<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PINNACLE HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
----------------
DELAWARE 4899 65-0652634
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1549 RINGLING BOULEVARD, 3RD FLOOR
SARASOTA, FLORIDA 34236
(941) 364-8886
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN DAY
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
PINNACLE HOLDINGS INC.
1549 RINGLING BOULEVARD, 3RD FLOOR
SARASOTA, FLORIDA 34236
(941) 364-8886
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
CHESTER E. BACHELLER, ESQ. WINTHROP B. CONRAD, JR., ESQ.
MICHAEL L. JAMIESON, ESQ. DAVIS POLK & WARDWELL
HOLLAND & KNIGHT LLP 450 LEXINGTON AVENUE
400 NORTH ASHLEY DRIVE, SUITE 2300 NEW YORK, NEW YORK 10017
TAMPA, FLORIDA 33602 (212) 450-4000
(813) 227-8500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of
earlier effective registration statements for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share.............. $230,000,000 $67,850
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1998
Shares
[LOGO]
Pinnacle Holdings Inc.
COMMON STOCK
-----------
OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY,
SHARES ARE BEING SOLD BY THE COMPANY AND SHARES ARE BEING OFFERED
BY CERTAIN SELLING STOCKHOLDERS (THE "SELLING STOCKHOLDERS"). OF THE
SHARES OF COMMON STOCK BEING OFFERED HEREBY, SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED
IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
-----------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "BIGT."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO COMMISSIONS PROCEEDS TO SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total (3)................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and the Selling Stockholders have granted to the U.S.
Underwriters options, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of additional Shares of Common
Stock at the price to public, less underwriting discounts and
commissions, solely for the purpose of covering over-allotments, if any.
If the U.S. Underwriters exercise such options in full, the Company and
the Selling Stockholders will sell and Shares of Common
Stock, respectively, and the total price to public, underwriting
discounts and commissions, proceeds to Company and proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriters."
-----------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to the approval of
certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters.
It is expected that delivery of the Shares will be made on or about , 1998
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
, 1998.
<PAGE>
[PARTIAL MAP OF U.S. INDICATING COMPANY'S CURRENT TOWER SITES AND PROPOSED
TOWER SITES.]
[Partial map of U.S. indicating Company's current tower sites and proposed
tower sites]
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
i
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY, BY
ANY SELLING STOCKHOLDER OR BY ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC
OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS
IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN
THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE
REQUIRED BY THE COMPANY, THE SELLING STOCKHOLDERS AND THE UNDERWRITERS TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF
THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 13
Use of Proceeds..................... 22
Distribution Policy................. 22
Capitalization...................... 23
Dilution............................ 24
Unaudited Pro Forma Financial Data.. 25
Selected Historical Financial Data.. 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 34
Business............................ 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management......................... 55
Principal and Selling Stockhold-
ers............................... 61
Certain Relationships and Transac-
tions............................. 62
Description of Certain Indebted-
ness.............................. 64
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 69
Certain Federal Income Tax Consid-
erations.......................... 70
Underwriters....................... 81
Legal Matters...................... 84
Experts............................ 84
Additional Information............. 84
Index to Financial Statements...... F-1
</TABLE>
----------------
Market data used throughout this Prospectus was obtained from industry
publications that generally state that the sources used to acquire such data
are believed to be reliable, but that the accuracy and completeness of such
data is not guaranteed. Although the Company believes the data to be reliable,
it has not independently verified such data.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements contained elsewhere in this Prospectus. Except as otherwise
indicated by the context: (i) references in this Prospectus to the "Company"
include Pinnacle Holdings Inc. and its consolidated subsidiaries; (ii) the
information contained in this Prospectus assumes no exercise of the U.S.
Underwriters' over-allotment option; and (iii) all references to Shares of
Common Stock, per share amounts and other information set forth in this
Prospectus have been adjusted to reflect certain actions taken by the Company
to effect the Recapitalization (as defined herein), which will result in a
conversion of all shares of Class A, Class B, Class C, Class D and Class E
Common Stock of the Company into shares of Common Stock, effective upon the
closing of the Offering.
THE COMPANY
The Company is the leading provider of wireless communications rental tower
space in the Southeastern United States. Since commencing operations in May
1995, the Company has completed 184 acquisitions through which it has acquired
598 towers and has constructed an additional 48 towers in such high growth
markets as Atlanta, Birmingham, New Orleans, Orlando and Tampa. The Company
also has agreements or letters of intent to acquire 196 additional towers. As a
result of its extensive existing tower base, the Company believes it is well-
positioned to continue to capitalize on the growth opportunities available in
the rapidly consolidating and highly fragmented tower rental industry. For the
year ended December 31, 1997 and the six months ended June 30, 1998, on a pro
forma basis, the Company had tower rental revenue and EBITDA of $40.0 million
and $27.2 million, respectively, and $21.7 million and $12.7 million,
respectively. See "Unaudited Pro Forma Financial Data."
The Company has a diversified base of over 680 customers consisting of
wireless communications providers, operators of private networks and government
agencies that include Southern Communications Services, Inc. ("Southern
Communications"), Nextel, Sprint PCS, PageNet, Motorola, BellSouth Mobility,
MobileMedia, Teletouch, Skytel, Pagemart, Federal Bureau of Investigation and
Bureau of Alcohol, Tobacco & Firearms. The Company's leases generally range in
duration from three to five years and many provide for scheduled minimum rent
increases of the greater of a specified percentage (which typically ranges from
3-5%) or the change for the relevant period in the Consumer Price Index
("CPI"). Unlike a number of other participants in the tower rental industry,
the Company focuses exclusively on the rental of wireless communications tower
space. The Company's desirable tower locations, long-term customer leases,
diversified customer base and low levels of churn have combined to produce
operating margins that the Company believes are among the highest in the
industry.
