less preferred
stock dividends. All of such terms include deferred revenue attributable
to certain leases. We do not consider Tower Cash Flow, EBITDA and after-
tax cash flow as a substitute for alternative measures of operating
results or cash flow from operating activities or as a measure of ATC's
profitability or liquidity. Although these measures of performance are not
calculated in accordance with "GAAP", we have included them because they
are generally used in the communications site industry as a measure of a
company's operating performance. More specifically, we believe they can
assist in comparing company performances on a consistent basis without
regard to depreciation and amortization. The concern is that depreciation
and amortization can vary significantly among companies depending on
accounting methods, particularly where acquisitions are involved, or non-
operating factors such as historical cost bases. We believe Tower Cash
Flow is useful because it enables you to compare tower performances before
the effect of expenses (corporate general and administrative) that do not
relate directly to such performance.
(6) Includes information with respect to ATC only and is for the year shown,
except 1998, which is as of September 30, and assumes consummation of all
Recent Transactions then pending, but does not include towers then under
construction by ATC. See Note (8) below. Excludes approximately 1,700
managed sites (primarily rooftops) of TeleCom that are non-revenue
generating.
(7) Includes towers managed for others as follows; 1996--251; 1997--86; and
1998--598. Excludes TeleCom's non-revenue generating sites described in
Note (6) above.
(8) Includes towers constructed in each period by ATC and all acquired (or to
be acquired) companies, including, in certain cases, towers constructed for
and owned by third parties.
25
OMNIAMERICA SELECTED FINANCIAL DATA
The following Selected Financial Data of OmniAmerica for the fiscal years ended
June 30, 1996, 1997 and 1998 have been derived from the consolidated financial
statements of OmniAmerica included elsewhere in this document. The Selected
Financial Data for the fiscal years ended June 30, 1994 and 1995 is unaudited.
The Selected Financial Data should be read in conjunction with OmniAmerica's
audited and unaudited financial statements and the notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"of OmniAmerica in Appendix III. The Selected Financial Data as of
September 30, 1998 and for the three months ended September 30, 1998 and 1997
are unaudited but, in the opinion of management of OmniAmerica, contain all
adjustments, consisting of normal and recurring adjustments, necessary for a
fair presentation in conformity with generally accepted accounting principles.
The results of operations for the three months ended September 30, 1998 are not
necessarily indicative of the results that should be expected for the full 1999
fiscal year.
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1994 1995 1997 1998
(UNAUDITED) (UNAUDITED) 1996 1997 1998 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS
DATA:
Net operating
revenues(1)............ $14,536,043 $20,993,439 $32,585,986 $65,626,800 $62,799,071 $12,799,956 $24,437,551
Operating expenses:
Operating expenses
excluding
depreciation,
amortization and
corporate general and
administrative........ 12,257,379 18,875,596 27,536,178 56,307,957 54,425,756 10,594,134 18,964,740
Depreciation and
amortization.......... 244,598 328,491 634,501 1,631,015 3,081,951 464,787 1,957,369
Corporate general and
administrative........ 732,290 950,666 842,338 1,388,386 3,378,547 434,158 2,506,794
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 13,234,267 20,154,753 29,013,017 59,327,358 60,886,254 11,493,079 23,428,903
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income........ 1,301,776 838,686 3,572,969 6,299,442 1,912,817 1,306,877 1,008,648
Interest expense, net... (11,751) (22,283) (82,027) (429,615) (623,723) (78,695) (626,123)
Other income, net....... 79,168 226,136 269,434 161,415 300,449 68,815 24,774
Minority interest in net
earnings of
unconsolidated
subsidiary(2).......... -- -- -- -- 219,569 -- 157,361
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before income
taxes.................. 1,369,193 1,042,539 3,760,376 6,031,242 1,809,112 1,296,997 564,660
Provision for income
taxes.................. 408,554 313,512 564,800 343,500 832,000 508,900 310,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings............ $ 960,639 $ 729,027 $ 3,195,576 $ 5,687,742 $ 977,112 $ 788,097 $ 254,660
=========== =========== =========== =========== =========== =========== ===========
Basic earnings per
common share(3)........ $ 0.11 $ 0.46 $ 0.80 $ 0.11 $ 0.10 $ 0.02
=========== =========== =========== =========== =========== ===========
Diluted earnings per
common share(3)........ $ 0.11 $ 0.46 $ 0.76 $ 0.10 $ 0.10 $ 0.02
=========== =========== =========== =========== =========== ===========
Basic common shares
outstanding(3)......... 6,521,623 6,872,308 7,110,282 9,274,676 7,891,486 15,065,328
=========== =========== =========== =========== =========== ===========
Diluted common shares
outstanding(3)......... 6,529,937 6,881,173 7,467,990 9,562,121 8,164,386 15,362,774
=========== =========== =========== =========== =========== ===========
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------- -----------------------
1994 1995 1997 1998
(UNAUDITED) (UNAUDITED) 1996 1997 1998 (UNAUDITED) (UNAUDITED)
----------- ----------- ---------- ---------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and cash
equivalents............ 199,839 4,420,295 3,412,618 989,720 4,349,324 786,073 786,073
Working capital,
excluding current
portion of long-term
debt................... 2,119,160 6,307,413 7,509,428 10,905,696 18,243,618 11,728,167 18,737,332
Property and equipment,
net.................... 1,008,065 1,439,376 4,164,548 8,429,906 50,847,107 8,168,037 80,524,265
Total assets............ 4,761,968 11,469,448 19,589,099 32,363,264 179,323,425 30,500,719 217,223,678
Long-term debt,
including current
portion................ 143,648 263,626 1,039,476 2,585,879 32,106,155 2,306,572 63,513,521
Total stockholder's
equity................. 3,470,480 8,102,840 10,445,838 18,504,267 135,190,797 19,382,043 138,246,799
- --------
(1) Net operating revenues consist of installation service revenue, component
sales, and tower leasing revenues. The tower leasing revenues did not begin
until April 1998 when the April Merger (described on page III-1 of Appendix
III) was consummated.
(2) Represents OmniAmerica's one-third interest in the earnings of Kline Iron &
Steel Co., Inc. since its acquisition in April 1998.
(3) OmniAmerica was not publicly traded until November 4, 1994.
26
TELECOM SELECTED FINANCIAL DATA
TeleCom was formed in September 1997 as a joint venture between TeleCom Towers,
Inc., a Texas corporation ("TTI"), and Cox Telecom Towers, Inc., a Delaware
corporation ("CTT"), and a subsidiary of Cox Enterprises, Inc., pursuant to
which TTI contributed to TeleCom the general partnership interests in TTI's
three operating partnerships: Telecom Southwest Towers Limited Partnership, a
Texas limited partnership ("TSTLP"), Telecom Towers Mid-Atlantic Limited
Partnership, a South Carolina limited partnership ("TTMLP"), and Telecom Towers
of the West, L.P., a Delaware limited partnership ("TTWLP" and collectively,
with TSTLP and TTMLP, the "Partnerships"), as well as other assets, and CTT
committed to contribute cash to TeleCom for purposes of financing transaction
costs, acquisitions, capital expenditures and other business needs. On August
3, 1998, TeleCom consummated the roll-up of the limited partnership interests
in the Partnerships by merging the Partnerships into TeleCom (the "TeleCom
Roll-up"). The following financial information presents the summary combined
operating results of the Partnerships for periods prior to the date of the
TeleCom Roll-up, and the actual historical operating results of TeleCom from
August 1, 1998 through September 30, 1998. Summary operating results for each
of TSTLP, TTMLP, and TTWLP are also provided. None of the foregoing summary
financial information reflects the results of RCC Consultants, Inc. ("RCC") and
Prime-Telecom Communications Co. ("Prime") because both entities will be
distributed to the TeleCom members in a pro rata distribution prior to the
consummation of the TeleCom Merger.
The financial data set forth below has been derived from the financial
statements of TeleCom and the Partnerships included elsewhere in this document.
The data as of and for the nine months ended September 30, 1998 is unaudited.
However, management of TeleCom believes it contains all adjustments, consisting
only of normal recurring accruals, necessary to present such information
fairly. The data should be read in conjunction with TeleCom's and the
Partnerships's audited and unaudited financial statements and with "TeleCom
Management's Discussion and Analysis of Financial Condition and Results of
Operations" which appears in Appendix IV. The pro forma financial data with
respect to the year ended December 31, 1997 and the nine months ended September
30, 1998 reflects certain adjustments, as explained elsewhere in this document.
Therefore any comparison of such pro forma financial data with the financial
data for periods prior to 1997 is inappropriate.
TELECOM TOWERS, L.L.C.
COMBINED PREDECESSOR ENTITIES(1) TELECOM
------------------------------------------------------------ ------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
AUGUST 1, 1998
THROUGH
NINE MONTHS ENDED SEPTEMBER 30, 1998
1995 1996 1997 SEPTEMBER 30, 1998(1) (ACTUAL)
----------- ----------- ----------- --------------------- ------------------
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 1,296,606 $ 3,518,033 $ 7,886,832 $ 8,643,057 $ 4,747,831
Direct costs............ 247,511 1,092,062 2,055,354 3,668,203 2,604,674
General and
administrative costs... 753,648 1,200,615 3,291,364 4,707,224 2,232,622
----------- ----------- ----------- ------------ ------------
295,447 1,225,356 2,540,114 267,630 (89,465)
Depreciation and
amortization........... 457,969 945,382 2,825,736 3,876,897 1,091,301
Interest expense........ 320,140 908,031 1,809,350 2,213,316 717,751
Other expense (income).. (19,308) (71,985) 49,014 280,644 52,421
----------- ----------- ----------- ------------ ------------
Net loss before
extraordinary items.... $ (463,354) $ (556,072) $(2,143,986) $(6,103,227) $(1,950,938)
=========== =========== =========== ============ ============
AS OF DECEMBER 31, AS OF SEPTEMBER 30, AS OF
------------------------------------- --------------------- SEPTEMBER 30,
1995 1996(1) 1997(1) 1998(1) 1998 (ACTUAL)
----------- ----------- ----------- --------------------- ------------------
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,012,126 $ 2,144,685 $ 3,366,495 $ 12,160,658 $ 12,238,658
Working capital,
excluding current
portion of long-term
debt................... 1,181,661 (3,797,494) 2,204,822 9,617,034 12,443,034
Property and equipment
(net).................. 4,025,877 8,132,158 18,240,177 19,866,568 20,594,568
Total assets............ 9,095,193 19,169,352 58,434,159 95,783,706 102,893,781
Long-term debt,
including current
portion................ 5,650,000 10,126,875 28,621,948 28,486,114 29,622,114
Total partners'
capital................ 3,077,780 3,776,165 29,426,325 65,231,195 67,748,195
- -------
(1) Pro forma financial information of combined TeleCom and the Partnerships.
27
The following table sets forth summary financial data of each of the
Partnerships for the number of years ended from the date of inception to the
year ended December 31, 1997, and the seven months ended July 31, 1997 and
1998. The Selected Financial Data should be read in conjunction with the
audited and unaudited financial statements of the respective Partnerships and
the notes thereto appearing elsewhere in this document and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"of
TeleCom in Appendix IV. The Selected Financial Data as of July 31, 1997 and
1998, are unaudited but, in the opinion of management of TeleCom, contain all
adjustments necessary for a fair presentation in conformity with generally
accepted accounting principles.
TELECOM SOUTHWEST TOWERS, LP:
JANUARY 5, 1995 SEVEN MONTHS ENDED
THROUGH YEAR ENDED YEAR ENDED JULY 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ ---------- ----------
STATEMENT OF OPERATIONS
DATA:
Revenue................. $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct costs............ 221,783 306,553 374,535 195,220 264,606
General and
administrative costs... 729,009 781,877 463,176 277,704 302,304
---------- ---------- ---------- ---------- ----------
233,815 517,548 1,224,300 679,458 723,408
Depreciation and
amortization........... 396,568 531,804 839,791 459,022 480,919
Interest expense........ 246,770 424,237 640,741 272,714 396,865
Other expense (income).. (19,308) 3,144 9,009 (2,935) (99)
---------- ---------- ---------- ---------- ----------
Net Loss before
extraordinary items.... $ (390,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
AS OF
AS OF DECEMBER 31, JULY 31,
-------------------------------- ----------
1995 1996 1997 1998
---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 762,013 $ 208,486 $ 20,821 $ 350,305
Working capital, excluding current
portion of long-term debt........ 1,109,595 159,875 17,602 31,233
Property and equipment (net)...... 3,231,011 3,455,005 4,131,451 3,954,305
Total assets...................... 7,250,578 6,453,566 8,670,056 8,583,944
Long-term debt, including current
portion.......................... 4,900,000 4,795,625 7,455,637 7,206,834
Total partners' capital........... 2,231,558 1,549,921 1,100,438 946,161
28
TELECOM TOWERS MID-ATLANTIC, LP:
JUNE 23, 1995 SEVEN MONTHS ENDED
THROUGH YEAR ENDED YEAR ENDED JULY 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- -----------
STATEMENT OF OPERATIONS
DATA:
Revenue................. $111,999 $13,505,597 $18,318,579 $10,750,784 $11,580,009
Direct costs............ 25,728 10,081,551 13,474,106 7,434,719 7,561,750
General and
administrative costs... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
-------- ----------- ----------- ----------- -----------
61,632 562,322 221,666 527,427 822,997
Depreciation and
amortization........... 61,401 386,394 726,558 383,665 532,226
Interest expense........ 73,370 328,878 518,892 206,655 403,308
Other expense........... -- (182,129) 125,984 (20,346) 49,712
-------- ----------- ----------- ----------- -----------
Net Income (Loss) before
extraordinary items.... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ 162,249)
======== =========== =========== =========== ===========
AS OF DECEMBER 31, AS OF
---------------------------------- JULY 31,
1995 1996 1997 1998
---------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 250,113 $ 1,894,748 $ 379,373 $ 275,661
Working capital, excluding
current portion of long-term
debt.......................... 72,066 2,460,155 2,588,909 2,107,725
Property and equipment (net)... 794,866 4,511,998 4,932,525 5,149,490
Total assets................... 1,844,615 14,401,318 13,939,875 13,881,034
Long-term debt, including
current portion............... 750,000 4,031,250 7,223,035 7,038,754
Total partners' capital........ 846,222 5,203,290 3,693,457 3,531,208
TELECOM TOWERS OF THE WEST, LP:
AUGUST 1, 1996 SEVEN MONTHS ENDED
THROUGH YEAR ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ---------------------
1996 1997 1997 1998
-------------- ------------ --------- ----------
STATEMENT OF OPERATIONS
DATA:
Revenue................... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct costs.............. 24,958 372,964 85,223 364,032
General and administrative
costs.................... 21,014 561,233 272,949 495,936
--------- ----------- --------- ----------
95,486 1,234,496 423,018 1,101,714
Depreciation and
amortization............. 65,184 1,214,165 323,021 1,074,300
Interest expense.......... 154,916 693,161 226,031 611,244
Other expense............. -- 476,460 (167,413) 307,911
--------- ----------- --------- ----------
Net Loss before
extraordinary items...... $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
AS OF DECEMBER 31, AS OF JULY 31,
--- ------------------------ --------------
1996 1997 1998
--- ----------- ----------- --------------
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 202,451 $ 425,791 $ 605,040
Working capital, excluding current
portion of long-term debt........ (3,139,524) 4,108 23,269
Property and equipment (net)...... 545,155 4,700,217 4,670,462
Total assets...................... 4,399,468 25,281,187 24,851,318
Long-term debt, including current
portion.......................... 1,300,000 11,155,276 11,506,526
Total partners' capital........... (260,046) 13,415,180 12,523,439
29
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS OF OMNIAMERICA
The following unaudited pro forma condensed consolidated statements of
operations of OmniAmerica for the year ended December 31, 1997 and the nine
months ended September 30, 1998 present the historical operations for the
respective period adjusted for the results of operations of OmniAmerica's
various acquisitions as if such acquisitions had been consummated on the first
day of the respective period. You should read the unaudited pro forma condensed
consolidated statements of operations in conjunction with OmniAmerica's
historical consolidated financial statements and notes thereto, as well as the
financial statements and notes thereto of certain businesses that have been
acquired, which are included elsewhere in this document. The unaudited pro
forma condensed consolidated statements of operations are not necessarily
indicative of the results of operations that would have been reported had such
events actually occurred on the date specified nor are they indicative of
OmniAmerica's future results of operations. No unaudited pro forma condensed
consolidated balance sheet is presented as of September 30, 1998 since all
acquisitions had been consummated prior to September 30, 1998 and therefore are
included in the unaudited historical condensed consolidated balance sheet at
September 30, 1998 included elsewhere in this document.
30
OMNIAMERICA, INC.
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ACQUISITIONS PRO FORMA
HISTORICAL (A) HISTORICAL (B) ADJUSTMENTS (C) PRO FORMA
-------------- -------------- --------------- ---------
Net revenues............ $62,039 $10,315 $ 627 (/5/) $72,981
Operating expenses
excluding depreciation
and amortization and
corporate general and
administrative......... 52,590 6,029 270 (/2/)(/5/) 58,889
Depreciation and
amortization........... 1,988 544 3,260 (/1/) 5,792
Corporate general and
administrative......... 1,042 936 131 (/2/) 2,109
------- ------- ------- -------
Operating income
(loss)................. 6,419 2,806 (3,034) 6,191
Other expense (income):
Interest expense, net.. 451 987 (881)(/2/) 557
Other expense
(income).............. (210) (60) 55 (/2/) (215)
Minority interest in
net earnings of
subsidiary............ -- (435) -- (435)
------- ------- ------- -------
Total other expense
(income)............ 241 492 (826) (93)
------- ------- ------- -------
Earnings (loss) before
income taxes........... 6,178 2,314 (2,208) 6,284
Income tax benefit
(provision)........... (1,228) (10) (1,551)(/4/) (2,789)
------- ------- ------- -------
Net earnings (loss)..... $ 4,950 $ 2,304 $(3,759) $ 3,495
======= ======= ======= =======
Pro forma basic earnings
per common share $ 0.24
=======
Pro forma diluted
earnings per common
share $ 0.23
=======
Pro forma basic common
shares outstanding 14,648
=======
Pro forma diluted common
shares outstanding 14,885
=======
31
OMNIAMERICA, INC.
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ACQUISITIONS PRO FORMA
HISTORICAL (A) HISTORICAL (B) ADJUSTMENTS (C) PRO FORMA
-------------- -------------- --------------- ---------
Net revenues............ $57,661 $4,123 $ (135)(/3/) $61,649
Operating expenses
excluding depreciation
and amortization and
corporate general and
administrative......... 49,744 1,765 90 (/2/) 51,599
Depreciation and
amortization........... 4,026 646 968 (/1/) 5,640
Corporate general and
administrative......... 4,858 780 17 (/2/) 5,655
Total operating
expenses...............
------- ------ ------- -------
Operating income
(loss)................. (967) 932 (1,210) (1,245)
Other expense (income):
Interest expense,
net.................. 1,099 17 24 (/2/) 1,140
Other expense
(income)............. (201) (7) -- (208)
Minority interest in
net earnings
of subsidiary........ (377) (151) -- (528)
------- ------ ------- -------
Total other expense
(income)........... 521 (141) 24 404
------- ------ ------- -------
(Loss) earnings before
income taxes........... (1,488) 1,073 (1,234) (1,649)
Income tax benefit
(provision)............ 351 -- (1)(/4/) 350
------- ------ ------- -------
Net (loss) earnings..... $(1,137) $1,073 $(1,235) $(1,299)
======= ====== ======= =======
Pro forma basic and
diluted loss per common
share.................. $ (0.09)
=======
Pro forma basic and
diluted common shares
outstanding............ 14,974
=======
32
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF
OMNIAMERICA INC.
(a) Presents the unaudited historical results of operations of OmniAmerica
recast from OmniAmerica's June 30 fiscal year end to the periods presented.
(b) Presents for OmniAmerica's 1997 and 1998 acquisitions, their unaudited
combined historical results of operations from the beginning of the period
through the date of acquisition. For a description of those acquisitions
see "Business of OmniAmerica -- History" in Appendix III. The unaudited
historical results by acquired company is as follows:
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DATE OF ACQUISITION
OMNIAMERICA
HOLDINGS PARAMOUNT COATINGS ELLIS TELEFORCE TOTAL
----------- --------- -------- ------ --------- -------
Net revenues............ $5,274 $1,007 $238 $2,607 $1,189 $10,315
Operating expenses...... 1,820 737 55 2,494 923 6,029
Depreciation and
amortization........... 525 15 4 -- -- 544
Corporate general and
administrative......... 839 79 18 -- -- 936
------ ------ ---- ------ ------ -------
Operating income........ 2,090 176 161 113 266 2,806
Other expense (income):
Interest expense,
net.................. 963 24 -- -- -- 987
Other expense
(income)............. (13) -- (6) (41) -- (60)
Minority interest in
net earnings of
subsidiary........... (435) -- -- -- -- (435)
------ ------ ---- ------ ------ -------
Total other expense
(income)........... 515 24 (6) (41) -- 492
------ ------ ---- ------ ------ -------
Earnings before income
taxes.................. 1,575 152 167 154 266 2,314
Income tax benefit
(provision).......... -- (10) -- -- -- (10)
------ ------ ---- ------ ------ -------
Net earnings............ $1,575 $ 142 $167 $ 154 $ 266 $ 2,304
====== ====== ==== ====== ====== =======
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH DATE OF ACQUISITION
OMNIAMERICA
HOLDINGS TELEFORCE TOTAL
----------- --------- ------
Net revenues................................. $1,989 $2,134 $4,123
Operating expenses........................... 361 1,404 1,765
Depreciation and amortization................ 643 3 646
Corporate general and administrative......... 770 10 780
------ ------ ------
Operating income............................. 215 717 932
Other expense (income):
Interest expense, net...................... 17 -- 17
Other expense (income)..................... (6) (1) (7)
Minority interest in net earnings of
subsidiary................................ (151) -- (151)
------ ------ ------
Total other expense (income)............. (140) (1) (141)
------ ------ ------
Earnings before income taxes................. 355 718 1,073
Income tax benefit (provision)............. -- -- --
------ ------ ------
Net earnings................................. $ 355 $ 718 $1,073
====== ====== ======
(c) Pro Forma adjustments:
(1) To reflect increases in depreciation expense and amortization of
goodwill related to purchase accounting
(2) To reflect net increases in officers' compensation and oversight fees
related to the April 1998 Merger, and interest expense on debt incurred
or curtailed as part of each related acquisition
(3) To eliminate non-recurring consulting fees received by OmniAmerica
prior to the April 1998 Merger
(4) To present the income tax provision on a pro-forma basis
(5) To reflect revenues and operating expenses as if OmniAmerica Holdings
was in existence on January 1, 1997.
33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF AMERICAN TOWER
The following unaudited pro forma condensed consolidated financial statements
of American Tower consist of an unaudited pro forma condensed consolidated
balance sheet as of September 30, 1998 and unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
for the nine months ended September 30, 1998, adjusted for the ATC Pro Forma
Transactions, as if such transactions had been consummated on the first day of
the period (in the case of the unaudited pro forma condensed consolidated
statements of operations) and the date of the unaudited pro forma condensed
consolidated balance sheet (to the extent not theretofore consummated). With
respect to acquisitions, the pro forma statements give effect only to the ATC
Pro Forma Transactions based on their significance in relation to all of ATC's
acquisitions. You should read the unaudited pro forma condensed consolidated
balance sheet and the unaudited pro forma condensed consolidated statements of
operations in conjunction with American Tower's consolidated financial
statements and notes thereto, as well as the financial statements and notes
thereto of certain businesses that have been or may be acquired, which are
included elsewhere in this document. The unaudited pro forma condensed
consolidated balance sheet and the unaudited pro forma condensed consolidated
statements of operations are not necessarily indicative of the financial
condition or the results of operations that we would have reported had such
events actually occurred on the date specified, nor are they indicative of the
financial condition or the results of operations we would have had if ATC had
operated as a separate, independent company during such periods. Finally, they
are not necessarily indicative of ATC's future financial condition or results
of operations.
In reviewing the unaudited pro forma condensed consolidated financial
statements set forth below, in addition to the assumptions and other matters
noted in the above paragraph and in the notes to the unaudited pro forma
condensed consolidated financial statements, you should note that we have
estimated the incremental costs that we will incur because ATC is an
independent company and we have reflected those in the pro forma adjustments.
However, the actual incremental costs for such independent operations may
exceed such estimated amounts.
We have also presented two supplemental pro forma balance sheets which reflect
the consummation of one, but not both mergers. A similar presentation with
respect to the pro forma statement of operations is located in footnote (d) to
the Notes to Unaudited Condensed Consolidated Statement of Operations.
34
AMERICAN TOWER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
SUPPLEMENTAL
-----------------------
PRO FORMA PRO FORMA
FOR THE FOR THE
PRO FORMA OMNIAMERICA TELECOM
HISTORICAL ADJUSTMENTS(A) PRO FORMA MERGER ONLY MERGER ONLY
---------- -------------- ---------- ----------- -----------
ASSETS
Cash and cash
equivalents............ $ 313,454 $ 1,063 $ 314,517 $ 314,356 $ 313,731
Accounts receivable,
net.................... 14,455 29,933 44,388 37,082 21,776
Other current assets.... 7,573 10,962 18,535 18,296 7,947
Notes receivable........ 6,100 6,100 6,100 6,100
Property and equipment,
net.................... 388,315 172,500 560,815 508,315 460,815
Intangible assets, net.. 677,317 637,015 1,314,332 1,146,607 904,196
Deferred tax asset...... 24,435 (24,435) --
Deposits and other
assets................. 4,105 4,105 4,105 4,105
---------- -------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $2,034,861 $1,718,670
========== ======== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities,
excluding current
portion of long-term
debt................... $ 83,040 $ 20,831 $ 103,871 $ 98,536 $ 88,622
Deferred income taxes... 134,183 134,183 90,587 30,525
Other long-term
liabilities............ 1,195 1,195 1,195 1,195
Long-term debt,
including current
portion................ 281,605 193,135 474,740 384,960 410,576
Minority interest....... 567 567 567 567
Redeemable common
stock.................. 8,574 8,574 8,574 8,574
Stockholders' equity.... 1,060,773 478,889 1,539,662 1,450,442 1,178,611
---------- -------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $2,034,861 $1,718,670
========== ======== ========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet of
American Tower.
35
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
We have prepared the unaudited pro forma condensed consolidated balance sheet
as of September 30, 1998 to give effect, as of such date, to the OmniAmerica
Merger, the TeleCom Merger and the Wauka Transaction. See Notes to the
Consolidated Financial Statements of American Tower for a description of the
transactions included in the ATC Pro Forma Transactions.
(a) The following table sets forth the pro forma balance sheet adjustments as
of September 30, 1998. (In thousands).
WAUKA OMNIAMERICA TELECOM PRO FORMA
TRANSACTION MERGER MERGER ADJUSTMENTS
----------- ----------- -------- -----------
ASSETS
Cash and cash equivalents....... $ 116 $ 786 $ 161 $ 1,063
Accounts receivable, net........ 15 22,612 7,306 29,933
Other current assets............ 135 10,588 239 10,962
Property and equipment, net..... 20,000 100,000 52,500 172,500
Intangible assets, net.......... 59,154 410,136 167,725 637,015
Deferred tax asset.............. (24,435) (24,435)
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities, excluding
current portion of long-term
debt........................... $ 247 $ 15,249 $ 5,335 $ 20,831
Deferred income taxes........... 11,364 103,658 19,161 134,183
Long-term debt, including
current portion................ 39,191 64,164 89,780 193,135
Stockholders' equity............ 28,618 361,051 89,220 478,889
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
The OmniAmerica Merger, the TeleCom Merger and the Wauka Transaction will be
accounted for under the purchase method of accounting.
Borrowings to finance the TeleCom Merger include assumed debt and borrowings to
be incurred to pay the cash portion of the TeleCom Merger Consideration.
TeleCom cash has been reduced as an offset to the TeleCom Merger Consideration
increase attributable to the working capital adjustment.
The following table sets forth the purchase prices and related pro forma
financing of the transactions described above.
COMMON STOCK
ISSUED OR TO
PURCHASE BE ISSUED
PRICE BORROWINGS BY ATC
-------- ---------- ------------
(IN THOUSANDS)
Wauka Transaction.............................. $ 79,154 $38,642 $ 28,618
OmniAmerica Merger............................. 510,136 64,164 352,409
TeleCom Merger................................. 220,224 89,780 89,220
ATC has or expects to issue a total of approximately 23.3 million shares of ATC
Class A Common Stock to effect all of the transactions described above, as
follows: the OmniAmerica Merger--17.7 million shares; the TeleCom Merger--4.2
million shares; and the Wauka Transaction--1.4 million shares.
36
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS PRO FORMA FOR ADJUSTMENTS ADJUSTMENTS
FOR ATC PRO ATC PRO FOR FOR
FORMA FORMA OMNIAMERICA TELECOM
HISTORICAL TRANSACTIONS(A) TRANSACTIONS MERGER(B) MERGER(C) PRO FORMA(D)
---------- --------------- ------------- ----------- ----------- ------------
Net revenues............ $17,508 $ 78,813 $ 96,321 $ 72,981 $ 7,965 $177,267
Operating expenses...... 8,713 45,152 53,865 60,158 2,055 116,078
Depreciation and
amortization........... 6,326 53,847 60,173 34,009 14,682 108,864
Corporate general and
administrative
expenses............... 1,536 2,000 3,536 3,536
------- -------- -------- -------- ------- --------
Operating income
(loss)................. 933 (22,186) (21,253) (21,186) (8,772) (51,211)
------- -------- -------- -------- ------- --------
Other expense (income):
Interest expense,
net.................. 2,789 (2,789)
Other expense......... 15 15 15
Minority interest in
net earnings (losses)
of subsidiaries...... 178 178 (435) (257)
------- -------- -------- -------- ------- --------
Total other expense
(income)........... 2,982 (2,789) 193 (435) 242
------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... (2,049) (19,397) (21,446) (20,751) (8,772) (50,969)
Income tax benefit
(provision)(e)......... 473 2,449 2,922 5,519 2,338 10,779
------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item..... $(1,576) $(16,948) $(18,524) $(15,232) $(6,434) $(40,190)
======= ======== ======== ======== ======= ========
Pro forma basic and
diluted loss per common
share before
extraordinary item..... $ (0.17) $ (0.31)
======== ========
Pro forma basic and
diluted common shares
outstanding(f)......... 108,567 16,727 4,200 129,494
======== ======== ======= ========
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
37
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1997 gives effect to the ATC Pro Forma Transactions, as
if each of the foregoing had occurred on January 1, 1997.
(a) To record the results of operations for the ATC Pro Forma Transactions,
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$7.0 million; (ii) record a reduction to net interest expense of $2.8 million
for the year ended December 31, 1997, as a result of the reduction of debt with
the proceeds of the ATC IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $9.3 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $53.8
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed financial statements as these
costs represent duplicative facilities and compensation to owners and/or
executives not retained by ATC. Because ATC already maintains its own separate
corporate headquarters which provides services substantially similar to those
represented by these costs, they are not expected to recur following the
acquisition. After giving effect to an estimated $2.0 million of incremental
costs, ATC believes that it has existing management capacity sufficient to
provide such services without incurring additional incremental costs.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the year ended December 31, 1997 (in thousands).
MERIDIAN DIABLO MICRONET GEARON OPM WAUKA
TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION
----------- ----------- ----------- ----------- ----------- -----------
Net revenues............ $2,385 $6,957 $15,103 $29,930 $ 863 $3,569
Operating expenses...... 1,730 4,876 8,695 19,688 1,146 1,696
Depreciation and
amortization........... 211 393 2,626 186 428 571
Corporate general and
administrative......... 500 488 1,209
------ ------ ------- ------- ------- ------
Operating income
(loss)................. 444 1,188 3,782 10,056 (1,199) 93
Other (income) expense:
Interest expense, net.. 80 110 636 742
Other expense
(income).............. (133) (34) (95) (16)
------ ------ ------- ------- ------- ------
Income (loss) from
operations before
income taxes........... $ 364 $1,211 $ 3,816 $10,151 $(1,819) $ (649)
====== ====== ======= ======= ======= ======
38
ATC
OLD ATC PRIVATE CBS PRO FORMA
MERGER PLACEMENT MERGER ATC IPO ADJUSTMENTS TOTAL
------- --------- --------- -------- ----------- --------
Net revenues............ $20,006 $ 78,813
Operating expenses...... 7,321 45,152
Depreciation and
amortization........... 4,903 $ 44,529 53,847
Corporate general and
administrative......... (197) 2,000
------- -------- --------
Operating income
(loss)................. 7,782 (44,332) (22,186)
Other (income) expense:
Interest expense
(income), net......... 5,439 $(6,352) $20,960(i) $(24,404) (2,789)
Other expense
(income).............. 514 (236)
------- ------- --------- -------- -------- --------
Income (loss) from
operations before
income taxes........... $ 1,829 $ 6,352 $ (20,960) $ 24,404 $(44,096) $(19,397)
======= ======= ========= ======== ======== ========
- --------
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to reverse historical interest expense of $0.6
million. No additional debt would be incurred for the year ended December 31,
1997, as a result of $625.1 million of net proceeds raised pursuant to the ATC
IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $33.2
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $0.9 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed financial
statements as these costs represent duplicative facilities and compensation to
owners and/or executives not retained by ATC. Because ATC already maintains its
own separate corporate headquarters which provides services substantially
similar to those represented by these costs, they are not expected to recur
following the acquisition. The balance of the costs were reclassed to operating
expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to reverse historical interest expense of $1.9
million. No additional debt would be incurred for the year ended December 31,
1997, as a result of $625.1 million of net proceeds raised pursuant to the ATC
IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $2.9 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $14.7
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $6.9 million of corporate general and administrative expenses of
TeleCom, including expenses associated with RCC which will be distributed to
some or all of the TeleCom members prior to consummation of the TeleCom Merger,
has not been carried forward into the pro forma condensed financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition.
39
(d) The following table sets forth the results of the consummation of one, but
not both, of the mergers.
PRO FORMA PRO FORMA
FOR THE FOR THE
OMNIAMERICA TELECOM
MERGER ONLY MERGER ONLY
----------- -----------
Net revenues.......................................... $169,302 $104,286
Operating expenses.................................... 114,023 55,920
Depreciation and amortization......................... 94,182 74,855
Corporate general and administrative expenses......... 3,536 3,536
-------- --------
Operating income (loss)............................... (42,439) (30,025)
-------- --------
Other expense (income):
Interest expense (income), net......................
Other expense....................................... 15 15
Minority interest in net earnings (losses) of
subsidiaries....................................... (257) 178
-------- --------
Total other expense (income)...................... (242) 193
-------- --------
Income (loss) before income taxes..................... (42,197) (30,218)
Income tax benefit (provision)........................ 8,441 5,260
-------- --------
Income (loss) before extraordinary item............... $(33,756) $(24,958)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary item............................ $ (0.27) $ (0.22)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 125,294 112,767
======== ========
(e) To record the tax effect of the pro forma adjustments and impact on ATC's
estimated effective tax rate. The actual effective tax rate may be different
once the final allocation of purchase price is determined.
(f) Includes shares issued or expected to be issued pursuant to (i) the Wauka
Transaction (1.4 million), (ii) the OmniAmerica Transaction (17.7 million) and
(iii) the TeleCom Merger (4.2 million).
40
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS PRO FORMA FOR ADJUSTMENTS ADJUSTMENTS
FOR ATC PRO ATC PRO FOR FOR
FORMA FORMA OMNIAMERICA TELECOM
HISTORICAL TRANSACTIONS(A) TRANSACTIONS MERGER(B) MERGER(C) PRO FORMA(D)
---------- --------------- ------------- ----------- ----------- ------------
Net revenues............ $ 71,485 $ 16,509 $ 87,994 $ 61,649 $16,428 $166,071
Operating expenses...... 42,526 6,893 49,419 56,479 9,639 115,537
Depreciation and
amortization........... 32,998 21,005 54,003 25,507 11,011 90,521
Tower separation costs.. 12,616 12,616 12,616
Corporate general and
administrative
expenses............... 3,186 3,186 3,186
-------- -------- -------- -------- ------- --------
Operating income
(loss)................. (19,841) (11,389) (31,230) (20,337) (4,222) (55,789)
-------- -------- -------- -------- ------- --------
Other expense:
Interest expense,
net.................. 10,740 (3,187) 7,553 3,839 5,372 16,764
Minority interest in
net earnings (losses)
of subsidiaries...... 255 255 (528) (273)
-------- -------- -------- -------- ------- --------
Total other expense
(income)........... 10,995 (3,187) 7,808 3,311 5,372 16,491
-------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... (30,836) (8,202) (39,038) (23,648) (9,594) (72,280)
Income tax benefit
(provision)(e)......... 4,934 6,439 11,373 7,373 2,960 21,706
-------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item..... $(25,902) $ (1,763) $(27,665) $(16,275) $(6,634) $(50,574)
======== ======== ======== ======== ======= ========
Pro forma basic and
diluted loss per common
share before
extraordinary item..... $ (0.25) $ (0.39)
======== ========
Pro forma basic and
diluted common shares
outstanding(f)......... 108,567 16,727 4,200 129,494
======== ======== ======= ========
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
41
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1998, gives effect to the ATC Pro Forma
Transactions, the OmniAmerica Merger and the TeleCom Merger, as if each of the
foregoing had occurred on January 1, 1998.
(a) To record the results of operations for the ATC Pro Forma Transactions,
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical net interest expense
of $4.2 million; and (ii) record a reduction to net interest expense of $3.2
million for the nine months ended September 30, 1998, as a result of the
reduction of debt to be incurred in connection with the ATC Pro Forma
Transactions acquisitions, other than the OmniAmerica Merger and the TeleCom
Merger with the proceeds from the ATC IPO.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $4.0 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $21.0
million for nine months ended September 30, 1998 based on estimated allocations
of purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed financial statements as these
costs represent duplicative facilities and compensation to owners and/or
executives not retained by ATC. Because ATC already maintains its own separate
corporate headquarters which provides services substantially similar to those
represented by these costs, they are not expected to recur following the
acquisition.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the nine months ended September 30, 1998 (in thousands).
GEARON OLD ATC CBS WAUKA PRO FORMA
TRANSACTION MERGER MERGER TRANSACTION ATC IPO ADJUSTMENTS TOTAL
----------- ------- ------- ----------- -------- ----------- -------
Net revenues............ $ 904 $11,337 $4,268 $16,509
Operating expenses...... 1,087 3,936 1,870 6,893
Depreciation and
amortization........... 19 3,125 860 $ 17,001 21,005
Corporate general and
administrative......... 1,170 (1,170)
------ ------- ------ -------- -------
Operating income
(loss)................. (202) 4,276 368 (15,831) (11,389)
Other (income) expense:
Interest expense
(income), net........ (17) 3,333 $ 8,901 898 $(18,662) 2,360 (3,187)
Other expense
(income)............. 574 5,144 (14) (5,704)
------ ------- ------- ------ -------- -------- -------
Income (loss) from
operations before
income taxes........... $ (759) $(4,201) $(8,901) $ (516) $ 18,662 $(12,487) $(8,202)
====== ======= ======= ====== ======== ======== =======
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to: (i) reverse historical interest expense of
$1.1 million; and (ii) record interest expense of $3.8 million for the nine
months ended September 30, 1998, as a result of approximately $64.2 million of
additional net debt to be incurred in connection with the OmniAmerica Merger.
42
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.6 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $25.5
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $0.8 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed financial
statements as these costs represent duplicative facilities and compensation to
owners and/or executives not retained by ATC. Because ATC already maintains its
own separate corporate headquarters which provides services substantially
similar to those represented by these costs, they are not expected to recur
following the acquisition. The balance of the costs were reclassed to operating
expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$3.6 million; and (ii) record interest expense of $5.3 million for the nine
months ended September 30, 1998, as a result of approximately $89.8 million of
additional net debt to be incurred in connection with the TeleCom Merger.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $11.0
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $6.9 million of corporate general and administrative expenses of
TeleCom, including expenses associated with RCC which will be distributed to
some or all of the TeleCom members prior to consummation of the TeleCom Merger,
has not been carried forward into the pro forma condensed financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition.
43
(d) The following table sets forth the results of the consummation of one, but
not both, of the mergers.
PRO FORMA PRO FORMA
FOR THE FOR THE
OMNIAMERICA TELECOM
MERGER ONLY MERGER ONLY
----------- -----------
Net revenues.......................................... $149,643 $104,422
Operating expenses.................................... 105,898 59,058
Depreciation and amortization......................... 79,510 65,014
Tower separation cost................................. 12,616 12,616
Corporate general and administrative expenses......... 3,186 3,186
-------- --------
Operating income (loss)............................... (51,567) (35,452)
-------- --------
Other expense (income):
Interest expense, net............................... 11,392 12,925
Minority interest in net earnings (losses) of
subsidiaries....................................... (273) 255
-------- --------
Total other expense (income)...................... 11,119 13,180
-------- --------
Income (loss) before income taxes..................... (62,686) (48,632)
Income tax benefit (provision)........................ 18,746 14,333
-------- --------
Income (loss) before extraordinary item............... $(43,940) $(34,299)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary item............................ $ (0.35) $ (0.30)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 125,294 112,767
======== ========
(e) To record the tax effect of the pro forma adjustments and the impact on
ATC's estimated effective tax rate. The actual effective tax rate may be
different once the final allocation of purchase price is determined.
(f) Includes shares issued or expected to be issued pursuant to (i) the Wauka
Transaction (1.4 million), (ii) the OmniAmerica Merger (17.7 million), and
(iii) the TeleCom Merger (4.2 million).
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMERICAN TOWER
GENERAL
This discussion contains "forward-looking statements" including statements
concerning projections, plans, objectives, future events or performance and
underlying assumptions and other statements which are other than statements of
historical fact. Various factors affect and in the future will affect ATC's
results and could in the future cause ATC's actual results to differ materially
from those expressed in any forward-looking statement. Such factors include:
. substantial capital requirements and leverage principally as a
consequence of its ongoing acquisition and construction activities;
. dependence on demand for wireless communications and implementation of
digital television;
. the success of ATC's tower construction program; and
. the successful operational integration of American Tower's acquisitions.
As ATC was a wholly-owned subsidiary of American Radio during the periods
presented through June 4, 1998, the consolidated financial statements may not
reflect the results of operations or financial position of ATC had it been an
independent, public company during those periods. Because of ATC's relatively
brief operating history and the large number of recent acquisitions, the
following discussion will not necessarily reveal all significant developing or
continuing trends.
ATC was formed in July 1995 to capitalize on the opportunity in the
communications site industry. ATC is a leading independent owner and operator
of wireless communications towers in the United States. During 1997, its
acquisition and construction activity accelerated and ATC acquired or
constructed approximately 400 sites (and related site management businesses)
and its initial site acquisition and voice, video, data and Internet
transmission businesses. Since January 1, 1998, ATC has acquired various
communication sites and a major site acquisition business for an aggregate
estimated purchase price of approximately $877.0 million, including the
issuance of approximately 36.3 million shares of Class A Common Stock valued
(at the time of the relevant agreement) at approximately $382.6 million.
On June 4, 1998, American Radio consummated the CBS Merger. As a consequence,
all of the shares of American Tower owned by American Radio were or will be
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock or upon conversion of shares of ARS 7% Convertible Exchangeable
Preferred Stock ("ARS Convertible Preferred"). As a consequence of the CBS
Merger, American Tower ceased to be a subsidiary of, or otherwise affiliated
with, American Radio and commenced operations as an independent publicly traded
company. Pursuant to the provisions of the CBS Merger Agreement, ATC entered
into an agreement (the "Separation Agreement") with CBS and ARS providing for,
among other things, the allocation of certain tax liabilities to American
Tower, certain closing date adjustments relating to American Radio, the lease
to American Radio by American Tower of space on certain towers previously owned
by ARS and transferred to ATC, and the orderly separation of ARS and ATC. See
Notes to the Consolidated Financial Statements of American Tower.
On July 8, 1998, American Tower completed the initial underwritten public
offering of 27,861,987 shares of ATC Class A Common Stock (including 2,361,987
shares sold by American Tower pursuant to the exercise in full of the
underwriters' over-allotment option) at $23.50 per share. Certain selling
stockholders sold an additional 3,874,911 shares in the offering. American
Tower's net proceeds of the offering (after deduction of the underwriting
discount and estimated offering expenses) were approximately $625.1 million. On
July 9, 1998, American Tower used approximately $306.1 million of the net
proceeds from the offering to redeem all of the outstanding shares of preferred
stock that had been issued to fund, in part, ATC's tax reimbursement to
45
ARS (the "Interim Preferred Stock") at a price of 101% of the stock's
liquidation preference plus accrued and unpaid dividends. The balance was
invested in short-term investment grade securities. ATC will continue to use
such funds together with borrowings under the ATC Credit Facilities to fund
acquisitions and construction activities.
Management expects that acquisitions consummated to date will have a material
impact on future revenues, expenses and income from continuing operations. In
addition, the historical financial information does not reflect the impact of
the construction program of ATC to any significant extent because most of that
activity is of more recent origin and is expected to accelerate substantially
during 1999.
RESULTS OF OPERATIONS
As of September 30, 1998, ATC operated approximately 1,900 communications
sites, principally in the Northeast and Mid-Atlantic regions, Florida,
California and Texas. As of September 30, 1997, ATC operated approximately 370
communications sites, principally in the Northeast and Mid-Atlantic regions and
Florida. The acquisitions reflected in such growth have significantly affected
operations for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER
30,
---------------- AMOUNT OF PERCENTAGE
1997 1998 INCREASE INCREASE
------ -------- --------- ----------
Tower rental and management revenues.... $6,478 $ 39,305 $32,827 506.7%
Site acquisition service revenues....... 1,424 18,848 17,424 1,223.6%
Video, voice and data transmission
revenues............................... -- 13,332 13,332
------ -------- -------
Total operating revenues................ 7,902 71,485 63,583 804.6%
------ -------- -------
Tower rental and management expenses.... 2,753 18,417 15,664 569.0%
Site acquisition service expenses....... 836 15,412 14,576 1,743.5%
Video, voice and data transmission
expenses............................... -- 8,697 8,697
------ -------- -------
Total operating expenses excluding
depreciation and amortization, tower
separation and corporate general and
administrative expenses................ 3,589 42,526 38,937 1,084.9%
------ -------- -------
Depreciation and amortization........... 2,706 32,998 30,292 1,119.4%
Tower separation expenses............... 12,616 12,616
Corporate general and administrative
expenses............................... 919 3,186 2,267 246.7%
Interest expense........................ 1,318 17,023 15,705 1,191.6%
Interest income and other, net.......... 94 6,283 6,189 6,584.0%
Minority interest in net earnings of
subsidiaries........................... 221 255 34 15.4%
Income tax benefit...................... 49 4,934 4,885 9,969.4%
Extraordinary loss on extinguishment of
debt, net.............................. -- 1,382 1,382
Extraordinary loss on redemption of
Interim Preferred Stock, net........... -- 7,510 7,510
------ -------- -------
Net loss................................ $ (708) $(34,794) $34,086 4,814.4%
====== ======== =======
Tower cash flow......................... $4,313 $ 28,959 $24,646 5,714.4%
====== ======== =======
EBITDA.................................. $3,394 $ 25,773 $22,379 6,593.7%
====== ======== =======
Except as explained below, the communications sites and related business
acquisitions, principally those that occurred in 1997 and 1998, accounted for
substantially all of the increases indicated in the above table.
Site acquisition service revenues and expenses for the nine months ended
September 30, 1998 include the operating results of the Gearon site acquisition
business (January 1998) and, to a lesser extent, the operating results of two
similar businesses (May 1997). For the nine months ended September 30, 1997,
site acquisition service revenues and expenses included the operating results
from the May 1997 related acquisitions.
46
Video, voice and data transmission revenues and expenses for the nine months
ended September 30, 1998 include the operating results of American Tower's
first video, voice and data transmission business acquired in October 1997 and
a Washington D.C. area teleport business acquired in May 1998.
The increase in depreciation and amortization is primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1997 and 1998
acquisitions, and, to a lesser extent, completed construction projects.
Tower separation expenses relate to financial advisory, legal, accounting and
consent solicitation fees and other expenses incurred in connection with the
consummation of the CBS Merger and the separation of ATC from its former parent
on June 4, 1998.
The increase in corporate general and administrative expenses is primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy.
The increase in interest expense relates to higher borrowing levels that were
used to finance 1997 and 1998 acquisitions, and $3.1 million of dividends
associated with the Interim Preferred Stock financing that occurred in June
1998.
The increase in interest income is related to interest earned on invested cash
proceeds from the ATC IPO in July 1998.
The minority interest in net earnings of subsidiaries represents the
elimination of the minority stockholders' earnings of consolidated
subsidiaries.
The extraordinary loss on the redemption of the Interim Preferred Stock was
incurred, net of an income tax benefit of $5.0 million, as a result of the
write-off of certain commitment, deferred financing and redemption fees
associated with the Interim Preferred Stock that was redeemed in July 1998.
The extraordinary loss on the extinguishment of debt was incurred, net of an
income tax benefit of $0.9 million, as a result of the write-off of deferred
financing costs associated with American Tower's previous credit agreements
which were refinanced in June 1998.
The effective tax rate benefit for the nine months ended September 30, 1998 was
approximately 16% as compared to 6% for the nine months ended September 30,
1997. The effective rate differs from the statutory rate due to the effect of
non-deductible items, principally amortization of goodwill, on certain stock
acquisitions for which we recorded no tax benefit.
47
YEAR ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
As of December 31, 1997, ATC operated approximately 670 communications sites
principally in the Northeast and Mid-Atlantic regions, Florida and California.
As of December 31, 1996, ATC operated approximately 270 communications sites,
principally in the Northeast and Mid-Atlantic regions and Florida. See the
Notes to Consolidated Financial Statements for a description of the
acquisitions consummated in 1997 and 1996. These transactions have
significantly affected operations for the year ended December 31, 1997 as
compared to the year ended December 31, 1996.
AMOUNT OF PERCENTAGE
INCREASE INCREASE
1996 1997 (DECREASE) (DECREASE)
------ ------- ---------- ----------
Tower rental and management revenues... $2,817 $13,025 $10,208 362.4%
Site acquisition service revenues...... -- 2,123 2,123
Video, voice and data transmission
revenues.............................. -- 2,084 2,084
Other.................................. 80 276 196 245.0%
------ ------- -------
Total operating revenues............... 2,897 17,508 14,611 504.3%
------ ------- -------
Tower rental and management expenses... 1,362 6,080 4,718 346.4%
Site acquisition service expenses...... -- 1,360 1,369
Video, voice data and Internet
transmission expenses................. -- 1,273 1,273
------ ------- -------
Operating expenses excluding
depreciation and amortization and
corporate general and administrative
expenses.............................. 1,362 8,713 7,351 539.7%
------ ------- -------
Depreciation and amortization.......... 990 6,326 5,336 539.0%
Corporate general and administrative
expenses.............................. 830 1,536 706 85.1%
Interest expense (income), net......... (36) 2,804 2,840 N/A
Minority interest in net earnings of
subsidiaries.......................... 185 178 (7) (3.8%)
Income tax benefit (provision)......... (46) 473 519 N/A
Extraordinary loss..................... -- 694 694
------ ------- -------
Net loss............................... $ (480) $(2,270) $ 1,790 372.9%
====== ======= =======
Tower cash flow........................ $1,535 $ 8,795 $ 7,260 473.0%
====== ======= =======
EBITDA................................. $ 705 $ 7,259 $ 6,554 930.0%
====== ======= =======
As noted above, ATC consummated numerous acquisitions in 1997 and 1996, many of
which were of a material size. Except as explained below, substantially all of
the increases indicated in the above table were attributable to the impact of
these communications sites and related business acquisitions, principally those
that occurred in 1997.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996 and 1997
acquisitions and, to a substantially lesser extent, completed construction
projects.
The increase in corporate general and administrative expenses was primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy.
The increase in interest expense related to higher borrowing levels which were
used to finance 1997 and, to a substantially lesser extent, the 1996
acquisitions.
The minority interest in net earnings of subsidiaries represents the
elimination of the minority stockholder's earnings of consolidated
subsidiaries. The increase is related to increased overall earnings of ATS
Needham, in which ATC held a 50.1% interest.
48
The effective tax rate for the year December 31, 1997 was approximately 23%.
The effective tax rate in 1997 is due to the effect of non-deductible items,
principally amortization of goodwill, on certain stock acquisitions. In 1996,
ATC recorded a tax provision of approximately $46,000 despite a loss before
taxes of approximately $434,000. This primarily resulted from non-deductible
items, principally amortization of goodwill for which no tax benefit was
recorded.
The extraordinary loss in 1997, of approximately $0.7 million net of tax,
represents the write-off of deferred financing fees associated with ATC's loan
agreement.
YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED DECEMBER 31, 1995 (DOLLARS IN
THOUSANDS)
As of December 31, 1996, ATC operated approximately 270 communications sites
principally in the Northeast and Mid-Atlantic regions and Florida. As of
December 31, 1995, ATC operated three wireless communications sites in Florida.
See the Notes to Consolidated Financial Statements for a description of the
acquisitions consummated in 1996. These transactions have significantly
affected operations for the year ended December 31, 1996 as compared to the
period from July 17, 1995 (date of incorporation) to December 31, 1995.
AMOUNT OF PERCENTAGE
INCREASE INCREASE
1995 1996 (DECREASE) (DECREASE)
----- ------ ---------- ----------
Total operating revenues.................. $ 163 $2,897 $2,734 1,677.3%
Operating expenses excluding depreciation
and amortization and corporate general
and administrative expenses.............. 60 1,362 1,302 2,170.0%
Depreciation and amortization............. 57 990 933 1,636.8%
Corporate general and administrative
expenses................................. 230 830 600 260.9%
Interest expense (income), net............ -- (36) (36)
Minority interest in net earnings of
subsidiary............................... -- 185 185
Income tax benefit (provision)............ 74 (46) (120) N/A
----- ------ ------
Net loss.................................. $(110) $ (480) $ 370 336.4%
===== ====== ======
Tower cash flow........................... $ 103 $1,535 $1,432 1,390.3%
===== ====== ======
EBITDA.................................... $(127) $ 705 $ 832 N/A
===== ====== ======
As noted above, ATC consummated several acquisitions in 1996, two of which were
of a material size. Except as explained below, substantially all of the
increases indicated in the above table were attributable to the impact of these
communications sites and related business acquisitions that occurred in 1996.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996
acquisitions.
The increase in corporate general and administrative expense was primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties.
The increase in interest income was attributable to higher investable cash
balances.
The minority interest in net earnings of subsidiary represents the elimination
of the minority stockholder's earnings of consolidated subsidiaries. ATC
purchased its 50.1% interest in ATS Needham in July 1996.
In 1996, ATC recorded a tax provision of approximately $46,000 despite a loss
before taxes of approximately $434,000. This primarily resulted from non-
deductible items, principally amortization of goodwill for which no tax benefit
was recorded. The effective tax rate in 1995 was consistent with the statutory
rate.
49
LIQUIDITY AND CAPITAL RESOURCES
ATC's liquidity needs arise from its acquisition-related activities, debt
service, working capital and capital expenditures associated principally with
its construction program. Historically, ATC has met its operational liquidity
needs with internally generated funds and has financed the acquisition of tower
related properties and its construction program, including related working
capital needs, with a combination of contributions from sales of its equity
securities (including prior to the CBS Merger to American Radio) and bank
borrowings. For the nine months ended September 30, 1998, cash flows from
operating activities were $2.9 million, as compared to $3.1 million of cash
flows from operating activities in 1997. The change is primarily attributable
to working capital investments related to communications site acquisitions and
growth.
Cash flows used for investing activities were $227.9 million for the nine
months ended September 30, 1998 as compared to $74.3 million for the nine
months ended September 30, 1997. The increase in 1998 is due to the acquisition
and construction activity in 1998 as compared to 1997.
Cash flows provided by financing activities were $533.9 million for the nine
months ended September 30, 1998 as compared to $71.1 million in 1997. The
increase in 1998 is due principally to the impact of borrowings under the
credit facilities, the Interim Preferred Stock financing activities, and the
sale of common stock pursuant to the ATC Stock Purchase Agreement and the ATC
IPO, somewhat offset by the tax payments to CBS, all as discussed below.
CBS Merger: The Separation Agreement requires ATC to reimburse CBS on a "make-
whole" (after tax) basis for the tax liabilities incurred by American Radio
attributable to the distribution of the ATC Common Stock owned by ARS to its
security holders and certain related transactions, to the extent that the
aggregate amount of taxes required to be paid by American Radio exceeded $20.0
million. The amount of that tax liability was dependent on the "fair market
value" of the ATC Common Stock at the time of the consummation of the CBS
Merger. ATC received an appraisal from an independent appraisal firm that the
"fair market value" of American Radio's stock interest in ATC was equal to
$17.25 per share. Based on such appraisal, ARS paid estimated taxes of
approximately $212.0 million, for which ATC reimbursed CBS. As required by the
Separation Agreement, ATC provided CBS with security of $9.8 million in cash
(which may be replaced at ATC's option with a letter of credit reasonably
satisfactory to CBS) in connection with the filing of estimated tax returns
based on such appraisal. Such appraisal is not, of course, binding on the
Internal Revenue Service or other taxing authorities. American Tower financed
its tax reimbursement obligations to CBS with the Interim Preferred Stock
proceeds discussed below. The $212.0 million payment also included estimated
payments for the "make-whole" provisions of the liability associated with the
conversion of the ARS Convertible Preferred and the working capital adjustment
described below. Such taxes gave effect to estimated deductions of
approximately $85.1 million available to ARS as a consequence of the
cancellation or exercise of American Radio stock options pursuant to the CBS
Merger. ATC's reimbursement obligation with respect to such taxes would change
by approximately $21.0 million for each $1.00 change in the "fair market value"
of the Class A Common Stock under the tax reporting method followed. The
average of the high and low trading prices of the ATC Class A Common Stock in
the when-issued over-the-counter market on June 4, 1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with respect
to the shares of ATC Class A Common Stock deliverable upon conversion of the
ARS Convertible Preferred; such taxes will be based on the "fair market value"
of the ATC Class A Common Stock at the time of conversion. As of September 30,
1998, holders of Depositary Shares representing approximately 43% of the ARS
Convertible Preferred have converted or have presented for conversion and ATC
has recorded a liability of approximately $4.7 million due to CBS associated
with these conversions. On September 30, 1998, CBS issued 7% Convertible
Preferred Debentures Due 2011 (the "ARS Convertible Debentures") in exchange
for the then outstanding shares of ARS Convertible Preferred. Holders of the
ARS Convertible Debentures are entitled to the same conversion rights as the
ARS Convertible Preferred. ATC estimates that its remaining reimbursement
obligation with respect to the taxes on the conversion of ARS Convertible
Debentures could be approximately $11.3 million under the tax reporting method
followed. ATC based such estimate on an estimated fair market value of the ATC
Class A
50
Common Stock of $21.375 per share. ATC's obligation for such conversions would
change by approximately $1.2 million for each $1.00 change in the fair market
value.
American Radio has agreed that it will pursue, for the benefit of and at the
cost of ATC, a refund claim, attributable to the "make-whole" provision,
estimated at between $40.0 million to $45.0 million, based on the appraised
"fair market value" and the estimated taxes attributable to conversions of the
ARS Convertible Debentures set forth above. ATC will base any such refund claim
on the actual amount of taxes paid. In light of existing tax law, any such
refund claim may not be successful.
