Filed pursuant to Rule No. 424(b)(3)
Registration No. 333-94175
PROSPECTUS
9,000,000 Shares
[LOGO OF SBA]
SBA Communications Corporation
Class A Common Stock
------------------
We are offering 9,000,000 shares of our Class A common stock. Our Class A
common stock is quoted on the Nasdaq National Market under the symbol "SBAC."
On January 27, 2000, the last reported sale price on the Nasdaq National Market
was $28.9375 per share.
Investing in the shares involves risks. "Risk Factors" begins on page 8.
Per Share Total
--------- ------------
Public offering price................................... $27.00 $243,000,000
Underwriting discount................................... $ 1.41 $ 12,690,000
Proceeds to SBA, before expenses........................ $25.59 $230,310,000
We and the selling shareholders have granted the underwriters a 30-day option
to purchase up to 1,350,000 additional shares of Class A common stock on the
same terms and conditions as set forth above solely to cover over-allotments,
if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares to purchasers on or about
February 2, 2000.
------------------
Lehman Brothers Deutsche Banc Alex. Brown
Salomon Smith Barney
Raymond James & Associates, Inc.
Fidelity Capital Markets
a division of National Financial
Services Corporation
Facilitating Electronic
Distribution
January 28, 2000
[PHOTOGRAPH OF A LATTICED TOWER OF SBA COMMUNICATIONS CORPORATION]
[MAP OF CONTINENTAL UNITED STATES DEPICTING COMMUNICATION SITE FOOTPRINTS OF SBA
COMMUNICATIONS CORPORATION]
TABLE OF CONTENTS
Page
----
Where You Can Find More
Information....................... i
Information Incorporated by
Reference......................... ii
Prospectus Summary................. 1
Summary Unaudited Pro Forma
Financial Data.................... 5
Summary Historical Financial Data.. 6
Risk Factors....................... 8
Use of Proceeds.................... 16
Dividend Policy.................... 16
Capitalization..................... 17
Unaudited Pro Forma Condensed
Consolidated Financial
Statements........................ 18
Selected Historical Financial
Data.............................. 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 24
Page
----
Industry Overview................... 32
Business............................ 37
Management.......................... 48
Principal and Selling Shareholders.. 50
Description of Capital Stock........ 52
Description of Existing Debt........ 56
Shares Eligible for Future Sale..... 58
United States Federal Income Tax
Considerations to Non-U.S.
Holders............................ 59
Underwriting........................ 62
Legal Matters....................... 65
Independent Accountants............. 65
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with the
Securities and Exchange Commission. You may read our Commission filings over
the Internet at the Commission's website at http://www.sec.gov. You may also
read and copy documents at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Full addresses of
the Commission's reference rooms are: Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 7 World Trade Center, New York, New York
10048; Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms.
We have filed with the Commission a registration statement on Form S-3 under
the Securities Act of 1933, as amended, with respect to the shares of Class A
common stock offered by this prospectus. This prospectus, which is a part of
the registration statement, does not contain all of the information set forth
in the registration statement. For further information about us and our Class A
common stock, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer you. Since the prospectus may not contain all of the information that you
may find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
----------------
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of Class A common stock.
i
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to provide information about our business and other
important information to you by "incorporating by reference" the information we
file with the Commission. This means that we can disclose the information to
you by referring in this prospectus to the documents we file with the
Commission. Under the Commission's regulations, any statement contained in a
document incorporated by reference in this prospectus is automatically updated
and superseded by any information contained in this prospectus, or in any
subsequently filed document of the types described below.
We incorporate into this prospectus by reference the following documents
filed by us with the Commission, each of which should be considered an
important part of this prospectus:
Period Covered or Date of
Commission Filing (File No. 000-30110) Filing
-------------------------------------- -----------------------------
Annual Report on Form 10-K...................... Year ended December 31, 1998
Quarterly Reports on Form 10-Q.................. Quarters ended March 31,
1999, June 30, 1999, and
September 30, 1999
Current Reports on Form 8-K..................... February 24, 1999; July 14,
1999; July 26, 1999; August
19, 1999; October 15, 1999;
November 1, 1999; November 8,
1999; December 17, 1999; and
January 11, 2000
Description of our Class A common stock
contained in Registration Statement on Form 8-A
and any amendment or report filed for the
purpose of updating such description........... June 9, 1999
All subsequent documents filed by us under
Sections 13(a), 13(c), 14 or 15(d) of the After the date of this
Exchange Act................................... prospectus
You may request a copy of each of our filings at no cost, by writing or
telephoning us at the following address, telephone or facsimile number:
SBA Communications Corporation
One Town Center Road, 3rd Floor
Boca Raton, FL 33486
Phone: (561) 995-7670
Fax: (561) 997-0343
Exhibits to a document will not be provided unless they are specifically
incorporated by reference in that document.
ii
PROSPECTUS SUMMARY
This summary highlights selected information about us. It is not complete and
may not contain all of the information that you should consider before
investing in our Class A common stock. You should carefully read this entire
document, including the "Risk Factors" section beginning on page 8. Unless
otherwise indicated, all information in this prospectus assumes that the
underwriters will not exercise their over-allotment option.
SBA Communications
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. We generate revenues from our two primary
businesses--site leasing and site development services. Since our founding in
1989, we have participated in the development of more than 13,000 antenna sites
in 49 of the 51 major wireless markets in the United States. In 1997, we began
aggressively expanding our site leasing business by capitalizing on our
nationally recognized site development experience and strong relationships with
wireless service providers to take advantage of the trend toward colocation and
independent tower ownership. As of December 31, 1999, we owned or controlled
1,163 towers and had letters of intent or definitive agreements to acquire 94
towers. We also had non-binding mandates to build over 335 additional towers
for anchor tenants and had over 700 strategic sites in various phases of
development. In 1998 and 1999 we built, for our own account, 310 and 438
towers. We believe our history and experience in providing site development
services gives us a competitive advantage in choosing the most attractive
locations in which to build new towers or buy existing towers, as measured by
our success in increasing tower revenues and cash flows. Our same tower revenue
growth for 1999 on the 494 towers we owned as of December 31, 1998 was 33%
based on tenant leases executed as of December 31, 1999.
Our primary focus is the leasing of antenna space on our multi-tenant towers
to a variety of wireless service providers under long-term lease contracts. We
lease antenna space on: (1) the towers we construct through build-to-suit
programs; (2) existing sites we acquire; (3) the towers we develop
strategically; and (4) sites we lease, sublease and/or manage for third
parties. Under a build-to-suit program, we build a tower for a wireless service
provider. We retain ownership of the tower and the exclusive right to colocate
additional tenants on the tower. Many wireless service providers are choosing
the build-to-suit option as an alternative to tower ownership, and we believe
that this outsourcing trend is likely to continue. Our non-binding mandates
come from a variety of wireless carriers, including AT&T Wireless, BellSouth
Mobility DCS, Georgia PCS, Horizon PCS, Southwestern Bell, Sprint PCS and
VoiceStream. We have also grown through selective acquisitions of towers from
smaller independent owners. We also develop towers strategically, for our own
account, by identifying an attractive location and completing all pre-
construction procedures, such as zoning, necessary to secure the site. We then
market the tower site to potential customers.
Our site development business consists of site development consulting and
site development construction. In our site development business, we provide a
full range of end-to-end services which typically occur in five phases: (1)
network pre-design; (2) communication site selection; (3) communication site
acquisition; (4) local zoning and permitting; and (5) site construction, switch
construction and antenna installation. We will continue to use our site
development expertise to complement our site leasing business and secure
additional new tower build opportunities. We have capitalized on our leadership
position in the site development business, our existing national field
organization and our strong relationships with wireless service providers to
develop our build-to-suit and strategic siting programs.
1
We have a diverse range of customers, including cellular, personal
communications service, or PCS, wireless data and Internet services, paging,
specialized mobile radio, or SMR, and enhanced specialized mobile radio, or
ESMR providers as well as other users of wireless transmission and reception
equipment. Our customers currently comprise many of the major wireless
communications companies, including AT&T Wireless, BellSouth, Georgia PCS,
Horizon PCS, LEAP Wireless, Metricom, Nextel, Omnipoint, Southwestern Bell,
Sprint PCS, Teligent and VoiceStream.
While we believe that our site development business will grow with the
expected overall growth of wireless and other telecommunications networks, we
believe our revenues and gross profit from the consulting segment of that
business will continue to decline as carriers find new ways to obtain network
development through outsourced tower ownership. We also believe that, over the
longer term, our site leasing revenues will continue to increase due to the
same outsourcing trend and as the number of towers we own or control grows.
Industry Overview
We believe that the rapid growth in demand for wireless services will
continue to increase the need for communication sites (which include towers,
rooftops and other structures on which antennas are placed). The growth in
demand for wireless services and communication sites is the result of several
factors, including:
. the continuing build-out of higher frequency technologies, such as PCS,
which have a reduced cell range and thus require a more dense network of
towers;
. the emergence of new wireless technologies, such as wireless data and
Internet services;
. business and consumer preferences for higher quality voice and data
transmission and the popularity of the "one-rate" plans;
. the need to expand services and fill-in and upgrade existing networks;
. increasing mobility of the U.S. population and the growing awareness of
the benefits of mobile communications;
. favorable changes in telecommunications regulations; and
. the issuance of new wireless network licenses requiring the construction
of new wireless networks.
In addition, our site leasing business benefits from the industry's
diversified recurring revenue and effective operating leverage as a result of
several factors, including:
. the long-term nature of lease contract revenues;
. low customer churn rates due to the high direct and indirect costs of
relocation;
. low variable operating costs, which cause increases in revenues to
generate disproportionately larger increases in tower cash flow;
. low on-going maintenance capital expenditure requirements;
. a customer base diversified across geographic markets, industry segments
(PCS, wireless data and Internet, cellular, paging, ESMR and SMR) and
individual customers within these segments; and
. the limited number of available tower sites serving a given area and
consequent barriers to entry, principally as a result of local
opposition to the proliferation of towers within the area.
We believe that wireless service providers face greater competition today and
are now focusing their capital and operations primarily on activities that
build subscriber growth, such as marketing and distribution. Therefore, they
will increasingly seek to outsource communication site ownership, construction,
management and maintenance.
2
Business Strategy
Our strategy is to lease antenna space to multiple tenants on towers that we
construct or acquire. We plan to enhance our position as a leading owner and
operator of communication sites and provider of site development services. Key
elements of our strategy include:
. Maximizing use of tower capacity
. Developing new towers that we will own and operate
. Acquiring existing towers
. Building on strong relationships with major wireless service providers
. Maintaining our expertise in site development services
. Capitalizing on management experience
Recent Events
On December 16, 1999, we increased our senior credit facility from $175.0
million to $300.0 million and modified certain other terms. The $125.0 million
increase included a new $50.0 million term loan and a $75.0 million increase to
our existing revolving line of credit. In connection with and to permit this
increase, we solicited and received consents from the holders of our senior
discount notes.
On December 6, 1999, we entered into an exclusive service agreement with
Georgia PCS, a Sprint PCS network affiliate, to provide site acquisition,
development, colocation, build-to-suit and equipment installation services. The
service agreement gives us the right to build and own any new towers required
by Georgia PCS. We estimate that the agreement will cover the location of up to
200 antenna sites by Georgia PCS through March 31, 2001, including up to 100
new build-to-suit towers.
On September 28, 1999, we acquired 53 wireless communications towers from
Horizon PCS for $15.7 million. Horizon PCS provides towers for Sprint's PCS
network and manages Sprint PCS's towers in Ohio, West Virginia and Kentucky.
The acquired towers currently provide an annualized cash flow of approximately
$.9 million. We also entered into an exclusive service agreement with Horizon
PCS under which we will provide site acquisition, development, colocation,
build-to-suit and equipment installation services in specific regions. We
estimate that the service agreement will cover the location of as many as 300
antenna sites by Horizon PCS through December 31, 2001, including a minimum of
100 new build-to-suit towers.
Principal Executive Offices
Our principal executive offices are located at One Town Center Road, Third
Floor, Boca Raton, Florida 33486, and our telephone number is (561) 995-7670.
We were founded in 1989 and incorporated in Florida in 1997.
3
The Offering
Class A common stock offered by SBA........ 9,000,000 shares
Class A common stock offered by the selling
shareholders in the over-allotment
option.................................... 1,350,000 shares (a)
Common stock to be outstanding after the 31,296,600 shares of Class A
offering.................................. common stock (a)(b)
6,574,401 shares of Class B
common stock
37,871,001 shares of common stock
(a)(b)
Voting rights.............................. The Class A common stock and the
Class B common stock generally
vote as a single class. The Class
A common stock has one vote per
share and the Class B common
stock has ten votes per share.
Florida corporate law and our
articles of incorporation require
separate class votes on some
matters. After the offering and
the exercise of options granted
by Steven E. Bernstein to a third
party, Mr. Bernstein will control
approximately 67.8% of the total
voting power of both classes of
common stock. See "Principal and
Selling Shareholders." We use the
term "common stock" to mean both
the Class A and Class B common
stock.
Other rights............................... Each class of common stock has
the same rights to dividends and
upon liquidation. The Class B
common stock is convertible into
Class A common stock on a share-
for-share basis. The Class B
common stock automatically
converts into Class A common
stock upon the transfer of the
shares to anyone other than
certain categories of persons
specified in our articles of
incorporation.
Nasdaq National Market symbol.............. SBAC
Use of proceeds............................ We estimate that our net proceeds
from the offering will be
approximately $229.3 million. We
expect to use these proceeds to
repay a portion of outstanding
debt, to finance the construction
and acquisition of towers and
related businesses and for
general working capital purposes.
We will not receive the proceeds
from any sale of Class A common
stock by the selling
shareholders.
- --------
(a) We have agreed that if any or all of the selling shareholders decide not to
sell their shares upon exercise of the over-allotment option, we will issue
any shares necessary to satisfy the option.
(b) Does not include (1) 3,057,248 shares of Class A common stock issuable upon
exercise of outstanding stock options, (2) 884,543 shares that are reserved
for issuance upon exercise of options that may be granted in the future
under our 1999 Equity Participation Plan, (3) 470,138 shares that are
reserved for issuance under our 1999 Employee Stock Purchase Plan, (4)
402,500 shares issuable upon exercise of the outstanding warrant that we
granted Alex. Brown & Sons Inc., a predecessor to the investment banking
business of Deutsche Bank Securities Inc., in connection with a 1997
issuance of our capital stock or (5) the 320,000 or 400,000 shares that are
issuable to the former shareholders of Com-Net Construction Services, Inc.
if 1999 and 2000 EBITDA targets established in connection with the
acquisition of that company are met.
4
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents our summary unaudited pro forma financial and
other data for the year ended December 31, 1998 and as of and for the nine
months ended September 30, 1999. The pro forma summary operating data for the
year ended December 31, 1998 and the nine months ended September 30, 1999 give
effect to the pro forma transactions, which are (1) all individually immaterial
acquisitions completed during the year ended December 31, 1998 and the nine
months ended September 30, 1999, (2) the issuance of Class A common stock in
our 1999 initial public offering and the application of those net proceeds and
(3) the issuance of Class A common stock in this offering and the application
of the net proceeds as described in "Use of Proceeds,"as if each had occurred
at the beginning of the periods presented. The unaudited pro forma balance
sheet data as of September 30, 1999 have been prepared as if the issuance of
Class A common stock in this offering and the application of the net proceeds
from the offering, and the December 16, 1999 amendment to our senior credit
facility that increased our term loan outstanding by $50.0 million had occurred
on September 30, 1999. The pro forma adjustments are based upon available
information and certain assumptions that we believe are reasonable. The pro
forma financial data are for informational purposes only and do not purport to
present what our results of operations or financial position would actually
have been had these transactions actually occurred on the date presented or to
project our results of operations or financial position at any future period.
You should read the information set forth below together with "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus and the Consolidated Financial Statements and their related notes
incorporated by reference in this prospectus.
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
---------------------- ----------------------
(dollars in thousands except per share data)
(unaudited)
Operating Data:
Revenues:
Site development
revenue............... $ 66,121 $ 49,486
Site leasing revenue... 20,453 20,473
---------------------- ----------------------
Total revenues.......... 86,574 69,959
---------------------- ----------------------
Cost of revenues
(exclusive of
depreciation shown
below)
Cost of site
development revenue... 53,304 38,493
Cost of site leasing
revenue............... 8,782 8,883
---------------------- ----------------------
Total cost of revenues.. 62,086 47,376
---------------------- ----------------------
Gross profit............ 24,488 22,583
Selling, general and
administrative(a)(b)... 20,944 15,057
Depreciation and
amortization........... 12,464 13,057
---------------------- ----------------------
Operating loss.......... (8,920) (5,531)
Interest income......... 4,080 675
Interest expense........ (2,496) (2,139)
Non-cash amortization of
original issue discount
and debt issuance
costs.................. (14,550) (16,205)
Other................... 373 28
---------------------- ----------------------
Loss before income taxes
and extraordinary
item................... (21,513) (23,172)
Benefit for income
taxes.................. 1,524 369
---------------------- ----------------------
Loss before
extraordinary item..... (19,989) (22,803)
Extraordinary item...... -- (1,150)
---------------------- ----------------------
Net loss................ $ (19,989) $ (23,953)
====================== ======================
Basic and diluted loss
per common share before
extraordinary item..... $ (0.55) $ (0.61)
Extraordinary item...... -- (0.03)
---------------------- ----------------------
Basic and diluted loss
per common share....... $ (0.55) $ (0.64)
====================== ======================
Basic and diluted
weighted average number
of shares of common
stock.................. 36,480,352 37,342,141
====================== ======================
Other Data:
Adjusted EBITDA(c)...... $ 4,149 $ 7,712
Annualized tower cash
flow(d)................ $ 12,952 $ 17,067
As of September 30,
1999
-------------------
(unaudited)
Balance Sheet Data:
Property, plant and equipment (net)......................... $ 284,509
Total assets................................................ 576,261
Total debt.................................................. 255,674
Common stockholders' equity................................. 276,087
- --------
(Footnotes on page 7)
5
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data as of and
for the years ended December 31, 1997 and 1998 and as of September 30, 1999,
and for the nine months ended September 30, 1998 and 1999. The financial data
for each of the full fiscal years have been derived from, and are qualified by
reference to, our audited financial statements, which Arthur Andersen LLP, our
independent certified public accountants, have audited. The financial data as
of September 30, 1999 and for the nine months ended September 30, 1998 and 1999
have been derived from our unaudited consolidated financial statements. You
should read the information set forth below in conjunction with "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus and the Consolidated Financial Statements and their related notes
incorporated by reference in this prospectus.
Nine Months
Year Ended December 31, Ended September 30,
----------------------- -----------------------
1997 1998 1998 1999
----------- ------------ ---------- -----------
(dollars in thousands except per share data)
(unaudited)
Operating Data:
Revenues:
Site development revenue.. $ 48,241 $ 46,705 $ 33,624 $ 39,723
Site leasing revenue...... 6,759 12,396 8,132 18,009
---------- ------------ ---------- -----------
Total revenues............. 55,000 59,101 41,756 57,732
---------- ------------ ---------- -----------
Cost of revenues (exclusive
of depreciation shown
below):
Cost of site development
revenue.................. 31,470 36,500 26,015 30,322
Cost of site leasing
revenue.................. 5,356 7,281 5,039 8,393
---------- ------------ ---------- -----------
Total cost of revenues..... 36,826 43,781 31,054 38,715
---------- ------------ ---------- -----------
Gross profit............... 18,174 15,320 10,702 19,017
Selling, general and
administrative(a)(b)...... 12,033 18,302 13,127 13,714
Depreciation and
amortization.............. 514 5,802 2,804 10,983
---------- ------------ ---------- -----------
Operating income (loss).... 5,627 (8,784) (5,229) (5,680)
Interest income............ 644 4,303 3,374 767
Interest expense........... (407) (2,357) -- (3,240)
Non cash amortization of
original issue discount
and debt issuance costs... -- (14,550) (10,811) (16,205)
Other...................... -- (37) -- 28
---------- ------------ ---------- -----------
Income (loss) before income
taxes and extraordinary
item...................... 5,863 (21,425) (12,667) (24,330)
(Provision) benefit for
income taxes(e)........... (5,596) 1,524 -- 403
---------- ------------ ---------- -----------
Net income (loss) before
extraordinary item........ 267 (19,901) (12,667) (23,927)
Extraordinary item......... -- -- -- (1,150)
---------- ------------ ---------- -----------
Net income (loss).......... 267 (19,901) (12,667) (25,077)
Dividends on preferred
stock..................... (983) (2,575) (1,862) 733
---------- ------------ ---------- -----------
Net loss available to
common shareholders....... $ (716) $ (22,476) $ (14,529) $ (24,344)
========== ============ ========== ===========
Basic and diluted loss per
common share before
extraordinary item........ $ (2.64) $ (1.73) $ (1.42)
Extraordinary item......... -- -- (0.07)
------------ ---------- -----------
Basic and diluted loss per
common share.............. $ (2.64) $ (1.73) $ (1.49)
============ ========== ===========
Basic and diluted weighted
average number of shares
of common stock........... 8,526,052 8,407,238 16,348,073
============ ========== ===========
Other Data:
Adjusted EBITDA(c)......... $ 7,155 $ (2,377) $ (2,281) $ 5,490
Annualized tower cash
flow(d)................... 1,947 8,088 5,634 15,488
Net cash provided by
operating activities...... 7,829 7,471 16,422 11,463
Net cash used in investing
activities................ (17,676) (138,124) (103,561) (147,973)
Net cash provided by
financing activities...... 15,645 151,286 133,527 112,472
Towers owned at the
beginning of period....... -- 51 51 494
Towers constructed......... 15 310 233 288
Towers acquired............ 36 133 80 174
Total towers at the end of
period.................... 51 494 364 956
- --------
(Footnotes on following page)
6
As of
December 31, As of
----------------- September 30,
1997 1998 1999
------- -------- -------------
Balance Sheet Data (at end of period)
(dollars in thousands): (unaudited)
Property, plant and equipment (net).......... $17,829 $150,946 $ 284,509
Total assets................................. 44,797 214,573 347,184
Total debt................................... 10,184 182,573 255,912
Redeemable preferred stock................... 30,983 33,558 --
Common stockholders' equity (deficit)........ (4,344) (26,095) 46,772
- --------
(a) For the year ended December 31, 1997, selling, general and administrative
expenses include non-cash compensation expense of $1.0 million incurred in
the consolidation of the predecessor companies. For the year ended December
31, 1998, selling, general and administrative expenses include non-cash
compensation expense of $0.6 million incurred in connection with the
issuance of stock options and Class A common stock. For the nine months
ended September 30, 1999, selling, general and administrative expenses
include non-cash compensation expense of $0.2 million incurred in
connection with the issuance of stock options.
(b) Selling, general and administrative expenses include corporate development
expenses associated with our site leasing business that were incurred in
connection with the acquisition or construction of owned towers. These
expenses consist of compensation and overhead costs that are not directly
related to the administration or management of existing towers. All of
these costs are expensed as incurred.