The Company believes that its business will be favorably impacted by the
following considerations: (i) high cash flow margins with significant operating
leverage; (ii) consolidation opportunities in a highly fragmented industry;
(iii) attractive growth potential; (iv) stable and predictable cash flow; (v)
high barriers to entry; and (vi) low customer churn. The Company believes that
its tower portfolio provides the core asset base from which it can continue to
generate increasing revenue and cash flow through the acquisition and
construction of clusters of towers in attractive, high growth markets.
The Company has designed and implemented a three-tiered growth strategy of:
(i) aggressively marketing available rental space on its towers to capitalize
on the operating leverage of its business; (ii) rapidly acquiring towers in key
markets; and (iii) implementing a selective tower construction program designed
to complement its acquisition strategy. In order to effect its strategy, the
Company has created a highly focused, structured organization in which
significant resources are devoted to acquiring or constructing towers on
strategically located sites supported by customer demand. The Company uses its
proprietary information systems and other systems to rapidly integrate new
towers and initiate sales and marketing efforts immediately following their
acquisition or construction.
1
<PAGE>
Pursuant to its growth strategy, in March 1998, the Company acquired 201
towers from Southern Communications (the "Southern Towers Acquisition") for
$83.5 million plus fees and expenses. The Company believes that the acquisition
of these towers significantly enhanced the Company's existing inventory and
resulted in a level of geographic coverage in the Southeastern United States
that is far more comprehensive than that offered by any of its competitors. The
Company believes it can effectively leverage these sites to obtain additional
customers and thereby increase revenues and margins. In addition, the Company
recently entered into an agreement, subject to certain conditions, to acquire
163 towers from MobileMedia Corporation ("MobileMedia") and its affiliates for
$170.0 million plus fees and expenses (the "MobileMedia Acquisition"). In
connection with the MobileMedia Acquisition, the Company will enter into a 15-
year lease arrangement to provide rental tower space to MobileMedia
Communications, Inc. ("MobileMedia Communications"), an affiliate of
MobileMedia. The Company believes the MobileMedia Acquisition will further
strengthen the Company's presence in certain existing markets, provide entry
into geographically contiguous markets and expand the Company's operations into
new markets in Southern California and New England.
The Company believes that a significant opportunity for revenue growth exists
through maximizing the utilization of its towers. Because the costs of
operating a tower are largely fixed, increasing tower utilization significantly
improves tower operating margins. The Company believes that "same tower"
revenue growth (measured by comparing the Annualized Run Rate Revenue (as
defined herein) of the Company's towers at the end of a period to the
Annualized Run Rate Revenue for the same towers at the end of a prior period),
is a meaningful indicator of the Company's ability to generate incremental
revenue on such towers. The Company's Annualized Run Rate Revenue as of June
30, 1998 was $29.3 million, without giving effect to additions totalling $14.2
million for probable acquisitions as of July 10, 1998. The Company had "same
tower" revenue growth of 26.3% at year end 1997 over 1996 and 25.0% on an
annualized basis for the six months ended June 30, 1998 over year end 1997.
INDUSTRY BACKGROUND
Communications towers are primary infrastructure components for wireless
communications services such as cellular, paging, personal communications
services ("PCS"), Specialized Mobile Radio ("SMR"), wireless data transmission
and radio and television broadcasting. Wireless communications companies
require specialized 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 carrier and includes transmission
equipment such as antennae, transmitters and receivers placed at various
locations throughout the covered area. These locations, or communications
sites, are critical to the operation of wireless communications networks and
consist of towers, rooftops and other structures upon which such equipment may
be placed. Wireless communications providers design their network and select
their communications sites in order to optimize available frequencies relative
to projected usage patterns, topography and service requirements.
The wireless communications industry is growing rapidly as: (i) consumers
become increasingly aware of the uses and benefits of wireless communications
services; (ii) the costs of wireless communications services decline; and (iii)
new wireless communications technologies continue to be developed. Recent
changes in U.S. federal regulatory policy have led to a significant increase in
the number of competitors in the wireless communications industry, most
recently through the auction of radio spectrum for PCS. The resulting
competition, combined with increasing reliance on wireless communications by
consumers and businesses, has increased demand for higher quality networks
characterized by uninterrupted service and improved coverage. As new carriers
build out networks and existing carriers upgrade and expand their networks to
maintain competitiveness, the demand for communications sites is expected to
continue to increase dramatically.
During the mid-to-late 1980s, a number of independent tower owners began to
emerge, marking the beginning of the tower rental industry. These independent
tower owners focused on owning and managing towers with multiple customers by
adding customers to existing and reconstructed towers. The Company believes the
2
<PAGE>
majority of these tower operators were individuals with a small number of local
rental towers offering very limited coverage areas. In the last three years,
several larger independent tower owners have emerged as demand for wireless
communications services continued to grow and as additional high frequency
licenses were awarded for new wireless communications services each requiring
networks with extensive tower infrastructure. As the demand for towers has been
increasing there has also been a growing trend by municipalities to slow the
proliferation of towers. These trends have contributed to a growing need for
towers that can accommodate co-location of wireless communications providers.