The Separation Agreement provides for closing balance sheet adjustments based
on the working capital, as defined, and debt levels of American Radio as of
June 4, 1998. ATC will benefit from or bear the cost of such adjustments. As of
June 1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. ATC based such preliminary estimate on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses; the final payment is contingent
upon a series of events set forth in the Separation Agreement. As a result, ATC
recorded a $50.0 million payable to CBS and a corresponding reduction in equity
to reflect management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered a working capital and net debt closing statement to ATC setting
forth a proposed purchase price adjustment payment to CBS of approximately
$82.2 million, excluding accrued interest. In October 1998, ATC provided CBS
with a Notice of Disagreement to the proposed purchase price adjustment
indicating that ATC's estimate of the final adjustment payment aggregated $11.1
million and reserved its rights to make further adjustments upon the receipt of
additional information requested of CBS. In addition, as noted above, ATC must
reimburse CBS for the tax consequences of such payment (approximately 66 2/3%)
and has paid CBS approximately $33.0 million based on the $50.0 million
estimate. CBS has offered to resolve the disagreement for a payment of less
than $82.2 million, together with certain ATC tax indemnifications. ATC has not
responded to this offer which expires on January 15, 1999. If CBS and ATC are
unable to resolve their differences, they agree to extend such date. In the
event they cannot do so, they are obligated to engage a third party to
arbitrate the dispute. Under the circumstances, ATC continues to believe that
the amounts previously recorded represent a reasonable estimate of the amounts
that will be paid to CBS and will adjust the amount as information becomes
known to American Tower.
ATC Preferred Stock Financing: On June 4, 1998, ATC issued $300.0 million of
Interim Preferred Stock and used the proceeds to fund its tax reimbursement
obligation to CBS, to pay the commitment and other fees and expenses of the
issue and sale of such stock and to reduce bank borrowings. As discussed below,
ATC redeemed the Interim Preferred Stock on July 9, 1998. As a result, American
Tower incurred an extraordinary loss of approximately $7.5 million, net of a
tax benefit of $5.0 million, during the third quarter of 1998 representing the
write-off of certain commitment, deferred financing and redemption fees.
ATC IPO: On July 8, 1998, American Tower completed a public offering of
27,861,987 shares of ATC Class A Common Stock, $.01 par value per share
(including 2,361,987 shares sold by American Tower pursuant to the exercise in
full of the underwriters' over-allotment option) at $23.50 per share. Certain
selling stockholders sold an additional 3,874,911 shares in the offering.
American Tower's net proceeds of the offering (after deduction of the
underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, American Tower used approximately
$306.1 million of the net proceeds from the offering to redeem all of the
outstanding shares of the Interim Preferred Stock at a price of 101% of the
stock's liquidation preference plus accrued and unpaid dividends. ATC invested
the balance in short-term investment grade securities. ATC will continue to use
such investments together with borrowings under the ATC Credit Facilities to
fund acquisitions and construction activities.
51
ATC Credit Facilities: In June 1998, ATC and its Borrower Subsidiaries entered
into definitive agreements with respect to the ATC Credit Facilities. In
connection with repayment of borrowings under the prior credit agreement out of
proceeds of borrowings under the ATC Credit Facilities, ATC recognized an
extraordinary loss of approximately $1.4 million, net of a tax benefit of $0.9
million, during the second quarter of 1998. As of September 30, 1998, ATC had
approximately $281.6 million of long-term debt, of which approximately $150.0
million was outstanding under the ATC credit facility and $125.0 million was
outstanding under the Borrower Subsidiaries credit facility. We have provided
more information about the ATC Credit Facilities under the section entitled
"Indebtedness of American Tower" and in Note 7 of the Notes to the Consolidated
Financial Statements of American Tower.
Debt service requires a substantial portion of ATC's cash flow from operations.
Accordingly, ATC's leverage could make it vulnerable to a downturn in the
operating performance of its tower properties or in economic conditions. ATC
believes that its cash flows from operations will be sufficient to meet its
debt service requirements for interest and scheduled payments of principal
under the ATC Credit Facilities. If such cash flow were not sufficient to meet
such debt service requirements, ATC might sell equity securities, refinance its
obligations or dispose of one or more of its properties in order to make such
scheduled payments. ATC may not be able to effect any of such transactions on
favorable terms.
ATC believes that it has sufficient financial resources available to it,
including borrowings under the ATC Credit Facilities, to finance operations for
the foreseeable future. ATC intends to finance its non-stock obligations under
pending acquisitions with cash, and, to the extent required, borrowings under
the ATC Credit Facilities and funds raised through the offering of equity
securities.
During the nine months ended September 30, 1998, ATC had capital expenditures
of approximately $77.0 million primarily related to construction activities and
has completed construction on approximately 270 towers during this period.
During the balance of 1998, ATC built or commenced construction of
approximately 230 additional towers (most of which are on a build to suit
basis) at an estimated aggregate remaining cost of approximately $50.0 million.
ATC (exclusive of companies to be acquired) plans to expand its construction
activities and build a substantial number of towers in 1999, which may
aggregate between 750 and 1,000 towers. If additional substantial acquisition
or construction opportunities become available, ATC may require additional
financing. Any such financing could take the form of an increase in the maximum
borrowing levels under the ATC Credit Facilities which would be dependent on
the ability to meet certain leverage ratios. Alternatively, ATC could issue
debt or senior nonconvertible equity securities which could have the effect of
increasing its consolidated leverage ratios. Finally, and most likely,
particularly in the case of a major acquisition or construction opportunity
with a wireless carrier seeking to divest, ATC could sell ATC Common Stock or
securities convertible into or exercisable for ATC Common Stock, which would
have a dilutive effect on the proportionate ownership of ATC by its then
existing stockholders. None of such financing may be available on favorable
terms.
Management expects that the consummated acquisitions and current and future
construction activities will have a material impact on liquidity. Management
believes that the acquisition activities, once integrated, will have a
favorable impact on liquidity and will offset the initial effects of the
funding requirements. Management also believes that the construction activities
may initially have an adverse effect on the future liquidity of ATC as newly
constructed towers will initially decrease overall liquidity, although, as such
sites become fully operational and achieve higher utilization, they should
generate cash flow, and in the long-term, increase liquidity.
52
YEAR 2000
American Tower is aware of the issues associated with the Year 2000 as it
relates to information systems and is working to resolve the potential impact.
In December 1998, ATC formally engaged an outside consultant to help it conduct
an extensive review and implement a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 issues. Although
American Tower has not developed a formal plan to date, management believes
that, with the assistance of an outside consultant, ATC will be able to
resolve, in a timely manner, any material Year 2000 problems.
The components of American Tower's comprehensive plan will include the
following:
. assessment of internal systems for modification and/or replacement;
. communication with external vendors to determine their state of
readiness to maintain an uninterrupted supply of goods and services to
American Tower;
. communication with customers to ensure that their state of readiness
will not result in any operational issues;
. evaluation of American Tower's equipment and assets with respect to
their ability to function properly after the turn of the century;
. evaluation of facility related issues; and
. the development of a contingency plan to address its most likely worst
case Year 2000 scenarios.
Management expects American Tower's comprehensive plan to reduce significantly
its level of uncertainty about the Year 2000 problem and, in particular, about
the Year 2000 readiness of its material external customers and suppliers.
Based on the efforts to date, American Tower believes that the Year 2000 issue
will not have a material adverse effect on its results of operations, liquidity
or financial condition or operational activities. With respect to its internal
information systems, management believes that the Year 2000 compliance issue
will not have a material impact on its internal information systems as ATC's
hardware and software is either Year 2000 compliant or required changes will
not generate material costs. The costs incurred to date in this area have been
immaterial. American Tower anticipates that the estimated future costs of the
year 2000 issue will not be material to American Tower.
INFLATION
The impact of inflation on ATC's operations has not been significant to date.
However, a high rate of inflation in the future could have material adverse
effect on ATC's operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all fiscal
quarters of years beginning after June 1999. ATC has not completed its
evaluations of FAS No. 133.
In June 1997, the FASB released FAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 established standards
for reporting information about the operating segments in its annual report and
interim reports. ATC will provide the required disclosure in its full year 1998
financial information and will provide required interim disclosure commencing
with its first fiscal quarter of 1999.
53
INDUSTRY OVERVIEW
Communications site owners and operators have benefited in recent years from a
substantial increase in demand for wireless communications services. The
Cellular Telecommunications Industry Association estimates that the number of
subscribers to wireless telephone services was approximately five million in
1990. According to The Strategis Group, a telecommunications marketing research
firm, the number of subscribers to cellular and personal communication services
("PCS") was over 50 million in 1998 and is projected to increase to over 100
million by the year 2001. This demand has prompted the issuance of new wireless
communication licenses and construction of new wireless networks. ATC believes
that the increase in demand for wireless communications is attributable to a
number of factors, including:
.the increasing mobility of the U.S. population,
.the growing awareness of the benefits of mobile communications,
.technological advances in communications equipment,
.decreasing costs of wireless services,
.favorable changes in telecommunications regulations, and
.business and consumer preferences for higher quality voice and data
transmission.
Contributing significantly to the anticipated requirements is the nature of PCS
and enhanced specialized mobile radio ("ESMR"). These higher frequency
technologies have a reduced cell range and thus require a higher density of
towers in the network. Consequently, the anticipated increase in the demand for
these technologies will require more towers to be built. The Personal
Communications Industry Association (of which James S. Eisenstein, an executive
officer of ATC, is a director) estimates that cellular and PCS needs will
require the construction of over 100,000 additional antennae sites over the
next ten years.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by (i) focusing on activities that
contribute directly to subscriber growth, (ii) outsourcing infrastructure
requirements such as owning, constructing and maintaining towers and/or (iii)
by co-locating transmission facilities. Previously, carriers typically sourced
many of such services in-house, while local non-integrated service contractors
focused on specific segments such as radio frequency engineering, site
acquisition and tower construction. To meet these carrier needs, independent
operators have expanded into a number of associated network and communications
site services, such as the selection and acquisition of communications sites
(including the resolution of zoning and permitting issues), the design of
wireless and broadcast sites and networks, and the construction or supervision
of construction of towers. Also, in order to accelerate network deployment or
expansion and to generate efficiencies, carriers are increasingly co-locating
transmission infrastructure with that of other network operators. Regulatory
restrictions and the growing interest of local municipalities in slowing the
proliferation of towers in their communities by requiring that towers
accommodate multiple tenants has also contributed to co-location.
While the wireless communications industry is experiencing rapid growth, the
television broadcasting industry, with strong encouragement from both Congress
and the FCC, is actively planning its strategy for the transition from analog
to digital technology. Local broadcasters will be initiating digital television
("DTV") service at different times. A station may begin DTV service as soon as
it has received its FCC permit and is ready with equipment and other necessary
preparations. The FCC has established a schedule by which broadcasters must
begin DTV service (absent extenuating circumstances that may affect individual
stations). This schedule requires that stations affiliated with the top four
networks (ABC, CBS, FOX and NBC) in the ten largest markets begin service by
May 1, 1999. Stations affiliated with these networks in markets 11-30 must
begin service by November 1, 1999. All commercial stations must begin DTV
service by May 1, 2002, and all noncommercial educational stations must start
by May 1, 2003. At least 25 stations started DTV service in
54
November 1998. ATC believes that this transition will require a substantial
investment in enhanced broadcast infrastructure, including the construction or
reengineering of broadcast towers. While ATC expects much of the associated
capital requirements will be borne by the broadcasters, management believes
that a significant opportunity exists to invest profitably in the creation of
tower capacity designed to accommodate digital antennas for television
broadcasters. Management believes that, as with the deployment of towers for
the wireless carriers, speed to market and limited capital resources will cause
certain broadcasters to outsource the construction or reengineering of their
towers in order to accommodate digital technology.
A communications tower's location, height and the loaded capacity at certain
wind speeds determine its desirability to wireless carriers and the number of
antennae that the tower can support. An antenna's height on a tower and such
tower's location determine the line-of-sight of such antenna with the horizon
and, consequently, the distance a signal can be transmitted. Some users, such
as paging companies and specialized mobile radio ("SMR") providers in rural
areas, need higher elevations for broader coverage. Other carriers such as PCS,
ESMR and cellular companies in metropolitan areas usually do not need to place
their equipment at the highest tower point to maximize transmission distance
and quality.
A tower can be either self-supporting or supported by guy wires. There are two
types of self-supporting towers: the lattice and the monopole. A lattice tower
is usually tapered from the bottom up and can have three or four legs. A
monopole is a tubular structure that is typically used as a single purpose
tower or in places where there are space constraints or a need to address
aesthetic concerns. Self-supporting towers typically range in height from 50-
200 feet for monopoles and up to 1,000 feet for lattices, while guyed towers
can reach 2,000 feet or more. A typical communications site consists of a
compound enclosing the tower or towers and an equipment shelter (which houses a
variety of transmitting, receiving and switching equipment).
Rooftop or other building top sites are more common in urban downtown areas
where tall buildings are generally available and high traffic density requires
multiple communications sites. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such
population density, neither height nor extended radius of coverage is as
important. Moreover, the installation of a free-standing tower structure in
urban areas will often prove to be impossible due to zoning restrictions and
land availability and cost.
The cost of construction of a tower varies both by site location (which will
determine, among other things, the required height of the tower) and type of
tower. Non-broadcast towers (whether on a rooftop or the ground) generally cost
between approximately $150,000 and $200,000. Broadcasting towers (which
generally are built to bear a greater load) generally cost between
approximately $300,000 and $1.0 million if on an elevated location and between
approximately $1.0 million and $3.5 million if on flat terrain.
The number of tenants that a tower can accommodate varies depending on the
nature of the services provided by such tenants and the height of the tower.
Non-broadcast towers of 200-300 feet that are designed to maximize capacity
generally are capable of housing between five and ten tenants using an
aggregate of between 25 and 50 antennae. Broadcasting towers generally are
capable of housing between ten and forty tenants using an aggregate of between
50 and 100 antennae.
Annual rental payments vary considerably depending upon several factors,
including: (i) the type of service being provided; (ii) the size of the
transmission line and the number and weight of the antennae on the tower; (iii)
the existing capacity of the tower; (iv) the antenna's placement on, and the
location and height of, the tower; and (v) the competitive environment.
55
[GRAPHIC APPEARS HERE]
Lease terms vary depending upon the industry user, with television and radio
broadcasters tending to prefer longer term leases (15 to 20 years) than
wireless communications service providers (five to ten years). In either case,
most of such leases contain provisions for multiple renewals at the option of
the tenant. Governmental agencies, because of budgetary restrictions, generally
have one-year leases that tend to renew automatically. Tenants tend to renew
their leases because of the complications associated with moving antennae. For
example, a move by a television or radio broadcaster would necessitate FCC
approval and could entail major dislocations and the uncertainty associated
with building antennae in new coverage areas. In the case of cellular, PCS and
other wireless users, moving one antenna might necessitate moving several
others because of the interlocking grid-like nature of their wireless systems.
In addition, the increasing difficulty of obtaining local zoning approvals, the
increasing environmental concerns of communities and the restrictions imposed
upon owners and operators by the FAA and upon tenants by the FCC tend to reduce
the number of alternatives available to a tower user. Leases generally provide
for annual automatic price increases (escalator provisions) based on specified
estimated cost measures or on increases in the consumer price index. Owners and
operators generally also receive fees for installing customers' equipment and
antennae on the communications site.
Wireless communications towers are owned by a wide range of companies,
including wireless service providers, regional Bell operating companies, long
distance telephone companies, television and radio broadcasting companies,
independent tower operators, utilities and railroads. Despite the increasing
demand for communications sites, the industry remains highly fragmented, with
few independent operators owning a
56
significant percentage of towers. ATC estimates that no one independent tower
owner and operator (one which owns and operates communications sites
principally for other entities) owns more than 5% of the towers in the United
States. The pace of consolidation has begun to accelerate, however, as the
larger independent operators continue to acquire small local or regional
operators and purchase communications sites and related assets from wireless
communications carriers. Management believes that a major factor contributing
to such consolidation is the emergence of many major companies seeking to
provide increasingly sophisticated wireless services on a national basis. This,
in turn, creates a need for substantial companies capable of developing and
constructing networks of communications sites and maintaining and servicing the
sophisticated support facilities associated with ongoing operations. ATC
believes that the national and other large wireless service providers will
prefer to deal with a company that can meet the majority of such providers'
needs within a particular market or region, rather than, as in the past, a
large number of individual tower owners, construction companies and other
service providers. See "Risk Factors--Risk Factors Relating to American Tower--
Construction of New Towers; Competition".
Unlike the fragmented nature of the communications site business, customers in
all segments of the wireless communications industry and the broadcast industry
tend to be large, well-capitalized national companies.
As a consequence of the foregoing factors, as well as the lack of seasonality
of the industry, the communications site industry is characterized by a
predictable and recurring stream of income.
57
BUSINESS OF AMERICAN TOWER
GENERAL
American Tower is a leading independent owner and operator of wireless
communications towers in the United States. ATC's strategy is to use that
position to take advantage of the growth opportunities inherent in a rapidly
expanding and highly fragmented communications site industry. ATC has grown in
less than four years to a company that will operate more than 3,000 towers in
44 states and the District of Columbia, giving effect to all pending
acquisitions, including the mergers. Currently, ATC operates 2,300 towers (of
which 1,845 are owned and 455 are managed for third parties), OmniAmerica
operates 223 towers (of which 211 are owned and 12 are managed for third-
parties), and TeleCom operates 392 towers (of which 271 are owned and 121 are
managed for third parties and are revenue producing).
American Tower achieved its initial growth predominantly through acquisitions.
ATC intends to continue to pursue its strategic acquisitions, including
possible transactions with large wireless service providers seeking to divest
their ownership of towers. More recently, however, ATC has been engaged in a
major construction program. In 1998, American Tower (exclusive of construction
activities of acquired or to be acquired companies prior to acquisition)
constructed or had under construction at year end more than 500 towers at an
aggregate cost of approximately $108.0 million. In 1998, OmniAmerica
constructed or had under construction as of early December, 1998 more than 173
towers at an aggregate cost of approximately $12.0 million and three broadcast
towers at an aggregate cost of approximately $11.3 million. Approximately 120
of these telecommunications towers and two of these broadcast towers will
require additional capital to be expended in 1999. In 1998, TeleCom constructed
or had under construction approximately 43 towers at an aggregate cost of
approximately $8.1 million, including capital to be expensed in 1999 to
complete these projects.
During 1999, ATC (exclusive of construction activities of OmniAmerica and
TeleCom or other to be acquired companies) currently plans to build or commence
construction of between approximately 750 and 1,000 towers at an estimated
aggregate cost of between $120.0 million and $200.0 million. OmniAmerica has
approximately 650 additional sites under development. While not all of these
sites will result in towers being constructed, other sites will likely be added
during 1999. ATC estimates that the combined companies will build or commence
construction of between approximately 1,450 to 1,900 towers at an estimated
aggregate cost of between approximately $230.0 million and $340.0 million. The
estimated aggregate number of towers to be built in 1999 by American Tower,
OmniAmerica and TeleCom will probably decrease somewhat as a consequence of the
mergers because of, among other things, financial and managerial resource
limitations and because construction of certain planned towers may result in
overbuilding in some markets.
For the year ended December 31, 1997, giving effect to the ATC Pro Forma
Transactions, ATC had net revenues of $177.3 million and EBITDA of $57.7
million. For the nine months ended September 30, 1998, giving effect to the ATC
Pro Forma Transactions, ATC had net revenues of $166.1 million and EBITDA of
$47.3 million.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, zoning and
other regulatory approvals, tower construction and antennae installation. ATC
intends to expand these services and to capitalize on its relationships with
its wireless customers through construction for them of major tower networks
that ATC will own and operate. ATC is also engaged in the video, voice, data
and Internet transmission business, which it currently conducts in the New York
City to Washington, D.C. corridor and Texas.
ATC is geographically diversified with significant networks of communications
towers throughout the United States. Its largest networks are in California,
Florida and Texas, and it owns and operates or is constructing tower networks
in numerous cities, including Albuquerque, Atlanta, Austin, Baltimore, Boston,
Charlotte, Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft.
Lauderdale, Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San
Francisco, Tucson, Washington, D.C. and West Palm Beach.
ATC has a diversified base of approximately 2,500 customers, no one of which
accounted for more than 10% of its 1997 net pro forma revenues from site
leasing activities and the five largest of which accounted for
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less than 30% of such net revenues. ATC's wide range of customers includes most
of the major wireless service providers in that industry, including Airtouch,
Alltell, AT&T Wireless PCS, Bell Atlantic Mobile, BellSouth, GTE Mobilnet,
Houston Cellular, Metrocall, Mobile Comm, Nextel, Omnipoint, PacBell, PageNet,
PowerTel, PrimeCo, PCS, SkyTel, Southwestern Bell, Sprint PCS and Western
Wireless. In addition, most of the major companies in the radio and television
broadcasting industry are ATC's customers, including ABC, CBS, Chancellor
Media, Clear Channel, CNN, Fox and NBC. ATC provides site acquisition services
to most of such wireless service providers, and ATC has constructed or is
constructing towers on a build to suit basis for companies such as Bell South,
Nextel, Omnipoint, PrimeCo, PCS and Southwestern Bell. The principal users of
ATC's video, voice and data transmission services are television broadcasters
and other video suppliers such as CBS, CNN, Fox and HBO.
Management estimates that its site leasing activities, which it believes
generate the highest profit margin of its businesses, account for approximately
56% of its ongoing pro forma net revenues; site acquisition activities
(including construction for others) account for 24%; and the video, voice and
data transmission business accounts for 20%. However, in light of management's
intention to focus on construction activities, which will increase the number
of antennae sites available for leasing, ATC believes that leasing activities
are likely to grow at a more rapid rate than other aspects of its business.
ATC derives its revenue from various industry segments. ATC estimates that PCS
accounts for the largest portion (somewhat less than one-quarter) of its net
revenues, before giving effect to the ATC Pro Forma Transactions, derived from
the various industry segments (including from its site acquisition activities),
with paging, EMSR, cellular and federal and other governmental agencies
contributing, in the aggregate approximately 45% in the aggregate; no other
segment accounts for more than 5% of such revenues. Approximately 20% of such
revenues are derived from ATC's video, voice, data and Internet transmission
customers which are primarily the major television networks, CNN and HBO.
Management believes that the foregoing percentages are not necessarily
indicative of future contributions likely to be made by the various aspects of
its business or of the several different types of wireless providers,
particularly in light of the anticipated growth of PCS, cellular and ESMR
compared to other wireless providers, management's intended focus on build to
suit and other tower construction activities, and the consequences of the
OmniAmerica Merger.
ATC designed its growth strategy to enhance its position as a leading U.S.
provider of communications sites and network development services to the
wireless communications and broadcasting industries. The principal elements of
this strategy are: (i) to maximize utilization of antennae sites through
targeted sales and marketing techniques; (ii) to expand its tower construction
activities, principally through build to suit projects; and (iii) to pursue
strategic acquisitions, designed principally to facilitate entry into new
geographic markets and to complement the construction program.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by focusing on activities that
contribute directly to subscriber growth and by outsourcing infrastructure
requirements such as owning, constructing and maintaining towers. ATC also
believes that many carriers are, for similar reasons, increasingly co-locating
transmission facilities with those of others, a trend likely to be accelerated
because of regulatory restrictions and the growing tendency of local
municipalities to require that towers accommodate multiple tenants. Management
also believes that national and other large wireless service providers will
prefer to deal with a company, such as ATC, that can meet the majority of such
providers' needs within a particular market or region, rather than, as in the
past, with a large number of individual tower owners, construction companies
and other service providers. See "Risk Factors--Risk Factors Relating to
American Tower".
Management believes that, in addition to such favorable growth and outsourcing
trends, the communications site industry and ATC will benefit from several
favorable characteristics, including the following:
. a recurring and growing revenue stream based to a significant extent on
long-term leases;
59
. low tenant "churn" due to the costs and disruption associated with
reconfiguring a wireless network or broadcasting location;
. a customer base which is diversified by industry, among customers within
each industry and geographical area, and which consists principally of
large, financially responsible national companies;
. favorable absolute and incremental tower cash flow margins due to low
variable operating costs;
. low on-going maintenance capital requirements;
. local government and environmental initiatives to reduce the numbers of
towers thereby requiring carriers to co-locate antennae; and
. opportunity to consolidate in a highly fragmented industry, thereby
creating the potential for enhanced levels of customer service and
operating efficiency.
GROWTH STRATEGY
ATC's objective is to enhance its position as a leading U.S. provider of
communications sites and network development services to the wireless
communications and broadcasting industries. ATC's growth strategy consists of
the following principal elements:
Internal Growth through Sales, Service and Capacity Utilization. Management
believes that a substantial opportunity for profitable growth exists by
maximizing the utilization of existing and future towers. Because the costs of
operating a site are largely fixed, increasing tower utilization significantly
improves site operating margins. Moreover, when a specific tower reaches full
antennae attachment capacity, ATC is often able to construct an additional
tower at the same location, thereby further leveraging its investment in land,
related equipment and certain operating costs, such as taxes, utilities and
telephone service.
ATC intends to use targeted sales and marketing techniques to increase
utilization of both existing and newly constructed towers and to maximize
investment returns on acquired towers with underutilized capacity. Management
believes that the key to the success of this strategy lies in its ability to
develop and consistently deliver a high level of customer service, and to be
widely recognized as a company that makes realistic commitments and then
delivers on them. Since speed to market and reliable network performance are
critical components to the success of wireless service providers, ATC's ability
to assist its customers in meeting these criteria will ultimately define its
marketing success and capacity utilization. ATC targets wireless providers that
are expanding or improving their existing network infrastructure as well as
those deploying new technologies.
Growth by Construction. ATC believes it can achieve attractive investment
returns by constructing new tower networks in and around markets in which it
already has a presence, along major highways, and in targeted new markets,
particularly markets that have not been significantly built out by carriers or
other communications site companies. By working with one or more "anchor"
tenants, ATC will seek to develop an overall master plan for a particular
network by locating new sites in areas identified by its customers as optimal
for their network expansion requirements. ATC generally secures commitments for
leasing prior to commencing construction, thereby minimizing, to some extent,
the risks associated with the investment. See "Risk Factors--Relating to
American Tower--Construction of New Towers". In certain cases, ATC may identify
and secure all zoning and other regulatory permits for a site in anticipation
of customer demand, with actual construction generally being delayed until an
anchor tenant is secured on reasonable terms. ATC will also pursue strategic
acquisitions as a means of filling out or, in certain cases, initiating, a
tower network.
Management intends to place a strong emphasis on new tower development for the
foreseeable future because it believes that new tower construction can produce
relatively attractive initial returns. In addition, ATC can design and build
towers to specifications that assure ample future capacity and minimize the
need for future capital expenditures. Management also intends to pursue new
tower construction to service the demand for digital television and for tower
space for radio antennae displaced by digital television requirements. Over
time,
60
management believes that more than half of its towers will result from
construction, with the vast majority of these designed to serve the wireless
communications industry.
During 1997 and 1998, ATC (excluding acquired companies) constructed or had
under construction approximately 240 and 500 towers, respectively, including
those constructed for and owned by third parties. During 1999, ATC (exclusive
of OmniAmerica and TeleCom) plans to construct or have under construction
between approximately 750 and 1,000 towers (most of which will be on a build to
suit basis) at an estimated aggregate cost of between approximately between
$120.0 and $200.0 million. In addition, ATC is seeking several major build to
suit projects, including as part of major acquisitions with wireless providers
seeking to divest their towers although no definitive agreements may result.
The estimated aggregate number of towers to be built in 1999 by American Tower,
OmniAmerica and TeleCom (between approximately 1,450 and 1,900 towers at an
estimated aggregate cost of between approximately $230.0 and $340.0 million)
will probably decrease as a consequence of the mergers because of, among other
things, financial and managerial resource limitations and construction of
certain planned towers may result in overbuilding in some markets.
The ability to obtain, and commit to, large new construction projects will
require significant financial resources. Management believes that its cost of
capital, relative to the cost of capital of its competitors, will be an
important factor in determining the success of its growth by construction
strategy. Based on its previous capital market transactions, management
believes that it has a good reputation in the financial community, including
among banks, investment banking firms, institutional investors and public
investors, and that such reputation will help it attract capital on the
favorable terms necessary to finance its growth. However, funds may not be
available to ATC on such terms.
Growth by Acquisition. ATC has achieved a leading industry position primarily
through acquisitions. While management expects to shift ATC's emphasis more
towards build to suit and new tower construction, where it believes investment
returns are more attractive, ATC intends to continue to target strategic
acquisitions in markets or regions where it already owns towers as well as new
markets, possibly including non-U.S. markets.
Among the potential acquisitions are tower networks owned by major wireless
service providers, including many of the regional Bell operating companies and
their affiliates, that may seek to divest their ownership of such networks for
reasons similar to those motivating them to outsource their new construction
requirements. These transactions often involve construction commitments for the
seller's tower requirements for a period of time. The transactions are
substantial, generally involving several thousand towers and purchase prices in
the hundreds of millions of dollars. Construction commitments often entail
hundreds of millions of dollars. ATC has submitted proposals to several
wireless providers in the past (none of which were successful) and intends to
continue to pursue such opportunities. ATC may not, necessarily, enter into any
such major transaction, or, if it does, the terms may not, necessarily, be
favorable to it.
ATC's current activities with respect to possible significant acquisitions
range from the evaluation of properties, to submissions of indications of
interests and first-round bids, to extended negotiations. These opportunities
range in size from several hundred towers to a few with more than a thousand
towers and from purchase prices of tens of millions of dollars to several
hundreds of millions of dollars. Such purchase prices could take the form of
cash, ATC stock or other securities, or a combination thereof. No material
acquisition has reached the legally binding agreement stage other than those
described in this document. See "--Recent Transactions" below. Of course, ATC
cannot predict whether it will enter into any binding agreements with respect
to such acquisitions or, if it does, the terms or timing of any such material
acquisitions. Any such transaction with a wireless provider seeking to divest
ownership of its towers would probably require ATC to raise substantial capital
in the form of ATC Class A Common Stock or other equity securities,
particularly since it would likely include a major build-to-suit construction
commitment. See "Risk Factors--Risk Factors Relating to American Tower--
Acquisition Strategy" and "--Substantial Capital Requirements and High Debt
Levels".
61
ATC will attempt to increase revenues and operating margins at acquired
communications sites through expanded sales and marketing efforts, improved
customer service, the elimination of redundant overhead and, in certain
instances, increasing tower capacity. Acquisitions of communications towers and
sites are evaluated using numerous criteria, including potential demand, tower
location, tower height, existing capacity utilization, local competition, and
local government restrictions on new tower development.
ATC also intends to pursue, on a selective basis, the acquisition of site
acquisition companies and providers of video, voice and data transmission
services, and may pursue acquisitions related to the communications site
industry, including companies engaged in the tower fabrication business.
PRODUCTS AND SERVICES
. LEASING OF ANTENNAE SITES. ATC's primary business is the leasing of antennae
sites on multi-tenanted communications towers to companies in all segments of
the wireless communications and broadcasting industries. Giving effect to
pending acquisitions, ATC will have more than 3,000 towers in 44 states and the
District of Columbia, approximately 600 of which are managed for others,
including approximately 400 rooftop antennae. Currently, ATC operates 2,300
towers (of which 1,845 are owned and 455 are managed for third-parties),
OmniAmerica operates 223 towers (of which 211 are owned and 12 are managed for
third-parties), and TeleCom operates 392 towers (of which 271 are owned and 121
are managed for third-parties and are revenue-producing). The foregoing numbers
do not include (i) approximately 1,700 sites managed by TeleCom that are not
currently generating revenues, or (ii) 86 additional towers and sites
associated with TeleCom's joint venture with Prime. See "TeleCom Merger--The
Merger Agreement".
ATC rents tower space and provides related services for a diverse range of
wireless communications industries, including PCS, cellular, ESMR, SMR, paging,
fixed microwave, as well as radio and television broadcasters. ATC is
geographically diversified with significant tower networks throughout the
United States with its largest networks in California, Florida and Texas, and
owns and operates communications sites or is constructing tower networks in
cities such as Albuquerque, Atlanta, Austin, Baltimore, Boston, Charlotte,
Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft. Lauderdale,
Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San Francisco,
Tucson, Washington, D.C. and West Palm Beach.
ATC's leases, like most of those in the industry, generally vary depending upon
the industry user, with television and radio broadcasters preferring long term
leases (generally from 15 to 20 years), and wireless communications providers
favoring somewhat shorter lease terms (generally from five to ten years), with
multiple renewals at the option of the tenant. However, the leases acquired as
a consequence of the merger with Old ATC (which is described on page 66) tend
to be of shorter duration, generally two years, and permit earlier termination
if ATC were to attempt to impose price increases relating to escalator
provisions. Leases of all lengths tend to be renewed due to the costs and
disruption associated with reconfiguring a wireless network or broadcast
location.
Most of ATC's leases have escalator provisions (annual automatic increases
based on specified estimated cost measures or on increases in the consumer
price index) that permit ATC to keep pace with inflation. While these
provisions are not by themselves intended to be a primary source of growth,
they provide a stable and predictable growth component that is then enhanced by
increased tower utilization.
The number of antennae that ATC's towers can accommodate varies depending on
the type of tower (broadcast or non-broadcast), the height of the tower, and
the nature of the services provided by such antennae, although broadcasting
towers generally are capable of holding more and larger antennae and serving
more tenants than non-broadcasting towers. Annual rental payments vary
considerably depending upon (i) the type of service being provided; (ii) the
size of the transmission line and the number and weight of the antennae on the
tower; (iii) the existing capacity of the tower; (iv) the antenna's placement
on, and the location and height of, the tower; and (v) the competitive
environment. Management believes that it is not possible to state with any
degree of precision the vacancy or unused capacity of a "typical" tower, group
of related towers or all of its
62
towers for a variety of reasons, including, among others, the variations that
occur depending on the types of antennae placed on the tower, the types of
service being provided by the tower users, the type and location of the tower
or towers, the ability to build other towers so as to configure a network of
related towers, whether any of the users have imposed restrictions on
competitive users, and whether there are any environmental, zoning or other
restrictions on the number or type of users.
Build to Suit Business. Historically, cellular and other wireless service
providers have constructed a majority of their towers for their own use, while
usually outsourcing certain services such as site acquisition and construction
management. More recently, however, service providers have expressed a growing
interest in having independent companies own the towers on which they will
secure space under long-term leases. Management believes this trend is the
result of a need among such providers to preserve capital and to speed access
to their markets by focusing on activities that contribute to subscriber growth
and by outsourcing infrastructure requirements such as owning, constructing and
maintaining towers or by co-locating their transmission infrastructure. ATC has
positioned itself as an attractive choice for this build to suit opportunity.
It has done so by acquiring and developing reputable site acquisition companies
with established client relationships in both site acquisition and construction
management, and by securing the financial resources necessary to participate in
the build to suit arena on a substantial scale. Management believes companies
that are able to demonstrate the ability to successfully locate, acquire and
permit sites and finance and construct towers in a timely manner will be used
by a significant number of wireless service providers on an expanded basis. ATC
is currently engaged in build to suit efforts for a range of clients including
BellSouth, Nextel, Omnipoint, PrimeCo, PCS, and Southwestern Bell and is
seeking several major build to suit projects, although no such definitive
agreements may result.
In most cases, well engineered and well located towers built to serve the
specifications of an initial anchor tenant in the wireless communications
sector will attract three or more additional wireless tenants over time,
thereby increasing revenue and enhancing margins. ATC (exclusive of
OmniAmerica) has had only limited experience, to date, with major build to suit
projects and those that it has completed and that are operational have been on
a much smaller scale than those that it is currently building or negotiating or
will seek in the future. Management believes that ATC's favorable results
(occupancy and financial) achieved on completed projects are not representative
of the results likely to be achieved from the larger projects ATC is currently
contemplating and, therefore, has not included information with respect to the
typical vacancy rates or financial results that can be expected to be generated
by such build to suit projects. See "Risk Factors--Relating to American Tower--
Construction of New Towers; Competition" for a description of certain risks
involved in tower construction, particularly those involving large build to
suit projects.
Communications Site Management Business. ATC is a leading manager of
communications sites, principally rooftop sites but also ground towers, for
other owners. A principal aspect of this business is the development of new
sources of revenue for building owners by effectively managing all aspects of
rooftop telecommunications, including two-way radio systems, microwave, fiber
optics, wireless cable and paging, and rooftop infrastructure construction
services. ATC will manage approximately 600 towers (of which approximately 400
will be rooftop towers), giving effect to all pending acquisitions, including
the mergers. Currently, ATC manages approximately 455 of such towers,
OmniAmerica manages 12 and TeleCom manages 121. The foregoing numbers do not
include approximately 1,700 roof top sites managed by TeleCom that are not
currently generating revenues. Management contracts are generally for a period
of five years and contain automatic five-year renewal periods unless terminated
by either party on notice prior to such renewal term or upon an uncured
default. Pursuant to these contracts, ATC is responsible for marketing antennae
sites on the tower, reviewing existing and negotiating future license
agreements with tenant users, managing and enforcing those agreements,
supervising installation of equipment by tenants to ensure, among other things,
non-interference with other users, supervising repairs and maintenance to the
towers, as well as site billing, collections and contract administration. In
addition, ATC handles all calls as well as questions regarding the site so that
the building management team or owner is relieved of this responsibility. For
such services, ATC is entitled to a percentage of lease payments, which is
higher for new tenants than for existing tenants. Upon any termination of a
63
contract, unless because of its default, ATC is generally entitled to its
percentage with respect to then existing tenants so long as they remain
tenants.
. SITE ACQUISITION BUSINESS. ATC's site acquisition division has developed more
than 8,000 sites in 48 states and currently has field offices in 13 major
cities including Atlanta, Chicago, Charlotte, Cleveland, Jacksonville, New
Orleans and Seattle. The site selection and acquisition process begins with the
network design. Highway corridors, population centers and topographical
features are identified within the carrier's existing or proposed network, and
drive tests are performed to monitor all PCS, cellular and ESMR frequencies to
locate the systems then operating in that geographic area and identify where
any holes in coverage may exist. Based on this data, the carrier and ATC
develop a "search ring", generally of one-mile radius, within which the site
acquisition department identifies land available either for purchase or lease.
ATC personnel select the most suitable sites, based on demographics, traffic
patterns and signal characteristics. The site is then submitted to the local
zoning/planning board for approval. If the site is approved, in certain
instances ATC will supervise construction of the towers and other improvements
on the communications site. ATC's site acquisition services are provided on a
fixed fee or time and materials basis. Existing users of ATC's site acquisition
business include Airtouch, Alltel, AT&T Wireless PCS, Ameritech, Bell Atlantic
Mobile, BellSouth, GTE Mobilnet, MobileComm, PageNet, Power Tel, SkyTel,
Southwestern Bell, Sprint PCS and Western Wireless. While ATC will continue to
provide site acquisition services to those customers desiring them, it also
intends to actively market its construction and leasing services as an
extension of these services.
. VOICE, VIDEO DATA AND INTERNET TRANSMISSION BUSINESS. ATC's voice, video,
data and Internet transmission business is called ATC Teleports. It is operated
in and between New York City and Washington, D.C. and throughout Texas. A
teleport is a hub for transmissions to and from ground based sources and
satellites. A typical teleport facility consists of satellite antennas
(dishes), a 24-hour, 365-day operations center, terrestrial links and other
support facilities. ATC owns a teleport outside of New York City and one
outside of Washington, D.C. It also has a terrestrial system connecting
Washington, D.C., Baltimore, Philadelphia and New York City. The New York
teleport system is located on a 70-acre owned site which is zoned for 29
satellite dishes of which 22 are existing, thereby providing significant
expansion capacity. The Washington teleport is located in northern Virginia,
inside of the Washington Beltway, on 16 acres and has 40 dishes with the
capacity for an additional 20. The terrestrial system between the teleports
consists of fiber and microwave channels. The entire system is used by
television networks, broadcasters, cable programmers, and many of the leading
voice, data and Internet providers. The teleports can access all of the
domestic and major international satellites in their operating regions. The
Texas system consists of a teleport outside of Dallas and a terrestrial system
connecting Dallas, Austin, San Antonio, Houston and Corpus Christi. The system
connects to all major sports and convention venues, broadcasters and other
significant video users in Texas.
CUSTOMERS
ATC's customers aggregate approximately 2,500 and include many of the major
companies in the wireless communications industry. While none of ATC's
customers accounted for as much as 10% of its 1998 pro forma net revenues from
site leasing activities for the nine months ended September 30, 1998, most of
the customers named below account for more than 1% of such revenues, and each
is considered by ATC to be an important customer:
. Cellular and PCS: Airtouch, Alltell, AT&T Wireless PCS, Bell Atlantic
Mobile, BellSouth, GTE Mobilnet, Houston Cellular, Mobile Comm,
Omnipoint, PacBell, PrimeCo, PCS, Southwestern Bell Mobile Systems
(operating as Cellular One), and Sprint PCS;
.Paging: Arch, Metrocall, PageMart, PageNet and Pittencrief;
.ESMR: Nextel; and
. Television and Radio Broadcasting: ABC, CBS, Chancellor Media, Clear
Channel, CNN, Fox and NBC.
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ATC's site acquisition activities, which afford ATC the opportunity to furnish
additional services such as the construction and leasing of communications
sites, are provided to most of the cellular, PCS and ESMR customers listed
above. ATC has constructed or is constructing towers on a build to suit basis
for companies such as BellSouth, Nextel, Omnipoint, PrimeCo, PCS and
Southwestern Bell and is seeking several major build to suit projects, although
no such definitive agreements may result.
The principal users of ATC's video, voice, data and Internet transmission
services are television broadcasters and other video suppliers such as CBS,
CNN, Fox and HBO. Revenues are derived from two sources of approximately equal
significance: (i) contracted, long-term services of a regular, recurring nature
and (ii) nonrecurring services relating to special news or events. Monthly
transmissions average approximately 3,500 at ATC's teleports.
MANAGEMENT ORGANIZATION
ATC is headquartered in Boston and is organized on a regional basis with each
region being headed by a vice president who reports to the Chief Operating
Officer. Its current regional operations are based in Boston, Atlanta, Chicago,
Houston and the San Francisco Bay area, although additional regional centers
may develop over time. Management believes that its regional operations centers
which are in varying stages of development should ultimately be capable of
responding effectively to the opportunities and customer needs of their
respective defined geographic areas and that these operations centers should
have skilled engineering, construction management and marketing personnel.
Management also believes that over time enhanced customer service and greater
operating efficiencies can be achieved by centralizing certain operating
functions, including accounting and lease administration. Such centralization,
when achieved, will enable key information about each site, tower lease and
customer to become part of a centralized database, with communications links to
regional operations centers.
In conjunction with its acquisition of various companies, management believes
it has obtained the services of key personnel with skills in areas such as site
acquisition, construction management, tower operations, engineering, marketing,
lease administration and finance. As ATC seeks to expand its size and improve
on the quality and consistency of service delivery, it believes it needs to
complete the staffing of its existing regions and may, in the longer term, need
to supplement its current workforce in certain critical areas, develop new
regional centers and intensify its dedication to customer service. Accordingly,
management is actively recruiting key personnel to complete the staffing of its
regional operations centers and to strengthen and deepen its corporate group.
ATC focuses its efforts on recruiting people from the industry sectors it
serves and in some instances recruiting skilled engineering, marketing and
other personnel from outside the communications site, wireless communications
and broadcasting industries.
HISTORY
In early 1995, Steven B. Dodge, Chairman of the Board, President and Chief
Executive Officer of American Radio, and other members of American Radio's
management, recognized the opportunity in the communications site industry as a
consequence of American Radio's ownership and operation of broadcast towers.
ATC was formed in July 1995 to capitalize on this opportunity. During 1996,
ATC's acquisition program was modest, entailing the acquisition of companies
owning an aggregate of 15 communications sites and managing approximately 250
sites for others, for an aggregate purchase price of approximately
$21.0 million. During that year, however, ATC entered into several more
significant acquisition agreements that were consummated in 1997. During 1997,
ATC's acquisition program accelerated dramatically, and it consummated
acquisitions (including those agreed to in 1996) involving more than 390 sites
(including sites on which towers were subsequently built) and its initial site
acquisition and voice, video, data and Internet transmission businesses.
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RECENT TRANSACTIONS
Consummated Acquisitions. Since January 1, 1998, ATC has acquired various
communications sites and a major site acquisition business for an aggregate
estimated purchase price of approximately $882.0 million, including the
issuance of approximately 36.3 million shares of ATC Class A Common Stock
valued (at the time of the relevant agreement) at approximately $382.6 million.
The most significant of those acquisitions are described below.
In January 1998, ATC consummated the acquisition of OPM-USA-INC. ("OPM"), a
company that owned and developed communications towers, and owned approximately
90 towers at the time of acquisition (the "OPM Transaction"). The purchase
price was variable based on the number of towers developed for American Tower
and the forward cash flow of such towers. In December 1998, it was fixed at an
aggregate of $70.0 million for a total of more than 150 towers and a right of
first refusal granted to American Tower with respect to any towers OPM
develops.
In January 1998, ATC consummated the merger (the"Gearon Transaction") of ATI
with a company ("Gearon") engaged primarily in the site acquisition business
for unaffiliated third parties that also owned or had under construction 40
tower sites. The merger price of approximately $80.0 million was paid by
delivery of 5,333,333 shares of Class A Common Stock, payment of approximately
$32.0 million in cash and assumption of liabilities.
In May 1998, ATC acquired the assets relating to a teleport serving the
Washington, D.C. area for a purchase price of approximately $30.5 million. The
facility is located in northern Virginia, inside of the Washington Beltway, on
ten acres.
Old ATC Merger. On June 8, 1998, ATC (which was then known as American Tower
Systems Corporation) merged with American Tower Corporation ("Old ATC") with
ATC being the surviving corporation. Pursuant to that merger, ATC issued an
aggregate of 28,782,386 shares of ATC Class A Common Stock (including shares
issuable upon exercise of options to acquire ATC Common Stock). The 28.8
million shares represented 35% of the aggregate number of shares of ATC Common
Stock which were outstanding immediately after consummation of the merger on a
pro forma basis, assuming the exercise of all stock options of the two
companies outstanding immediately prior to the merger, but before giving effect
to certain acquisitions.
As a condition to consummation of the merger, Messrs. Dodge and Stoner entered
into a voting agreement with ATC and certain of the Old ATC common
stockholders, pursuant to which Messrs. Dodge and Stoner agreed to vote in
favor of the election of each of Messrs. Lummis and Mays (or any other nominee
of Mr. Lummis and Clear Channel reasonably acceptable to the ATC Board of
Directors) so long as Mr. Lummis and Clear Channel (or their respective
affiliates) hold at least 50% of the shares of ATC Class A Common Stock
received by him or it in the merger. Messrs. Lummis and Mays were elected to
the Board of Directors immediately following the merger.
Chase Manhattan Capital L.P. ("Chase Capital"), which is an affiliate of CEA, a
stockholder of ATC, and Mr. Chavkin, a director of ATC, owned approximately
18.1% of the Old ATC Common Stock as of April 6, 1998 and had a representative
on the Old ATC Board of Directors. See "Principal Stockholders of American
Tower". Summit Capital of Houston ("Summit Capital") received a $2.25 million
broker's fee from Old ATC upon consummation of the merger. Fred Lummis, the
former President and Chief Executive Officer of Old ATC, and a director of ATC,
is an affiliate of Summit Capital.
Old ATC was a leading independent owner and operator of wireless communications
towers and operated approximately 915 towers in 32 states, including
approximately 125 towers managed for a third party owner and had agreed to
acquire approximately 35 additional towers in 1998 at an aggregate estimated
cost of approximately $17.4 million. For the year ended December 31, 1997, Old
ATC had net revenues of $20.0 million and EBITDA of $12.7 million. For the
three months ended March 31, 1998, Old ATC had net revenues of $6.3 million and
EBITDA of $4.1 million.
In October 1998, American Tower acquired approximately 300 towers and certain
tower related assets in six transactions for an aggregate purchase price of
approximately $100.2 million. The most significant transactions
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were the acquisition of 166 towers in the Atlanta, Georgia area through the
merger of Wauka Communications, Inc. into ATI and the acquisition by ATI of the
assets of Grid Site Services, Inc. The consideration in those related
transactions (collectively, the "Wauka Transaction") included the issuance of
1,430,881 shares of Class A Common Stock.
Pending Acquisitions. In June 1998, ATC entered into an agreement to acquire a
company which is in the process of constructing approximately 40 towers in the
Tampa, Florida area, of which 20 are presently operational. The purchase price
will be equal to an excess of (i) ten times the "Current Run Rate Cash Flow" at
the time of closing, over (ii) the principal amount of the secured note
referred to below. The purchase price will be payable in shares of Class A
Common Stock (valued at market prices shortly prior to closing) and, at the
election of the seller, cash in an amount not to exceed 49% of the purchase
price. "Current Run Rate Cash Flow" means twelve (12) times the excess of net
revenues over direct operating expenses for the month preceding closing. ATC is
obligated to advance construction funds to the seller in an aggregate amount
not to exceed $12.0 million in the form of a secured note (guaranteed by the
stockholders on a nonrecourse basis and secured by the stock of the seller), of
which approximately $7.1 million had been advanced as of December 31, 1998. The
secured note is payable if the acquisition is not consummated. Subject to the
satisfaction of certain conditions, including, depending on the circumstances,
the expiration or earlier termination of the HSR Act waiting period, the
acquisition is expected to be consummated in the spring of 1999.
ATC is negotiating certain changes in the ATC/PCS arrangements, including the
acquisition by ATC of the 58 communications sites in northern California
presently owned by ATC/PCS in exchange for shares of ATC Class A Common Stock,
arrangements with respect to the development of communications sites in other
locations, a priority return of ATC's construction advances, an increase in the
percentage interest of the other member in ATC/PCS, and a management fee to
ATC. Such negotiations may not, however, result in a definitive agreement.
Other Transactions. ATC is negotiating and intends to pursue the acquisition of
other communications sites and management and related businesses, including
major transactions with regional Bell operating companies and other wireless
carriers, although there are no definitive binding agreements with respect to
any material transaction except as referred to in this document.
ATC Private Placement. In January 1998, ATC consummated the transactions
contemplated by the Stock Purchase Agreement, dated as of January 8, 1998 (the
"ATC Stock Purchase Agreement"), with certain officers and directors of
American Radio and ATC (or their affiliates or members of their family or
family trusts), pursuant to which those persons purchased shares of Common
Stock at $10.00 per share, as follows: Mr. Dodge: 4,000,000 (Class B);
Mr. Box: 450,000 (Class A); Mr. Charlton H. Buckley: 300,000 (Class A); each of
Messrs. Eisenstein and Steven J. Moskowitz: 25,000 (Class A); Mr. Arthur
Kellar: 400,000 (Class A); Mr. Stoner, his wife and certain family trusts:
649,950 (Class B); other Stoner family and trust purchasers: 150,050 (Class A);
and Chase Equity Associates: 2,000,000 (Class C). Messrs. Buckley (one of the
selling stockholders) and Kellar were directors of American Radio, and Mr.
Chavkin, a director of ATC and a former director of American Radio, is an
affiliate of Chase Equity Associates. Mr. Moskowitz serves as a Vice President
of ATC and the General Manager of the Northeast Region.
Payment of the purchase price was in the form of cash in the case of CEA, all
members of Mr. Stoner's family and the family trusts (but not Mr. Stoner and
his wife) and Messrs. Buckley, Eisenstein, Kellar and Moskowitz, and, in the
case of Messrs. Dodge, Box and Stoner (and his wife), in the form of a note
that was paid in full upon consummation of the CBS Merger. The notes bore
interest at the six-month London Interbank Offered Rate, from time to time,
plus 1.5% per annum, and were secured by shares of American Radio Common Stock
having a fair market value of not less than 175% of the principal amount of and
accrued and unpaid interest on the note. The notes were prepayable at any time
at the option of the obligor and were due and payable, at the option of ATC, in
the event of certain defaults set forth therein.
The American Radio Board of Directors appointed a special committee (the
"Special Committee") consisting of three directors (who were not directors of
ATC and who were not a party to the ATC Stock Purchase Agreement) to determine
the fairness to American Radio from a financial point of view of the terms and
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conditions of the ATC Stock Purchase Agreement. None of the members of the
Special Committee was a party to the ATC Stock Purchase Agreement. No
limitations were imposed on the activities of the Special Committee by the
American Radio Board. The Special Committee retained Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") to act as its exclusive financial
advisor in connection with the transactions contemplated by the ATC Stock
Purchase Agreement. No limitations were placed on the activities of Merrill
Lynch. Merrill Lynch delivered its written opinion, dated January 8, 1998, to
the Special Committee that, as of such date and based upon and subject to the
matters set forth therein, the purchase price of $10.00 per share to be
received by ATC pursuant to the ATC Stock Purchase Agreement was fair from a
financial point of view to American Radio. Based upon such opinion, and its own
evaluation of the terms and conditions of the ATC Stock Purchase Agreement, the
Special Committee approved the ATC Stock Purchase Agreement as fair to and in
the best interests of American Radio.
Pursuant to an Engagement Letter, dated November 20, 1997, American Radio
agreed to pay Merrill Lynch a fee of $500,000 in consideration for its
services. American Radio has also agreed to reimburse Merrill Lynch for its
expenses, including reasonable fees and expenses of its counsel, and to
indemnify Merrill Lynch for liabilities and expenses arising out of its
engagement and the transactions in connection therewith, including liabilities
under the federal securities laws. ATC is obligated under the Separation
Agreement to reimburse American Radio for all such fees and expenses which
American Radio has incurred to Merrill Lynch and to assume such indemnification
obligation.
CBS Merger
On June 4, 1998, American Radio consummated the CBS Merger. As a consequence,
all of the shares of American Tower owned by American Radio were or will be
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock or upon conversion of shares of ARS Convertible Preferred or ARS
Convertible Debentures. As a consequence of the CBS Merger, American Tower
ceased to be a subsidiary of, or otherwise affiliated with, American Radio and
commenced operations as an independent publicly traded company. Pursuant to the
provisions of the CBS Merger Agreement, ATC entered into the Separation
Agreement with CBS and ARS providing for, among other things, the allocation of
certain tax liabilities to American Tower, certain closing date adjustments
relating to American Radio, the lease to American Radio by American Tower of
space on certain towers previously owned by ARS and transferred to ATC, and the
orderly separation of ARS and ATC.
The Separation Agreement required ATC to reimburse CBS on a "make-whole" (after
tax) basis for the tax liabilities incurred by ARS attributable to the
distribution of the ATC Common Stock owned by ARS to its security holders and
certain related transactions, to the extent that the aggregate amount of taxes
required to be paid by ARS exceeded $20.0 million. The amount of that tax
liability was dependent on the "fair market value" of the ATC Common Stock at
the time of the consummation of the CBS Merger. ATC received an appraisal from
an independent appraisal firm that the "fair market value" of ARS's stock
interest in ATC was equal to $17.25 per share. Based on such appraisal, ARS
paid estimated taxes of approximately $212.0 million, for which ATC reimbursed
CBS. Such appraisal is not, of course, binding on the Internal Revenue Service
or other taxing authorities. American Tower financed its tax reimbursement
obligations to CBS with the proceeds of the Interim Preferred Stock. The $212.0
million payment also included estimated payments for the "make-whole"
provisions of the liability associated with the conversion of the ARS
Convertible Preferred and the working capital adjustment described below. Such
taxes gave effect to estimated deductions of approximately $85.1 million
available to ARS as a consequence of the cancellation or exercise of ARS stock
options pursuant to the CBS Merger. ATC's reimbursement obligation with respect
to such taxes would change by approximately $21.0 million for each $1.00 change
in the "fair market value" of the ATC Class A Common Stock under the tax
reporting method followed. The average of the high and low trading prices of
the ATC Class A Common Stock in the when-issued over-the-counter market on June
4, 1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with respect
to the shares of ATC Class A Common Stock deliverable upon conversion of the
ARS Convertible Preferred; such taxes will be based on the "fair market value"
of the ATC Class A Common Stock at the time of conversion. Conversions have
occurred
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at various times since June 4, 1998. As of September 30, 1998, holders of
Depositary Shares representing approximately 43% of the ARS Convertible
Preferred had converted or presented for conversion and ATC recorded a
liability of approximately $4.7 million due to CBS associated with these
conversions. On September 30, 1998, CBS issued the ARS Convertible Debentures
in exchange for the then outstanding shares of ARS Convertible Preferred.
Holders of the ARS Convertible Debentures are entitled to the same conversion
rights as the ARS Convertible Preferred. ATC estimates that its remaining
reimbursement obligation with respect to the taxes on the conversion of ARS
Convertible Debentures could be approximately $11.3 million under the tax
reporting method followed. Such estimate is based on an estimated fair market
value of the ATC Class A Common Stock of $21.375 per share. ATC's obligation
for such conversions would change by approximately $1.2 million for each $1.00
change in the fair market value.
ARS has agreed that it will pursue, for the benefit of and at the cost of ATC,
a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the ARS
Convertible Debentures set forth above. Any such refund claim will, in fact, be
based on the actual amount of taxes paid. In light of existing tax law, any
such refund claim may not be successful.
The Separation Agreement provides for closing balance sheet adjustments based
on the working capital, as defined, and debt levels of ARS as of June 4, 1998.
ATC will benefit from or bear the cost of such adjustments. As of June 1998,
ATC's preliminary estimate of such adjustments was not expected to exceed $50.0
million, excluding the reimbursement to CBS for the tax consequences of any
such payment estimated at approximately $33.0 million. The estimated taxes and
refund amount stated above include such estimated tax reimbursement amount.
Such preliminary estimate was based on estimated working capital and debt
amounts that were dependent upon operating results, cash capital contributions
and CBS Merger expenses; the final payment is contingent upon a series of
events set forth in the Separation Agreement. As a result, ATC recorded a
$50.0 million payable to CBS and a corresponding reduction in equity to reflect
management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement setting
forth a proposed purchase price adjustment payment to CBS of approximately
$82.2 million, excluding accrued interest. In October 1998, ATC provided CBS
with a Notice of Disagreement to the proposed purchase price adjustment
indicating that ATC's estimate of the final adjustment payment aggregated $11.1
million and reserved its rights to make further adjustments upon the receipt of
additional information requested of CBS. In addition, as noted above, ATC is
obligated to reimburse CBS for the tax consequences of such payment
(approximately 66 2/3%) and has paid CBS approximately $33.0 million based on
the $50.0 million estimate. CBS has offered to resolve the disagreement for a
payment of less than $82.2 million, together with certain ATC tax
indemnifications. ATC has not responded to this offer which expires on January
15, 1999. If CBS and ATC are unable to resolve their differences, they agree to
extend such date. In the event that such differences cannot be resolved, they
are obligated to engage a third party to arbitrate the dispute. Under the
circumstances, ATC continues to believe that the amounts previously recorded
represent a reasonable estimate of the amounts that will be paid to CBS and
will adjust the amount as information becomes known to the Company.