(c) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly
used in the telecommunications industry to analyze companies on the basis
of operating performance, leverage and liquidity. Adjusted EBITDA excludes
the effect of the non-cash compensation expense referred to in footnote (a)
above. Adjusted EBITDA is not intended to represent cash flows for the
periods presented, nor has it been presented as an alternative to operating
income or as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Companies calculate Adjusted EBITDA differently and, therefore, Adjusted
EBITDA as presented for us may not be comparable to Adjusted EBITDA
reported by other companies. See our Consolidated Statements of Cash Flows
in our Consolidated Financial Statements incorporated by reference in this
prospectus.
(d) We define "tower cash flow" as site leasing revenue less cost of site
leasing revenue (exclusive of depreciation). Tower cash flow includes
deferred revenue attributable to certain leases. We believe tower cash flow
is useful because it allows you to compare tower performance before the
effect of expenses (selling, general and administrative) that do not relate
directly to tower performance. We define "annualized tower cash flow" as
tower cash flow for the last calendar quarter attributable to our site
leasing business multiplied by four. Pro forma annualized tower cash flow
also includes the effect of fourth quarter acquisitions as if each had
occurred at the beginning of the period presented.
(e) Provision for income taxes for the year ended December 31, 1997 includes
the tax effect of our conversion to a C corporation.
7
RISK FACTORS
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Although
we believe that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we cannot assure
you that these plans, intentions or expectations will be achieved. Important
factors that could cause actual results to differ materially from the forward
looking statements we make in this prospectus are set forth below and elsewhere
in this prospectus. All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
following cautionary statements.
We may not secure as many site leasing tenants as planned.
We may not be successful in growing our site leasing business. Our success
depends to a large extent on our management's expectations and assumptions
concerning future tenant demand for independently-owned communication sites and
numerous other factors, many of which are beyond our control. Any material
error in any of these expectations or assumptions could have a material adverse
effect on our growth rate. Because most of our towers are newly constructed,
and because these towers have little or no positive cash flow at the time of
their construction, the risks of lower tenant demand for tower space are much
greater for us than for a tower company which has grown its portfolio by
acquiring towers with existing cash flow.
We compete for site leasing tenants with: (1) wireless service providers that
own and operate their own tower infrastructure and lease, or may in the future
decide to lease, antenna space to other providers; (2) site development
companies that acquire antenna space on existing towers for wireless service
providers, manage new tower construction and provide site development services;
(3) other large independent tower companies; and (4) smaller local independent
tower operators. Wireless service providers that own and operate their own
tower infrastructure generally are substantially larger and have greater
financial resources than we do. Several of the independent tower companies also
have larger tower infrastructure and greater financial resources than we do. We
believe that tower location and capacity, price, quality of service and density
within a geographic market historically have been and will continue to be the
most significant competitive factors affecting the site leasing business.
The number of towers we build, the number of tenants we add to our towers and
our site development business revenues fluctuate from quarter to quarter.
The number of towers we build, the number of tenants we add to our towers and
the demand for our site development services fluctuate from period to period
and within periods. Numerous factors cause these fluctuations, including:
. the timing of our customers' capital expenditures;
. the number and significance of active customer engagements during a
quarter;
. delays incurred in connection with a project or a tenant installation of
equipment;
. employee hiring;
. the use of consultants; and
. the rate and volume of wireless service providers' tower build-outs.
While the demand for our site development services fluctuates, we incur
significant fixed costs, such as maintaining a staff and office space in
anticipation of future contracts, even when there is no current business. The
timing of revenues is difficult to forecast as our sales cycle can be
relatively long and may depend on factors such as the size and scope of
assignments, budgetary cycles and pressures and general economic conditions.
With respect to new tenant leases, in some cases revenue commencement trails
execution of the lease due to contractual terms, which are typical in the
industry, and which provide for revenue to commence
8
upon installation of the tenant's equipment on the tower, which can be 90 days
or more after the execution of the lease. Seasonal factors, such as weather,
vacation days and total business days in a quarter, and the business practices
of customers, such as deferring commitments on new projects until after the end
of the calendar year or the customers' fiscal year, may add to the variability
of new tower builds and revenues and could have a material adverse effect on
our growth rate, prospects, financial condition or results of operations.
Consequently, the number of towers we build and the operating results of our
site leasing and development businesses for any particular period may vary
significantly, and should not be considered as indicative of long-term results.
We face zoning and other restrictions on our ability to construct new towers.
Our growth strategy depends on our ability to construct and operate towers in
a timely and cost-effective manner. A number of factors beyond our control can
affect our ability to construct new towers, including:
. zoning and local permitting requirements;
. Federal Aviation Administration considerations;
. availability of tower components and construction equipment;
. skilled construction personnel; and
. bad weather conditions.
In addition, as the concern over tower proliferation has grown in recent years,
certain communities have placed restrictions on new tower construction or have
delayed granting permits required for construction. We cannot assure you (1)
that there will be a significant need for the construction of new towers once
existing wireless service providers complete their tower infrastructure build-
out, (2) of the number of mandates that we will be awarded or the number of
mandates that will result in constructed towers, (3) that we will be able to
overcome regulatory or other barriers to new construction or (4) that the
number of towers planned for construction will be completed in accordance with
the requirements of our customers. Certain of our anchor tenant leases contain
penalty or forfeiture provisions in the event we do not complete the towers
within specified time periods.
We face increasing competition for new tower opportunities and acquisitions of
existing towers.
We compete for new tower opportunities primarily with site developers,
wireless carriers and other independent tower companies. We believe that
competition for new tower opportunities will increase and that additional
competitors will enter the tower market. Some of these additional competitors
have or are expected to have greater financial resources than we do.
Our growth strategy depends on our ability to acquire and operate existing
towers not built by us to augment our existing tower network. Increased
competition for acquisitions may result in fewer acquisition opportunities for
us and higher acquisition prices. We regularly explore acquisition
opportunities, and we are currently actively negotiating to acquire additional
towers. As of December 31, 1999, we had letters of intent or definitive
agreements to acquire 94 towers.
We may not be able to identify, finance and complete future acquisitions of
towers or tower companies on acceptable terms or may not be able to profitably
manage and market available space on any towers that we acquire. We may also
face challenges in integrating newly acquired towers or tower companies and may
face difficulties in retaining current lessees on newly acquired towers. The
extent to which we are unable to construct or acquire additional towers, or
profitably manage these tower operations, may have a material adverse effect on
our results of operations.
We are not profitable and expect to continue to incur losses.
We incurred net losses of $19.9 million for the year ended December 31, 1998
and $25.1 million for the nine months ended September 30, 1999. Our losses are
principally due to significant depreciation, amortization and interest expense.
We have not achieved profitability and expect to continue to incur losses for
the foreseeable future.
9
Our mandates may not yield binding agreements.
As of December 31, 1999, we had non-binding mandates to build over 335 towers
under build-to-suit programs for wireless service providers. Although we
believe that the majority of these non-binding mandates will result in long-
term anchor leases for specific communication towers, there are a number of
steps that need to occur before any leases are executed. These steps include,
in some cases, finalizing build-out plans by the customers who have awarded the
mandates, completing due diligence by us and our customers and finalizing other
definitive documents between the parties. As a result, we cannot assure you as
to the percentage of current and future non-binding mandates that will
ultimately result in binding anchor tenant leases and constructed towers.
We expect revenues from the consulting segment of our site development business
to continue to decline.
Our growth strategy is primarily focused on expanding our site leasing
business, as opposed to our site development business. However, you should be
aware that a substantial portion of our revenues has historically come from the
consulting segment of our site development business. We believe that wireless
service providers have begun to move away from the traditional build-out
formula where those providers contract for site development services for a fee
and invest the capital necessary to build and own their own network of
communication towers. We believe that the use of build-to-suit programs is
rapidly becoming the preferred method of wireless network expansion. As
wireless service providers have moved away from the traditional build-out
formula, our site development revenues from the consulting segment declined in
1997, 1998 and the first nine months of 1999, and we expect a further decline
during the remainder of 1999 and in 2000. We expect this trend to continue for
the foreseeable future as our customers continue to move toward build-to-suit
programs and other outsourcing alternatives and away from wireless service
provider-funded site development and ownership.
We will need to seek additional financing to fund our business plan.
Our business strategy contemplates substantial capital expenditures in
connection with the expansion of our tower infrastructure by agreeing with
wireless carriers to assume ownership or control of their existing towers, by
pursuing build-to-suit opportunities and by exploring other tower acquisition
opportunities.
Our cash capital expenditures for the nine months ended September 30, 1999
were $148.0 million with another approximately $50.0 million of cash capital
expenditures anticipated in the fourth quarter of 1999. We currently estimate
that we will make at least $150.0 million to $200.0 million of cash capital
expenditures in fiscal year 2000 for the construction and acquisition of
communication sites, which primarily includes towers. Based on our current
operations and anticipated revenue growth, we believe that, if our business
strategy is successful, cash flow from operations and available cash, together
with the anticipated net proceeds from this offering and the increase in
available borrowings under our senior credit facility, will be sufficient to
fund our anticipated cash capital expenditures through the middle of 2001.
Thereafter, however, or in the event we exceed our currently anticipated cash
capital expenditures by the middle of 2001, or are unable to fully draw on our
senior credit facility, we anticipate that we will need to seek additional
equity or debt financing to fund our business plan. Additional financing may
not be available on commercially acceptable terms or at all, and additional
debt financing may not be permitted by the terms of our existing indebtedness,
including our senior discount notes. Prior to March 1, 2003, interest expense
on our outstanding senior discount notes will consist solely of non-cash
accretion of original issue discount and these notes will not require cash
interest payments. After that time, our outstanding senior discount notes will
have accreted to $269.0 million and will require annual cash interest payments
of approximately $32.3 million. If we are required to issue additional common
equity to finance our capital expenditures, it could be dilutive to our
existing shareholders. To the extent we are unable to finance future capital
expenditures, we will be unable to achieve our currently contemplated business
goals.
10
The expansion of our business may strain our resources.
Expanding our business may impose significant strains on our management,
operating systems and financial resources. In addition, we anticipate that our
operating expenses may increase during the next few years from their 1999
levels as we construct and acquire additional tower assets. Our failure to
manage our growth or unexpected difficulties encountered during expansion could
have a material adverse effect on our results of operations. The pursuit and
integration of new tower build-outs in addition to future acquisitions,
investments, joint ventures and strategic alliances will require substantial
attention from our senior management, which will limit the amount of time
available to devote to our existing operations.
From January 1, 1995 to December 31, 1999, our work force increased from 82
to 597 employees. This growth has placed, and will likely continue to place, a
substantial strain on our administrative, operational and financial resources.
In addition, as part of our business strategy, we may acquire complementary
businesses or expand into new businesses. We may not be able to manage our
growth successfully and our management, personnel or operational and financial
control systems may not be adequate to support expanded or complementary
operations. Any of these inabilities or inadequacies could have a material
adverse effect on our growth rate, prospects, financial condition or results of
operations.
If demand for wireless communication services decreases, our revenue will be
adversely affected.
Substantially all of our customers to date have been providers of wireless
communications services and, therefore, our success is dependent on their
success. Demand for our services is dependent on demand for communication sites
from wireless service providers, which, in turn, is dependent on the demand for
wireless services. A slowdown in the growth of, or reduction in demand, in a
particular wireless communication segment could adversely affect the demand for
communication sites. Most types of wireless services currently require ground-
based network facilities, including communication sites for transmission and
reception. The extent to which wireless service providers lease these
communication sites depends on a number of factors beyond our control,
including:
. the level of demand for wireless services;
. the financial condition and access to capital of wireless service
providers;
. the strategy of wireless service providers with respect to owning or
leasing communication sites;
. government licensing of broadcast rights; and
. changes in telecommunications regulations and general economic
conditions.
In addition, wireless voice service providers frequently enter into roaming
agreements with competitors allowing them to use one another's wireless
communications facilities to accommodate customers who are out of range of
their home provider's services. These roaming agreements may be viewed by
wireless voice service providers as a superior alternative to leasing antenna
space on communications sites owned or controlled by us. The proliferation of
these roaming agreements could have a material adverse effect on our results of
operations.
We depend on a relatively small number of customers for most of our revenues.
We derive a significant portion of our revenues from a small number of
customers. For example, during 1997, 1998, and the first nine months of 1999,
our five largest customers accounted for approximately 89.9%, 91.4%, and 60.2%
respectively, of our revenues from site development services. Sprint PCS, our
largest customer for the years ended December 31, 1997, 1998, and the nine
months ended September 30, 1999, accounted for 53.6%, 41.3%, and 21.3%
respectively, of our revenues from site development services during those
periods. Other large customers include Pacific Bell Mobile Systems, which
accounted for 14.0% and 13.5% of our revenues from site development services
for the years ended December 31, 1997 and 1998, and BellSouth Mobility DCS,
which accounted for 23.8% of our revenues from site development services for
the year ended December 31, 1998 and 19.1% for the nine months ended September
30, 1999. For the nine months
11
ended September 30, 1999, our largest site leasing customers were PageNet,
Sprint PCS, Nextel, and BellSouth Mobility DCS which accounted for 17.1%, 9.4%,
9.4% and 8.2% of our site leasing revenues. Our site development customers
engage us on a project-by-project basis, and a customer can generally terminate
an assignment at any time without penalty. In addition, a customer's need for
site development services can decrease, and we may not be successful in
establishing relationships with new clients. Moreover, our existing customers
may not continue to engage us for additional projects. The substantial majority
of our existing non-binding mandates are from AT&T Wireless, BellSouth Mobility
DCS, Horizon PCS, Georgia PCS and Sprint PCS. The loss of any significant
customer could have a material adverse effect on our growth rate, prospects,
financial condition or results of operations.
Due to the long-term expectations of revenue from tenant leases, the tower
industry is very sensitive to the creditworthiness of its tenants. Wireless
service providers often operate with substantial leverage, and financial
problems for our customers could result in uncollected accounts receivable, in
the loss of customers and the associated lease revenues, or in a reduced
ability of these customers to finance expansion activities. For example, we
expect our site leasing gross profit in the fourth quarter of 1999 to be
negatively impacted by the recent bankruptcy liquidation proceeding filed by
Conxus. Pursuant to this proceeding, Conxus rejected several subleases that it
had entered into with us and which were part of our lease/sublease business.
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our payment obligations.
We have a significant amount of indebtedness. The following chart shows
certain important credit information:
At September 30,
1999
----------------
(dollars in
thousands)
Total indebtedness.......................................... $255,912
Stockholders' equity........................................ $ 46,772
Our substantial indebtedness could have important consequences to you. For
example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage to our competitors that are less
leveraged; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds. Failing to comply with those covenants could result in an event
of default which, if not cured or waived, could have a material adverse
effect on our growth rate, prospects, financial condition or results of
operations.
Our ability to service our debt obligations will depend on our future
operating performance, which will be affected by prevailing economic conditions
in the wireless communications industry, and financial, business and other
factors, certain of which are beyond our control. If we are unable to generate
sufficient cash flow from operations to service our indebtedness, we will be
forced to adopt an alternative strategy that may include
12
actions such as reducing, delaying or eliminating acquisitions of towers or
related service companies, delaying tower construction and other capital
expenditures, selling assets, restructuring or refinancing our indebtedness or
seeking additional equity capital. We may not be able to effect any of these
alternative strategies on satisfactory terms, if at all. The implementation of
any of these alternative strategies could have a material adverse effect on our
growth rate.
Our senior credit facility and the indenture governing our senior discount
notes each contains certain restrictive covenants. The senior credit facility
also requires us to maintain specified financial ratios and satisfy certain
financial condition tests. Our ability to meet these financial ratios and tests
can be affected by events beyond our control, and we may not be able to meet
those tests. A breach of any of these covenants could result in a default under
the senior credit facility and the indenture governing our senior discount
notes. Upon the occurrence of certain bankruptcy events, the outstanding
principal, together with all accrued interest, will automatically become
immediately due and payable. If any other event of default should occur under
the senior credit facility, our lenders can elect to declare all amounts of
principal outstanding under the senior credit facility, together with all
accrued interest, to be immediately due and payable. Either of these events
could also result in the triggering of cross-default or cross-acceleration
provisions in other instruments, permitting acceleration of the maturity of
additional indebtedness. If we were unable to repay amounts that become due
under the senior credit facility, our lenders could proceed against the
collateral granted to them to secure that indebtedness. If the indebtedness
under the senior credit facility were to be accelerated, our assets may not be
sufficient to repay in full the indebtedness. Substantially all of our assets
are pledged as security under the senior credit facility.
Our earnings have been insufficient to cover our fixed charges since the
issuance of our senior discount notes. We expect our earnings to continue to be
insufficient to cover our fixed charges for the foreseeable future. We may be
able to incur substantial additional indebtedness in the future. If new debt is
added to our current debt levels, the related risks that we face could
intensify.
We must comply with a variety of extensive regulations.
We are subject to a variety of regulations, including those at the federal,
state and local level. Both the Federal Communications Commission and the
Federal Aviation Administration regulate towers and other sites used for
wireless communications transmitters and receivers. Such regulations control
siting, lighting and marking of towers and may, depending on the
characteristics of the tower, require prior approval or registration of tower
facilities. Wireless communications devices operating on towers are separately
regulated and independently licensed based upon the regulation of the
particular frequency used. Proposals to construct new communication sites or to
modify existing communication sites are reviewed by both the FCC and the FAA to
ensure that a site will not present a hazard to aviation. Construction or
modification of these structures is also subject to the National Environmental
Policy Act, which requires additional review of any tower that may have a
significant effect upon the quality of the human environment. Owners of towers
may have an obligation to paint the towers or install lighting to conform to
FCC and FAA standards and to maintain such painting or lighting. Tower owners
also bear the responsibility for notifying the FAA of any tower lighting
failures. We generally indemnify our customers against any failure to comply
with applicable standards. Failure to comply with applicable requirements may
lead to civil penalties.
Local regulations include city or other local ordinances, zoning restrictions
and restrictive covenants imposed by community developers. These regulations
vary greatly, but typically require tower owners to obtain approval from local
officials or community standards organizations prior to tower construction.
Local regulations can delay or prevent new tower construction or site upgrade
projects, thereby limiting our ability to respond to customers' demands. In
addition, these regulations may increase the timing and costs associated with
new tower construction. Additional regulations could be adopted which could
increase these delays or result in additional costs to us. These factors could
have a material adverse effect on our growth rate, prospects, financial
condition or results of operations and on our ability to implement and/or
achieve our business
13
objectives in the future. Our customers may also become subject to new
regulations or regulatory policies that adversely affect the demand for
communication sites.
Our operations are also subject to federal, state and local environmental
laws and regulations regarding the use, storage, disposal, emission, release
and remediation of hazardous and nonhazardous substances, materials or wastes.
Under certain of these environmental laws, we could be held strictly liable for
the remediation of hazardous substance contamination at our facilities or at
third-party waste disposal sites, and could also be held liable for any
personal or property damage related to the contamination. Although we believe
that we are in substantial compliance with, and have no material liability
under, applicable environmental laws, the costs of compliance with existing or
future environmental laws and liability related to those laws may have a
material adverse effect on our business.
We and the wireless service providers that use our towers are also subject to
government requirements and other guidelines relating to radio frequency, or
RF, emissions. The potential connection between RF emissions and certain
negative health effects, including some forms of cancer, has been the subject
of substantial studies by the scientific community in recent years. To date,
the results of these studies have been inconclusive. Although we have not been
subject to any claims relating to RF emissions, we may be subject to these
claims in the future.
Our towers are subject to damage from natural disasters.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We maintain insurance to cover the
estimated cost of replacing damaged towers, but these insurance policies are
subject to caps and deductibles. We also maintain third party liability
insurance to protect us in the event of an accident involving a tower. A tower
accident for which we are uninsured or underinsured, or damage to a tower or
group of towers, could have a material adverse effect on our financial
condition.
New technologies may undermine the success of our operations.
The emergence of new technologies could have a negative impact on our
operations. For example, the FCC has granted license applications for several
low-earth orbiting satellite systems that are intended to provide mobile voice
and data services. Although these systems are highly capital intensive and have
only begun to be tested, mobile satellite systems could compete with land-based
wireless communications systems. In addition, products are currently being
developed which may permit multiple wireless carriers to use a single antenna.
These systems and products could reduce the demand for our infrastructure
services or space on our towers. These events could have a material adverse
effect on our growth rate, prospects, financial condition or results of
operations.
Because of our holding company structure, we depend on our subsidiaries for
cash flow. Our access to this cash flow is restricted.
We are a holding company with no business operations of our own. Our only
significant asset is and will be the outstanding capital stock of our
subsidiaries. We conduct, and will conduct, all of our business operations
through our subsidiaries. Accordingly, our only source of cash to pay our
obligations is distributions from our subsidiaries of their net earnings and
cash flow. We currently expect that the earnings and cash flow of our
subsidiaries will be retained and used by them in their operations, including
to service their debt obligations. Even if our subsidiaries determined to make
a distribution to us, applicable state law and contractual restrictions,
including the dividend covenants contained in our senior credit facility, may
not permit these dividends or distributions.
Steven E. Bernstein will control the outcome of shareholder votes.
Steven E. Bernstein, our President and Chief Executive Officer, beneficially
owns 100% of the outstanding shares of Class B common stock. After the offering
and the exercise of options granted by Mr. Bernstein to a
14
third party, Mr. Bernstein will control approximately 67.8% of the total voting
power of both classes of common stock. As a result, Mr. Bernstein will have the
ability to control the outcome of all matters determined by a vote of our
common shareholders, including the election of all of our directors.
We depend on the services of our executive officers.
Our success depends to a significant extent upon the continued services of
Steven E. Bernstein, our President and Chief Executive Officer, Daniel J.
Eldridge, our President--Com-Net Construction Services, Ronald G. Bizick, II,
our Executive Vice President-East, Michael N. Simkin, our Executive Vice
President-West, Jeffrey A. Stoops, our Chief Financial Officer, and Robert M.
Grobstein, our Chief Accounting Officer. Each of Messrs. Bizick, Simkin and
Stoops has an employment agreement. We do not have an employment agreement with
Messrs. Bernstein, Eldridge, or Grobstein. Mr. Bernstein's compensation and
other terms of employment are determined by the Board of Directors. The loss of
the services of any of Messrs. Bernstein, Eldridge, Bizick, Simkin, Stoops,
Grobstein or other key managers or employees, could have a material adverse
effect upon our prospects or results of operations.
We need to attract, retain and manage skilled employees.
Our business involves the delivery of professional services and is labor-
intensive. Our success depends in large part upon our ability to attract,
develop, motivate and retain skilled employees. We compete with other wireless
communications firms and other enterprises for employees with the skills
required to perform our services. We cannot assure you that we will be able to
attract and retain a sufficient number of highly-skilled employees in the
future or that we will continue to be successful in training, retaining and
motivating employees. The loss of a significant number of employees and/or our
inability to hire a sufficient number of qualified employees could have a
material adverse effect on our results of operations or growth rate.
If we or our existing shareholders sell additional shares of our Class A common
stock after the offering, it could hurt the market price of our Class A common
stock.
If we sell a substantial number of shares of our Class A common stock after
the offering, those sales could adversely affect the market price of our Class
A common stock and could impair our ability to raise capital through the sale
of equity securities. Upon completion of the offering, we will have 37,871,001
shares (assuming the selling shareholders fulfill the over-allotment option in
full) of common stock outstanding. In addition, we have reserved 3,057,248
shares of Class A common stock issuable upon exercise of outstanding stock
options, 884,543 shares that may be issued upon exercise of options that may be
granted in the future under our 1999 Equity Participation Plan, 470,138 shares
for issuance under our 1999 Employee Stock Purchase Plan and 402,500 shares
issuable upon exercise of the outstanding warrant that we granted Deutsche Bank
Securities Inc. We will also be required to issue up to 720,000 shares of Class
A common stock to the former shareholders of Com-Net if 1999 and 2000 EBITDA
targets established in connection with the acquisition of that company are met.