Ownership of rental towers in many parts of the United States remains highly
fragmented. Only a few independent tower owners have accumulated a large number
of towers and the Company believes it is the only provider of tower services to
have achieved a consolidated position in the Southeastern United States. The
pace of consolidation has begun to accelerate as larger independent owners
acquire small local owners in certain regions. The Company believes achieving a
consolidated position in a given market provides a significant competitive
advantage.
BUSINESS AND GROWTH STRATEGY
The Company's objective is to create substantial value from both its position
as the leading provider of wireless communications rental tower space in the
Southeastern United States and its expansion into additional wireless
communications markets. In order to achieve its objective, the Company has
designed and implemented a three-tiered growth strategy that focuses on: (i)
marketing and development; (ii) acquisitions; and (iii) new tower construction.
Marketing and Development Strategy
The Company aggressively markets rental space on its towers to capitalize on
the operating leverage of its business. The Company's customers are generally
responsible for the installation of their own equipment and the incremental
utility costs associated with that equipment. In addition, adding customers to
an existing tower does not result in increased monitoring, maintenance or
insurance costs. Accordingly, the Company believes that when customers are
added to an existing tower, additional revenue can be achieved at low
incremental costs, thereby yielding increased margins. The key elements of the
Company's marketing and development strategy include the following:
. Offer Strategically Located Clusters of Towers. By owning and
assembling clusters of towers in high growth regions, the Company believes
it is able to offer its customers the ability to rapidly fulfill their
network expansion plans, which the Company believes provides it with a
significant competitive advantage. The Company also believes that national
and other large wireless communications providers prefer to deal with a
company that can meet the needs of such providers within a particular
market or region.
. Leverage Customer Relationships. The Company believes it has
established a reputation among its customers as a highly professional and
reliable tower space provider. This has been achieved through ongoing
investment in the development of relationships at multiple levels of
customer organizations. The Company believes that making customers'
technical and planning personnel aware of the quality of a particular site
is an important factor in generating interest in the Company's towers.
. Provide a Dedicated Customer Service Group. The Company employs a group
of individuals who are entirely dedicated to assisting customers with site
location and installation logistics. The Company believes that the use of
effective information and other systems enables its customer service group
to respond quickly and accurately to customers' needs.
. Track FCC Filings. All FCC licensees must file applications for site
locations. Utilizing its proprietary databases and publicly available
information, the Company tracks these filings closely to identify tower
acquisition and construction opportunities. The Company also closely
monitors FCC auctions in order to identify new market entrants.
3
<PAGE>
. Provide High Quality, Secure Facilities. The wireless communications
equipment typically stored in a tower building is becoming increasingly
sophisticated and is critical to the operations of wireless communications
providers. Accordingly, the Company believes its ability to provide well-
maintained and secure facilities has further enhanced its ability to
attract and maintain customers.
Acquisition Strategy
The Company's acquisition strategy is focused on: (i) the rapid acquisition
of towers in key markets as a means to quickly gain critical mass, thereby
discouraging other tower consolidators from entering its markets; (ii) follow-
on acquisitions to enhance its coverage in selected wireless communications
markets; and (iii) the penetration of new markets as a platform for future
growth. The key elements of the Company's acquisition strategy are set forth
below:
. Target High Growth Wireless Communications Markets. The Company targets
population centers and transportation corridors in wireless communications
markets where there is evidence of high potential growth. The Southeastern
United States is attractive because of its relatively high population and
economic growth rates. Within this region, the Company has established
strong market positions in densely populated areas such as Atlanta,
Birmingham, New Orleans, Orlando and Tampa as well as along several key
traffic corridors. The MobileMedia Acquisition will provide the Company
with strong market positions in Knoxville, Mobile and Nashville. The
Company believes high demand for the services of wireless communication
providers will correspond to high demand for rental tower space.
. Focus on Compatibility with Existing Tower Network. In evaluating a
potential acquisition, the Company considers whether it will be compatible
with the Company's existing tower inventory. In general, the Company aims
to acquire sites which will result in clusters of towers that provide the
critical mass necessary to achieve certain competitive advantages within a
given market. As a result of this approach, the Company has primarily
focused on achieving an expanded presence in the Southeastern United
States. The MobileMedia Acquisition will provide the Company with a tower
base that will include sites in new markets in Southern California and New
England that the Company believes can provide the basis for further market
penetration.
. Employ a Disciplined Valuation Process. The Company seeks to acquire
towers that have existing cash flow and the potential for significant
future cash flow growth. For each potential acquisition, the Company
reviews the current population coverage of each proposed tower, the nature
and quality of the customer base, coverage of current and future major
transportation corridors and the location and desirability of competing
towers. The Company also makes an assessment of potential cash flow growth
and estimates whether additional capital expenditures will be required to
add capacity to accommodate future growth.
New Tower Construction Strategy
The Company will continue to construct new towers and tower networks in and
around major markets in which it already has a presence. The Company intends to
construct towers on a selective basis primarily to enhance coverage in selected
markets. In addition the Company intends to pursue build opportunities in order
to expand capacity or otherwise improve already existing sites. During 1997 and
the six months ended June 30, 1998, the Company constructed 22 and 18 towers,
respectively. The Company estimates that it will identify 100 to 150 new tower
build opportunities over the next 12 months. The elements of the Company's
tower build program include the following:
. Disciplined Build Selection Criteria. Through its sales and marketing
efforts, the Company seeks to identify suitable tower construction sites
based on information obtained from wireless communications providers
regarding their network construction plans. The Company carefully evaluates
such plans to meet customer requirements, which may result in selling space
on an existing tower, acquiring an existing tower,
4
<PAGE>
augmenting an existing tower or constructing a new tower. Tower
construction is only initiated after at least one anchor customer is
identified and after the Company has determined, based on market research,
that the capital outlay for the construction project would be consistent
with the Company's requirements of return on capital.