ATC Preferred Stock Financing: On June 4, 1998, ATC issued $300.0 million of
Interim Preferred Stock and used the proceeds to fund its tax reimbursement
obligation to CBS, pay the commitment and other fees and expenses of the issue
and sale of such stock and to reduce bank borrowings. As discussed below, the
Interim Preferred Stock was redeemed on July 9, 1998 and as a result, American
Tower incurred an extraordinary loss of approximately $7.5 million, net of a
tax benefit of $5.0 million, during the third quarter of 1998, representing the
write-off of certain commitment, deferred financing and redemption fees.
ATC IPO: On July 8, 1998, American Tower completed a public offering of
27,861,987 shares of ATC Class A Common Stock (including 2,361,987 shares sold
by American Tower pursuant to the exercise in full of the underwriters' over-
allotment option) at $23.50 per share. Certain selling stockholders sold an
additional
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3,874,911 shares in the offering. American Tower's net proceeds of the offering
(after deduction of the underwriting discount and estimated offering expenses)
were approximately $625.1 million. On July 9, 1998, American Tower used
approximately $306.1 million of the net proceeds from the offering to redeem
all of the outstanding shares of the Interim Preferred Stock at a price of 101%
of the stock's liquidation preference plus accrued and unpaid dividends. The
balance was invested in short-term investment grade securities. ATC will
continue to use such funds together with borrowings under the ATC Credit
Facilities to fund acquisitions and construction activities.
ATC Credit Facilities. In order to facilitate future growth and, in particular,
to finance its construction program, in June 1998, ATC and the Borrower
Subsidiaries entered into the ATC Credit Facilities with its senior lenders,
pursuant to which the then existing maximum borrowing of the Borrower
Subsidiaries was increased from $400.0 million to $900.0 million, subject to
compliance with certain financial ratios. As of December 31, 1998, $125.0
million was outstanding in the form of a term loan. In addition, ATC (the
parent company) had borrowed an additional $150.0 million in the form of a term
loan. See "Indebtedness of American Tower".
SALES AND MARKETING
ATC's sales and marketing personnel target wireless carriers expanding their
network capabilities as well as carriers entering new markets. ATC attempts to
minimize hurdles to purchasing decisions by offering master license agreements
which correspond to the internal requirements of wireless operators. ATC also
offers standardized system pricing in areas in which it operates tower networks
enabling potential customers to obtain pricing information for an entire
service area rather than on a tower-by-tower basis. ATC believes customer
satisfaction is the key to successful marketing and that referrals from its
current customers are and will continue to be a primary source of new
customers.
REGULATORY MATTERS
Federal Regulations. Both the FCC and the FAA regulate towers used for wireless
communications and radio and television antennae. Such regulations control the
siting, lighting, marking and maintenance of towers and may, depending on the
characteristics of the tower, require registration of tower facilities and
issuance of determinations of no hazard. Wireless communications devices
operating on towers are separately regulated and independently licensed by the
FCC based upon the regulation of the particular frequency used. In addition,
the FCC also separately licenses and regulates television and radio stations
broadcasting from towers. Depending on the height and location, proposals to
construct new antenna structures or to modify existing antenna structures are
reviewed by the FAA to ensure that the structure will not present a hazard to
aircraft, and such review is a prerequisite to FCC authorization of
communications devices placed on the tower. Tower owners also bear the
responsibility for notifying the FAA of any tower lighting failures. ATC
generally indemnifies its customers against any failure to comply with
applicable standards. Failure to comply with applicable requirements may lead
to civil penalties.
The year 2000 ("Y2K") computer issues could create potential problems for tower
owners such as ATC. Many computers and computer software programs were not
designed to recognize the change from 1999 to 2000 or are otherwise unable to
process dates related to the turn of the millennium. These computers (and the
systems they control) might malfunction or cease to work unless they are
reprogrammed or replayed by the end of 1999, Y2K-related problems could cause
ATC's tower structures' light systems to fail which would create a hazard to
air navigation. Computer-controlled devices, such as those found in automatic
monitoring and control systems used for antenna structure lighting, are
vulnerable to Y2K-related malfunctions and may fail. Commercial electric power
sources may also fail leaving antenna structures vulnerable to blackouts. Tower
owners, such as ATC, are responsible for tower lighting in compliance with FCC
and FAA requirements and ATC intends to take the necessary steps to address the
Y2K problems. However, ATC may not be entirely successful, and any massive
power failures, occasioned by Y2K problems, could pose a serious threat to the
safe maintenance and operation of ATC's tower structures.
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The introduction and development of digital television also may affect ATC and
some of its largest customers. In addition, the need to install additional
antennae required to deliver digital television service may necessitate the
relocation of many currently co-located FM antennae. The need to secure state
and local regulatory approvals for the construction and reconstruction of this
substantial number of antennae and the structures on which they are mounted
presents a potentially significant regulatory obstacle to the communications
site industry. As a result, the FCC has solicited comments on whether, and in
what circumstances, the FCC should preempt state and local zoning and land use
laws and ordinances regulating the placement and construction of communications
sites. There can be no assurance as to whether or when any such federal
preemptive regulations may be promulgated or, if adopted, what form they might
take, whether they would be more or less restrictive than existing state and
local regulations, or whether the constitutionality of such regulation, if
challenged on constitutional grounds, would be upheld.
Local Regulations. Local regulations include city and other local ordinances,
zoning restrictions and restrictive covenants imposed by local authorities.
These regulations vary greatly, but typically require tower owners to obtain
approval from local officials or community standards organizations prior to
tower construction. Local regulations can delay or prevent new tower
construction or site upgrade projects, thereby limiting ATC's ability to
respond to customer demand. In addition, such regulations increase costs
associated with new tower construction. Existing regulatory policies may
adversely affect the timing or cost of new tower construction and additional
regulations may be adopted which increase such delays or result in additional
costs to ATC. Such factors could have a material adverse effect on ATC's
financial condition or results of operations.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real estate or a lessee conducting operations thereon
may become liable for the costs of investigation, removal or remediation of
soil and groundwater contaminated by certain hazardous substances or wastes.
Certain of such laws impose cleanup responsibility and liability without regard
to whether the owner or operator of the real estate or operations thereon knew
of or was responsible for the contamination, and whether or not operations at
the property have been discontinued or title to the property has been
transferred. The owner or operator of contaminated real estate also may be
subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination. In connection with its
former and current ownership or operation of its properties, ATC may be
potentially liable for environmental costs such as those discussed above.
ATC believes it is in compliance in all material respects with all applicable
material environmental laws. ATC has not received any written notice from any
governmental authority or third party asserting, and is not otherwise aware of,
any material environmental non-compliance, liability or claim relating to
hazardous substances or wastes or material environmental laws. However, (i)
there may be undetected environmental conditions for which ATC might be liable
in the future, and (ii) future regulatory action, as well as compliance with
future environmental laws, may require ATC to incur costs that could have a
material adverse effect on ATC's financial condition and results of operations.
COMPETITION
ATC competes for antennae site customers with wireless carriers that own and
operate their own tower networks and lease tower space to other carriers, site
development companies that acquire space on existing towers for wireless
providers and manage new tower construction, other national independent tower
companies and traditional local independent tower operators. Wireless service
providers that own and operate their own tower networks generally are
substantially larger and have greater financial and other resources than ATC.
ATC believes 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 owners, operators and
managers of communications sites.
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ATC competes for acquisitions and new tower construction sites with wireless
service providers, site developers and other independent tower operating
companies. ATC believes that competition for acquisitions and tower
construction sites will increase, causing price increases, and that additional
competitors may enter the tower market, certain of which may have greater
financial and other resources than ATC.
ATC also faces strong competition for build to suit opportunities, principally
from other independent communications sites operators and site developers,
certain of which (including OmniAmerica) have more extensive experience and
offer a broader range of services (principally in constructing for themselves
rather than managing the construction of others) than ATC can presently offer.
PROPERTIES
ATC's interests in its communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements, and easements, licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a three
to five acre tract which supports towers, equipment shelters and guy wires to
stabilize the structure. Less than 2,500 square feet are required for a self-
supporting tower structure of the kind typically used in metropolitan areas.
Land leases generally have twenty (20) to twenty-five (25) year terms, with
three five-year renewals, or are for five-year terms with automatic renewals
unless ATC otherwise specifies. Some land leases provide "trade-out"
arrangements whereby ATC allows the landlord to use tower space in lieu of
paying all or part of the land rent. ATC will have more than 2,000 land leases,
giving effect to all pending acquisitions including the mergers. Pursuant to
the ATC Credit Facilities, the senior lenders have liens on, among other
things, all leases of tower space, contracts relating to the management of
towers for others, cash, accounts receivable, the stock and inter-company debt
of all Restricted Subsidiaries (as defined in the ATC Credit Facilities),
inventory and other personal property, fixtures, intellectual property, as well
as certain fee and leasehold interests, and the proceeds thereof of ATC and its
Restricted Subsidiaries.
LEGAL PROCEEDINGS
ATC is occasionally involved in legal proceedings that arise in the ordinary
course of business. While the outcome of these proceedings cannot be predicted
with certainty, management does not expect any pending matters to have a
material adverse effect on ATC's financial condition or results of operations.
EMPLOYEES
As of December 31, 1998, ATC employed approximately 450 full time individuals
and considers its employee relations to be satisfactory. Giving effect to the
OmniAmerica Merger and the TeleCom Merger, ATC will employ approximately 1,050
full time individuals.
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MANAGEMENT OF AMERICAN TOWER
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of ATC:
NAME AGE POSITION
---- --- --------
Steven B. Dodge(1).......... 53 Chairman of the Board, President and Chief
Executive Officer
Alan L. Box................. 47 Executive Vice President and Director
Douglas Wiest............... 46 Chief Operating Officer
Arnold L. Chavkin(1)(2)(3).. 47 Director
James S. Eisenstein......... 40 Executive Vice President--Corporate
Development
J. Michael Gearon, Jr....... 33 Executive Vice President and Director
Fred R. Lummis(2)........... 44 Director
Randall Mays(2)............. 32 Director
Thomas H. Stoner(1)(3)...... 64 Director
Maggie Wilderotter(3)....... 43 Director
Joseph L. Winn.............. 47 Treasurer and Chief Financial Officer
Jack D. Furst............... 39 Director Nominee
Dean H. Eisner.............. 40 Director Nominee
- --------
(1) Member of the Executive Committee; Mr. Stoner is the Chairman of the
Executive Committee.
(2) Member of the Audit Committee; Mr. Mays is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Stoner is the Chairman of the
Compensation Committee.
Two independent directors will be elected annually, commencing in 1999, by the
holders of ATC Class A Common Stock, voting as a separate class. All directors
hold office until the annual meeting of the stockholders of ATC next following
their election or until their successors are elected and qualified. Each
executive officer is appointed annually and serves at the discretion of the ATC
Board of Directors (the "ATC Board").
As a condition to the consummation of the OmniAmerica Merger, a nominee of the
principal stockholder of OmniAmerica, Jack D. Furst, Chairman of OmniAmerica
and a Managing Director and Principal of Hicks, Muse, Tate & Furst,
Incorporated, an affiliate of OmniAmerica's principal stockholder ("Hicks,
Muse"), will be elected as a director of ATC. See "Certain Directors and
Executive Officers " in Appendix III. As a condition to the consummation of the
TeleCom Merger, a nominee of the principal member of TeleCom, Dean H. Eisner,
will be elected as a director of ATC. Mr. Eisner is Vice President, Business
Development and Planning of Cox Enterprises, Inc., an affiliate of Cox Telecom
Towers, Inc., the principal member of TeleCom.
Steven B. Dodge is the Chairman, President and Chief Executive Officer of ATC.
Mr. Dodge was also the Chairman of the Board, President and Chief Executive
Officer of American Radio, a position he occupied since its founding on
November 1, 1993 until consummation of the CBS Merger. Mr. Dodge was the
founder in 1988 of Atlantic Radio, L.P. which was one of the predecessor
entities of American Radio. Prior to forming Atlantic, Mr. Dodge served as
Chairman and Chief Executive Officer of American Cablesystems Corporation, a
cable television company he founded in 1978 and operated as a privately-held
company until 1986 when it completed a public offering in which its stock was
priced at $14.50 per share. American Cablesystems was merged into Continental
Cablevision, Inc. in 1988 in a transaction valued at more than $750.0 million,
or $46.50 per share. The initial public offering of American Radio Class A
Common Stock occurred in June 1995 at a price of $16.50 per share. Upon
consummation of the CBS Merger, each share of American Radio Class A Common
Stock was exchanged into $44.00 and one share of ATC Class A Common Stock. Mr.
Dodge also serves as a director of PageMart Wireless, Inc., American Media,
Inc. and the National Association of Broadcasters.
73
Alan L. Box is an Executive Vice President and a director of ATC. Mr. Box
served as Chief Operating Officer of ATC from June 1997 to March 1998 at which
time he assumed his present role as the Executive Vice President responsible
for the video, voice and data transmission business of ATC. Mr. Box also was an
Executive Vice President and a director of American Radio from April, 1997 when
EZ Communications, Inc. ("EZ") merged into American Radio (the "EZ Merger")
until consummation of the CBS Merger. Prior to the EZ Merger, Mr. Box was
employed by EZ, starting in 1974 as the General Manager of EZ's Washington,
D.C. area radio station. He became Executive Vice President and General Manager
and a director of EZ in 1979, President of EZ in 1985 and Chief Executive
Officer of EZ in 1995. He serves as a director of George Mason Bankshares, Inc.
and George Mason Bank.
Arnold L. Chavkin is a member of the Executive Committee and the Audit
Committee of the ATC Board.Mr. Chavkin was the Chairman of the Audit Committee
of the Board of American Radio from its founding until consummation of the CBS
Merger and of the Audit Committee of ATC from its organization until November
1998. Mr. Chavkin is a general partner of Chase Capital Partners ("CCP"),
previously known as Chemical Venture Partners ("CVP"), which is a general
partner of Chase Equity Associates, L.P. ("CEA"), a stockholder of ATC, and
previously a principal stockholder of American Radio and of Multi Market
Communications, Inc., one of the predecessors of American Radio. Mr. Chavkin
has been a General Partner of CCP and CVP since January 1992 and has served as
the President of Chemical Investments, Inc. since March 1991. Chase Capital,
which is an affiliate of CEA, owned approximately 18.1% of Old ATC; Chase,
which is also an affiliate of Chase Capital is a lender under the ATC Credit
Facilities for the Borrower Subsidiaries with a 5.2% participation. Mr. Chavkin
is also a director of R&B Falcon Drilling Company, Bell Sports Corporation,
Wireless One, Inc. and Patina Oil & Gas Corporation. Prior to joining Chemical
Investments, Inc., Mr. Chavkin was a specialist in investment and merchant
banking at Chemical Bank for six years. For the information with respect to the
interests of an affiliate of Mr. Chavkin, CCP and CEA in ATC, see "Business of
American Tower--Recent Transactions--Old ATC Merger".
James S. Eisenstein is the Executive Vice President--Corporate Development of
ATC. Mr. Eisenstein has overall responsibility for seeking out acquisition and
development opportunities for ATC. Mr. Eisenstein helped form ATC in the summer
of 1995. From 1990 to 1995, he was Chief Operating Officer for Amaturo Group
Ltd., a broadcast company operating eleven radio stations and four broadcasting
towers, several of which were purchased by American Radio. Mr. Eisenstein
serves on the Board of Directors of the Personal Communications Industry
Association, the leading international trade association representing the
wireless communications industry. He has extensive experience in structuring
acquisitions and the operation and management of broadcasting and tower
businesses.
J. Michael Gearon, Jr. was the principal stockholder and Chief Executive
Officer of Gearon, a position he has held since September 1991. As a condition
to consummation of the Gearon Transaction, Mr. Gearon was elected a director of
ATC and President of Gearon Communications, the division of ATC which operates
its site acquisition business. See "Business of American Tower--Recent
Transactions".
Fred R. Lummis, a member of the Audit Committee of the ATC Board, has served as
Chairman, President and Chief Executive Officer of Advantage Outdoor Company,
L.P. since June 1998 and served as Chairman, Chief Executive Officer and
President of Old ATC since its organization in October 1994. Mr. Lummis has
been the President of Summit Capital, a private investment firm, since 1990.
Mr. Lummis currently serves on the board of several private companies and is a
trustee of the Baylor College of Medicine. See "Business of American Tower--
Recent Transactions--Old ATC Merger".
Randall Mays, Chairman of the Audit Committee of the ATC Board, has served as
Chief Financial Officer and Executive Vice President of Clear Channel since
February 1997, prior to which he had served as a Vice President and Treasurer
since joining Clear Channel in 1993. Prior to joining Clear Channel, he was an
associate at Goldman, Sachs & Co. Clear Channel was a principal stockholder of
Old ATC with a 31.3% interest. See "Business of American Tower--Recent
Transactions--Old ATC Merger".
74
Thomas H. Stoner is the Chairman of the Executive Committee and the
Compensation Committee of the ATC Board. Mr. Stoner was the Chairman of the
Executive Committee and the Compensation Committee of the Board of American
Radio since its founding until consummation of the CBS Merger. Mr. Stoner
founded Stoner Broadcasting Systems, Inc. ("Stoner") in 1965. Stoner, which was
one of the predecessors of American Radio, operated radio stations for over 25
years in large, medium and small markets. Mr. Stoner is a director of Gaylord
Container Corporation and a trustee of the Chesapeake Bay Foundation.
Maggie Wilderotter is a member of the Compensation Committee of the ATC Board.
Ms. Wilderotter is the President and Chief Executive Officer of Wink
Communications, a California company that develops technology for adding simple
interactivity and graphics to mass-market consumer electronic products. Before
joining Wink, Ms. Wilderotter was the Executive Vice President of National
Operations for AT&T Wireless Services, Inc., and Chief Executive Officer of
AT&T's Aviation Communications Division. Ms. Wilderotter has also served as
Senior Vice President of McCaw Cellular Communications, Inc. and Regional
President of its California, Nevada and Hawaii Region. Prior to her work in the
wireless industry, Ms. Wilderotter spent 12 years with U.S. Computer Services,
Inc./Cable Data, as Senior Vice President and General Manager. In 1989 she was
the recipient of the National Cable Television Association's Vanguard Award and
the Top Women in Cable & Telecommunications award. Ms. Wilderotter serves on
the boards of Airborne Express, Electric Lightwave, Inc., Gaylord
Entertainment, Jacor Communications and the California Cable Television
Association.
Douglas Wiest is the Chief Operating Officer of ATC. Mr. Wiest joined ATC in
February 1998, initially as the Chief Operating Officer of Gearon
Communications, and assumed his current position in March 1998. Prior to
joining ATC, Mr. Wiest was Regional Vice President of Engineering and
Operations for Nextel's southern region. Prior to joining Nextel in 1993, Mr.
Wiest was employed by McCaw Communications where he was engaged in network
systems development for approximately three years and by Pacific Telesis where
he was engaged in strategic planning and operations for approximately eight
years.
Joseph L. Winn is the Chief Financial Officer and Treasurer of ATC. Mr. Winn
was also Treasurer, Chief Financial Officer and a director of American Radio
since its founding until consummation of the CBS Merger. In addition to serving
as Chief Financial Officer of American Radio, Mr. Winn was Co-Chief Operating
Officer responsible for Boston operations until May 1994. Mr. Winn served as
Chief Financial Officer and a director of the general partner of Atlantic after
its organization. He also served as Executive Vice President of the general
partner of Atlantic from its organization until June 1992, and as its President
from June 1992 until the organization of American Radio. Prior to joining
Atlantic, Mr. Winn served as Senior Vice President and Corporate Controller of
American Cablesystems after joining that company in 1983.
75
EXECUTIVE COMPENSATION
All of the executive officers of ATC listed below (other than Mr. Eisenstein)
were employees of American Radio (or, in the case of Mr. Box, of EZ prior to
the EZ Merger) since the organization of ATC in 1995 until consummation of the
CBS Merger. During that period the highest paid executive officers, other than
Mr. Dodge, who are employees of ATC, were Messrs. Box, Winn and Eisenstein. The
compensation of each of those individuals (other than Mr. Eisenstein) was
principally for acting as an executive officer of American Radio (or, in the
case of Mr. Box, EZ prior to the EZ Merger) and, accordingly, information
provided with respect to their executive compensation represents compensation
paid by American Radio (with the exception of Mr. Eisenstein).
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- -----------------------------------------
SHARES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(7) COMPENSATION
------------------ ---- --------- ------ ------------ ---------- ------------
Steven B. Dodge(1)(2)... 1996 $ 297,250(/3/) 50,000 -- 40,000 $ 4,910(/9/)
Chairman of the Board,
President 1997 $ 502,338(/3/) -- -- 100,000 $ 1,716(/9/)
and Chief Executive
Officer 1998 $ 370,348(/4/) -- -- 3,300,000 $ 5,946(/9/)
Douglas Wiest(2)........ 1998 $ 210,840(/5/) -- -- 365,001 $ 4,576(/10/)
Chief Operating Officer
J. Michael Gearon,
Jr.(2)................. 1998 $ 176,176(/5/) -- -- 334,451 $ 346(/11/)
Executive Vice
President
Joseph L. Winn(1)(2).... 1996 $ 257,250(/3/) 42,500 -- 20,000 $11,456(/9/)
Treasurer and Chief
Financial Officer 1997 $ 352,329(/3/) 40,000 -- 35,000 $12,876(/9/)
1998 $ 298,781(/4/) -- 610,000 $13,210(/9/)
James S. Eisenstein(2).. 1996 $ 169,250(/5/) 19,000 -- 273,119(/8/) $ 8,669(/9/)
Executive Vice
President-- 1997 $ 212,367(/5/) -- -- 27,310(/8/) $12,656(/9/)
Corporate Development 1998 $ 207,843(/5/) 50,000 -- 150,000 $13,295(/9/)
Alan L. Box(1)(2)....... 1997 $ 264,400(/6/) -- -- 100,000 $ 1,216(/12/)
Executive Vice
President 1998 $ 105,417(/5/) -- -- 225,000 $ 174(/11/)
- --------
(1) Represents both annual and long-term compensation paid by American Radio
and American Tower.
(2) The Compensation Committee of ATC approved annual base salaries for 1998
for Mr. Dodge, and each of its other five executive officers, at the
following rates: Mr. Dodge: $250,000; Mr. Box: $50,000; Mr. Eisenstein
$200,000; Mr. Gearon: $200,000; Mr. Wiest: $225,000; and Mr. Winn:
$225,000. Such salaries commenced (in the case of Messrs. Dodge, Winn and
Eisenstein) with the consummation of the CBS Merger on June 4, 1998, prior
to which time such individuals (other than Mr. Eisenstein) were paid by
American Radio at their then present compensation rates.
(3) Includes American Radio's matching 401(k) plan contributions.
(4) Includes American Radio and American Tower matching 401(k) plan
contributions.
(5) Includes American Tower matching 401(k) plan contributions.
(6) Includes $87,500 paid by ATC commencing October 1, 1997.
(7) Except in the case of Mr. Eisenstein, represents for the years 1996 and
1997 options to purchase American Radio Common Stock granted by American
Radio; such options, to the extent they were unexercised at the time of
the CBS Merger, were exchanged for options to purchase shares of ATC
Common Stock on the basis and for the numbers shown below under "--Stock
Option Information".
76
(8) Represents options to purchase shares of ATI granted pursuant to the ATI
plan that were exchanged as part of the CBS Merger for options to purchase
shares of ATC Class A Common Stock.
(9) Includes group term life insurance, automobile lease and parking expenses
paid by American Radio and American Tower.
(10) Includes group term insurance and automobile expense paid by American
Tower.
(11) Includes group term life insurance paid by American Tower.
(12) Includes group term life insurance paid by American Radio.
DIRECTOR COMPENSATION
The independent directors of ATC have received options to purchase 50,000
shares of Class A Common Stock, which are exercisable in 20% cumulative annual
increments commencing one year from the date of grant and expire at the end of
ten years. The outside directors also receive $2,500 for attending each board
meeting, $1,000 for each committee on which he or she serves, and $3,000 for
each committee on which he or she serves as chairperson.
STOCK OPTION INFORMATION
Effective November 5, 1997, ATC instituted the 1997 Stock Option Plan, as
amended and restated (the "Plan"), which is administered by the Compensation
Committee of the ATC Board. The Plan was designed to encourage directors,
consultants and key employees of American Tower and its subsidiaries to
continue their association with ATC by providing opportunities for such persons
to participate in the ownership of ATC and in its future growth through the
granting of stock options, which may be options designed to qualify as
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options not intended
to qualify for any special tax treatment under the Code ("NQOs"). The Plan
provides that ATC may not grant options to purchase more than 5,000,000 shares
per year per participant.
The duration of the ISOs and NQOs granted under the Plan may be specified by
the Compensation Committee pursuant to each respective option agreement, but in
no event shall any such option be exercisable after the expiration of ten (10)
years after the date of grant. In the case of any employee who owns (or is
considered under Section 424(d) of the Code as owning) stock possessing more
than ten percent of the total combined voting power of all classes of stock of
ATC, no ISO shall be exercisable after the expiration of five (5) years from
the date such option is granted. The option pool under the Plan consists of an
aggregate of 15,000,000 shares of Common Stock that may consist of shares of
Class A Common Stock, shares of Class B Common Stock or some combination
thereof. The Plan was amended in June 1998 to provide that all future grants of
options under the Plan must be to purchase shares of Class A Common Stock. The
Plan includes options that were converted from the stock option plan of ATI. In
July 1996, ATI adopted a stock option plan and, pursuant thereto, options were
granted to various officers of ATI. In connection with the CBS Merger, those
options to purchase the common stock of ATI were converted into options to
acquire shares of Class A Common Stock under the Plan.
In addition to the 15,000,000 shares authorized under the Plan, options to
purchase an aggregate of 922,344 shares of Class A Common Stock and 1,251,760
shares of Class B Common Stock were outstanding as of December 31, 1998 outside
of the Plan. These options are the result of the exchange of certain American
Radio options that occurred pursuant to the CBS Merger and the assumption of
certain options that occurred pursuant to the merger with Old ATC. Each
unexercised option to purchase shares of ARS common stock held by persons who
became directors or employees of ATC were exchanged for ATC options. The
American Radio options were exchanged in a manner that preserved the spread in
such ARS options between the option exercise price and the fair market value of
ARS common stock and the ratio of the spread to the exercise price prior to
such conversion and, to the extent applicable, otherwise in conformity with the
rules under Section 424(a) of the Code and the regulations promulgated
thereunder.
77
During the year ended December 31, 1998 the only options granted pursuant to
the Plan to the individuals referred to in "--Executive Compensation" above
were as shown below. All such options (other than that for 1,700,000 shares of
Class B Common Stock granted to Mr. Dodge) are to purchase shares of Class A
Common Stock.
OPTION GRANTS IN 1998 INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
TERMS(A)
---------------------------
NUMBER OF
SHARES OF
UNDERLYING EXERCISE
OPTIONS PRICE EXPIRATION
NAME GRANTED PER SHARE DATE 5% 10%
---- ---------- --------- ---------- ------------- -------------
Steven B. Dodge......... 1,700,000 10.00 1/8/08 $10,691,209 $27,093,622
1,300,000 21.125 6/22/08 17,275,107 43,778,512
300,000 23.75 12/01/08 4,480,874 11,355,415
Douglas Wiest........... 240,001 13.00 1/22/08 1,962,159 4,972,497
125,000 23.75 12/01/08 1,867,031 4,731,423
J. Michael Gearon,
Jr. ................... 234,451 13.00 1/22/08 1,916,785 4,857,509
100,000 23.75 12/01/08 1,493,625 3,785,138
Joseph L. Winn.......... 275,000 10.00 1/8/08 1,729,460 4,382,792
210,000 21.125 6/22/08 2,790,594 7,071,913
125,000 23.75 12/01/08 1,867,031 4,731,423
Alan L. Box............. 120,000 10.00 1/8/08 754,674 1,912,490
80,000 21.125 6/22/08 1,063,083 2,694,062
25,000 23.75 12/01/08 373,406 946,285
James S. Eisenstein..... 28,000 10.00 1/8/08 176,091 446,248
22,000 21.125 6/22/08 292,348 740,867
100,000 23.75 12/01/08 1,493,625 3,785,138
- --------
(a) The potential realizable value at assumed annual rates of stock price
appreciation for the option term of 5% and 10% would be $16.29 and $25.94
respectively, with respect to the $10.00 per share options, $34.42 and
$54.81, respectively, with respect to the $21.125 per share options,
$21.18 and $33.72 respectively, with respect to the $13.00 per share
options and $38.69 and $61.60, respectively, with respect to the $23.75
per share options. A 5% and 10% per year appreciation in stock price from
$10.00 per share yields appreciation of $6.29 per share and $15.94 per
share, respectively. A 5% and 10% per year appreciation in stock price
from $21.125 per share yields appreciation of $13.29 per share and $33.68
per share, respectively. A 5% and 10% per year appreciation in stock price
from $13.00 per share yields appreciation of $8.18 per share and $20.72
per share, respectively. A 5% and 10% per year appreciation in stock price
from $23.75 per share yields appreciation of $14.94 per share and $37.85
per share, respectively. The actual value realized, if any, will depend on
the excess of the stock price over the exercise price on the date the
option is exercised, so that there is no assurance the value realized by
an executive will be at or near the amounts reflected in this table.
The unexercised options granted pursuant to the Plan (or outstanding with
respect to options granted under the American Radio plan or the ATI plan) to
the individuals referred to in "--Executive Compensation" above were as
follows:
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(A)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Steven B. Dodge............ 484,816 3,716,441 $12,248,812 $55,097,654
Douglas Wiest.............. 0 365,001 0 4,700,667
J. Michael Gearon, Jr. .... 0 334,451 0 4,463,509
Joseph L. Winn............. 95,883 740,526 2,371,611 10,613,051
Alan L. Box................ 62,156 473,622 1,292,223 8,335,701
James S. Eisenstein........ 243,922 330,819 6,010,720 5,759,475
- --------
(a) Based on the closing price of the ATC Class A Common Stock on the NYSE on
December 31, 1998 of $29.56 per share.
78
All employees of American Radio who became employees of ATC (which includes,
among others, Messrs. Box, Dodge, Eisenstein and Winn) who held options to
purchase ARS common stock (including Mr. Box: 100,000 shares; Mr. Dodge:
290,000 shares; Mr. Eisenstein: 40,000 shares; and Mr. Winn: 280,000 shares)
were given the opportunity to convert their American Radio options into ATC
options. Such conversion was effectuated upon consummation of the CBS Merger in
a manner designed to preserve the spread in such ARS options between the option
exercise price and the fair market value of ARS common stock and the ratio of
the spread to the exercise price prior to such conversion and, to the extent
applicable, otherwise in conformity with the rules under Section 424(a) of the
Code and the regulations promulgated thereunder. Messrs. Box, Dodge, Eisenstein
and Winn exercised their respective rights to exchange American Radio options
for ATC options such that such individuals hold ATC options as follows (based
on a $64 7/8 and $20 7/8 per share value for the ARS common stock and ATC
Common Stock, respectively): Mr. Box: 310,778 shares of Class A Common Stock at
$8.77 per share; Mr. Dodge: an aggregate of 901,257 shares of Class B Common
Stock at prices ranging between $3.19 and $10.00 per share; Mr. Eisenstein:
124,311 shares of Class B Common Stock at $7.64 per share; and Mr. Winn: an
aggregate of 405,037 shares of Class B Common Stock and 25,080 shares of Class
A Common Stock at prices ranging between $2.05 and $9.09 per share. See
"Principal Stockholders of American Tower".
In 1996 Mr. Eisenstein was granted options pursuant to the ATI plan for an
aggregate of 200,000 shares at $5.00 per share. Such options became exercisable
to the extent of 80,000 shares on July 1, 1997 and became exercisable in 20%
cumulative annual increments commencing on July 1, 1998, and expires September
9, 2006. As part of the CBS Merger, the ATI options were exchanged for ATC
options, and Mr. Eisenstein received options to purchase 273,117 shares of
Class A Common Stock at $3.66 per share, of which 163,871 shares are presently
purchasable. An additional ten-year option to purchase 20,000 shares of common
stock of ATI at $7.50 per share was granted to Mr. Eisenstein on January 2,
1997. Pursuant to the CBS Merger, that option was exchanged for an ATC options
to purchase 27,311 of shares of Class A Common Stock at $5.49 per share, of
which 5,462 shares are presently purchasable.
CERTAIN TRANSACTIONS
Chase was a lender with a 6.75% participation under the loan agreement entered
into by ATI and has a 5.2% participation under the ATC Credit Facilities for
the Borrower Subsidiaries. Chase is an affiliate of CVP, the general partner of
CEA; Mr. Chavkin, a director of ATC and formerly a director of American Radio,
is a general partner of CVP. At December 31, 1998, the aggregate principal
amount outstanding under the ATC Credit Facilities of the Borrower Subsidiaries
was approximately $275.0 million. Chase's share of interest and fees paid
by ATC pursuant to its various credit arrangements was $0.2 million and $0.8
million in 1997 and 1998, respectively. For information with respect to the
interests of Chase Capital, an affiliate of Mr. Chavkin, in ATC and the Old ATC
merger, see "Business of American Tower--Recent Transactions--Old ATC Merger".
For information with respect to the sale of shares of ATC Common Stock to Mr.
Dodge and certain other officers and directors (and their affiliates, family
members and family trusts) of American Radio and ATC, see "Business of American
Tower--Recent Transactions--ATC Private Placement".
Management believes that the above transactions, to the extent they were with
affiliated parties, were on terms, and ATC intends to continue its policy that
all future transactions between it and its officers, directors, principal
stockholders and affiliates will be on terms, not less favorable to ATC than
those which could be obtained from unaffiliated parties.
79
PRINCIPAL STOCKHOLDERS OF AMERICAN TOWER
The following information sets forth certain information known to ATC as of
December 31, 1998 with respect to the shares of ATC Common Stock that are
beneficially owned as of such date by (i) each person known by ATC to own more
than 5% of the outstanding ATC Common Stock, (ii) each director of ATC, (iii)
each executive officer of ATC, and (iv) all directors and executive officers of
ATC as a group. The table also sets forth information of a comparable nature
giving effect, in addition to the foregoing, to the consummation of the
OmniAmerica Merger and the TeleCom Merger. The number of shares beneficially
owned by each director or executive officer is determined according to the
rules of the Securities and Exchange Commission (the "Commission"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power
and also any shares which the individual or entity has the right to acquire
within sixty days of December 31, 1998 through the exercise of an option,
conversion feature or similar right. Except as noted below, each holder has
sole voting and investment power with respect to all shares of ATC Common Stock
listed as owned by such person or entity. The failure of the TeleCom Merger to
be consummated would increase, although not materially, the percentages shown
under the "Pro Forma for the Mergers" heading.
SHARES OF COMMON STOCK BENEFICIALLY OWNED PRO FORMA
PRIOR TO THE MERGERS FOR THE MERGERS**
------------------------------------------------ ---------------------
PERCENT OF PERCENT OF
PERCENT PERCENT PERCENT OF TOTAL PERCENT OF TOTAL
OF OF COMMON VOTING COMMON VOTING
NUMBER CLASS A CLASS B STOCK POWER STOCK POWER
---------- ------- ------- ---------- ---------- ---------- ----------
DIRECTORS AND EXECUTIVE
OFFICERS
Steven B. Dodge(1)...... 6,614,460 * 65.65 6.04 33.30 5.07 30.08
Thomas H. Stoner(2)..... 1,398,487 * 15.16 1.29 7.33 1.08 6.60
Alan L. Box(3).......... 937,084 * -- * * * *
Arnold L. Chavkin
(CEA)(4)............... 7,780,708 4.95 -- 7.17 2.57 6.01 2.30
James S. Eisenstein(5).. 279,984 * * * * * *
J. Michael Gearon,
Jr.(6)................. 4,021,328 4.16 -- 3.70 2.15 3.10 1.94
Fred R. Lummis(7)....... 1,496,748 1.54 -- 1.37 * 1.15 *
Randall Mays (Clear
Channel)(8)............ 9,019,717 9.34 -- 8.30 4.83 6.96 4.35
Douglas Wiest(9)........ 83,557 * -- * * * *
Maggie Wilderotter
(10)................... -- -- -- -- -- -- --
Joseph L. Winn(11)...... 417,826 * 3.85 * 1.90 * 1.71
All executive officers
and directors as a
group (eleven
persons)(12)........... 32,049,899 21.27 82.09 28.96 52.22 24.35 47.24
DIRECTOR NOMINEES
Jack D. Furst (13)...... -- -- -- -- -- + +
Dean H. Eisner(14)...... -- -- -- -- -- + +
FIVE PERCENT
STOCKHOLDERS:
Thomas O. Hicks(15)..... -- -- -- -- -- 5.67 3.54
HMTF/Omni Partners, L.P.
(16)................... -- -- -- -- -- 5.65 3.52
- --------
* Less than 1%.
** Assumes that an aggregate of 4.2 million shares are issued pursuant to the
TeleCom Merger and no adjustment occurs as a consequence of the closing date
price adjustments. (See "The TeleCom Merger--General" for information with
respect to such adjustment.)
+ For information regarding the pro forma beneficial ownership of Messrs.
Furst and Eisner, see Notes 13 and 14.
(1) Mr. Dodge is Chairman of the Board, President and Chief Executive Officer
of ATC. His address is 116 Huntington Avenue, Boston, Massachusetts 02116.
Includes 10,030 shares of Class A Common Stock and 3,567,761 shares of ATC
Class B Common Stock owned by Mr. Dodge, an aggregate of 25,050 shares of
Class A Common Stock and 28,065 shares of ATC Class B Common Stock owned
by three trusts for the benefit of Mr. Dodge's children, 66,720 shares of
ATC Class A Common Stock and 2,000,000 shares of ATC Class B Common Stock
owned by a limited liability company, of which Mr. Dodge is the sole
member and 5,000 shares of ATC Class A Common Stock owned by Mr. Dodge's
wife.
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Mr. Dodge disclaims beneficial ownership in all shares owned by such
trusts and his wife. Does not include an aggregate of 329,423 shares of
ATC Class B Common Stock purchasable under ATC options received in
exchange for American Radio options upon consummation of the CBS Merger;
includes an aggregate of 571,834 shares of ATC Class B Common Stock as to
which such exchanged options are exercisable. Does not include 1,360,000
shares of ATC Class B Common Stock purchasable under an option granted on
January 8, 1998 under the Plan, 1,300,000 shares of ATC Class A Common
Stock purchasable under an option granted on June 22, 1998 under the Plan
and 300,000 shares of ATC Class A Common Stock purchasable under an option
granted on December 1, 1998 under the Plan; includes 340,000 shares as to
which the January option is exercisable. Does not include 170 shares of
ATC Class A Common Stock held by Thomas S. Dodge, an adult child of
Mr. Dodge, with respect to which Mr. Dodge disclaims beneficial ownership.
(2) Mr. Stoner is Chairman of the Executive Committee of the ATC Board of
Directors. His address is 116 Huntington Avenue, Boston, Massachusetts
02116. Includes 915,000 shares of ATC Class B Common Stock owned by Mr.
Stoner, 46,311 shares of ATC Class B Common Stock owned by his wife, an
aggregate of 403,460 shares of ATC Class B Common Stock and 22,500 shares
of Class A Common Stock owned by trusts of which he and/or certain other
persons are trustees. Mr. Stoner disclaims beneficial ownership of
221,140 shares of ATC Class B Common Stock and 22,500 shares of ATC Class
A Common Stock owned by such trusts. Does not include 98,975 shares of
ATC Class A Common Stock and 61,454 shares of ATC Class B Common Stock
owned by Mr. Stoner's adult children. Does not include 9,323 shares of
ATC Class A Common Stock purchasable under an ATC Option received in
exchange for an American Radio option upon consummation of the CBS
Merger; includes 6,216 shares of ATC Class A Common Stock as to which
such exchanged option is exercisable. Does not include 20,000 shares of
ATC Class A Common Stock purchasable under an option granted on January
8, 1998 under the Plan and 25,000 shares of ATC Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan;
includes 5,000 shares as to which the January option is exercisable.
(3) Mr. Box is a director and an Executive Vice President of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 2,070
shares of ATC Class A Common Stock owned by two trusts for the benefit of
Mr. Box's children and 62,156 shares of ATC Class A Common Stock
purchasable under ATC options received in exchange for American Radio
options upon consummation of the CBS Merger; does not include 248,622
shares of ATC Class A Common Stock purchasable under such exchanged
options. Does not include 96,000 shares of ATC Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan,
80,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 25,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998
under the Plan; includes 24,000 shares as to which the January option is
exercisable.
(4) Mr. Chavkin is a director of ATC. His address is 116 Huntington Avenue,
Boston, Massachusetts 02116. Mr. Chavkin, as a general partner of CCP,
which is the general partner of CEA may be deemed to own beneficially
shares held by CEA and Chase Capital, an affiliate of Mr. Chavkin.
Includes 26,911 shares of ATC Class A Common Stock and 3,002,008 shares
of ATC Class C Common Stock owned by CEA and 4,740,573 shares of ATC
Class A Common Stock owned by Chase Capital. Mr. Chavkin disclaims such
beneficial ownership of such shares. The address of CCP and CEA is
380 Madison Avenue, 12th Floor, New York, New York 10017. Does not
include 9,323 shares of ATC Class A Common Stock purchasable under an ATC
Option received in exchange for an American Radio option upon
consummation of the CBS Merger; includes 6,216 shares of ATC Class A
Common Stock as to which such exchanged option is exercisable. Does not
include 20,000 shares of ATC Class A Common Stock purchasable under an
option granted on January 8, 1998 under the Plan and 25,000 shares of ATC
Class A Common Stock purchasable under an option granted on December 1,
1998 under the Plan; includes 5,000 shares as to which the January option
is exercisable.
(5) Mr. Eisenstein is Executive Vice President--Corporate Development of ATC.
His address is 116 Huntington Avenue, Boston, Massachusetts 02116. Does
not include 49,722 shares of ATC Class B Common Stock purchasable under
ATC options received in exchange for American Radio options upon
81
consummation of the CBS Merger; includes 74,589 shares of ATC Class B
Common Stock as to which such options will be exercisable. Does not include
an aggregate of 125,635 shares of ATC Class A Common Stock purchasable
under options that were issued in exchange for ATI options; includes an
aggregate of 174,795 shares of ATC Class A Common Stock as to which such
options are exercisable. Does not include 22,400 shares of ATC Class A
Common Stock purchasable under an option granted on January 8, 1998 under
the Plan, 22,000 shares of ATC Class A Common Stock purchasable under an
option granted on June 22, 1998 under the Plan and 100,000 shares of ATC
Class A Common Stock purchasable under an option granted on December 1,
1998 under the Plan; includes 5,600 shares as to which the January option
is exercisable.
(6) Mr. Gearon is an Executive Vice President and director of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 3,974,437
shares of ATC Class A Common Stock currently owned by Mr. Gearon. Does not
include 400,000 shares of ATC Class A Common Stock held by a trust for the
benefit of Mr. Gearon's children of which J. Michael Gearon, Sr. is the
trustee. Mr. Gearon disclaims beneficial ownership in all shares owned by
such trust. Does not include 187,560 shares of Class A Common Stock
purchasable under an option granted on January 22, 1998 under the Plan and
100,000 shares of ATC Class A Common Stock purchasable under an option
granted on December 1, 1998 under the Plan; includes 46,891 shares as to
which the January option is exercisable.
(7) Mr. Lummis was the Chairman, Chief Executive Officer and President of ATC
and is a director of ATC. His address is 3411 Richmond Avenue, Suite 400,
Houston, Texas 77046. Includes 69,105 shares of ATC Class A Common Stock
owned by Mr. Lummis, an aggregate of 256,252 shares of ATC Class A Common
Stock owned by trusts of which he is trustee, 674,349 shares of Class A
Common Stock owned by Summit Capital, an affiliate of Mr. Lummis by reason
of Mr. Lummis's 50% ownership of the common stock of Summit Capital, and
497,042 shares of ATC Class A Common Stock purchasable under an option
originally granted by Old ATC which became an option to purchase Class A
Common Stock pursuant to the merger of Old ATC with ATC. Mr. Lummis
disclaims beneficial ownership in all shares owned by the trusts and
disclaims beneficial ownership of all shares owned by Summit Capital,
except to the extent of his pecuniary interest therein. Does not include
25,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 25,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan.
(8) Mr. Mays, the Chief Financial Officer and an Executive Vice President of
Clear Channel, is a director of ATC. His address is P.O. Box 659512, San
Antonio, Texas 78265-9512. Clear Channel owns all of the shares of ATC
Class A Common Stock shown in the table. Mr. Mays disclaims beneficial
ownership of Clear Channel's ownership of such shares. Does not include
25,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 25,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan.
(9) Mr. Wiest is the Chief Operating Officer of ATC. His address is 116
Huntington Avenue, Boston, Massachusetts 02116. Includes 35,556 shares of
ATC Class A Common Stock owned by Mr. Wiest. Does not include 192,000
shares of ATC Class A Common Stock purchasable under an option granted on
January 22, 1998 under the Plan and 125,000 shares of ATC Class A Common
Stock purchasable under an option granted on December 1, 1998 under the
Plan; includes 48,001 shares as to which the January option is
exercisable.
(10) Ms. Wilderotter is a director of ATC. Her address is 116 Huntington
Avenue, Boston, Massachusetts 02116. Does not include 25,000 shares of ATC
Class A Common Stock purchasable under an option granted on June 22, 1998
under the Plan and 25,000 shares of ATC Class A Common Stock purchasable
under an option granted on December 1, 1998 under the Plan.
(11) Mr. Winn is the Treasurer and Chief Financial Officer of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 2,000
shares of ATC Class A Common Stock and 230,657 shares of ATC Class B
Common Stock owned individually by Mr. Winn and 100 shares of ATC Class A
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Common Stock held for the benefit of his children. Does not include an
aggregate of 81,292 shares of ATC Class B Common Stock and 15,048 shares
of ATC Class A Common Stock purchasable under ATC options received in
exchange for American Radio options upon consummation of the CBS Merger;
includes an aggregate of 120,037 shares of ATC Class B Common Stock and
10,032 shares of ATC Class A Common Stock as to which such options are
exercisable. Does not include 220,000 shares of ATC Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan,
210,000 shares of ATC Class A Common Stock purchasable under an option
granted on June 22, 1998 under the Plan and 125,000 shares of ATC Class A
Common Stock purchasable under an option granted on December 1, 1998 under
the Plan; includes 55,000 shares as to which the January option is
exercisable.
(12) Includes all shares stated to be owned in the preceding notes.
(13) Mr. Furst is the Chairman of the Board of OmniAmerica. If the OmniAmerica
Merger is consummated, Mr. Furst will join the Board of Directors of ATC.
Mr. Furst beneficially owns 17,604 shares of OmniAmerica Common Stock.
Giving effect to the OmniAmerica Merger, Mr. Furst would own 19,364
shares of ATC Class A Common Stock. His address is 200 Crescent Court,
Suite 1600, Dallas, Texas 75201-6950. For information with respect to his
ownership of OmniAmerica Common Stock, see "Security Ownership of Certain
Beneficial Owners and Management" in Appendix III.
(14) Mr. Eisner is Vice President, Business Development and Planning of Cox
Enterprises, Inc., an affiliate of the principal TeleCom member. If the
TeleCom Merger is consummated, Mr. Eisner will join the Board of
Directors of American Tower. Giving effect to the TeleCom Merger, Cox
Enterprises, Inc. would "beneficially" own 2,092,440 shares of ATC Class
A Common Stock, representing 1.62% of the ATC Common Stock and 1.01% of
the total voting power of the ATC Common Stock. His address is 1400 Lake
Hearn Drive, N.E., Atlanta, GA 30319. Mr. Eisner does not directly own
any TeleCom Units. For information with respect to the ownership of
TeleCom Units by Cox Enterprises, Inc. and Cox Telecom Towers, Inc., an
affiliate of Cox Enterprises, Inc., see "Security Ownership of Certain
Beneficial Owners and Management" in Appendix IV.
(15) Assuming the OmniAmerica merger is completed, includes (i) 26,853 shares
owned of record by Mr. Hicks, (ii) 3,163 shares owned of record by six
trusts of which Mr. Hicks serves as trustee, and (iii) 7,313,692 shares
owned of record by HMTF/Omni Partners, L.P., a limited partnership of
which the sole general partner is HM3/OmniAmerica Partners, LLC, a
limited liability company of which the sole member is HM3 Coinvestors,
L.P., a limited partner of which the sole general partner is Hicks, Muse
G.P. Partners III, L.P., a limited partnership of which the sole general
partner is Hicks, Muse Fund III Incorporated, a corporation of which Mr.
Hicks is the sole director, Chairman of the Board, Chief Executive
Officer, Secretary and sole stockholder. Mr. Hicks expressly disclaims
(i) the existence of any group and (ii) beneficial ownership with respect
to any shares not owned of record by him. Mr. Hicks's address is 200
Crescent Court, Suite 1600, Dallas, Texas 75201-6950.
(16) The address of HMTF/Omni Partners, L.P. is 200 Crescent Court, Suite
1600, Dallas, Texas 75201-6950. See footnote 15 above for description of
beneficial ownership.
83
THE OMNIAMERICA MERGER
GENERAL
On November 16, 1998, ATC, ATI and OmniAmerica entered into an Agreement and
Plan of Merger (the "OmniAmerica Merger Agreement") pursuant to which
OmniAmerica will merge with and into ATI (a wholly-owned subsidiary of ATC),
with ATI being the surviving corporation. Pursuant to the OmniAmerica Merger
Agreement, each holder of OmniAmerica common stock at the effective time of the
OmniAmerica Merger will receive 1.1 shares of ATC Class A Common Stock for each
share of OmniAmerica Common Stock held by such holder, and such holder will
receive cash in lieu of fractional shares. ATC will issue an aggregate of
approximately 17.7 million shares of ATC Class A Common Stock (including shares
issuable upon exercise of options to acquire OmniAmerica common stock which, to
the extent they are outstanding as of the effectiveness of the OmniAmerica
Merger, will become options to acquire ATC Class A Common Stock).
THE MERGER AGREEMENT
The provisions of the OmniAmerica Merger Agreement are comparable to those
customary in similar transactions, including without limitation (a) detailed,
substantially identical representations and warranties of ATC and OmniAmerica
that do not survive the closing; (b) covenants as to the interim conduct of the
business of OmniAmerica (including the necessity of approval of ATC for
acquisitions or construction commitments not previously disclosed and over
certain specified amounts); (c) agreements of ATC to indemnify the officers and
directors of OmniAmerica and to maintain officer and director insurance for
their benefit; (d) closing conditions, including (i) receipt of opinions of
counsel as to the federal income tax consequences of the OmniAmerica Merger to
the parties and, in the case of OmniAmerica, its stockholders, and (ii) the
election of Mr. Furst as a director of ATC; (e) the nonsolicitation of
employees in the event of termination of the OmniAmerica Merger Agreement; and
(f) a termination fee of $12.0 million payable to ATC if (i) the OmniAmerica
stockholders do not approve the OmniAmerica Merger by April 30, 1999 (or
September 30, 1999, if extended by American Tower) or (ii) OmniAmerica
terminates the Merger Agreement because of a Superior Proposal as defined in
Section 6.5 of the OmniAmerica Merger Agreement. Capitalized terms used herein
but not otherwise defined shall have the meaning set forth in the OmniAmerica
Merger Agreement.
It is a condition of OmniAmerica's obligation to consummate the OmniAmerica
Merger that Messrs. Dodge and Stoner shall have entered into a voting agreement
with OmniAmerica and certain of the OmniAmerica stockholders, pursuant to which
Messrs. Dodge and Stoner will have agreed to vote in favor of the election of
Mr. Furst (or any other nominee of Hicks, Muse reasonably acceptable to the ATC
Board) so long as Hicks, Muse (or its affiliates) hold at least 50% of the
shares of ATC Class A Common Stock to be received by an affiliate of Hicks,
Muse in the OmniAmerica Merger.
The Boards of Directors of both companies can agree to terminate the merger
agreement at any time. Either company can terminate the merger agreement if:
. we do not complete the merger by April 30, 1999. However, American Tower
may extend this deadline to September 30, 1999 if (i) all of the
conditions to closing other than those relating to the HSR Act and FCC
approvals have been obtained, and (ii) ATC waives continued compliance
with certain conditions, including those referring to the absence of a
material adverse effect on the business or financial condition of either
company;
. a governmental authority permanently prohibits the merger; or
. the terminating party is not in material breach and either (i) the
merger has not been consummated by April 30, 1999 (or September 30,
1999, if applicable), or (ii) the other party is in material breach of
the merger agreement or materially breaches its representations or
warranties resulting in its inability to satisfy a condition to the
completion of merger.
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OmniAmerica also has the right to terminate the merger agreement if it approves
a Superior Proposal (as defined on page I-46 of Appendix I). OmniAmerica must
pay American Tower a fee of $12.0 million in the event OmniAmerica terminates
because it has accepted a Superior Proposal.
The OmniAmerica Merger will be accounted for as a "purchase," as such term is
used under generally accepted accounting principles. Accordingly, from and
after the effectiveness of the OmniAmerica Merger, OmniAmerica's consolidated
results of operations will be included in ATC's consolidated results of
operations. For purposes of preparing consolidated financial statements, ATC
will establish a new accounting basis for OmniAmerica's assets and liabilities
based upon the fair market values thereof and ATC's purchase price, including
the amount of liabilities and obligations of OmniAmerica at the time of the
OmniAmerica Merger. Accordingly, the purchase accounting adjustments made in
connection with the development of the pro forma condensed financial
information appearing elsewhere in this document are preliminary and have been
made solely for purposes of developing such pro forma consolidated financial
information to comply with disclosure requirements of the Commission. Although
the final allocation will differ, the pro forma consolidated financial
information reflects management's best estimate based upon currently available
information. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements of American Tower".
A copy of the OmniAmerica Merger Agreement is attached herewith as Appendix I.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As noted above, it is a condition of OmniAmerica's obligation to consummate the
OmniAmerica Merger that Messrs. Dodge and Stoner shall have entered into a
voting agreement with OmniAmerica and certain of the OmniAmerica stockholders,
pursuant to which Messrs. Dodge and Stoner will have agreed to vote in favor of
the election of Mr. Furst (or any other nominee of Hick, Muse reasonably
acceptable to the ATC Board) so long as Hicks, Muse (or its affiliates) hold at
least 50% of the shares of ATC Class A Common Stock to be received by an
affiliate of Hicks, Muse in the OmniAmerica Merger.
American Tower anticipates that certain executives of OmniAmerica will serve as
either employees or consultants of American Tower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the federal income tax considerations
anticipated to be material to a OmniAmerica stockholder in connection with the
OmniAmerica Merger. The discussion does not intend to be exhaustive of all
possible tax considerations; for example, the discussion does not contain a
description of any state, local, or foreign tax considerations. In addition,
the summary discussion is intended to address only those federal income tax
considerations that are generally applicable to an OmniAmerica stockholder who
holds OmniAmerica Common Stock as a capital asset, and it does not discuss all
aspects of federal income taxation that might be relevant to a specific
OmniAmerica stockholder in light of its particular investment or tax
circumstances. In particular, the discussion does not purport to deal with all
aspects of taxation that may be relevant to OmniAmerica stockholders subject to
special treatment under the federal income tax laws, including, without
limitation: individual retirement and other tax-deferred accounts; banks;
insurance companies; tax-exempt organizations; dealers or brokers in securities
or currencies; persons subject to the alternative minimum tax; persons who hold
their OmniAmerica Common Stock as part of a straddle, hedging, or conversion
transaction; persons whose functional currency is other than the U.S. dollar;
persons who received their OmniAmerica Common Stock as compensation in
connection with the performance of services or upon exercise of options
received as compensation in connection with the performance of services;
persons eligible for tax treaty benefits; and, except as specifically discussed
below, foreign corporations, foreign partnerships, other foreign entities, and
individuals who are not citizens or residents of the United States.
It is the policy of the Internal Revenue Service (the "IRS") not to rule
directly on the tax status of transactions such as the OmniAmerica Merger, and
no such ruling will be sought. The obligations of ATC and
85
OmniAmerica to effect the OmniAmerica Merger are each conditioned upon receipt
by each from its counsel of an opinion dated as of the effective time of the
OmniAmerica Merger, in form and substance reasonably satisfactory to it,
regarding certain federal income tax consequences of the OmniAmerica Merger.
Such opinions are required to be collectively substantially to the effect that
for federal income tax purposes the OmniAmerica Merger constitutes a
reorganization within the meaning of section 368 of the Code, that no gain or
loss will be recognized by ATC, ATI, or OmniAmerica as a result of the
OmniAmerica Merger and that no gain or loss will be recognized by United States
holders of OmniAmerica Common Stock as a result of the OmniAmerica Merger,
except that gain or loss will be recognized in respect of cash received in lieu
of a fractional share of ATC Class A Common Stock. In rendering their opinions,
counsel will rely upon, and assume the factual accuracy of, certain customary
representations of ATC, ATI, and OmniAmerica. Such opinions are not binding on
the IRS and would not, in any event, prevent the IRS from challenging the tax-
free nature of the OmniAmerica Merger under the Code.
The information in the following summary discussion is based on (i) the Code,
(ii) current, temporary and proposed Treasury regulations promulgated under the
Code, (iii) the legislative history of the Code, (iv) current administrative
interpretations and practices of the IRS (including its practices and policies
as expressed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer that receives such a ruling), and (v) court
decisions, all as of the date of this document (collectively, the "Federal
Income Tax Laws"). No assurance can be given that future legislation, Treasury
regulations, administrative interpretations and court decisions will not
significantly change the current law or adversely affect existing
interpretations of the Federal Income Tax Laws. Any such change could apply
retroactively to transactions preceding the date of the change, and neither ATC
nor OmniAmerica will undertake to inform the OmniAmerica stockholders of any
such change. No assurance can be provided that the statements set forth in the
following summary discussion (which do not bind the IRS or the courts) would
not be challenged by the IRS or would be sustained by a court if so challenged.
The following discussion is a general summary of the material United States
federal income tax consequences of the OmniAmerica Merger and assumes that the
OmniAmerica Merger will qualify as a tax-free reorganization within the meaning
of section 368 of the Code. Sullivan & Worcester LLP, tax counsel to ATC, has
rendered its opinion (a copy of which has been filed as an exhibit to the
Registration Statement of which this document is a part) that the discussion
contained in this section describes the material federal income tax
consequences of the OmniAmerica Merger. The discussion is based upon the
Federal Income Tax Laws, all of which are subject to change at any time,
possibly with retroactive effect. The following discussion is not intended to
be, and should not be construed by the OmniAmerica stockholders as, tax advice.
OmniAmerica stockholders are urged to consult with their own tax advisors to
determine the federal, state, local, and foreign tax consequences of the
OmniAmerica Merger.
Tax Consequences to ATC, ATI, and OmniAmerica. No gain or loss will be
recognized for federal income tax purposes by ATC, ATI, or OmniAmerica as a
consequence of the OmniAmerica Merger.
Tax Consequences to Holders of OmniAmerica Common Stock. OmniAmerica's
obligation to effect the OmniAmerica Merger is conditioned upon delivery of an
opinion from Weil, Gotshal & Manges LLP, its counsel, dated as of the effective
time of the OmniAmerica Merger and based upon certain customary
representations, substantially to the effect that for federal income tax
purposes the OmniAmerica Merger constitutes a reorganization within the meaning
of section 368(a) of the Code and that no gain or loss will be recognized by
United States holders of OmniAmerica Common Stock as a result of the
OmniAmerica Merger except to the extent of cash or property other than ATC
Class A Common Stock received. Assuming such treatment, the material federal
income tax consequences to a holder of OmniAmerica Common Stock would be as
follows.