Of the 28,871,000 shares of our common stock outstanding, 28,091,000 shares are
freely transferable without restriction under the Securities Act, unless they
are held by our "affiliates" as that term is used under the Securities Act. The
remaining 780,000 shares are "restricted securities" as that term is defined in
Rule 144 of the Securities Act and subject to the volume restrictions of Rule
144. The 9,000,000 shares sold in the offering (10,350,000 if the over-
allotment option is exercised in full) will be freely transferable without
restriction under the Securities Act, unless they are held by our affiliates.
Certain shareholders have demand and piggyback registration rights for a total
of up to 16,854,556 shares of our common stock.
In connection with the offering and subject to certain exceptions, we and all
of our executive officers and directors have agreed not to sell any shares of
Class A common stock, or any securities which may be converted into or
exchanged for any such shares of Class A common stock or substantially similar
securities, for a period of 90 days after the date of this prospectus without
the prior written consent of Lehman Brothers Inc. In addition, our selling
shareholders have agreed to not sell 5,956,997 of their 6,721,997 shares of
Class A common stock or any securities which may be converted into or exchanged
for any such shares of Class A common stock or substantially similar
securities, for a period of 90 days after the date of this prospectus without
the prior written consent of Lehman Brothers Inc.
15
Our articles of incorporation and by-laws include provisions that may
discourage a change of control transaction which may affect the rights of
holders of our Class A common stock.
Our articles of incorporation allow our Board of Directors to issue up to
30,000,000 shares of preferred stock and to fix the rights, privileges and
preferences of these shares without any further vote or action by the
shareholders. The rights of the holders of our Class A common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. While we have no present
intention to issue shares of preferred stock, any issuance of preferred stock
could be used to discourage, delay or make more difficult a change in control,
which could be beneficial to the holders of our Class A common stock. In
addition, our articles of incorporation provide for a staggered Board of
Directors and our by-laws impose restrictions on calling special meetings of
shareholders and introducing shareholder proposals. Each of these features
could also be used to discourage, delay or make more difficult a change in
control.
USE OF PROCEEDS
Our net proceeds from the offering, after deduction of the underwriting
discount and estimated offering expenses, will be approximately $229.3 million.
We expect to use approximately $68.0 million of the net proceeds from the
offering to repay outstanding revolving debt. We expect to use the remainder to
finance the construction and acquisition of towers and related businesses, for
general working capital purposes, and/or to repay a portion of outstanding term
loans under our senior credit facility or our 12% senior discount notes due
2008. An affiliate of Lehman Brothers, one of the underwriters in the offering,
is a lender under the senior credit facility. We have used borrowings under the
senior credit facility to finance our business plan. The weighted average
interest rate of revolving credit loans outstanding under the senior credit
facility was 9.68% and the weighted average interest rate on our term loans was
9.87% at December 31, 1999. The revolving credit loans mature on December 31,
2004 and the term loans mature on December 31, 2004 and 2005. Our notes accrue
interest at 12% and mature on March 2, 2008. Pending these uses, we will invest
the net proceeds in short-term government obligations. See "Description of
Existing Debt." We will not receive the proceeds from any sale of Class A
common stock by the selling shareholders.
DIVIDEND POLICY
We have never paid dividends on the common stock, and we do not anticipate
paying dividends in the foreseeable future. Any determination to pay cash
dividends in the future will be at the discretion of our Board of Directors and
will depend upon our results of operations, financial condition, contractual
restrictions and other factors deemed relevant at that time by the Board of
Directors.
Our ability to pay dividends on the common stock is dependent upon the
ability of our subsidiaries to pay dividends, or otherwise loan, advance or
transfer funds, to us. The terms of our indebtedness impose limitations on our
ability to pay dividends or make other distributions on our capital stock.
16
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 1999 on an historical basis and as adjusted for this offering and
the application of the net proceeds and the December 16, 1999 amendment to our
senior credit facility that increased our term loan outstanding from $25.0
million at September 30, 1999 to $75.0 million at December 16, 1999. You should
read this table in conjunction with "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus and the Consolidated
Financial Statements and their related notes incorporated by reference in this
prospectus.
As of September 30,
1999
---------------------
Actual As Adjusted
-------- -----------
(dollars in
thousands)
(unaudited)
Cash and cash equivalents(a)............................. $ 2,705 $224,051
======== ========
Long-term debt (less current maturities):
Senior credit facility(a).............................. 75,000 75,000
12% senior discount notes due 2008..................... 180,674 180,674
Other long-term borrowings............................. 188 --
-------- --------
Total long-term debt................................. 255,862 255,674
-------- --------
Preferred stock (30,000,000 shares authorized; 0 shares
issued)................................................. -- --
Stockholders' equity:
Class A common stock (100,000,000 shares authorized;
21,101,614 issued; 30,101,614 issued, as
adjusted)(b)(c)(d).................................... 211 301
Class B common stock (8,100,000 shares authorized;
7,644,264 shares issued).............................. 76 76
Warrants to purchase Class A common stock.............. -- --
Paid-in capital........................................ 97,729 326,954
Accumulated deficit.................................... (51,245) (51,245)
-------- --------
Total stockholders' equity........................... 46,772 276,087
-------- --------
Total capitalization............................... $302,634 $531,761
======== ========
- --------
(a) As of December 16, 1999, we increased our senior credit facility from
$175.0 million to $300.0 million. This $125.0 million increase included a
new $50.0 million term loan, which was fully funded at closing, and a $75.0
million increase in our revolving credit line. The "as adjusted" number
reflects the receipt of the proceeds from the $50.0 million term loan and
the expected use of proceeds of the offering to repay our outstanding
revolving bank loans. The "as adjusted" number also gives effect to consent
and financing fees paid in connection with the amendment to our senior
credit facility. We expect the actual amount of borrowings outstanding
under the revolving credit line as of the closing of this offering to be
greater than the amount outstanding at September 30, 1999, as we continue
to borrow to finance our business plan.
(b) The "as adjusted" number does not include (1) 3,057,248 shares of Class A
common stock issuable upon exercise of outstanding stock options, (2)
884,543 shares that are reserved for issuance upon exercise of options that
may be granted in the future under our 1999 Equity Participation Plan, (3)
470,138 shares that are reserved for issuance under our 1999 Employee Stock
Purchase Plan or (4) 402,500 shares issuable upon exercise of the
outstanding warrant that we granted to Deutsche Bank Securities Inc.
(c) The "as adjusted" number also does not include the 320,000 or 400,000
additional shares of Class A common stock that are issuable to the former
shareholders of Com-Net if 1999 and 2000 EBITDA targets established in
connection with the acquisition of that company are met.
(d) Assumes that we do not sell any shares of Class A common stock upon
exercise of the over-allotment option. We have agreed that if any or all of
the selling shareholders decide not to sell their shares upon exercise of
the over-allotment option, we will issue any shares necessary to satisfy
the option.
17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
are based on our historical financial statements during the periods presented.
The unaudited pro forma consolidated statements of operations give effect to
the pro forma transactions, which are (1) all individually immaterial
acquisitions completed during the year ended December 31, 1998 and nine months
ended September 30, 1999, (2) the issuance of Class A common stock in our 1999
initial public offering and the application of those net proceeds and (3) the
issuance of Class A common stock in this offering and the application of the
net proceeds as described under "Use of Proceeds," as if each had occurred as
of the beginning of the periods presented. The unaudited pro forma consolidated
balance sheet as of September 30, 1999 gives pro forma effect to the issuance
of the Class A common stock in this offering and the application of the net
proceeds from the offering and the December 16, 1999 amendment to our senior
credit facility that increased our term loan outstanding by $50.0 million as if
each had occurred on September 30, 1999. The pro forma adjustments are
described in the accompanying notes and are based upon available information
and certain assumptions that we believe are reasonable.
These pro forma financial statements are for informational purposes only and
do not purport to present what our results of operations or financial condition
would actually have been had these transactions actually occurred on such dates
or to project our results of operations or financial condition for any future
date or period. You should read the pro forma financial statements and their
related notes together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus and
the Consolidated Financial Statements and their related notes incorporated by
reference in this prospectus.
18
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
Pro
Adjustments Adjustments Adjustments Forma
for Completed for Initial for this as
Historical Acquisitions(a) Public Offering Offering Adjusted
---------- --------------- --------------- ----------- ----------
(dollars in thousands except per share data)
Revenues:
Site development...... $ 46,705 $19,416 $ -- $ -- $ 66,121
Site leasing.......... 12,396 8,057 -- -- 20,453
--------- ------- ------ ------ ----------
Total revenues...... 59,101 27,473 -- -- 86,574
--------- ------- ------ ------ ----------
Cost of revenues
(exclusive of
depreciation shown
below):
Site development...... 36,500 16,804 -- -- 53,304
Site leasing.......... 7,281 1,501 -- -- 8,782
--------- ------- ------ ------ ----------
Total cost of revenues.. 43,781 18,305 -- -- 62,086
--------- ------- ------ ------ ----------
Gross profit............ 15,320 9,168 -- -- 24,488
Selling, general and
administrative......... 18,302 2,642 -- -- 20,944
Depreciation and
amortization........... 5,802 6,662 -- -- 12,464
--------- ------- ------ ------ ----------
Operating loss.......... (8,784) (136) -- -- (8,920)
Interest income......... 4,303 -- (223)(b) -- 4,080
Interest expense........ (2,357) (317) 178(c) -- (c) (2,496)
Non-cash amortization of
original issue discount
and debt issuance
costs.................. (14,550) -- -- -- (14,550)
Other................... (37) 410 -- -- 373
--------- ------- ------ ------ ----------
Loss before income
taxes.................. (21,425) (42) (46) -- (21,513)
Benefit for income
taxes.................. 1,524 -- -- -- 1,524
--------- ------- ------ ------ ----------
Net loss................ (19,901) (42) (46) -- (19,989)
Dividends on preferred
stock.................. (2,575) -- 2,575(d) -- --
--------- ------- ------ ------ ----------
Net loss available to
common stockholders.... $ (22,476) $ (42) $2,529 $ -- $ (19,989)
========= ======= ====== ====== ==========
Basic and diluted loss
per common share....... $ (2.64) $ (0.55)
========= ==========
Basic and diluted
weighted average number
of shares of common
stock.................. 8,526,052 36,480,352
========= ==========
- --------
(a) Reflects the historical, pre-acquisition results of operations (in the
aggregate) for all individually immaterial acquisitions completed by us
for the year ended December 31, 1998 and nine months ended September 30,
1999 and the increase in pro forma depreciation on tower assets acquired
resulting from our application of purchase accounting.
(b) Reflects a reduction of interest income related to the repayment of a
shareholder loan.
(c) Reflects a reduction of pro forma interest expense resulting from the use
of a portion of the net proceeds from the initial public offering to repay
all amounts outstanding under our previous credit facility assuming such
transaction was completed as of January 1, 1998.
(d) Reflects elimination of dividends on preferred stock as a result of the
conversion of the Series A preferred stock into Class A common stock.
19
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1999
Pro
Adjustments Adjustments Adjustments Forma
for Completed for Initial for this as
Historical Acquisitions(a) Public Offering Offering Adjusted
----------- --------------- --------------- ----------- -----------
(dollars in thousands except per share data)
Revenues:
Site development....... $ 39,723 $ 9,763 $ -- $ -- $ 49,486
Site leasing........... 18,009 2,464 -- -- 20,473
----------- ------- ----- ----- -----------
Total revenues........ 57,732 12,227 -- -- 69,959
----------- ------- ----- ----- -----------
Cost of revenues
(exclusive of
depreciation shown
below):
Site development....... 30,322 8,171 -- -- 38,493
Site leasing........... 8,393 490 -- -- 8,883
----------- ------- ----- ----- -----------
Total cost of
revenues............. 38,715 8,661 -- -- 47,376
----------- ------- ----- ----- -----------
Gross profit......... 19,017 3,566 -- -- 22,583
Selling, general and
administrative......... 13,714 1,343 -- -- 15,057
Depreciation and
amortization........... 10,983 2,074 -- -- 13,057
----------- ------- ----- ----- -----------
Operating loss....... (5,680) 149 -- -- (5,531)
Interest income......... 767 -- (92)(b) -- 675
Interest expense........ (3,240) (100) 736 (c) 465(c) (2,139)
Non-cash amortization of
original issue discount
and debt issuance
costs.................. (16,205) -- -- -- (16,205)
Other................... 28 -- -- -- 28
----------- ------- ----- ----- -----------
Income (loss) before
income taxes and
extraordinary item..... (24,330) 49 644 465 (23,172)
Benefit (provision) for
income taxes........... 403 (34) -- -- 369
----------- ------- ----- ----- -----------
Net loss before
extraordinary item..... (23,927) 15 644 465 (22,803)
Extraordinary item...... (1,150) -- -- -- (1,150)
----------- ------- ----- ----- -----------
Net loss................ (25,077) 15 644 465 (23,953)
Dividends on preferred
stock.................. 733 -- (733)(d) -- --
----------- ------- ----- ----- -----------
Net loss available to
common stockholders.... $ (24,344) $ 15 $ (89) $ 465 $ (23,953)
=========== ======= ===== ===== ===========
Basic and diluted loss
per common share before
extraordinary item..... $ (1.42) $ (0.61)
Extraordinary item (0.07) (0.03)
----------- -----------
Basic and diluted loss
per common share....... $ (1.49) $ (0.64)
=========== ===========
Basic and diluted
weighted average number
of shares of common
stock.................. 16,348,073 37,342,141
=========== ===========
- --------
(a) Reflects the historical, pre-acquisition results of operations (in the
aggregate) for all individually immaterial acquisitions completed by us
for the nine months ended September 30, 1999 and the increase in pro forma
depreciation on tower assets acquired resulting from our application of
purchase accounting.
(b) Reflects a reduction of interest income related to the repayment of a
shareholder loan.
(c) Reflects a reduction of pro forma interest expense resulting from the use
of a portion of the net proceeds from the initial public offering and this
offering to repay all amounts outstanding under our senior credit facility
assuming such transactions were completed as of January 1, 1999.
(d) Reflects elimination of dividends on preferred stock as a result of the
conversion of the Series A preferred stock into Class A common stock.
20
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1999
Adjustments for Pro
Increase in Forma
Adjustments for Senior Credit as
Historical Offering Facility Adjusted
---------- --------------- --------------- --------
(dollars in thousands)
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2,705 $ 179,077(a)(b) $42,269(c) $224,051
Accounts receivable... 20,598 -- -- 20,598
Prepaid and other
current assets....... 6,519 -- -- 6,519
Cost and estimated
earnings in excess of
billings on
uncompleted
contracts............ 2,523 -- -- 2,523
-------- --------------- ------- --------
Total current
assets............. 32,345 179,077 42,269 253,691
Property and equipment,
net.................... 284,509 -- -- 284,509
Intangible assets, net.. 16,154 -- -- 16,154
Other assets............ 14,176 -- 7,731(c) 21,907
-------- --------------- ------- --------
Total assets........ $347,184 $ 179,077 $50,000 $576,261
======== =============== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 28,842 $ -- $ -- $ 28,842
Accrued expenses...... 5,246 -- -- 5,246
Accrued salaries and
payroll taxes........ 2,084 -- -- 2,084
Notes payable and
lines of credit...... 50 (50)(b) -- --
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............ 1,294 -- -- 1,294
Other current
liabilities.......... 3,150 -- -- 3,150
-------- --------------- ------- --------
Total current
liabilities........ 40,666 (50) -- 40,616
-------- --------------- ------- --------
Other liabilities:
Deferred tax
liabilities.......... 3,174 -- -- 3,174
Notes payable......... 75,188 (50,188)(b) 50,000(c) 75,000
Senior discount
notes................ 180,674 -- -- 180,674
Other long-term
liabilities.......... 710 -- -- 710
-------- --------------- ------- --------
Total long-term
liabilities........ 259,746 (50,188) 50,000 259,558
-------- --------------- ------- --------
Redeemable preferred
stock
Stockholders' equity:
Common stock Class A.... 211 90 -- 301
Class B........... 76 -- -- 76
Additional paid in
capital.............. 97,729 229,225(a) -- 326,954
Accumulated deficit... (51,245) -- -- (51,245)
-------- --------------- ------- --------
Total stockholders'
equity............. 46,772 229,315 -- 276,087
-------- --------------- ------- --------
Total liabilities
and stockholders'
equity............. $347,184 $ 179,077 $50,000 $576,261
======== =============== ======= ========
- --------
(a) Reflects the estimated net proceeds from the offering of approximately
$229.3 million, which is net of the estimated underwriting discount and
offering expenses totaling approximately $13.7 million and amounts paid
related to outstanding debt.
(b) Reflects use of proceeds from the offering to repay approximately $50.0
million of revolving loans and approximately $0.2 million of installment
loans of Com-Net.
(c) Reflects the December 16, 1999 amendment to our senior credit facility that
increased our term loan outstanding from $25.0 million at September 30,
1999 to $75.0 million at December 16, 1999. The balance sheet amounts give
effect to consent and financing fees paid in connection with the amendment
to our senior credit facility. We expect the actual amount of borrowings
outstanding under the revolving credit line as of the closing of this
offering to be greater than the amount outstanding at September 30, 1999 as
we continue to borrow to finance our business plan.
21
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and as of
September 30, 1999 and for the nine months ended September 30, 1998 and 1999.
The financial data for each of the full fiscal years have been derived from,
and are qualified by reference to, our audited financial statements, which
Arthur Andersen LLP, our independent certified public accountants, have
audited. The financial data set forth below as of September 30, 1999 and for
the nine months ended September 30, 1998 and 1999, have been derived from our
unaudited consolidated financial statements. The financial statements for
periods ending on or prior to December 31, 1996 are the combined financial
statements of SBA, Inc. and SBA Leasing, Inc., two predecessor companies that
we acquired during the first quarter of 1997. You should read the information
set forth below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus and the Consolidated Financial Statements and their related notes
incorporated by reference in this prospectus.
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- ------- ---------- ---------- -----------
(dollars in thousands except per share data)
(unaudited)
Operating Data:
Revenues:
Site development
revenue............... $10,604 $22,700 $ 60,276 $48,241 $ 46,705 $ 33,624 $ 39,723
Site leasing revenue... 896 2,758 4,530 6,759 12,396 8,132 18,009
------- ------- -------- ------- ---------- ---------- -----------
Total revenues.......... 11,500 25,458 64,806 55,000 59,101 41,756 57,732
------- ------- -------- ------- ---------- ---------- -----------
Cost of revenues
(exclusive of
depreciation shown
below):
Cost of site
development revenue... 7,358 13,993 39,822 31,470 36,500 26,015 30,322
Cost of site leasing
revenue............... 647 2,121 3,638 5,356 7,281 5,039 8,393
------- ------- -------- ------- ---------- ---------- -----------
Total cost of revenues.. 8,005 16,114 43,460 36,826 43,781 31,054 38,715
------- ------- -------- ------- ---------- ---------- -----------
Gross profit............ 3,495 9,344 21,346 18,174 15,320 10,702 19,017
Selling, general and
administrative(a)(b)... 1,627 5,968 17,754 12,033 18,302 13,127 13,714
Depreciation and
amortization........... 5 73 160 514 5,802 2,804 10,983
------- ------- -------- ------- ---------- ---------- -----------
Operating income
(loss)................. 1,863 3,303 3,432 5,627 (8,784) (5,229) (5,680)
Interest income......... 2 6 7 644 4,303 3,374 767
Interest expense........ (19) (11) (139) (407) (2,357) -- (3,240)
Non cash amortization of
original issue discount
and debt issuance
costs.................. -- -- -- -- (14,550) (10,811) (16,205)
Other................... -- -- -- -- (37) -- 28
------- ------- -------- ------- ---------- ---------- -----------
Income (loss) before
income taxes and
extraordinary item..... 1,846 3,298 3,300 5,863 (21,425) (12,667) (24,330)
(Provision) benefit for
income taxes(c)........ (738) (1,319) (1, 320) (5,596) 1,524 -- 403
------- ------- -------- ------- ---------- ---------- -----------
Net income (loss) before
extraordinary item..... 1,108 1,979 1,980 267 (19,901) (12,667) (23,927)
Extraordinary item...... -- -- -- -- -- -- (1,150)
------- ------- -------- ------- ---------- ---------- -----------
Net income (loss)....... 1,108 1,979 1,980 267 (19,901) (12,667) (25,077)
Dividends on preferred
stock.................. -- -- -- (983) (2,575) (1,862) 733
------- ------- -------- ------- ---------- ---------- -----------
Net income (loss)
available to common
shareholders........... $ 1,108 $ 1,979 $ 1,980 $ (716) $ (22,476) $ (14,529) $ (24,344)
======= ======= ======== ======= ========== ========== ===========
Basic and diluted loss
per common share before
extraordinary item..... $ (2.64) $ (1.73) $ (1.42)
Extraordinary item...... -- -- (0.07)
---------- ---------- -----------
Basic and diluted loss
per common share....... $ (2.64) $ (1.73) $ (1.49)
========== ========== ===========
Basic and diluted
weighted average number
of shares of common
stock.................. 8,526,052 8,407,238 16,348,073
========== ========== ===========
Other Data:
Adjusted EBITDA(d)...... $ 1,868 $ 3,376 $ 10,603 $ 7,155 $ (2,377) $ (2,281) $ 5,490
Annualized tower cash
flow(e)................ 344 752 991 1,947 8,088 5,634 15,488
Net cash provided by
(used in) operating
activities............. 873 (533) 1,215 7,829 7,471 16,422 11,463
Net cash used in
investing activities... (51) (660) (145) (17,676) (138,124) (103,561) (147,973)
Net cash provided by
(used in) financing
activities............. (689) 1,298 (1,036) 15,645 151,286 133,527 112,472
Towers owned at the
beginning of period.... -- -- -- -- 51 51 494
Towers constructed...... -- -- -- 15 310 233 288
Towers acquired......... -- -- -- 36 133 80 174
Total towers at the end
of period.............. -- -- -- 51 494 364 956
- -------
(Footnotes on following page)
22
As of December 31, As of
----------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- -------- --------------
Balance Sheet Data (at
end of period) (unaudited)
(dollars in thousands):
Property, plant and
equipment (net)........ $ 61 $ 647 $ 632 $17,829 $150,946 $284,509
Total assets............ 2,610 7,429 18,060 44,797 214,573 347,184
Total debt(f)........... 1 1,500 4,921 10,184 182,573 255,912
Redeemable preferred
stock.................. -- -- -- 30,983 33,558 --
Common stockholders'
equity (deficit)....... 1,745 4,793 102 (4,344) (26,095) 46,772
- --------
(a) For the year ended December 31, 1995, selling, general and administrative
expenses include cash compensation expense of $1.3 million representing the
amount of officer compensation in excess of what would have been paid had
the officer employment agreements entered into in 1997 been in effect
during that period. For the year ended December 31, 1996, selling, general
and administrative expenses include non-cash compensation expense of $7.0
million incurred in connection with the consolidation of the predecessor
companies and cash compensation expense of $4.9 million representing the
amount of officer compensation in excess of what would have been paid had
the officer employment agreements entered into in 1997 been in effect
during that period. For the year ended December 31, 1997, selling, general
and administrative expenses include non-cash compensation expense of $1.0
million incurred in the consolidation of the predecessor companies. For the
year ended December 31, 1998, selling, general and administrative expenses
include non-cash compensation expense of $0.6 million incurred in
connection with the issuance of stock options and Class A common stock. For
the nine months ended September 30, 1999, selling, general and
administrative expenses include a non-cash compensation expense of $0.2
million incurred in connection with the issuance of stock options.