. Rapid Construction/Build Implementation. After identifying an
attractive construction opportunity, the Company moves quickly to: (i)
secure access to the site by either purchasing or entering into a long-term
lease for a parcel of land; (ii) select the appropriate type of tower based
on structural capacity needs; (iii) initiate sales and marketing efforts to
rent space on the tower; and (iv) complete the necessary steps to obtain
zoning approvals and building permits. The Company oversees the
construction of the tower by hired sub-contractors.
. Effective Tower Design and Sourcing. New tower structures are available
from a variety of vendors. The number of customer attachments that can be
installed on any individual tower (the tower's capacity) depends on a
number of factors including the original engineering and design of the
tower, the geographic area and the specific nature of the attachments.
These factors also influence the amount of capital that must be invested to
build such towers. The Company believes that by carefully balancing these
factors, it can economically improve the capacity of new and existing
towers.
COMPANY STRENGTHS
The Company currently has a network of approximately 646 towers (excluding
196 towers to be acquired pursuant to the MobileMedia Acquisition and other
probable acquisitions), geographically clustered in the Southeastern United
States. The Company believes its business will be favorably impacted by the
following considerations:
. High Cash Flow Margins with Significant Operating Leverage. The
Company's towers are fixed-cost assets with minimal variable costs
associated with revenue from leasing available space to additional or
existing customers, as each customer generally assumes the costs of
installation, utilities and equipment maintenance. Accordingly, the Company
can generate increasing operating margins when new customers are added,
resulting in high incremental free cash flow. For the six months ended June
30, 1998, the Company's Tower Level Cash Flow Margin (as defined herein)
was 80%.
. Consolidation Opportunities in a Highly Fragmented Industry. The tower
rental industry remains highly fragmented, with few independent operators
owning a large number of towers. The pace of consolidation has begun to
accelerate, however, as the larger independent operators continue to
acquire small local or regional operators and purchase communications sites
and related assets from wireless communications carriers. The Company
believes that a major factor contributing to such consolidation is the
emergence of national and other large wireless communications services
providers who prefer to deal with companies that can meet the majority of
such providers' needs within a particular market or region. The Company
further believes that significant opportunities for growth exist in this
current industry environment and that it is well-positioned to continue to
be a significant consolidator of towers. Since commencing operations in May
1995, the Company has successfully completed 184 acquisitions through which
it has acquired 598 towers.
. Attractive Growth Prospects. According to industry publications, as of
December 31, 1997, penetration for wireless services was approximately
21.0% and is projected to grow to 53.0% by 2007. The Company's rental
towers provide basic infrastructure components for all major wireless
communications services, including cellular, paging, two-way radio,
broadcast television, microwave, wireless data transmission and SMR. As a
result, the Company believes that it can achieve a level of growth in its
tower rental revenue that will in general reflect the growth of its
customer base over the next several years.
5
<PAGE>
. Stable and Predictable Cash Flow. The Company believes that it benefits
from the long-term contract nature of its tower rental business and the
predictability and stability of monthly, prepaid and recurring revenue. The
Company generally leases space on its towers to wireless communications
providers under three- to five-year leases. In addition, a majority of the
Company's leases provide built-in annual rate increases of the greater of a
specified percentage (which typically ranges from 3-5%) or the change for
the relevant period in the CPI. Furthermore, because a significant
proportion of tower rental revenue is received from customers that are
predominantly large companies and because towers provide a basic utility-
like service (which can be terminated by a tower owner if rent is not
paid), the Company generally experiences low levels of bad debt expense. In
addition, the Company has a broad representation of wireless communications
providers and underlying technologies reflected in its customer base of 680
customers, which the Company believes enhance the stability and
predictability of its cash flow.
. Barriers to Entry. Towers are subject to a variety of federal and local
regulations that make the construction of towers difficult and increase the
time and expense associated with their construction, especially in highly
populated or high transmission areas. As a result, the Company believes
that in areas where it has established a critical mass of rental tower
inventory, construction of alternative towers will be less attractive to
others due to the likelihood of lower returns on those towers. Wireless
communications providers seeking to construct their own proprietary,
limited use towers face continued opposition by municipalities, which are
reducing the opportunities for such new towers to be built and supporting
the trend toward co-location on rental towers.
. Low Customer Churn. The tower rental industry typically experiences low
customer churn as a result of the high relocation costs incurred by
customers. When customers enter into long-term contracts for tower space,
those customers generally make significant capital and network engineering
commitments to the related site. The time and costs associated with network
reconfiguration and obtaining FCC and municipal or local approval may also
discourage customer relocation. The Company believes that the high levels
of commitment made by its customers benefit the Company in the form of a
recurring revenue stream.
RECENT DEVELOPMENTS
In March 1998, the Company completed the acquisition of 201 towers from
Southern Communications, a subsidiary of Southern Company, one of the largest
utility holding companies in the United States and a large Enhanced Specialized
Mobile Radio ("ESMR") provider with a network in the Southeastern United
States. The Company paid $83.5 million plus fees and expenses for these towers,
which are located in Alabama, Florida, Georgia and Mississippi. In connection
with the Southern Towers Acquisition, the Company entered into ten-year lease
arrangements (the "Southern Communications Leases") to provide rental tower
space to Southern Communications and certain of its affiliates which, on a pro
forma basis, would have accounted for approximately 16% of the Company's
revenues for the year ended December 31, 1997. Prior to this acquisition, these
towers were principally for the exclusive use of Southern Communications and
its affiliates and were used by only a small number of third party tenants. As
a result, the Company intends to leverage the acquired tower sites to obtain
additional customers and thereby increase revenues and potentially improve
operating margins.