Except to the extent of cash received in lieu of fractional shares (discussed
in the next paragraph) and subject to the discussion below with respect to
certain foreigners, no gain or loss will be recognized by a holder of
86
OmniAmerica Common Stock who receives ATC Class A Common Stock pursuant to the
OmniAmerica Merger. Except to the extent of tax basis allocable to cash
received in lieu of fractional shares (discussed in the next paragraph), the
tax basis of the ATC Class A Common Stock received by a holder of OmniAmerica
Common Stock will be the same as the aggregate tax basis of the OmniAmerica
Common Stock surrendered therefor. The holding period of the ATC Class A Common
Stock received will include the holding period of the OmniAmerica Common Stock
surrendered therefor.
Cash received by a holder of OmniAmerica Common Stock in lieu of a fractional
share interest in ATC Class A Common Stock will be treated as received in
exchange for such fractional share interest, and gain or loss will be
recognized for federal income tax purposes, measured by the difference between
the amount of cash received and the portion of the basis of the OmniAmerica
Common Stock allocable to such fractional share interest (measured as though
such fractional share interest were actually issued and as though tax basis
were allocated to such fractional share interest pursuant to the above
allocation). Such gain or loss would be capital gain or loss, and will be long-
term if the surrendered OmniAmerica Common Stock had been held for more than
one year at the effective time of the OmniAmerica Merger. In the case of
certain noncorporate taxpayers, amounts treated as long-term capital gain are
generally subject to taxation at preferential rates.
Notwithstanding the preceding three paragraphs, because OmniAmerica may be a
"United States real property holding corporation" as defined in section 897 of
the Code, certain U.S. flow-through entities such as partnerships, trusts, and
estates may have a tax withholding liability under sections 1445 or 1446 of the
Code in respect of any gain realized on their OmniAmerica Common Stock in the
OmniAmerica Merger that is allocable to such flow-through entity's foreign
partners or foreign beneficiaries. Provided that the OmniAmerica Common Stock
continues to be traded on the Nasdaq National Market and provided further that
the OmniAmerica Common Stock continues to be regularly quoted by brokers or
dealers making a market in such stock, tax withholding liability under sections
1445 and 1446 of the Code can apply only to a flow-through entity that, at any
time during the five-year period ending with the effective time of the
OmniAmerica Merger, owned (either directly or by attribution under the
constructive attribution rules in sections 318 and 897 of the Code) more than
five percent (5%) of the then outstanding OmniAmerica Common Stock (for this
purpose, substituting the then outstanding common stock of OmniAmerica's
predecessor Specialty Teleconstructors, Inc. for applicable portions of such
five-year period). Although there can be no guarantee, OmniAmerica anticipates
that the OmniAmerica Common Stock will continue to be traded on the Nasdaq
National Market through the effective date of the OmniAmerica Merger, and that
such stock will continue to be regularly quoted by brokers or dealers making a
market in such stock through such date. However, if the OmniAmerica Common
Stock should cease to be quoted on the Nasdaq National Market or should cease
to be regularly quoted by brokers or dealers making a market in such stock,
then the tax withholding liability under sections 1445 and 1446 of the Code may
apply to any flow-through entity with foreign partners or beneficiaries that
disposes of OmniAmerica Common Stock in the OmniAmerica Merger, regardless of
its percentage ownership of such stock.
Similarly, and again because OmniAmerica may be a "United States real property
holding corporation" as defined in section 897 of the Code, certain foreign
corporations, foreign partnerships, other foreign entities, and individuals who
are not citizens or residents of the United States may recognize gain or loss
on the exchange of their OmniAmerica Common Stock in the OmniAmerica Merger,
and may as a result be required to file United States federal income tax
returns. In computing the amount of any such recognized gain or loss, the
amount realized attributable to the ATC Class A Common Stock received by an
OmniAmerica shareholder is the fair market value of such stock, which may be
computed as the average of the high and low sales prices of ATC Class A Common
Stock on the NYSE for the date on which the OmniAmerica Merger occurs (though
other valuation methodologies may also be possible). Provided that the
OmniAmerica Common Stock continues to be traded on the Nasdaq National Market,
and provided further that the OmniAmerica Common Stock continues to be
regularly quoted by brokers or dealers making a market in such stock, gain or
loss recognition under section 897 of the Code can apply only to a foreigner
that, at any time during the five-year period ending with the effective time of
the OmniAmerica Merger, owned (either directly or by attribution under the
constructive attribution rules in sections 318 and 897 of the Code) more than
five percent (5%) of the then outstanding
87
OmniAmerica Common Stock (for this purpose, substituting the then outstanding
common stock of OmniAmerica's predecessor Specialty Teleconstructors, Inc. for
applicable portions of such five-year period). Although there can be no
guarantee, OmniAmerica anticipates that the OmniAmerica Common Stock will
continue to be traded on the Nasdaq National Market through the effective date
of the OmniAmerica Merger, and that such stock will continue to be regularly
quoted by brokers or dealers making a market in such stock through such date.
However, if the OmniAmerica Common Stock should cease to be quoted on the
Nasdaq National Market or should cease to be regularly quoted by brokers or
dealers making a market in such stock, then gain or loss recognition under
section 897 of the Code may apply to any foreigner who disposes of OmniAmerica
Common Stock in the OmniAmerica Merger, regardless of its percentage ownership
of such stock.
Backup and FIRPTA Withholding. Under the Code, a holder of OmniAmerica Common
Stock may be subject, under certain circumstances, to back-up withholding at a
31% rate with respect to the amount of cash received pursuant to the
OmniAmerica Merger unless such holder provides to the exchange agent proof of
an applicable exemption or a correct taxpayer identification number, and
otherwise complies with applicable requirements of the back-up withholding
rules to be described in more detail in the exchange transmittal documents. In
addition, because OmniAmerica may be a "United States real property holding
corporation" as defined in section 897 of the Code, the total consideration
otherwise issuable to a holder of OmniAmerica Common Stock pursuant to the
OmniAmerica Merger may be subject to withholding of 10% of such total amount,
unless either (i) the OmniAmerica Common Stock continues to be traded on the
Nasdaq National Market until the consummation of the OmniAmerica Merger, and in
the calendar quarter in which the OmniAmerica Merger is consummated or in the
immediately preceding calendar quarter, the OmniAmerica Common Stock continues
to be regularly quoted by brokers or dealers making a market in such stock, or
(ii) pursuant to instructions to be mailed to holders of OmniAmerica Common
Stock, such holder certifies to ATC under penalties of perjury that the holder
is a citizen or resident of the United States, a domestic corporation, a
domestic partnership, or other United States person as defined in Code section
7701(a)(30), and provides such other customary information as may be required
in connection with such certification. Although there can be no guarantee,
OmniAmerica anticipates that the OmniAmerica Common Stock will continue to be
traded on the Nasdaq National Market through the effective date of the
OmniAmerica Merger, and that such stock will continue to be regularly quoted by
brokers or dealers making a market in such stock through such date, and
accordingly certification of nonforeign status is not expected to be required.
Any amounts withheld under the foregoing withholding rules are not an
additional tax and may be refunded or credited against the holder's federal
income tax liability, provided that the required information is furnished to
the IRS. In addition, the absence or existence of applicable withholding does
not necessarily excuse an OmniAmerica stockholder (whether domestic or foreign)
from filing applicable United States federal income tax returns.
HOLDERS OF OMNIAMERICA COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE OMNIAMERICA MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
THE FOREGOING SECTION IS A SUMMARY DESCRIPTION OF MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE OMNIAMERICA MERGER AND RELATED TRANSACTIONS, WITHOUT
CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER OF
OMNIAMERICA COMMON STOCK. IN ADDITION, IT DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE OMNIAMERICA MERGER AND RELATED TRANSACTIONS. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE , INCLUDING
POSSIBLY WITH RETROACTIVE EFFECT, AND ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THE DISCUSSION.
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STOCKHOLDER APPROVAL
The ATC Board, the OmniAmerica Board and American Tower as the holder of all of
the outstanding capital stock of ATI have each approved the OmniAmerica Merger
and the OmniAmerica Merger Agreement. Holders of a majority of the outstanding
OmniAmerica Common Stock have executed a written consent approving the
OmniAmerica Merger and approving and adopting the OmniAmerica Merger Agreement.
No further vote of the OmniAmerica stockholders is required. OmniAmerica will
not hold a stockholder meeting and OmniAmerica will not solicit any proxies.
See "Security Ownership of Certain Beneficial Owners and Management" in
Appendix III.
EXCHANGE PROCEDURES
As soon as reasonably practicable after the effective time of the OmniAmerica
Merger, and in any event within five (5) business days thereof, an Exchange
Agent (the "Exchange Agent"), selected by ATC and reasonably satisfactory to
OmniAmerica, will mail to each holder of record of a certificate or
certificates of OmniAmerica which immediately prior to the effectiveness of the
OmniAmerica Merger evidenced outstanding shares of OmniAmerica Common Stock
(the "OmniAmerica Certificates") (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the OmniAmerica Certificates
in exchange for the OmniAmerica Merger Consideration.
Upon surrender of an OmniAmerica Certificate for cancellation to the Exchange
Agent, together with the letter of transmittal, duly executed, and such other
documents as ATC or the Exchange Agent may reasonably request, the holder of
such OmniAmerica Certificate will be entitled to receive promptly in exchange
therefor the certificates representing that number of shares of ATC Class A
Common Stock (together with any cash in lieu of fractional shares) that such
holder has the right to receive (in each case less the amount of any required
withholding taxes, if any), and the OmniAmerica Certificate so surrendered
shall forthwith be canceled. Until surrendered, each OmniAmerica Certificate
will, at any time after the effectiveness of the OmniAmerica Merger, represent
only the right to receive the OmniAmerica Merger Consideration with respect to
the shares of OmniAmerica Common Stock formerly represented thereby.
HOLDERS OF OMNIAMERICA COMMON STOCK SHOULD SEND OMNIAMERICA CERTIFICATES TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE INSTRUCTIONS
ACCOMPANYING, THE LETTER OF TRANSMITTAL.
No fractional shares of ATC Class A Common Stock will be issued upon the
surrender for exchange of OmniAmerica Certificates. In lieu of any such
fractional shares, the holders thereof will be entitled to receive from the
Exchange Agent a cash payment equal to such fraction multiplied by the average
of the high and low sales prices per share of ATC Class A Common Stock on the
NYSE, or, if not then traded on the NYSE, on the principal stock exchange or
other trading market on which the ATC Class A Common Stock is admitted to
trading, as reported by The Wall Street Journal, for the day on which the
OmniAmerica Merger becomes effective.
No dividends or other distributions declared after the effectiveness of the
OmniAmerica Merger on ATC Class A Common Stock will be paid with respect to any
shares of ATC Class A Common Stock represented by a OmniAmerica Certificate
until such OmniAmerica Certificate is surrendered for exchange in accordance
with the procedures described above.
APPRAISAL RIGHTS OF STOCKHOLDERS
Under Delaware law, no right of dissent exists with respect to a plan of merger
in favor of stockholders of any class or series that is listed on a national
securities exchange, included in the national market system by the National
Association of Security Dealers, Inc. or held of record by at least 2,000
stockholders, if the consideration to be received in such merger is (i) cash in
lieu of fractional shares, (ii) shares of capital stock of
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the surviving corporation, or (iii) shares of capital stock of another entity
that are listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc. or held
of record by at least 2,000 stockholders. OmniAmerica's stockholders have no
right of dissent in connection with the OmniAmerica Merger because the
OmniAmerica Common Stock is listed on the Nasdaq National Market and all
stockholders of OmniAmerica will receive ATC Class A Common Stock and/or cash
in lieu of fractional shares. At the effective time of the OmniAmerica Merger,
the shares of ATC Class A Common Stock issued in the OmniAmerica Merger will be
listed on the NYSE.
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THE TELECOM MERGER
GENERAL
On November 16, 1998, ATC, ATI and TeleCom entered into an Agreement and Plan
of Merger (the "Original TeleCom Merger Agreement") providing for the merger of
Telecom and a subsidiary of ATC. An Amended and Restated Agreement and Plan of
Merger was entered into on December 18, 1998 (the "TeleCom Restated Merger
Agreement"), and further amended on December 23, 1998 (the TeleCom Restated
Merger Agreement, as so amended, the "TeleCom Merger Agreement"). Pursuant to
the TeleCom Merger, each holder of TeleCom Units at the effective time of the
TeleCom Merger will receive his proportionate share of the TeleCom Merger
Consideration. The TeleCom Merger Consideration is $148.75 million less the
amount, if any, by which TeleCom's debt at the time of the TeleCom Merger is
more than $30.0 million. The TeleCom Merger Consideration will be increased by
the aggregate amount incurred by TeleCom after November 16, 1998 for approved
acquisitions and new tower construction and other capital expenditures. The
TeleCom Merger Consideration is payable 60% ($89.25 million, assuming no debt
adjustment) in shares of ATC Class A Common Stock and 40% ($59.50 million,
assuming no such adjustment) in cash. The cash portion shall be increased or
deceased based on the working capital of TeleCom at the time of the TeleCom
Merger.
The number of shares of ATC Class A Common Stock to be delivered is based on
the average of the high and low sales prices of the ATC Class A Common Stock
for the ten (10) trading days before and after the execution of the Original
TeleCom Merger Agreement, but in no event less than $19.20 or more than $21.25
per share. During this 20-day period, the average closing price for the ATC
Class A Common Stock was $21.55. The TeleCom Merger Agreement provides that
such $21.25 per share is subject to adjustment depending on its trading levels
ten (10) trading days prior to the closing date of the TeleCom Merger and the
achievement of certain revenue growth targets for the TeleCom Merger. In the
event the Closing Date Share Price (defined below) is less than $17.75 ($21.25
minus $3.50 per share) (the "Floor Share Price"), the number of shares of ATC
Class A Common Stock to be delivered (the "ATC Stock Consideration") will be
increased by a number of shares of ATC Class A Common Stock determined as
follows:
(i) Divide the ATC Stock Consideration by the Floor Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (i) from the amount
determined under paragraph (ii).
In the event the Closing Date Share Price exceeds $24.75 ($21.25 plus $3.50 per
share) (the "Ceiling Share Price") the ATC Stock Consideration will be
decreased by a number of shares of ATC Class A Common Stock determined as
follows:
(i) Divide the ATC Stock Consideration by the Ceiling Share Price;
(ii) Divide the ATC Stock Consideration by the Closing Date Share Price;
and
(iii) Subtract the amount determined under paragraph (ii) from the amount
determined under paragraph (i).
The term "Closing Date Share Price" means, in effect, the average of the high
and low sales prices for the ATC Class A Common Stock on each of the ten (10)
trading days prior to the closing date of the TeleCom Merger.
The TeleCom Merger Agreement also provides for a reduction in the aggregate
number of shares of ATC Class A Common Stock deliverable as part of the ATC
Stock Consideration to the extent that TeleCom fails to achieve certain growth
in its Monthly Tower Revenue Run Rate (as defined in the TeleCom Merger
Agreement). In the event the actual Monthly Tower Revenue Run Rate of TeleCom
for the month ended immediately prior to the Closing Date is less than the TCT
Target Monthly Tower Revenue Run Rate, the ATC Stock Consideration shall be
reduced by a number of shares of ATC Common Stock determined as follows:
(i) the difference between the actual Monthly Tower Revenue Run Rate of
TeleCom and the TCT Target Monthly Tower Revenue Run Rate shall be
determined (the "Revenue Shortfall");
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(ii) the Revenue Shortfall shall be multiplied by twelve (12), and the
result shall be multiplied by fourteen and eight-tenths (14.8) (the
"Enterprise Value Shortfall"); and
(iii) the Enterprise Value Shortfall shall be divided by the Closing Date
Share Price; provided, however, that in no event shall the number of shares
of ATC Common Stock to be delivered as part of the ATC Stock Consideration
be reduced by more than 600,000 shares of ATC Common Stock.
The term "TCT Target Monthly Tower Revenue Run Rate" shall mean the amount set
forth opposite the month in which the Closing shall occur:
MONTH IN WHICH CLOSING
OCCURS TCT TARGET MONTHLY REVENUE RUN RATE
---------------------- -----------------------------------
January $1,008,179
February $1,022,862
March $1,037,544
April $1,052,226
May $1,067,132
June $1,079,143
July and thereafter $1,091,378
In the event that the Closing shall occur after June 1999, the Monthly Tower
Revenue Run Rate of TeleCom shall be determined exclusively on the basis of its
Monthly Tower Revenue Run Rate as of June 30, 1999, and no adjustment to the
ATC Stock Consideration shall be made under Section 3.1 of the TeleCom Merger
Agreement on account of the amount of TeleCom's Monthly Tower Revenue Run Rate
as of a date later than June 30, 1999.
Assuming that there is no adjustment as a consequence of the Closing Date Share
Price provisions, ATC will issue an aggregate of approximately 4.2 million
shares of ATC Class A Common Stock to the TeleCom members. Accordingly, the
holder (the "TeleCom Unitholders") of each unit of TeleCom (the "TeleCom
Units") will be entitled to receive $4.05 in cash (assuming there is no working
capital adjustment) and .2858 shares of ATC Class A Common Stock.
The Original TeleCom Merger Agreement was amended and restated by the TeleCom
Merger Agreement to (i) reduce the aggregate consideration of $155.0 million to
$148.75 million, (ii) provide, among other things, for the distribution to the
TeleCom members of all issued and outstanding limited liability company equity
interests in a new subsidiary, TeleCom Towers-Pacific, L.L.C. ("TTP"), into
which TeleCom contributed its partnership interest in Prime-Telecom
Communications Co., a California general partnership ("Prime"), and (iii)
provide for the merger of a newly-organized subsidiary of ATI with and into
TeleCom which will be the surviving entity. See "--The Merger Agreement--
TeleCom Merger Agreement" below for information with respect to the receipt by
the TeleCom members of an estimated $6.25 million relating to such new
subsidiary.
BACKGROUND OF THE MERGER
The ATC Board and the Management Committee of TeleCom (the "TeleCom Management
Committee") each believe that the TeleCom Merger Agreement and the transactions
contemplated thereby (including the cash and number of shares of ATC Class A
Common Stock to be received by the TeleCom Unitholders) in the best interests
of its stockholders and members, respectively. ATI, as the sole stockholder of
the newly-organized merger subsidiary, has approved the TeleCom Merger
Agreement and the transactions contemplated thereby. The holders of all of the
Class B TeleCom Units, which represents a majority of the TeleCom Units, have
approved and adopted the TeleCom Merger Agreement and approved the TeleCom
Merger by written consent. Accordingly, since approval of the ATC stockholders
is not required, no further action by the stockholders or members, as the case
may be, of any of the parties is required.
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TELECOM REASONS FOR MERGER
The TeleCom Management Committee believes that the terms of the TeleCom Merger
are fair to and in the best interests of TeleCom and its members. In approving
the TeleCom Merger Agreement and the transactions contemplated thereby, the
TeleCom Management Committee consulted with TeleCom's management and considered
a number of factors, including without limitation: (i) the potential for
accelerating TeleCom's long-term objective of establishing a more
geographically diversified and larger tower network; (ii) the structure and
terms of the transaction, including the form and amount of consideration to be
received by TeleCom's members, which were the result of arm's length
negotiations between ATC and TeleCom, the fact that holders of Class B Units
will receive for their Units the same consideration offered the holders of
Class A Units, and the fact that ATC Class A Common Stock they will receive in
the TeleCom Merger will be listed on the NYSE; (iii) the fact that the TeleCom
Merger would enhance the liquidity of the investment of all holders of TeleCom
Units by converting their equity interests in TeleCom into a publicly traded
security with a significant publicly traded "float" and active trading market;
(iv) the potential for synergies from the companies' complementary assets and
businesses, (v) the consolidation benefits that would be available to the
combined entity after the TeleCom Merger; (vi) the benefits of being
stockholders in a substantially larger and geographically diversified company
with ATC's management and financial resources, and (vii) alternatives to the
TeleCom Merger, including, among other things, remaining an independent entity
and eventually pursuing an initial public offering, the fact that TeleCom
management had solicited interest from, and had preliminary discussions with,
several potential strategic partners prior to signing the Original TeleCom
Merger Agreement, and that ultimately, ATC made a final, substantive proposal
to consummate a transaction with TeleCom offering less risk and more value to
the TeleCom members, as well as the risks associated and likelihood of any such
alternative transactions becoming available and being completed.
Increased Scope of the Surviving Corporation. The TeleCom Management Committee
considered the increased size and scope of the surviving corporation of the
TeleCom Merger as a significant advantage of the TeleCom Merger. In the view of
the TeleCom Management Committee, ATC, as a leading independent owner and
operator of communications sites, with its national network, will be well
positioned to compete for national accounts in the communications site
industry. In addition to providing TeleCom Members with a national company, the
TeleCom Merger would, in the judgement of the TeleCom Management Committee,
create a financially stronger company that will be well-positioned to compete
for acquisitions and build to suit opportunities in the future.
Consideration to be Received by TeleCom Unitholders. The TeleCom Management
Committee considered favorably the proportion of cash and shares of ATC Class A
Common Stock to be received by the holders of TeleCom Units in light of the
relative historical and projected financial performance of TeleCom and ATC.
The TeleCom Management Committee evaluated certain financial projections for
TeleCom and ATC. These projections were prepared using somewhat differing
assumptions regarding the growth rate of new wireless systems, the construction
costs of new towers, the acquisition of existing towers from independent owners
and the expenses related to managing these operations, but ones which the
TeleCom Management Committee considered reasonable in light of the history and
current status of the two companies.
Liquidity. The TeleCom Management Committee considered favorably the fact that
the TeleCom Merger would result in the holders of TeleCom Units receiving
shares in a publicly traded company with a substantial public "float" and an
active trading market.
Consolidation Benefits. The TeleCom Management Committee viewed favorably the
benefit to ATC of combining certain of the companies' administrative functions
including finance and accounting, insurance and information technology and that
such combination could result in annual cost savings for the combined company.
The TeleCom Management Committee also considered the fact that the combined
company would have certain cost advantages over TeleCom as a stand-alone
company, because of its scope, including in terms of a nationwide network of
towers, sales and marketing and financial resources. In this regard, the
TeleCom
93
Management Committee considered the fact that the TeleCom Unitholders were to
receive stock in the combined entity and thus stood to share in the benefits of
such savings with the current holders of ATC Common Stock, although the TeleCom
Management Committee realized that no assurances could be given that any
particular level of cost synergies will be achieved.
Absence of Financial Advisor. The TeleCom Management Committee has not sought a
fairness opinion from an independent financial advisor in connection with its
consideration of the TeleCom Merger.
Other Terms of the TeleCom Merger Agreement. The TeleCom Management Committee
also considered the other terms of the TeleCom Merger Agreement, including (a)
that the beneficial interests in RCC were to be distributed to TeleCom members
without any change in the TeleCom Merger Consideration, (b) the fact that a
principal TeleCom member would have a representative on the ATC Board, (c) the
limited indemnification provisions, (d) the termination provisions, (e) the
registration rights granted to certain holders of TeleCom Units, and (f) the
other customary terms and conditions thereof.
In determining that the TeleCom Merger was in the best interests of the TeleCom
Unitholders, the TeleCom Management Committee considered the factors above as a
whole and did not assign specific or relative weights to such factors. The
TeleCom Management Committee believes that the TeleCom Merger is an opportunity
for TeleCom's members to participate in a combined enterprise that has
substantially greater business and financial resources than TeleCom would have
absent the TeleCom Merger.
THE MERGER AGREEMENT
The provisions of the TeleCom Merger Agreement are comparable to those
customary in similar transactions, including without limitation (a) detailed
representations and warranties of ATC and TeleCom that will survive the closing
for, in the case of TeleCom, a limited period of time; (b) covenants as to the
interim conduct of the business of TeleCom (including the necessity of approval
of ATC for acquisitions or construction commitments not previously disclosed to
ATC and over certain specified amounts); (c) agreements of ATC to indemnify,
among others, the officers and Management Committee members of TeleCom and to
maintain officer and director insurance for their benefit; (d) closing
conditions, including (i) receipt of customary closing opinions of counsel, and
(ii) the election of Mr. Eisner as a director of ATC; (e) the nonsolicitation
of employees in the event of termination of the TeleCom Merger Agreement; and
(f) the indemnity escrow provisions which limit the exposure of the TeleCom
members to an aggregate of $5.0 million, decreasing over time and terminating
after two years from closing. The TeleCom Merger Agreement provides, among
other conditions of consummation, that there shall not have been any event that
shall cause a material adverse change regarding ATC or TeleCom. Consummation of
the TeleCom Merger is also conditioned on the expiration or earlier termination
of the HSR Act waiting period. The TeleCom Merger Agreement also permits the
distribution by TeleCom to its members of the beneficial interests in
RCC without any change in the TeleCom Merger Consideration.
It is a condition of TeleCom's obligation to consummate the TeleCom Merger that
Messrs. Dodge and Stoner shall have entered into a voting agreement with
TeleCom and certain of the TeleCom members, pursuant to which Messrs. Dodge and
Stoner will have agreed to vote in favor of the election of Mr. Eisner (or any
other nominee of Cox Telecom Towers, Inc. ("CTT") reasonably acceptable to the
ATC Board) so long as CTT (and its affiliates) hold at least 50% of the shares
of ATC Class A Common Stock to be received by them in the TeleCom Merger.
The TeleCom Merger Agreement provides for a termination date of September 30,
1999 and that in the event either party terminates because of the intentional
or wilful breach of any covenant or agreement by the other, the terminating
party shall be entitled to a termination fee of $10.0 million.
The TeleCom Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles. Accordingly, from and after the
effectiveness of the TeleCom Merger, TeleCom's consolidated results of
operations will be included in ATC's consolidated results of operations. For
purposes of
94
preparing consolidated financial statements, ATC will establish a new
accounting basis for TeleCom's assets acquired and liabilities assumed based
upon the fair market values thereof and ATC's purchase price. Accordingly, the
purchase accounting adjustments made in connection with the development of the
pro forma condensed financial information appearing elsewhere in this document
are preliminary and have been made solely for purposes of developing such pro
forma consolidated financial information to comply with disclosure requirements
of the Commission. Although the final allocation will differ, the pro forma
consolidated financial information reflects management's best estimate based
upon currently available information. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements of American Tower".
TeleCom Merger Agreement Amendment. As a result of certain uncertainties that
had arisen in the relationship between TeleCom and its joint venture partner in
Prime, TeleCom decided to distribute its interest in Prime to TTP, owned by
TeleCom's members. As part of that decision, TeleCom, ATC and ATI agreed to
enter into the TeleCom Restated Merger Agreement which provides, among other
things, for (a) a reduction of the TeleCom Merger Consideration from $155.0
million to $148.75 million, and (b) the contribution of TeleCom's 50% interest
in Prime to TTP and the declaration of a one-time dividend distribution to all
TeleCom members of all issued and outstanding units of interest in TTP.
Simultaneously with such execution, ATC and TTP entered into put-call
arrangements pursuant to which ATI would acquire TTP for $12.5 million in the
event TTP were to acquire the other 50% interest in Prime. Under the
arrangement between TeleCom (which has been assigned to TTP) and the owner of
the other 50% interest in Prime, TTP has provided notice of termination of the
management agreement with such other owner and invoked the buy-sell provisions
of the Prime partnership agreement. Under those provisions, TTP offered to
purchase the remaining interest or to sell its interest for $6.25 million. The
other party has until February 21, 1999 to determine whether it wants to buy or
sell. In either event, the closing would be within 150 days after delivery of
the required notice under the partnership agreement. In the event the other
party elects to, and does, purchase, TTP will distribute the net proceeds
(estimated at $6.25 million) to its members who will therefore receive
approximately $.43 per unit. If TTP is a purchaser, it will be acquired by ATI
and TTP members will receive essentially the same amount as they would have had
TTP sold its 50% interest to the other owner of Prime. In either event, TeleCom
members should receive substantially the same amount as they would have had the
Original TeleCom Merger Agreement not been amended and the distribution of
TeleCom's 50% interest in Prime never been made.
The form of the merger was also changed as part of the TeleCom Restated Merger
Agreement for certain tax purposes. As a result, rather than the merger of
TeleCom into ATI as originally contemplated, a newly organized Delaware
corporate subsidiary of ATI will merge into TeleCom, which will be the
surviving entity. The TeleCom Management Committee and the holders of all of
the Class B TeleCom Units, representing more than a majority of all TeleCom
Units, approved the TeleCom Merger and the TeleCom Merger Agreement on December
18, 1998.
The TeleCom Restated Merger Agreement was amended on December 23, 1998 (the
"TeleCom Amendment") to add the provisions described above on page 92 dealing
with an adjustment in the number of shares of ATC Class A Common Stock
deliverable as part of the ATC Stock Consideration to the extent TeleCom fails
to achieve certain growth in its Monthly Tower Revenue Run Rate.
A copy of the TeleCom Merger Agreement is attached herewith as Appendix II.
A copy of the TeleCom Amendment is attached herewith as Appendix IIA.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As noted above, it is a condition of TeleCom's obligation to consummate the
TeleCom Merger that Messrs. Dodge and Stoner shall have entered into a voting
agreement with TeleCom and certain of the TeleCom members, pursuant to which
Messrs. Dodge and Stoner will have agreed to vote in favor of the election of
Mr. Eisner (or any other nominee of CTT reasonably acceptable to the ATC Board)
so long as CTT
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(and its affiliates) hold at least 50% of the shares of ATC Class A Common
Stock to be received by them in the TeleCom Merger.
It is a condition of American Tower's obligation to consummate the TeleCom
Merger that the employment agreements or other arrangements between TeleCom and
any of Messrs. Madigan, Sivertsen, D. Smith, R. Smith and M. Williams will be
terminated at no cost to American Tower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the federal income tax considerations
anticipated to be material to a TeleCom member in connection with the TeleCom
Merger. The discussion does not intend to be exhaustive of all possible tax
considerations; for example, the discussion does not contain a description of
any state, local, or foreign tax considerations. In addition, the summary
discussion is intended to address only those federal income tax considerations
that are generally applicable to a TeleCom member who holds Units as a capital
asset, and it does not discuss all aspects of federal income taxation that
might be relevant to a specific TeleCom member in light of its particular
investment or tax circumstances. In particular, the discussion does not purport
to deal with all aspects of taxation that may be relevant to TeleCom members
subject to special treatment under the federal income tax laws, including,
without limitation: individual retirement and other tax-deferred accounts;
banks; insurance companies; tax-exempt organizations; dealers or brokers in
securities or currencies; persons subject to the alternative minimum tax;
persons who hold their Units as part of a straddle, hedging, or conversion
transaction; persons whose functional currency is other than the U.S. dollar;
persons who received their Units as compensation in connection with the
performance of services or upon exercise of options received as compensation in
connection with the performance of services; persons eligible for tax treaty
benefits; and, except as specifically discussed below, foreign corporations,
foreign partnerships, other foreign entities, and individuals who are not
citizens or residents of the United States.
The information in the following summary discussion is based on the Federal
Income Tax Laws (which means, collectively, (i) the Code, (ii) current,
temporary and proposed Treasury regulations promulgated under the Code, (iii)
the legislative history of the Code, (iv) current administrative
interpretations and practices of the IRS (including its practices and policies
as expressed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer that receives such a ruling), and (v) court
decisions, all as of the date of this document). No assurance can be given that
future legislation, Treasury regulations, administrative interpretations and
court decisions will not significantly change the current law or adversely
affect existing interpretations of the Federal Income Tax Laws. Any such change
could apply retroactively to transactions preceding the date of the change, and
neither ATC nor TeleCom will undertake to inform the TeleCom members of any
such change. No assurance can be provided that the statements set forth in the
following summary discussion (which do not bind the IRS or the courts) would
not be challenged by the IRS or would be sustained by a court if so challenged.
The following discussion is a general summary of the material United States
federal income tax consequences of the TeleCom Merger. Sullivan & Worcester
LLP, tax counsel to ATC, has rendered its opinion (a copy of which has been
filed as an exhibit to the Registration Statement of which this document is a
part) that the discussion contained in this section describes the material
federal income tax consequences of the TeleCom Merger. The discussion is based
on the Federal Income Tax Laws, all of which are subject to change at any time,
possibly with retroactive effect. The discussion is not intended to be, and
should not be construed by the TeleCom members as, tax advice. The TeleCom
members are urged to consult with their own tax advisors to determine the
federal, state, local, and foreign tax consequences of the TeleCom Merger.
Tax Treatment of the TeleCom Merger--General. For federal income tax purposes,
the TeleCom Merger will be a taxable transaction and will result in the
recognition of taxable income by the TeleCom members. Although it is possible
that the IRS might view the TeleCom Merger, for federal income tax purposes, as
a taxable sale of assets by TeleCom followed by a deemed distribution of the
TeleCom Merger Consideration to
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the TeleCom members in liquidation of their interests, tax counsel has advised
that it is more likely that the TeleCom Merger will be treated as (i) a sale by
the TeleCom members of their membership interests in TeleCom to ATI (as the
owner of all of the stock of the subsidiary that will merge into TeleCom) in
exchange for the TeleCom Merger Consideration, followed by (ii) a deemed
distribution by TeleCom of its assets to ATI in liquidation of TeleCom.
Assuming such treatment, the TeleCom Merger will be treated as a fully taxable
disposition by the TeleCom members of their TeleCom Units on which gain or loss
would be recognized. Such gain or loss would equal the difference between the
amount realized from such disposition and the TeleCom member's adjusted tax
basis in the TeleCom Units disposed of. A TeleCom member's amount realized
equals the sum of (i) the amount of cash received by such member in the TeleCom
Merger, (ii) such member's share of TeleCom's liabilities, and (iii) the fair
market value of the ATC Class A Common Stock received by such member in the
TeleCom Merger. The Federal Income Tax Laws do not provide definitive guidance
regarding the determination of the fair market value of publicly traded
securities, but in computing the amount realized by a TeleCom member, ATI and
TeleCom intend to compute the fair market value of the ATC Class A Common Stock
as the average of the high and low sales prices of ATC Class A Common Stock on
the NYSE for the date on which the TeleCom Merger occurs. There can be no
assurance, however, that the IRS will not seek to establish a different fair
market value for the ATC Class A Common Stock comprising the TeleCom Merger
Consideration (e.g., by using the closing sales price of ATC Class A Common
Stock on the NYSE on such date).
In general, a TeleCom member that acquired his TeleCom Units in the TeleCom
Roll-Up had an initial tax basis in his TeleCom Units equal to (i) his adjusted
tax basis in his interest in the Partnership that was merged into TeleCom in
the TeleCom Roll-Up, minus (ii) the portion of such Partnership's liabilities
that were allocable to his interest in such Partnership at the time of the
TeleCom Roll-Up, plus (iii) the portion of TeleCom's liabilities that were
allocable to his TeleCom Units at the time of such acquisition. The initial tax
basis of a TeleCom member in his TeleCom Units generally will have been
increased by (i) the amount of any cash and the adjusted tax basis of any
property contributed to TeleCom by such member, (ii) such member's allocable
share of TeleCom's income (whether or not taxable), and (iii) such member's
share of any increase in TeleCom's liabilities, and will have been decreased by
(w) cash distributed to such member by TeleCom, (x) such member's share of any
decrease in TeleCom's liabilities, (y) such member's allocable share of
TeleCom's losses, and (z) such member's allocable share of nondeductible
expenditures of TeleCom that were not capitalizable. Such member's adjusted
basis in his TeleCom Units is also reduced by the basis to such member of
property other than cash distributed by TeleCom to such member (including
without limitation any interest in TTP or RCC distributed prior to the TeleCom
Merger). In general, a member's basis in property distributed to such member
(other than in liquidation of TeleCom) is equal to the lesser of (a) the
adjusted basis of such property to TeleCom immediately prior to such
distribution, or (b) the distributee member's adjusted basis in his TeleCom
Units immediately prior to such distribution reduced by any money distributed
in the same transaction.
Except to the extent provided in section 751 of the Code (discussed below), a
TeleCom member who holds TeleCom Units as capital assets within the meaning of
section 1221 of the Code will recognize capital gain or loss on the disposition
of such TeleCom Units. If such TeleCom Units have been held by the member for
more than one year, such gain or loss generally will be taxable as long-term
capital gain or loss. In the case of noncorporate taxpayers such as
individuals, trusts or estates, long-term capital gain generally is subject to
a maximum federal income tax rate of 20%. However, in the case of capital gain
realized on the sale of partnership interests such as the TeleCom Units, the
maximum applicable rate generally will be 25% to the extent that such gain is
attributable to the selling member's share of real estate depreciation
deductions previously taken by TeleCom. If such TeleCom Units have been held
for one year or less, such gain or loss generally will be taxable as short-term
capital gain or loss. The TeleCom members should note that if they acquired
their TeleCom Units in the TeleCom Roll-Up, their holding period for some or
all of their TeleCom Units may include the holding period that any Partnership
of which they were a partner had for some or all of the assets such Partnership
transferred to TeleCom in the TeleCom Roll-Up. TeleCom members are urged to
consult their own tax advisors with respect to determining their holding period
for their TeleCom Units.
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A TeleCom member will have a basis in the ATC Class A Common Stock received in
the TeleCom Merger equal to the value of such stock used in computing the
TeleCom member's amount realized.
Under section 751 of the Code, the amount of money and the fair market value of
the ATC Class A Common Stock received by a TeleCom member in exchange for his
TeleCom Units which is attributable to TeleCom's "unrealized receivables" or
"inventory items" is required to be treated as an amount realized from the sale
or exchange of property which is not a capital asset. In general, TeleCom's
"unrealized receivables" include, without limitation, amounts not previously
includible in income attributable to rights to payment for the sale of non-
capital assets or for services rendered or to be rendered, and certain real and
personal property to the extent that gain on the sale of such property would be
taxed as ordinary income if such property were sold or exchanged. Under certain
circumstances, the rules of section 751 of the Code could require a TeleCom
member to report ordinary income on the sale of TeleCom Units even if the
overall sale was at a loss. TeleCom members are urged to consult their tax
advisors as to the possible effect of section 751 on their disposition of
TeleCom Units.
Passive Activity Losses. Any gain recognized on the disposition of TeleCom
Units by TeleCom members who are subject to the "passive activity loss"
limitation rules under section 469 of the Code will generally constitute income
from a "passive activity" for purposes of these "passive activity loss"
limitation rules. Accordingly, subject to certain ordering rules, such gain
generally may be offset by losses from all sources, including passive activity
losses with respect to TeleCom (if any) that were "suspended" in prior taxable
years, as well as passive or active losses from other activities. Passive
activity losses incurred by a TeleCom member subject to the "passive activity
loss" limitation rules with respect to his or her TeleCom Units during taxable
years prior to the taxable year of the TeleCom Merger could be used to offset
only passive activity income from TeleCom and passive activity income from
other activities (except that in the case of certain corporations, such losses
might also have offset certain active income). As a consequence of the TeleCom
Merger, any such TeleCom member generally will be able to treat any suspended
passive activity losses with respect to the activities of TeleCom, to the
extent that such losses exceed such TeleCom member's passive activity income
for the year of the TeleCom Merger, as losses which are not from a passive
activity and, therefore, not subject to the passive activity loss limitation
rules. Any such losses (assuming they were properly accounted for and have not
been used to offset income from other activities in prior years) may be used to
offset income from all sources, including ordinary income that is not from a
passive activity. Each TeleCom member should consult with his own tax advisor
concerning (i) whether, and the extent to which, he has available suspended
passive activity losses from TeleCom, and (ii) whether, and the extent to
which, he has available suspended passive activity losses from other
investments that may be used to offset his gain from the disposition of TeleCom
Units in the TeleCom Merger.
Should the TeleCom Merger be characterized by the IRS as a taxable sale of
assets by TeleCom followed by a deemed distribution of the TeleCom Merger
Consideration to the TeleCom members in liquidation of their interests, the net
amount of gain or loss taxable to the TeleCom Members would likely be the same,
in the aggregate, as indicated in the above discussion, although the character
of such gain or loss as ordinary or capital might differ.
Withholding on Foreign TeleCom Members/Certification of Nonforeign
Status. Section 1445 of the Code provides that ATC and ATI may have to withhold
a portion of any of the TeleCom Merger Consideration paid to a TeleCom member
that is a foreign person as defined under the Code. Also, section 1446 of the
Code provides that TeleCom must pay a withholding tax to the IRS with respect
to a TeleCom member's allocable share of TeleCom's taxable income, if the
TeleCom member is a foreign person as defined under the Code. As defined under
the Code, a foreign person is an individual or entity that does not fall within
any of the following four categories: (i) a citizen or resident of the United
States, (ii) a corporation or partnership (or other entity treated as a
corporation or partnership for federal income tax purposes) created or
organized in or under the laws of the United States, any State of the United
States or the District of Columbia (unless otherwise provided by Treasury
regulations), (iii) an estate the income of which is subject to federal income
taxation regardless of
98
its source, or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust (or certain electing trusts in existence on August 20,
1996 to the extent provided in Treasury regulations).
To the best knowledge of TeleCom, very few (if any) TeleCom members are or may
be a foreign person as defined under the Code, and accordingly it is expected
that little or no withholding will be required under sections 1445 or 1446 of
the Code in connection with the TeleCom Merger. Any TeleCom member that
believes that he, she or it may be a foreign person under the Code is
encouraged to contact TeleCom immediately, so that such member's status as
foreign or domestic may be properly determined and appropriate provision made
for compliance with sections 1445 and 1446 of the Code.
The transmittal letter to be used by the Exchange Agent in delivering the cash
and ATC Class A Common Stock to the TeleCom members will contain a certificate
of nonforeign status that must be executed by a TeleCom member in order to
receive his share of the TeleCom Merger Consideration without deduction for
withholding under sections 1445 and 1446 of the Code. The certificate of
nonforeign status asks the TeleCom member to supply, under penalties of
perjury, such member's name, address, taxpayer identification number (which,
for an individual, is one's social security number), and a declaration that
such member is not a foreign person as defined under the Code.
STOCKHOLDER AND MEMBER APPROVAL
The TeleCom Merger has been approved by the ATC Board and the TeleCom
Management Committee and by ATI as the holder of all of the outstanding capital
stock of its newly-organized subsidiary that will be merged with and into
TeleCom. The TeleCom Merger has been approved by the unanimous written consent
of the holders of all of the Class B TeleCom Units, which represent more than a
majority of the outstanding TeleCom Units. Accordingly, no meeting of TeleCom
members is required or will be held.
EXCHANGE PROCEDURES
As soon as reasonably practicable after the effective time of the TeleCom
Merger, the Exchange Agent will mail to each TeleCom member (i) a letter of
transmittal and (ii) instructions for use in order to receive the TeleCom
Merger Consideration, including the furnishing of a certification (which will
be contained in the letter of transmittal) with respect, among other things, to
ownership of TeleCom Units by, and U.S. citizenship or organization of, each
TeleCom Member (the "TeleCom Certificate").
Upon delivery by a TeleCom member of the letter of transmittal, duly executed,
and such other documents as ATC or the Exchange Agent may reasonably request,
the holder of TeleCom Units will be entitled to receive promptly in exchange
therefor the cash and certificates representing that number of shares of ATC
Class A Common Stock (together with any cash in lieu of fractional shares) that
such holder has the right to receive (in each case less the amount of any
required withholding taxes, if any), and the TeleCom Units so surrendered shall
forthwith be canceled. Until surrendered, each TeleCom Unit will, at any time
after the effectiveness of the TeleCom Merger, represent only the right to
receive the TeleCom Merger Consideration with respect to the TeleCom Units
formerly represented thereby.
No fractional shares of ATC Class A Common Stock will be issued. In lieu of any
such fractional shares, the holders thereof will be entitled to receive from
the Exchange Agent a cash payment equal to such fraction multiplied by the
average of the high and low sales prices per share of ATC Class A Common Stock
on the NYSE, or, if not then traded on the NYSE, on the principal stock
exchange or other trading market on which the ATC Class A Common Stock is
admitted to trading, as reported by The Wall Street Journal, for the day the
TeleCom Merger becomes effective.
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No dividends or other distributions declared after the effectiveness of the
TeleCom Merger on ATC Class A Common Stock will be paid with respect to any
shares of ATC Class A Common Stock represented by a TeleCom Unit until the
applicable TeleCom Certificate is delivered in accordance with the procedures
described above.
APPRAISAL RIGHTS OF MEMBERS
Holders of TeleCom Units will not have the right to dissent from the TeleCom
Merger and demand and perfect appraisal rights. Section 18-210 of the Delaware
Limited Liability Company Act (the "Delaware LLCA") provides that a limited
liability company agreement or a merger agreement may provide for appraisal
rights of members. Neither the TeleCom Operating Agreement nor the TeleCom
Merger Agreement so provides for appraisal rights for the TeleCom members.
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INDEBTEDNESS OF AMERICAN TOWER
The summary contained herein of the material provisions of the ATC Credit
Facilities does not purport to be complete and is qualified in its entirety by
reference to the ATC Credit Facilities, which are filed as an exhibit to the
Registration Statement of which this document is a part and to which exhibit
reference is made hereby. Capitalized terms used in this Section which are not
otherwise defined in this document shall have the meaning ascribed thereto in
the ATC Credit Facilities.
In order to finance acquisitions of communications sites and other related
businesses and the construction of towers and for general corporate purposes,
ATC and the Borrower Subsidiaries have borrowed and expect to continue to
borrow under the ATC Credit Facilities. The ATC Credit Facilities with the
Borrower Subsidiaries provide for $900.0 million credit facilities maturing at
the earlier of (a) eight years or (b) June 30, 2006 consisting of the
following: (i) a $250.0 million multiple-draw term loan, (ii) a $400.0 million
reducing revolving credit facility and (iii) a $250.0 million 364-day revolving
credit facility that converts to a term loan facility thereafter. The revolving
credit commitments are required to be reduced and the terms loans are required
to be amortized, in both cases, quarterly, in increasing amounts designed to
amortize the loans by maturity, commencing June 30, 2001. In addition, the
loans are required to be repaid (and the revolving credit commitments reduced)
out of the proceeds of asset sales and sales of equity securities and out of
cash flow, all to the extent set forth in the ATC Credit Facilities. The loans
can be voluntarily prepaid at any time, without penalty, by the Borrower
Subsidiaries and, thereafter by ATC (the parent). The ATC Credit Facility with
ATC provides for a $150.0 million term loan maturing at the earlier of (i)
eight and one-half years or (ii) December 31, 2006, amortizing quarterly in an
amount equal to 2.5% of the principal amount outstanding at June 30, 2001 at
the end of each quarter between such date and June 30, 2006, both inclusive,
and the balance in two equal installments on September 30 and December 31,
2006. The ATC Credit Facility with ATC was fully drawn at closing, and a term
loan of $125.0 million is outstanding under ATC Credit Facilities of the
Borrower Subsidiaries'.
Until interest rates are fixed or capped at ATC's request, all outstanding
amounts under the ATC Credit Facilities of the Borrower Subsidiaries bear
interest at a variable base rate plus a variable margin based on certain of
ATC's financial ratios. Interest rates under the ATC Credit Facilities of the
Borrower Subsidiaries are determined, at the option of ATC, at either the LIBOR
Rate plus 0.75% to 2.25% or the Base Rate plus 0.00% to 1.25%. The spread over
the LIBOR Rate and the Base Rate varies from time to time, depending upon ATC's
financial leverage. The Borrower Subsidiaries pay quarterly commitment fees
equal to (i) 0.250% or 0.375% per annum, in each case depending on their
financial leverage, on the aggregate unused portion of the aggregate $650.0
million commitment, and (ii) 0.125% on the additional $250.0 million commitment
(until such time as ATC elects to make it part of the permanent commitment).
Borrowings may be made under the ATC Credit Facilities by the Borrower
Subsidiaries only so long as they remain in compliance with certain financial
ratios and meet certain other conditions. The ATC Credit Facility of ATC
provides for interest rates determined, at the option of ATC, of either the
LIBOR Rate (as to be defined) plus 3.50% or the Base Rate (as to be defined)
plus 2.5%.
Indebtedness may be incurred under the ATC Credit Facilities for acquisitions,
construction and other capital expenditures, working capital and general
corporate purposes. The ATC Credit Facilities of the Borrower Subsidiaries
require the maintenance of the following ratios: (i) Senior Debt to Annualized
Operating Cash Flow of not more than 6.50:1 declining in stages to 3.00:1 by
September 30, 2003 and thereafter; (ii) Total Debt (which includes debt of ATC)
to Annualized Operating Cash Flow of not more than 8.00:1 declining in stages
to 4.00:1 by September 30, 2003 and thereafter; (iii) Annualized Operating Cash
Flow to Fixed Charges ratio of not less than 1.05:1; (iv) Annualized Operating
Cash Flow to Interest Expense of not less than 1.50:1 increasing to 2.50:1 at
December 31, 2003 and thereafter; and (v) Annualized Operating Cash Flow to Pro
Forma Debt Service ratio of not less than 1.10:1 increasing to 1.150:1 at
December 31, 2002 and thereafter. The Total Debt to Annualized Operating Cash
Flow ratio is also contained in the ATC Credit Facility of ATC.
101
The ATC Credit Facilities contain certain financial and operational covenants
and other restrictions with which ATC and the Restricted Subsidiaries (which
includes the Borrower Subsidiaries) must comply, whether or not there are any
borrowings outstanding, including, among other things, restrictions on
acquisitions (of communications site management businesses), additional
indebtedness, capital expenditures and investments in Unrestricted
Subsidiaries, and restrict the ability of ATC and the Restricted Subsidiaries
(which includes the Borrower Subsidiaries) to pay dividends or make other
distributions, and to redeem, purchase or otherwise acquire shares of its
capital stock or other equity interests and prohibit any such dividend,
distribution, redemption, purchase or other acquisition during the existence of
a Default or Event of Default thereunder. See "'Description of Capital Stock--
Dividend Restrictions". The ATC Credit Facility of ATC prohibits the repayment
of the indebtedness outstanding thereunder without the consent of the lenders
under the ATC Credit Facilities of the Borrower Subsidiaries.
The loans to ATC and the Borrower Subsidiaries are cross-guaranteed and cross-
collateralized by liens on, among other things, all leases of tower space,
contracts relating to the management of towers for others, cash, accounts
receivable, capital stock (or other equity interests) and inter-company debt of
all Restricted Subsidiaries, inventory and other personal property, fixtures,
intellectual property, as well as certain fee and leasehold interests, and the
proceeds thereof of ATC and its Restricted Subsidiaries. Borrowings under the
ATC Credit Facility of ATC are subordinated to the guaranty by ATC of
indebtedness under the ATC Credit Facilities of the Borrower Subsidiaries.
102
DESCRIPTION OF AMERICAN TOWER CAPITAL STOCK
The following summary description of the terms of the capital stock of ATC is
qualified in its entirety by reference to the ATC Restated Certificate, a copy
of which has been filed with the Commission and is part of the Registration
Statement of which this document is a part and the summary herein of certain
provisions thereof does not purport to be complete and is subject to, and is
qualified in its entirety by, reference thereto. Certain terms used in this
summary without definition are defined in the ATC Restated Certificate, and,
unless otherwise noted, have the same meaning as given such terms therein.
GENERAL
The authorized capital stock of American Tower consists of 20,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock") 300,000,000
shares of Class A Common Stock, $.01 par value per share, 50,000,000 shares of
Class B Common Stock, $.01 par value per share, and 10,000,000 shares of
Class C Common Stock, $.01 par value per share. The outstanding shares of ATC
Common Stock as of December 31, 1998 were as follows: Class A Common Stock--
96,620,615; Class B Common Stock-- 9,001,060; and Class C Common Stock--
3,002,008.
PREFERRED STOCK
The 20,000,000 authorized and unissued shares of Preferred Stock may be issued
with such designations, preferences, limitations and relative rights as the ATC
Board may authorize, including, but not limited to: (i) the distinctive
designation of each series and the number of shares that will constitute such
series; (ii) the voting rights, if any, of shares of such series; (iii) the
dividend rate on the shares of such series, any restriction, limitation or
condition upon the payment of such dividends, whether dividends shall be
cumulative, and the dates on which dividends are payable; (iv) the prices at
which, and the terms and conditions on which, the shares of such series may be
redeemed, if such shares are redeemable; (v) the purchase or sinking fund
provisions, if any, for the purchase or redemption of shares of such series;
(vi) any preferential amount payable upon shares of such series in the event of
the liquidation, dissolution or winding-up of ATC or the distribution of its
assets; and (vii) the price or rates of conversion at which, and the terms and
conditions on which the shares of such series may be converted into other
securities, if such shares are convertible. The issuance of Preferred Stock, or
the issuance of rights to purchase such shares, could discourage an unsolicited
acquisition proposal.
COMMON STOCK
Dividends. Holders of record of shares of ATC Common Stock on the record date
fixed by the ATC Board are entitled to receive such dividends as may be
declared by the ATC Board out of funds legally available for such purpose. No
dividends may be declared or paid in cash or property on any share of any class
of ATC Common Stock, however, unless simultaneously the same dividend is
declared or paid on each share of the other classes of ATC Common Stock, except
that in the event of any such dividend in which shares of stock of any company
(including American Tower or any of its Subsidiaries) are distributed, such
shares may differ as to voting rights to the extent that voting rights now
differ among the different classes of ATC Common Stock. In the case of any
dividend payable in shares of ATC Common Stock, holders of each class of ATC
Common Stock are entitled to receive the same percentage dividend (payable in
shares of that class) as the holders of each other class. See "--Dividend
Restrictions" below.
Voting Rights. Except as otherwise required by law and in the election of
directors, holders of shares of Class A Common Stock and Class B Common Stock
have the exclusive voting rights and will vote as a single class on all matters
submitted to a vote of the stockholders, with each share of Class A Common
Stock entitled to one vote and each share of Class B Common Stock entitled to
ten votes. The holders of the Class A Common Stock, voting as a separate class,
have the right to elect two independent directors. The Class C Common Stock is
nonvoting except as otherwise required by the DGCL.
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Under the DGCL, the affirmative vote of the holders of a majority of the
outstanding shares of any class of ATC Common Stock is required to approve,
among other things, a change in the designations, preferences and limitations
of the shares of such class of ATC Common Stock. Under the ATC Restated
Certificate, the affirmative vote of the holders of not less than 66 2/3% of
the Class A Common Stock and Class B Common Stock, voting as a single class, is
required in order to amend most of the provisions of the ATC Restated
Certificate, including those relating to the provisions of the various classes
of ATC Common Stock, indemnification of directors, exoneration of directors for
certain acts, and such super-majority provision.
The ATC Restated Certificate (i) limits the aggregate voting power of Steven B.
Dodge (and his Controlled Entities as defined therein) to 49.99% of the
aggregate voting power of all shares of capital stock entitled to vote
generally for the election of directors (less the voting power represented by
the shares of Class B Common Stock acquired by the Stoner Purchasers (as
defined therein) pursuant to the ATC Stock Purchase Agreement and owned by them
or any of their Controlled Entities or Family Members (as defined therein) at
such time), (ii) prohibits future issuances of Class B Common Stock (except
upon exercise of then outstanding options and pursuant to stock dividends or
stock splits), (iii) limits transfers of Class B Common Stock to Permitted
Transferees (as defined therein), (iv) provides for automatic conversion of the
Class B Common Stock to Class A Common Stock at such time as the aggregate
voting power of Mr. Dodge (and his Controlled Entities) falls below either (x)
50% of their initial aggregate voting power on June 8, 1998 or (y) 20% of the
aggregate voting power of all shares of ATC Common Stock at the time
outstanding, and (v) requires consent of the holders of a majority of Class A
Common Stock for amendments adversely affecting the Class A Common Stock.
Conversion Provisions. Shares of Class B Common Stock and, except as
hereinafter noted, Class C Common Stock are convertible, at any time at the
option of the holder, on a share for share basis into shares of Class A Common
Stock. The present owner of Class C Common Stock can convert such stock only in
the event of a Conversion Event (as defined in the ATC Restated Certificate) or
with the consent of the ATC Board. Shares of Class B Common Stock automatically
convert into shares of Class A Common Stock upon any sale, transfer, assignment
or other disposition other than to Permitted Transferees which term includes
certain family members, trusts and other family entities and charitable
organizations and other holders of Class B Common Stock and upon pledges but
not to the pledgee upon foreclosure.
Liquidation Rights. Upon liquidation, dissolution or winding-up of ATC, the
holders of each class of ATC Common Stock are entitled to share ratably (based
on the number of shares held) in all assets available for distribution after
payment in full of creditors and payment in full to any holders of the
Preferred Stock then outstanding of any amount required to be paid under the
terms of the Preferred Stock.
Other Provisions. The holders of ATC Common Stock are not entitled to
preemptive or subscription rights. The shares of ATC Common Stock presently
outstanding are validly issued, fully paid and nonassessable. In any merger,
consolidation or business combination, the consideration to be received per
share by holders of each class of ATC Common Stock must be identical to that
received by holders of the other class of ATC Common Stock, except that in any
such transaction in which shares of ATC Common Stock (or any other company) are
distributed, such shares may differ as to voting rights to the extent that
voting rights now differ among the different classes of ATC Common Stock. No
class of ATC Common Stock may be subdivided, consolidated, reclassified or
otherwise changed unless, concurrently, the other classes of ATC Common Stock
are subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner.
DIVIDEND RESTRICTIONS
ATI is prohibited under the terms of its ATC Credit Facilities from paying cash
dividends or making other distributions on, or making redemptions, purchases or
other acquisitions of, its capital stock (including Preferred Stock) except
that, beginning on April 15, 2002, ATI may, if no Default exists or would be
created thereby under the ATC Credit Facilities, pay cash dividends to the
extent that Restricted Payments do not exceed (i) 50% of Excess Cash Flow for
the preceding calendar year, or (ii) 50% of the net proceeds of any
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debt or equity offering after June 16, 1998. Comparable restrictions are
imposed on the ability of ATLP to make distributions to its partners. Since ATC
has no other significant assets other than its ownership of all of the capital
stock of ATI and the owner of ATLP, its ability to pay dividends to its
stockholders in the foreseeable future is restricted. The ATC Credit Facility
of ATC also restricts cash dividends and other distributions on, and
redemptions, purchases or other acquisitions of, ATC capital stock, except in
an amount not in excess the net proceeds of any equity offering not used to
satisfy its obligations to CBS under the Separation Agreement with respect to
the tax consequences of the ATC Common Stock distribution or for other
permitted purposes (such as investments in Unrestricted Subsidiaries).
DELAWARE BUSINESS COMBINATION PROVISIONS
Under the DGCL, certain "business combinations" (including the issuance of
equity securities) between a Delaware corporation and any person who owns,
directly or indirectly, 15% or more of the voting power of the corporation's
shares of capital stock (an "Interested Stockholder") must be approved by the
holders of at least 66 2/3% of the voting stock not owned by the Interested
Stockholder if it occurs within three years of the date such person became an
Interested Stockholder, unless prior to such date the ATC Board approved either
the business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder. The ATC Board approved the transaction (the
ATC Private Placement) pursuant to which Mr. Dodge became an Interested
Stockholder.
LISTING OF CLASS A COMMON STOCK
The Class A Common Stock is traded on the NYSE under the symbol "AMT".
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank, 311 West Monroe Street, Chicago, Illinois 60606 (telephone number
(312) 461-4600).