(b) Selling, general and administrative expenses include corporate development
expenses associated with our site leasing business that were incurred in
connection with the acquisition or construction of owned towers. These
expenses consist of compensation and overhead costs that are not directly
related to the administration or management of existing towers. All of
these costs are expensed as incurred.
(c) Provision for income taxes represents a pro forma calculation (40%) for the
years ended December 31, 1994, 1995 and 1996, when we were treated as an S
corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended. We converted to a C corporation in 1997. Provision for income
taxes for the year ended December 31, 1997 includes the tax effect of our
conversion to a C corporation.
(d) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly
used in the telecommunications industry to analyze companies on the basis
of operating performance, leverage and liquidity. Adjusted EBITDA excludes
the effect of the non-cash compensation expense referred to in footnote (a)
above. Adjusted EBITDA is not intended to represent cash flows for the
periods presented, nor has it been presented as an alternative to operating
income or as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Companies calculate Adjusted EBITDA differently and, therefore, Adjusted
EBITDA as presented for us may not be comparable to Adjusted EBITDA
reported by other companies. See our Consolidated Statements of Cash Flows
in our Consolidated Financial Statements incorporated by reference in this
prospectus.
(e) We define "tower cash flow" as site leasing revenue less cost of site
leasing revenue (exclusive of depreciation). Tower cash flow includes
deferred revenue attributable to certain leases. We believe tower cash flow
is useful because it allows you to compare tower performance before the
effect of expenses (selling, general and administrative) that do not relate
directly to tower performance. We define "annualized tower cash flow" as
tower cash flow for the last calendar quarter attributable to our site
leasing business multiplied by four. Pro forma annualized tower cash flow
also includes the effect of fourth quarter acquisitions as if each had
occurred at the beginning of the period presented.
(f) Total debt does not include amounts owed to the shareholder of $0.1 million
and $10.7 million as of December 31, 1995 and 1996, respectively. These
amounts were paid in March 1997.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. Our strategy is to use our historical
leadership position in the site development business, a project revenue
business, to expand our ownership and leasing of communication towers, a
recurring revenue business. We are transitioning our revenue stream from
project driven revenues more to recurring revenues through the leasing of
antenna space at or on communications facilities.
While we intend to continue to offer site development services to wireless
carriers and other telecommunications providers where demand and profitable
opportunities exist, we will emphasize our site leasing business through the
construction of owned towers for lease to wireless service providers, the
acquisition of existing sites and the leasing, subleasing and management of
other antennae sites. We believe that as the site development industry matures
and as wireless service providers choose to outsource ownership of
communication sites in order to conserve capital, our revenues and gross profit
from the site development consulting segment of that business will continue to
decline in the near term. We also believe that, over the longer term, site
leasing revenues will increase as carriers move to outsource tower ownership
and the number of towers we own grows.
As a result of these trends and the shift in focus of our business, our
earnings have declined in 1999 from prior periods and net interest expense,
depreciation, amortization and capital expenditures have increased sharply as
we accumulated towers. Our EBITDA, however, has increased in 1999 as compared
to 1998. Additionally, our capital expenditures may increase even more in 2000
as compared to 1999. We also anticipate that our operating expenses will remain
at or above current levels as we continue to construct and acquire tower
assets.
We derive our revenues from two businesses - site development and site
leasing. Our site development business consists of site development consulting
and site development construction. We provide site development services, both
consulting and construction, on a contract basis that is usually customer and
project specific. We generally charge for site development services on either a
time and materials basis or a fixed price basis. The majority of these services
are performed on a fixed fee basis. We also provide site leasing services on a
contract basis. Revenue from our site development business may fluctuate from
period to period depending on construction activities, which are a function of
our clients' build-out schedules, weather and other factors. Our antenna site
leases are typically long-term agreements with renewal periods. Leases are
generally paid on a monthly basis. Because of the low variable operating costs
of the site leasing business, additional tenants on a tower generate
disproportionately larger increases in tower cash flow.
We have focused our capital deployment on building new towers and "mom and
pop" acquisitions. Of the 1,163 towers we owned at December 31, 1999, 763 were
new builds. In general, we have chosen to build rather than buy the substantial
majority (64%) of our towers due to what we believe are more favorable
economics. To date, our construction cost of a new tower averages approximately
$225,000, while we believe the industry's average acquisition cost of a tower
over the last two years has been approximately $400,000. At December 31, 1999,
we had non-binding mandates from wireless service providers to build over 335
additional towers under build-to-suit programs, the majority of which we expect
will result in binding anchor tenant lease agreements. We believe we have one
of the largest numbers of non-binding build-to-suit mandates from wireless
service providers in the industry. We are also pursuing over 700 new strategic
builds in locations chosen by us based on our industry knowledge and
experience.
While we have focused primarily on new build towers for growth, we have also
acquired 400 towers as of December 31, 1999. Our acquisition strategy has
focused on small, "mom and pop" acquisition targets, those which we believe
offer better opportunities for value. We seek to acquire towers where we can,
through
24
additional tenant leases, increase cash flow to substantially reduce the tower
cash flow multiple from the multiple paid at acquisition. The 400 tower
acquisitions to date have been completed at an average acquisition price of
approximately $373,000 per tower and a 14.6 times multiple of annualized tower
cash flow to purchase price, or an aggregate purchase price of $149.4 million.
In addition to what we have already acquired, we are currently actively
negotiating to acquire existing towers. At December 31, 1999, we had letters of
intent or definitive agreements to acquire 94 towers in 23 separate
transactions for an aggregate purchase price of approximately $39.2 million, or
an average acquisition price of $417,000 per tower, and a 16.7 times multiple
of annualized tower cash flow to purchase price. We cannot assure you that we
will be able to close these transactions, or identify towers or tower companies
to acquire in the future.
On April 30, 1999, we acquired Com-Net Construction Services, Inc. Com-Net
provides turnkey construction services of towers and terminal switches
primarily throughout the mid-western, eastern and western United States and for
the year ended December 31, 1998 had construction revenues of over $20.0
million. We issued 780,000 shares of our Class A common stock to the
shareholders of Com-Net, of which 480,000 shares have been pledged back to us
and are subject to forfeiture if the acquired company does not achieve certain
1999 earnings targets. In addition, the shareholders of Com-Net may receive up
to $2.5 million in cash and 320,000 additional shares of Class A common stock
if certain 1999 EBITDA targets are met by the acquired company and up to an
additional 400,000 shares of Class A common stock if certain 2000 EBITDA
targets are met.
On the same date, we acquired an affiliate of Com-Net, Com-Net Development
Group, LLC. Com-Net Development Group owned 18 completed or substantially
completed towers in Texas, Ohio and Tennessee and over 30 sites in various
stages of development under build-to-suit programs. We paid $1.0 million in
cash and assumed debt of approximately $2.5 million for Com-Net Development
Group.
Results of Operations
As we continue our transition into site leasing, operating results in prior
periods may not be meaningful predictors of future prospects. You should be
aware of the dramatic changes in the nature and scope of our business when
reviewing the ensuing discussion of comparative historical results. We expect
that the acquisitions consummated to date and any future acquisitions, as well
as our new tower builds, will have a material impact on future revenues,
expenses and net income. In particular, depreciation and amortization and net
interest expense increased significantly in the period ended September 30, 1999
over the year earlier period, and are expected to continue to increase
significantly in future periods. We believe that our new tower builds will have
a material effect on future operations, which effect will probably be negative
until the time, if ever, that the newly constructed towers attain higher levels
of tenant use.
Nine Months of 1999 Compared to Nine Months of 1998
Total revenues increased 38.3% to $57.7 million for the nine months of 1999
from $41.8 million for the first nine months of 1998 due to increases in both
site development and site leasing revenue. Site development revenue increased
18.1% to $39.7 million in the first nine months of 1999 from $33.6 million in
the first nine months of 1998 due to increased site development construction
revenue, which more than offset a decrease in site development consulting
revenue. Site development consulting revenue decreased 43.6% to $12.8 million
for the first nine months of 1999 from $22.6 million for the first nine months
of 1998, due primarily to the decreased demand for site acquisition and zoning
services from PCS licensees stemming from the increasing acceptance by wireless
carriers of outsourced communication site infrastructure through build-to-suit
programs. Site development construction revenue increased 144.5% to $27.0
million for the first nine months of 1999 from $11.0 million for 1998, due
primarily to the acquisition of Com-Net on April 30, 1999 as well as the
expanded activities of our CSSI construction company subsidiary. Site leasing
revenue increased 121.5% to $18.0 million for the first nine months of 1999
from $8.1 million for the first nine months of 1998, due primarily to the
substantially greater number of towers in our portfolio during the first nine
months of 1999 compared to the first nine months of 1998 and new tenant leases
added to our towers.
25
Total cost of revenue increased 24.7% to $38.7 million for the first nine
months of 1999 from $31.1 million for the first nine months of 1998. A greater
rate of increase in revenues offset the increase in cost of revenues and
resulted in improved gross profit margin. Site development cost of revenue
increased 16.6% to $30.3 million in the first nine months of 1999 from $26.0
million in the first nine months of 1998 due to an increased level of activity.
Site development consulting cost of revenue decreased 51.0% to $8.9 million for
the first nine months of 1999 from $18.2 million for the first nine months of
1998 due primarily to a decreased level of activity. Site development
construction cost of revenue increased to $21.4 million for the first nine
months of 1999 from $7.8 million for the first nine months of 1998, due
primarily to the acquisition of Com-Net as well as increased revenues from
CSSI. Site leasing cost of revenue increased 66.6% to $8.4 million for the
first nine months of 1999 from $5.0 million for the first nine months of 1998,
due primarily to the increased number of towers owned resulting in an increased
amount of ground lease payments.
Gross profit increased 77.7% to $19.0 million for the first nine months of
1999 from $10.7 million for the first nine months of 1998, due to increased
revenue and higher margins. Gross profit from site development increased 23.5%
to $9.4 million in the first nine months of 1999 from $7.6 million in the first
nine months of 1998 due to higher site development construction gross profit
which more than offset decreased site development consulting gross profit. Site
development consulting gross profit declined primarily due to decreased
revenue. Gross profit margin on site development consulting increased in the
first nine months of 1999 to 30% from 19% in the first nine months of the 1998
period. This increase is attributable to a changing mix in the timing of
projects, as the earlier phases of consulting projects tend to be more
profitable. Gross profit margin on site development construction dropped in the
first nine months of 1999 to 21% from 29% in the first nine months of 1998,
reflecting the integration of Com-Net which has historically had gross profit
margins in the 15%-20% range and the use by CSSI of more subcontract labor
required by greater levels of activity. During September 1999, as part of its
bankruptcy liquidation proceeding, Conxus rejected subleases of ours.
Annualized revenues associated with these leases were approximately $1.0
million and our total remaining payment obligations on the primary leases
associated with the Conxus subleases are approximately $1.0 million. Some or
all of the remaining obligations would be immediately expensed if we were
unable to re-lease the space and/or terminate the primary leases. However, we
believe that we will be able to re-lease some or all of the space and/or
terminate the primary leases on a timely basis, resulting in an amount to be
expensed in the fourth quarter of 1999 which is significantly lower than the
total remaining obligations.
Gross profit for the site leasing business increased 210.9% to $9.6 million
in the first nine months of 1999 from $3.1 million in the first nine months of
the 1998 period, and site leasing gross profit margin improved to 53% in the
first nine months of 1999 from 38% in the first nine months of 1998. The
increased gross profit and improved margin were both due to the substantially
greater number of towers owned in the first nine months of the 1999 period and
the lease-up of our towers with additional tenants. As a percentage of total
revenues, gross profit increased to 32.9% of total revenues in the first nine
months of 1999 from 25.6% in the first nine months of 1998 due primarily to
increased levels of site leasing revenues and higher margins in site leasing
gross profit.
Selling, general and administrative expenses increased 4.5% to $13.7 million
for the first nine months of 1999 as compared to $13.1 million for the first
nine months of 1998. This increase is primarily attributable to the additional
selling and administrative expenses associated with Com-Net. As a percentage of
total revenues, selling, general and administrative expenses decreased to 23.8%
for the first nine months of 1999 from 31.4% in the first nine months of 1998.
Depreciation and amortization increased to $11.0 million for the first nine
months of 1999 as compared to $2.8 million for the first nine months of 1998.
This increase is directly related to the increased amount of fixed assets
(primarily towers) we owned in the first nine months of 1999 as compared to the
first nine months of 1998.
Operating loss increased to $(5.7) million for the first nine months in 1999
from $(5.2) million for the first nine months of 1998 as a result of increased
depreciation and amortization expenses in the first nine months of
26
1999, which more than offset increased gross profits. Other income (expense)
increased to $(18.7) million for the first nine months of 1999 from $(7.4)
million for the first nine months of 1998. This increase resulted primarily
from the non-cash amortization of original issue discount associated with our
senior discount notes and greater interest expense associated with outstanding
borrowings under the senior credit facility in 1999. Net loss was $(25.1)
million for the first nine months of 1999 as compared to a net loss of $(12.7)
million for the first nine months of 1998 due to increased depreciation,
amortization and net interest expense. The extraordinary item in the first nine
months of 1999 of $1.1 million relates to the write-off of deferred financing
fees associated with a prior bank credit agreement.
Basic and diluted loss per common share decreased to ($1.49) for the first
nine months of 1999 from $(1.73) for the first nine months of 1998. This
decrease was attributable to the increased weighted average number of shares in
the first nine months of 1999 as compared to the first nine months of 1998.
1998 Compared to 1997
Total revenues increased 7.5% to $59.1 million for 1998 from $55.0 million
for 1997. Total site development revenue decreased 3.2% to $46.7 million in
1998 from $48.2 million in 1997 due to a substantial decline in site
development consulting revenue, which was largely offset by a substantial
increase in site development construction revenue. Site development consulting
revenue decreased 41.6% to $27.4 million for 1998 from $47.0 million for 1997,
due primarily to the decreased demand for site acquisition and zoning services
from PCS licensees, as well as the increasing acceptance by wireless carriers
of outsourced communication site infrastructure through build-to-suit programs.
Site development construction revenue increased to $19.3 million for 1998 from
$1.2 million for 1997, due to the acquisition of CSSI in September 1997 and
higher levels of activity. Site leasing revenue increased 83.4% to $12.4
million for 1998 from $6.8 million for 1997, due to a substantial number of
revenue producing towers added during the period through new builds and
acquisitions.
Total cost of revenues increased 18.9% to $43.8 million for 1998 from $36.8
million for 1997. Site development cost of revenue increased 16.0% to $36.5
million in 1998 from $31.5 million in 1997 due to a substantial increase in
site development construction cost of revenue, which was partially offset by a
decrease in site development consulting cost of revenue. Site development
consulting cost of revenue decreased 28.5% to $21.9 million for 1998 from $30.6
million for 1997, due to a decreased level of activity. Site development
construction cost of revenue increased to $14.6 million for 1998 from $0.8
million for 1997, due again to the inclusion of the construction subsidiary for
a full twelve months in 1998 versus three months in 1997. Site leasing cost of
revenue increased 35.9% to $7.3 million for 1998 from $5.4 million for 1997,
due primarily to the increased volume of towers owned resulting in an increased
amount of lease payments to land owners.
Gross profit decreased 15.7% to $15.3 million for 1998 from $18.2 million for
1997, due to the decrease in site development consulting revenue and lower
margins earned on such revenue, which more than offset gross profits from
increased site development construction and site leasing. Gross profit for site
development consulting services decreased 66.1% to $5.6 million for 1998 from
$16.4 million for 1997. The lower gross profit margins experienced in 1998 were
due to more work being performed on a fixed fee basis and the completion of a
number of large projects on which we experienced proportionately higher
expenses than in the earlier stages of a project. Gross profit for site
development construction services increased to $4.7 million for 1998 from $0.4
million for 1997 due to higher revenue. Gross profit for the site leasing
business increased 264.6% to $5.1 million for 1998 from $1.4 million for 1997
due primarily to higher revenue but also due to higher gross profit margins
earned on towers owned as opposed to the margins earned on our lease/sublease
business which contributed most of our 1997 site leasing revenue. As a
percentage of total revenues, gross profit decreased to 25.9% for 1998 as
compared to 33.0% for 1997 due to significantly lower site development
consulting gross profit.
Selling, general and administrative expenses increased 52.1% to $18.3 million
for 1998 from $12.0 million for 1997 primarily due to the addition of
personnel, the expansion of office space and overall increases in
27
operating expenses attributable to the growth in the organization and building
of our tower development infrastructure. As a percentage of total revenues,
selling, general and administrative expenses increased to 31.0% for 1998 from
21.9% in 1997.
Depreciation and amortization increased to $5.8 million for 1998 as compared
to $0.5 million for 1997. This increase was directly related to the increased
amount of fixed assets, primarily towers, we owned in 1998 as compared to 1997.
Operating income (loss) decreased to $(8.8) million for 1998 from $5.6
million for 1997 as a result of the factors discussed above. Other income
(expense) decreased to $(12.6) million for 1998 from $0.2 million for 1997.
This decrease resulted primarily from the interest expense associated with the
senior discount notes offset by interest income that was earned on cash
balances. Net income (loss) was $(19.9) million for 1998 as compared to net
income of $0.3 million for 1997.
Liquidity and Capital Resources
SBA Communications Corporation is a holding company with no business
operations of its own. Our only significant asset is the outstanding capital
stock of our subsidiaries. We conduct all our business operations through our
subsidiaries. Accordingly, our only source of cash to pay our obligations is
distributions with respect to our ownership interest in our subsidiaries from
the net earnings and cash flow generated by these subsidiaries. We cannot
assure you that our subsidiaries will generate sufficient cash flow to pay a
dividend or distribute funds or that we will be permitted to pay any dividends
under the terms of the senior credit facility.
Net cash provided by operations during the nine months ended September 30,
1999 was $11.5 million compared to $16.4 million in 1998. Net cash used in
investing activities for 1999 was $148.0 million compared to $103.6 million for
1998. This increase is attributable to a higher level of tower acquisition and
new build activity in 1999 versus 1998. Net cash provided from financing
activities for 1999 was $112.5 million compared to $133.5 million for 1998. The
1999 amount includes the proceeds from our initial public offering of Class A
common stock, while the 1998 amount includes the proceeds of the senior
discount notes.
Our balance sheet reflected negative working capital of $(8.3) million as of
September 30, 1999, as compared to positive working capital of $8.1 million as
of December 31, 1998.
During February 1999, we entered into a senior credit facility, through our
Telecommunications subsidiary, with a group of lenders, which was amended and
restated on December 16, 1999 to increase the amount of the facility and to
make certain other amendments, including changes to the financial covenants.
Our senior credit facility, as amended, consists of two term loans in an
aggregate amount of $75.0 million and a $225.0 million revolving line of
credit. Availability under the senior credit facility is determined by a number
of factors, including the number of towers built by us with anchor tenants on
the date of completion, the financial performance of our other towers, site
development and construction segments, as well as by other financial covenants,
financial ratios and other conditions. The revolving line of credit and the
$25.0 million term loan mature on December 31, 2004 and reduced availability of
the revolving credit commitments and amortization of the term loan begins on
March 31, 2001. The $50.0 million term loan matures on December 31, 2005 and
amortization of this term loan begins on March 31, 2002. Borrowings under the
senior credit facility bear interest at the eurodollar rate plus a margin
ranging from 2.25% to 3.50% (determined by a leverage ratio) or a "base rate"
(as defined in the senior credit facility) plus a margin ranging from 1.25% to
2.50% (determined by a leverage ratio). The senior credit facility is secured
by substantially all of the assets of Telecommunications and its direct and
indirect subsidiaries and requires Telecommunications to maintain certain
financial covenants and places restriction on, among other things, the
incurrence of debt and liens, disposition of assets, transactions with
affiliates and certain investments. Deferred financing fees related to
obtaining and expanding the senior credit facility were approximately $7.7
million. To permit us to increase the amount of our senior credit facility we
solicited and received consents from the holders of our senior discount
28
notes and paid to these holders $5.3 million in connection with these consents.
As of September 30, 1999, we had approximately $113.0 million of total
availability under the senior credit facility, of which $75.0 million has been
borrowed.
In June 1999, we completed an initial public offering of 11.3 million shares
of Class A common stock. We raised $101.7 million, which produced net proceeds
after deduction of the underwriting discount and estimated offering expenses of
$93.7 million. We used approximately $32.8 million of these net proceeds to pay
all outstanding dividends on all outstanding shares of our Series A preferred
stock and to redeem all shares of our Series B preferred stock. We also used
$46.0 million to repay all revolving credit loans under the senior credit
facility. Remaining proceeds were used for the construction and acquisition of
towers and for general working capital purposes. As a result of our initial
public offering, all 8,050,000 shares of Series A preferred stock were
converted into 8,050,000 shares of Class A common stock and we no longer have
any shares of preferred stock outstanding.
In the event that the business acquired in the Com-Net acquisition achieves
certain EBITDA targets in 1999 and 2000, we may be obligated to issue up to
720,000 additional shares of Class A common stock.
We currently anticipate building a significant number of towers for which we
have non-binding mandates pursuant to our build-to-suit program or pursuant to
our strategic site initiatives. We also intend to continue to explore
opportunities to acquire additional towers, tower companies and/or related
businesses. The exact amount of our future capital expenditures will depend on
a number of factors. Our future capital expenditures will depend in part upon
acquisition opportunities that become available during the period, the needs of
our build-to-suit customers and the availability to us of additional debt or
equity capital on acceptable terms. Our cash capital expenditures for the nine
months ended September 30, 1999 were $148.0 million. We currently estimate that
we will have made at least $50.0 million of cash capital expenditures during
the fourth quarter of 1999 for the construction and acquisition of
communication sites, primarily towers, and the cash portion of the contingent
purchase price payment related to the acquisition of Com-Net. We currently plan
to make cash capital expenditures in 2000 of at least $150.0 million to $200.0
million. Substantially all of these planned capital expenditures are expected
to be funded by borrowings under our senior credit facility, the anticipated
proceeds from this offering and cash flow from operations. In the event that
there is not sufficient availability under the senior credit facility when an
acquisition or construction opportunity arises, we would be required to seek
additional debt or equity financing. We cannot assure you that any required
financing will be available on commercially reasonable terms or at all or that
any additional debt financing would be permitted by the terms of our existing
indebtedness. In addition, we have recently filed with the Commission a shelf
registration onForm S-4 registering 1,000,000 shares of Class A common stock
which we may issue in connection with the acquisition of towers or related
businesses.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any of our debt
obligations, or to fund planned capital expenditures, will depend on our future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Our business strategy contemplates substantial capital
expenditures in connection with our planned tower build-out and acquisitions.