On July 7, 1998, the Company signed a definitive purchase and sale agreement,
subject to certain conditions, to acquire 163 communications towers in 18
states from MobileMedia, a nationwide paging company, and several of its
affiliates for $170 million plus fees and expenses. The Company believes the
towers located in Alabama, Florida, South Carolina and Texas should strengthen
the Company's presence in key markets. In addition, the location of a
substantial number of the towers in Kentucky and North Carolina should provide
a contiguous expansion of the Company's already substantial coverage area in
the Southeastern United States. The Company also believes the MobileMedia
Acquisition will provide an opportunity for the Company to assemble clusters of
towers in new high growth markets in Southern California and New England. The
MobileMedia Acquisition is expected to initially generate, at closing,
annualized Tower Level Cash Flow (as defined herein)
6
<PAGE>
of approximately $11.5 million. In connection with the MobileMedia Acquisition,
the Company will enter into a 15-year lease arrangement (the "Master Lease") to
provide rental tower space to MobileMedia Communications which, on a pro forma
basis, would have accounted for approximately 32% of the Company's revenues for
the year ended December 31, 1997. MobileMedia and certain of its affiliates are
currently operating as debtors-in-possession under Chapter 11 of the Bankruptcy
Code and the MobileMedia Acquisition and the Master Lease are therefore subject
to the approval of the bankruptcy court and certain other contingencies
relating to standard bankruptcy procedures. Accordingly, there can be no
assurance that either the MobileMedia Acquisition or the Master Lease will be
consummated. See "Risk Factors--Risks Associated with the MobileMedia
Acquisition."
----------------
The Company's headquarters are located at 1549 Ringling Boulevard, Third
Floor, Sarasota, Florida 34236, and its telephone number is (941) 364-8886. The
Company's website is www.pinnacletowers.com. The information provided on the
Company's website is not incorporated into this Prospectus.
7
<PAGE>
THE OFFERING
The offering hereby of shares of Common Stock in the United States and
Canada (the "U.S. Offering") and the concurrent offering of shares of
Common Stock outside the United States and Canada (the "International
Offering") are collectively referred to as the "Offering." The closing of each
of the U.S. Offering and the International Offering is conditioned upon the
closing of the other.
Common Stock offered by:
The Company................
The Selling Stockholders... shares
shares
-------
Total.................... shares
-------
-------
Common Stock offered in:
U.S. Offering.............. shares
International Offering..... shares
-------
Total.................... shares
-------
-------
Common Stock to be
Outstanding after the shares (1)
Offering...................
Use of Proceeds............. The Company intends to use the net proceeds of
the Offering as follows: (i) approximately $114.2
million to partially finance the MobileMedia
Acquisition; (ii) approximately $2.6 million to
repay and retire all outstanding borrowings and
accrued interest under the ABRY Bridge Loan (as
defined herein); and (iii) approximately $43.7
million to be distributed to certain stockholders
in connection with the Recapitalization to occur
upon the closing of the Offering. The Company
will not receive any of the net proceeds from the
sale of Shares of Common Stock by the Selling
Stockholders. The Company intends to finance the
balance of the MobileMedia Acquisition purchase
price (approximately $58.8 million including fees
and expenses estimated to be approximately $3.0
million) from borrowings under the Senior Credit
Facility (as defined herein).
Nasdaq National Market BIGT
Symbol.....................
- --------
(1) Excludes approximately shares of Common Stock reserved for
issuance pursuant to the Company's stock incentive plan (the "Stock
Incentive Plan"). See "Management--Stock Incentive Plan."
8
<PAGE>
THE RECAPITALIZATION
In connection with the Offering, the Company will take certain actions to
convert all outstanding shares of each class of the Company's five classes of
common stock to be converted into shares of a single class of common stock (the
"Common Stock") and to pay to the holders of certain of such classes of common
stock preferential amounts and yields. Such actions are collectively referred
to herein as the "Recapitalization." As a result, (i) the certificate of
incorporation of the Company will be amended immediately prior to the
consummation of the Offering to eliminate the current multiple classes of the
Company's common stock and create a single class of common stock, with each of
the outstanding shares of all the classes of common stock of the Company other
than Class D Common Stock being converted into shares of Common Stock and
each share of Class D Common Stock being converted into approximately
shares of Common Stock; (ii) the holders of the Company's currently outstanding
shares of Class A Common Stock, Class B Common Stock and Class E Common Stock
will collectively be paid approximately $38.9 million by the Company from
proceeds of the Offering, which amount equals the amount of the preferences
such shares are entitled to over the other classes of the Company's common
stock pursuant to the Company's certificate of incorporation in its current
form; and (iii) the holders of the Company's currently outstanding shares of
Class A Common Stock will collectively be paid approximately $4.8 million by
the Company from proceeds of the Offering, which amount equals the amount of
the yield such shares have accrued from the date of their issuances through
June 30, 1997 pursuant to the Company's certificate of incorporation in its
current form.