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF ATC
AND OMNIAMERICA AND TELECOM MEMBERS
Upon consummation of the OmniAmerica Merger, the OmniAmerica stockholders and
the TeleCom members will become common stockholders of ATC. Set forth below is
a comparison of the terms of the ATC Class A Common Stock and the terms of the
OmniAmerica common stock and the TeleCom Units, as well as a summary of other
material differences between the rights of holders of ATC Class A Common Stock
and the rights of holders of OmniAmerica Common Stock and TeleCom Units. This
summary does not purport to be complete and is qualified in its entirety by
reference to the ATC Restated Certificate, ATC's Bylaws (the "ATC Bylaws"), the
OmniAmerica Certificate of Incorporation, as amended (the "OmniAmerica
Charter"), the OmniAmerica Bylaws (the "OmniAmerica Bylaws"), and the Amended
and Restated Operating Agreement of TeleCom as currently in effect (the
"TeleCom Operating Agreement"), and the more detailed description of the ATC
Common Stock contained herein. See "Description of Capital Stock--Common
Stock".
TERMS OF COMMON STOCK AND TELECOM UNITS
ATC COMMON STOCK OMNIAMERICA COMMON STOCK TELECOM UNITS
---------------- ------------------------ -------------
BUSINESS:
All business of ATC. All business of All business of TeleCom.
OmniAmerica.
LISTING:
New York Stock Exchange. Nasdaq National Market. None.
PREEMPTIVE RIGHTS:
The holders of ATC Common The holders of OmniAmerica The holders of Class B
Stock do not have any common stock do not have TeleCom Units have
preemptive rights. any preemptive rights. preemptive rights to
acquire new units from TCT
for the same price and on
the same terms as such
units (or other equity
interests) are proposed to
be offered in any non-
public offering, subject to
certain exceptions. The
holders of Class A TeleCom
Units do not have any
preemptive rights.
106
ATC COMMON STOCK OMNIAMERICA COMMON STOCK TELECOM UNITS
---------------- ------------------------ -------------
DIVIDENDS:
ATC currently does not pay OmniAmerica currently does TeleCom has not made cash
dividends on the ATC Common not pay dividends on the distributions to date
Stock. Dividends on the ATC OmniAmerica Common Stock. because it has not had
Common Stock may be paid in Dividends on the taxable income.
the discretion of the ATC OmniAmerica Common Stock Distributions are at the
Board, based primarily upon may be paid in the discretion of the Telecom
the financial condition, discretion of the Management Committee, but
results of operations and OmniAmerica Board. the Management Committee
business requirements of Dividends, if any, are will use reasonable efforts
ATC. Dividends, if any, are payable out of the funds of to authorize certain
payable out of the funds of OmniAmerica legally distributions to TeleCom
ATC legally available for available for the payment members as necessary to
the payment of dividends, of dividends, subject to enable them to pay income
subject to restrictions restrictions contained in taxes on TeleCom income
contained in the ATC Credit OmniAmerica's credit allocated to them so long
Facilities. arrangements. as the distribution is
permitted by financing
documents and other
agreements by which TeleCom
is bound, and TeleCom has
cash to distribute.
VOTING RIGHTS:
Except as otherwise Holders of OmniAmerica Except as otherwise
required by the DGCL, and common stock have the sole required by the Delaware
the ATC Restated voting rights and are LLCA, and except for: (i)
Certificate, holders of the entitled to one vote per approving the sale of all
ATC Class A Common Stock share of OmniAmerica common or substantially all of the
and ATC Class B Common stock held. assets or business of
Stock vote together as a TeleCom (mergers and
single class. Holders of certain other actions are
ATC Class A Common Stock not subject to a Class A
and ATC Class B Common member vote under the
Stock have one vote and ten TeleCom Operating
votes, respectively, per Agreement); (ii) its
share. The ATC Class C liquidation, dissolution
Common Stock is nonvoting, and winding up (on the
except as otherwise matters in clauses (i) and
required by the DGCL. The (ii) above, the holders of
holders of ATC Class A Class A and Class B TeleCom
Common Stock have the right Units vote together as a
to elect two independent single class, with holders
directors and to vote as a of Class A TeleCom Units
class on amendments to the having one vote per Class A
ATC Restated Certificate Unit and holders of Class B
adversely affecting them. TeleCom Units having ten
votes per Class B Unit); or
of certain amendments to
the TeleCom Operating
Agreement adversely
affecting them with respect
to sharing of profit and
loss and the elimination of
voting rights, the holders
of Class A TeleCom Units do
not have any voting rights,
the sole voting rights
being those of the holders
of Class B TeleCom Units.
107
ATC COMMON STOCK OMNIAMERICA COMMON STOCK TELECOM UNITS
---------------- ------------------------ -------------
CONVERSION:
Shares of ATC Class B None. None.
Common Stock will
automatically convert into
shares of ATC Class A
Common Stock upon any
transfer of such shares of
ATC Class B Common Stock,
unless the transferee is a
Permitted Transferee or is
a holder of ATC Class B
Common Stock.
A holder of shares of ATC
Class B Common Stock or,
subject to certain
conditions, ATC Class C
Common Stock may at any
time, at such holder's
election, convert such
shares into shares of ATC
Class A Common Stock. All
of the Class B Common Stock
will automatically convert
into ATC Class A Common
Stock should Mr. Dodge's
(including his Controlled
Entities) aggregate voting
power fall below either (i)
50% of his initial
aggregate voting power as
of June 8, 1998 or (ii) 20%
of the aggregate voting
power of all shares of ATC
Common Stock at the time
outstanding.
LIQUIDATION:
In the event of a In the event of a In the event of a
liquidation of ATC, holders liquidation of OmniAmerica, liquidation of TeleCom,
of ATC Common Stock will be holders of OmniAmerica holders of TeleCom Units
entitled to receive the net Common Stock will be will be entitled to receive
assets of ATC, if any, entitled to receive the net the net assets of TeleCom,
remaining for distribution assets of OmniAmerica, if if any, remaining for
to holders of ATC Common any, remaining for distribution to holders of
Stock. distribution to holders of TeleCom Units.
OmniAmerica Commons Stock.
OTHER STOCKHOLDER OR MEMBER RIGHTS
Amendments to the Certificate of Incorporation or TeleCom Operating Agreement
Amendments to the ATC Restated Certificate must be adopted by the holders of a
majority of the voting power of the ATC Common Stock, except that amendments to
the provisions relating to (i) the number, rights and powers of any class of
stock; (ii) the composition and powers of the ATC Board; (iii) release of
directors' liability; (iv) indemnification of directors as a result of a breach
of fiduciary duties, officers, employees and
108
agents; (v) amendments to the ATC Bylaws; and (vi) amendments to foregoing
provisions, require adoption by the holders of 66 2/3% of the total number of
the voting power of the outstanding shares of ATC Common Stock.
Amendments to the OmniAmerica Charter must be adopted by a majority of the
votes cast on such amendment by the holders of OmniAmerica Common Stock.
Amendments to the TeleCom Operating Agreement must be adopted by unanimous vote
of the holders of Class B TeleCom Units, except for certain amendments
adversely affecting the rights of the Class A TeleCom Units with respect to the
sharing of profit and loss and the elimination of voting rights of the Class A
TeleCom Units which require the written consent of the Class A Units of those
Class A members adversely affected by any such amendment.
Amendments to Bylaws
The ATC Restated Certificate and the ATC Bylaws provide that bylaws may be
adopted, amended, altered, changed or repealed by either the affirmative vote
of the holders of 66 2/3% of the outstanding shares of ATC Common Stock or by
the affirmative vote of a majority of the entire ATC Board.
The OmniAmerica Bylaws may be amended or repealed by the affirmative vote of a
majority of the members of the OmniAmerica Board or by a majority of the
OmniAmerica stockholders.
Directors and TeleCom Management Committee
Under the ATC Bylaws, the number of directors is determined by the ATC Board
from time to time, but must be three or more. The ATC Bylaws do not provide for
a classified board. The ATC Restated Certificate provides that the holders of
the ATC Class A Common Stock shall be entitled to vote as a class to elect two
directors; all other directors are elected by the holders of the ATC Class A
Common Stock and the ATC Class B Common Stock, voting together as a single
class, with each share of ATC Class A Common Stock entitled to one vote and
each share of the ATC Class B Common Stock entitled to ten votes. In connection
with the Old ATC Merger, Messrs. Dodge and Stoner entered into a voting
agreement relating to the election of two nominees of two of the former
principal stockholders of Old ATC. See "Business of American Tower--Recent
Transactions--The Old ATC Merger". See "The OmniAmerica Merger--The OmniAmerica
Merger Agreement" for information with respect to the voting agreement to be
executed by Messrs. Dodge and Stoner relating to the election of one nominee of
the principal OmniAmerica stockholder. See "The TeleCom Merger--The TeleCom
Merger Agreement" for information with respect to the voting agreement to be
executed by Messrs. Dodge and Stoner relating to the election of one nominee of
the principal equity owner of TeleCom.
Under the OmniAmerica Bylaws, the number of directors is determined by the
OmniAmerica Board of Directors from time to time, but must be one or more. The
OmniAmerica Charter provides for three classes of directors, designated as
Class I, Class II and Class III directors. Each class shall consist as nearly
as possible of one-third of the total number of directors. The term of office
of the initial Class I directors expires at the 1998 annual meeting of
stockholders. The term of office of the initial Class II directors expires at
the 1999 annual meeting of stockholders. The term of the initial Class III
directors expires at the 2000 annual meeting of stockholders. Pursuant to the
OmniAmerica Stockholders Agreement, each of Hicks, Muse and the Stockholder
Group (consisting of HMTF/Omni Partners, L.P., Michael R. Budagher, the
Budagher Family LLC, of which Mr. Budagher is the general manager, and Tommie
R. Carpenter) is entitled to designate up to four directors of the OmniAmerica
Board of Directors, dependent upon the percentage of the OmniAmerica Common
Stock owned by HMTF/Omni Partners, L.P. and its affiliates or the Stockholder
Group, as applicable. See "--Existing OmniAmerica Stockholders Agreement"
below.
Under the TeleCom Operating Agreement, on or after December 31, 1998, Cox
TeleCom Towers, Inc. has the right to require that the members of the
Management Committee consist of five representatives designated by Cox Telecom
Towers, Inc. and four representatives designated by TeleCom Towers, Inc.,
subject to adjustment.
109
Removal of Directors and TeleCom Management Committee Members
Under the ATC Restated Certificate and Bylaws, (a) directors elected by the ATC
common stockholders may be removed, with or without cause, by vote of the
holders of a majority of the voting power of the ATC Common Stock; and (b) any
directors elected by the holders of ATC Class A Common Stock may be removed,
with or without cause, by a vote of the holders of the ATC Class A Common Stock
holding not less than a majority of the issued and outstanding shares of ATC
Class A Common Stock. Under the OmniAmerica Bylaws, directors may be removed,
with or without cause, by a vote of the holders of OmniAmerica common stock
holding not less than a majority of the issued and outstanding shares of
OmniAmerica Common Stock. Such removal is subject to certain restrictions set
forth in the OmniAmerica Stockholders Agreement. Under the TeleCom Operating
Agreement, the representatives on the Management Committee may be removed by
the Manager which designated such representatives. A Manager is defined in the
TeleCom Operating Agreement as a Class B member whose Class B percentage
interest is greater than 7.5%. Currently, both Cox Telecom Towers, Inc. and
TeleCom Towers, Inc. are Managers.
Newly Created Directorships and Vacancies and Management Committee Members
Under the ATC Restated Certificate and the ATC Bylaws, vacancies in the ATC
Board and newly created directorships may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If there are no directors in office, the DGCL provides that any
officer or stockholder may call a special meeting of stockholders in accordance
with the ATC Restated Certificate and ATC Bylaws, at which meeting such
vacancies shall be filled.
Under the OmniAmerica Charter and the OmniAmerica Bylaws, vacancies in the
OmniAmerica Board of Directors and newly created directorships may be filled by
a majority of the directors then in office, even if less than a quorum, or by
the sole remaining director. If there are no directors in office, any officer
or stockholder may call a special meeting of stockholders in accordance with
the OmniAmerica Charter and OmniAmerica Bylaws, at which meeting such vacancies
shall be filled. Pursuant to the OmniAmerica Stockholders Agreement, the person
who designated such director shall select a replacement to serve on the Board
of Directors.
Under the TeleCom Operating Agreement, upon the death, disability, resignation
or removal of a Management Committee representative, the Manager that
designated such representative shall designate a replacement representative to
fill the vacancy.
Special Meetings of Stockholders and Members; Action by Written Consent
Under the ATC Bylaws, special meetings of the stockholders may be called for
any purpose or purposes by the Chairman of the ATC Board or, if there be none,
the President, or by the ATC Board, and shall be called by the President or
Secretary of ATC at the request in writing of the stockholders holding of
record a majority in interest of the voting power of the shares of stock of ATC
issued and outstanding and entitled to vote. Under the DGCL, any action
required or permitted by law or the ATC Restated Certificate to be taken at any
meeting of stockholders may be taken without a meeting, without prior notice,
and without a vote, if a written consent, setting forth the action so taken, is
signed by holders of the number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present or present by proxy and voted.
Under the OmniAmerica Bylaws, the Chairman of the Board, the President or a
majority of the OmniAmerica Board may call special meetings of stockholders for
any purpose or purposes at any time. Further, the Chief Executive Officer or
the Secretary of OmniAmerica may call a special meeting of stockholders if a
majority of the stockholders make a written request to hold such a meeting.
Under the DGCL, any action required or permitted by law or the OmniAmerica
Charter to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice, and without a vote, if a written consent,
setting forth the action so taken, is
110
signed by holders of the number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present or present by proxy and voted.
Under the TeleCom Operating Agreement, meetings of members may be called for
any purpose or purposes any time by the Management Committee. The Management
Committee is required to give at least ten (10) days but not more than ninety
(90) days notice before each meeting of members at which approval of the sale
of all or substantially all of the assets or business of TeleCom (mergers and
certain other actions are not subject to a Class A member vote under the
TeleCom Operating Agreement) or TeleCom's liquidation, dissolution and winding
up is being sought.
Under the Delaware LLCA and the TeleCom Operating Agreement, any action
required or permitted by law or the TeleCom Operating Agreement to be taken at
any meeting of members may be taken without a meeting, without prior notice,
and without a vote, if a written consent, setting forth the action so taken, is
signed by holders of the number of votes that would be necessary to authorize
or take such action at a meeting at which all TeleCom Units entitled to vote
thereon were present or present by proxy and voted.
Stockholder and Member Proposals and Nominations
The ATC Bylaws do not contain specific requirements which must be met in order
for a stockholder to present a proposal for action at an annual meeting of
stockholders or to nominate an individual for election to the ATC Board.
The OmniAmerica Bylaws do not contain specific requirements which must be met
in order for a stockholder to present a proposal for action at an annual
meeting of stockholders or to nominate an individual for election to the
OmniAmerica Board of Directors.
The TeleCom Operating Agreement does not contain any provision for a member to
present a proposal for action at an annual meeting of members. Only Managers
may nominate representatives to the TeleCom Management Committee by providing
written notice to TeleCom and the other Class B members of the names of their
designated representatives.
Business Combinations Following a Change in Control
Each of ATC and OmniAmerica is a Delaware corporation and is subject to Section
203 of the DGCL, which governs business combinations with interested
stockholders. See "Description of Capital Stock--Delaware Business Combination
Provisions". The Delaware LLCA does not contain a provision comparable to
Section 203 of the DGCL.
EXISTING OMNIAMERICA STOCKHOLDERS AGREEMENT
OmniAmerica and certain of its stockholders are parties to a Stockholders
Agreement dated April 23, 1998 (the "OmniAmerica Stockholders Agreement"). The
agreement provides that, without the affirmative vote of a majority of the
directors elected by Hicks, Muse and a majority of the directors elected by the
Stockholder Group, OmniAmerica cannot enter into certain transactions,
including without limitation, acquisitions involving an aggregate purchase
price in excess of $5,000,000, the disposition of substantially all of the
assets of OmniAmerica and its subsidiaries, debt financing involving more than
$10,000,000 or any merger, consolidation or business combination between
OmniAmerica or a subsidiary of OmniAmerica and any other entity.
The OmniAmerica Stockholders Agreement will be terminated upon consummation of
the OmniAmerica Merger.
111
SHARES ELIGIBLE FOR FUTURE SALE
Assuming consummation of the OmniAmerica Merger and the TeleCom Merger, there
will be an aggregate of approximately 129.5 million shares of ATC Common Stock
outstanding. All of such shares, other than an aggregate of approximately 6.9
million shares issued in connection with the Gearon Transaction and certain
other acquisitions and the 8.0 million shares issued pursuant to the ATC
Private Placement, will be freely transferable without restriction or future
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless held by an "affiliate" (as that term is defined under the
Securities Act) of ATC. Persons who may be deemed to be affiliates of ATC
generally include individuals or entities that directly, or indirectly through
one or more intermediaries, control, are controlled by, or are under common
control with, ATC. Persons who are affiliates of ATC will be permitted to sell
their ATC Common Stock only pursuant to an effective registration statement
under the Securities Act or pursuant to an exemption from registration under
the Securities Act, such as the exemption afforded by Rule 144 thereunder.
Stockholders who received unregistered shares of ATC Common Stock, including
pursuant to the ATC Stock Purchase Agreement and the Gearon Transaction, as
well as certain "affiliates" of ATC, have certain demand and "piggy-back"
registration rights with respect to their shares of ATC Common Stock.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of ATC
Common Stock for at least one year is entitled to sell, within any three-month
period, a number of such shares which does not exceed the greater of 1% of the
then outstanding shares of ATC Class A Common Stock (approximately 1.1 million
shares) or the average weekly public trading volume of the ATC Class A Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about ATC. Any person (or persons whose shares are
aggregated) who has not been an affiliate of ATC at any time during the three
months preceding a sale and who has owned shares of ATC Common Stock for at
least two years is entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
or notice requirements of Rule 144. In February 1997, the Commission solicited
comments regarding certain proposed amendments to Rule 144, including reducing
the aforementioned one and two year holding periods.
In addition, persons who received shares of ATC Class A Common Stock pursuant
to a Rule 145 transaction (including the OmniAmerica Merger, the TeleCom
Merger, the CBS Merger and the Old ATC Merger) and who were affiliates of the
company that merged with American Tower (or of American Radio in the case of
the CBS Merger) will be free to sell shares of ATC Class A Common Stock
pursuant to the provisions of Rule 144 without regard to the holding period
requirement.
Options to purchase an aggregate of approximately 11.2 million shares of ATC
Common Stock will be outstanding immediately following consummation of the
OmniAmerica Merger and the TeleCom Merger. Shares of ATC Common Stock issued
upon exercise of such options are registered on Form S-8 under the Securities
Act and, therefore, freely transferable under the securities laws.
ATC cannot make any predictions as to the effect, if any, sales of shares of
ATC Common Stock, or the availability of shares for future sale, will have on
the market price of the ATC Class A Common Stock prevailing from time to time.
112
VALIDITY OF THE SHARES
The validity of the shares of ATC Class A Common Stock to be issued in each of
the mergers will be passed upon by Sullivan & Worcester LLP, Boston,
Massachusetts. Norman A. Bikales, a member of the firm of Sullivan & Worcester
LLP, is the owner of 9,000 shares of ATC Class A Common Stock and 41,490
shares of ATC Class B Common Stock and has an option to purchase 20,000 shares
of ATC Class A Common Stock at $10.00 per share. Two associates of Sullivan &
Worcester LLP have options to purchase 12,000 and 8,000 shares, respectively,
of ATC Class A Common Stock at $18.75 per share. Mr. Bikales and/or associates
of that firm serve as secretary or assistant secretaries of American Tower and
certain of its subsidiaries.
EXPERTS
The following financial statements included in this Information
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, appearing herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing:
(1) The consolidated financial statements and related financial statement
schedule of American Tower Systems Corporation as of December 31, 1997 and
1996 for the years ended December 31, 1997 and 1996 and for the period July
17, 1995 (Incorporation) to December 31, 1995;
(2) The combined financial statements of Meridian Communications as of
December 31, 1995 and 1996 and for each of the years then ended;
(3) The financial statements of Diablo Communications, Inc. as of
December 31, 1995 and 1996 and for each of the years then ended;
(4) The financial statements of Gearon & Co., Inc. as of December 31,
1996 and 1997 and for each of the years then ended; and
(5) The financial statements of OPM-USA, Inc. as of December 31, 1997 and
1996 and for each of the years then ended.
The combined financial statements of net assets of MicroNet, Inc. and
Affiliates to be sold to ATC as of December 31, 1996 and October 31, 1997 and
for the year ended December 31, 1996, and the ten months ended October 31,
1997, have been audited by Pressman Ciocca Smith LLP, independent certified
public accountants, as stated in their report appearing in this Information
Statement/Prospectus and have been so included in reliance upon the report of
such firm as experts in accounting and auditing.
The financial statements of Diablo Communications of Southern California, Inc.
for the year ended December 31, 1996 have been audited by Rooney, Ida, Nolt &
Ahern, independent auditors, as stated in their report appearing in this
Information Statement/Prospectus and have been so included in reliance upon
the report of such firm as experts.
The consolidated financial statements of American Tower Corporation and
subsidiaries as of December 31, 1997 and 1996, and for each of the years in
the three year period ended December 31, 1997, have been included elsewhere in
this Registration Statement in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere in this Registration Statement, and
upon the authority of such firm as experts in accounting and auditing.
113
The consolidated financial statements of OmniAmerica and subsidiaries as of
June 30, 1997 and for each of the years in the two-year period ended June 30,
1997 have been included elsewhere in this registration statement in reliance
upon the reports of KPMG LLP and Bill Mitts, Inc., independent auditors,
appearing elsewhere in this Registration Statement and upon the authority of
such firms as experts in accounting and auditing.
The financial statements of Telecom Towers, L.L.C. at December 31, 1997 and for
the three months then ended, and the financial statements of Telecom Southwest
Towers Limited Partnership, Telecom Towers Mid-Atlantic Limited Partnership,
and Telecom Towers of the West, L.P., at December 31, 1997 and for the year
then ended appearing in this Prospectus and Information Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and as to the year ended 1997 as
related to Telecom Towers Mid-Atlantic Limited Partnership, is based in part on
the report of KPMG LLP, independent auditors, as set forth in their report,
appearing elsewhere herein, on the financial statements of RCC Consultants,
Inc., (not separately presented in this Information Statement/Prospectus). The
financial statements referred to above are included in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
The financial statements of Telecom Southwest Towers Limited Partnership,
Telecom Towers Mid-Atlantic Limited Partnership, and Telecom Towers of the
West, L.P., at December 31, 1996, and for each of the two years in the period
ended December 31, 1996 appearing in this Prospectus and Information Statement
have been audited by Gollob, Morgan, Peddy & Co., P.C., independent auditors,
as set forth in their reports thereon appearing elsewhere herein, and as to the
year ended 1996 as related to Telecom Towers Mid-Atlantic Limited Partnership,
is based in part on the report of KPMG LLP, independent auditors, as set forth
in their report, appearing elsewhere herein, on the financial statements of RCC
Consultants, Inc., (not separately presented in this Information
Statement/Prospectus). The financial statements referred to above are included
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
The financial statements of Wauka Communications, Inc. as of December 31, 1997
and for year then ended included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The financial statements of TowerCom, Limited as of December 31, 1997 and for
the two years then ended have been audited by KPMG LLP, independent auditors,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Miller Transmission Tower Company, Ltd. as of
December 31, 1997 and for the two years then ended have been audited by
Mendlowitz Weitsen LLP, independent auditors, as stated in their report thereon
appearing elsewhere in this Registration Statement are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Kline Iron & Steel Co. Inc. as of September 30,
1997 and for the two years then ended have been audited by Derrick, Stubs &
Stith, LLP, independent auditors, as stated in their report thereon appearing
elsewhere in this Registration Statement are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
114
Ernst & Young LLP, independent auditors, have audited the following financial
statements, as set forth in their reports, which are included in the
Registration Statements of American Tower Corporation relating to the merger
transactions with OmniAmerica, Inc. and TeleCom Towers, L.L.C. These financial
statements are included in reliance on their reports, given on their authority
as experts in accounting and auditing.
WITH RESPECT TO REPORT DATE
--------------------------------------------------------------------------
the consolidated financial statements of OmniAmerica, September 16, 1998
Inc.
(formerly Specialty Teleconstructors, Inc.) for the
year ended
June 30, 1998
the consolidated financial statements of OmniAmerica February 20, 1998
Holdings
Corporation for the period from inception (October
15, 1997)
through December 31, 1997
the statement of assets sold by HSW Associates, Inc. March 31, 1998
at
December 31, 1997 and related statements of revenue
and direct
operating expenses of assets sold by HSW Associates,
Inc. for
each of the two years in the period then ended.
115
WHERE YOU CAN FIND MORE INFORMATION
American Tower has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
ATC Class A Common Stock to be offered pursuant to each of the OmniAmerica
Merger and the TeleCom Merger. This Information Statement/Prospectus does not
contain all of the information set forth in the applicable Registration
Statement and the exhibits and schedules thereto. For further information with
respect to American Tower and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Information Statement/Prospectus as to the
contents of any contract or any other document to which reference is made are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement can be inspected without charge and
copied at the prescribed rates at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a web site; and the address of
such site is http://www.sec.gov.
American Tower and OmniAmerica file annual, quarterly and special reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by American Tower and by OmniAmerica can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. The ATC Class A Common
Stock is listed on the NYSE, and such reports, proxy statements and certain
other information can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
116
DEFINITION CROSS REFERENCE SHEET
Set forth below is a list of certain defined terms used in this Information
Statement/Prospectus and the page on which such terms are defined. Terms
designated with III and IV are found on the pages indicated in Appendix III and
Appendix IV, respectively. Certain definitions appear on different pages,
depending on which merger this document relates to.
DEFINED TERM PAGE
------------ -----
Acquisition............................................................... III-3
After-tax cash flow....................................................... 10
American Cablesystems..................................................... 66
American Radio............................................................ i
American Tower............................................................ Cover
April Merger.............................................................. 12
Arch...................................................................... 12
ARS....................................................................... i
ARS Convertible Debentures................................................ 50
ARS Convertible Preferred................................................. 45
ARS Tower Transfer........................................................ 59
ATC....................................................................... Cover
ATC Board................................................................. 73
ATC Bylaws................................................................ 112
ATC Class A Common Stock.................................................. 10
ATC Credit Facilities..................................................... 13
ATC IPO................................................................... i
ATS Needham............................................................... 67
ATC Preferred Stock Financing............................................. i
ATC Private Placement..................................................... i
ATC Pro Forma Transactions................................................ i
ATC Restated Certificate.................................................. 7
ATC Stock Consideration................................................... 98
ATC Stock Purchase Agreement.............................................. 67
ATCF...................................................................... 80
ATI....................................................................... 5
Atlantic.................................................................. 66
ATLP...................................................................... 25
ATS....................................................................... 88
Borrower Subsidiaries..................................................... 44
BT Group.................................................................. 91
Build to suit............................................................. 15
CBS....................................................................... i
CBS Merger................................................................ i
CCP....................................................................... 74
CEA....................................................................... 74
CEI....................................................................... IV-1
Ceiling Share Price....................................................... 98
Change of Control......................................................... 17
Chase Capital............................................................. 66
Closing Date Share Price.................................................. 91
Code...................................................................... 70
Commission................................................................ 80
Controlled Entities....................................................... 16
DEFINED TERM PAGE
------------ -----
Cox....................................................................... 94
CTT....................................................................... 27
Current Run Rate Cash Flow................................................ 60
CVP....................................................................... 74
Delaware LLCA............................................................. 106
DGCL...................................................................... 7
Diablo Transaction........................................................ 25
DTV....................................................................... 54
EBITDA.................................................................... 10
Engagement Letter......................................................... 91
Enterprise Value.......................................................... 87
ESMR...................................................................... 54
Equity Value.............................................................. 87
Event of Default.......................................................... 16
Exchange Agent............................................................ 89
Exchange Ratio............................................................ 4
EZ........................................................................ 74
EZ Merger................................................................. 74
FAA....................................................................... 17
FAS 131................................................................... 46
FCC....................................................................... 17
Federal Income Tax Laws................................................... 86
Floor Share Price......................................................... 98
GAAP...................................................................... 10
Gearon.................................................................... 66
Gearon Transaction........................................................ 66
HDTV...................................................................... III-1
Hicks, Muse............................................................... 66
HSR Act................................................................... 6
Interested Stockholder.................................................... 104
Interim Preferred Stock................................................... 46
IRS....................................................................... 86
ISOs...................................................................... 77
Meridian Transaction...................................................... 25
Merrill Lynch............................................................. 68
MicroNet Transaction...................................................... 25
MTS....................................................................... III-4
N&L....................................................................... III-4
NQOs...................................................................... 77
NYSE...................................................................... 7
Old ATC................................................................... 66
OmniAmerica............................................................... Cover
OmniAmerica Board......................................................... 84
OmniAmerica Bylaws........................................................ 105
117
DEFINED TERM PAGE
- ------------ ----
OmniAmerica Certificates................................................. 89
OmniAmerica Charter...................................................... 112
OmniAmerica Common Stock................................................. 20
OmniAmerica Credit Agreement............................................. III-7
OmniAmerica Holdings..................................................... III-1
OmniAmerica Merger Agreement............................................. 84
OmniAmerica Merger Consideration......................................... 90
OmniAmerica Stockholders Agreement....................................... 110
Omni/HSW................................................................. III-3
OmniPartners............................................................. III-3
OPM...................................................................... 66
OPM Transaction.......................................................... 66
Original TeleCom Merger Agreement........................................ 98
Partnerships............................................................. 21
PCS...................................................................... 54
Plan..................................................................... 70
Preferred Stock.......................................................... 109
Prime.................................................................... 27
Public Warrants.......................................................... III-14
RAM...................................................................... IV-9
RCC...................................................................... 27
Redemption Date.......................................................... III-14
Reincorporation Merger................................................... III-3
RF....................................................................... 17
Recent Transactions...................................................... 58
Restricted Subsidiaries.................................................. 65
Securities Act........................................................... 118
Selected Companies....................................................... 87
Selected Transactions.................................................... 88
Selected Tower Transactions.............................................. 88
Separation Agreement..................................................... 45
SMR...................................................................... 55
DEFINED TERM PAGE
- ------------ ----
Special Committee......................................................... 68
Specialty................................................................. 12
Stoner.................................................................... 75
Summit Capital............................................................ 66
Superior Proposal......................................................... 92
Synergies................................................................. 87
TeleCom................................................................... Cover
TeleCom Amendment......................................................... 102
TeleCom Certificate....................................................... 105
TeleCom Credit Facility................................................... IV-2
TeleCom Management Committee.............................................. 99
TeleCom Merger Agreement.................................................. 98
TeleCom Merger Consideration.............................................. 96
TeleCom Operating Agreement............................................... 112
TeleCom Restated Merger Agreement......................................... 98
TeleCom Roll-Up........................................................... 27
TeleCom Unitholders....................................................... 99
TeleCom Units............................................................. 1
Tower Cash Flow........................................................... 10
Tower Separation.......................................................... i
TSTLP..................................................................... 27
TTI....................................................................... 27
TTMLP..................................................................... 27
TTP....................................................................... 98
TTWLP..................................................................... 27
Tucson Transaction........................................................ 34
Wauka Transaction......................................................... 66
wireless communications facilities........................................ III-2
wireless infrastructure building and implementation services.............. III-2
wireless infrastructure components........................................ III-2
Y2K....................................................................... 70
118
INDEX TO FINANCIAL STATEMENTS
The information included in Note 1 --"Business and Corporate Structure" and
Note 5 -- "Commitments" as it relates to the CBS Merger and the separation of
American Tower from American Radio of the Notes to the Consolidated Financial
Statements to the audited consolidated financial statements of American Tower
Corporation for the year ended December 31, 1997 included herein is
supplemented with the disclosures contained in Note 2--"Business and Corporate
Structure" of the American Tower Corporation Form 10-Q for the quarterly period
September 30, 1998 included as Appendix VI.
PAGE
-----------
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report...................................... F-5
Consolidated Balance Sheets as of December 31, 1997 and 1996 ..... F-6
Consolidated Statements of Operations for the years ended December
31, 1997 and 1996 and the period from July 17, 1995
("Incorporation") to December 31, 1995 .......................... F-7
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 and the period from July 17,
1995 ("Incorporation") to December 31, 1995 ..................... F-8
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1996 and the period from July 17, 1995
("Incorporation") to December 31, 1995 .......................... F-9
Notes to Consolidated Financial Statements........................ F-10
The Condensed Consolidated Balance Sheet as of September 30, 1998
(unaudited), the Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1998 and 1997
(unaudited), the Condensed Consolidated Statements of
Stockholder's Equity for the nine months ended September 30, 1998
(unaudited), the Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997
(unaudited), and the Notes to Condensed Consolidated Financial
Statements are included in the Form 10-Q of American Tower filed
with the SEC on November 16, 1998................................ Appendix VI
OMNIAMERICA, INC. AND SUBSIDIARIES
Reports of Independent Auditors................................... F-25
Consolidated Balance Sheets as of June 30, 1997 and 1998 and Sep-
tember 30, 1998 (unaudited)...................................... F-28
Consolidated Statements of Earnings for the years ended June 30,
1996, 1997 and 1998 and three months ended September 30, 1997 and
1998 (unaudited)................................................. F-29
Consolidated Statement of Stockholders' Equity for the years ended
June 30, 1996, 1997 and 1998 and three months ended September 30,
1998 (unaudited)................................................. F-30
Consolidated Statements of Cash Flows for the years ended June 30,
1996, 1997 and 1998 and three months ended September 30, 1997 and
1998 (unaudited)................................................. F-31
Notes to Consolidated Financial Statements........................ F-33
TELECOM TOWERS, L.L.C.
Report of Independent Auditors.................................... F-52
Balance Sheets as of December 31, 1997 and September 30, 1998 (un-
audited)......................................................... F-53
Statements of Operations for the period from September 30, 1997
(inception) to December 31, 1997 and nine months ended September
30, 1998 (unaudited)............................................. F-54
Statements of Members' Equity for the period from September 30,
1997 (inception) to December 31, 1997 and nine months ended Sep-
tember 30, 1998 (unaudited)...................................... F-55
Statements of Cash Flows for the period from September 30, 1997
(inception) to December 31, 1997 and nine months ended September
30, 1998 (unaudited)............................................. F-56
Notes to Financial Statements..................................... F-57
F-1
PAGE
-----
TELECOM SOUTHWEST TOWERS LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-64
Balance Sheets as of December 31, 1996 and 1997 and July 31, 1998 (unau-
dited)................................................................. F-66
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-67
Statements of Partner's Capital for the years ended December 31, 1995,
1996 and 1997 and seven months ended July 31, 1998 (unaudited)......... F-68
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-69
Notes to Financial Statements........................................... F-70
TELECOM TOWERS MID-ATLANTIC LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-77
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-81
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-82
Consolidated Statements of Partner's Capital for the years ended Decem-
ber 31, 1995, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-83
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-84
Notes to Consolidated Financial Statements.............................. F-85
TELECOM TOWERS OF THE WEST, L.P.
Reports of Independent Auditors......................................... F-94
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-96
Consolidated Statements of Operations for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-97
Consolidated Statements of Partner's Capital for the years ended Decem-
ber 31, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-98
Consolidated Statements of Cash Flows for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-99
Notes to Consolidated Financial Statements.............................. F-100
MICRONET, INC. AND AFFILIATES
Report of Independent Certified Public Accountants...................... F-108
Combined Statements of Net Assets Sold as of December 31, 1996 and
October 31, 1997....................................................... F-109
Combined Statements of Income Derived From Net Assets Sold for the year
ended December 31, 1996 and ten months ended October 31, 1997.......... F-110
Combined Statements of Cash Flows Derived from Net Assets Sold for the
year ended December 31, 1996 and ten months ended October 31, 1997..... F-111
Notes to Combined Financial Statements.................................. F-112
DIABLO COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-118
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)............................................................ F-119
Statements of Income for the years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited).............. F-120
Statements of Stockholders' Equity for the years ended December 31, 1995
and 1996 and nine months ended September 30, 1997 (unaudited).......... F-121
F-2
PAGE
-----
Statements of Cash Flows for years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-122
Notes to Financial Statements.......................................... F-123
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
Independent Auditors' Report........................................... F-127
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................... F-128
Statements of Operations for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996, and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-129
Statements of Stockholders' Equity for the period from September 1,
1995 (inception) to December 31, 1995, year ended December 31, 1996
and nine months ended September 30, 1997 (unaudited).................. F-130
Statements of Cash Flows for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-131
Notes to Financial Statements.......................................... F-132
MERIDIAN COMMUNICATIONS
Independent Auditors' Report........................................... F-137
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited)....................................................... F-138
Combined Statements of Income for the years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-139
Combined Statements of Partners' Capital and Stockholder's Equity for
the years ended December 31, 1995 and 1996 and six months ended June
30, 1997 (unaudited)................................................. F-140
Combined Statements of Cash Flows for years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-141
Notes to Combined Financial Statements................................. F-142
GEARON & CO., INC.
Independent Auditors' Report........................................... F-147
Balance Sheets as of December 31, 1997 and 1996........................ F-148
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-149
Statements of Changes in Stockholders' Equity for the years ended De-
cember 31, 1997 and 1996............................................... F-150
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-151
Notes to Financial Statements.......................................... F-152
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
Independent Auditors' Report........................................... F-156
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................................... F-157
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-158
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and three months ended March 31,
1998 (unaudited)..................................................... F-159
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-160
Notes to Consolidated Financial Statements............................. F-161
OPM-USA-INC.
Independent Auditors' Report........................................... F-171
Balance Sheets as of December 31, 1997 and 1996........................ F-172
Statements of Operations for the years ended December 31, 1997 and
1996.................................................................. F-173
Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1997 and 1996............................................ F-174
Statements of Cash Flows for the years ended December 31, 1997 and
1996.................................................................. F-175
Notes to Financial Statements.......................................... F-176
F-3
PAGE
-----
WAUKA COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-179
Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)............................................................ F-180
Statements of Operations for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-181
Statements of Shareholder's Equity for the year ended December 31, 1997
and nine months ended September 30, 1998 (unaudited)................... F-182
Statements of Cash Flows for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-183
Notes to Financial Statements........................................... F-184
OMNIAMERICA HOLDINGS CORPORATION
Report of Independent Auditors.......................................... F-190
Consolidated Balance Sheet as of December 31, 1997...................... F-191
Consolidated Statement of Operations for the period from inception
(October 15, 1997) through December 31, 1997........................... F-192
Consolidated Statement of Stockholders' Equity for the period from
inception (October 15, 1997) through December 31, 1997................. F-193
Consolidated Statement of Cash Flows for the period from inception
(October 15, 1997) through December 31, 1997........................... F-194
Notes to Consolidated Financial Statements.............................. F-195
HSW ASSOCIATES, INC.
Report of Independent Auditors.......................................... F-200
Statement of Assets Sold as of December 31, 1997........................ F-201
Statement of Revenues and Direct Operating Expenses of Assets Sold for
the years ended December 31, 1997 and 1996............................. F-202
Notes to Financial Statements........................................... F-203
TOWERCOM, LIMITED
Independent Auditors' Report............................................ F-204
Balance Sheets as of December 31, 1997 and 1996......................... F-205
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-206
Statements of Partners' Capital for the years ended December 31, 1997
and 1996............................................................... F-207
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-208
Notes to Financial Statements........................................... F-209
MILLER TRANSMISSION TOWER COMPANY, LTD.
Independent Auditor's Report............................................ F-213
Balance Sheets as of December 31, 1997 and 1996......................... F-214
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-215
Statements of Changes in Partners' Deficiency for the years ended
December 31, 1997 and 1996............................................. F-216
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-217
Notes to Financial Statements........................................... F-218
KLINE IRON & STEEL CO., INC.
Independent Auditor's Report............................................ F-221
Balance Sheets as of September 30, 1997 and 1996........................ F-222
Statements of Income for the years ended September 30, 1997 and 1996.... F-223
Statements of Retained Earnings for the years ended September 30, 1997
and 1996............................................................... F-226
Statements of Cash Flows for the years ended September 30, 1997 and
1996................................................................... F-227
Notes to Financial Statements........................................... F-228
F-4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
American Tower Systems Corporation:
We have audited the accompanying consolidated balance sheets of American Tower
Systems Corporation and subsidiaries (the "Company"), a wholly owned subsidiary
of American Radio Systems Corporation, as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1997 and 1996 and the period from July
17, 1995 (Incorporation) to December 31, 1995. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the companies as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years ended December 31, 1997 and 1996 and the period from
Incorporation to December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 6, 1998 (except for Note 4,
as to which the date is March 27, 1998)
F-5
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND DECEMBER 31, 1996
1997 1996
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,595,500 $ 2,373,360
Accounts receivable, net of allowance for doubtful
accounts of $125,000 and $47,000 in 1997 and
1996, respectively .............................. 3,238,877 236,990
Prepaid and other current assets.................. 789,677 79,657
Deferred income taxes............................. 62,560
------------ -----------
Total current assets............................ 8,686,614 2,690,007
------------ -----------
PROPERTY AND EQUIPMENT, net......................... 117,617,776 19,709,523
UNALLOCATED PURCHASE PRICE, net..................... 108,192,255 12,954,959
OTHER INTANGIBLE ASSETS, net........................ 8,424,406 1,336,361
INVESTMENT IN AFFILIATE............................. 310,305 325,000
NOTES RECEIVABLE.................................... 10,700,000
DEPOSITS AND OTHER LONG-TERM ASSETS................. 1,424,540 101,803
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 110,391 $ 117,362
Accounts payable.................................. 3,738,230 1,058,822
Accrued expenses.................................. 4,492,064 715,322
Accrued interest.................................. 913,624
Unearned income................................... 1,752,248 252,789
------------ -----------
Total current liabilities....................... 11,006,557 2,144,295
------------ -----------
LONG-TERM DEBT...................................... 90,066,269 4,417,896
DEFERRED INCOME TAXES............................... 417,628 279,218
OTHER LONG-TERM LIABILITIES......................... 32,750 18,950
------------ -----------
Total long-term liabilities..................... 90,516,647 4,716,064
------------ -----------
MINORITY INTEREST IN SUBSIDIARIES................... 625,652 528,928
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Common Stock; $.01 par value; 10,000,000 shares
authorized, 3,000 shares issued and outstanding
in 1996.......................................... 30
Class A Common Stock; $.01 par value; 200,000,000
shares authorized; 29,667,883 shares issued and
outstanding...................................... 296,679
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 shares issued and
outstanding...................................... 46,706
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 shares issued and
outstanding...................................... 12,955
Additional paid-in capital........................ 155,710,741 30,318,420
Accumulated deficit............................... (2,860,041) (590,084)
------------ -----------
Total stockholder's equity...................... 153,207,040 29,728,366
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
See notes to consolidated financial statements.
F-6
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
PERIOD ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
REVENUES:
Tower (includes revenue from related
parties of $389,000 and $70,000 in 1997
and 1996, respectively)................ $13,025,257 $2,816,633 $ 162,933
Site acquisition services............... 2,122,547
Video, voice and data transmission...... 2,083,756
Other................................... 276,907 80,245 186
----------- ---------- ----------
Total operating revenues.............. 17,508,467 2,896,878 163,119
----------- ---------- ----------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization and
corporate general and administrative
expenses:
Tower.................................. 6,080,273 1,362,284 59,417
Site acquisition services.............. 1,360,217
Video, voice and data transmission..... 1,272,682
Depreciation and amortization........... 6,326,323 989,936 57,428
Corporate general and administrative
expense................................ 1,536,263 830,248 230,109
----------- ---------- ----------
Total operating expenses.............. 16,575,758 3,182,468 346,954
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............. 932,709 (285,590) (183,835)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (3,039,235)
Interest income and other, net.......... 235,023 36,204
Minority interest in net earnings of
subsidiaries........................... (177,313) (184,897)
----------- ---------- ----------
TOTAL OTHER EXPENSE....................... (2,981,525) (148,693)
----------- ---------- ----------
LOSS BEFORE BENEFIT (PROVISION) FOR INCOME
TAXES AND EXTRAORDINARY LOSS............. (2,048,816) (434,283) (183,835)
BENEFIT (PROVISION) FOR INCOME TAXES...... 472,671 (45,390) 73,424
----------- ---------- ----------
LOSS BEFORE EXTRAORDINARY LOSS............ (1,576,145) (479,673) (110,411)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFIT OF
$462,500................................. (693,812)
----------- ---------- ----------
NET LOSS.................................. $(2,269,957) $ (479,673) $ (110,411)
=========== ========== ==========
BASIC AND DILUTED PRO FORMA PER COMMON
SHARE AMOUNTS:
Loss before extraordinary loss.......... $ (0.03)
Extraordinary loss...................... (0.01)
-----------
Net loss................................ $ (0.05)
===========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................ 48,691,790
===========
See notes to consolidated financial statements.
F-7
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------ -------------------- -------------------- --------------------
CLASS A CLASS B CLASS C
-------------------- -------------------- -------------------- ADDITIONAL
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
----------- ------ ----------- -------- ----------- -------- ----------- -------- ------------ -----------
Issuance of
common stock to
parent.......... 10
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... $ (110,411)
------ ------------ -----------
BALANCE, DECEMBER
31, 1995........ 10 3,879,234 (110,411)
Issuance of
common stock to
parent.......... 2,990 $30 (30)
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
------ --- ------------ -----------
BALANCE, DECEMBER
31, 1996........ 3,000 30 30,318,420 (590,084)
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........ (3,000) (30) 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 (356,310)
Net loss......... (2,269,957)
------ --- ---------- -------- --------- -------- --------- -------- ------------ -----------
BALANCE, DECEMBER
31, 1997........ -- $-- 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 $155,710,741 $(2,860,041)
====== === ========== ======== ========= ======== ========= ======== ============ ===========
TOTAL
-------------
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... (110,411)
-------------
BALANCE, DECEMBER
31, 1995........ 3,768,823
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
-------------
BALANCE, DECEMBER
31, 1996........ 29,728,366
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........
Net loss......... (2,269,957)
-------------
BALANCE, DECEMBER
31, 1997........ $153,207,040
=============
See notes to consolidated financial statements.
F-8
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
PERIOD ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------- ------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $ (2,269,957) $ (479,673) $(110,411)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization....... 6,326,323 989,936 57,428
Minority interest in net earnings of
subsidiary......................... 177,313 184,897
Amortization of deferred financing
costs.............................. 187,910
Provision for losses on accounts
receivable......................... 124,350 47,044
Extraordinary loss, net............. 693,812
Deferred income taxes............... 146,529 108,715
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable............... (3,155,831) (246,867) (37,167)
Prepaid and other current assets.. 158,897 (226,814) (54,499)
Accounts payable and accrued
expenses......................... 5,096,378 1,580,284 93,860
Accrued interest.................. 913,624
Unearned income................... 1,499,459 252,789
Other long-term liabilities....... 13,800 18,950
------------- ------------- ---------
Cash provided by (used in) operating
activities........................... 9,912,607 2,229,261 (50,789)
------------- ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property
and equipment and construction..... (20,614,412)
Payments for tower related
acquisitions....................... (184,075,851)
Advances of notes receivable........ (10,961,416)
Deposits and other long-term
assets............................. (1,131,247)
-------------
Cash used for investing activities.. (216,782,926)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility.... 151,000,000 2,500,000
Repayment of credit facility........ (65,000,000)
Borrowings under other notes
payable............................ 231,115
Repayments of other notes payable... (358,598) (106,697)
Contributions from parent........... 143,073,631 2,548,557 242,215
Cash transfers to parent............ (16,650,000) (4,866,226) (179,426)
Distributions to minority interest.. (419,160) (174,650)
Additions to deferred financing
costs.............................. (2,553,414)
------------- ------------- ---------
Cash provided by financing
activities........................... 209,092,459 132,099 62,789
------------- ------------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 2,222,140 2,361,360 12,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................ 2,373,360 12,000
------------- ------------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... 4,595,500 $ 2,373,360 $ 12,000
============= ============= =========
See notes to consolidated financial statements.
F-9
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--American Tower Systems Corporation and
subsidiaries (collectively, ATS or the Company) is a wholly-owned subsidiary of
American Radio Systems Corporation (ARS or the Parent). American Tower Systems
(Delaware), Inc. (ATSI) is a wholly-owned subsidiary of the Company which holds
substantially all the operating assets and liabilities of the business.
The Company was incorporated on July 17, 1995 (Incorporation) for the purpose
of acquiring, developing, marketing, managing and operating wireless
communications tower sites throughout the United States, for use by wireless
communications providers and television and radio broadcasters.
In January 1998, ATS completed a corporate restructuring pursuant to which ATS
and ATSI contributed their assets and liabilities to a newly formed operating
subsidiary, American Tower Systems, L.P., (ATSLP). In connection therewith,
ATSI and ATSLP became co-borrowers under the Loan Agreement described in Note
4. The tax sharing agreement between ARS and ATS described in Note 7 was
terminated in connection with the corporate restructuring.
ATS's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including personal
communications services (PCS), cellular, paging, specialized mobile radio,
enhanced specialized mobile radio (ESMR) and fixed microwave, as well as radio
and television broadcasters. ATS also offers its customers a broad range of
network development services, including network design, site acquisition,
zoning and other regulatory approvals, site construction and antennae
installation. ATS intends to expand these services and to capitalize on its
relationships with its wireless customers through major built to suit
construction projects. ATS is also engaged in the video, voice and data
transmission business, which it currently conducts in the New York City to
Washington, D.C. corridor and in Texas.
As of December 31, 1997, the Company owned and/or operated approximately 670
wireless communication sites, principally in the Northeast and Mid-Atlantic
regions, Florida and California.
In September 1997, ARS entered into a merger agreement (as amended and restated
in December 1997, the CBS Merger Agreement) with a subsidiary of CBS
Corporation (CBS), pursuant to which a subsidiary of CBS will merge with and
into ARS and ARS will become a subsidiary of CBS (the CBS Merger). Following
consummation of the CBS Merger, ATS will operate as an independent, publicly
owned corporation (the Tower Separation). Each holder of record, at the
effective time of the CBS Merger, of shares of ARS common stock will receive:
(i) $44.00 per share in cash; and (ii) one share of ATS common stock of the
same class as the class of ARS Common Stock to be surrendered. ARS and ATS will
enter into certain agreements pursuant to the CBS Merger Agreement providing
for, among other things, the orderly separation of ARS and ATS, the transfer of
lease obligations to ATS of leased space on certain towers owned or leased by
ARS to ATS, and the allocation of certain tax liabilities between ARS and ATS.
ATS is obligated to reimburse ARS for the tax liabilities attributable to the
distribution of ATS common stock pursuant to the CBS Merger and the earlier
deconsolidation (for federal and state income tax purposes) of ATS from ARS
(the CBS Merger Tax Liability). Based on an estimate of "fair market value"
using available information as of March 27, 1998 of $16.00 per share of ATS
common stock, the estimated CBS Merger Tax Liability is approximately $173.0
million of which approximately $20.0 million will be borne by ARS and the
remaining obligation (of approximately $153.0 million) will be paid by ATS. The
estimated federal income tax liability will increase or decrease by
approximately $14.8 million for each $1.00 increase or decrease in the "fair
market value" per share of the ATS common stock. ATS expects to use the
proceeds of an equity offering or external financing to reimburse ARS for such
tax liability if due in 1998 or to use borrowings under the Loan Agreement if
due in 1999; the timing of such payment depends on when the CBS Merger is
consummated. (See Note 5).
F-10
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, following the CBS Merger, ATS will assume ARS' lease obligations
with respect to ARS' corporate headquarters in Boston, Massachusetts and
certain senior executives of ARS will become employees of ATS. Future lease
payments required under the lease agreements assumed aggregate approximately
$1.6 million through July 2006.
The CBS Merger has been approved by the stockholders of ARS who hold sufficient
voting power to approve such action. Consummation of the Merger is subject to,
among other things, the expiration or earlier termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
(HSR Act) and the approval by the Federal Communications Commission (FCC) of
the transfer of control of ARS' FCC licenses with respect to its radio stations
to CBS. Subject to the satisfaction of such conditions, the CBS Merger is
expected to be consummated in the Spring of 1998.
Principles of Consolidation and Basis of Presentation--The accompanying
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in affiliates, where ATS owns more than 20 percent of
the voting power of the affiliate but not in excess of 50 percent, are
accounted for using the equity method. Separate financial information regarding
equity method investees is not significant. The Company also consolidates its
50.1% interest and its 70.0% interest in two other tower communications limited
liability companies, with the other members' investments reflected as minority
interest in subsidiaries in the accompanying consolidated financial statements.
Through December 31, 1997, ATS effectively operated as a stand-alone entity,
with its own corporate staff and headquarters, and received minimal assistance
from personnel of the Parent. Accordingly, the accompanying consolidated
financial statements do not include any cost allocations from the Parent.
However, the consolidated financial statements may not reflect the results of
operations or financial position of ATS had it been an independent public
company during the periods presented.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates, and
such differences could be material to the consolidated financial statements.
Revenue Recognition--Tower revenues are recognized when earned. Escalation
clauses and other incentives present in tower lease agreements with the
Company's customers are recognized on a straight-line basis over the term of
the leases. Site acquisition and video voice and data transmission revenues are
recognized as such services are provided. Amounts billed or received prior to
services being performed are deferred until such time as the revenue is earned.
Corporate General and Administrative Expense--Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to any of the Company's individual business properties.
Concentration of Credit Risk--The Company extends credit to customers on an
unsecured basis in the normal course of business. The Company has policies
governing the extension of credit and collection of amounts due from customers.
Derivative Financial Instruments--The Company uses derivative financial
instruments as a means of managing interest-rate risk associated with current
debt or anticipated debt transactions that have a high probability of being
executed. The Company's interest rate protection agreements generally consist
of interest rate swap agreements and interest rate cap agreements. These
instruments are matched with either fixed or variable rate debt, and payments
thereon are recorded on a settlement basis as an adjustment to interest
expense. Premiums paid to purchase interest rate cap agreements are amortized
as an adjustment of interest expense over the life of the contract. Derivative
financial instruments are not held for trading purposes. (See Note 4).
F-11
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposits and short-term investments with remaining maturities when
purchased of three months or less.
Property and Equipment and Unallocated Purchase Price--Property and equipment
are recorded at cost, or at estimated fair value in the case of acquired
properties. Cost includes expenditures for communications sites and related
assets and the net amount of interest cost associated with significant capital
additions. Approximately $458,000 and $120,000 of interest was capitalized for
the years ended December 31, 1997 and 1996, respectively. Depreciation is
provided using the straight-line method over estimated useful lives ranging
from three to fifteen years.
The excess of purchase price over the estimated fair value of net assets
acquired has been preliminarily recorded as unallocated purchase price and is
being amortized over an estimated aggregate useful life of fifteen years using
the straight-line method. Accumulated amortization aggregated approximately
$3,726,000 and $356,000 at December 31, 1997 and 1996, respectively. The
consolidated financial statements reflect the preliminary allocation of certain
purchase prices as the appraisals for some acquisitions have not yet been
finalized. The Company is currently conducting studies to determine the
purchase price allocations and expects that upon final allocation the average
estimated useful life will approximate fifteen years. The final allocation of
purchase price is not expected to have a material effect on the Company's
consolidated results of operations, liquidity or financial position.
Intangible Assets--Intangible assets are being amortized on a straight-line
basis over their estimated useful lives, ranging from five to eight years.
Other intangible assets consist principally of a noncompetition agreement,
deferred financing costs and deferred acquisition costs. Deferred private
placement fees and Tower Separation fees will be reclassified to additional
paid-in capital upon consummation of the related transactions. (See Note 3).
Notes Receivable--In connection with the acquisition of OPM-USA-INC. (OPM) and
the acquisition of Gearon & Co. Inc. (Gearon) described in Note 11, the Company
entered into certain note agreements prior to consummation of these
acquisitions. The Company agreed to advance OPM an amount not to exceed
$37.0 million, of which approximately $5.7 million (excluding accrued interest)
was advanced as of December 31, 1997. The note bore interest at prime rate plus
3%, was unsecured and was settled upon closing of the OPM acquisition.
The Company agreed to advance Gearon an amount not to exceed $10.0 million
prior to closing, of which approximately $5.0 million was advanced as of
December 31, 1997. The note bore interest at approximately 7.25%, was unsecured
and was paid upon closing of the Gearon acquisition.
Income Taxes--Deferred taxes are provided to reflect temporary differences in
basis between book and tax assets and liabilities, and net operating loss
carryforwards. Deferred tax assets and liabilities are measured using currently
enacted tax rates. Through December 31, 1997, ATS filed as part of a
consolidated filing group with ARS; there are no significant differences
between the tax provision or benefit recorded and the amounts measured on a
separate return basis. (See Note 7).
Pro Forma Loss Per Common Share--Pro forma loss per common share is computed
using the number of shares of common stock expected to be outstanding upon
consummation of the CBS Merger. These shares include shares issued pursuant to
the stock purchase agreement described in Note 8 and the Gearon acquisition
described in Note 11 and also includes shares of ATS common stock issuable upon
exercise of ARS options (each ARS option in effect represents the right to
receive $44 in cash and one ATS share; such exercise is expected to occur upon
closing). Shares issuable upon exercise of ATS and ATSI options have been
excluded from the computation as the effect is anti-dilutive. Had ATS and ATSI
options been included in the computation, shares for diluted computation would
have been increased by 5,268,255.
F-12
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets--Recoverability of long-lived assets is
determined by periodically comparing the forecasted undiscounted net cash flows
of the operations to which the assets relate to the carrying amount, including
associated intangible assets of such operations. Through December 31, 1997, no
impairments requiring adjustment have occurred.
Stock-Based Compensation--Compensation related to equity grants or awards to
employees is measured using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. (See Note 8).
Fair Value of Financial Instruments--The Company believes that the carrying
value of all financial instruments, excluding the interest rate protection
agreements, is a reasonable estimate of fair value as of December 31, 1997 and
1996. The fair value of the interest rate protection agreements are obtained
from independent market quotes. These values represent the amount the Company
would receive or pay to terminate the agreements taking into consideration
current market interest rates. The Company would expect to pay approximately
$97,000 to settle these agreements at December 31, 1997. There were no interest
rate protection agreements at December 31, 1996. (See Note 4).
Retirement Plan--Employees of the Company are eligible for participation in a
401(k) plan sponsored by ARS, subject to certain minimum age and length-of-
employment requirements. Administrative expenses of the plan are borne by ARS
and are not significant to ATS. Under the plan, the Company matches 30% of the
participants' contributions up to 5% of compensation. The Company contributed
approximately $16,800 and $6,000 for the years ended December 31, 1997 and
1996, respectively. The Company's contributions for the period from
Incorporation to December 31, 1995 were not material.
Recent Accounting Pronouncements--In June 1997, the FASB released FAS No. 130
"Reporting Comprehensive Income" (FAS 130), and FAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131). Those
pronouncements will be effective in 1998. FAS 130 establishes standards for
reporting comprehensive income items and will require the Company to provide a
separate statement of comprehensive income; reported financial statement
amounts will be affected by this adoption. FAS 131 establishes standards for
reporting information about the Company's operating segments in its annual
report and interim reports and will require the Company to adopt this standard
in 1998.