Based on our current operations and anticipated revenue growth, we believe
that, if our business strategy is successful, cash flow from operations,
available borrowings under the senior credit facility and the anticipated net
proceeds from this offering will be sufficient to fund all anticipated cash
capital expenditures through the middle of 2001. Thereafter, however, or in the
event we exceed our currently anticipated capital expenditures, we anticipate
that we will need to seek additional equity or debt financing to fund our
business plan. Failure to obtain any new required financing could require us to
significantly reduce our planned capital expenditures and scale back the scope
of our tower build-out or acquisitions, either of which could have a material
adverse effect on our financial condition or results of operations. In
addition, we may need to refinance all or a portion of our indebtedness,
including the senior discount notes and/or the senior credit facility, on or
prior to its scheduled maturity. We cannot assure you that we will generate
sufficient cash flow from operations in the future, that anticipated revenue
growth will be realized or that future borrowings or equity contributions will
be available
29
in amounts sufficient to service our indebtedness and make anticipated capital
expenditures. In addition, we cannot assure you that we will be able to effect
any required refinancing of our indebtedness, including our senior discount
notes, on commercially reasonable terms or at all.
Year 2000
During 1999, we implemented a new financial system. The system is certified
as Year 2000 compliant. As of the date of this prospectus, all of our systems
are operating and we have not experienced any material Year 2000 issues. At
this time, we are unaware of any third party Year 2000 issues that would
materially affect our financial condition.
Inflation
The impact of inflation on our operations has not been significant to date.
However, we cannot assure you that a high rate of inflation in the future will
not adversely affect our operating results.
Cautionary Information Regarding Forward-Looking Statements
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Discussions containing forward-looking statements may be found in the material
set forth in this section and under "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Industry Overview" and "Business," as well as in the prospectus generally.
These statements concern expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Specifically, this prospectus contains
forward-looking statements regarding:
. our business strategy to transition our business from site development
services toward the site leasing business, including our intent to make
strategic acquisitions of towers and tower companies;
. anticipated trends in the maturation of the site development industry
and its effect on our revenues and profits;
. our estimates regarding the future development of the site leasing
industry and its effect on our site leasing revenues;
. our plan to continue to construct and acquire tower assets and the
resulting effect on our revenues, capital expenditures, expenses and net
income;
. our ability to successfully conclude letters of intent or definitive
agreements for newly built towers or acquisitions of existing towers and
the resulting effect on our financial operations;
. the effect on our financial operations of Conxus rejecting certain of
their subleases with us pursuant to their bankruptcy proceedings;
. our estimate of the amount of capital expenditures for fiscal year 2000
that will be required for the construction or acquisition of
communications sites and the contingent share issuance related to the
acquisition of Com-Net; and
. our intention to fund capital expenditures for fiscal year 2000 from
cash from operations, borrowings under our senior credit facility and
the proceeds of this offering.
These forward-looking statements reflect our current views about future events
and are subject to risks, uncertainties and assumptions. We wish to caution
readers that certain important factors may have affected and could in the
future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most
important factors that could prevent us from achieving our goals, and cause the
assumptions underlying forward-looking statements and the actual results to
differ
30
materially from those expressed in or implied by those forward-looking
statements include, but are not limited to, the following:
. our ability to secure as many site leasing tenants as planned;
. our ability to expand our site leasing business and our site development
business;
. our ability to complete construction of new towers on a timely and cost-
efficient basis, including our ability to successfully address zoning
issues, carrier design changes, changing local market conditions and the
impact of adverse weather conditions;
. our ability to identify and acquire new towers, including our capability
to timely complete due diligence and obtain third party consents;
. our ability to retain current lessees on newly acquired towers;
. our ability to realize economies of scale for newly acquired towers;
. the continued dependence on towers by the wireless communications
industry;
. our ability to compete effectively for new tower opportunities in light
of increased competition; and
. our ability to raise substantial additional financing to expand our
tower holdings.
These and other risks and uncertainties affecting us are discussed in greater
detail in the "Risk Factors" section of this prospectus and in our other
filings with the Commission. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements included in this
document. We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
31
INDUSTRY OVERVIEW
General
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. In order to capitalize on the trend toward
colocation and independent tower ownership in this industry, we have
aggressively expanded our site leasing business by using our nationally
recognized site development experience and strong relationships with wireless
service providers to source opportunities to build and acquire communication
sites. The wireless communications industry continues to grow rapidly as
consumers become more aware of the benefits of wireless services, current
wireless technologies are used in more applications, the cost of wireless
services to consumers declines and new wireless technologies are developed.
Changes in U.S. federal regulatory policy, including the implementation of the
Telecommunications Act of 1996, have led to a significant number of new
competitors in the industry through the auction of frequency spectrum for a
wide range of uses, most notably PCS. This competition, combined with a growing
reliance on wireless voice services by consumers and the emergence of wireless
data and Internet services, has led to an increased demand for higher quality,
uninterrupted service and improved coverage. This demand for higher quality
service and coverage has led to increased demand for communication sites as new
providers build out their networks and existing providers upgrade and expand
their networks to maintain their competitiveness. We believe that, as the
wireless communications industry has become more competitive, wireless service
providers have outsourced certain network services and build-out activities and
colocated transmission equipment with other providers on multi-tenant towers,
in order to maximize their operating and capital efficiencies. The need for
colocation has also been driven by the growing trend by municipalities to slow
the proliferation of towers by requiring that towers accommodate multiple
tenants.
All of these factors have provided an opportunity for us to develop and own
communication sites, lease antenna space on these sites and provide related
network infrastructure and support services.
Development of the Tower Industry
The U.S. wireless communications industry was transformed in the 1970s
through the issuance of licenses by the FCC to provide high quality
communications services to vehicle-mounted and hand-held portable telephones,
pagers and other devices. The licensees built and began operating wireless
networks that were supported by communication sites, transmission equipment and
other infrastructure. In the early 1980s, the number of towers began to expand
significantly with the development of more advanced wireless communications
systems, particularly cellular and paging. Nevertheless, as additional towers
were built by the wireless carriers, they often were built for a single purpose
rather than as multiple tenant towers. In addition, these towers were generally
owned and maintained by carriers and were treated as corporate cost centers
operated primarily for the purpose of transmitting or receiving these carriers'
signals.
During the mid-to-late 1980s, a number of independent operators of towers
began to emerge. These independent tower operators focused on owning and
managing towers with multiple tenants by adding lessees to existing and
reconstructed towers. We believe the majority of these operators were small
business owners with a small number of local towers and few services other than
site leasing. In the last five years, however, several larger independent tower
operators have emerged as demand for wireless services has continued to grow
and as additional high frequency licenses have been awarded for new wireless
services (including PCS, wireless data and Internet, narrowband paging and
wireless local loop), each requiring networks with extensive tower
infrastructure. These independent tower operators have sought to acquire
smaller operators as well as clusters of towers formerly owned by carriers and
broadcasters.
Today, a variety of companies, including wireless voice and data carriers,
local and long distance telecommunications companies, broadcasting companies,
independent tower operators, utilities and railroad companies, own towers.
Despite the increasing demand for towers, the tower industry in the United
States remains highly fragmented, with only a few independent tower operators
owning a large number of towers. The
32
pace of consolidation has begun to accelerate, however, as the larger
independent operators continue to acquire small local operators and purchase
towers from wireless communications companies. In addition, wireless carriers
are building out new, or filling in existing, tower footprints for new and
existing wireless services. Independent operators have also expanded into a
number of associated network and communication site services, including the
design of communication sites and networks, the selection and acquisition of
tower and rooftop sites (including the resolution of zoning and permitting
issues) and the construction of towers. Previously, carriers typically handled
these services through in-house departments, and local nonintegrated service
contractors focused on specific segments such as site acquisition.
Networks and Towers
Wireless service providers require wireless transmission networks in order to
provide service to their customers. Each of these networks is configured
specifically to meet the coverage requirements of the particular provider and
includes transmission equipment such as antennas placed at various locations
throughout the service area. These locations, or communication sites, are
critical to the operation of a wireless network. A communication site may have
the capacity for multiple antenna installations, or antenna sites, depending on
the size and type of the communication site. The value of a tower generally
depends on its location and the number of antennas that it can support.
Set forth below is a diagram illustrating the basic functions of each of the
primary components of a "wireless network."
[GRAPHIC OF WIRELESS COMMUNICATIONS NETWORK]
Communication sites consist of towers, rooftops and other structures upon
which antennas are placed. A typical tower usually includes a compound
enclosing the tower and an equipment shelter (which houses a variety of
transmitting, receiving and switching equipment). The tower can be either a
self-supported or guyed model. There are two types of self-supported models,
the lattice and the monopole. A lattice model is usually tapered from the
bottom up and can have three or four sides of open-framed steel supports. A
monopole is a
33
free-standing tubular structure. Guyed towers gain their support capacity from
a series of guy cables attaching separate levels of the tower to anchor
foundations in the ground. Monopoles typically range in height from 50-200
feet, lattice towers can reach up to 1000 feet and guyed towers can reach 2000
feet or more.
Rooftop sites are more common in urban areas where tall buildings are
generally available and multiple communication sites are required because of
high wireless traffic density. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennas. In cases of high
population density, neither height nor extended radius of coverage are as
important and the installation of a tower structure may prove to be impossible
because of zoning restrictions, land cost and land availability. Antennas may
also be installed on structures such as electric transmission towers, silos,
water tanks, windmills and smokestacks.
Operation of Two-Way Wireless Systems
Wireless transmission networks use a variety of radio frequencies to transmit
voice and data. Wireless transmission networks include two-way radio
applications, such as cellular, wide band and narrow band PCS, ESMR and
wireless data and Internet networks, and one way radio applications, such as
paging services. Each application operates within a distinct radio frequency.
Although cellular represents the largest segment of the wireless communications
industry, other wireless technologies have emerged as important segments of
this industry.
Two-way wireless service areas are divided into multiple regions called
"cells," each of which contains a base station consisting of a low-power
transmitter, a receiver and signaling equipment, typically located on a tower.
The cells are usually configured in a grid pattern, although terrain factors
(including natural and man-made obstructions) and signal coverage patterns may
result in irregularly shaped cells and overlaps or gaps in coverage. Cellular
system cells generally have a radius ranging from two miles to 25 miles and PCS
system cells generally have a radius ranging from one-quarter mile to 12 miles,
depending on the PCS technology being used, installation, height and the
terrain. Growing demand for cell sites is one of the primary reasons for
growing demand for our services. The base station in each cell is connected by
microwave, fiber optic cable or telephone wires to a switch, which uses
computers and specially developed software to control the operation of the
wireless telephone system for its entire service area. The switch controls the
transfer of calls from cells within the system and connects calls to the local
landline telephone system or to a long distance telephone carrier.
Each wireless transmission network is planned to meet a certain level of
subscriber density and traffic demand in addition to providing a certain
geographic coverage. Each transmission requires a certain amount of radio
frequency, so a system's capacity is limited by the amount of frequency that is
available. Each separate transmitter can reuse the same frequency, subject to
certain interference limitations. The design of each wireless system involves
the placement of transmission equipment in locations, subject to availability,
that will make optimal use of available frequency based upon projected usage
patterns and the ability to use them for wireless transmission under applicable
zoning requirements.
34
Wireless Communications
The wireless communications industry now provides a broad range of services,
including cellular, PCS, paging, SMR, ESMR and wireless data and Internet. The
industry has benefited in recent years from increasing demand for its services,
and industry experts expect this demand to continue to increase. The following
table is based upon Paul Kagan Associates, Inc.'s September 1999 industry
estimates regarding projected subscriber growth for certain types of wireless
communications services.
1999-2004 1999-2009
Estimated Projected Projected Compounded Compounded
1999 2004 2009 Annual Annual
Subscribers Subscribers Subscribers Growth Rate Growth Rate
----------- ----------- ----------- ----------- -----------
(in millions except percentages)
Cellular........... 67.2 99.4 109.9 8.1% 5.0%
PCS................ 15.3 74.9 112.6 37.4 22.1
ESMR............... 4.4 10.6 12.6 19.2 11.2
Total Wireless..... 86.9 185.0 235.1 16.3 10.5
Penetration........ 31% 64% 78%
Although Paul Kagan Associates, Inc. is a leading industry analyst, we cannot
assure you that their projections of industry growth will be realized.
Projections are inherently uncertain and actual results will likely differ from
these projections, possibly materially.
We believe that more communication sites will be required in the future to
accommodate the expected increase in demand for wireless communications
services. In addition, we see additional opportunities with the development of
higher frequency technologies, such as PCS, which have a reduced cell range as
a result of signal propagation characteristics that require a more dense
network of towers. In particular, wireless data carriers require a
significantly higher density than traditional voice carriers. Also, network
services may be required to service the network build-outs of new carriers and
the network upgrades and expansion of existing carriers.
Current emerging wireless communications systems, including PCS and ESMR,
represent an immediate and sizable market for providers of communication site
services as they build out large nationwide and regional networks. While
several PCS and ESMR providers have already built limited networks in certain
markets, these providers still need to fill in "dead zones" and expand
geographic coverage.
As a result of advances in digital technology, ESMR operators have also begun
to design and deploy digital mobile telecommunications networks in competition
with cellular providers. In response to the increased competition, cellular
operators are re-engineering their networks by increasing the number of sites,
locating sites within a smaller radius, filling in "dead zones" and converting
from analog to digital cellular service in order to manage subscriber growth,
extend geographic coverage and provide competitive services. The demand for
communication sites is also being stimulated by the development of new paging
applications, such as e-mail and voicemail notification and two-way paging, as
well as other wireless data applications.
Licenses are also being awarded, and technologies are being developed, for
numerous new wireless applications that will require networks of communication
sites. These potential applications include local multi-point distribution
services, consisting of wireless local loop, wireless cable television, data
and Internet access. Radio spectrum required for these technologies has, in
many cases, already been awarded and licensees have begun to build out and
offer services through new wireless systems. Examples of these systems include
local loop networks operated by WinStar and Teligent, wireless cable networks
operated by companies such as Nucentrix and CAI Wireless, and data networks
being constructed and operated by BellSouth Wireless Data, Metricom and Ardis.
35
Characteristics of the Tower Industry
In addition to the increased demand for wireless services and the need to
develop and expand wireless communications networks, we believe that other
trends influencing the wireless communications industry have important
implications for independent tower operators. In this increasingly competitive
wireless industry environment, we believe that many providers are dedicating
their capital and operations primarily to those activities that directly
contribute to subscriber growth, such as marketing and distribution. Many
providers have, therefore, sought to reduce costs and increase efficiency
through the outsourcing of infrastructure network functions such as
communication site ownership, construction, operation and maintenance. Further,
in order to speed new network deployment or expansion and generate
efficiencies, providers are increasingly colocating transmission equipment with
that of other wireless service providers. The trend towards colocation has been
furthered by the "Not-In-My-Backyard" arguments generated by local
zoning/planning authorities in opposition to the proliferation of towers.
We also believe that, in addition to the favorable growth and outsourcing
trends in the wireless communications industry and barriers to entry as a
result of local zoning restrictions associated with new tower sites, tower
operators benefit from several favorable characteristics. The ability of tower
operators to provide antenna sites to customers on multiple tenant towers
protects them against the specific technology, product and market risks
typically faced by any individual provider. The emergence of new technologies,
providers, products and markets may allow independent tower operators to
further diversify against these risks. We believe that independent tower
operators also benefit from the contract nature of the site leasing business
and the predictability and stability of these recurring revenues. In addition,
the site leasing business has low variable operating costs and significant
operating leverage. Towers generally are fixed cost assets with minimal
variable operating costs associated with additional tenants. A tower operator
can generally expect to experience increasing operating margins when new
tenants are added to existing towers.
We believe that the site leasing business typically experiences low customer
churn rates as a result of the high costs that would be incurred by a wireless
service provider if it were to relocate an antenna to another site and
consequently be forced to re-engineer its network. Moving a single antenna may
alter the pre-engineered maximum signal coverage, requiring a reconfigured
network at significant cost to maintain the same coverage. Municipal approvals
are increasingly difficult to obtain and may also affect the provider's
decision to relocate. We believe that the costs associated with network
reconfiguration and municipal approval and the time required to complete these
activities are not generally justified by any potential savings in reduced site
leasing expense.
36
BUSINESS
General
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. We generate revenues from our two primary
businesses--site leasing and site development services. Since our founding in
1989, we have participated in the development of more than 13,000 antenna sites
in 49 of the 51 major wireless markets in the United States. In 1997, we began
aggressively expanding our site leasing business by capitalizing on our
nationally recognized site development experience and strong relationships with
wireless service providers to take advantage of the trend toward colocation and
independent tower ownership. As of December 31, 1999, we owned or controlled
1,163 towers and had letters of intent or definitive agreements to acquire 94
towers. We also had non-binding mandates to build over 335 additional towers
for anchor tenants and had over 700 strategic sites in various phases of
development. In 1998 and 1999 we built, for our own account, 310 and 438
towers. We believe our history and experience in providing site development
services gives us a competitive advantage in choosing the most attractive
locations in which to build new towers or buy existing towers, as measured by
our success in increasing tower revenues and cash flows. Our same tower revenue
growth for 1999 on the 494 towers we owned as of December 31, 1998 was 33%
based on tenant leases executed as of December 31, 1999.
Our primary focus is the leasing of antenna space on our multi-tenant towers
to a variety of wireless service providers under long-term lease contracts. We
lease antenna space on: (1) the towers we construct through build-to-suit
programs; (2) existing sites we acquire; (3) the towers we develop
strategically; and (4) sites we lease, sublease and/or manage for third
parties. Under a build-to-suit program, we build a tower for a wireless service
provider. We retain ownership of the tower and the exclusive right to colocate
additional tenants on the tower. Many wireless service providers are choosing
the build-to-suit option as an alternative to tower ownership, and we believe
that this outsourcing trend is likely to continue. Our non-binding mandates
come from a variety of wireless carriers, including AT&T Wireless, BellSouth
Mobility DCS, Georgia PCS, Horizon PCS, Southwestern Bell, Sprint PCS and
VoiceStream. We have also grown through selective acquisitions of towers from
smaller independent owners. We also develop towers strategically, for our own
account, by identifying an attractive location and completing all pre-
construction procedures, such as zoning, necessary to secure the site. We then
market the tower site to potential customers.
Our site development business consists of site development consulting and
site development construction. In our site development business, we provide a
full range of end-to-end services which typically occur in five phases: (1)
network pre-design; (2) communication site selection; (3) communication site
acquisition; (4) local zoning and permitting; and (5) site construction, switch
construction and antenna installation. We will continue to use our site
development expertise to complement our site leasing business and secure
additional new tower build opportunities. We have capitalized on our leadership
position in the site development business, our existing national field
organization and our strong relationships with wireless service providers to
develop our build-to-suit and strategic siting programs.
We have a diverse range of customers, including cellular, PCS, wireless data
and Internet services, paging, SMR, and ESMR providers as well as other users
of wireless transmission and reception equipment. Our customers currently
comprise many of the major wireless communications companies, including AT&T
Wireless, BellSouth, Georgia PCS, Horizon PCS, LEAP Wireless, Metricom, Nextel,
Omnipoint, Southwestern Bell, Sprint PCS, Teligent and VoiceStream.
While we believe that our site development business will grow with the
expected overall growth of wireless and other telecommunications networks, we
believe our revenues and gross profit from the consulting segment of that
business will continue to decline as carriers find new ways to obtain network
development through outsourced tower ownership. We also believe that, over the
longer term, our site leasing revenues will continue to increase due to the
same outsourcing trend and as the number of towers we own or control grows.
37
Business Strategy
Our strategy is to lease antenna space to multiple tenants on towers that we
construct or acquire. We plan to enhance our position as a leading owner and
operator of communication sites and provider of site development services. Key
elements of our strategy include:
. Maximizing Use of Tower Capacity. We believe that many of our towers
have or will have significant capacity available for antenna space
leasing and that increased use of our owned towers can be achieved at a
low incremental cost. We generally construct our towers to accommodate
multiple tenants in addition to the anchor tenant, and a substantial
majority of our towers are high capacity lattice or guyed towers. We
actively market space on our own towers through our internal sales
force.
. Developing New Towers That We Will Own and Operate. As wireless service
providers increasingly outsource their investment in, and ownership of,
towers, we can meet their outsourcing needs by using our expertise and
relationships in the site development business to construct towers with
anchor tenants through build-to-suit programs. We can also independently
identify attractive locations for new towers and strategically complete
pre-construction procedures necessary to secure tower sites in advance
of customer demand. We believe that we have one of the largest number of
non-binding build-to-suit mandates from wireless service providers in
the industry. As of December 31, 1999, we had non-binding mandates to
build over 335 additional towers under build-to-suit programs for
carriers. Under our build-to-suit programs, we have built towers for
many carriers, including AT&T Wireless, BellSouth Mobility DCS, GTE,
LEAP Wireless, Nextel, Omnipoint, PrimeCo PCS, Southwestern Bell, Sprint
PCS, Tritel PCS and VoiceStream. Furthermore, we are in varying stages
of development on over 700 additional sites which we believe will be
attractive locations for new tower construction. In 1999, we built 438
towers for our own account.
. Acquiring Existing Towers. We believe that our existing national field
organization gives us a competitive advantage in identifying
opportunities for the acquisition of existing towers. Our strategy is to
acquire towers that can service multiple tenants and are attractive to
wireless service providers based on their location, height and available
capacity. While we generally target smaller acquisitions, we believe
that there are many potential acquisition candidates and that the number
of available towers will grow as large cellular, PCS and other wireless
service providers continue to divest their tower holdings. We have
strict valuation criteria and believe that certain tower properties can
be purchased at reasonable price levels. In 1999, we acquired 231
towers. As of December 31, 1999, we had letters of intent or definitive
agreements to acquire 94 towers.
. Building on Strong Relationships with Major Wireless Service
Providers. We are well-positioned to be a preferred partner in build-to-
suit programs, site development projects and tower space leasing because
of our strong relationships with wireless service and other
telecommunications providers and our proven operating experience. In
many cases, the personnel awarding site development projects for
wireless service providers are the same personnel who make decisions
with respect to build-to-suit programs. We continually market our build-
to-suit programs to our site development service customers.
. Maintaining our Expertise in Site Development Services. We continue to
perform an array of site development services for wireless service and
other telecommunications providers across the United States, including
AT&T Wireless, BellSouth, Horizon PCS, IXC Communications, LEAP
Wireless, MediaOne Group, Metricom, Nextel, Pacific Bell Mobile
Services, Southwestern Bell, Sprint PCS and VoiceStream. We have a broad
national field organization that allows us to identify and participate
in site development projects across the country and that gives us a
knowledge of local markets and strong customer relationships with
wireless service and other telecommunications providers. We believe our
site development experience provides us with a competitive advantage in
selecting the best locations for tower ownership.
38
. Capitalizing on Management Experience. Our management team has extensive
experience in site leasing and site development services. Management
believes that its industry expertise and strong relationships with
wireless carriers will allow us to continue to build and acquire a high
quality portfolio of towers. Steven E. Bernstein, our President and
Chief Executive Officer, has more than 13 years of experience in the
wireless communications industry and our other executive officers have
an average of approximately five years of experience in this industry.
In addition, management is highly motivated to produce strong operating
results based on their significant equity ownership.