9
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary historical and unaudited pro forma
consolidated financial data of the Company. The summary historical consolidated
financial data for the period of inception (May 3, 1995) through December 31,
1995 and for the year then ended and as of and for each of the two years ended
December 31, 1996 and 1997 were derived from the consolidated financial
statements of the Company. The unaudited pro forma consolidated financial data
as of and for the year ended December 31, 1997 and the selected historical and
unaudited pro forma consolidated financial data as of and for the six months
ended June 30, 1997 and 1998 were derived from unaudited consolidated financial
statements and the Unaudited Pro Forma Consolidated Financial Statements of the
Company contained elsewhere herein. The summary financial information should be
read in conjunction with, and are qualified in their entirety by, the
information contained in the consolidated audited financial statements of the
Company and the related notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Data" and "Selected Historical Consolidated Financial Data" included elsewhere
herein.
The following summary unaudited pro forma statement of operations data has
been prepared to reflect the results of operations of the Company as if each of
the following had been completed as of January 1, 1997: (i) all acquisitions
completed during 1997; (ii) the Southern Towers Acquisition; (iii) acquisitions
of other rental towers by the Company completed since January 1, 1998, in
addition to the Southern Towers Acquisition; (iv) the MobileMedia Acquisition;
(v) other individually immaterial acquisitions of rental towers for which the
Company has entered into agreements or letters of intent to acquire as of July
10, 1998, the acquisitions of which the Company believes are probable; (vi) the
financing of the acquisitions referred to in (i) through (v) above; and (vii)
the issuance of the Common Stock and the application of the net proceeds
therefrom as described under "Use of Proceeds" (collectively, the
"Transactions"). The pro forma balance sheet data as of June 30, 1998 have been
prepared as if each such transaction referred to in (i) through (vii) above not
completed by June 30, 1998 had occurred on that date. The pro forma adjustments
are based upon available information and certain assumptions that the Company
believes are reasonable. The pro forma consolidated financial data do not
purport to present what the Company's results of operations or financial
position would actually have been, or to project the Company's results of
operations or financial position at any future period.
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM AS ADJUSTED
INCEPTION FOR SIX
(MAY 3, 1995) PRO FORMA SIX MONTHS SIX MONTHS MONTHS
THROUGH YEAR ENDED YEAR ENDED AS ADJUSTED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997 1997 (A) 1997 1998 1998 (B)
------------- ------------ ------------ ------------ ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Tower rental revenue.... $ 733 $ 4,842 $12,881 $ 40,030 $ 4,848 $ 12,544 $ 21,697
Tower operating
expenses, excluding
depreciation and
amortization........... 181 1,135 2,633 6,696 847 2,531 3,779
------ ------- ------- -------- ------- -------- --------
Gross profit, excluding
depreciation and
amortization........... 552 3,707 10,248 33,334 4,001 10,013 17,918
Other expenses:
General and
administrative (c).... 306 923 1,385 2,377 608 1,495 1,793
Corporate
development (c)....... 369 1,440 3,772 3,772 1,656 3,475 3,475
Depreciation and amor-
tization.............. 341 2,205 6,627 31,195 2,483 7,971 16,280
------ ------- ------- -------- ------- -------- --------
Loss from operations.... (464) (861) (1,536) (4,010) (746) (2,928) (3,630)
Interest expense........ 181 1,155 6,925 11,791 2,243 4,550 8,487
Amortization of original
issue discount......... -- -- -- 20,760 -- 5,661 10,980
------ ------- ------- -------- ------- -------- --------
Net loss................ $ (645) $(2,016) $(8,461) $(36,561) $(2,989) $(13,139) $(23,097)
====== ======= ======= ======== ======= ======== ========
Loss per Common Share... $(6.31) $ (8.10) $(27.28) $ (9.76) $ (34.24)
Weighted Average Number
of Common Shares....... 102 249 310 306 384
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PERIOD FROM AS ADJUSTED
INCEPTION FOR SIX
(MAY 3, 1995) PRO FORMA SIX MONTHS SIX MONTHS MONTHS
THROUGH YEAR ENDED YEAR ENDED AS ADJUSTED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997 1997 (A) 1997 1998 1998 (B)
------------- ------------ ------------ ------------ ---------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Tower Level Cash Flow
(d).................... $ 552 $ 3,707 $ 10,248 $33,334 $ 4,001 $ 10,013 $17,918
Tower Level Cash Flow
Margin (e)............. 75.3% 76.6% 79.6% 83.3% 82.5% 79.8% 82.6%
Adjusted EBITDA (d)..... $ 246 $ 2,784 $ 8,863 $30,957 $ 3,393 $ 8,518 $16,125
Adjusted EBITDA Margin
(e).................... 33.6% 57.5% 68.8% 77.3% 70.0% 67.9% 74.3%
EBITDA (d).............. $(123) $ 1,344 $ 5,091 $27,185 $ 1,737 $ 5,043 $12,650
EBITDA Margin (e)....... -- 27.8% 39.5% 67.9% 35.8% 40.2% 58.3%
Number of Towers: (f)
Beginning of period..... 0 33 156 -- 156 312 --
Towers acquired during
the period............. 29 119 134 -- 31 315 --
Towers constructed
during the period...... 4 4 22 -- 3 18 --
End of period........... 33 156 312 -- 190 645 842
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30, AS ADJUSTED
--------------------------------------- ----------------------- JUNE 30,
1995 1996 1997 1997 1998 1998 (B)
------------- ------------ ------------ ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 31 $ 47 $ 1,694 $ 474 $ 2,715 $ 2,715
Tower assets, net....... 11,551 48,327 127,946 87,404 279,785 470,057
Total assets............ 14,573 55,566 143,178 98,329 311,999 502,271
Total debt.............. 6,124 30,422 120,582 75,177 290,171 363,780
Redeemable Stock:
Class B Common Stock... 1,200 1,200 1,761 1,200 1,761 --
Class D Common Stock... -- -- -- -- -- --
Common Stock............ -- -- -- -- -- 51
Additional paid-in capi-
tal.................... 7,051 24,881 25,876 25,131 36,231 154,704
Stock subscription
receivable............. (180) -- -- -- -- --
Accumulated deficit..... (645) (2,661) (11,123) (5,651) (24,262) (24,262)
Stockholders' equity.... 6,226 22,220 14,753 19,480 11,969 130,493
</TABLE>
- --------
(a) Reflects the historical amounts adjusted for the effects of tower
acquisitions including the adjustment to show a full year of activity for
134 towers acquired in 1997, the acquisitions of 315 towers completed
before June 30, 1998 (including the Southern Towers Acqusition of 201
towers), the acquisition of 1 tower subsequent to June 30, 1998 and before
July 10, 1998, and the probable acquisitions as of July 10, 1998 of 196
towers (including the acquisition of 163 towers related to the MobileMedia
Acquisition) as further described in "Unaudited Pro Forma Financial Data."