In February 1998, the FASB released FAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" (FAS 132), which the Company will
be required to adopt in 1998. FAS 132 will require additional disclosure
concerning changes in the Company's pension obligations and assets and
eliminates certain other disclosures no longer considered useful. Adoption will
not have any effect on reported consolidated results of operations or
consolidated financial position.
Reclassifications--Certain reclassifications have been made to the 1995 and
1996 financial statements to conform with the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
1997 1996
------------ -----------
Land and improvements........................... $ 17,955,568 $ 4,081,011
Buildings and improvements...................... 17,731,874
Towers.......................................... 48,315,930 11,473,259
Technical equipment............................. 3,624,239 53,124
Transmitter equipment........................... 18,211,996 13,550
Office equipment, furniture, fixtures and other
equipment...................................... 4,076,212 317,025
Construction in progress........................ 10,641,639 4,276,410
------------ -----------
Total....................................... 120,557,458 20,214,379
Less accumulated depreciation and amortization.. (2,939,682) (504,856)
------------ -----------
Property and equipment, net..................... $117,617,776 $19,709,523
============ ===========
F-13
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following as of December 31:
1997 1996
---------- ----------
Non-compete agreement................................ $5,530,000
Deferred financing costs............................. 2,519,312 $1,255,474
Deferred acquisition costs........................... 438,238 93,965
Deferred private placement fees...................... 546,023
Other................................................ 100,923
---------- ----------
Total............................................. 9,134,496 1,349,439
Less accumulated amortization........................ (710,090) (13,078)
---------- ----------
Other intangible assets, net......................... $8,424,406 $1,336,361
========== ==========
4. FINANCING ARRANGEMENTS
Outstanding amounts under the Company's long-term financing arrangements
consisted of the following as of December 31:
1997 1996
----------- ----------
Loan Agreement...................................... $88,500,000 $2,500,000
Note payable--other................................. 1,466,854 1,557,701
Other obligations................................... 209,806 477,557
----------- ----------
Total............................................... 90,176,660 4,535,258
Less current portion................................ (110,391) (117,362)
----------- ----------
Long-term debt...................................... $90,066,269 $4,417,896
=========== ==========
Loan Agreements--In October 1997, ATSI entered into a new loan agreement with a
syndicate of banks (the Loan Agreement), which replaced the previously existing
credit agreement. All amounts outstanding under the previous agreement were
repaid with proceeds from the Loan Agreement. The following discussion, with
the exception of the information regarding interest rates and availability
under the agreements, is based on the terms and conditions of the Loan
Agreement. Collectively, the previous loan agreement and the 1997 Loan
Agreement (as amended and restated on December 31, 1997 and March 27, 1998) are
referred to as the Loan Agreements.
The Loan Agreement provides ATSI with a $250.0 million loan commitment based on
ATSI maintaining certain operational ratios, and an additional $150.0 million
loan at the discretion of ATSI. The Loan Agreement may be borrowed, repaid and
reborrowed without reducing the availability until June 2005 except as
specified in the Loan Agreement; thereafter, availability decreases in an
amount equal to 50% of excess cash flow, as defined in the Loan Agreement, for
the fiscal year immediately preceding the calculation date. In addition, the
Loan Agreement requires commitment reductions in the event of sale of ATSI's
common stock or debt instruments, and/or permitted asset sales, as defined in
the Loan Agreement.
Outstanding amounts under the Loan Agreements bear interest at either LIBOR
(5.90% as of December 31, 1997 and 5.78% as of December 31, 1996) plus 1.0% to
2.25% or Base Rate, as defined in the Loan Agreements, plus 0.00% to 1.00%. The
spread over LIBOR and the Base Rate varies from time to time, depending upon
ATSI's financial leverage. Under certain circumstances, ATSI may request that
rates be fixed or capped. For the years ended December 31, 1997 and 1996, the
weighted average interest rate of the Loan Agreements was 7.4% and 8.75%,
respectively.
There was $32.7 million and $67.5 million available under the Loan Agreements
at December 31, 1997 and 1996, respectively. ATSI pays quarterly commitment
fees ranging from .375% to .50%, based on ATSI's financial leverage and the
unused portion of the aggregated commitment. Commitment fees paid related to
the Loan Agreements aggregated approximately $416,000 and $24,000 for the years
ended December 31, 1997 and 1996, respectively.
F-14
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Loan Agreement contains certain financial and operational covenants and
other restrictions with which ATSI must comply, whether or not any borrowings
are outstanding, including among others, maintenance of certain financial
ratios, limitations on acquisitions, additional indebtedness and capital
expenditures, as well as restrictions on cash distributions unless certain
financial tests are met, and the use of borrowings. The obligations of ATSI
under the Loan Agreement are collateralized by a first priority security
interest in substantially all of the assets of ATSI. ATS has pledged all of its
stock to the banks as security for ATSI's obligations under the Loan Agreement.
ATS is in the process of negotiating an amended and restated loan agreement
with its senior lenders, pursuant to which the Company expects that the
existing maximum borrowing will be increased from $400.0 million to $900.0
million, subject to compliance with certain financial ratios, and ATS will be
able to borrow an additional $150.0 million, subject to compliance with certain
less restrictive ratios. Borrowings under an amended loan agreement will also
be available to finance acquisitions. In connection with the refinancing, the
Company expects to recognize an extraordinary loss of approximately $1.4
million, net of a tax benefit of $0.9 million, during the second quarter of
1998.
Following the closing of the Loan Agreement in October 1997, ATSI incurred an
extraordinary loss of approximately $1,156,000 (approximately $694,000 net of
the applicable income tax benefit) representing the write-off of deferred
financing fees associated with the previous agreement.
Derivative Positions--Under the terms of the Loan Agreement, ATSI is required,
under certain conditions, to enter into interest rate protection agreements.
There were no such agreements outstanding at December 31, 1996. As of December
31, 1997, ATSI maintained a swap agreement, expiring in January 2001, under
which the interest rate is fixed with respect to $7.3 million of notional
principal amount at approximately 6.4%. ATSI also maintained two cap
agreements; one expiring in July 2000, under which the interest rate is fixed
with respect to $21.6 million of notional principal amount at approximately
9.5%, and one expiring in November 1999, under which the interest rate is fixed
with respect to $7.0 million of notional principal amount at approximately
8.5%. ATSI's exposure under these agreements is limited to the impact of
variable interest rate fluctuations and the periodic settlement of amounts due
under these agreements if the other parties fail to perform.
Note Payable--Other--A limited liability company, which is under majority
control of the Company, has a note secured by the minority shareholder's
interest in the limited liability company. Interest rates under this note are
determined, at the option of the limited liability company, at either the
Floating Rate (as defined in the note agreement) or the Federal Home Loan
BankBoston rate plus 2.25%. As of December 31, 1997 and 1996, the effective
interest rate on borrowings under this note was 8.02%. The note is payable in
equal monthly principal payments with interest through 2006.
Other Obligations--In connection with various acquisitions, the Company assumed
certain long-term obligations of the acquired entities. Substantially all of
these obligations were repaid during 1997, with the remaining unpaid obligation
payable in monthly installments through 2014.
Future principal payments required under the Company's financing arrangements
at December 31, 1997 are approximately:
Year Ending:
1998............................................................. $ 110,000
1999............................................................. 119,000
2000............................................................. 128,000
2001............................................................. 137,000
2002............................................................. 148,000
Thereafter....................................................... 89,535,000
-----------
Total.......................................................... $90,177,000
===========
F-15
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases space for its existing offices in
Florida, California, Pennsylvania and Virginia, space on various communications
towers and land under operating leases that expire over various terms. The
Company also subleases space on communications towers under substantially the
same terms and conditions, including cancellation rights, as those found in its
own lease contracts. Most leases allow cancellation at will or under certain
technical circumstances. Many of the leases also contain renewal options with
specified increases in lease payments upon exercise of the renewal option.
Future minimum rental payments under noncancelable leases in effect at December
31, 1997, excluding assumption of the ARS lease obligations described in Note
1, are approximately as follows:
Year Ending:
1998............................................................. $ 3,996,000
1999............................................................. 3,508,000
2000............................................................. 3,213,000
2001............................................................. 2,706,000
2002............................................................. 1,992,000
Thereafter....................................................... 10,373,000
-----------
Total.......................................................... $25,788,000
===========
Aggregate rent expense under operating leases for the years ended December 31,
1997, 1996 and period ended December 31, 1995 approximated $2,110,000,
$420,000, and $5,000, respectively.
Customer Leases--The Company leases space on its various tower properties (both
owned and managed) to customers which typically are for set periods of time,
although some leases are cancellable at the customers' option and others are
automatically renewed and have no fixed term. Long-term leases typically
contain provisions for renewals and specified rent increases over the lease
term.
Future minimum rental receipts expected to be received from customers under
noncancelable lease agreements in effect at December 31, 1997 are approximately
as follows:
Year Ending:
1998............................................................. $21,017,000
1999............................................................. 16,899,000
2000............................................................. 14,691,000
2001............................................................. 12,369,000
2002............................................................. 8,128,000
Thereafter....................................................... 26,892,000
-----------
Total.......................................................... $99,996,000
===========
Tower rental revenues under the Company's sub-leases approximated $978,000 and
$468,000 for the years ended December 31, 1997 and 1996, respectively.
Acquisition Commitments--See Notes 9 and 11 for information with respect to
acquisitions and related commitments.
CBS Merger--The CBS Merger Tax Liability has been estimated based on an assumed
fair market value of the ATS Common Stock of $16.00 per share price, resulting
in a tax liability of approximately $173.0 million, of which $20.0 million will
be borne by ARS and the remaining obligation will be required to be paid by ATS
pursuant to provisions of the CBS Merger Agreement. The Company's portion of
the CBS Merger Tax Liability
F-16
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
is expected to be paid with the proceeds of an equity offering or external
financing if due in 1998, or borrowings under ATS's Loan Agreement if due in
1999; the timing of such payment is dependent upon the timing of the
consummation of the CBS Merger. Such estimated tax liability would increase or
decrease by approximately $14.8 million for each $1.00 per share increase or
decrease in the fair market value of the ATS Common Stock.
The CBS Merger Agreement also provides for closing date balance sheet
adjustments based upon the working capital and specified debt levels (including
the liquidation preference of the ARS Cumulative Preferred Stock) of ARS at the
effective time of the CBS Merger which may result in payments to be made by
either ARS or ATS to the other party following the closing date of the CBS
Merger. ATS will benefit from or bear the cost of such adjustments. Since the
amounts of working capital and debt are dependent upon future operations and
events, including without limitation cash flow from operations, capital
expenditures, and expenses of the CBS Merger, neither ARS nor ATS is able to
state with any degree of certainty what payments, if any, will be owed
following the closing date by either ARS or ATS to the other party.
Litigation--The Company periodically becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of management,
there are no matters currently pending which would, in the event of adverse
outcome, have a material impact on the Company's consolidated financial
position, the results of operations or liquidity.
6. RELATED PARTY TRANSACTIONS
The Company received revenues of approximately $389,000 and $70,000 from ARS
for tower rentals at Company-owned sites for the years ended December 31, 1997
and 1996, respectively.
ARS has contributed substantially all of the Company's capitalization and had
funded substantially all of the 1996 acquisitions and certain 1997 acquisitions
described in Note 9.
In January 1998, ARS contributed certain tower sites to the Company (See Note
11).
In January 1998, the Company consummated the transactions contemplated by a
stock purchase agreement with certain related parties. (See Note 8).
In December 1997, ARS contributed a tower site and related assets in West Palm
Beach, Florida to the Company at ARS' book value, which approximated $50,000.
During January 1996, ARS contributed a tract of undeveloped land of
approximately two acres to the Company. The transfer was recorded at ARS' book
value of approximately $425,000.
In March 1996, ARS contributed approximately 200 acres of undeveloped land to
the Company. The transfer was recorded at ARS' book value of approximately $2.3
million.
In November 1996, the Company transferred a tract of land to ARS. The transfer
was recorded at ATS' book value of approximately $1.1 million.
In December 1996, ARS contributed a tower site and related assets in Peabody,
Massachusetts to the Company at ARS' book value, which aggregated approximately
$1.1 million.
In December 1996, ARS contributed a tower site and related assets located in
Philadelphia, Pennsylvania, to the Company. These assets were contributed at
their initial estimated fair value of approximately $1.5 million, based on a
preliminary appraisal. In June 1997, the fair value of the tower site and
related assets was determined to be approximately $775,000 based on a final
independent appraisal. The net book value carried by ATS was adjusted by
approximately $725,000 to reflect the change in estimate. This change in
estimate did not have a material effect on the consolidated financial position
or the results of operations of ATS.
F-17
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Effective October 15, 1996, the Company entered into a tax sharing agreement
with ARS. In accordance with this agreement, the Company's share of the
consolidated federal income tax benefit (liability) is calculated as a portion
of ARS' consolidated income tax benefit (liability). Any income tax benefit
(provision) attributable to the Company is payable to (due from) ARS. The
Company's reported provision or benefit is not significantly different from
what would have been recorded on a separate return basis. The tax sharing
agreement was terminated in connection with the corporate restructuring
described in Note 1, pursuant to which the Company will now prepare and file
income tax returns on a separate company basis.
The income tax benefit (provision) was comprised of the following:
PERIOD ENDED DECEMBER 31,
-------------------------
1997 1996 1995
--------- -------- -------
Current:
Federal...................................... $ 444,236 $ 53,907 $62,503
State........................................ 174,964 9,418 10,921
Deferred:
Federal...................................... (125,545) (92,547)
State........................................ (20,984) (16,168)
--------- -------- -------
Income tax benefit (provision)................. $ 472,671 $(45,390) $73,424
========= ======== =======
A reconciliation between the U.S. statutory rate and the effective rate was as
follows for the periods presented:
PERIOD ENDED
DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
Statutory tax rate...................................... (34)% (34)% (34)%
State taxes, net of federal benefit..................... (6) (6) (6)
Nondeductible intangible amortization................... 17 49
Other................................................... 1
--- --- ---
Effective tax rate...................................... (23)% 10 % (40)%
=== === ===
Significant components of the Company's deferred tax assets and liabilities
were composed of the following as of December 31:
1997 1996
--------- ---------
Assets:
Allowances for financial reporting purposes which
are currently nondeductible--current............... $ 62,560
Net operating loss carryforwards.................... $ 2,071
Valuation allowances................................ (2,071)
Liabilities:
Property and equipment and intangible assets........ (417,628) (168,125)
Partnership investments............................. (77,648)
Long-term rental agreements......................... (33,445)
--------- ---------
Net deferred tax liabilities......................... $(355,068) $(279,218)
========= =========
F-18
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDER'S EQUITY
Recapitalization--In November 1997, the Company restated its certificate of
incorporation to increase the aggregate number of shares of all classes of
stock which it is authorized to issue to 280,000,000 shares as follows:
20,000,000 shares of preferred stock $.01 par value per share, 260,000,000
shares of common stock $.01 par value per share, of which 200,000,000 is Class
A, 50,000,000 is Class B and 10,000,000 is Class C. The Class A and B entitles
the holder to one and ten votes, respectively, per share. The Class C is non-
voting.
In addition, at that time, the Company effected a recapitalization, pursuant to
which each share of the Company's existing common stock was cancelled and the
Company was recapitalized with 29,667,883 shares of Class A common stock,
4,670,626 shares of Class B common stock and 1,295,518 shares of Class C common
stock.
ATS Stock Purchase Agreement--On January 22, 1998, the Company consummated the
transactions contemplated by the stock purchase agreement (the ATS Stock
Purchase Agreement), dated as of January 8, 1998, with Steven B. Dodge,
Chairman of the Board, President and Chief Executive Officer of ARS and ATS,
and certain other officers and directors of ARS (or their affiliates or family
members or family trusts), pursuant to which those persons purchased
8.0 million shares of ATS Common Stock at a purchase price of $10.00 per share
for an aggregate purchase price of $80.0 million, including 4.0 million shares
by Mr. Dodge for $40.0 million. Payment of the purchase price was in the form
of cash aggregating approximately $30.6 million and in the form of notes
aggregating approximately $49.4 million due on the earlier of the consummation
of the CBS Merger or, in the event the CBS Merger Agreement is terminated,
December 31, 2000. The notes bear interest at the six-month London Interbank
Rate, as measured from time to time, plus 1.5% per annum, and are secured by
shares of ARS Common Stock having a fair market value of not less than 175% of
the principal amount of and accrued and unpaid interest on the note. The notes
are prepayable at any time at the option of the debtor and will be due and
payable, at the option of the Company, in the event of certain defaults as
described in the ATS Stock Purchase Agreement.
Stock Option Plans--In November 1997, the Company instituted the 1997 Stock
Option Plan (the Plan) which provides for the granting of options to employees
and directors to acquire up to 10,000,000 shares of ATS Class A and Class B
Common Stock. The Plan is expected to be amended in connection with the ATC
Merger, described in Note 11, to limit future grants to Class A Common Stock.
No options were granted under the Plan during 1997. In January 1998, the
Company granted 2,911,300 options at an exercise price of $10 per share to
employees and directors of ATS and subsequently granted 1,400,000 options at an
exercise price of $13 per share to employees of an acquired company. (See Note
11).
ATSI also has a stock option plan which provides for the granting of options to
employees to acquire up to 1,000,000 shares of the common stock of ATSI, of
which options to purchase an aggregate of 682,000 shares have been issued. In
addition, approximately 599,000 options to purchase shares of ARS Common Stock
held by current and future employees of ATS may be exchanged for ATS options.
The ATSI options will be exchanged for ATS options and the ARS options may be
exchanged in a manner that will preserve the spread in such options between the
option exercise price and the fair market value of the stock subject thereto
and the ratio of the spread to the exercise price prior to such conversion.
These ARS options are expected to be exchanged, at least in part, into options
to acquire, stock of ATS, as part of the CBS Merger.
Exercise prices in the case of incentive stock options are not less than the
fair value of the underlying common stock on the date of grant. Exercise prices
in the case of non-qualified stock options are set at the discretion of the
Board of Directors. Options vest ratably over various periods, generally five
years, commencing one year from the date of grant. There have been no option
grants at exercise prices less than fair value.
F-19
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the ATSI option activity for the periods
presented:
WEIGHTED
EXERCISE NUMBER AVERAGE
PRICE CURRENTLY REMAINING
OPTIONS PER SHARE EXERCISABLE LIFE (YEARS)
------- ----------- ----------- ------------
Granted during 1996 and
outstanding at December 31,
1996........................... 550,000 $5.00 160,000 8.71
Granted......................... 172,000 $7.50-$8.00 9.24
Cancelled....................... (40,000) $5.00
------- ----------- ------- ----
Outstanding as of December 31,
1997........................... 682,000 160,000 8.89
======= ======= ====
As described in Note 1, the intrinsic value method is used to determine
compensation associated with stock option grants. No compensation cost has been
recognized to date for grants under the Plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant date for awards in 1996 and 1997 consistent with the provisions of SFAS
123, the Company's net loss would have been approximately $2,492,000 and
approximately $568,000 for the years ended December 31, 1997 and 1996,
respectively. Pro forma basic and diluted net loss per common share would have
been approximately $(0.05) for the year ended December 31, 1997.
The "fair value" of each option grant is estimated on the date of grant using
the minimum value method based on the following key assumptions: risk-free
interest rate of 6.3% and expected lives of 5 years. In accordance with the
provisions of SFAS 123, since the Company's stock is not publicly traded,
expected volatility in stock price has been omitted in determining the fair
value for options granted.
9. ACQUISITIONS
1997 Acquisitions--
In December 1997, the Company consummated the acquisition of a tower site in
Northern California for approximately $2.0 million.
In October 1997, the Company acquired two affiliated entities operating
approximately 110 tower sites and a tower site management business located
principally in northern California for approximately $45.0 million. In
connection therewith, the Company had also agreed to loan up to $1.4 million to
the sellers on an unsecured basis, of which approximately $0.26 million had
been advanced and was repaid at closing.
In October 1997, the Company acquired tower sites and certain video, voice and
data transport operations for approximately $70.25 million. The acquired
business owned or leased approximately 128 tower sites, principally in the Mid-
Atlantic region, with the remainder in California and Texas.
In September 1997, the Company acquired nine tower sites in Massachusetts and
Rhode Island for approximately $7.2 million and land in Oklahoma for
approximately $0.6 million.
In August 1997, the Company acquired six tower sites in Connecticut and Rhode
Island for approximately $1.5 million.
F-20
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1997, the Company, in individual transactions, acquired the following:
(i) the assets of three affiliated entities which owned and operated
approximately fifty towers and a tower site management business in
southern California for an aggregate purchase price of
approximately $33.5 million;
(ii) the assets of one tower site in Washington, D.C. for
approximately $0.9 million;
(iii) the assets of six tower sites in Pennsylvania for approximately
$0.3 million and
(iv) the rights to build five tower sites in Maryland for
approximately $0.5 million.
In May 1997, the Company acquired 21 tower sites and a tower site management
business in Georgia, North Carolina and South Carolina for approximately $5.4
million. The agreement also provides for additional payments by the Company if
the seller is able to arrange for the purchase or management of tower sites
presently owned by an unaffiliated public utility in South Carolina, which
payments could aggregate up to approximately $1.2 million; management believes
that it is unlikely that any such arrangement will be entered into.
In May 1997, the Company acquired the assets of two affiliated companies
engaged in the site acquisition business in various locations in the United
States for approximately $13.0 million.
In May 1997, the Company and an unaffiliated party formed a limited liability
company to own and operate communication towers which will be constructed on
over 50 tower sites in northern California. The Company advanced approximately
$0.8 million to this entity and currently owns a 70% interest in the entity,
with the remaining 30% owned by an unaffiliated party. The Company is obligated
to provide additional financing for the construction of these and any
additional towers it may approve; the obligation for such 50 tower sites is
estimated to be approximately $5.3 million. The accounts of the limited
liability company are included in the consolidated financial statements with
the other party's investment reflected as minority interest in subsidiary.
In May 1997, the Company acquired three tower sites in Massachusetts for
approximately $0.26 million.
1996 Acquisitions--
In February 1996, the Company acquired Skyline Communications and Skyline
Antenna Management in exchange for an aggregate of 26,989 shares of ARS Class A
Common Stock, having a fair value of approximately $774,000, $2.2 million in
cash, and the assumption of approximately $300,000 of long-term debt which was
paid at closing. Skyline Communications owned eight towers, six of which are in
West Virginia and the remaining two in northern Virginia. Skyline Antenna
Management managed more than 200 antenna sites, primarily in the northeast
region of the United States.
In April 1996, the Company acquired BDS Communications, Inc. and BRIDAN
Communications Corporation for 257,495 shares of ARS Class A common stock
having a fair value of approximately $7.4 million and $1.9 million in cash of
which approximately $1.5 million was paid at closing. BDS Communications owned
three towers in Pennsylvania and BRIDAN Communications managed or had sublease
agreements on approximately forty tower sites located throughout the mid-
Atlantic region.
In July 1996, the Company entered into a limited liability company agreement
with an unaffiliated party relating to the ownership and operation of a tower
site in Needham, Massachusetts, whereby the Company acquired a 50.1% interest
in the corporation for approximately $3.8 million in cash. The accounts of the
limited liability company are included in the consolidated financial statements
with the other party's investment reflected as minority interest in subsidiary.
In October 1996, the Company acquired the assets of tower sites in Hampton,
Virginia and North Stonington, Connecticut for approximately $1.4 million and
$1.0 million in cash, respectively.
F-21
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Substantially all of the 1996 acquisitions were consummated by ARS and the net
assets were subsequently contributed to the Company.
The acquisitions consummated during 1997 and 1996 have been accounted for by
the purchase method of accounting. The purchase price has been preliminarily
allocated to the assets acquired, principally intangible and tangible assets,
and the liabilities assumed based on their estimated fair values at the date of
acquisition. The excess of purchase price over the estimated fair value of the
net assets acquired has been recorded as unallocated purchase price. The
financial statements reflect the preliminary allocation of certain purchase
prices as the appraisals of the assets acquired have not been finalized. The
Company does not expect any changes in depreciation and amortization as a
result of such appraisals to be material to the consolidated results of
operations.
Unaudited Pro Forma Operating Results--The operating results of these
acquisitions have been included in the Company's consolidated results of
operations from the date of acquisition. The following unaudited pro forma
summary presents the consolidated results of operations as if the acquisitions
had occurred as of January 1, 1996 after giving effect to certain adjustments,
including depreciation and amortization of assets and interest expense on debt
incurred to fund the acquisitions. These unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made as of January 1, 1996
or results which may occur in the future.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Net revenues.................................... $44,933,000 $35,601,000
Loss before extraordinary loss.................. (8,998,000) (21,716,000)
Net loss........................................ (9,692,000) (21,716,000)
Basic and diluted pro forma loss per common
share.......................................... (0.20)
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Supplemental cash flow information:
Cash paid during the period for interest (including
amounts capitalized).............................. $2,398,201 $ 90,539
Cash paid during the period for income taxes....... 124,988
Noncash investing and financing activities:
Property and equipment transferred from Parent..... 50,000 11,103,352
Property and equipment transferred to Parent....... (725,000)
Land transferred to Parent......................... (1,100,000)
Deferred financing costs paid by Parent............ 1,255,474
Investment in affiliate paid by Parent............. 325,000
Details of acquisitions financed by Parent:
Purchase price of net assets acquired.............. 20,954,401
Liabilities assumed................................ (2,219,637)
Stock issued by Parent............................. (8,153,312)
-----------
Cash paid by Parent................................ 10,581,452
Less: cash acquired................................ (1,600,000)
-----------
Net cash paid by Parent for acquisitions........... $ 8,981,452
===========
F-22
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER TRANSACTIONS
Consummated Transactions:
In January 1998, the Company consummated an agreement to acquire all of the
outstanding stock of Gearon, a company based in Atlanta, Georgia, for an
aggregate purchase price of approximately $80.0 million. The purchase price
consisted of approximately $32.0 million in cash and assumed liabilities and
the issuance of approximately 5.3 million shares of ATS Class A Common Stock.
Gearon is engaged in site acquisition, development, construction and facility
management of wireless network communication facilities on behalf of its
customers and owns or has under construction approximately 40 tower sites.
Following consummation, the Company granted options to acquire up to 1,400,000
shares of Class A Common Stock at an exercise price of $13.00 to employees of
Gearon. (See Notes 1 and 8).
In January 1998, the Company consummated the acquisition of OPM, a company
which owned approximately 90 towers at the time of acquisition. In addition,
OPM is in the process of developing an additional 160 towers that are expected
to be constructed during the next 12 to 18 months. The purchase price, which is
variable and based on the number of towers completed and the forward cash flow
of the completed OPM towers, could aggregate up to $105.0 million, of which
approximately $21.3 million was paid at the closing. The Company had also
agreed to provide the financing to OPM to enable it to construct the 160 towers
in an aggregate amount not to exceed $37.0 million (less advances as of
consummation aggregating approximately $5.7 million, excluding accrued
interest). (See Note 1).
In January 1998, the Company consummated the acquisition of a communications
site with six towers in Tucson, Arizona for approximately $12.0 million.
In January 1998, the Company consummated the acquisition of a tower near Palm
Springs, California for approximately $0.75 million.
In January 1998, ARS transferred to ATS 14 communications sites currently used
by ARS and various third parties (with an ARS net book value of approximately
$4.2 million), and ARS and ATS entered into leases or subleases of space on the
transferred towers. Two additional communications sites will be transferred and
leases entered into following acquisition by ARS of the sites from third
parties.
In February 1998, the Company acquired 11 communications tower sites in
northern California for approximately $11.8 million.
Pending Transactions:
In December 1997, the Company entered into a merger agreement with American
Tower Corporation (ATC) pursuant to which ATC will merge with and into ATS,
which will be the surviving corporation. Pursuant to the merger, ATS expects to
issue an aggregate of approximately 30.0 million shares of ATS Class A Common
Stock (including shares issuable upon exercise of options to acquire ATC Common
Stock which will become options to acquire ATS Class A Common Stock). ATC is
engaged in the business of acquiring, developing, and leasing wireless
communications sites to companies using or providing cellular telephone,
paging, microwave and specialized mobile radio services. At December 31, 1997,
ATC owned and operated approximately 775 communications towers located in 31
states primarily in the western, eastern and southern United States.
Consummation of the transaction is subject to, among other things, the
expiration or earlier termination of the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (HSR Act) waiting period, and is expected
to occur in the Spring of 1998.
F-23
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
In January 1998, the Company entered into an agreement to purchase the assets
relating to a teleport business serving the Washington, D.C. area for a
purchase price of approximately $30.5 million. The facility is located in
northern Virginia, inside of the Washington Beltway, on ten acres.
In February 1998, the Company entered into an agreement to acquire a tower in
Sacramento, California for approximately $1.2 million.
Consummation of the pending transactions, which are subject to certain
conditions, including in certain cases, receipt of FCC approvals and the
expiration or earlier termination of the HSR Act waiting period, are expected
to occur in the second quarter of 1998.
* * * * * *
F-24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.)
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1998, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of OmniAmerica, Inc. and subsidiaries (formerly Specialty Teleconstructors,
Inc.) at June 30, 1998, and the consolidated results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG, LLP
Dallas, Texas
September 16, 1998
F-25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.):
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1997, and the related consolidated statements of earnings, stockholders
equity, and cash flows for each of the years in the two year period ended June
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Novak & Lackey Construction Co., Inc. (N&L), a wholly
owned subsidiary for the year ended June 30, 1996. Those financial statements
of N&L reflect total revenues constituting 19.24 percent of consolidated total
revenues in 1996. Those financial statements of N&L were audited by other
auditors whose report was furnished to us, and our opinion, insofar as it
relates to the amounts included for N&L, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of OmniAmerica Inc. and subsidiaries
(formerly Specialty Teleconstructors, Inc.) as of June 30, 1997, and the
results of their operations and their cash flows for each of the years in the
two year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
August 29, 1997
F-26
BILL MITTS, INC.
CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Novak & Lackey Construction Co., Inc.
I have audited the accompanying statements of earnings, changes in
stockholders' equity and cash flows for NOVAK & LACKEY CONSTRUCTION CO., INC.
for the year ended June 30, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Such standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above, present fairly, in
all material respects, the results of operations and cash flows of NOVAK &
LACKEY CONSTRUCTION CO., INC. for the year ended June 30, 1996 in conformity
with generally accepted accounting principles.
/s/ Bill Mitts, Inc.
Oklahoma City, Oklahoma
May 8, 1997
F-27
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30,
------------------------- SEPT. 30, 1998
1998 1997 (UNAUDITED)
------------ ----------- --------------
ASSETS (SUBSTANTIALLY PLEDGED)
Current assets:
Cash and cash equivalents................................................. $ 4,349,324 $ 989,720 $ 786,073
Available for sale securities............................................. -- 769,850 --
Contracts receivable, less allowance for doubtful accounts of
$390,230, $355,000 and $390,230 in 1998, 1997 and September 30, 1998,
respectively............................................................. 17,349,853 14,740,479 22,611,877
Costs and estimated earnings in excess of billings on uncompleted
contracts (note 3)....................................................... 3,747,671 2,233,289 5,800,903
Components inventory...................................................... 3,430,868 2,664,239 3,572,624
Prepaid income taxes...................................................... 287,849 407,477 --
Other current assets...................................................... 891,148 283,760 1,214,547
------------ ----------- ------------
Total current assets...................................................... 30,056,713 22,088,814 33,986,024
Property and equipment, net (note 4)....................................... 50,847,107 8,429,906 80,524,265
Goodwill, net of amortization of $808,250, $43,383 and $1,927,686 in 1998,
1997 and September 30, 1998, respectively................................. 87,993,151 1,512,555 92,333,055
Investment in unconsolidated subsidiary (note 5)........................... 7,889,650 -- 8,047,011
Other assets, net.......................................................... 2,536,804 331,989 2,333,323
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................... $ 8,802,734 $ 4,021,694 $ 12,555,104
Lines of credit (note 8).................................................. -- 3,387,910 --
Notes payable to stockholder (note 14).................................... 80,000 2,000,000 --
Billings in excess of costs and estimated earnings on uncompleted
contracts (note 3)....................................................... 758,932 597,939 362,408
Accrued expenses.......................................................... 2,171,429 790,975 2,331,180
Current installments of notes and capital leases payable (note 8)......... 474,696 573,798 600,696
Deferred income taxes (note 11)........................................... -- 384,600 --
------------ ----------- ------------
Total current liabilities................................................. 12,287,791 11,756,916 15,849,388
Deferred income taxes (note 11)............................................ 213,378 90,000 214,666
Notes and capital leases payable, excluding current installments (note 8).. 31,631,459 2,012,081 62,912,825
------------ ----------- ------------
Total liabilities......................................................... 44,132,628 13,858,997 78,976,879
------------ ----------- ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued 15,070,294, 7,876,554 and 15,206,299 shares in 1998, 1997 and at
September 30, 1998, respectively (notes 9, 10 and 15).................... 150,703 78,765 152,063
Additional paid-in capital................................................ 129,131,297 12,015,667 131,931,279
Treasury stock, at cost, 100,000 shares................................... (1,387,500) -- (1,387,500)
Note receivable from officer and director (note 14)....................... (600,000) -- (600,000)
Retained earnings......................................................... 7,896,297 6,409,835 8,150,957
------------ ----------- ------------
Total stockholders' equity................................................ 135,190,797 18,504,267 138,246,799
Commitments and contingencies (notes 6, 13, 15 and 17).....................
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
See accompanying notes to consolidated financial statements.
F-28
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- ------------------------
1998 1997
1998 1997 1996 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- -----------
Revenues earned:
Installation services.. $53,038,988 $57,250,485 $28,567,033 $18,561,266 $11,466,225
Component sales........ 8,501,147 8,376,315 4,018,953 3,747,498 1,333,731
Tower leasing.......... 1,258,936 -- -- 2,128,787 --
----------- ----------- ----------- ----------- -----------
Total revenues earned.. 62,799,071 65,626,800 32,585,986 24,437,551 12,799,956
----------- ----------- ----------- ----------- -----------
Cost of revenues earned:
Cost of installation
services.............. 45,684,581 48,298,454 22,571,215 15,492,601 9,309,024
Cost of component
sales................. 5,589,902 5,113,096 3,031,256 3,075,112 973,679
Cost of tower leasing.. 659,281 -- -- 1,463,707 --
----------- ----------- ----------- ----------- -----------
Total cost of revenues
earned................ 51,933,764 53,411,550 25,602,471 20,031,420 10,282,703
----------- ----------- ----------- ----------- -----------
Gross profit on revenues
earned................. 10,865,307 12,215,250 6,983,515 4,406,131 2,517,253
Compensation expense for
cashless option
exercises (note 10).... 719,000 -- -- -- --
Selling, general and
administrative
expenses............... 8,233,490 5,915,808 3,410,546 3,397,483 1,210,376
----------- ----------- ----------- ----------- -----------
Earnings from
operations............ 1,912,817 6,299,442 3,572,969 1,008,648 1,306,877
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Interest income........ 157,015 181,516 275,397 11,560 17,344
Interest expense....... (623,723) (429,615) (82,027) (626,123) (78,695)
Equity in earnings of
unconsolidated
subsidiary............ 219,569 -- -- 157,361 --
Other, net............. 143,434 (20,101) (5,963) 13,214 51,471
----------- ----------- ----------- ----------- -----------
(103,705) (268,200) 187,407 (443,988) (9,880)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes................. 1,809,112 6,031,242 3,760,376 564,660 1,296,997
Income taxes............ 832,000 343,500 564,800 310,000 508,900
----------- ----------- ----------- ----------- -----------
Net earnings........... $ 977,112 $ 5,687,742 $ 3,195,576 $ 254,660 $ 788,097
=========== =========== =========== =========== ===========
Shares of common stock
used in computing
earnings per share:
Basic.................. 9,274,676 7,110,282 6,872,308 15,065,328 7,891,486
Diluted................ 9,562,121 7,467,990 6,881,173 15,362,774 8,164,386
Net earnings per common
share:
Basic.................. $ .11 $ .80 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Diluted................ $ .10 $ .76 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Pro forma information
(note 12):
Net earnings........... $ 5,687,742 $ 3,195,576
Pro forma adjustment
for 1997 and 1996
income taxes of
acquired entity
previously filing as
an S Corporation...... 2,140,500 891,300
----------- -----------
Pro forma net earnings
after adjustment for
income taxes of
acquired entity........ $ 3,547,242 $ 2,304,276
=========== ===========
Pro forma net earnings
per common share:
Basic.................. $ .50 $ .34
=========== ===========
Diluted................ $ .47 $ .33
=========== ===========
See accompanying notes to consolidated financial statements.
F-29
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
AND THREE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
NOTE
RECEIVABLE
FROM
COMMON STOCK ADDITIONAL OFFICER
------------------- PAID-IN TREASURY AND RETAINED
SHARES AMOUNT CAPITAL STOCK DIRECTOR EARNINGS TOTAL
---------- -------- ------------ ----------- ---------- ----------- ------------
Balance at June 30,
1995................... 6,872,308 $ 68,723 $ 5,344,298 $ -- $ -- $ 2,687,991 $ 8,101,012
Distributions of prior S
Corporation earnings... -- -- -- -- -- (850,750) (850,750)
Net earnings............ -- -- -- -- -- 3,195,576 3,195,576
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1996................... 6,872,308 68,723 5,344,298 -- -- 5,032,817 10,445,838
Issuance of common stock
and warrants to acquire
common stock, net...... 668,985 6,690 3,686,003 -- -- -- 3,692,693
Acquisitions (note 15):
Data Cell Systems,
Inc................... 93,400 934 664,576 -- -- -- 665,510
Paramount Communication
Systems, Inc.......... 186,047 1,860 1,728,324 -- -- -- 1,730,184
Specialty Constructors
Coatings, Inc......... 55,814 558 592,466 -- -- -- 593,024
Distributions of prior S
Corporation earnings... -- -- -- -- -- (4,310,724) (4,310,724)
Net earnings............ -- -- -- -- -- 5,687,742 5,687,742
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1997................... 7,876,554 78,765 12,015,667 -- -- 6,409,835 18,504,267
Issuance of common
stock, net............. 322,892 3,229 2,886,720 -- -- -- 2,889,949
Acquisitions (note 15):
Ellis Tower............ 120,848 1,209 1,796,410 -- -- -- 1,797,619
OmniAmerica............ 6,750,000 67,500 112,432,500 -- -- -- 112,500,000
Purchase of treasury
stock.................. -- -- -- (1,387,500) -- -- (1,387,500)
Return of prior S
Corporation earnings
distribution........... -- -- -- -- -- 509,350 509,350
Note receivable from
officer and director
(note 14).............. -- -- -- -- (600,000) -- (600,000)
Net earnings............ -- -- -- -- -- 977,112 977,112
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1998................... 15,070,294 150,703 129,131,297 (1,387,500) (600,000) 7,896,297 135,190,797
Exercise of stock
options (unaudited).... 54,735 547 313,933 -- -- -- 314,480
Issuance of common
shares to acquire
Teleforce
Communications, LLC
(unaudited)............ 81,270 813 2,486,049 -- -- -- 2,486,862
Net earnings
(unaudited)............ -- -- -- -- -- 254,660 254,660
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at September 30,
1998 (unaudited)....... 15,206,299 $152,063 $131,931,279 $(1,387,500) $(600,000) $ 8,150,957 $138,246,799
========== ======== ============ =========== ========= =========== ============
See accompanying notes to consolidated financial statements.
F-30
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ---------------------------------
1998 1997 1996 1998 (UNAUDITED) 1997 (UNAUDITED)
----------- ---------- ---------- ---------------- ----------------
Cash flows from
operating activities:
Net earnings.......... $ 977,112 $5,687,742 $3,195,576 $ 254,660 $ 788,097
Adjustments to
reconcile net
earnings to net cash
provided by (used in)
operating activities:
Provision for
uncollectible
receivables.......... 225,000 355,000 -- -- --
Depreciation of
property and
equipment............ 2,282,084 1,496,830 540,083 837,933 415,864
Amortization.......... 799,867 134,185 94,418 1,119,436 48,923
Compensation expense
for cashless option
exercises............ 719,000 -- -- -- --
Equity in earnings of
unconsolidated
subsidiary........... (219,569) -- -- (157,361) --
Gain on sale of
equipment............ -- (10,489) 5,112 -- --
Changes in certain
assets and
liabilities, net of
acquisitions:
Contracts
receivable.......... (1,869,714) (4,636,796) (5,108,595) (4,887,024) 2,806,729
Prepaid income
taxes............... 119,628 (344,726) 290,631 287,849 193,109
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (1,514,382) (945,959) (703,645) (2,053,232) (1,719,735)
Components
inventory........... (680,417) (1,769,594) (433,727) (141,756) (172,564)
Other current
assets.............. (292,647) (172,919) (44,167) (119,918) (140,108)
Trade accounts
payable............. 4,109,132 808,416 2,033,040 3,752,370 (203,840)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... (335,738) 355,359 (61,740) (396,524) (60,786)
Accrued expenses..... 473,530 (444,544) 693,592 159,751 (86,926)
Current income
taxes............... -- (578,200) 577,187 -- 305,076
Deferred income
taxes............... (261,222) (210,300) (286,737) 1,288 (50,786)
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) operating
activities......... 4,531,664 (275,995) 791,028 (1,342,528) 2,123,053
----------- ---------- ---------- ----------- -----------
Cash flows from
investing activities:
Purchases of property
and equipment, net... (22,182,316) (3,609,094) (3,252,856) (32,120,235) (153,995)
Acquisition costs
recorded as
goodwill............. (3,499,319) -- -- -- --
Acquisitions, net of
cash acquired........ 1,665,555 (80,263) -- -- --
Cash expended in
acquisitions of
Teleforce
Communications,
LLC.................. -- -- -- (640,000) --
Purchases of other
assets............... (382,450) -- -- -- --
Proceeds from sale of
available for sale
securities........... 769,850 -- -- -- 67,057
Purchases of available
for sale securities,
net.................. -- (473,815) (4,082) -- --
----------- ---------- ---------- ----------- -----------
Net cash used in
investing
activities......... (23,628,680) (4,163,172) (3,256,938) (32,760,235) (86,938)
----------- ---------- ---------- ----------- -----------
Cash flows from
financing activities:
Lines of credit, net.. (3,387,910) 1,255,910 1,362,000 -- (1,957,752)
Borrowings from notes
payable.............. 29,162,211 661,500 888,979 30,496,087 --
Payment of deferred
financing fees....... (1,340,000) -- -- -- --
Principal payments on
notes payable........ (750,480) (783,110) (125,686) (191,055) (279,307)
Borrowings from notes
payable to
stockholder.......... -- 2,000,000 500,000 -- --
Principal payments on
notes payable to
stockholder.......... (1,410,650) (500,000) -- (80,000) (406,000)
Proceeds from sale of
common stock and
warrants to acquire
common stock, net.... 1,570,949 3,692,693 -- 314,480 89,679
Acquisition of treasury
stock................. (1,387,500) -- -- -- --
Distributions of prior
S Corporation
earnings.............. -- (4,310,724) (850,750) -- --
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 22,456,620 2,016,269 1,774,543 30,539,512 (2,553,380)
----------- ---------- ---------- ----------- -----------
Net increase
(decrease) in cash
and cash
equivalents........ 3,359,604 (2,422,898) (691,367) (3,563,251) (517,265)
Cash and cash
equivalents at
beginning of year..... 989,720 3,412,618 4,103,985 4,349,324 989,720
----------- ---------- ---------- ----------- -----------
Cash and cash
equivalents at end of
year.................. $ 4,349,324 $ 989,720 $3,412,618 $ 786,073 $ 472,455
=========== ========== ========== =========== ===========
F-31
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED JUNE 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
Supplemental disclosure of cash flow
information:
Interest paid................................ $ 623,723 $ 478,177 $ 108,707
========== ========== ==========
Income taxes paid............................ $1,220,587 $1,318,977 $1,142,009
========== ========== ==========
Acquisition of vehicles in exchange for notes
payable..................................... $1,108,545 $1,208,056 --
========== ========== ==========
Note receivable from stockholder in exchange
for common stock............................ $ 600,000 -- --
========== ========== ==========
Return of prior S Corporation earnings
distribution................................ $ 509,350 -- --
========== ========== ==========
Acquisitions of net assets of Ellis Tower and OmniAmerica Holdings in exchange
for cash and common stock of the Company in the year ended June 30, 1998 and
Paramount, Data Cell, and Coatings in exchange for cash and common stock of the
Company in the year ended June 30, 1997 and the related fair value of assets
acquired and liabilities assumed at the date of the acquisition were as
follows:
1998 1997
------------ ----------
Contracts receivable................................ $ 1,175,989 $1,348,404
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... -- (169,674)
Components inventory................................ 86,212 204,888
Other current assets................................ 314,741 --
Property and equipment.............................. 21,408,424 934,550
Goodwill............................................ 87,069,134 1,593,397
Investment in unconsolidated subsidiary............. 7,670,081 --
Other assets........................................ 482,365 100,066
Trade accounts payable.............................. (671,908) (475,809)
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... (496,731) --
Accrued expenses.................................... (906,924) (6,883)
Notes and capital leases payable.................... -- (459,957)
Common stock issued................................. (114,297,619) (2,988,719)
============ ==========
See accompanying notes to consolidated financial statements.
F-32
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
(1) ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On September 14, 1998, Specialty Teleconstructors, Inc. ("STI"), through a
merger with a wholly-owned subsidiary of STI, changed its name from STI to
OmniAmerica, Inc. ("OmniAmerica" or the "Company") and changed its state of
incorporation from Nevada to Delaware.
The Company is headquartered in Cedar Crest, New Mexico and was formed as a
holding company to combine the operations of its principal operating
subsidiaries, OmniAmerica Towers, Inc., OmniAmerica Development Corporation,
OmniAmerica Holdings Corporation, South Atlantic Tower Corporation, Specialty
Constructors, Inc., Specialty Constructors Coatings, Inc., Specialty
Management, Inc., OmniTower, Ltd., Microwave Tower Service, Inc., Novak &
Lackey Construction Company, Inc., and Specialty Combined Resources, Inc. The
Company is a leading provider of wireless communications and broadcast tower
services to the United States communications industry. The Company's tower
services include owning, leasing, managing and developing multi-use
telecommunications sites for radio and television broadcasting, paging,
cellular, personal communications services and other wireless technologies;
providing wireless infrastructure building and implementation services
primarily for providers of wireless communication services in the United
States; and manufacturing and selling wireless infrastructure components used
in the construction and maintenance of wireless communication transmitting and
receiving facilities. The Company's customers are located throughout the
country.
Effective March 31, 1997, a subsidiary of the Company merged with Novak &
Lackey Construction Co., Inc. ("N&L") and on June 30, 1997, a subsidiary of the
Company merged with Microwave Tower Service, Inc. ("MTS"). Both transactions
were accounted for as pooling of interests business combinations. Accordingly,
the Company's consolidated financial statements prior to these transactions
have been restated to reflect the combined operations (see note 15) for all
periods presented.
The unaudited consolidated interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and accordingly, they do not include all of the information and
disclosures normally required by generally accepted accounting principles for
complete financial statements. The interim financial information reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of results for interim
periods. Results for the three month period ended September 30, 1998 are not
necessarily indicative of the results to be expected for a full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Investment in a 33 1/3% owned affiliated company is accounted for on the equity
basis of accounting and accordingly, the respective statements of earnings
includes the Company's proportionate share of the affiliate's income since its
date of acquisition during fiscal 1998.
(b) Revenue Recognition
Revenues from installation services are recognized on the percentage-of-
completion method. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
F-33
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues recognized.
Revenues from the sale of components are recognized upon shipment to the
customer.
Revenues from tower leasing are recognized ratably as earned over the
respective tower lease terms.
(c) Statements of Cash Flows
For purposes of statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Available for Sale Securities
Investment securities consist of stocks, municipal bonds and mutual funds. In
accordance with Statement of Financial Accounting Standard (SFAS) No. 115, the
Company's investments are classified as available for sale. Available for sale
securities are recorded at fair value based on the market value as provided by
brokers/dealers. Unrealized holding gains and losses, net of the related tax
effect, are reported as a separate component of stockholders' equity. Realized
gains and losses from the sale of available for sale securities are determined
on a specific identification basis.
A decline in the market value of any available for sale security below cost
that is deemed to be other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Dividend and interest income are recognized when
earned.
As of June 30, 1997, the cost of the Company's available for sale securities
approximated market value. Such securities were liquidated during 1998.
(e) Components Inventory
Components inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the asset.
(g) Business and Credit Concentrations
Customers comprising 10 percent or greater of the Company's revenues earned are
summarized as follows:
1998 1997 1996
---- ---- ----
Sprint....................................................... 15% -- --
Western Wireless............................................. -- 20% 12%
AT&T......................................................... -- 12% --
The Company generally does not require collateral from its customers and has
provided adequate provisions for possible credit losses for 1998, 1997 and
1996.
F-34
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(h) Distributions
Distributions to the previous subchapter S Corporation stockholder in 1997 were
made at the discretion of the Board of Directors for payment of income taxes.
In 1998, the excess amount of this distribution over actual income taxes was
returned to the Company.
(i) Goodwill
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over the estimated benefit period of
approximately 30 years.
(j) Deferred Financing Costs
Deferred financing costs incurred in connection with the Company's senior
secured revolving credit facility and variable term note is being amortized
over the term of the related debt on a straight-line basis.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
July 1, 1996. This statement requires that long-lived assets and certain
identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(l) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Advertising Costs
Advertising costs, all of which are non-direct response advertising, are
expensed as incurred. Advertising expense was approximately $153,000, $133,000
and $39,000 during the years ended June 30, 1998, 1997 and 1996, respectively.
(n) Stock Option Plan
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS
F-35
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in fiscal 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(o) Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(p) Earnings Per Share
In 1998, the Company adopted SFAS No. 128, Earnings per Share. In accordance
with this SFAS, basic earnings per common share is computed by dividing net
income applicable to common stock by the weighted average number of common
shares outstanding. Dilutive earnings per share is computed by dividing net
income applicable to common stock by the total of the weighted average number
of common shares outstanding and the additional dilutive effect of stock
options and warrants during the period. The dilutive effect of outstanding
stock options and warrants is computed using the average market price of the
Company's common stock for the period. The earnings per share for 1997 and 1996
have been restated to conform to this change.
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net income and other
related disclosures required by SFAS No. 128:
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Year ended June 30, 1998:
Basic earnings per share:
Income available to common
stockholders....................... $ 977,112 9,274,676 $.11
Effect of dilutive shares:
Options............................. -- 287,445
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 977,112 9,562,121 $.10
========== ========= ====
Year ended June 30, 1997:
Basic earnings per share:
Income available to common
stockholders....................... $5,687,742 7,110,282 $.80
Effect of dilutive shares:
Options and warrants................ -- 357,708
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $5,687,742 7,467,990 $.76
========== ========= ====
F-36
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $3,547,242 7,110,282 $.50
========== ========== ====
Diluted............................. $3,547,242 7,467,990 $.47
========== ========== ====
Year ended June 30, 1996:
Basic earnings per share:
Income available to common
stockholders....................... $3,195,576 6,872,308 $.46
====
Effect of dilutive shares:
Options............................. -- 8,865
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $3,195,576 6,881,173 $.46
========== ========== ====
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $2,304,276 6,872,308 $.34
========== ========== ====
Diluted............................. $2,304,276 6,881,173 $.33
========== ========== ====
Quarter ended September 30, 1998
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 254,660 15,065,328 $.02
====
Effect of dilutive shares:
Options............................. -- 297,446
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 254,660 15,362,774 $.02
========== ========== ====
Quarter ended September 30, 1997
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 788,097 7,891,486 $.10
Effect of dilutive shares:
Options............................. -- 272,900
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 788,097 8,164,386 $.10
========== ========== ====
(q) Financial Instruments
SFAS No. 107, Disclosures About Fair Values of Financial Instruments, requires
the fair value of financial instruments be disclosed. In addition to available
for sale securities carried at fair value, the Company's financial instruments
are contracts receivable, accounts payable, lines of credit and notes payable.
The carrying amounts of these items, because of their nature, approximate fair
value.
F-37
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(r) New Accounting Standards
Effective July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Financial Reporting for Segments of a
Business Enterprise. Under the provisions of SFAS No. 130, there are currently
no items other than net income which would be classified as part of
comprehensive income. Under the provisions of SFAS No. 131, there are no
requirements for interim financial statements in the initial year of
application.
(s) Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
(3) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
SEPT. 30, 1998
1998 1997 (UNAUDITED)
------------ ------------ --------------
Costs incurred on uncompleted
contracts....................... $ 23,877,446 $ 16,682,266 $ 19,648,486
Estimated earnings............... 10,033,415 6,321,822 8,934,426
Less billings to date............ (30,922,122) (21,368,738) (23,144,417)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
Included in the accompanying bal-
ance sheets:
Costs and estimated earnings in
excess of billings on uncom-
pleted contracts.............. $ 3,747,671 $ 2,233,289 $ 5,800,903
Billings in excess of costs and
estimated earnings on uncom-
pleted contracts.............. (758,932) (597,939) (362,408)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED
USEFUL SEPT. 30, 1998
LIVES (YEARS) 1998 1997 (UNAUDITED)
------------- ----------- ----------- --------------
Tower assets............ 30 $34,918,139 $ -- $63,536,131
Land.................... 3,528,681 398,204 3,528,681
Buildings............... 15-40 4,932,786 1,812,275 5,104,439
Vehicles................ 3-7 6,406,562 5,103,442 7,225,203
Furniture and fixtures.. 3-10 1,794,439 1,468,646 2,331,084
Equipment............... 3-10 4,556,502 2,774,246 4,741,286
Leasehold improvements.. 5 156,053 58,827 180,324
----------- ----------- -----------
56,293,162 11,615,640 86,647,148
Less accumulated depre-
ciation................ (5,446,055) (3,185,734) (6,122,883)
----------- ----------- -----------
$50,847,107 $ 8,429,906 $80,524,265
=========== =========== ===========
F-38
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (UNAUDITED)
As a result of the Company's merger with OmniAmerica Holdings in April 1998
described in note 15 below, the Company holds a 33 1/3% interest in Kline Iron
and Steel Co., Inc. ("Kline"), a company which fabricates structural and tower
steel products, domestically and internationally, and is accounted for under
the equity method. Summarized historical financial information of Kline as of
and for the year ended June 30, 1998 and the three months ended September 30,
1998 (unaudited):
SEPTEMBER 30,
1998
1998 (UNAUDITED)
----------- -------------
Current Assets..................................... $29,595,156 $24,588,787
Total Assets....................................... 33,448,072 28,609,187
Stockholders' Equity............................... 5,625,935 6,098,005
Revenues........................................... 65,345,299 21,890,000
Net Earnings....................................... 2,389,023 472,000
(6) LEASES
The Company leases its main office building from an executive officer and
leases office space for several regional offices and various equipment and
vehicles from unrelated parties. These leases are operating leases that expire
over the next four years. The main office building lease contains a renewal
option for five years and requires the Company to pay all executory costs such
as maintenance and insurance. Rental expense for operating leases was
approximately $490,000, $365,000 and $218,000 for the years ending June 30,
1998, 1997 and 1996, respectively.
Future minimum lease payments under non-cancelable operating leases at June 30,
1998 are:
YEAR ENDING JUNE 30
-------------------
1999............................................................. $ 464,857
2000............................................................. 247,931
2001............................................................. 151,263
2002............................................................. 103,482
2003............................................................. 112,816
Thereafter....................................................... 2,554,075
----------
Total minimum lease payments................................. $3,634,424
==========
(7) TOWER LEASING REVENUE
The Company receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower leasing revenues under tower leases in effect at June 30,
1998 are as follows:
YEAR ENDING JUNE 30
-------------------
1999............................................................. $ 4,341,131
2000............................................................. 3,731,309
2001............................................................. 2,953,908
2002............................................................. 2,356,235
2003............................................................. 1,802,980
Thereafter....................................................... 4,409,387
-----------
$19,594,950
===========
F-39
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES AND CAPITAL LEASES PAYABLE
Notes and capital leases payable consist of the following:
SEPT. 30, 1998
1998 1997 (UNAUDITED)
----------- ---------- --------------
Variable rate term note payable to
Chase Manhattan Bank, interest at
LIBOR plus 2% (7.50% and 7.675% at
September 30, 1998 (unaudited) and
June 30, 1998, respectively) payable
monthly, matures June 30, 2001;
secured by substantially all assets
of the Company...................... $30,000,000 $ -- $60,496,087
Note payable in monthly installments
of $6,675, including interest at
U.S. Treasury Index plus 3.5%
(9.125% at September 30, 1998 and
June 30, 1998) with the balance due
March 2005; secured by a building
and guaranteed by a principal
stockholder of the Company.......... 776,410 784,436 774,035
7.3% capital lease payable in monthly
installments of $56,297 with the
balance due September 2001, secured
by vehicles......................... 697,937 -- 1,786,968
8.5% note payable in monthly
installments of $12,068, including
interest, with the balance due July
1999; secured by vehicles........... 350,177 492,893 322,046
11% note payable in monthly
installments of approximately
$29,795, including interest, with
the balance due at various dates in
2000; secured by vehicles........... -- 835,968 --
Other................................ 281,631 472,582 134,385
----------- ---------- -----------
Total notes and capital leases
payable......................... 32,106,155 2,585,879 63,513,521
Less current installments............ 474,696 573,798 600,696
----------- ---------- -----------
Notes and capital leases payable,
excluding current installments.. $31,631,459 $2,012,081 $62,912,825
=========== ========== ===========
The aggregate maturities of notes and capital leases payable are as follows:
YEAR ENDING JUNE 30
-------------------
1999............................................................. $ 474,696
2000............................................................. 467,374
2001............................................................. 30,343,948
2002............................................................. 77,377
2003............................................................. 9,100
Thereafter....................................................... 733,660
-----------
$32,106,155
===========
F-40
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company entered into a bank senior secured revolving credit facility of
$45,000,000 with Chase Manhattan Bank on June 30, 1998. There were no draws
from this credit facility as of June 30, 1998. The credit facility is to be
secured by substantially all the Company's assets, and borrowings are limited
to certain EBITDA ratios along with specific capitalization and interest
ratios. Interest is based on Company directed Eurodollar or ABR variable rate
of interest. The line of credit balance as of June 30, 1997 was repaid in 1998.
(9) WARRANTS
In connection with its initial public offering in November 1994, the Company
issued 1,000,000 shares of common stock and warrants to acquire 500,000 shares
of common stock. Warrants issued with the Company's common stock were
exercisable for $6.00 per share. Additionally, in connection with the public
offering, the Company issued warrants to the underwriters to purchase 50,000
units, each consisting of two shares of common stock and one warrant to acquire
a share of common stock. The exercise price was 120 percent of the initial
public offering price of $10.125 per unit, or $12.15 per unit. Pursuant to the
warrant agreements, the Company was entitled to redeem all outstanding
warrants, or repurchase those not redeemed at $.05 per share, upon the
Company's common stock market closing price reaching specified levels. These
levels were attained and, on February 20, 1997, the Company filed a
registration statement which included a notice to the warrant holders of record
that the Company intended to redeem all unexercised warrants on March 26, 1997
(the "Redemption Date"). All but 330 of the outstanding warrants, including all
of the underwriter units, were exercised prior to the Redemption Date,
resulting in the issuance of 649,670 shares of the Company's common stock.