Company Services
We are a leading independent provider of communication sites and services,
offering an array of site leasing and site development services to the
telecommunications industry, primarily to wireless service providers. We offer
our customers the flexibility of choosing between the provision of a full
ready-to-operate site or any of the component services involved in the
operation of a full ready-to-operate site. The site leasing services we provide
include owning, leasing or managing communication sites and leasing antenna
space on communication sites to wireless service providers. The site
development services we provide, directly or through subcontractors, include
all activities associated with the selection, acquisition and construction of
communication sites for wireless service providers and switching facilities for
a broader group of telecommunications providers.
Site Leasing Business
The site leasing business consists of:
. the ownership of communication sites pursuant to build-to-suit programs,
strategic builds and acquisitions;
. the leasing or subleasing of antenna space on communication sites to
wireless service providers; and
. the maintenance and management of communication sites.
We lease and sublease antenna space on our communication sites to a variety
of wireless service providers. We own or lease the ground under these
communication sites from third parties, and in some cases manage communication
sites for third parties in exchange for a percentage of the revenues or tower
cash flow. We determine tower cash flow by subtracting from gross tenant
revenues the direct expenses associated with operating the communication site,
such as ground lease payments, real estate taxes, utilities, insurance and
maintenance. The substantial majority of our owned or controlled towers are the
result of build-to-suit programs. In our build-to-suit programs, we use some or
all of the five phases of our site development business as we would when
providing site development services to a third party. After a tower has been
constructed, we lease antenna space on the tower. We generally receive monthly
lease payments from customers payable under written antenna site leases. The
majority of our outstanding customer leases, and the new leases we typically
enter into, have original terms of five years (with four or five renewal
periods of five years each) and usually provide for annual or periodic price
increases. Monthly lease pricing varies with the number and type of antenna
installed on a communication site. Broadband customers such as PCS, cellular or
ESMR generally pay substantially more monthly rent than paging or other
narrowband customers. We also provide a lease/sublease service as part of our
site leasing business whereby we lease space on a communication site and
sublease the space to a wireless service provider.
We believe that the site leasing portion of our business has significant
potential for growth, and we intend to expand our site leasing business through
increasing activity from our new tower builds and selective acquisitions. Our
tower portfolio has continued to grow from 51 at year-end 1997 to 494 in 1998
to 1,163 in 1999. In 1999, we added 1,460 site leasing customers, including 420
new tenants in the fourth quarter.
39
The following table indicates the number of our acquired and built towers on
a state by state basis as of December 31, 1999:
New
Location of Towers Acquired Builds Total % of Total
------------------ -------- ------ ----- ----------
North Carolina............................ 2 116 118 10.1%
Tennessee................................. 23 87 110 9.5
South Carolina............................ 2 107 109 9.4
Georgia................................... 9 90 99 8.5
Ohio...................................... 55 22 77 6.6
Florida................................... 44 21 65 5.6
Texas..................................... 32 29 61 5.2
New York.................................. 41 17 58 5.0
Pennsylvania.............................. 26 21 47 4.0
Wisconsin................................. 9 36 45 3.9
Alabama................................... 10 25 35 3.0
Oklahoma.................................. 12 21 33 2.8
Virginia.................................. 3 30 33 2.8
Connecticut............................... 2 26 28 2.4
Kentucky.................................. 11 13 24 2.1
Michigan.................................. 2 22 24 2.1
Missouri.................................. 16 5 21 1.8
Minnesota................................. 16 4 20 1.7
Illinois.................................. 10 5 15 1.3
Massachusetts............................. 3 9 12 1.0
Iowa...................................... 8 3 11 *
Louisiana................................. 11 0 11 *
West Virginia............................. 10 1 11 *
Mississippi............................... 10 0 10 *
Oregon.................................... 0 10 10 *
New Hampshire............................. 0 9 9 *
Colorado.................................. 7 1 8 *
Delaware.................................. 0 8 8 *
Indiana................................... 3 3 6 *
Kansas.................................... 6 0 6 *
Maryland.................................. 0 6 6 *
Nebraska.................................. 1 5 6 *
New Mexico................................ 6 0 6 *
Arkansas.................................. 3 1 4 *
New Jersey................................ 1 3 4 *
South Dakota.............................. 3 0 3 *
California................................ 2 0 2 *
Rhode Island.............................. 0 2 2 *
Washington................................ 0 2 2 *
Arizona................................... 0 1 1 *
Idaho..................................... 0 1 1 *
North Dakota.............................. 1 0 1 *
Utah...................................... 0 1 1 *
--- --- ----- ----
Total................................... 400 763 1,163 100%
=== === ===== ====
--------
* Less than 1%.
40
Build-to-Suit Programs
Under our build-to-suit programs, we generally construct towers only after
having signed an antenna site lease agreement with an anchor tenant and having
made the determination that the initial or planned capital investment for those
towers would not exceed a targeted multiple of expected tower cash flow from
those towers after a certain period of time. In selling our build-to-suit
programs, our sales representatives use their existing relationships in the
wireless communications industry to target wireless service providers
interested in outsourcing their network buildout. Our sales representatives
make proposals for build-to-suit towers in response to competitive bids or
specific requests and in circumstances where we believe the provider would have
an interest in build-to-suit towers. Although the terms vary from proposal to
proposal, we typically sign a five-year lease agreement with an anchor tenant,
with four or five additional five-year renewal periods at the option of the
lessee. While the proposed monthly rent also varies, broadband customers such
as PCS, cellular or ESMR generally pay more than the aggregate monthly rent
paid by paging or other narrowband customers. In addition, anchor tenants will
typically pay lower monthly rents than subsequent tenants of a similar type
service. In some cases, an anchor tenant may also enjoy an introductory lease
rate for a period of time.
If a wireless provider accepts the terms of the proposal submitted by us, the
provider will award us a non-binding mandate to pursue specific sites. Based on
the status of the geographic areas we have been given a mandate to pursue, we
will perform due diligence investigations for a designated period during which
time we will analyze the site based on a number of factors, including
colocation opportunities, zoning and permitting issues, economic potential of
the site, difficulty of constructing a multi-tenant tower and remoteness of the
site. These mandates are non-binding agreements and either party may terminate
the mandate at any time.
If, after our due diligence investigation during the mandate, we conclude
that it is economically feasible to construct the towers requested by the
wireless service provider, we will enter into an antenna site lease agreement
with the provider. In certain limited circumstances we are contractually
obligated to build a tower for the carrier regardless of the outcome of our due
diligence investigation. We have negotiated several master build-to-suit
agreements, including antenna site lease terms, with providers in specific
markets that we believe will facilitate our obtaining build-to-suit programs
from these providers in those markets. The antenna site lease agreements
typically provide that all obligations are conditioned on our receiving all
necessary zoning approvals where zoning remains to be obtained. Certain of the
antenna site lease agreements contain penalty or forfeiture provisions in the
event the tower is not completed within specified time periods.
Strategic Siting
Our strategic siting activities focus on developing new towers in locations
chosen by us, instead of by an anchor tenant in a build-to-suit program. As of
December 31, 1999, of our total 763 new builds, 103 were through our strategic
siting programs, and we expect this number to grow in the future. We try to
identify attractive locations for new towers and complete pre-construction
procedures necessary to secure the site in advance of demand from a specific
customer. We may invest in the zoning and permitting of these strategic sites,
and even the construction of the towers, when we have not yet obtained an
anchor tenant if we believe that demand for the site will exist in the near
term, or that a competitor of ours may acquire the site if we wait until an
anchor tenant is secured. We may also build a strategic site without a tenant
for competitive or zoning reasons. However, we generally will not build a tower
on a strategic site until we have signed a lease with a tenant. We are limited
under the terms of our senior credit facility to building towers on strategic
sites without signed tenants to a number not exceeding 7% of our total tower
portfolio at any time. The 56 strategic new builds we had constructed as of
November 30, 1999 had an average life of approximately seven months, and 1.7
tenants per tower.
Acquisitions
We actively pursue acquisitions of communication sites. Our acquisition
strategy, like our new build strategy, is financially-oriented as opposed to
geographically or customer-oriented. Our goal is to acquire towers that have an
initial or planned capital investment not exceeding a targeted multiple of
expected tower cash flow from the acquired towers after a certain period of
time. We determine tower cash flow by subtracting
41
from gross tenant revenues the direct expenses associated with operating the
communication site, such as ground lease payments, real estate taxes,
utilities, insurance and maintenance.
Our dedicated mergers and acquisitions personnel direct our acquisition
activities and are responsible for identification, negotiation, documentation
and consummation of acquisition opportunities, as well as the coordination and
management of independent advisors and consultants retained by us from time to
time in connection with acquisitions. In addition to our mergers and
acquisitions personnel, we rely on our national field representatives to
identify potential acquisitions. Our field representatives identify generally
smaller acquisition prospects, involving one to ten towers, and often provide
us with the exclusive opportunity to structure and consummate a transaction
with the potential seller. We believe that our field representatives and
knowledge of potential acquisition candidates gained through our substantial
site development business experience provide us with a competitive advantage.
This information will permit us to identify and consummate acquisitions on more
favorable terms than would be available to us through competitively-bid or
brokered acquisition prospects. As is the case with our new tower builds, our
focus is to acquire multi-tenant communication sites with under-used capacity
in locations that we believe will be attractive to wireless service providers
that have not yet built out their service in these locations.
Lease/Sublease
Under our lease/sublease program, we lease antenna space on a communication
site and then sublease the space to wireless service providers. When these
lease/subleases were first signed, these providers chose the financial benefits
associated with the lease/sublease program, which include reduced capital
expenditures, as compared to paying for site development services on a fee
basis. Wireless paging providers comprise a significant majority of customers
who sublease antenna sites from us. The subleases generally have original terms
of five years, with four or five renewal periods of five years each at the
option of the lessee, and usually provide for annual or periodic price
increases.
Maintenance and Management
Once acquired or constructed, we maintain and manage our communication sites
through a combination of in-house personnel and independent contractors. We
also manage communication sites for third parties. In-house personnel are
responsible for oversight and supervision of all aspects of site maintenance
and management, and are particularly responsible for monitoring security access
and lighting, RF emission and interference issues, signage, structural
engineering and tower capacity, tenant relations and supervision of independent
contractors. We hire independent contractors locally to perform routine
maintenance functions such as landscaping, pest control, snow removal,
vehicular access, site access and equipment installation oversight. We engage
independent contractors on a fixed fee or time and materials basis or, in a few
limited circumstances where these contractors were sellers of towers to us, for
a percentage of tower cash flow.
Our network operations center in Boca Raton, Florida centrally monitors
security access and lighting for our towers, as well as other functions. As the
number of communication sites we own and manage increases, we anticipate
incurring greater expenditures to expand our maintenance infrastructure,
including expenditures for personnel and computer hardware and software. We
expect these expenditures to be marginal compared to the anticipated increased
revenues from site leasing.
Site Development Business
We offer various site development services to our customers including network
predesign, site selection, site acquisition, zoning and permitting, and
construction and installation. These services are the same ones we employ for
our own benefit when we build towers for our ownership.
Once we are awarded a site development project, we dispatch a site
development team to the project site and establish a temporary field office for
the duration of the project. The site development team is typically composed of
our permanent employees and supplemented with local hires employed only for
that particular
42
project. A team leader is assigned to each phase of the site development
project and reports to a project manager who oversees all team leaders. Upon
the completion of a site development project, the field office is typically
closed and all of our permanent employees are either relocated to another
project or directed to return to one of our offices.
We generally set prices for each site development service separately.
Customers are billed for these services on a fixed price or time and materials
basis and we may negotiate fees on individual sites or for groups of sites.
We provide tower construction, antenna installation and terminal switch
construction on a turnkey basis throughout the southeastern, eastern,
midwestern and western United States through our construction subsidiary, Com-
Net Construction Services, Inc. We began offering direct, as opposed to
subcontracted, construction services in 1997 with our acquisition of
Communications Site Services, Inc., which provided us with in-house tower
construction and antenna installation capability. We expanded our operations
through the acquisition of Com-Net Construction Services, Inc. in 1999 to
include additional tower construction and antenna installation capability, as
well as the ability to construct terminal switches for competitive local
exchange carriers, Internet service providers and other telecommunications
providers.
We currently provide all of our construction services under the name of Com-
Net Construction Services, Inc. Com-Net provides development and construction
services, including clearing sites, laying foundations and electrical and
telecommunications lines, constructing terminal switches, equipment shelters
and towers. We have constructed and expect to continue to construct a portion
of our towers in the future, and provide antenna installation services for
tenants on our towers. In addition to building our own towers, we have designed
and built tower sites for a number of customers, including AT&T Wireless,
BellSouth Cellular Corporation, GTE, Nextel and Sprint PCS. We believe we cost-
effectively and timely complete construction projects, in part, because our
site development personnel are cross-trained in all areas of site development,
construction and antenna installation.
Customers
Since commencing operations, we have performed site leasing and site
development services for many of the largest wireless service providers. The
majority of our contracts have been for PCS broadband, ESMR, cellular and
paging customers. We also serve wireless data and Internet, PCS narrowband,
SMR, multichannel multipoint distribution service, or MMDS, and multipoint
distribution service, or MDS, wireless providers. In both our site development
and site leasing businesses, we work with large national providers and smaller
local, regional or private operators. In 1998, our largest site development
customers were Sprint PCS, BellSouth Mobility DCS and Pacific Bell Mobile
Services, representing 41.3%, 23.8% and 13.5%, respectively. For the nine
months ended September 30, 1999, Sprint PCS and BellSouth provided 21.3% and
19.1% of our site development revenues. PageNet represented 33.4% of our site
leasing revenue for 1998 and 17.1% for the nine months ended September 30,
1999. These PageNet revenues come primarily from our lease/sublease component
of our site leasing business. For the nine months ended September 30, 1999 our
other major site leasing customers were Sprint PCS, Nextel, and BellSouth
Mobility DCS, representing 9.4%, 9.4%, and 8.2%, respectively. No other
customer represented more than 10.0% of our revenues.
43
During the past two years, we provided services for a number of customers,
including:
Aerial Communications Pacific Bell Mobile Service
ALLTEL PageNet
AT&T Wireless Services Powertel
Bell Atlantic NYNEX Mobile Systems PrimeCo PCS
BellSouth Mobility DCS Southwestern Bell
Horizon PCS Sprint PCS
IXC Communications Telecorp PCS
KMC Telecom Teligent
LEAP Wireless Tritel PCS
MediaOne Group Triton PCS
Metricom 360(degrees) Communications Company
Nextel US West Communication
Omnipoint VoiceStream
WinStar
Sales and Marketing
Our sales and marketing goals are:
. to continue to grow our site leasing business;
. to further cultivate existing customers to obtain mandates for build-to-
suit programs as well as to sell site development services;
. to use our contacts and industry knowledge to better identify attractive
locations for new tower builds;
. to use existing relationships and develop new relationships with
wireless service providers to lease antenna space on our owned or
managed communication sites;
. to form affiliations with select communications systems vendors who use
end-to-end services, including those provided by us, which will enable
us to market our services and product offerings through additional
channels of distribution; and
. to sustain a market leadership position in the site development
business.
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to position
ourselves for additional site development business. We have leveraged these
attributes to obtain build-to-suit mandates, and we expect to continue to do so
in the future. We also use these attributes to identify attractive locations to
build towers on strategic sites.
We have a dedicated sales force which is supplemented by members of our
executive management team. Our salespeople are based regionally as well as in
the corporate office. Our senior management focuses on maintaining and
cultivating relationships with wireless service providers. Our strategy is to
delegate sales efforts to those employees of ours who have the best
relationships with the wireless service providers. We assign our
representatives specific accounts based on historical experience with or
geographic proximity to a provider and the quality of the relationship between
our representative and the provider. Most wireless service providers have
national corporate headquarters with regional offices. We believe that most
decisions for site development and site leasing services are made by providers
at the regional level with input from their corporate headquarters. Our sales
representatives work with provider representatives at the local level and at
the national level when appropriate. Our sales staff compensation is heavily
weighted to incentive-based goals and measurements. In addition to our
marketing and sales staff, we rely upon our executive and operations personnel
on the national and field office levels to identify sales opportunities within
existing customer accounts, as well as acquisition opportunities.
44
Our primary marketing and sales support is centralized and directed from our
headquarters office in Boca Raton, Florida and is supplemented by our regional
offices. We have a full-time staff dedicated to our marketing efforts. The
marketing and sales support staff are charged with implementing our marketing
strategies, prospecting and producing sales presentation materials and
proposals.
Competition
We compete for site leasing tenants with:
. wireless service providers that own and operate their own tower
footprints and lease, or may in the future decide to lease, antenna
space to other providers;
. site development companies that acquire antenna space on existing towers
for wireless service providers, manage new tower construction and
provide site development services;
. other large independent tower companies; and
. smaller local independent tower operators.
Wireless service providers that own and operate their own tower networks
generally are substantially larger and have greater financial resources than we
do. We believe that tower location and capacity, price, quality of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting the site leasing
business. We also compete for development and new tower construction
opportunities with wireless service providers, site developers and other
independent tower operating companies and believe that competition for site
development will increase and that additional competitors will enter the tower
market, some of which may have greater financial resources than we do.
The following is a list of our primary competitors for new tower builds and
tower acquisitions: American Tower Corporation, Crown Castle International
Corp., LCC International, Lodestar Communications, Pinnacle Tower, Spectrum
Resources and SpectraSite Communications.
We believe that the majority of our competitors in the site development
business operate within local market areas exclusively, while some firms appear
to offer their services nationally, including American Tower Corporation,
Bechtel, Black & Veach, Mastec, NLS, Pyramid and SpectraSite Communications.
The market includes participants from a variety of market segments offering
individual, or combinations of, competing services. The field of competitors
includes site development consultants, zoning consultants, real estate firms,
right-of-way consulting firms, construction companies, tower owners/managers,
radio frequency engineering consultants, telecommunications equipment vendors,
which provide end-to-end site development services through multiple
subcontractors, and providers' internal staff. We believe that providers base
their decisions on site development services on a number of criteria, including
a company's experience, track record, local reputation, price and time for
completion of a project. We believe that we compete favorably in these areas.
Employees
As of December 31, 1999, we had 597 employees, none of whom is represented by
a collective bargaining agreement. We consider our employee relations to be
good. Due to the nature of our business, we experience a "run-up" and "run-
down" in the number of employees as site development and new tower build
projects are completed in one area of the country and are commenced in a
different area.
Properties
We are headquartered in Boca Raton, Florida, where we currently lease
approximately 32,000 square feet of space. We open and close project offices
from time to time in connection with our site development business, and new
tower build projects which offices are generally leased for periods not to
exceed 18 months. We have entered into longer leases for regional and Com-net
office locations where we expect our activities to be longer-term.
45
Legal Proceedings
From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of business. We are not a party to any
legal proceeding, the adverse outcome of which, individually or taken together
with all other legal proceedings, is expected to have a material adverse effect
on our prospects, financial condition or results of operations.
Regulatory and Environmental Matters
Federal Regulations. Both the FCC and FAA regulate towers used for wireless
communications transmitters and receivers. These regulations control the siting
and marking of towers and may, depending on the characteristics of particular
towers, require prior approval and registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, the FCC, in
conjunction with the FAA, has developed standards to consider proposals for new
or modified antennas. These standards mandate that the FCC and the FAA consider
the height of proposed antennas, the relationship of the structure to existing
natural or man-made obstructions and the proximity of the antennas to runways
and airports. Proposals to construct or to modify existing antennas above
certain heights are reviewed by the FAA to ensure the structure will not
present a hazard to aviation. The FAA may condition its issuance of a no-hazard
determination upon compliance with specified lighting and/or marking
requirements. The FCC will not license the operation of wireless
telecommunications devices on towers unless the tower has been registered with
the FCC or a determination has been made that a registration is not necessary.
The FCC will not register a tower unless it has been cleared by the FAA. The
FCC may also enforce special lighting and painting requirements. Owners of
wireless transmissions towers may have an obligation to maintain painting and
lighting to conform to FCC standards. Tower owners also bear the responsibility
of notifying the FAA of any tower lighting outage. In addition, any applicant
for an FCC antenna structure registration must certify that, consistent with
the Anti-Drug Abuse Act of 1988, neither the applicant nor its principals have
been convicted of a federal drug crime. We generally indemnify our customers
against any failure to comply with applicable regulatory standards. Failure to
comply with the applicable requirements may lead to civil penalties.
The Telecommunications Act of 1996 amended the Communications Act of 1934 by
preserving state and local zoning authorities jurisdiction over the
construction, modification and placement of towers. The new law, however,
limits local zoning authority by prohibiting any action that would (1)
discriminate between different providers of personal wireless services or (2)
ban altogether the construction, modification or placement of radio
communication towers. Finally, the Telecommunications Act of 1996 requires the
federal government to help licensees for wireless communications services gain
access to preferred sites for their facilities. This may require that federal
agencies and departments work directly with licensees to make federal property
available for tower facilities.
Owners and operators of antennas may be subject to, and therefore must comply
with, environmental laws. The FCC's decision to license a proposed tower may be
subject to environmental review pursuant to the National Environmental Policy
Act of 1969, which requires federal agencies to evaluate the environmental
impacts of their decisions under certain circumstances. The FCC has issued
regulations implementing the National Environmental Policy Act. These
regulations place responsibility on each applicant to investigate any potential
environmental effects of operations and to disclose any significant effects on
the environment in an environmental assessment prior to constructing a tower.
In the event the FCC determines the proposed tower would have a significant
environmental impact based on the standards the FCC has developed, the FCC
would be required to prepare an environmental impact statement, which will be
subject to public comment. This process could significantly delay the
registration of a particular tower.
As an owner and operator of real property, we are subject to certain
environmental laws that impose strict, joint and several liability for the
cleanup of on-site or off-site contamination and related personal or property
damages. We are also subject to certain environmental laws that govern tower
placement, including pre-construction environmental studies. Operators of
towers must also take into consideration certain RF emissions
46
regulations that impose a variety of procedural and operating requirements. The
potential connection between RF emissions and certain negative health effects,
including some forms of cancer, has been the subject of substantial study by
the scientific community in recent years. To date, the results of these studies
have been inconclusive. We believe that we are in substantial compliance with
and we have no material liability under any applicable environmental laws.
These costs of compliance with existing or future environmental laws and
liability related thereto may have a material adverse effect on our prospects,
financial condition or results of operations.
State and Local Regulations. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, we conduct the site
acquisition portions of our site development services business through licensed
real estate brokers or agents, who may be our employees or hired as independent
contractors. Local regulations include city and other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local zoning authorities generally have been hostile to
construction of new transmission towers in their communities because of the
height and visibility of the towers.
47
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
Name Age Position
------------------------ --- --------
Steven E. Bernstein..... 39 Chairman of the Board, President and Chief Executive Officer
Ronald G. Bizick, II.... 32 Executive Vice President--East
Daniel J. Eldridge...... 39 President, Com-Net Construction Services, Inc.
Robert M. Grobstein..... 40 Chief Accounting Officer
Michael N. Simkin....... 47 Executive Vice President--West
Jeffrey A. Stoops....... 41 Chief Financial Officer and Director
Donald B. Hebb, Jr...... 56 Director
C. Kevin Landry......... 55 Director
Robert S. Picow......... 44 Director
Richard W. Miller....... 58 Director
Steven E. Bernstein, our founder, has been our President, Chief Executive
Officer and Chairman since our inception in 1989. From 1986 to 1989, Mr.