(b) Reflects the historical amounts adjusted for the effects of the
acquisitions of 315 towers completed before June 30, 1998 (including the
Southern Towers Acquisition of 201 towers), the acquisition of 1 tower
subsequent to June 30, 1998 and before July 10, 1998 and the probable
acquisitions as of July 10, 1998 of 196 towers (including the acquisition
of 163 towers related to the MobileMedia Acquisition) as further described
in "Unaudited Pro Forma Financial Data."
(c) "General and administrative" expenses represent those costs directly
related to the day-to-day management and operation of towers owned by the
Company. "Corporate development" expenses represent costs incurred in
connection with acquisitions and the development of new business
initiatives, and consists primarily of allocated compensation, benefits and
overhead costs that are not directly related to the administration or
management of existing towers.
11
<PAGE>
(d) "Tower Level Cash Flow" is defined as tower rental revenue minus tower
operating expenses, excluding depreciation and amortization. "Adjusted
EBITDA" represents loss from operations before depreciation, amortization
and corporate development expenses. "EBITDA" represents loss from
operations before depreciation and amortization. The Company has included
Tower Level Cash Flow, Adjusted EBITDA and EBITDA in Other Operating Data
because the Company believes such information may be useful to certain
investors in evaluating the Company's ability to service its debt. Tower
Level Cash Flow, Adjusted EBITDA and EBITDA should not be considered as an
alternative to Gross Profit, net loss or net cash provided by operating
activities (or any other measure of performance in accordance with
generally accepted accounting principles) as a measure of the Company's
ability to meet its cash needs or as an indication of the Company's
operating performance. Moreover, Tower Level Cash Flow, Adjusted EBITDA and
EBITDA is not a standardized measure and may be calculated in a number of
ways. Accordingly, the Tower Level Cash Flow, Adjusted EBITDA and EBITDA
information provided may not be comparable to other similarly titled
measures provided by other companies.
(e) Represents Tower Level Cash Flow, Adjusted EBITDA and EBITDA each as a
percentage of tower rental revenue.
(f)Includes towers managed by the Company, which at June 30, 1998 were 27
towers.
12
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements within the meaning of the federal securities laws.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as in
the Prospectus generally. The words "believe," "estimate," "expect," "intend,"
"anticipate," "plan," and similar expressions and variations of such
expressions identify certain of such forward-looking statements that speak
only as of the dates on which they were made. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including, without limitation, the
risk factors set forth below and the matters set forth in this Prospectus
generally.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company has a significant amount of indebtedness. As of June 30, 1998,
on a pro forma basis, after giving effect to the Transactions, the Company's
consolidated long-term debt would have been approximately $363.3 million, its
stockholders' equity would have been approximately $130.0 million and its
ratio of debt to equity (excluding redeemable stock) would have been 2.8 to
1.0. Subject to the restrictions in the Senior Credit Facility and an
indenture (the "Indenture"), under which the Company issued its 10% senior
discount notes due 2008 (the "Senior Discount Notes"), the Company may incur
additional indebtedness from time to time to finance acquisitions, capital
expenditures, working capital or for other purposes.
The level of the Company's indebtedness could have important consequences to
stockholders, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
repayment of indebtedness and the payment of interest thereon and will not be
available for other purposes; (ii) the Company's future ability to obtain
additional debt financing for working capital, capital expenditures,
acquisitions or other purposes may be limited; (iii) the Company's leveraged
position and covenants contained in the Indenture and the Senior Credit
Facility could limit its ability to expand and make capital improvements and
acquisitions; (iv) the Indenture and the Senior Credit Facility contain
restrictive covenants, including covenants that restrict or prohibit the
payment of dividends or other distributions by the Company to its
stockholders; and (v) the Company's level of indebtedness could limit its
flexibility in reacting to changes in its industry and general economic
conditions and its ability to withstand a prolonged downturn in the wireless
communications or tower rental industries. Existing or potential competitors
of the Company may operate on a less leveraged basis and have significantly
greater operating and financing flexibility than the Company.