Proceeds to the Company, net of issuance costs of approximately $289,000, were
$3,607,000. Following the Redemption Date, the Company redeemed the 330 then
outstanding warrants at $.05 each.
(10) STOCK OPTION PLANS
In November 1997, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1997 Plan) pursuant
to which the Company may grant stock options to officers and key employees. The
1997 Plan may be terminated at any time by the Board of Directors, subject to
shareholder approval. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant. All stock options have 10-
year terms and generally vest and become fully exercisable after 3 years from
the date of grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Incentive Stock Option Plan (the 1995 Plan) pursuant to which the
Company may grant stock options to officers and key employees. The 1995 Plan
may be terminated at any time by the Board of Directors, subject to shareholder
approval. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. All stock options have 10-year terms
and generally vest and become fully exercisable after 3 years from the date of
grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Outside Directors' Stock Option Plan (Directors Plan) pursuant to
which the Company may grant stock options to non-employee directors of the
Company. The Directors Plan will terminate in May 2004. The Directors Plan
authorizes grants of options to purchase up to 50,000 shares of authorized but
unissued common stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. All stock options have
10-year terms and vest and become fully exercisable after 3 years from the date
of grant.
At June 30, 1998, there were 15,000 additional shares available for grant under
the 1997 Plan, 163 additional shares available for grant under the 1995 Plan
and 2,000 additional shares available under the Directors Plan. The per share
weighted-average fair value of stock options granted during 1998, 1997 and 1996
was $12.58,
F-41
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$6.98 and $4.05 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1998--expected
volatility of 63 percent, expected dividend yield 0 percent, risk-free interest
rate of 5.22 percent, and an expected life of 3 years; 1997--expected
volatility of 82 percent, expected dividend yield 0 percent, risk-free interest
rate of 6.82 percent, and an expected life of 3 years; 1996--expected
volatility of 200 percent, expected dividend yield 0 percent, risk-free
interest rate of 6.14 percent, and an expected life of 3 years.
On July 24, 1998, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1998 Plan) pursuant
to which the Company may grant stock options to key employees. The effective
date of the 1998 Plan was September 14, 1998 and shall terminate ten years
later. A maximum of 675,000 shares were designated.
The Company applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
1998 1997 1996
-------- ---------- ----------
Net income....................... As reported $977,112 $5,687,742 $3,195,576
Pro forma $ 95,427 $4,212,742 $3,195,576
Earnings per common share:
Basic.......................... As reported $ .11 $ .80 $ .46
Pro forma $ .01 $ .59 $ .46
Diluted........................ As reported $ .10 $ .76 $ .46
Pro forma $ .01 $ .56 $ .46
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to July 1, 1995
is not considered.
Stock option activity for all plans during the periods indicated is as follows:
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Balance at June 30, 1995......................... 62,120 $ 3.06
Granted........................................ 261,525 4.39
Exercised...................................... --
Forfeited...................................... --
Expired........................................ --
--------
Balance at June 30, 1996......................... 323,645 4.14
Granted........................................ 337,500 12.96
Exercised...................................... (23,125) 3.71
Forfeited...................................... (4,175) 4.52
Expired........................................ --
--------
Balance at June 30, 1997......................... 633,845 8.85
Granted........................................ 321,700 12.58
Exercised...................................... (239,836) 5.10
Forfeited...................................... (47,933) 6.98
Expired........................................ --
--------
Balance at June 30, 1998......................... 667,776 $12.13
========
F-42
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize information about fixed stock options
outstanding at June 30, 1998:
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED-AVERAGE WEIGHTED-
NUMBER REMAINING AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
------------------------ ----------- ---------------- --------------
$3.0625 to $4.5625............. 54,925 1.00 $4.13
$6 to $9....................... 48,000 1.38 7.13
$10 to $12.50.................. 295,851 2.50 12.07
$13.00 to $15.50............... 269,000 1.77 14.72
-------
667,776 12.13
=======
OPTIONS EXERCISABLE
--------------------------
WEIGHTED-
NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- --------------
$3.0625 to $4.5625.............................. 54,925 $4.13
$6 to $9........................................ 39,000 6.69
$10 to $12.50................................... 101,001 11.88
$13.00 to $15.50................................ 168,332 14.74
-------
363,258 11.47
=======
In 1998, approximately 23,500 options were exercised by employees and an
outside director on the cashless method, which resulted in the Company
recognizing a one-time non-cash compensation expense of $719,000.
(11) INCOME TAXES
Income tax expense (benefit) consists of:
CURRENT DEFERRED TOTAL
---------- --------- --------
Year ended June 30, 1998:
U.S. federal................................ $ 973,000 $(249,000) $724,000
State and local............................. 143,000 (35,000) 108,000
---------- --------- --------
Total..................................... $1,116,000 $(284,000) $832,000
========== ========= ========
Year ended June 30, 1997:
U.S. federal................................ $ 411,500 $(201,800) $209,700
State and local............................. 98,700 35,100 133,800
---------- --------- --------
Total..................................... $ 510,200 $(166,700) $343,500
========== ========= ========
Year ended June 30, 1996:
U.S. federal................................ $ 782,700 $(263,600) $519,100
State and local............................. 68,900 (23,200) 45,700
---------- --------- --------
Total..................................... $ 851,600 $(286,800) $564,800
========== ========= ========
F-43
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to earnings before income taxes as a
result of the following factors:
1998 1997 1996
-------- ----------- ----------
Computed "expected" tax.................. $615,000 $ 2,050,600 $1,278,500
Reduction for income taxable to
Subchapter S shareholder (MTS).......... -- (1,895,900) (757,600)
Deferred taxes established in connection
with acquisition of prior Subchapter S
Corporation (MTS)....................... -- 90,000 --
Non-deductible goodwill expense.......... 58,100 -- --
Non-deductible compensation expense for
cashless option exercises............... 38,900 -- --
Non-deductible meals and entertainment... 32,300 -- --
State income taxes, net of federal tax
benefit................................. 90,400 63,100 38,800
Other.................................... (2,700) 35,700 5,100
-------- ----------- ----------
Total.................................... $832,000 $ 343,500 $ 564,800
======== =========== ==========
The change in the effective tax rate for the three months ended September 30,
1998 results primarily from additional non-deductible goodwill expense.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1998 and
1997 are presented below:
1998 1997
--------- ---------
Deferred Tax Liabilities:
Adjustment for conversion from cash basis to accrual
basis tax reporting................................. $(213,200) $(385,700)
Investment in unconsolidated subsidiary.............. (167,600) --
Amortization of goodwill and depreciation for
financial reporting purposes in excess of tax
amounts............................................. (270,300) 21,400
Deferred taxes established in connection with
acquisition of prior Subchapter S Corporation
(MTS)............................................... (90,000) (90,000)
Other................................................ -- (20,300)
--------- ---------
Total deferred tax liability......................... (741,100) (474,600)
--------- ---------
Deferred Tax Assets:
Allowance for doubtful accounts...................... 152,200 --
Start up costs....................................... 244,000 --
Accrued expenses..................................... 65,300 --
Net operating loss................................... 336,800 --
Other................................................ 29,522 --
Less valuation allowance............................. (300,100) --
--------- ---------
Total deferred tax asset............................. 527,722 --
--------- ---------
Net deferred tax liability........................... $(213,378) $(474,600)
========= =========
A subsidiary of the Company has a net operating loss of $893,000 as of its
acquisition date. This net operating loss is subject to limitation by Internal
Revenue Code Section 382 and the separate return limitation year rules. The net
operating loss will begin to expire in the year 2012. A valuation allowance has
been established against the net deferred tax asset resulting from the net
operating loss due to the limitations imposed on the utilization of the loss.
All of the valuation allowance for deferred tax assets will reduce goodwill
when the tax benefit is recognized in the future.
F-44
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) PRO FORMA INCOME TAXES
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings to present taxes on
the results of operations of MTS for the year ended June 30, 1997 and 1996 on
the basis that is required upon their change in tax status from an S
Corporation to a C Corporation. This amount, $2,140,500 and $891,300 in 1997
and 1996, respectively, are equal to the required Federal and state income tax
provisions that would have been recorded if MTS had not elected S Corporation
status and was subject to and liable for Federal and state income taxes as a C
Corporation prior to its termination of S Corporation status. MTS terminated
its S Corporation status upon merging with a wholly-owned subsidiary of the
Company on June 30, 1997.
(13) PROFIT-SHARING PLANS
In November 1996, the Company established a profit sharing plan pursuant to
Section 401(k) of the Internal Revenue Code, whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the code. The plan provides for a matching contribution by the
Company, which amounted to approximately $50,800, $9,000 and $-0- for the years
ended June 30, 1998, 1997 and 1996, respectively.
In 1989, MTS, a wholly-owned subsidiary, established a discretionary profit
sharing and money purchase pension plan. The plans cover all non-union
employees who have met certain service requirements. Contributions to the
profit sharing plan are discretionary and determined based on operating results
of MTS. For the money purchase pension plan, MTS was required to contribute 8%
of eligible compensation annually. Effective, October 31, 1997, the plans were
terminated in accordance with the provisions of Employee Retirement Income
Security Act of 1974, and all participants became immediately vested in their
accounts. Contributions were approximately $-0-, $173,000 and $91,000 in 1998,
1997 and 1996, respectively.
(14) RELATED PARTY TRANSACTIONS
(a) Leases
The Company leases its main office building from Michael R. Budagher (a
principal stockholder, an officer and director of the Company).
(b) Budagher's Tower Co. ("BTC")
The Company uses contract labor provided by BTC, a corporation which is wholly-
owned by Michael R. Budagher's brother. The Company incurred $252,933,
$452,338, $92,931, $47,869 and $68,508 for contract labor services provided by
BTC during the years ended June 30, 1998, 1997 and 1996 and the three months
ended September 30, 1998 and 1997, respectively.
(c) Specialty Constructors Coatings, Inc. ("SCC")
The Company uses contract labor services provided by SCC. SCC is a corporation
which was 50 percent owned by Michael R. Budagher until March 31, 1997, when
Mr. Budagher sold his interest in SCC. On June 1, 1997, the Company acquired
SCC (note 15). The Company incurred $606,304 and $401,587 for contract labor
services provided by SCC during the year ended June 30, 1997 and 1996,
respectively.
F-45
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) Specialty Manufacturing, Inc. ("SMI")
Prior to August 1997, the Company purchased ground kits from SMI used in
certain construction projects. SMI is owned 50 percent by Michael R. Budagher's
spouse (a stockholder) and 50 percent by Michael R. Budagher's brother (a
stockholder and employee of the Company). The Company purchases from SMI
totaled $3,768, $29,852, $13,285, $-0- and $2,578 during the years ended June
30, 1998, 1997 and 1996 and the three months ended September 30, 1998 and 1997,
respectively. In August 1997, MTS acquired substantially all of the inventory
and manufacturing equipment of SMI for $134,882 in cash and the right to
receive a royalty of $2 for each ground kit sold by MTS through July 31, 2000.
The Company paid royalties to SMI in the amount of $42,348 in 1998.
(e) Change Corporation ("Change")
The Company occasionally purchases computer equipment and software from Change,
which is used for office purposes. Change is owned by Michael R. Budagher's
sister. The Company incurred $36,575, $-0-, $-0-, $3,174 and $-0- in 1998, 1997
and 1996 and the three months ended September 30, 1998 and 1997, respectively,
for such purchases.
(f) Note Receivable from Officer and Director
A 7% recourse note receivable of $600,000 due December 29, 2002 is due from an
officer and director of the Company. Such note was originated for the purchase
of 50,000 shares of the Company's common stock, the source being from unissued
shares of the Company. Such balance is classified in the stockholders' equity
section of the balance sheet.
(g) Notes Payable to Stockholder
The Company had notes payable to stockholder for $80,000 and $2,000,000 as of
June 30, 1998 and 1997, respectively. Such notes payable originated as a
distribution to the previous Subchapter S Corporation stockholder in 1997 for
estimated payment of income taxes. $1,410,650 was paid to this stockholder
during 1998, $509,350 of this balance was returned to the Company for the
difference between the actual income tax liability and the original $2,000,000
distribution, and $80,000 remains for anticipated remaining liability for such
income taxes. The remaining payable is secured by components inventory.
(h) Principal Stockholder Advisory and Financial Services Commitment
The Company has retained Hicks, Muse & Co. Partners ("HMCo") (owner of
approximately 45% of the Company's outstanding common stock) in 1998 to perform
certain advisory, oversight, monitoring and financial services as requested by
the Board of Directors for a period to be the lesser of April 23, 2008 or upon
HMCo owning less than 33 1/3% of the outstanding common stock of the Company.
Such annual fees shall be the greater of $180,000 or .2% of annual consolidated
net sales of the Company for oversight and monitoring services and a 1 1/2% fee
for all future acquisitions, sales, mergers, recapitalization, restructurings
or other similar transactions for which HMCo provides services. During 1998,
approximately $269,000 was paid to HMCo. Such services did not exist in 1997 or
1996.
(i) Kline Tower and Steel ("Kline")
The Company purchases certain structural and tower steel products from Kline.
The Company owns 33 1/3% of the outstanding equity of Kline (note 5). During
the year ended June 30, 1998, approximately $2,569,000 of such products were
purchased from Kline and approximately $100,000 in consulting fees were paid to
Kline.
F-46
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is obligated to pay Kline this $100,000 consulting fee each year
for the next four fiscal years. Approximately $294,000 included in trade
accounts payable was owed to Kline as of June 30, 1998. The Company did not
hold an ownership interest in Kline during 1997 and 1996.
(j) Wireless Components, Inc.
During the year ended June 30, 1996, the Company purchased $325,000 of
components from Wireless Components, Inc., an entity owned by Thomas Carpenter,
a principal stockholder of the Company.
(15) ACQUISITIONS
On August 26, 1998, the Company acquired three towers for approximately
$2,400,000.
On July 9, 1998, the Company paid $640,000 and issued 81,270 shares of
restricted common stock of the Company at a price of $30.60 per share,
determined by the closing price on or about July 9, 1998, in exchange for
substantially all of the assets and liabilities of Teleforce Communications,
LLC. ("Teleforce"). Teleforce provides site acquisition services for the
wireless communications industry. The transaction was accounted for as a
purchase. Goodwill of approximately $2,750,000 recorded in connection with the
purchase is being amortized over a period of 30 years.
On April 23, 1998, the Company issued 6,750,000 shares of restricted common
stock of the Company at a price of $16.67 per share, determined by the average
closing price on or about February 16, 1998, in connection with the merger of
OmniAmerica Holdings ("OmniAmerica Holdings"). OmniAmerica Holdings owns assets
consisting of real estate, equipment and other physical property used in the
operation of the wireless communications and broadcast transmission tower
leasing business. The source of the shares for the transaction were unissued
shares of the Company. The transaction was accounted for as a purchase.
Accordingly, the results of OmniAmerica Holdings have been included in those of
the Company since the date of the merger. Goodwill of approximately $85,000,000
recorded in connection with the acquisition is being amortized over a period of
30 years. The Company is currently completing the allocation of its purchase
price, including the valuation of identifiable intangible assets. The
refinement of the purchase price allocation within the next year is not
expected to have a material impact on the Company's financial position or
results of operations.
On October 7, 1997, a wholly-owned subsidiary of the Company purchased
substantially all the assets of Ellis Tower Co., Inc. ("Ellis Tower"), in
exchange for $449,405 in cash and 120,848 shares of the Company's common stock
at a price of $14.87 determined by the closing price on or about October 7,
1997. Ellis Tower, located in Ft. Lauderdale, Florida, provides wireless
infrastructure building services. The source of the shares for the transaction
were unissued shares of the Company. The transaction was accounted for as a
purchase. Accordingly, the results of Ellis Tower have been combined with those
of the Company since the date of the purchase. Goodwill of approximately
$1,700,000 recorded in connection with the purchase is being amortized over a
period of 15 years.
On June 30, 1997, the Company issued 2,380,000 shares of restricted common
stock of the Company at a price of $11.625 per share, determined by the closing
price on or about June 8, 1997, pursuant to the merger of MTS with a wholly-
owned subsidiary of the Company. The source of the shares for the transaction
were unissued shares of the Company. MTS, located in Salem, Oregon; Salt Lake
City, Utah; Phoenix, Arizona; Denver, Colorado; and Sacramento, California,
provides wireless infrastructure building services and manufacturing,
distribution and sales of components for wireless infrastructure. The
transaction was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements have been restated to include the
operations of MTS prior to the acquisition for all periods presented.
F-47
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On June 1, 1997, the Company issued 55,814 shares of restricted common stock of
the Company at a price of $10.625 per share, determined by the closing price on
or about June 1, 1997, in exchange for substantially all the assets and
liabilities of Specialty Constructors Coatings, Inc. ("Coatings"). Coatings was
originally 50 percent owned by Michael R. Budagher, but Mr. Budagher's interest
was sold to the other shareholders on March 1, 1997. The source of the shares
for the transaction were unissued shares of the Company. Coatings, located in
Cedar Crest, New Mexico, provides wireless infrastructure building services,
primarily on water tank facilities. The transaction was accounted for as a
purchase. Accordingly, the results of Coatings' operations have been combined
with those of the Company since the date of acquisition. No goodwill was
recorded in connection with the purchase.
On May 28, 1997, the Company issued 186,047 shares of restricted common stock
of the Company at a price of $9.30 per share, determined by the closing price
on or about March 31, 1997, in exchange for substantially all the assets and
liabilities of Paramount Communication Systems, Inc. ("Paramount"). The source
of the shares for the transaction were unissued shares of the Company.
Paramount, located in Somerdale, New Jersey, provides wireless infrastructure
building services. The transaction was accounted for as a purchase.
Accordingly, the results of Paramount's operations have been combined with
those of the Company since the date of acquisition. Goodwill of approximately
$1,300,000 recorded in connection with the purchase is being amortized over a
period of fifteen years. In connection with the purchase, the Company entered
into a note receivable with the principal stockholder of Paramount. The note,
in the amount of $250,000, is due in three semi-annual installments beginning
May 2000 and one final installment in November 2001. Interest, at 9 percent, is
payable quarterly. Under the terms of the acquisition agreement, the Company is
obligated to loan an additional $250,000 to the stockholder of Paramount. Such
additional loan was not requested by the stockholder in 1998. The note is
secured by 93,024 shares of the Company's common stock.
On May 14, 1997, the Company issued 400,000 shares of restricted common stock
of the Company at a price of $9.25 per share, determined by the closing price
on or about March 31, 1997, pursuant to the merger of N&L with a wholly-owned
subsidiary of the Company. The source of the shares for the transaction were
unissued shares of the Company. N&L, located in Oklahoma City, OK and southern
California, provides general contract services for wireless telecommunications
companies, health care and other commercial customers. The transaction was
accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements have been restated to include the operations
of N&L prior to the acquisition for all periods presented.
On October 31, 1996, the Company paid $160,000 and issued 93,400 shares of
restricted common stock of the Company at a price of $7.125 per share,
determined by the closing price on or about October 31, 1996, in exchange for
substantially all the assets and liabilities of Data Cell Systems, Inc. ("Data
Cell"). Data Cell provides wireless infrastructure building services. The
source of the shares for the transaction were unissued shares of the Company.
The transaction was accounted for as a purchase. Accordingly, the results of
Data Cell's operations have been combined with those of the Company since the
date of acquisition. Goodwill of approximately $380,000 recorded in connection
with the purchase is being amortized over a period of five years. Additionally,
pursuant to the purchase agreement, the Company may be required to pay
additional consideration, not to exceed $200,000, based upon the Data Cell
subsidiary achieving specified levels of pre-tax earnings during the three
years immediately following the date of acquisition. Such levels were not
attained in the years ended June 30, 1998 and 1997.
On July 1, 1995, the Company issued 92,308 shares of its restricted common
stock at a price of $2.75 per share, determined by the closing price on or
about July 1, 1995, in exchange for all of the outstanding shares of Specialty
Combined Resources, Inc. (Specialty Combined). The source of the shares for the
transaction are
F-48
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
unissued shares of the Company. Specialty Combined, located in Laguna Hills,
California, provides engineering, design and coordination services of power,
lighting and control systems for communications, health care, petrochem,
institutional and commercial customers. The Company also entered into a
consulting and noncompete agreement with the former principal of Specialty
Combined for a period of thirty-six (36) months from the date of the
acquisition for $75,000. Additionally, the Company entered into an employment
agreement with the former principle of Specialty Combined to provide services
to the Company for a period of thirty-six (36) months from the date of
acquisition. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements were restated to
include the operations of Specialty Combined for all periods prior to the
acquisition.
Fiscal years 1998, 1997 and 1996 also include other acquisitions which are
immaterial to the consolidated financial statements of the Company.
Separate results of the combining entities, giving effect to the N&L and MTS
poolings of interests for periods prior to such transactions are as follows for
the years ending June 30:
1997(1) 1996
AS RESTATED AS RESTATED
(UNAUDITED) (UNAUDITED)
----------- -----------
Revenues earned:
OmniAmerica...................................... $32,303,360 $16,758,629
Novak & Lackey................................... 10,303,550 6,270,979
Microwave Tower Service.......................... 23,019,890 9,556,378
----------- -----------
$65,626,800 $32,585,986
=========== ===========
Net earnings (loss):
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 5,576,114 2,228,205
----------- -----------
$ 5,687,742 $ 3,195,576
=========== ===========
Pro forma net earnings (loss) (see note 12)
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 3,435,614 1,336,905
----------- -----------
$ 3,547,242 $ 2,304,276
=========== ===========
- --------
(1) The Company's results for the twelve months ended June 30, 1997 include
the results of N&L for the period following the consummation of the
merger.
F-49
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma financial information presents the combined
results of operations of the Company and OmniAmerica Holdings as if the
acquisitions had occurred as of the beginning of 1998 and 1997, after giving
effect to certain adjustments, including amortization of goodwill, additional
depreciation expense and related income tax effects. The pro forma financial
information does not necessarily reflect the operations that would have
occurred had the Company and the acquired entities constituted a single entity
during such periods nor is it an indication of future performance:
YEAR ENDED JUNE 30,
-----------------------
1998 1997
----------- -----------
Revenues earned....................................... $67,437,136 $71,332,114
=========== ===========
Net earnings.......................................... $ 1,163,107 $ 6,424,651
=========== ===========
Earnings per common share:
Basic............................................... $ .08 $ .46
=========== ===========
Diluted............................................. $ .08 $ .45
=========== ===========
Pro forma net earnings(2)............................. $ 4,284,151
===========
Pro forma earnings per common and common equivalent
share(2)
Basic............................................... $ .31
===========
Diluted............................................. $ .30
===========
- --------
(2) Pro forma net earnings and earnings per common and common equivalent share
are based on pooled results of the Company, giving effect to pro forma
income taxes for pooling with Subchapter S Corporation for the years ended
June 30, 1998 and 1997.
The effects of the Company's acquisition of Teleforce, Ellis Tower and Coatings
prior to the respective date of acquisition are not material to the combined
results of operations of the Company for the years ended June 30, 1998 and 1997
and the three months ended September 30, 1998 and 1997 (unaudited).
F-50
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) CONTINGENCIES
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the Company's business,
results of operations or financial condition, based on the Company's current
understanding of the relevant facts and law. The Company maintains general
liability insurance against risks arising out of the normal course of business.
(17) EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S REPORT (UNAUDITED)
On September 29, 1998, pursuant to an asset purchase and sale agreement with
certain wholly-owned subsidiaries of Arch Communications Group, the Company
acquired 70 towers on 68 sites for approximately $20,400,000 financed primarily
with proceeds from the Chase Manhattan senior secured revolving credit
facility.
On November 15, 1998, the Stock Option Sub-Committee of the Board of Directors
approved the grant of 397,400 stock options under the 1998 Plan to certain
outside directors, officers and employees of the Company at the then current
market price of $17.50. The options are to be granted in connection with the
merger with ATI mentioned below.
On November 16, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger with American Tower Company and American Tower,
Inc. ("ATI") pursuant to which the Company will, subject to the receipt of
necessary governmental consents and other customary closing conditions, be
merged with and into ATI. In the event OmniAmerica terminates the merger
agreement because of a Superior Proposal, a termination fee of $12.0 million
must be paid to ATC.
Effective November 18, 1998, the Company amended its senior secured credit
facility with Chase Manhattan Bank to increase the amount of available credit
to $150,000,000 from $75,000,000. All other provisions remain consistent
including mandatory prepayment provisions upon consummation of the merger with
ATI.
F-51
REPORT OF INDEPENDENT AUDITORS
Members
TeleCom Towers, LLC
We have audited the accompanying balance sheet of TeleCom Towers, LLC as of
December 31, 1997, and the related statements of operations, members' equity,
and cash flows for the period from September 30, 1997 (date of inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleCom Towers, LLC at
December 31, 1997, and the results of its operations and its cash flows for the
period from September 30, 1997, to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-52
TELECOM TOWERS, LLC
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
ASSETS
Current assets
Cash.............................................. $ 2,722,510 $ 12,238,658
Accounts receivable, net of allowance of $280,049
and $0 in 1998 and 1997, respectively............ 36,680 5,235,912
Prepaid expenses.................................. 20,279 491,936
----------- -------------
Total current assets............................ 2,779,469 17,966,506
Property and equipment, net of accumulated
depreciation of $4,057,566 and $39,869 in 1998 and
1997, respectively................................. 4,953,984 20,594,568
Intangibles, net of accumulated amortization of
$4,825,940 and $119,353 in 1998 and 1997,
respectively....................................... 8,300,815 53,986,909
Escrow deposits, net................................ 1,259,800 430,000
Deferred rent receivable............................ 18,223 418,829
Advance to affiliated entity........................ 350,000 365,559
Notes receivable affiliate.......................... -- 6,250,000
Investment in joint ventures........................ -- 2,811,427
Other assets........................................ 84,225 69,983
----------- -------------
Total assets.................................... $17,746,516 $ 102,893,781
=========== =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 172,205 $ 4,649,837
Current portion of long-term debt................. -- 1,675,900
Security deposits................................. 25,020 35,177
Prepaid rents..................................... 29,041 838,458
----------- -------------
Total current liabilities....................... 226,266 7,199,372
Long-term debt, net of current portion.............. 3,900,000 27,946,214
Members' Equity..................................... 13,620,250 67,748,195
----------- -------------
Total liabilities and members' equity........... $17,746,516 $ 102,893,781
=========== =============
See accompanying notes.
F-53
TELECOM TOWERS, LLC
STATEMENTS OF OPERATIONS
PERIOD FROM
SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
--------------------- ------------------
(UNAUDITED)
Tower revenue.......................... $ 327,549 $ 5,825,048
Direct tower costs..................... 131,749 4,435,815
----------- ------------
Gross profit........................... 195,800 1,389,233
General and administrative............. 1,279,148 3,349,722
Depreciation........................... 39,869 551,774
Amortization........................... 119,353 1,378,678
----------- ------------
Operating loss......................... (1,242,570) (3,890,941)
Interest income........................ 914 --
Interest expense....................... (83,556) (910,899)
Other expense.......................... -- (432,120)
----------- ------------
Net loss............................... $(1,325,212) $ (5,233,960)
=========== ============
See accompanying notes.
F-54
TELECOM TOWERS, LLC
STATEMENTS OF MEMBERS' EQUITY
PERIOD FROM SEPTEMBER 30, 1997 TO DECEMBER 31, 1997
AND FOR THE PERIOD ENDED SEPTEMBER 30, 1998
TOTAL
ACCUMULATED MEMBERS'
UNITS AMOUNT DEFICIT EQUITY
------- ----------- ----------- -----------
Initial capitalization......... 100,000 $ 6,500,000 -- $ 6,500,000
Financing and offering costs... -- (1,378,538) -- (1,378,538)
Member contributions........... -- 9,824,000 -- 9,824,000
Net loss....................... -- -- (1,325,212) (1,325,212)
------- ----------- ----------- -----------
Balance at December 31, 1997... 100,000 14,945,462 (1,325,212) 13,620,250
Member contributions........... -- 53,434,972 -- 53,434,972
Member distributions........... -- (6,788,445) -- (6,788,445)
Limited Partnership
acquisition................... -- 12,715,378 -- 12,715,378
Net loss....................... -- -- (5,233,960) (5,233,960)
------- ----------- ----------- -----------
Balance at September 30, 1998
(unaudited)................... 100,000 $74,307,367 $(6,559,172) $67,748,195
======= =========== =========== ===========
See accompanying notes.
F-55
TELECOM TOWERS, LLC
STATEMENTS OF CASH FLOWS
PERIOD FROM
SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
--------------------- ------------------
(UNAUDITED)
OPERATING EXPENSES
Net loss............................. $(1,325,212) $ (5,233,960)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... 39,869 551,774
Amortization....................... 119,353 1,378,678
Changes in operating assets and
liabilities:
Accounts receivable.............. (36,680) (5,199,232)
Prepaid expenses................. (20,279) (471,657)
Escrow deposits.................. (1,259,800) 829,800
Due from affiliate............... (350,000) (6,250,000)
Deferred rent receivable......... (18,223) (400,606)
Other assets..................... (84,225) (1,317)
Accounts payable and accrued
expenses........................ 172,205 4,477,632
Security deposits................ 25,020 10,157
Deferred revenue................. 29,041 809,417
----------- ------------
Net cash used in operating
activities.................... (2,708,931) (9,499,314)
INVESTING ACTIVITIES
Asset acquisitions, net of cash
received............................ (9,083,440) (46,085,073)
Investment in partnerships........... -- (2,811,427)
Rollup of partnerships............... -- (21,631,736)
Purchases of towers, buildings and
equipment........................... (430,581) --
----------- ------------
Net cash used in investing
activities.................... (9,514,021) (70,528,236)
FINANCING ACTIVITIES
Member contributions................. 16,324,000 53,434,972
Proceeds from notes payable.......... -- 25,722,114
Distributions........................ -- (6,788,445)
Roll-up equity....................... -- 17,172,057
Syndication offering costs
reduction........................... -- 3,000
Financing and offering costs......... (1,378,538) --
----------- ------------
Net cash provided by financing
activities.................... 14,945,462 89,543,698
Net increase in cash................. 2,722,510 9,516,148
Cash at beginning of period.......... -- 2,722,510
----------- ------------
Cash at end of period................ $ 2,722,510 $ 12,238,658
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest............... $ 55,704 $ 139,563
=========== ============
NONCASH TRANSACTIONS
Seller financed notes................ $ 3,900,000 $ --
=========== ============
See accompanying notes.
F-56
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Description of Business
TeleCom Towers, L.L.C. (LLC or the Company) was organized as a limited
liability company in September 1997 under the laws of the State of Delaware to
acquire, operate, manage, and develop a national network of wireless
communications sites, including towers and roof-top units. Sites are located
throughout specific clusters in the United States. Pursuant to the Limited
Liability Company Operating Agreement (the Agreement), the Company issued a
total of 100,000 units of equity interests to effect the formation of the
Company. TeleCom Towers, Inc. (Inc.) was granted a total of 50,100 units (50.1%
contribution percentage) in exchange for the contribution of its general
partnership interests in the following entities, with such contributions given
no value for financial reporting purposes:
GENERAL
PARTNER
ENTITY INTEREST
------ --------
Telecom Towers Mid-Atlantic, LP..................................... 1%
RFM Facilities Management, LP...................................... .01%
RCC Holdings, LP................................................... .01%
Telecom Towers Southwest, LP........................................ 1%
Telecom Towers of the West, LP...................................... 1%
A total of 49,900 units (49.9% contribution percentage) was issued to Cox
Enterprises, Inc. (Cox) in exchange for a commitment to contribute $43,000,000
in cash. As of December 31, 1997, Cox had made cash contributions of
$16,324,000.
Distributions to members are made in accordance with the members' capital
contribution percentage interest as defined in the Agreement. Profits and
losses are allocated to the members based on the members' contribution
percentage. The liability of each member shall be limited to the amount of
contributions made by such member in accordance with the provisions of the
Agreement.
According to the Agreement, both parties retain the following rights and
obligations: 1) Right of first offer if the other party plans to dispose of any
or all of its equity interest, this right expires five years from the date of
formation; 2) a tag-along right to participate in a sale of the other party's
equity interest to an outside party which represents a majority of the units,
this right expires ten years from the date of formation; 3) in the event of a
sale of shares by a particular member, a drag-along right to require the non-
selling member to sell a proportionate amount of its units, which expires ten
years from the date of formation; 4) certain registration rights; 5) to the
extent that the Company does not meet certain financial goals for 1999, 2000
and 2001, Cox is entitled to receive additional units in each of the years that
the financial goals are not reached by selected limited partnerships, not to
exceed 66% of total ownership; 6) preemptive rights to purchase additional
shares to maintain the respective members' proportionate ownership in the case
of any non-public offering of new units; and 7) subject to certain other
events, put-rights to require the other member to purchase the respective
members' interest at fair market value.
The Company has an 83% interest in AlphaCom Communications, LLC which is
inactive and, accordingly, no profit, loss, or investment has been recorded for
this entity as of December 31, 1997. The Company also invested $54,400 for a
non-controlling interest in Haysville Tower, LLC, a single tower company
located in Kansas, whose operations to date are insignificant. Such investment
is included in other assets.
F-57
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Acquisitions
The Company has acquired, through various transactions, the following tangible
and intangible assets. Intangible assets include non-compete agreements,
management agreements, tenant licenses, and goodwill. The purchase method was
used to account for the acquisitions. The purchase prices were allocated, in
total, as follows:
DECEMBER 31, SEPTEMBER
1997 30, 1998
------------ ------------
Land.................................................. $ 1,800,000 $ 1,403,846
Buildings............................................. 425,000 2,011,282
Towers................................................ 2,662,000 10,187,129
Equipment............................................. 77,440 1,388,797
Intangibles........................................... 8,019,000 27,595,582
------------ ------------
$ 12,983,440 $ 42,586,636
============ ============
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Company operates telecommunications transmission sites in various states
and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Company's customer base. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of September 30, 1998 and for the nine months ended
September 30, 1998 are unaudited. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the respective interim periods. All such adjustments are of a normal
recurring nature.
SIGNIFICANT ACCOUNTING POLICIES
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the nine months ended September 30, 1998, the Company had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is
F-58
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
required to be adopted for the year ended December 31, 1998. SFAS 131 changes
the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. The disclosure for
segment information on the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred income represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time..
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
then the carrying amount of those assets. Based on management's estimation
process, no impairment losses were recorded as of December 31, 1997. As of
December 31, 1997 all fixed assets were held for use and the Company does not
plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, management agreements, tenant licenses, and goodwill. Such assets
are being amortized using the straight-line method over their estimated useful
lives not to exceed fifteen years.
Escrow Deposits
The Company has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed as site investigation costs and included
in general and administrative expenses, or reclassified into cash. As such,
certain amounts have been reserved against these escrow amounts.
F-59
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Financing and Offering Costs
The costs incurred in obtaining member interests in the Company have been
deducted from Members' Equity.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provisions have been made for federal and state taxes on the operations of
the Company. These taxes are the responsibility of the individual members who
are to include their share of the Company's income and deductions in their
respective income tax returns. Certain states do tax limited liability
corporations; however, as a result of related operations, no provision has been
recorded.
2. PROPERTY AND EQUIPMENT
At December 31, 1997 and September 30, 1998, respectively, property, towers,
and equipment consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
Land.............................................. $1,816,333 $ 3,230,815
Buildings......................................... 476,665 2,628,757
Towers............................................ 2,587,490 15,487,923
Equipment......................................... 113,365 2,854,885
Construction-in-progress.......................... -0- 449,754
---------- -----------
4,993,853 24,652,134
Accumulated depreciation.......................... (39,869) (4,057,566)
---------- -----------
Net fixed assets.................................. $4,953,984 $20,594,568
========== ===========
F-60
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INTANGIBLE ASSETS
At December 31, 1997 and September 30, 1998, respectively, intangible assets
consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
Goodwill.......................................... $4,270,000 $34,765,939
Tenant licenses................................... 2,662,627 --
Land leases....................................... 825,000 --
Management Agreements............................. 103,500 --
Non-solicitation.................................. 25,000 --
Non-compete....................................... 154,000 2,459,000
Other intangibles................................. 380,041 21,587,910
---------- -----------
8,420,168 58,812,849
Accumulated amortization.......................... (119,353) (4,825,940)
---------- -----------
Net intangibles................................... $8,300,815 $53,986,909
========== ===========
These intangibles resulted from acquisitions of towers made by the Company and
costs associated with the initial formation of the Company. Other intangibles
relate to costs associated with investigating site acquisitions and
development. Amortization of such amounts will begin once the sites are
acquired and in operation, unless such acquisitions fail to materialize, at
which point the related costs will be expensed as site investigation costs and
included in general and administrative expenses.
4. LONG-TERM DEBT
The Company financed certain purchases through the issuance of seller financed
notes. The $3,900,000 in notes payable are due in one installment on the sixth
anniversary of the notes, which is September 30, 2003. The interest rate on
each note is 8.5% during the first three years and the greater of 8.5% or
prime, thereafter. Interest is payable quarterly in arrears. The notes are
secured by the assets of the Company.
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Company licenses space for communication systems on its transmission sites
to customers under generally noncancelable agreements requiring payments over
various terms. At December 31, 1997, future minimum license agreement receipts
are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1998............................................................ $1,398,804
1999............................................................ 1,228,289
2000............................................................ 534,618
2001............................................................ 308,052
2002............................................................ 173,898
Thereafter...................................................... 847,900
----------
$4,491,561
==========
6. COMMITMENTS AND CONTINGENCIES
As general partner, the Company is a co-borrower of the debt of the limited
partnerships described in Note 1. Such debt in aggregate totaled approximately
$25,830,000 at December 31, 1997 and $24,586,000 at September 30, 1998.
F-61
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company is committed for various ground leases at several transmission
sites. Lease expense for the period from September 30, 1997 to December 31,
1997 and the nine months ended September 30, 1998 (unaudited) was $11,155 and
$195,398, respectively. Future minimum lease payments at December 31, 1997 were
as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1998.............................................................. $ 68,400
1999.............................................................. 66,400
2000.............................................................. 64,983
2001.............................................................. 63,150
2002.............................................................. 59,700
Thereafter........................................................ 458,645
--------
$781,278
========
7. RELATED PARTIES
Beginning in 1998, the Company, by virtue of its general partner interest in
the related entities, will be entitled to a management fee equal to 8.5% of the
gross monthly revenues of the related entities (see Note 1). The Company will
also be entitled to a 3% acquisition fee to be earned on all capital funds
invested in towers and related real estate and other assets in the
Partnerships. The Company will also be entitled to up to 4% of gross monthly
revenue of the Partnerships for reimbursement of certain general partner
expenses.
The Company was allocated certain corporate expenses for services provided by
TeleCom Towers, Inc. The total amount of such expenses for the period from
September 30, 1997 to December 31, 1997 was approximately $61,000. These
corporate services were not in effect for 1998.
The Company advanced $350,000 to Telecom Towers Mid-Atlantic, LP to assist in
funding one of Mid-Atlantic's subsidiaries. There is no written agreement
concerning repayment of this advance, nor is any interest charged.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company entered into agreements to
purchase four communications towers for a total purchase price of approximately
$925,000. The Company also entered into a joint venture agreement with another
party to form Mid-Pacific Telecommunications Co. for the purpose of
establishing communications site operations in the Dallas/Ft. Worth area, for a
commitment to invest up to $7 million for a 50% interest. The Company also
purchased a 50% share in Castle Rock Tower Co. for a total purchase price of
approximately $270,000. The remaining interests are held by Telecom Southwest
Towers, LP, a related party of the Company.
9. EVENTS SUBSEQUENT TO AUDITORS REPORT
Effective August 3, 1998, the limited partners of Telecom Southwest Towers, LP,
Telecom Towers Mid-Atlantic, LP, and Telecom Towers of the West, LP
(collectively the Partnerships) agreed to a merger of the Partnerships into the
Company which is the general partner of the Partnerships. The limited partners
of the Partnerships received as merger consideration either cash or Class A
Units of the Company in exchange for their interest in each Partnership. The
accompanying unaudited September 30, 1998 statements of operations reflect the
operating results of the Partnerships since the effective date of the merger.
Except for cash acquired, these transactions have been excluded from the
statements of cash flows and have been accounted for using purchase accounting.
F-62
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The pro forma unaudited results of operations for the nine months ended
September 30, 1998, assuming the purchase of the Partnerships had been
consummated as of January 1, 1998, is as follows:
Revenues...................................................... $20,894,172
===========
Net loss...................................................... $(5,953,144)
===========
In November 1998, the Company entered into an Agreement and Plan of Merger with
American Tower Corporation ("ATC") which, subject to certain conditions
including Hart-Scott-Rodino Act review, and excluding RCC Consultants, Inc., a
subsidiary of the Company, the beneficial interests in which will be
distributed to members of the Company prior to the consummation of the merger,
will result in the merger of the Company into ATC. The merger is scheduled to
be completed during the first half of 1999. Simultaneous with the closing of
the merger, the Company will record a charge to earnings related to certain
contingent payment obligations to various brokers and finders as a result of
their services in connection with locating and obtaining financing for tower
acquisitions. Such obligations were assumed by the Company from TTI and the
Partnerships. In connection with the discharge of such obligations, a cash
payment would be made or a certain number of units in the Company would be
issued equal to an agreed percentage ownership of the Company. Such payment or
issuance does not change the total consideration paid by ATC to consummate the
merger pursuant to an Amended and Restated Agreement and Plan of Merger, dated
as of December 18, 1998, as amended by an amendment thereto dated as of
December 23, 1998, for aggregate consideration of $148.75 million, subject to
adjustment.
F-63
INDEPENDENT AUDITORS' REPORT
To the Partners
Telecom Southwest Towers Limited Partnership
We have audited the accompanying balance sheets of Telecom Southwest Towers
Limited Partnership (a Texas limited partnership) as of December 31, 1996, and
the related statements of income, partners' equity, and cash flows for the year
ended December 31, 1996 and the period from inception (January 5, 1995) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Telecom Southwest Towers
Limited Partnership as of December 31, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1996 and the initial period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-64
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Southwest Towers, LP
We have audited the balance sheet of Telecom Southwest Towers, LP as of
December 31, 1997, and the related statements of operations, partners' capital,
and cash flows for the year ended December 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Southwest Towers, LP
at December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-65
TELECOM SOUTHWEST TOWERS, LP
BALANCE SHEETS
DECEMBER 31,
--------------------- JULY 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash....................................... $ 208,486 $ 20,821 $ 350,305
Accounts receivable, net of allowance of
$22,445, $15,500, and $0 in 1998, 1997,
and 1996, respectively.................... 55,283 75,080 76,004
Prepaid expenses........................... 4,126 24,496 11,740
Related party receivables.................. -- 11,186 24,133
---------- ---------- ----------
Total current assets..................... 267,895 131,583 462,182
Property and equipment, net of accumulated
depreciation of $1,077,426, $859,782, and
$512,138 in 1998, 1997, and 1996,
respectively................................ 3,455,005 4,131,451 3,954,305
Intangibles, net of accumulated amortization
of $1,160,431, $897,157, and $415,844 in
1998, 1997, and 1996, respectively.......... 2,447,826 4,027,976 3,814,702
Deferred rent receivable..................... -- 36,524 47,952
Escrow deposits.............................. -- 50,200 --
Investment in joint ventures................. 282,840 292,322 304,803
---------- ---------- ----------
Total assets............................. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses...... $ 42,116 $ 36,232 $ 288,902
Current portion of long-term debt.......... 349,375 631,834 833,574
Prepaid rents.............................. 64,904 77,749 142,047
Deposits................................... 1,000 -- --
---------- ---------- ----------
Total current liabilities................ 457,395 745,815 1,264,523
Long-term debt, net of current portion....... 4,446,250 6,823,803 6,373,260
Partners' capital............................ 1,549,921 1,100,438 946,161
---------- ---------- ----------
Total liabilities and partners' capital.. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
F-66
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF OPERATIONS
SEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED JULY 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Total revenues.......... $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct tower costs...... 221,783 306,553 374,535 195,220 264,606
---------- ---------- ---------- ---------- ----------
Gross profit............ 962,824 1,299,425 1,687,476 957,162 1,025,712
General and
administrative......... 729,009 781,877 463,176 277,704 302,304
Depreciation............ 197,725 308,957 358,477 206,747 217,645
Amortization............ 198,843 222,847 481,314 252,275 263,274
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (162,753) (14,256) 384,509 220,436 242,489
Other income (expense):
Interest income....... 19,259 13,890 4,259 2,935 99
Interest expense...... (246,770) (424,237) (640,741) (272,714) (396,865)
Gain (loss) on
disposition of
assets............... 132 (3,697) (29,158) -- --
Partnership loss...... (83) (13,337) (5,814) -- --
Miscellaneous income.. -- -- 21,704 -- --
---------- ---------- ---------- ---------- ----------
Loss before
extraordinary item..... (390,215) (441,637) (265,241) (49,343) (154,277)
Extraordinary item--Gain
on early extinguishment
of debt................ 60,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................ $ (330,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
F-67
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF PARTNERS' CAPITAL
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
EQUITY (1%) EQUITY (99%) CAPITAL
----------- ------------ ----------
Balance at January 5, 1995 (inception).... $ -- $ -- $ --
Capital Contributions..................... 1,000 3,000,000 3,001,000
Syndication/Offering costs................ -- (374,732) (374,732)
Distributions-Limited partners............ -- (64,495) (64,495)
Net Loss.................................. (3,302) (326,913) (330,215)
-------- ---------- ----------
Balance, December 31, 1995................ $ (2,302) $2,233,860 $2,231,558
Distributions-Limited partners............ -- (240,000) (240,000)
Net Loss.................................. (4,416) (437,221) (441,637)
-------- ---------- ----------
Balance at December 31, 1996.............. $ (6,718) $1,556,639 $1,549,921
Distributions............................. (4,242) (180,000) (184,242)
Net loss.................................. (2,652) (262,589) (265,241)
-------- ---------- ----------
Balance at December 31, 1997.............. $(13,612) $1,114,050 $1,100,438
Distributions............................. -- -- --
Net loss.................................. (1,543) (152,734) (154,277)
-------- ---------- ----------
Balance at July 31, 1998.................. $(15,155) $ 961,316 $ 946,161
======== ========== ==========
F-68
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF CASH FLOWS
SEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED JULY 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- ---------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss................ $ (330,215) $(441,637) $ (265,241) $ (49,343) $(154,277)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation........... 197,725 308,957 358,477 206,747 217,645
Amortization........... 198,843 222,847 481,314 252,275 263,274
(Gain) loss on
disposition of
assets................ (132) 3,697 29,158 -- --
Gain on early
extinguishment of
debt.................. (60,000) -- -- -- --
Amortize consulting
agreement............. 425,000 425,000 -- -- --
Partnership loss....... 83 13,337 5,814 -- --
Changes in operating
assets and liabilities:
Accounts receivable.... (36,257) (19,026) (30,983) 3,783 (924)
Prepaid expenses....... (4,345) 219 (20,370) 985 12,756
Other assets........... (200) -- (50,000) (50,000) 50,200
Deferred rent
receivable............ -- -- (36,524) -- (11,428)
Accounts payable and
accrued liabilities... 42,419 (303) (5,884) 63,499 252,670
Payable to related
parties............... 4,430 (4,430) -- -- (12,947)
Prepaid rents.......... -- -- 77,749 51,431 64,298
Deferred revenue....... 54,451 10,453 (64,904) -- --
Other liabilities...... -- 1,000 (1,000) -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
operating activities.. 491,802 520,114 477,606 479,377 681,267
INVESTING ACTIVITIES
Asset acquisitions, net
of cash received....... (3,971,800) -- (2,601,595) (1,877,877) (50,000)
Purchases of property
and equipment.......... (976,705) (562,599) (531,450) (982,341) (40,498)
Contributions to
investments in joint
ventures............... (120,061) (180,000) (40,496) (29,896) (12,481)
Distributions from joint
ventures............... -- 10,000 25,000 -- --
Proceeds from sale of
assets................. 14,132 22,709 7,500 -- --
Payables for acquisition
fees................... 17,720 (17,720) -- -- --
Prepaid consulting
agreement.............. (850,000) -- -- -- --
Non-compete agreement... (875,000) -- -- -- --
Organization,
acquisition and closing
costs.................. (240,500) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash used in
investing activities.. (7,002,214) (727,610) (3,141,041) (2,890,214) (102,979)
FINANCING ACTIVITIES
Proceeds from debt...... 4,900,000 -- 2,996,751 2,996,751 --
Payments on debt........ -- (104,375) (336,739) (287,990) (248,804)
Distributions to
partners............... (64,495) (240,000) (184,242) (123,636) --
Accounts receivable from
general partner........ (1,000) 1,000 -- -- --
Financing and
acquisition costs...... (248,348) (2,656) -- -- --
Capital contribution--
general partner........ 1,000 -- -- -- --
Capital contribution--
limited partners....... 3,000,000 -- -- -- --
Syndication/offering
costs.................. (374,732) -- -- -- --
Seller notes............ 2,400,000 -- -- -- --
Liquidation of seller
notes.................. (2,340,000) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
financing activities.. 7,272,425 (346,031) 2,475,770 2,585,125 (248,804)
Net increase in cash.... 762,013 (553,527) (187,665) 174,288 329,484
Cash at beginning of
period................. -- 762,013 208,486 208,486 20,821
---------- --------- ---------- ---------- ---------
Cash at end of period... 762,013 $ 208,486 $ 20,821 $ 382,774 $350,305
========== ========= ========== ========== =========
SUPPLEMENTAL CASH FLOW
INFORMATION
Cash paid for interest.. 245,451 $ 425,556 $ 640,741 $ 272,714 $ 396,865
========== ========= ========== ========== =========
F-69
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Description of Business
Telecom Southwest Towers, LP (the Partnership), a Texas limited partnership,
owns and manages telecommunications tower sites in Eastern and Central Texas
and has joint ventures in both Louisiana and Texas, and licenses space on such
towers to customers for a fee. The general partner is TeleCom Towers, L.L.C.,
which has an interest in the Partnership. The Partnership shall continue in
full force and effect until December 31, 2020, unless the Partnership is sooner
dissolved by the occurrence of certain events as specified in the Partnership
Agreement.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
Acquisitions
On January 5, 1995, the Partnership acquired the assets of Rental Towers. The
purchase method was used to account for the acquisition, and the purchase price
was allocated as follows:
Property and equipment.......................................... $1,500,000
Goodwill........................................................ 1,471,525
Other........................................................... 3,475
----------
$2,975,000
==========
In addition to the asset acquisition, $875,000 was paid for a 5-year non-
compete agreement with the previous owner of the towers. A two-year consulting
agreement in the total amount of $850,000, which expired in 1996, was also
entered into with this owner.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
Land.............................................................. $ 151,523
Buildings......................................................... 175,000
Towers............................................................ 429,372
Equipment......................................................... 50,000
Intangibles....................................................... 1,795,703
----------
$2,601,598
==========
F-70
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of July 31, 1998 and for the seven months ended
July 31, 1998 and 1997 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods. All such adjustments are of a
normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
SIGNIFICANT ACCOUNTING POLICIES
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change
F-71
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
in accounting principle. When adopting this SOP, entities are not required to
report the pro forma effects of retroactive application. The effect of adopting
SOP 98-5 is not expected to have a material effect on the financial statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings
thirty-nine years; towers twenty years; equipment seven years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets.
Based on management's estimation process, no impairment losses were recorded as
of December 31, 1997. As of December 31, 1997, all fixed assets were held for
use and the Partnership does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed to general and administrative expenses as
site investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
F-72
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996, and
1997, and July 31, 1998, respectively:
DECEMBER 31,
---------------------- JULY 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
Land.................................... $ 168,165 $ 319,688 $ 319,688
Buildings............................... 369,802 582,596 582,967
Towers.................................. 2,972,840 3,866,771 3,886,908
Equipment, furniture, and fixtures...... 138,257 222,178 242,168
Tower construction-in-progress.......... 318,079 -- --
---------- ---------- ----------
3,967,143 4,991,233 5,031,731
Accumulated depreciation................ (512,138) (859,782) (1,077,426)
---------- ---------- ----------
Property and equipment, net............. $3,455,005 $4,131,451 $3,954,305
========== ========== ==========
F-73
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996, and 1997, and
July 31, 1998, respectively:
DECEMBER 31,
---------------------- JULY 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
Goodwill............................... $1,665,791 $3,011,494 $3,061,494
Organization costs..................... 72,437 72,437 72,437
Acquisition and loan costs............. 250,442 516,202 516,202
Non-compete and consulting agreements.. 875,000 1,325,000 1,325,000
---------- ---------- ----------
2,863,670 4,925,133 4,975,133
Accumulated amortization............... (415,844) (897,157) (1,160,431)
---------- ---------- ----------
Net Intangibles........................ $2,447,826 $4,027,976 $3,814,702
========== ========== ==========
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $36,750, $0, $160,000, and $0 in such fees during the years ended
December 31, 1995, 1996, and 1997 and the seven months ended July 31, 1998,
respectively. The agreements also contain a provision for a Line of Credit
Facility Fee at the rate of 0.25% per annum on the average unborrowed portion
of the Line of Credit Commitment. These fees are paid on a proportionate basis
by the various entities utilizing the line of credit. The Partnership incurred
$9,353, $7,967, $7,967 and $1,459 in credit facility fees during the years
ended December 31, 1995, 1996, and 1997 and the seven months ended July 31,
1998, respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership and the general partner. Balances at December 31, 1996 and 1997,
and July 31, 1998, respectively, are as follows:
F-74
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31,
INTEREST ---------------------- JULY 31,
DUE DATE: RATE: 1996 1997 1998
--------- -------- ---------- ---------- -----------
(UNAUDITED)
June 2002...................... 9.25% $2,730,000 $2,528,247 $2,395,182
September 2002................. 9.25% 633,750 586,914 556,025
October 2002................... 9.25% 641,875 602,360 556,024
December 2002.................. 9.1875% 790,000 741,366 702,853
July 2004...................... 9.25% -- 2,996,750 2,996,750
---------- ---------- ----------
4,795,625 7,455,637 7,206,834
Less current maturities........ (349,375) (631,834) (833,574)
---------- ---------- ----------
Long-term portion.............. $4,446,250 $6,823,803 $6,373,260
========== ========== ==========
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
YEAR AMOUNT
---- ----------
1998.............................................................. $ 631,834
1999.............................................................. 1,078,859
2000.............................................................. 1,439,634
2001.............................................................. 1,660,389
2002.............................................................. 1,390,030
Thereafter........................................................ 1,254,891
----------
Total........................................................... $7,455,637
==========
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
others under noncancellable agreements requiring monthly, quarterly or annual
payments over various terms. Certain agreements contain various options. At
December 31, 1997, future minimum license agreement receipts were as follows:
YEAR
----
December 31, 1998................................................. $1,759,659
December 31, 1999................................................. 1,475,706
December 31, 2000................................................. 1,251,731
December 31, 2001................................................. 980,231
December 31, 2002................................................. 779,865
Thereafter........................................................ 2,099,272
----------
Total........................................................... $8,346,464
==========
F-75
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the years ended December 31, 1995, 1996, and 1997, and for the
seven months ended July 31, 1998 was $53,277, $49,282, $105,274, and $66,387,
respectively. At December 31, 1997, future minimum lease payments were as
follows:
YEAR
----
December 31, 1998................................................... $ 58,295
December 31, 1999................................................... 56,927
December 31, 2000................................................... 52,471
December 31, 2001................................................... 50,671
December 31, 2002................................................... 49,671
Thereafter.......................................................... 167,354
--------
Total............................................................. $435,389
========
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. The Partnership had receivables due from these
affiliates of $0, $11,186, and $24,133 at December 31, 1996, and 1997, and July
31, 1998, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998 was $98,452, $137,745, $176,985, and $112,829, respectively. The
Partnership is also obligated to pay a 2.5% acquisition fee on the purchase
price of all acquisitions. The Partnership is also obligated to pay up to 4% of
gross monthly revenue to the general partner for reimbursement of certain
general partner expenses. Acquisition fees are capitalized as incurred by the
Partnership. Acquisition fees capitalized during 1997 were $66,250. Expense
reimbursement fees totaled $47,435, $39,084, $52,657, and $53,096 for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998.
8. INVESTMENTS IN JOINT VENTURES
The Partnership is a 50% partner in Shreveport Tower Company, a Louisiana
partnership formed in 1995 to operate a tower in Shreveport, Louisiana. The
Company is also a 50% partner in Castle Rock Tower Company, a Texas partnership
formed to operate towers in Georgetown and Plano, Texas and another tower
currently under construction in Glen Rose, Texas. These investments are
considered joint ventures and are accordingly recorded on the equity method.
Financial information for these investments is not significant.
9. SUBSEQUENT EVENT (UNAUDITED)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-76
REPORT OF INDEPENDENT AUDITORS
To the Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1996 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1996 and the period from inception (June 23, 1995) to December 31,
1995. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the 1996
consolidated financial statements of RCC Consultants, Inc., (a wholly-owned
subsidiary of RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom
Towers Mid-Atlantic, LP), which statements reflect total assets constituting
42% and total revenues constituting 87% of the related 1996 consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
RCC Consultants, Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit and the report of
other auditors provide a reasonable basis for our opinion.
In our report dated April 2, 1997, we expressed an opinion that the December
31, 1996 financial statements did not fairly present financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles because Telecom Towers Mid-Atlantic, LP presented wholly-
owned subsidiaries on the equity method. As described in Note 1, the
Partnership has changed its method of accounting for these items and has
restated its December 31, 1996 consolidated financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the December 31, 1996 consolidated financial statements, as presented
herein, is different from that expressed in our previous report.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Telecom Towers Mid-
Atlantic, LP at December 31, 1996 and the consolidated results of their
operations and their cash flows for the year ended December 31, 1996 and the
initial period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
December 11, 1998
F-77
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1997, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
March 13, 1998
F-78
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
period from May 1, 1996 to December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the period from May 1, 1996 to December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
December 19, 1997
F-79
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1997 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the consolidated
financial statements of RCC Consultants, Inc., (a wholly-owned subsidiary of
RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom Towers Mid-
Atlantic, LP), which statements reflect total assets constituting 41% and total
revenues constituting 82% of the related consolidated totals. These statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for RCC Consultants, Inc., is
based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Telecom Towers Mid-Atlantic,
LP at December 31, 1997 and the consolidated results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-80
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------- JULY 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash..................................... $ 1,894,748 $ 379,373 $ 275,661
Accounts receivable, net of allowance of
$499,268, $402,800, and $197,566 in
1998, 1997, and 1996, respectively...... 5,282,749 4,907,503 4,813,769
Prepaid expenses......................... 449,436 325,416 329,367
----------- ----------- -----------
Total current assets................... 7,626,933 5,612,292 5,418,797
Property and equipment, net of accumulated
depreciation of $1,318,167, $1,016,569,
and $556,524 in 1998, 1997, and 1996,
respectively.............................. 4,511,998 4,932,525 5,149,490
Intangibles, net of accumulated
amortization of $576,729, $369,970, and
$134,271 in 1998, 1997, and 1996,
respectively.............................. 2,232,525 3,195,642 2,988,883
Affiliate receivable....................... -- -- 109,204
Deferred rent receivable................... -- 67,770 88,387
Other assets............................... 29,862 131,646 126,273
----------- ----------- -----------
Total assets........................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses.... $ 2,681,222 $ 2,442,119 $ 2,054,672
Current portion of long-term debt........ 198,750 417,077 638,710
Affiliate payable........................ 104,149 386,756 792,953
Short-term notes......................... 1,330,000 -- --
Prepaid rents............................ 199,407 174,508 463,767
Other liabilities........................ 852,000 20,000 --
----------- ----------- -----------
Total current liabilities.............. 5,365,528 3,440,460 3,949,782
Long-term debt, net of current portion..... 3,832,500 6,805,958 6,400,044
Partners' capital.......................... 5,203,290 3,693,457 3,531,208
----------- ----------- -----------
Total liabilities and partners'
capital............................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
See accompanying notes.