Bernstein was employed by McCaw Cellular Communications. While at McCaw, Mr.
Bernstein was responsible for the development of the initial Pittsburgh non-
wireline cellular system and the start-up of the Pittsburgh sales network. Mr.
Bernstein is a graduate of the University of Florida, where he majored in Real
Estate and earned a Bachelor of Science degree in Business Administration. He
was PCIA's 1996 Entrepreneur of the Year.
Ronald G. Bizick, II, Executive Vice President--East, has been an executive
officer with us since 1993. He is responsible for all facets of our operations
in the Eastern United States. Prior to joining us in 1990, Mr. Bizick was
employed by a private land planning and development firm specializing in
commercial and residential wetland and zoning approvals. Mr. Bizick is a cum
laude graduate of the University of Pittsburgh, where he earned a Bachelor of
Arts degree in Business and Communications.
Daniel J. Eldridge, President, Com-Net Construction Services, Inc. has been
an executive officer with us since April 1999 as a result of our acquisition of
Com-Net. Mr. Eldridge has fifteen years of experience in the communications
industry. Prior to founding Com-Net in 1990, Mr. Eldridge was general manager
of a firm providing network infrastructure build-out to wireless and wireline
carriers nationwide. From 1985 to 1987, Mr. Eldridge was a civil system
engineer for MCI. He has a Bachelor of Science degree in Construction
Management from East Tennessee State University.
Robert M. Grobstein, CPA, Chief Accounting Officer, has been an executive
officer with us since December 1993. He is responsible for risk management,
financial reporting and accounting. From January 1990 to March 1993, Mr.
Grobstein served as Controller for Turnberry Isle Resort and Country Club,
where he supervised a 28-person accounting staff. Mr. Grobstein is a graduate
of Robert Morris College, where he majored in Accounting and earned a Bachelor
of Science degree in Business Administration. He is a member of both the
American Institute of C.P.A.'s and the Florida Institute of C.P.A.'s.
Michael N. Simkin, Executive Vice President--West, joined us in April 1998.
Mr. Simkin is responsible for all facets of our operations in the Western
United States. From July 1997 to February 1998, he was Chief Executive Officer
of Centennial Communications Corporation, an international specialized mobile
radio service provider based in Denver. From April 1995 to April 1997, he was
Vice President and General Manager of PrimeCo Personal Communications for the
South Florida region. From April 1993 to April 1995, Mr. Simkin was Executive
Director of Corporate Strategy for Airtouch Communications. He has an A.B. in
Economics and an M.B.A. from the University of California at Berkeley.
Jeffrey A. Stoops, Chief Financial Officer, joined us in April 1997 and was
elected as a director of ours in August 1999. Mr. Stoops is responsible for all
finance, mergers and acquisitions, capital market activities and
48
legal matters for us. Prior to joining us, Mr. Stoops was a partner with
Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., a South Florida law firm, where
he practiced for 13 years in the corporate, securities and mergers and
acquisitions areas. Mr. Stoops received his Bachelor of Science degree and his
J.D. degree from Florida State University, and is a member of the Florida Bar
and also serves as our General Counsel.
Donald B. Hebb, Jr. was elected as a director of ours in February 1997. Mr.
Hebb also has been a Managing Member of the general partner of ABS Capital
Partners II, L.P., a private equity fund, and related entities, since March
1993. Prior to that time, he was a Managing Director of Alex. Brown, investing
private equity funds. Prior to that time, Mr. Hebb served as President and
Chief Executive Officer of Alex. Brown and in that capacity, initiated the
Alex. Brown Merchant Banking Group early in 1990. Mr. Hebb was the nominee of
ABS for election as a director pursuant to a shareholder agreement that
terminated upon consummation of our initial public offering.
C. Kevin Landry was elected as a director of ours in March 1997. Mr. Landry
has been a Managing Director and Chief Executive Officer of TA Associates, Inc.
since its incorporation in 1994. From 1982 to 1994, he served as a Managing
Partner of its predecessor partnership. Mr. Landry also serves on the Board of
Directors of Standex International Corporation. He previously served as a
director of Alex. Brown Inc. Mr. Landry was the nominee of TA Associates for
election as a director pursuant to a shareholder agreement that terminated upon
consummation of our initial public offering.
Robert S. Picow was elected as a director of ours in November 1998. Mr. Picow
founded Allied Communications, a distributor of communications equipment, in
1982. He served as the Chief Executive Officer of Allied until its sale in 1996
to Brightpoint, Inc., a publicly traded communications equipment company. Mr.
Picow also served as a director of Brightpoint from June 1996 to August 1997.
Richard W. Miller was elected as a director of ours in April 1999. Mr. Miller
previously served on our Board of Directors from May 1997 to August 1998. From
1993 to 1997, Mr. Miller was a Senior Executive Vice President and Chief
Financial Officer of AT&T. From 1990 to 1993, he was the Chairman and Chief
Executive Officer of Wang Laboratories, Inc. Mr. Miller also serves on the
Board of Directors of Avalon Properties, Inc. and Closure Medical Corporation.
49
PRINCIPAL AND SELLING SHAREHOLDERS
The table below sets forth, as of December 31, 1999, certain information with
respect to the beneficial ownership of our capital stock by (1) each person who
we know to be a beneficial owner of more than 5% of any class or series of our
capital stock; (2) each of the directors and executive officers individually;
and (3) all directors and executive officers as a group. At December 31, 1999,
we had outstanding the following shares of capital stock: 21,226,737 shares of
Class A common stock and 7,644,264 shares of Class B common stock. At December
31, 1999, no other classes or series of capital stock had any shares issued and
outstanding.
Percentage of Percentage of
Total Voting Total Voting
Power of Class Number of Power of Class
A Common Number of Shares to be A Common
Executive Officers and Number of Stock Prior to Shares to be Owned After Stock After
Directors (a) Title of Class Shares (b) Offering (b) Sold Offering Offering
- ------------------------ -------------------- ---------- -------------- ------------ ------------ --------------
Steven E.
Bernstein(c)(d)........ Class B Common Stock 7,644,264 77.3% -- 7,644,264 70.8%
Class A Common Stock 358,974 * -- 358,974 *
Ronald G. Bizick,
II(e).................. Class A Common Stock 822,034 * -- 822,034 *
Daniel J. Eldridge(f)... Class A Common Stock 780,000 * -- 780,000 *
Robert M. Grobstein(g).. Class A Common Stock 420,097 * -- 420,097 *
Michael N. Simkin(h).... Class A Common Stock 204,214 * -- 204,214 *
Jeffrey A.
Stoops(d)(i)........... Class A Common Stock 1,522,536 * -- 1,522,536 *
Donald B. Hebb, Jr.(j).. Class A Common Stock 3,635,556 3.7 730,140 2,905,416 2.7
C. Kevin Landry(k)...... Class A Common Stock 3,086,441 3.1 619,860 2,466,581 2.3
Richard W. Miller(l).... Class A Common Stock 66,666 * -- 66,666 *
Robert S. Picow(m)...... Class A Common Stock 33,333 * -- 33,333 *
All executive officers
and directors as a
group (10 persons)..... 17,204,252 86.9 1,350,000 15,854,252 78.3
Beneficial Owners of 5%
or More of Capital
Stock
- ------------------------
ABS Capital Partners II,
L.P.(n)................ Class A Common Stock 3,635,556 3.7 730,140 2,905,416 2.7
TA Associates, Inc.(o).. Class A Common Stock 3,086,441 3.1 619,860 2,466,581 2.3
Selling Shareholders
- ------------------------
ABS Capital Partners II,
L.P.(n)................ Class A Common Stock 3,635,556 3.7 730,140 2,905,416 2.7
Advent VII, L.P.(p)..... Class A Common Stock 1,815,555 1.8 364,624 1,450,931 1.3
Advent Atlantic and
Pacific III, L.P.(p)... Class A Common Stock 1,243,656 1.3 249,767 993,889 *
TA Venture Investors
Limited
Partnership(p)......... Class A Common Stock 27,230 * 5,469 21,761 *
- --------
* Less than 1%.
(a) Except as otherwise indicated, the address of each person named in this
table is c/o SBA Communications Corporation, One Town Center Road, Third
Floor, Boca Raton, Florida 33486.
(b) In determining the number and percentage of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to options
exercisable within 60 days after December 31, 1999 are deemed outstanding
for purposes of determining the total number of outstanding shares for such
person and are not deemed outstanding for such purpose for all other
shareholders. To our knowledge, except as otherwise indicated, beneficial
ownership includes sole voting and dispositive power with respect to all
shares. The selling shareholders will offer shares of Class A common stock
only in the over-allotment option, if the over-allotment option is
exercised by the underwriters. This column assumes the exercise of the
over-allotment option in full. We have agreed that if any or all of the
selling shareholders decide not to sell their shares upon exercise of the
over-allotment option, we will issue any shares necessary to satisfy the
option.
50
(c) All shares are owned of record by Bernstein Limited Partnership I and II
and Bernstein Family Charitable Foundation. This number includes options to
purchase 58,333 shares of Class A common stock which are exercisable within
60 days after December 31, 1999.
(d) Mr. Bernstein has granted Mr. Stoops options to purchase 1,369,863 of his
shares of common stock. All of these options were exercisable as of
December 31, 1999, and all were exercised by Mr. Stoops on January 7, 2000.
Upon exercise by Mr. Stoops, the shares converted to Class A common stock.
(e) This number includes options to purchase 45,833 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(f) This number does not include up to 720,000 shares of Class A common stock
that are issuable if 1999 and 2000 EBITDA targets established in connection
with the acquisition of Com-Net are met.
(g) This number includes options to purchase 420,097 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(h) This number includes options to purchase 149,999 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(i) This number includes options to purchase 66,666 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(j) These 3,635,556 shares are owned by ABS Capital Partners, II, L.P. Mr. Hebb
is Managing Member of ABS Partners II, L.L.C., the general partner of ABS.
Mr. Hebb disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest therein.
(k) This number includes (1) 1,815,555 shares owned by Advent VII L.P., whose
general partner is TA Associates VII L.P., (2) 1,243,656 shares owned by
Advent Atlantic & Pacific III L.P., whose general partner is TA Associates
AAP III Partners L.P. and (3) 27,230 shares owned by TA Venture Investors
L.P. Advent VII L.P., Advent Atlantic & Pacific L.P. and TA Venture
Investors L.P. are part of an affiliated group of investment partnerships
referred to collectively as the TA Associates Group. The general partner of
TA Associates VII L.P. and TA Associates AAP III Partners L.P. is TA
Associates, Inc. As general partner for these entities, TA Associates, Inc.
exercises sole voting and investment power with respect to all shares held
of record by the named investment partnerships, with the exception of TA
Venture Investors L.P. Individually, no stockholder, director or officer of
TA Associates, Inc. is deemed to have or share such voting or investment
power. Mr. Landry is one of the general partners of TA Venture Investors
L.P. Mr. Landry may be deemed to share voting and investment power with
respect to the 27,230 shares held of record by TA Venture Investors L.P.
Mr. Landry disclaims beneficial ownership of all shares, except to the
extent of his pecuniary interest therein.
(l) This number includes options to purchase 66,666 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(m) This number includes options to purchase 33,333 shares of Class A common
stock which are exercisable within 60 days after December 31, 1999.
(n) The principal business address of ABS Capital Partners, II, L.P. is One
South Street, Baltimore, MD 21202.
(o) This number includes (1) 1,815,555 shares owned by Advent VII L.P., whose
general partner is TA Associates VII L.P., (2) 1,243,656 shares owned by
Advent Atlantic & Pacific III L.P., whose general partner is TA Associates
AAP III Partners L.P. and (3) 27,230 shares owned by TA Venture Investors
L.P. Advent VII L.P., Advent Atlantic & Pacific L.P. and TA Venture
Investors L.P. are part of an affiliated group of investment partnerships
referred to collectively as the TA Associates Group. The general partner of
TA Associates VII L.P. and TA Associates AAP III Partners L.P. is TA
Associates, Inc. As general partner for these entities, TA Associates, Inc.
exercises sole voting and investment power with respect to all shares held
of record by the named investment partnerships, with the exception of TA
Venture Investors L.P. Individually, no stockholder, director or officer of
TA Associates, Inc. is deemed to have or share such voting or investment
power. The principal business address of TA Associates, Inc. is 125 High
Street, Boston, MA 02110.
(p) The shares sold by this selling shareholder are the same shares reflected
above as being sold by TA Associates, Inc., the beneficial owner of this
entity.
51
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms and provisions of our capital stock is not
complete and is qualified in its entirety by reference to our Amended and
Restated Articles of Incorporation, which have been filed as an exhibit to the
registration statement of which this prospectus is a part.
Our authorized capital stock consists of 100,000,000 shares of Class A common
stock, par value $.01 per share, 8,100,000 shares of Class B common stock, par
value $.01 per share, and 30,000,000 shares of preferred stock, par value $.01
per share. These shares of preferred stock have not been designated as to
series and are available for issuance from time to time in one or more series
at the discretion of our Board of Directors. While we have no present intention
to issue shares of preferred stock, any issuance of preferred stock could be
used to discourage, delay or make more difficult a change in control of SBA.
We have two classes of authorized common stock: Class A common stock and
Class B common stock. The Class A common stock has one vote per share. The
Class B common stock has ten votes per share. All outstanding shares of Class A
common stock and Class B common stock are validly issued, fully paid and
non-assessable. As of December 31, 1999, there was one holder of all of our
Class B common stock.
As of December 31, 1999, our outstanding capital stock consisted of
21,226,737 shares of Class A common stock and 7,644,264 shares of Class B
common stock. No other shares of any class or series were issued and
outstanding as of December 31, 1999. In addition, we have reserved (1)
3,057,248 shares of Class A common stock issuable upon exercise of outstanding
stock options, (2) 884,543 shares that may be issued upon exercise of options
that may be granted in the future under our 1999 Equity Participation Plan, (3)
470,138 shares for issuance under our 1999 Employee Stock Purchase Plan, (4)
402,500 shares issuable upon exercise of the outstanding warrant that we
granted Deutsche Bank Securities Inc. and (5) the 320,000 and 400,000 shares
that are issuable to the former shareholders of Com-Net if 1999 and 2000 EBITDA
targets established in connection with the acquisition of that company are met.
Except as otherwise required by law or in our articles of incorporation,
owners of the Class A common stock and Class B common stock will vote together
as a single class on all matters, including the election of directors. Our
articles of incorporation provide for a separate class vote of each class of
common stock in the event of any amendment that alters the terms of the Class B
common stock. Pursuant to our articles of incorporation and by-laws, our Board
of Directors is classified into three classes of directors, denoted as Class I,
Class II and Class III. Messrs. Picow and Landry are Class I directors, Messrs.
Miller and Stoops are Class II directors, and Messrs. Bernstein and Hebb are
Class III directors.
Class A Common Stock
Voting Rights
Each share of Class A common stock is entitled to one vote. Except as noted
above, and except as provided under the Florida Business Corporation Act, the
holders of shares of Class A common stock and Class B common stock vote
together as a single class on all matters on which shareholders are permitted
or entitled to vote.
Dividends
Each share of Class A common stock is entitled to receive dividends if, as
and when declared by the Board of Directors out of funds legally available for
that purpose, subject to preferences that may apply to any preferred stock that
we may issue in the future. No dividends may be declared and paid to holders of
shares of Class A common stock unless the Board of Directors at the same time
also declares and pays to the holders of Class B common stock a per share
dividend equal to the dividend declared and paid to the holders of shares of
Class A common stock.
52
Liquidation Rights
In the event of our dissolution or liquidation, after satisfaction of all our
debts and liabilities and distributions to the holders of any preferred stock
that we may issue in the future, if any, of amounts to which they are
preferentially entitled, holders of Class A common stock will be entitled to
share ratably with holders of Class B common stock in the distribution of
assets to the shareholders.
Other Provisions
There are no cumulative, subscription or preemptive rights to subscribe for
any additional securities which we may issue, and there are no redemption
provisions, conversion provisions or sinking fund provisions applicable to the
Class A common stock.
Class B Common Stock
Voting Rights
Each share of Class B common stock is entitled to ten votes for each share on
all matters presented to the shareholders. Except as provided under the Florida
Business Corporation Act, the holders of the shares of Class B common stock and
Class A common stock vote together as a single class on all matters on which
shareholders are permitted or entitled to vote.
Dividends
Each share of Class B common stock is entitled to receive dividends if, as
and when declared by the Board of Directors out of funds legally available for
that purpose, subject to preferences that may apply to any preferred stock that
we may issue in the future. No dividends may be declared and paid to holders of
shares of Class B common stock unless the Board of Directors at the same time
also declares and pays to holders of Class A common stock a per share dividend
equal to the dividend declared and paid to holders of shares of Class B common
stock.
Liquidation Rights
In the event of our dissolution or liquidation, after satisfaction of all our
debts and liabilities to creditors and distributions to the holders of any
preferred stock that we may issue in the future, if any, of amounts to which
they are preferentially entitled, holders of Class B common stock will be
entitled to share ratably with holders of Class A common stock in the
distribution of assets available for distribution to the shareholders.
Convertibility
Each outstanding share of Class B common stock may, at the option of the
holder thereof, at any time, be converted into one fully paid and non-
assessable share of Class A common stock. Each share of outstanding Class B
common stock converts into one fully paid and non-assessable share of Class A
common stock immediately upon transfer to any holder other than any one or more
of the following (an "Eligible Class B Shareholder"): (1) Steven E. Bernstein;
(2) other members of his immediate family or their lineal descendants; (3)
spouses of lineal descendants or lineal descendants of spouses, whether alive
as of the date of the articles of incorporation or born subsequently; (4) any
trusts or other estate planning vehicles for the benefit of any of the
foregoing, whether existing as of the date of the articles of incorporation or
subsequently created; or (5) any estate or tax planning vehicles on the part of
Mr. Bernstein. If the shares of Class B common stock held by Eligible Class B
Shareholders in the aggregate constitute 10% or less of the outstanding shares
of our common stock, or upon the death or mental incapacity of Steven E.
Bernstein, each share of Class B common stock shall immediately convert into
one fully paid and non-assessable share of Class A common stock. Each share of
outstanding Class B common stock which is held by any Eligible Class B
Shareholder will immediately convert into one share of Class A common stock at
the time that the holder is no longer an Eligible Class B Shareholder.
53
Other Provisions
There are no cumulative, subscription or preemptive rights to subscribe for
any additional securities that we may issue, and there are no redemption
provisions or sinking fund provisions applicable to the Class B common stock.
The rights and preferences of holders of both classes of common stock are
subject to the rights of any series of preferred stock which we may issue in
the future.
Warrant
In connection with the 1997 issuance of capital stock, we issued a warrant to
acquire shares of Class A common stock to Deutsche Bank Securities Inc. The
warrant, when exercised, entitles its holder to receive 402,500 fully paid and
non-assessable shares of Class A common stock at an exercise price of $3.73 per
share. The warrant is exercisable at any time on or before March 2002. The
exercise and transfer of the warrant is subject to applicable federal and state
securities laws.
Registration Rights
If at any time, the holders of not less than 25% of the Class A common stock
which was issued upon conversion of our previously outstanding preferred stock
or that is issuable upon exercise of the warrant issued to Deutsche Bank
Securities Inc. request that we file a registration statement covering their
shares of Class A common stock (with an anticipated aggregate offering price of
$3.0 million), we will use our best efforts to cause these shares to be
registered, subject to reduction if, in the case of a firm underwritten
offering, the underwriter stipulates that it is not advisable for us to
register the full amount of Class A common stock that holders have requested
that we register; provided, however, that we may delay any demand registration
for a period of up to three months for a valid business reason. We will not be
required to file more than three registration statements, other than on Form S-
3. In addition, these holders have the right to require us to file up to two
registration statements per year on Form S-3, provided the anticipated
aggregate offering price in each registration on Form S-3 equals $1.0 million
or more. However, these holders may only request that we file a registration
statement to the extent that their shares exceed the amount that can be sold
pursuant to Rule 144 of the Securities Act.
Each of Messrs. Bernstein, Bizick, Grobstein and Stoops also has certain
rights to have his shares of common stock registered under the Securities Act.
Mr. Bernstein has the right to have his shares of Class B common stock
registered under the Securities Act. Mr. Bizick has the right to have 773,528
shares of Class A common stock registered under the Securities Act. Mr.
Grobstein has the right to have 386,764 shares of Class A common stock
registered under the Securities Act. Mr. Stoops has the right to have 1,369,863
shares of Class A common stock registered under the Securities Act.
If at any time, Mr. Bernstein, Mr. Bizick, Mr. Grobstein or Mr. Stoops,
individually or as a group, request that we file a registration statement on
Form S-3 for these shares, we will use our best efforts to cause these shares
to be registered subject to certain cut-back provisions; provided, however,
that we may delay any registration for a period of up to three months for a
valid business reason. We will not be required to file the registration
statement on Form S-3 more frequently than twice a year.
The former holders of the preferred stock and the holder of the warrant
(after exercise of the warrant) are entitled to have the shares of Class A
common stock issued upon conversion of the preferred stock or warrant included
in each registration statement filed on behalf of ourselves or at the request
of holders, subject to reduction if, in the case of a firm underwritten
offering, the underwriter stipulates that it is not advisable for us to
register the full amount of Class A common stock that holders have requested
that we register. Except as otherwise agreed, in the event of an application of
these cut-back provisions, the former holders of the preferred stock and the
holder of the warrant have a priority right to participate in the registration
over Messrs. Bernstein, Bizick, Grobstein or Stoops. The holder of the warrant
has waived its registration rights in connection with this offering.
54
In connection with the creation of a joint venture for the development of
towers in New York, we have granted our joint venturers the right to exchange
their interests in the joint venture for restricted shares of our Class A
common stock of equivalent value. In the event that we register securities on
behalf of ourselves or at the request of holders, our joint venturers have the
right, subject to certain conditions and cut-back provisions, to have us
register those restricted securities that they received in the exchange. Except
as otherwise agreed, in the event of an application of any cut-back provisions,
the right of our joint venturers to have their shares of Class A common stock
registered is subordinate to the registration rights of (1) the former holders
of the preferred stock and the holder of the warrant and (2) Messrs. Bernstein,
Bizick, Grobstein or Stoops.
Preferred Stock
Our board of directors is authorized by our articles of incorporation to
provide for the issuance of shares of preferred stock, in one or more series,
to establish the number of shares to be included in each series, to fix the
designation, rights, preferences, privileges and restrictions of the shares of
each series and to increase or decrease the number of shares of any series of
preferred stock, all without any further vote or action by our shareholders.
55
DESCRIPTION OF EXISTING DEBT
The Senior Credit Facility
On February 5, 1999, our wholly owned subsidiary, SBA Telecommunications,
entered into a senior credit facility with a group of banks and other financial
institutions led by Lehman Commercial Paper Inc., as administrative agent, and
Lehman Brothers Inc. and General Electric Capital Corporation, as co-arrangers.
Lehman Brothers Inc. is an underwriter in this offering. This facility was
amended on December 16, 1999. The following is a summary of certain provisions
of the senior credit facility, as amended, but you should refer to the actual
credit agreement, which is filed as an exhibit to the registration statement of
which this prospectus is a part.
The senior credit facility provides for revolving credit loans of up to
$225.0 million. The senior credit facility also provides for two term loans in
the amount of $25.0 million and $50.0 million. SBA Telecommunications borrowed
the full $25.0 million of the first term loan on February 5, 1999 and the full
$50.0 million of the second term loan on December 16, 1999. We plan to use some
of the proceeds of the offering to repay outstanding revolving credit loans.
The senior credit facility is secured by a lien on substantially all of our
assets and the assets of our domestic subsidiaries and a pledge of all of the
outstanding capital stock of each of our domestic subsidiaries. We, and each of
our domestic subsidiaries (other than Telecommunications) have guaranteed the
obligations of Telecommunications under the senior credit facility.
The senior credit facility contains a number of covenants that, among other
things, restrict our ability, and the ability of each of our subsidiaries, to
dispose of assets, incur additional indebtedness, incur guaranty obligations,
pay dividends or make capital distributions, create liens on assets, make
investments, make acquisitions, engage in mergers or consolidations, engage in
certain transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. In addition, the senior credit facility requires
compliance with certain financial covenants and restricts the number of towers
that may be constructed in advance of securing an anchor tenant. Prior to
January 1, 2002, Telecommunications and its subsidiaries must maintain a
minimum annualized adjusted EBITDA, a minimum ratio of annualized adjusted
EBITDA to interest expense and a minimum amount of revenues from towers and
cannot exceed a maximum amount of total debt per tower, a maximum ratio of
total debt to total capitalization, a maximum amount of total debt to
annualized adjusted EBITDA and a maximum amount of capital expenditures. From
and after January 1, 2002, Telecommunications and its subsidiaries must
maintain a minimum ratio of consolidated EBITDA to interest expense, a minimum
ratio of fixed charges and a minimum ratio of debt service coverage and cannot
exceed a maximum ratio of total debt to EBITDA and maximum amount of capital
expenditures. We do not expect that these covenants will materially impact our
ability to operate our respective businesses.
The senior credit facility contains customary events of default, including
(1) the failure to pay principal when due, (2) the failure to pay any interest
or any other amount within five days after it becomes due, (3) the material
inaccuracy of any representation or warranty being made by us or any of our
domestic subsidiaries on or as of the date made or deemed made, (4) a default
in the performance of any negative covenant (including any financial covenant),
(5) a default in the performance of other covenants or agreements subject, in
certain cases, to a 30 day grace period, (6) default in certain of our other
indebtedness, (7) certain insolvency events and (8) certain change of control
events. In addition, a default under the indenture governing our senior
discount notes will result in a default under the senior credit facility.
The 12% Senior Discount Notes Due 2008
On March 2, 1998, we privately placed $269.0 million in aggregate principal
amount at maturity of our senior discount notes due 2008. This description
summarizes certain terms of the senior discount notes, but does not describe
all of the terms. You should refer to the indenture governing the senior
discount notes, a copy of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
56
The senior discount notes are unsecured senior obligations of SBA, and rank
equal in right of payment with all existing and future unsecured senior
indebtedness of SBA and senior in right of payment to future subordinated
indebtedness of SBA. Our subsidiaries are not guarantors of the senior discount
notes. The senior discount notes mature on March 1, 2008. The senior discount
notes accrete in value until March 1, 2003. After that date, cash interest will
accrue on the senior discount notes at the rate of 12% per year and will be
payable semi-annually, commencing on September 1, 2003.
Except as stated below, the senior discount notes are not redeemable at our
option prior to March 1, 2004. Thereafter, the senior discount notes are
redeemable at our option, in whole or in part, at any time, at a premium which
is at a fixed percentage that declines to par on or after March 1, 2007, in
each case together with accrued and unpaid interest, if any, to the date of
redemption. In the event we consummate a public equity offering or certain
strategic equity investments prior to March 1, 2001, we may, at our option, use
all or a portion of the proceeds from the offering to redeem up to 20% of the
original aggregate principal amount at maturity of the senior discount notes at
a redemption price equal to 112% of the accreted value of the senior discount
notes to be redeemed, plus accrued and unpaid interest, if any, thereon to the
redemption date, if at least 80% of the original aggregate principal amount at
maturity of the senior discount notes remains outstanding after each
redemption.
Upon the occurrence of certain change of control events, each holder of
senior discount notes has the right to require us to purchase all or a portion
of the holder's senior discount notes at a price equal to 101% of the aggregate
principal amount thereof, together with accrued and unpaid interest to the date
of purchase or, if the senior discount notes are purchased prior to March 1,
2003, at a purchase price equal to 101% of the accreted value of the senior
discount notes on the date of purchase.
The indenture contains certain covenants, including covenants that limit (1)
the incurrence of certain additional indebtedness and issuance of preferred
stock, (2) restricted payments, (3) distributions from restricted subsidiaries,
(4) transactions with affiliates, (5) sales of assets and subsidiary stock
(including sale and leaseback transactions), (6) dividend and other payment
restrictions affecting restricted subsidiaries and (7) mergers or
consolidations.
57
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 37,871,001 shares (assuming the
selling shareholders fulfill the over-allotment option in full) of common stock
outstanding (including the 6,574,401 shares of Class B common stock). In
addition, we have reserved 3,057,248 shares of Class A common stock issuable
upon exercise of outstanding stock options, 884,543 shares that may be issued
upon exercise of options that may be granted in the future under our 1999
Equity Participation Plan, 470,138 shares for issuance under our 1999 Employee
Stock Purchase Plan and 402,500 shares issuable upon exercise of the
outstanding warrant. We will also be required to issue up to 720,000 shares of
Class A common stock to the former holders of Com-Net if the 1999 and 2000
EBITDA targets are met. Of the 28,871,000 shares of our common stock
outstanding, 28,091,000 shares are freely transferable without restriction
under the Securities Act, unless they are held by our "affiliates" as that term
is used under the Securities Act. The remaining 780,000 shares are "restricted
securities" as that term is defined in Rule 144 of the Securities Act and
subject to the volume restrictions of Rule 144. The 9,000,000 shares sold in
the offering (10,350,000 if the over-allotment option is exercised in full)
will be freely transferable without restriction under the Securities Act,
unless they are held by our affiliates. Certain shareholders have demand and
piggyback registration rights for a total of up to 16,854,556 shares of common
stock.
In connection with the offering and subject to certain exceptions, we and all
of our executive officers and directors have agreed not to sell any shares of
Class A common stock, or any securities which may be converted into or
exchanged for any shares of Class A common stock or substantially similar
securities, for a period of 90 days after the date of this prospectus without
the prior written consent of Lehman Brothers Inc. In addition, our selling
shareholders have agreed to not sell 5,956,997 of their 6,721,997 shares of
Class A common stock or any securities which may be converted into or exchanged
for any such shares of Class A common stock or substantially similar
securities, for a period of 90 days after the date of this prospectus without
the prior written consent of Lehman Brothers Inc.
In general, under Rule 144 as currently in effect, a shareholder, including
an "affiliate," who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least one year from the later of the
date the securities were acquired from us or, if applicable, the date they were
acquired from an affiliate, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Class A common stock or the average weekly trading volume
in the Class A common stock during the four calendar weeks before the date on
which notice of the sale was filed under Rule 144, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, under Rule 144(k), if a period of at
least two years has elapsed from the later of the date restricted securities
were acquired from us or, if applicable, the date they were acquired from an
affiliate of ours, a shareholder who is not an affiliate of ours at the time of
sale and has not been an affiliate of ours for at least three months prior to
the sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
Except as indicated above, we are unable to estimate the amount, timing and
nature of future sales of outstanding Class A common stock. Future sales of
significant numbers of shares of Class A common stock in the public market
could adversely affect the market price of the Class A common stock and could
impair our ability to raise capital through an offering of our equity
securities.
58
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS
The following is a general summary of the material United States federal
income and estate tax considerations to a Non-U.S. Holder (as defined below)
relevant to the ownership and disposition of shares of Class A common stock.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed United States Treasury regulations
promulgated thereunder, Internal Revenue Service (the "IRS") rulings, official
pronouncements and judicial decisions, all as in effect on the date hereof and
all of which are subject to change, possibly with retroactive effect, or
different interpretations. This summary does not discuss all the tax
consequences that may be relevant to a particular Non-U.S. Holder in light of
the holder's particular circumstances and it is not intended to be applicable
in all respects to all categories of Non-U.S. Holders, some of whom may be
subject to special rules not discussed below. In addition, this summary does
not address any state, local or foreign tax considerations that may be relevant
to a Non-U.S. Holder's decision to purchase shares of Class A common stock.
For purposes of this discussion, a "Non-U.S. Holder" or a "Non-U.S. person"
means a beneficial owner of common stock that is not (1) a citizen or resident
of the United States, (2) a corporation or partnership created or organized in
or under the laws of the United States or any political subdivision thereof,
(3) an estate the income of which is subject to United States federal income
taxation regardless of its source and (4) a trust (a) that is subject to the
supervision of a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) of the Code or (b)
that has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person. A "U.S. person" is a
person that is not a Non-U.S. person. An individual may be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States on at least 31 days during the calendar year and for an
aggregate of at least 183 days during the calendar year and the two preceding
calendar years (counting, for this purpose all the days present in the current
year, one-third of the days present in the immediately preceding year and one
sixth of the days present in the second preceding year). In addition to the
"substantial presence test" described in the immediately preceding sentence, an
individual may be treated as a resident alien if he or she (1) meets the lawful
permanent residence test (a so-called "green card" test) or (2) elects to be
treated as a United States resident and meets certain presence requirements,
including the "substantial presence test," in the immediately following year.
Generally, resident aliens are subject to United States federal income and
estate tax in the same manner as United States citizens and residents.
ALL NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SHARES OF CLASS A COMMON STOCK IN LIGHT OF THEIR
OWN PARTICULAR CIRCUMSTANCES.
Dividends on Class A Common Stock
Generally, any dividends paid to a Non-U.S. Holder of Class A common stock
will be subject to United States federal withholding tax at a rate of 30% of
the amount of the dividend, or at a lower applicable income tax treaty rate.
However, if the dividend is effectively connected with the conduct of a United
States trade or business of a Non-U.S. Holder (and is attributable to a U.S.
permanent establishment of such Non-U.S. Holder, if an applicable income tax
treaty so requires as a condition for the Non-U.S. Holder to be subject to U.S.
income tax on a net income basis in respect of such dividends) it will be
subject to United States federal income tax on a net income basis at ordinary
federal income tax rates (in which case the "branch profits tax" at 30% (or
such lower rate as may be specified in an applicable income tax treaty) may
also apply if such Non-U.S. Holder is a foreign corporation), and assuming
certain certification requirements are met, will not be subject to the 30%
withholding tax.
Under current United States Treasury regulations, a holder's status as a Non-
U.S. Holder and eligibility for a tax treaty reduced rate of withholding will
be determined by reference to the holder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of
withholding, unless facts and
59
circumstances indicate that reliance on this address, certificates or
statements is not warranted. However, subject to certain transitional rules,
recently issued United States Treasury regulations require a Non-U.S. Holder to
provide certifications under penalties of perjury in order to obtain treaty
benefits (and avoid backup withholding as discussed below) for payments made
after December 31, 2000.
A Non-U.S. Holder of Class A common stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
Disposition of Class A Common Stock
Subject to the discussion of backup withholding below, any capital gain
realized upon a sale or other disposition of Class A common stock by a Non-U.S.
Holder ordinarily will not be subject to United States federal income tax
unless (1) the gain is effectively connected with a trade or business conducted
by such Non-U.S. Holder within the United States (and is attributable to a U.S.
permanent establishment of such holder, if an applicable income tax treaty so
requires as a condition for the Non-U.S. Holder to be subject to U.S. income
tax on a net income basis in respect of such gain) (in which case the branch
profits tax at 30% of the Non-U.S. Holder's effectively connected earnings and
profits within the meaning of the Code for the taxable year, as adjusted for
certain items, (or such lower rate as may be specified in an applicable income
tax treaty) may also apply, in addition to tax on the net gain derived from the
sale under regular graduated United States federal income tax rates, if the
Non-U.S. Holder is a foreign corporation), (2) in the case of a Non-U.S. Holder
that is an individual who holds the Class A common stock as a capital asset,
such Non-U.S. Holder is present in the United States for a period or periods
aggregating 183 days or more in the taxable year of the sale or other
disposition and either (a) has a "tax home" for United States federal income
tax purposes in the United States or (b) has an office or other fixed place of
business in the United States to which the gain is attributable (in which case
the holder will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses (even though the
individual is not considered a resident of the United States)), or (3) we are
or have been a "United States real property holding corporation" (a "USRPHC")
for United States federal income tax purposes within the lesser of (a) the
five-year period ending on the date of the sale or other disposition and (b)
the Non-U.S. Holder's holding period, and, in each case, no income tax treaty
exception is applicable. We believe that we are currently a USRPHC. However,
any gain recognized by a Non-U.S. Holder on the disposition of the Class A
common stock still would not be subject to U.S. tax if the common stock were to
be "regularly traded" (within the meaning of applicable United States Treasury
regulations) on an established securities market (such as, for example, the
Nasdaq National Market) and the Non-U.S. Holder did not own, directly or
constructively, more than 5% of the outstanding Class A common stock at any
time during the shorter of (a) the five-year period ending on the date of the
sale or other disposition and (b) the Non-U.S. Holder's holding period. We
believe that upon the consummation of the offering the Class A common stock
will be "regularly traded" (within the meaning of applicable United States
Treasury regulations) on an established securities market. Non-U.S. Holders
should consult their tax advisors to determine whether an income tax treaty is
applicable.
Special rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations," "passive foreign investment companies," and "foreign
personal holding companies," that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.
Federal Estate Taxes
Class A Common stock that is beneficially owned by an individual Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
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Backup Withholding and Information Reporting
Under current law, dividends on Class A common stock paid to a Non-U.S.
Holder at an address outside the United States will generally be exempt from
backup withholding tax (unless the payer has knowledge that the payee is a U.S.
person). Under United States Treasury regulations, however, backup withholding
of United States Federal income tax at a rate of 31% may apply to dividends
paid with respect to Class A common stock after December 31, 2000 to Non-U.S.
Holders that fail to meet applicable certification requirements.
Payments of the proceeds from the sale by a Non-U.S. Holder of shares of
Class A common stock made by or through a foreign office of a broker will not
be subject to information reporting or backup withholding except that if the
broker is, for United States tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period, information reporting may apply to these
payments. Payments of the proceeds from the sale of shares of Class A common
stock by or through the United States office of a broker will be subject to
information reporting and backup withholding unless the Non-U.S. Holder
certifies under penalties of perjury that it is a Non-U.S. Holder or otherwise
establishes an exemption from information reporting and backup withholding.
Subject to certain transitional rules, United States Treasury regulations
change information reporting requirements for Non-U.S. Holders for payments
made after December 31, 2000. Accordingly, a Non-U.S. Holder should consult its
tax advisor regarding the effects on it, if any, of these new regulations.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such Non-U.S. Holder's United States federal income
tax liability provided the required information is furnished to the IRS.
61
UNDERWRITING
Under the underwriting agreement which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters of the
offering named below, for whom Lehman Brothers Inc., Deutsche Bank Securities
Inc., Salomon Smith Barney Inc., Raymond James & Associates, Inc. and Fidelity
Capital Markets, a division of National Financial Services Corporation, are
acting as the representatives, severally agreed to purchase, and we have agreed
to sell to the underwriters, the number of shares of Class A common stock set
forth opposite the name of each underwriter below.
Number
of
Underwriters Shares
- ------------ ---------
Lehman Brothers Inc. ................................................. 2,780,000
Deutsche Bank Securities Inc. ........................................ 2,780,000
Salomon Smith Barney Inc. ............................................ 1,638,000
Raymond James & Associates, Inc. ..................................... 981,000
Fidelity Capital Markets, a division of
National Financial Services Corporation.............................. 149,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 149,000
Dresdner Kleinwort Benson North America LLC........................... 149,000
RBC Dominion Securities Corp.......................................... 149,000
Nesbitt Burns Securities Inc.......................................... 75,000
SunTrust Equitable Securities Corporation............................. 75,000
Wachovia Securities, Inc.............................................. 75,000
---------
Total............................................................... 9,000,000
=========
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in the offering are subject to
approval of legal matters by counsel as well as to other conditions. The
underwriters are obligated to purchase all the shares (other than those covered
by the over-allotment option described below) if they purchase any of the
shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $0.81 per share. The underwriters may allow, and
these dealers may reallow, a concession not in excess of $0.10 per share on
sales to certain brokers and dealers. If all of the shares are not sold at the
initial offering price, the representatives may change the public offering
price and the other selling terms. The representatives have advised us that the
underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority without the prior written approval of the
customer.
We and the selling shareholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
1,350,000 additional shares of our Class A common stock at the public offering
price less the underwriting discount. The underwriters may exercise this option
solely for the purpose of covering over-allotments, if any, in connection with
the offering. To the extent this option is exercised, each underwriter will be
obligated, subject to various conditions, to purchase a number of additional
shares approximately proportionate to its initial purchase commitment.
We, our executive officers and directors and the selling shareholders have
agreed not to do any of the following, whether any transaction described in
clause (1), (2) or (3) below is to be settled by delivery of Class A common
stock or other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc., on behalf of the underwriters, for a
period of 90 days after the date of this prospectus:
(1) offer, sell, pledge, or otherwise dispose of, or enter into any
transaction or device which is designed or could be expected to, result
in the disposition by any person at any time in the future of, any
shares of Class A common stock or securities convertible into or
exchangeable for Class A common stock or substantially similar
securities, other than any of the following:
62
. the Class A common stock sold under this prospectus;
. shares of Class A common stock we issue pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans existing on the date of this prospectus or pursuant to
currently outstanding options, warrants or rights; and
. up to 765,000 shares that may be sold by the selling shareholders;
(2) sell or grant options, rights or warrants with respect to any shares of
our Class A common stock or securities convertible into or exchangeable for our
Class A common stock or substantially similar securities, other than the grant
of options pursuant to option plans existing on the date hereof; and
(3) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks or
ownership of shares of Class A common stock.
These lock up arrangements will be subject to the following exceptions:
. transfers of common stock in private transactions or
. transfers of common stock for estate planning purposes;
in each case, provided that the transferees agree to be bound by the
restrictions described above.
Our Class A common stock is quoted on the Nasdaq National Market under the
symbol "SBAC."
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
In connection with the offering, Lehman Brothers, on behalf of the
underwriters, may purchase and sell shares of our Class A common stock in the
open market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of Class A common stock in excess of the number of shares to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of our Class A common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of our Class A common stock made for the purpose of preventing or
retarding a decline in the market price of our Class A common stock while the
offering is in progress.
The representatives also may impose a penalty bid. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
Lehman Brothers, in covering syndicate short positions or making stabilizing
purchases, repurchases shares originally sold by that syndicate member.
Any of these activities may cause the price of our Class A common stock to be
higher than the price that otherwise would exist in the open market in the
absence of these transactions. These transactions may be affected in the over-
the-counter market or otherwise and, if commenced, may be discontinued at any
time.
Any offer of the shares of Class A common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an
exemption from the dealer registration requirement (where such an exemption is
not available, offers shall be made only by a registered dealer) in the
relevant Canadian jurisdiction where any offer is made.
Purchasers of the shares of Class A common stock offered in this prospectus
may be required to pay stamp taxes and other charges in accordance with the
laws and practices of the country of purchase, in addition to the offering
price set forth on the cover of this prospectus.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act of 1933, or
to contribute to payments the underwriters may be required to make in respect
of any of those liabilities.
As permitted by Rule 103 of Regulation M promulgated by the Securities and
Exchange Commission under the Exchange Act, the underwriters, if any, that are
market makers, referred to as passive market makers, in the Class A common
stock, may make bids for or purchases of the Class A common stock on The Nasdaq
63
National Market until the time, if any, when a stabilizing bid for such
securities has been made. Rule 103 generally provides that:
. a passive market maker's net daily purchases of the Class A common stock
may not exceed 30% of its average daily trading volume in securities for
the two full consecutive calendar months (or any 60 consecutive days
ending within the 10 days) immediately preceding the filing date of the
registration statement of which this prospectus forms a part;
. a passive market maker may not effect transactions or display bids for
the Class A common stock at a price that exceeds the highest independent
bid for the Class A common stock by persons who are not passive market
makers; and
. bids made by passive market makers must be identified as such.
Certain of the representatives have from time to time provided investment
banking, financial advisory and other services to us for which these
representatives received customary fees and commissions. Lehman Brothers acted
as co-arranger of our senior credit facility and its affiliate, Lehman
Commercial Paper Inc., is the administrative agent of the senior credit
facility. Lehman Commercial Paper Inc. will receive a portion of the proceeds
of the offering in repayment of indebtedness outstanding under the senior
credit facility. Therefore, this offering is being conducted pursuant to
Conduct Rule 2710(c)(8) of the National Association of Securities Dealers, Inc.
Lehman Brothers and Deutsche Bank Securities Inc. were also the initial
purchasers of our senior discount notes. In addition, Deutsche Bank Securities
Inc. acted as placement agent in connection with the private placement of
shares of our Series A preferred stock in March 1997. We granted Deutsche Bank
Securities Inc. a warrant to purchase up to 402,500 shares of Class A common
stock, subject to certain anti-dilution rights.
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LEGAL MATTERS
Certain legal matters relating to the offering will be passed upon for us by
Akerman, Senterfitt & Eidson, P.A., Miami, Florida. Certain legal matters
relating to the Class A common stock will be passed upon for the underwriters
by Simpson Thacher & Bartlett, New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedule of SBA Communications
Corporation as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998, financial statements of Caddo Tower Company
Inc. for the fiscal year ended July 31, 1998, financial statements of PrimeCo
Tower Operations for the year ended December 31, 1997, financial statements of
Northwest Tower Service, Inc. for the year ended December 31, 1997 and
financial statements of General Communications Properties, Inc. Tower
Operations for the year ended December 31, 1997, incorporated by reference in
this prospectus and elsewhere in the registration statement, have been audited
by Arthur Andersen LLP, independent certified public accountants, as indicated
in their reports with respect thereto, and are incorporated by reference herein
in reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Transmission Facilities, Inc. for the year ended
December 31, 1997, incorporated by reference in this prospectus and elsewhere
in the registration statement, have been audited by Peter C. Cosmas Co.,
Certified Public Accountants as indicated in their report with respect thereto,
and are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of Long Island Waves, Inc. for the ten months ended
September 30, 1998, incorporated by reference in this prospectus and elsewhere
in the registration statement, have been audited by John A. Criscuola,
Certified Public Accountant as indicated in his report with respect thereto,
and are incorporated by reference herein in reliance upon his authority as an
expert in giving said report.
The financial statements of Quad States Towers and Communications for the
year ended June 30, 1998, incorporated by reference in this prospectus and
elsewhere in the registration statement, have been audited by Turbes Drealan
Kvilhaug & Co. PA, Certified Public Accountants, as indicated in their report
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said report.
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[COLLAGE DEPICTING A VARIETY OF COMMUNICATION SITES OF SBA COMMUNICATIONS
CORPORATION.]
9,000,000 Shares
[SBA LOGO]
SBA Communications Corporation
Class A Common Stock
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PROSPECTUS
January 28, 2000
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Lehman Brothers
Deutsche Banc Alex. Brown
Salomon Smith Barney
Raymond James & Associates, Inc.
Fidelity Capital Markets
a division of National Financial Services Corporation
Facilitating Electronic Distribution