F-81
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
SEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED JULY 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- ----------- ----------- ---------- ----------
(UNAUDITED)
Revenue:
Tower revenues........ $111,999 $ 1,770,597 $ 3,406,579 $1,753,784 $2,212,009
Consulting revenues... -- 11,735,000 14,912,000 8,997,000 9,368,000
-------- ----------- ----------- ---------- ----------
Total revenues...... 111,999 13,505,597 18,318,579 10,750,784 11,580,009
Direct tower costs.. 25,728 760,551 1,176,106 395,719 606,750
Direct consulting
costs.............. -- 9,321,000 12,298,000 7,039,000 6,955,000
-------- ----------- ----------- ---------- ----------
Total costs......... 25,728 10,081,551 13,474,106 7,434,719 7,561,750
-------- ----------- ----------- ---------- ----------
Gross profit............ 86,271 3,424,046 4,844,473 3,316,065 4,018,259
General and
administrative......... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
Depreciation............ 33,127 271,576 491,806 268,442 325,466
Amortization............ 28,274 114,818 234,752 115,223 206,760
-------- ----------- ----------- ---------- ----------
Operating income
(loss)................. 231 175,928 (504,892) 143,762 290,771
Interest income......... -- 96,411 813 697 288
Interest expense........ (73,370) (328,878) (518,892) (206,655) (403,308)
Other income (expense).. -- 85,718 (126,797) 19,649 (50,000)
-------- ----------- ----------- ---------- ----------
Net income (loss)....... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ (162,249)
======== =========== =========== ========== ==========
See accompanying notes.
F-82
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
EQUITY EQUITY EQUITY
--------- ---------- ----------
Balance at June 23, 1995 (inception)......... $ -- $ -- $ --
Capital Contributions........................ 1,000 1,063,000 1,064,000
Syndication/Offering costs................... -- (144,639) (144,639)
Net Loss..................................... (71,288) (1,851) (73,139)
-------- ---------- ----------
Balance, December 31, 1995................... $(70,288) $ 916,510 $ 846,222
Capital Contributions........................ -- 4,937,000 4,937,000
Distributions................................ -- (120,000) (120,000)
Syndication/Offering costs................... -- (489,111) (489,111)
Net Income................................... 291 28,888 29,179
-------- ---------- ----------
Balance at December 31, 1996................. $(69,997) $5,273,287 $5,203,290
Distributions to partners.................... (65) (360,000) (360,065)
Net loss..................................... (11,498) (1,138,270) (1,149,768)
-------- ---------- ----------
Balance at December 31, 1997................. $(81,560) $3,775,017 $3,693,457
Distributions to partners.................... -- -- --
Net loss..................................... (1,622) (160,627) (162,249)
-------- ---------- ----------
Balance at July 31, 1998 (unaudited)......... $(83,182) $3,614,390 $3,531,208
======== ========== ==========
See accompanying notes.
F-83
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED JULY 31,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- ---------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss............... $ (73,139) $ 29,179 $(1,149,768) $ (42,547) $(162,249)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... 33,127 271,576 491,806 268,442 325,466
Amortization.......... 28,274 114,818 234,752 115,223 206,760
Partnership income.... -- 11,282 -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable... (24,079) (1,239,017) 352,426 (731,205) 93,734
Prepaid expenses...... (3,589) (60,847) 124,020 (48,877) (3,951)
Due from affiliates... -- -- -- (175,742) (109,204)
Deferred rent
receivable........... -- -- (67,770) -- (20,617)
Other assets.......... (1,000) (26,697) (93,949) (111,859) 5,373
Accounts payable and
accrued expenses..... 12,964 1,160,667 (246,938) (296,885) (387,447)
Other liabilities..... -- -- (935,000) (852,000) (20,000)
Prepaid rents......... -- -- 78,101 50,264 288,939
Due to affiliates..... -- 5,713 305,427 277,744 406,197
Deferred income....... 9,006 (273,538) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities.......... (18,436) (6,864) (906,893) (1,547,442) 623,001
INVESTING ACTIVITIES
Asset acquisitions, net
of cash received...... (1,300,000) (4,255,000) (1,250,000) (1,284,568) --
Purchases of towers,
buildings and
equipment............. (103,357) (573,970) (871,847) (195,980) (542,432)
Investment in
partnerships.......... -- (3,558,491) -- -- --
Accounts payable for
purchase.............. -- 61,402 -- -- --
Acquisition and closing
costs................. (33,933) (562,461) -- -- --
Proceeds from sale of
assets................ -- -- 11,645 -- --
---------- ----------- ----------- ----------- ---------
Net cash (used in)
investing
activities.......... (1,437,290) (8,888,520) (2,110,202) (1,480,548) (542,432)
FINANCING ACTIVITIES
Proceeds from notes
payable............... 750,000 5,130,000 3,374,973 2,876,293 --
Payments on notes
payable............... -- (518,750) (1,513,188) (76,250) (184,281)
Payment of short-term
notes................. -- -- -- (1,330,000) --
Capital contribution--
general partner....... 801,000 1,325,100 -- -- --
Capital returned to
general partner....... (800,000) -- -- -- --
Capital contributions--
limited partners...... 1,063,000 4,937,010 -- -- --
Distributions to
partners.............. -- (120,000) (360,065) (240,024) --
Receivables from
related parties....... (42,678) 42,568 -- -- --
Amount payable to
escrow................ 100,000 (100,000) -- -- --
Syndication/offering
costs................. (43,877) (582,148) -- -- --
Effects of exchange
rates................. -- 40,000 -- 21,797 --
Financing costs........ (121,606) (35,761) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
financing
activities.......... 1,705,839 10,118,019 1,501,720 1,251,816 (184,281)
Net increase (decrease)
in cash............... 250,113 1,222,635 (1,515,375) (1,776,174) (103,712)
Cash at beginning of
period................ -- 672,113 1,894,748 1,894,748 379,373
---------- ----------- ----------- ----------- ---------
Cash at end of period.. $ 250,113 $ 1,894,748 $ 379,373 $ 118,574 $ 275,661
========== =========== =========== =========== =========
SUPPLEMENTAL CASH FLOW
INFORMATION
Cash paid for
interest.............. $ 73,789 $ 296,881 $ 518,892 $ 206,655 $ 403,308
========== =========== =========== =========== =========
See accompanying notes.
F-84
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JULY 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED JULY 31, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Description of Business
Telecom Towers Mid-Atlantic, LP (the "Partnership" or "Mid-Atlantic"), is a
South Carolina limited partnership. The general partner is TeleCom Towers,
L.L.C., which owns a one percent (1%) interest in the Partnership. The
Partnership is a general partner in both RFM Facilities Management, LP ("RFM")
and RCC Holdings, LP ("RCC Holdings"). The consolidated financial statements of
the Partnership include the accounts of RFM and RCC Holdings. The Partnership
holds a 99.99% interest in each. RCC Holdings has no operations of its own and
was formed as the holding company for RCC Consultants, Inc. ("RCC"), a wholly-
owned subsidiary of RCC Holdings. RCC provides wireless communications
consulting services to public and private sector communication systems
operators.
The Partnership shall continue in full force and effect until December 31,
2020, unless the Partnership is sooner dissolved by the occurrence of certain
events as specified in the Partnership Agreement.
Mid-Atlantic owns and manages telecommunication tower sites in South Carolina,
Ohio, West Virginia, Kentucky, and Kansas. RFM owns and manages
telecommunications sites in various states. Both entities license space on
towers and roof-top sites to customers for a fee under contracts that extend
for more than one year.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interest at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage interest
as adjusted per the preceding paragraph.
Acquisitions
On June 23, 1995, the Partnership acquired the assets of the Towers Division of
The Communications Group. The purchase method was used to account for the
acquisition, and the purchase price was allocated as follows:
Escrowed funds................................................... $ 75,000
Property and equipment........................................... 690,000
Non-compete agreement............................................ 5,000
Goodwill......................................................... 530,000
----------
$1,300,000
==========
Subsequent to the purchase date, the escrowed funds of $75,000 were released to
the seller and have been classified as goodwill.
F-85
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, the Partnership acquired, in three separate transactions, certain
assets of RAM Technologies, Inc., Advantage Communications, Inc., and Tower
Communications, Inc. The purchase method was used to account for the
acquisitions, and the purchase prices were allocated as follows:
ADVANTAGE TOWER
RAM COMMUNICATIONS, COMMUNICATIONS,
TECHNOLOGIES INC. INC.
------------ --------------- ---------------
Land........................... $ 7,000 $ -- $ 100,000
Property and equipment......... 1,250,000 102,500 600,000
Goodwill....................... 243,000 72,500 880,000
---------- -------- ----------
$1,500,000 $175,000 $1,580,000
========== ======== ==========
In addition to the acquisition, a 5-year maintenance and consulting agreement
was entered into with Advantage Communications, Inc. Terms are $1,000 per month
with an annual review of the fee.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
Land.............................................................. $ 50,000
Buildings......................................................... 15,000
Towers............................................................ 170,000
Intangibles....................................................... 1,015,000
----------
$1,250,000
==========
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable is limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
F-86
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses are recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenues are recognized ratably over time. Consulting revenues are recognized
when services are performed.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements,
which extend the useful lives of the assets are capitalized and maintenance and
repairs are charged to expense as incurred. The cost and accumulated
depreciation related to asset disposals are removed from the accounts and the
resulting gain or loss is included in the results from operations. Depreciation
of towers is computed using the double declining balance method. The straight-
line method is used for equipment and buildings. Estimated useful lives are as
follows: buildings, 39 years; towers, 20 years; equipment, 7 years.
F-87
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
and consulting agreements, organization costs, goodwill, and acquisition and
loan costs. Such assets are being amortized using the straight line method over
their estimated useful lives not to exceed fifteen years.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the lives of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns. RCC is a corporation which provides for
income taxes under the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As of December 31, 1997, RCC
had federal net operating loss carryforwards of approximately $5,600,000, which
may be subject to annual limitations due to the change in ownership of RCC that
occurred in 1996. A valuation allowance has been established against the
related net deferred tax asset.
Cash
For purposes of the statement of cash flows, cash consists of cash in bank.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
F-88
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTS RECEIVABLE
Mid-Atlantic and RFM accounts receivable balances as of December 31, 1996, and
1997, and July 31, 1998 (unaudited) were primarily for tower sites licensing
agreements. RCC accounts receivable balances as of December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively, consisted primarily of amounts
billed and unbilled to customers under time and material and site type
contracts as follows:
DECEMBER 31,
---------------------- JULY 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
Billed accounts receivable.............. $3,828,315 $4,002,303 $3,775,037
Unbilled accounts receivable............ 1,652,000 1,308,000 1,538,000
---------- ---------- ----------
5,480,315 5,310,303 5,313,037
Allowance for doubtful accounts......... (197,566) (402,800) (499,268)
---------- ---------- ----------
Net accounts receivable................. $5,282,749 $4,907,503 $4,813,769
========== ========== ==========
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996, and
1997, and July 31, 1998 (unaudited), respectively:
DECEMBER 31,
----------------------- JULY 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
Land.................................. $ 476,511 $ 528,077 $ 528,078
Buildings............................. 622,447 720,242 721,532
Towers................................ 3,081,895 3,435,975 3,501,107
Equipment, furniture, and fixtures.... 887,669 1,264,800 1,716,940
---------- ----------- -----------
5,068,522 5,949,094 6,467,657
Accumulated depreciation.............. (556,524) (1,016,569) (1,318,167)
---------- ----------- -----------
Property and equipment, net........... $4,511,998 $ 4,932,525 $ 5,149,490
========== =========== ===========
F-89
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively:
DECEMBER 31,
---------------------- JULY 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
Goodwill............................... $1,919,056 $2,887,727 $2,887,727
Acquisition and loan costs............. 442,740 577,885 577,885
Non-compete and consulting agreements.. 5,000 100,000 100,000
---------- ---------- ----------
2,366,796 3,565,612 3,565,612
Accumulated amortization............... (134,271) (369,970) (576,729)
---------- ---------- ----------
Net Intangibles........................ $2,232,525 $3,195,642 $2,988,883
========== ========== ==========
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years. Loan
costs are being amortized over the life of the respective loan.
5. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $121,000 and $0 in draw fees during the year ended December 31,
1997, and the seven months ended July 31, 1998 (unaudited), respectively. The
agreements also contain a provision for a Line of Credit Facility Fee at the
rate of 0.25% per annum on the average unborrowed portion of the Line of Credit
Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $1,917 and
$1,189 in credit facility fees during the year ended December 31, 1997 and the
seven months ended July 31, 1998 (unaudited), respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership.
RCC has obtained a separate secured line of credit in the amount of $3,000,000.
The line has a term of three years with interest at prime plus 3%. The line is
secured by the domestic accounts receivable of RCC. RCC is subject to an early
termination fee under the agreement whereby the lender is entitled to a
percentage of the total line based on the time of termination.
F-90
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Balances at December 31, 1996, and 1997, and July 31, 1998 (unaudited),
respectively, were as follows:
DECEMBER 31,
INTEREST ---------------------- JULY 31,
DUE DATE: RATE: 1996 1997 1998
--------- ------------- ---------- ---------- -----------
(UNAUDITED)
April 2000................ Prime plus 3% $ -- $1,112,000 $1,166,000
April 2002................ 9.25% -- 2,400,938 2,247,031
June 2002................. 9.25% 731,250 676,875 641,250
March 2003................ 9.25% 800,000 770,250 721,500
April 2003................ 9.00% 2,500,000 -- --
July 2004................. 9.25% -- 2,262,972 2,262,973
---------- ---------- ----------
4,031,250 7,223,035 7,038,754
Less current maturities... (198,750) (417,077) (638,710)
---------- ---------- ----------
Long-term portion....... $3,832,500 $6,805,958 $6,400,044
========== ========== ==========
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
YEAR AMOUNT
---- ----------
1998.............................................................. $ 417,077
1999.............................................................. 767,061
2000.............................................................. 2,262,835
2001.............................................................. 1,415,002
2002.............................................................. 1,363,232
Thereafter........................................................ 997,828
----------
Total........................................................... $7,223,035
==========
6. DESCRIPTION OF LEASING ARRANGEMENTS
Mid-Atlantic and RFM license space for communication systems on their towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Certain of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
YEAR
----
December 31, 1998................................................. $2,601,906
December 31, 1999................................................. 1,973,959
December 31, 2000................................................. 1,544,165
December 31, 2001................................................. 1,114,167
December 31, 2002................................................. 521,787
Thereafter........................................................ 506,358
----------
Total........................................................... $8,262,342
==========
7. COMMITMENTS
Mid-Atlantic and RFM are committed to various land leases for tower sites. RCC
is obligated under operating leases for office space and equipment. Land lease
expense for the years ended December 31, 1996, and 1997, and for the seven
months ended July 31, 1998 (unaudited) was $139,258, $239,697, and $149,262,
respectively.
F-91
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense for the office space and equipment for the years ended December
31, 1996, and 1997, and for the seven months ended July 31, 1998 (unaudited)
totaled approximately $489,000, $891,665, and $525,000, respectively. At
December 31, 1997, future minimum lease payments were as follows:
YEAR
----
December 31, 1998................................................. $ 907,774
December 31, 1999................................................. 825,179
December 31, 2000................................................. 798,752
December 31, 2001................................................. 686,029
December 31, 2002................................................. 520,992
Thereafter........................................................ 771,533
----------
Total........................................................... $4,510,259
==========
8. RELATED PARTIES
In the normal course of business, the Partnership advances and receives funds
to and from affiliated parties for certain shared expenses. Amounts are repaid
on a regular and timely basis. The Partnership had a payable to these
affiliates at December 31, 1996, 1997, and July 31, 1998 (unaudited) of
$104,149, $36,758, and $792,953, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998, was $9,463, $150,319, $269,786, and $188,204, respectively. The
Partnership is also obligated to pay a 3% acquisition fee on all capital funds
invested in towers and related real estate and other assets, as well as up to
4% of gross monthly revenue, to the general partner for reimbursement of
certain general partner expenses. Acquisition fees are capitalized as incurred
by the Partnership. No acquisition fees were incurred or capitalized during
1997. Expense reimbursement fees for the years ended December 31, 1995, 1996,
and 1997, and for the seven months ended July 31, 1998 (unaudited) totaled
$5,510, $27,759, $76,357, and $88,570, respectively.
9. EQUITY PROGRAM DESCRIPTION
In 1996 RCC Holdings and RFM established an equity participation program
("Equity Program") for the employees of RCC. At the time this Equity Program
was established, RCC was wholly owned by RCC Holdings, and RFM was affiliated
with RCC Holdings. The Partnership and TeleCom Towers, Inc., a Texas
corporation ("TTI"), were the general partners of RFM. The objective of the
Equity Program is to reward employees for the success of RCC Holdings and RFM
as if they were owners of the Partnership. The Equity Program generally
provides that each employee will receive a designated percentage (as set forth
in the award agreement) of amounts distributed to TTI from the proceeds of RCC
Holdings and RFM. Employee-participants vest their benefits over a period of
five years of service with RCC, beginning after May 1, 1996; however,
participants will be 100% vested upon death or permanent disability. All
payments are to be made out of the general assets of either RCC Holdings or
RFM.
An event which would trigger the Partnership's obligations under the Equity
Program has not occurred, and no such event is presently anticipated or
contemplated. Therefore, the Partnership has not recorded a charge for the
Equity Program.
F-92
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUBSEQUENT EVENT (UNAUDITED)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C. which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-93
INDEPENDENT AUDITORS' REPORT
Telecom Towers of the West
(A Division of TeleCom Towers, Inc.)
We have audited the accompanying balance sheet of Telecom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the related
statements of income, divisional equity, and cash flows for the period from
inception (August 1, 1996) to December 31, 1996. These financial statements are
the responsibility of the division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleCom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the results of
its operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-94
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers of the West, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
of the West, LP as of December 31, 1997, and the related statements of
operations, partners' capital, and cash flows for the year ended December 31,
1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Towers of the West, LP
at December 31, 1997, and the results of its operations and its cash flows for
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-95
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------- JULY 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash..................................... $ 202,451 $ 425,791 $ 605,040
Accounts receivable, net of allowance of
$35,195, $15,000, and $0 in 1998, 1997,
and 1996, respectively.................. 8,285 255,975 195,377
Prepaid expenses......................... 9,254 33,073 44,205
---------- ----------- -----------
Total current assets................... 219,990 714,839 844,622
Property and equipment, net of accumulated
depreciation of $1,029,180, $743,916, and
$19,359 in 1998, 1997, and 1996,
respectively.............................. 545,155 4,700,217 4,670,462
Intangibles, net of accumulated
amortization of $1,728,297, $939,261, and
$45,825 in 1998, 1997, and 1996,
respectively.............................. 1,900,339 17,665,725 16,677,854
Investment in joint venture................ -- 1,520,475 1,645,236
Escrow deposits............................ 401,500 550,000 750,000
Advance to Prime Building Top.............. 1,302,000 -- --
Deferred acquisition costs................. 25,814 -- --
Deferred rent receivable................... -- 119,054 199,198
Other assets............................... 4,670 10,877 63,946
---------- ----------- -----------
Total assets........................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $ 111,119 $ 62,663 $ 460,597
Current portion of long-term debt........ 32,500 204,644 643,576
Other liabilities........................ -- 16,965 --
Due to related entities.................. 33,787 415,717 --
Prepaid rents............................ -- 215,386 --
Deferred income.......................... 12,608 -- 360,756
Advance from TeleCom Towers, Inc......... 1,302,000 -- --
Bridge loan--TeleCom Towers, Inc......... 1,900,000 -- --
---------- ----------- -----------
Total current liabilities.............. 3,392,014 915,375 1,464,929
Long-term debt, net of current portion..... 1,267,500 10,950,632 10,862,950
Partners' capital.......................... (260,046) 13,415,180 12,523,439
---------- ----------- -----------
Total liabilities and partners'
capital............................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
See accompanying notes.
F-96
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
AUGUST 31, 1996 SEVEN MONTHS
(INCEPTION) TO YEAR ENDED ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ---------------------
1996 1997 1997 1998
--------------- ------------ --------- ----------
(UNAUDITED)
Total revenues........... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct tower costs....... 24,958 372,964 85,223 364,032
--------- ----------- --------- ----------
Gross profit............. 116,500 1,795,729 695,967 1,597,650
General and administra-
tive.................... 21,014 561,233 272,949 495,936
Depreciation............. 19,359 320,729 128,915 285,264
Amortization............. 45,825 893,436 194,106 789,036
--------- ----------- --------- ----------
Operating income......... 30,302 20,331 99,997 27,414
Interest income.......... -- 55,065 167,413 15,328
Interest expense......... (154,916) (693,161) (226,031) (611,244)
Partnership share of loss
in joint venture........ -- (531,525) -- (323,239)
--------- ----------- --------- ----------
Net loss................. $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
See accompanying notes.
F-97
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
EQUITY (1%) EQUITY (99%) CAPITAL
----------- ------------ -----------
Balance at August 1, 1996 (inception)... $ -- $ -- $ --
Syndication and offering costs.......... -- (135,432) (135,432)
Net loss................................ (124,614) -- (124,614)
--------- ----------- -----------
Balance at December 31, 1996............ $(124,614) $ (135,432) $ (260,046)
Capital contributions................... -- 16,338,000 16,338,000
Syndication and offering costs.......... -- (1,513,484) (1,513,484)
Net loss................................ (11,493) (1,137,797) (1,149,290)
--------- ----------- -----------
Balance at December 31, 1997............ $(136,107) $13,551,287 $13,415,180
Capital contributions................... -- -- --
Syndication and offering costs.......... -- -- --
Net loss................................ (8,917) (882,824) (891,741)
--------- ----------- -----------
Balance at July 31, 1998 (unaudited).... $(145,024) $12,668,463 $12,523,439
========= =========== ===========
See accompanying notes.
F-98
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
AUGUST 31, 1996 SEVEN MONTHS
(INCEPTION) TO YEAR ENDED ENDED JULY 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
--------------- ------------ ------------ ---------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss................. $ (124,614) $(1,149,290) $ 41,379 $(891,741)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation............ 19,359 320,729 128,915 285,264
Amortization............ 45,825 893,436 194,106 789,036
Partnership loss........ -- 531,525 -- 323,239
Changes in operating
assets and liabilities:
Accounts receivable..... (8,285) (307,170) (415,220) 60,598
Prepaid expenses........ (9,254) (30,835) (14,794) (11,132)
Escrow deposits......... (1,500) (148,500) (369,611) (200,000)
Other assets............ (4,670) (6,207) (308,818) (133,213)
Accounts payable and
accrued liabilities.... 7,667 (121,565) 307,561 397,934
Due to related
entities............... 16,734 (2,820,070) (33,787) (415,717)
Prepaid rents........... -- 88,064 495,790 145,370
Other liabilities....... -- 16,965 -- (16,965)
Deferred income......... 12,608 -- -- --
---------- ----------- ------------ ---------
Net cash (used in)
operating activities... (46,130) (2,732,918) 25,521 332,673
INVESTING ACTIVITIES
Asset acquisitions, net
of cash received........ (2,755,431) (12,851,347) (10,329,590) 198,835
Net assets acquired, net
of cash received........ (5,874,798) -- --
Purchases of property and
equipment............... (526) (2,247,389) (5,094,542) (255,509)
Contributions to
investments in joint
ventures................ (750,000) (1,802,600) (448,000)
Due to related parties... 9,553 -- -- --
Acquisition costs........ (123,221) -- -- --
Deferred acquisition
costs................... (25,814) -- 25,814 --
Acquisition costs
accrued................. 24,187 -- -- --
---------- ----------- ------------ ---------
Net cash used in
investing activities... (2,871,252) (21,723,534) (17,200,318) (504,674)
FINANCING ACTIVITIES
Proceeds from debt....... 3,200,000 9,871,526 2,966,875 400,000
Payments on debt......... -- (16,250) (16,250) (48,750)
Contributions from
limited partners........ -- 16,338,000 16,085,251 --
Advance to Prime Building
Top..................... (1,302,000) -- (1,302,000) --
Advance from TeleCom
Towers, Inc............. 1,302,000 -- 1,302,000 --
Deferred
syndication/offering
costs................... (135,432) -- -- --
Syndication and offering
costs................... 79,265 (1,513,484) (1,258,310) --
Financing costs.......... (31,500) -- -- --
Due to related parties... 7,500 -- -- --
---------- ----------- ------------ ---------
Net cash provided by
financing activities... 3,119,833 24,679,792 17,777,366 351,250
Net increase in cash..... 202,451 223,340 602,569 179,249
Cash at beginning of
period.................. -- 202,451 202,451 425,791
---------- ----------- ------------ ---------
Cash at end of period.... $ 202,451 $ 425,791 $ 805,020 $ 605,040
========== =========== ============ =========
SUPPLEMENTAL CASH FLOW
INFORMATION
Cash paid for interest... $ 154,916 $ 693,161 $ 226,031 $ 611,244
========== =========== ============ =========
See accompanying notes.
F-99
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JULY 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED JULY 31, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Description of Business
TeleCom Towers of the West Limited Partnership (the Partnership), a Texas
limited partnership, operates in the communications industry. The Partnership
operates tower sites in various states, primarily New York, California,
Arkansas and northern Louisiana. The Partnership shall continue in full force
and effect until December 31, 2020, unless the Partnership is sooner dissolved
by the occurrence of certain events as specified in the Partnership Agreement.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
The consolidated financial statements include the accounts of Signal Tower
Company, Inc., (Signal), a wholly-owned subsidiary, acquired in March 1997.
Acquisitions
On August 1, 1996, the Partnership acquired tower assets of TOF, Inc., Travis
Carroll, Inc., and Sedricks, Inc. in a single transaction. The purchase method
was used to account for the acquisition, and the purchase price was allocated
as follows:
Property and equipment........................................... $ 659,740
Goodwill and intangibles......................................... 2,096,260
----------
$2,756,000
==========
As part of the acquisition, $400,000 of the purchase price has been placed in a
contingent escrow account. Pursuant to an agreement with the sellers, if
certain revenue increases are realized within one year of the acquisition date,
the amount in the contingent escrow account will be paid to the sellers. If the
revenue increases are not realized, the amount to be paid to the sellers will
be determined by a formula in the agreement. Any remaining balance would then
be returned to the Partnership.
A one-year maintenance and consulting agreement in the amount of $16,560 was
also entered into with an entity related to the sellers.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
F-100
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Land............................................................. $ 526,000
Buildings........................................................ 501,000
Towers........................................................... 2,915,000
Intangibles...................................................... 8,909,347
-----------
$12,851,347
===========
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates tower transmission sites in various states and grants
credit to its customers in the normal course of business and normally does not
require collateral. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers in the
Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
SIGNIFICANT ACCOUNTING POLICIES
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected
F-101
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
segment information in interim financial reports to stockholders. The
disclosure for segment information on the financial statements is not expected
to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
F-102
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations amounts will either be reclassified as part
of the purchase price, expensed to general and administrative expenses as site
investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits, losses, deductions and credits are reported by the
individual partners on their respective income tax returns. Signal is a
corporation which provides for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and 1997,
and July 31, 1998 (unaudited), respectively:
DECEMBER 31,
-------------------- JULY 31,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
Land...................................... $ -- $ 549,399 $ 549,399
Buildings................................. 133,860 643,181 644,825
Towers.................................... 430,128 4,045,323 4,242,346
Equipment, furniture, and fixtures........ 526 206,230 263,072
-------- ---------- ----------
564,514 5,444,133 5,699,642
Accumulated depreciation.................. (19,359) (743,916) (1,029,180)
-------- ---------- ----------
Property and equipment, net............... $545,155 $4,700,217 $4,670,462
======== ========== ==========
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997, and
July 31, 1998 (unaudited), respectively:
DECEMBER 31,
----------------------- JULY 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
Goodwill............................. $1,291,443 $16,392,223 $15,991,475
Acquisition and loan costs........... 154,721 1,857,763 1,859,676
Non-compete and consulting agree-
ments............................... -- 355,000 555,000
Ground leases........................ 500,000 -- --
---------- ----------- -----------
1,946,164 18,604,986 18,406,151
Accumulated amortization............. (45,825) (939,261) (1,728,297)
---------- ----------- -----------
Net intangibles...................... $1,900,339 $17,665,725 $16,677,854
========== =========== ===========
F-103
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These intangibles result from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $270,000 in such fees during 1997. The agreements also contain a
provision for a Line of Credit Facility Fee at the rate of one quarter of one
percent (0.25%) per annum on the average unborrowed portion of the Line of
Credit Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $7,967 in
credit facility fees during 1997.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership. Balances at December 31, 1997, are as follows:
INTEREST DECEMBER 31, JULY 31,
DUE DATE RATE 1997 1998
-------- -------- ------------ -----------
(UNAUDITED)
July 2004................................ 9.125% $ 9,871,526 $ 9,871,526
July 2003................................ 9.125% 1,283,750 1,235,000
July 2004................................ 9.1875% -- 400,000
----------- -----------
11,155,276 11,506,526
Less current maturities.................. (204,644) (643,576)
----------- -----------
Long-term portion........................ $10,950,632 $10,862,950
=========== ===========
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
YEAR AMOUNT
---- -----------
1998......................................................... $ 204,644
1999......................................................... 763,220
2000......................................................... 1,329,921
2001......................................................... 1,958,319
2002......................................................... 2,521,717
Thereafter................................................... 4,377,455
-----------
Total...................................................... $11,155,276
===========
F-104
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Some of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
YEAR AMOUNT
---- -----------
December 31, 1998............................................ $ 2,513,811
December 31, 1999............................................ 2,307,355
December 31, 2000............................................ 1,900,124
December 31, 2001............................................ 1,520,525
December 31, 2002............................................ 929,789
Thereafter................................................... 4,524,635
-----------
Total...................................................... $13,696,239
===========
F-105
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the period from inception (August 1, 1996) through December 31,
1996, the year ended December 31, 1997, and the seven months ended July 31,
1998 (unaudited), was $3,129, $65,449, and $72,266, respectively. At December
31, 1997, future minimum lease payments were as follows:
YEAR AMOUNT
---- --------
December 31, 1998............................................... $115,223
December 31, 1999............................................... 106,082
December 31, 2000............................................... 96,475
December 31, 2001............................................... 83,914
December 31, 2002............................................... 73,665
Thereafter...................................................... 305,645
--------
Total......................................................... $781,004
========
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. Amounts due (to)/from these related parties at
December 31, 1997 were as follows:
TeleCom Towers Mid-Atlantic, LP.............................. $ 788
TeleCom Towers, Inc. ........................................ (408,302)
TeleCom Towers Southwest, LP................................. (8,203)
---------
Due to related entities...................................... $(415,717)
=========
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the period
from inception (August 1, 1996) through December 31, 1996, the year ended
December 31, 1997, and the seven months ended July 31, 1998 (unaudited) was
$12,024, $127,373, and $166,742, respectively. The Partnership is also
obligated to pay a 3% acquisition fee on all capital funds invested in towers
and related real estate and other assets, as well as up to 4% of gross monthly
revenue, to the general partner for reimbursement of certain general partner
expenses. Acquisition fees are capitalized as incurred by the Partnership.
Acquisition fees capitalized during 1997 were $800,136. Expense reimbursement
fees for the period from inception (August 31, 1996) through December 31, 1996,
the year ended December 31, 1997, and the seven months ended July 31, 1998
(unaudited) totaled $3,625, $69,533, and $78,468, respectively.
8. INVESTMENTS IN JOINT VENTURE
The Partnership is a 50% partner in Prime-Telecom Communications Co., a
California general partnership formed to operate rooftop sites and towers in
the Los Angeles Metropolitan area. This investment is considered a joint
venture and is accordingly accounted for on the equity method.
Summarized financial information of this joint venture from the unaudited
financial statements as of December 31, 1997 and July 31, 1998, are as follows:
F-106
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PRIME TELECOM COMMUNICATIONS
----------------------------
JULY 31,
DECEMBER 31, 1997 1998
----------------- ----------
(UNAUDITED)
Total Assets............................... $ 3,060,364 $1,427,281
Total Liabilities.......................... 1,071,414 708,670
Partners' Capital.......................... 1,988,950 718,611
Total Revenue.............................. 1,237,039 955,559
Net Loss................................... (1,063,050) (646,478)
Partnership's Share of Loss................ (531,525) (323,239)
9. SUBSEQUENT EVENT (UNAUDITED)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-107
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MicroNet, Inc. and Affiliates and
American Tower Systems, Inc.
We have audited the accompanying combined statements of net assets of MicroNet,
Inc. and affiliates sold to American Tower Systems, Inc. (the "Company") as of
December 31, 1996 and October 31, 1997, and the related combined statements of
income and cash flows derived from those assets for the year ended December 31,
1996, and the ten months ended October 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the net assets of MicroNet, Inc. and affiliates sold to
American Tower Systems, Inc. as of December 31, 1996 and October 31, 1997, and
the results of operations related to those assets, and cash flows generated
from those assets for the year ended December 31, 1996, and the ten months
ended October 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Company and may not be indicative of the
conditions that would have existed or the results of operations had the net
assets sold been operated as an unaffiliated company. Certain expenses
represent allocations made by the Company's Parent, and, as discussed in Note
A, no provision for income taxes has been made in the combined statements of
income derived from the net assets sold.
Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
February 26, 1998
F-108
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF NET ASSETS SOLD
DECEMBER 31, 1996 AND OCTOBER 31, 1997
DECEMBER 31, OCTOBER 31,
1996 1997
------------ ------------
ASSETS
Current Assets
Prepaid expenses.................................. $ 301,942 $ 465,611
------------ ------------
Total Current Assets............................ 301,942 465,611
Property and Equipment.............................. 39,564,758 40,329,382
Less accumulated depreciation..................... (22,486,975) (24,513,888)
------------ ------------
17,077,783 15,815,494
Goodwill, net of amortization....................... 4,120,276 3,691,081
Intangible Assets, net of amortization.............. 902,227 742,047
Other Assets........................................ 183,087 70,354
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
LIABILITIES AND NET ASSETS TO BE SOLD
Current Liabilities
Customer service prepayments...................... $ 459,638 $ 307,961
------------ ------------
Total Current Liabilities....................... 459,638 307,961
Commitments and Contingencies
Net Assets To Be Sold............................... 22,125,677 20,476,626
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
See accompanying notes.
F-109
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME DERIVED FROM NET ASSETS SOLD
YEAR ENDED DECEMBER 31, 1996, AND TEN MONTHS ENDED OCTOBER 31, 1997
TEN MONTHS
YEAR ENDED ENDED
DECEMBER OCTOBER 31,
31, 1996 1997
----------- -----------
Net Revenues.......................................... $15,058,305 $15,103,459
Operating Expenses
Service............................................. 5,955,270 5,670,523
Selling and marketing............................... 488,857 347,475
General and administrative.......................... 3,422,581 2,676,978
Depreciation........................................ 3,199,495 2,034,072
Amortization........................................ 736,025 591,775
----------- -----------
13,802,228 11,320,823
----------- -----------
Operating Income...................................... 1,256,077 3,782,636
Other Income--Net..................................... 42,904 33,681
----------- -----------
Net Income Derived from Net Assets To Be Sold......... 1,298,981 3,816,317
Net Assets To Be Sold, Beginning of Period............ 22,563,349 22,125,677
Distributions To Parent............................... (1,736,653) (5,465,368)
----------- -----------
Net Assets To Be Sold, End of Period.................. $22,125,677 $20,476,626
=========== ===========
See accompanying notes.
F-110
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS DERIVED FROM NET ASSETS SOLD
YEAR ENDED DECEMBER 31, 1996, AND TEN MONTHS ENDED OCTOBER 31, 1997
TEN MONTHS
ENDED
YEAR ENDED OCTOBER
DECEMBER 31,
31, 1996 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Income derived from net assets sold.................. $ 1,298,981 $3,816,317
Adjustments to reconcile income derived from net
assets sold to cash provided by operating
activities:
Depreciation and amortization...................... 3,935,520 2,625,847
Loss (gain) on disposal of property and equipment.. (400) 9,062
Write off assets to net realizable value........... 65,313 --
Change in assets and liabilities:
Prepaid expenses................................. (49,781) (163,669)
Other assets..................................... 15,396 112,733
Customer service prepayments..................... 149,642 (151,677)
----------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES................ 5,414,671 6,248,613
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................... (3,678,418) (783,845)
Increase in intangible assets........................ -- (2,400)
Proceeds from sale of property and equipment......... 400 3,000
----------- ----------
CASH USED FOR INVESTING ACTIVITIES................... (3,678,018) (783,245)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS BEFORE
ADJUSTMENT.......................................... 1,736,653 5,465,368
ADJUSTMENT FOR NET ASSETS NOT SOLD................... (1,736,653) (5,465,368)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... $ -- $ --
=========== ==========
See accompanying notes.
F-111
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND OCTOBER 31, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of MicroNet, Inc. and
affiliates (the "Company") is presented to assist in understanding its combined
financial statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the combined financial statements.
Basis of Presentation and Combination
The accompanying combined statements of net assets sold to American Tower
Systems, Inc. ("ATS") are intended to present the assets and liabilities of the
Company sold to ATS (the "Net Assets") pursuant to an asset purchase agreement
between ATS and Suburban Cable TV Co. Inc. ("Suburban") and the income and cash
flows derived from such assets and liabilities. MicroNet is a wholly owned
subsidiary of Suburban (the "Company's Parent"), which is a wholly owned
subsidiary of Lenfest Communications, Inc. ("LCI"). As of July 8, 1997, the
Company agreed to sell substantially all of the operating assets of its
communication towers, satellite transmission and microwave video and data
signal transmission businesses to ATS for approximately $70.25 million. The
accompanying combined statements include 128 operating tower sites of the
Company, including 28 tower sites operated by Suburban and other cable TV
operating subsidiaries of LCI. The transaction closed as of October 31, 1997.
The combined financial statements include the accounts of MicroNet, Inc. and
those of all wholly owned subsidiaries, excluding the assets, liabilities and
results of operations of assets not sold to ATS. The combined financial
statements also include the assets, liabilities and results of operations of
the 28 tower sites included in the sale that are operated by Suburban and other
cable TV operating subsidiaries of LCI.
Business Activity and Concentrations of Credit Risk
The Company provides satellite and microwave transmission of video, voice and
data communications and tower site rental throughout the United States. The
Company grants credit to broadcast and cable networks and cellular and paging
companies throughout the nation. Consequently, the Company's ability to collect
the amounts due from customers is affected by economic fluctuations in these
industries.
Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates, and such
differences could be material to the combined financial statements.
Property and Equipment
Property and equipment are stated at cost. For acquired communication networks
and facilities, the purchase price has been allocated to net assets on the
basis of appraisal reports issued by an independent appraiser. Depreciation is
provided using the accelerated and straight-line methods of depreciation for
financial reporting purposes at rates based on estimated useful lives ranging
from 3 to 33 years.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
F-112
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Capitalization of Costs
All costs properly attributable to capital items, including that portion of
employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized.
Goodwill and Intangible Assets
Goodwill and intangible assets acquired in connection with the purchases of
communications networks and facilities have been valued at acquisition cost on
the basis of the allocation of the purchase price on a fair market value basis
to net assets as determined by an independent appraiser. Additions to these
assets are stated at cost. Intangible assets consist of FCC licenses,
organization costs and covenants not to compete. The intangible assets are
being amortized on the straight-line method over their legal or estimated
useful lives to a maximum of forty (40) years. Goodwill represents the cost of
an acquired partnership interest in excess of amounts allocated to specific
assets based on their fair market values. Goodwill is amortized on the
straight-line method over ten years. In accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of ", the Company assesses on
an on-going basis the recoverability of intangible assets based on estimates of
future undiscounted cash flows for the applicable business acquired compared to
net book value. If the future undiscounted cash flow estimate is less than net
book value, net book value is then reduced to the undiscounted cash flow
estimate. The Company also evaluates the amortization periods of intangible
assets to determine whether events or circumstances warrant revised estimates
of useful lives. As of October 31, 1997, management believes that no revisions
to the remaining useful lives or writedowns of deferred charges are required.
Revenue Recognition
The Company bills certain customers in advance; however, revenue is recognized
as services are provided. Credit risk is managed by discontinuing services to
customers who are delinquent.
Income Taxes
The Company, as a participating subsidiary, joins in the filing of a
consolidated Federal tax return with LCI. Current and deferred Federal income
taxes are allocated among LCI and its consolidated subsidiaries based upon the
respective net income (loss) and timing differences of each company. The
Company files separate state tax returns. No provision for income taxes has
been made in the combined financial statements. Deferred tax assets and
liabilities are excluded from net assets sold.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Fair Value of Financial Instruments
The Company believes that the carrying value of all financial instruments is a
reasonable estimate of fair value at December 31, 1996 and October 31, 1997.
NOTE B--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
ATS did not assume any debt of the Company. There is no interest expense paid
reflected in the accompanying financial statements. The Company did not make
any income tax payments to LCI.
In 1996, the Company wrote down $65,313 of property and equipment to net
realizable value. (See Note C).
F-113
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1996 and October 31,
1997, is as follows:
ESTIMATED
DECEMBER 31, OCTOBER 31, USEFUL LIVES
1996 1997 IN YEARS
------------ ------------ ------------
Land................................ $ 3,027,303 $ 3,027,303
Building and improvements........... 1,799,553 1,814,012 15-33
Computer equipment.................. 291,002 299,976 5
Furniture, fixtures and office
equipment.......................... 616,678 619,028 7
Tower, head-end equipment and
microwave equipment................ 32,289,707 33,025,202 7-15
Land improvements................... 188,195 206,337 7-15
Leasehold improvements.............. 278,430 278,430 5-15
Radio equipment..................... 9,360 9,360 5-7
Test equipment...................... 584,458 588,305 7
Vehicles............................ 480,072 461,429 3-5
------------ ------------
$ 39,564,758 $ 40,329,382
============ ============
During 1996, the Company recognized an impairment loss in connection with a
failed project to rebuild a tower. The township denied the Company's request to
tear-down and rebuild a larger tower on an existing tower site. Legal and
engineering costs associated with the project in the amount of $65,313,
previously capitalized, were written off. This impairment loss is included in
general and administrative expenses in the 1996 combined statement of income.
NOTE D--GOODWILL
The excess of the purchase price paid over the acquired net assets has been
allocated to goodwill. Accumulated amortization at December 31, 1996 and
October 31, 1997, was $1,030,069 and $1,459,264, respectively.
NOTE E--INTANGIBLE ASSETS
A schedule of intangible assets and accumulated amortization at December 31,
1996 and October 31, 1997, is as follows:
DECEMBER 31, 1996
----------------------------------
ACCUMULATED
DESCRIPTION AMOUNT AMORTIZATION NET
----------- ----------- ------------ ---------
FCC licenses............................ $ 326,163 $ 49,238 $ 276,925
Organization costs and covenants not to
compete................................ 1,201,174 575,872 625,302
----------- --------- ---------
$ 1,527,337 $ 625,110 $ 902,227
=========== ========= =========
OCTOBER 31, 1997
----------------------------------
ACCUMULATED
DESCRIPTION AMOUNT AMORTIZATION NET
----------- ----------- ------------ ---------
FCC licenses............................ $ 326,163 $ 56,033 $ 270,130
Organization costs and covenants not to
compete................................ 1,203,574 731,657 471,917
----------- --------- ---------
$ 1,529,737 $ 787,690 $ 742,047
=========== ========= =========
F-114
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LEASES
The Company leases office space from an individual who is a shareholder,
chairman of the board and chief executive officer of LCI. The lease began on
May 24, 1990, and is classified as an operating lease. The initial lease term
assumed by ATS expires October 31, 1998.
Future minimum lease payments under all non-cancelable operating leases with
initial terms of one year or more consisted of the following at October 31,
1997:
RELATED
YEAR ENDING DECEMBER 31, PARTY OTHER
------------------------ ------- -----------
1998............................................... $81,874 $ 997,956
1999............................................... -- 833,947
2000............................................... -- 784,922
2001............................................... -- 750,748
2002............................................... -- 548,683
Thereafter.......................................... -- 1,535,365
------- -----------
Total minimum lease payments......................... $81,874 $ 5,451,621
======= ===========
Rental expense for all operating leases, principally head-end land and building
facilities, amounted to $1,149,855 for the year ended December 31, 1996, and
$982,484 for the ten months ended October 31, 1997. In addition, the Company
made total payments to the related party for office space of $81,874 for the
year ended December 31, 1996, and $68,228 for the ten month period ended
October 31, 1997.
In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices. It is expected that, in the normal course of business,
expiring leases will be renewed or replaced by leases on other properties;
thus, it is anticipated that future minimum operating lease commitments will
not be less than the annualized amount shown for the ten months ended October
31, 1997.
NOTE G--LESSOR OPERATING LEASES
The Company is the lessor of tower and head-end equipment and microwave
equipment under operating leases expiring in various years through 2005. Rental
income from operating leases amounted to $5,909,260 for the year ended December
31, 1996, and $7,624,515 for the ten months ended October 31, 1997.
Following is a summary of property held for lease at December 31, 1996 and
October 31, 1997:
DECEMBER 31, OCTOBER 31,
1996 1997
------------ ------------
Tower, head-end equipment and microwave
equipment................................. $ 32,289,707 $ 33,025,202
Less accumulated depreciation.............. (20,271,612) (22,049,480)
------------ ------------
$ 12,018,095 $ 10,975,722
============ ============
F-115
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Minimum future rentals to be received on non-cancelable leases consisted of the
following as of October 31, 1997:
YEAR ENDING OCTOBER 31,
-----------------------
1998....................................................... $ 7,778,174
1999....................................................... 5,481,722
2000....................................................... 4,671,884
2001....................................................... 3,327,044
2002....................................................... 831,607
Thereafter.................................................. 299,311
------------
$ 22,389,742
============
NOTE H--OTHER INCOME
The schedules of other income for the year ended December 31, 1996, and ten
months ended October 31, 1997, are as follows:
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, OCTOBER 31,
1996 1997
------------ ----------------
Interest income.............................. $ 42,504 $ 42,743
Gain (loss) on disposal of property and
equipment................................... 400 (9,062)
-------- --------
$ 42,904 $ 33,681
======== ========
NOTE I--EMPLOYEE HEALTH BENEFIT PLAN
As a subsidiary of LCI, the Company participates in the Lenfest Group Employee
Health Plan (a trust) in order to provide health insurance for its employees.
This trust is organized under Internal Revenue Code Section 501(c)(9)--
Voluntary Employee Beneficiary Association (VEBA). Benefits are prefunded by
contributions from the Company and all other participating LCI subsidiaries.
Insurance expense is recognized as incurred. The Company does not provide
postretirement benefits to its employees. Therefore, Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions", does not have an impact on the Company's
financial statements.
NOTE J--401(K) PLAN
LCI provides a 401(k) retirement plan to the employees of its subsidiaries. The
Company, as an indirect wholly owned subsidiary, is entitled to participate.
The Company matches the entire amount contributed by an eligible employee up to
5% of their salary, subject to regulatory limitations. For the year ended
December 31, 1996, the Company matched $112,033 of contributions. For the ten
months ended October 31, 1997, the Company matched $90,616.
NOTE K--RELATED PARTY TRANSACTIONS
The Company does business and generates revenue with subsidiaries of Tele-
Communications, Inc. ("TCI"), (a stockholder of LCI, through an indirect,
wholly owned subsidiary). The amount of revenues generated was $1,225,000 for
the year ended December 31, 1996, and $1,477,000 for the ten months ended
October 31, 1997. An additional $69,000 received from TCI was included in
customer service prepayments as of December 31, 1996 and October 31, 1997.
F-116
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
All services provided to related parties were at standard billing rates.
Certain management services are provided to the Company by Suburban. Such
services include legal, tax, treasury, risk management, benefits administration
and other support services. Included in selling, general and administrative
expenses for the year ended December 31, 1996, and the ten months ended October
31, 1997, were allocated expenses of $108,000 and $90,000, respectively,
related to these services. Allocated expenses are based on Suburban's estimate
of expenses related to the services provided to the Company in relation to
those provided to other affiliates of Suburban. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Company contracted directly with third parties. Management has not made
a study or any attempt to obtain quotes from third parties to determine what
the cost of obtaining such services from third parties would have been. The
fees and expenses charged by Suburban are subject to change.
The Company entered into a lease agreement with a principal stockholder of LCI
(See Note F).
F-117
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Diablo
Communications, Inc. (A California
S Corporation):
We have audited the accompanying balance sheets of Diablo Communications, Inc.
(the "Company"), as of December 31, 1995 and 1996, and the related statements
of income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
November 4, 1997
F-118
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
BALANCE SHEETS
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash................................. $ 515,896 $ 708,434 $ 554,201
Accounts receivable:
Trade, net of allowance for doubt-
ful accounts of $10,000 at each
date.............................. 292,971 334,926 398,844
Affiliates......................... 440,532 560,813 1,231,952
Prepaid and other current assets..... 242,436 160,678 199,702
----------- ----------- ----------
Total current assets............. 1,491,835 1,764,851 2,384,699
PROPERTY AND EQUIPMENT, net............ 1,720,423 2,952,926 2,992,593
INVESTMENT IN AFFILIATE................ 4,158 10,053 7,757
DEPOSITS AND OTHER ASSETS.............. 224,338 182,984 293,617
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 191,258 $ 246,579 $ 188,624
Accrued expenses..................... 164,211 232,691 178,000
Deferred revenue..................... 340,556 364,865 250,056
Current portion of long-term debt.... 303,045 420,875 505,129
----------- ----------- ----------
Total current liabilities........ 999,070 1,265,010 1,121,809
----------- ----------- ----------
LONG-TERM DEBT......................... 925,002 1,786,410 1,732,390
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value,
10,000,000 shares authorized,
202,000 shares issued and outstand-
ing................................. 3,465,242 3,465,242 3,465,242
Accumulated deficit.................. (1,948,560) (1,605,848) (640,775)
----------- ----------- ----------
Total stockholders' equity....... 1,516,682 1,859,394 2,824,467
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
See notes to financial statements.
F-119
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
STATEMENTS OF INCOME
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
REVENUES:
Tower revenues................ $5,925,022 $6,337,292 $4,778,569 $5,878,022
Sublease revenues--related
party........................ 414,000 365,500 253,500 337,940
Management fees--related par-
ty........................... 96,968 97,513 70,531 80,621
Insurance proceeds............ -- 213,000 -- --
---------- ---------- ---------- ----------
Total revenues.............. 6,435,990 7,013,305 5,102,600 6,296,583
---------- ---------- ---------- ----------
OPERATING EXPENSES:
General and administrative.... 1,229,313 1,414,136 1,036,774 968,071
Depreciation and amortiza-
tion......................... 283,023 416,883 359,184 359,856
Rent expense.................. 1,875,527 2,039,302 1,512,615 1,829,720
Technical..................... 1,422,267 1,618,722 1,144,103 1,244,912
Sales and promotional......... 433,443 530,447 393,685 430,846
---------- ---------- ---------- ----------
Total operating expenses.... 5,243,573 6,019,490 4,446,361 4,833,405
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.......... 1,192,417 993,815 656,239 1,463,178
OTHER INCOME (EXPENSE), NET..... (120,388) (144,257) (90,335) 133,704
---------- ---------- ---------- ----------
NET INCOME...................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
========== ========== ========== ==========
See notes to financial statements.
F-120
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
----------------------
OUTSTANDING ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1994.... 202,000 $3,465,242 $(1,689,475) $ 1,775,767
Cash and noncash
distributions to
stockholders............... (1,331,114) (1,331,114)
Net income.................. 1,072,029 1,072,029
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995.... 202,000 3,465,242 (1,948,560) 1,516,682
Cash distributions to stock-
holders.................... (506,846) (506,846)
Net income.................. 849,558 849,558
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996.... 202,000 3,465,242 (1,605,848) 1,859,394
Cash distributions to stock-
holders (unaudited)........ (631,809) (631,809)
Net income (unaudited)...... -- -- 1,596,882 1,596,882
------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997
(unaudited).................. 202,000 $3,465,242 $ (640,775) $ 2,824,467
======= ========== =========== ===========
See notes to financial statements.
F-121
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------------
1995 1996 1996 1997
---------- ----------- ---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortiza-
tion....................... 283,023 416,883 359,184 359,856
Changes in assets and lia-
bilities:
Accounts receivable--
trade..................... (163,273) (30,000) (213,355) (63,918)
Accounts receivable--Affil-
iates..................... (244,175) (132,236) (74,543) (671,139)
Prepaid and other current
assets.................... (178,370) 81,758 (16,395) (39,024)
Deposits and other assets.. (37,181) 22,778 65,703 (108,337)
Accounts payable and ac-
crued expenses............ 115,175 123,801 (265,136) (112,646)
Deferred revenue........... 67,287 24,309 69,329 (114,809)
---------- ----------- ---------- ----------
Net cash provided by oper-
ating activities......... 914,515 1,356,851 490,691 846,865
---------- ----------- ---------- ----------
CASH FLOW FROM INVESTING
ACTIVITIES--Purchases of
property and equipment....... (948,781) (1,636,705) (1,219,152) (399,523)
---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Long-term borrowings........ 500,000 1,250,000 1,250,000 217,075
Repayments of long-term
debt....................... (50,469) (270,762) (192,775) (186,841)
Cash distributions to stock-
holders.................... (880,193) (506,846) (362,171) (631,809)
---------- ----------- ---------- ----------
Net cash provided by (used
in) financing
activities............... (430,662) 472,392 695,054 (601,575)
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH......................... (464,928) 192,538 (33,407) (154,233)
CASH, BEGINNING OF PERIOD..... 980,824 515,896 515,896 708,434
---------- ----------- ---------- ----------
CASH, END OF PERIOD........... $ 515,896 $ 708,434 $ 482,489 $ 554,201
========== =========== ========== ==========
SUPPLEMENTAL INFORMATION:
Cash paid for interest...... $ 92,384 $ 140,970 $ 91,988 $ 90,335
Noncash distribution to
stockholders............... 450,921 -- -- --
See notes to financial statements.
F-122
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--Diablo Communications, Inc. (the "Company")
is engaged in acquiring, developing and operating communications towers, for
use by radio operators as well as other communication related businesses. As of
December 31, 1996, the Company owned and/or operated 81 towers and rooftops
throughout Northern California.
Sale of the Company--On October 9, 1997, substantially all of the Company's
assets were sold to American Tower Systems, Inc. ("ATS"). ATS also assumed the
Company's operating lease agreements and certain of the Company's liabilities
on that date. The sale price was approximately $40,000,000. Subsequent to the
sale, the Company changed its name and will pursue other business opportunities
as Tyris Corporation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from these estimates.
Unaudited Interim Information--The financial information with respect to the
nine-month periods ended September 30, 1996 and 1997 is unaudited. In the
opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year.
Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("FAS 121"). FAS 121 addresses the accounting for the impairment
of long-lived assets, certain intangibles and goodwill when events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this statement during 1996 and the impact on
the Company's results of operations, liquidity or financial position was not
material.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation is provided using the double-declining method over estimated
useful lives ranging from 3 to 15 years.
Investment in Affiliate--The Company owns a 25% interest in New Loma
Communications, Inc. which is accounted for using the equity method of
accounting.
Revenue Recognition--Tower and sublease revenues are recognized when earned
over the lease terms. Management fee revenues are recognized when earned over
the terms of the management contracts. Deferred revenue represents advance
payments by customers where related revenue is recognized when services are
provided.
S Corporation Election--The accompanying financial statements do not include
any provision for federal or state income taxes since the Company is treated as
a partnership under Subchapter S of the Internal Revenue Code and under similar
state income tax provisions. Accordingly, income or loss is allocated to the
shareholders and included in their tax returns.
Retirement Plan--Employees of the Company are eligible for participation in a
401-K plan managed by the Company, subject to certain minimum age and length-
of-employment requirements. Under the plan, the Company does not match the
participants' contributions.
F-123
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
Land and improvements................ $ 674,574 $1,017,949 $1,135,034
Towers............................... 533,175 1,342,178 1,543,206
Technical equipment.................. 387,451 508,212 510,097
Office equipment, furniture, fixtures
and other equipment................. 378,290 478,285 506,172
Construction in progress............. 209,592 473,163 631,241
---------- ---------- ----------
Total.............................. 2,183,082 3,819,787 4,325,750
Less accumulated depreciation and am-
ortization.......................... (462,659) (866,861) (1,333,157)
---------- ---------- ----------
Property and equipment, net.......... $1,720,423 $2,952,926 $2,992,593
========== ========== ==========
Technical and office equipment include assets under capital leases of $285,749,
$285,749 and $288,698 at September 30, 1997, December 31, 1996 and 1995,
respectively with related accumulated depreciation of $223,980, $199,588 and
$167,065, respectively.
3. LONG-TERM DEBT
Outstanding amounts under the Company's financing arrangements consisted of the
following:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
Advances on bank term loan approved up
to $1,500,000, varying interest rates
at 9.44% to 9.85%.................... $1,250,000 $1,250,000
Notes payable to banks at interest
rates of prime plus 1.5%............. $ 858,333 658,333 525,000
Other notes payable to banks.......... 212,107 202,302 419,377
Capital lease obligations............. 157,607 96,650 43,142
---------- ---------- ----------
Total............................... 1,228,047 2,207,285 2,237,519
Less scheduled current maturities..... (303,045) (420,875) (505,129)
---------- ---------- ----------
Long-term debt........................ $ 925,002 $1,786,410 $1,732,390
========== ========== ==========
In October 1997, the Company's long-term debt was either assumed by ATS or
repaid by the Company with proceeds from the sale of assets to ATS (see Note
1--"Sale of the Company").
4. COMMITMENTS AND CONTINGENCIES
The Company leases various technical and office equipment under capital leases
and certain office space and other real property under noncancelable operating
leases. Future minimum lease payments under these operating and capital leases
are as follows:
F-124
DIABLO COMMUNICATIONS, INC.
(A CALIFORNIA S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
OPERATING CAPITAL
LEASES LEASES
---------- --------
Year ending December 31:
1997................................................ $ 662,260 $ 73,529
1998................................................ 613,607 31,161
1999................................................ 608,642
2000................................................ 567,817
2001................................................ 510,557
Thereafter.......................................... 2,808,872
---------- --------
Total............................................. $5,771,755 104,690
==========
Less interest portion................................... (8,040)
--------
Present value of minimum lease payments................. $ 96,650
========
5. RELATED PARTY TRANSACTIONS
New Loma Communications, Inc., is a corporation in which the Company owns 25%
of the outstanding capital stock.
Drake Industrial Park, Inc. and Diablo Communications of Southern California,
Inc. are corporations under common ownership as that of the Company.
During the nine months ended September 30, 1996 and 1997 and the years ended
December 31, 1995 and 1996, the Company received income from New Loma
Communications, Inc., as follows:
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
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1995 1996 1996 1997
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(UNAUDITED)