The Company's ability to service its debt obligations will depend upon its
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 its control. If the Company is
unable to generate sufficient cash flow from operations to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing, delaying or eliminating acquisitions, tower
construction and other capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There can
be no assurance that any of these alternative strategies could be effected on
satisfactory terms, if at all and the implementation of any of these
alternative strategies could have a negative impact on the value of the Common
Stock.
The Senior Credit Facility and the Indenture each contain certain
restrictive covenants. The Senior Credit Facility also requires the Company to
maintain specified financial ratios and satisfy certain financial condition
13
<PAGE>
tests. The Company's ability to meet these financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Senior Credit Facility and the Indenture. If an event
of default should occur under the Senior Credit Facility, the lenders
thereunder 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. This could also result in the triggering of cross-default or
cross-acceleration provisions in other instruments, thereby permitting
acceleration of the maturity of additional indebtedness. If the Company were
unable to repay amounts that become due under the Senior Credit Facility, the
lenders thereunder could proceed against the collateral granted to them to
secure that indebtedness. If the indebtedness under the Senior Credit Facility
were to be accelerated, there can be no assurance that the assets of the
Company would be sufficient to repay in full such indebtedness and any other
indebtedness of the Company. Substantially all the assets of the Company are
pledged as security under the Senior Credit Facility. See "Description of
Certain Indebtedness." The Senior Credit Facility and the Indenture currently
prohibit the Company from paying any dividends on its Common Stock, other than
the payment of dividends required to maintain the Company's status as a REIT.
Until March 15, 2003, the Company's interest expense on the Senior Discount
Notes will consist solely of the accretion of original issue discount.
Thereafter, the Senior Discount Notes will require annual cash interest
payments of $32.5 million. The Company's ability to make scheduled payments of
principal of, or to pay interest on, its debt obligations, and its ability to
refinance any such debt obligations, will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond its
control. As discussed, the Company's business strategy contemplates
substantial capital expenditures in connection with execution of its business
plan. There can be no assurance that the Company will generate sufficient cash
flow from operations in the future, that anticipated revenue growth will be
realized or that future borrowings or equity contributions will be available
in an amount sufficient to service its indebtedness and make anticipated
capital expenditures. The Company anticipates that it may need to refinance
all or a portion of its indebtedness on or prior to its scheduled maturity.
There can be no assurance that the Company will be able to effect any required
refinancing of its indebtedness on commercially reasonable terms or at all.
DEPENDENCE ON ACQUISITIONS; INTEGRATION OF ACQUISITIONS
The Company's business plan is materially dependent upon the acquisition of
suitable communications towers at prices the Company considers reasonable in
light of the revenue it believes it will be able to generate from such towers
when acquired. Since the Company's inception, however, the price of
acquisitions within the industry have generally increased over time.
Additionally, the Company competes with certain wireless communications
providers, site developers and other independent tower owners and operators
for acquisitions of towers some of which have greater financial and other
resources than the Company. Increased demand for acquisitions may result in
fewer acquisition opportunities for the Company as well as higher acquisition
prices. The Company's inability to grow by acquisition or to accurately
estimate the amount of revenue that will be generated from such acquisitions
may have a material adverse effect on the Company. Although the Company
believes that opportunities may exist for the Company to grow through
acquisitions, there can be no assurance that the Company will be able to
identify and consummate acquisitions on terms acceptable to the Company.
Certain provisions of the Senior Credit Facility or the Indenture may limit
the Company's ability to effect acquisitions. See "Risk Factors--Substantial
Indebtedness; Ability to Service Indebtedness." Further, there can be no
assurance that the Company will be able to profitably manage and market the
space on additional towers acquired or successfully integrate acquired towers
with the Company's operations and sales and marketing efforts without
substantial costs or delays. Acquisitions involve a number of potential risks,
including the potential loss of customers, increased leverage and debt service
requirements, combining disparate company cultures and facilities and
operating towers in geographically diverse markets. Accordingly, there can be
no assurance that one or more of the Company's past or future acquisitions may
not have a material adverse effect on the Company's financial condition and
results of operations.
14
<PAGE>
RISKS ASSOCIATED WITH THE MOBILEMEDIA ACQUISITION
On July 7, 1998, the Company entered into an agreement, subject to certain
conditions, with MobileMedia and several of its affiliates to purchase 163
towers for an aggregate purchase price of $170 million (the "Purchase
Agreement"). The MobileMedia Acquisition would have increased the Company's
revenues and EBITDA on a pro forma basis by $12.8 million and $10.9 million,
respectively, for the year ended December 31, 1997.
MobileMedia and certain of its affiliates are currently operating as
debtors-in-possession in proceedings for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in a case pending in the United States Bankruptcy
Court for the District of Delaware. Under the terms of the Purchase Agreement
and in accordance with the standard bankruptcy procedures, MobileMedia can
consider competing bids for the towers until August 7, 1998, subject to
certain requirements. Any competing bid must, among other things: (i) be
identical in all material respects to the terms of the Purchase Agreement;
(ii) be accompanied by a deposit in the amount of $5 million; and (iii)
reflect a cash purchase price of at least $178 million. MobileMedia is
required to notify the Company promptly of any such bid and must provide the
Company with both the identity of the bidder and the consideration offered.
Upon receipt of such notice, the Company has five days to make a "topping
offer" that exceeds the purchase price of the competing bid by at least
$500,000. If the Company submits such a topping offer, MobileMedia shall
provide the competing bidder with an opportunity to make another bid that
exceeds the Company's topping offer by at least $500,000. Upon each successive
increased bid by a competitive bidder, the Company shall have the right to
make a topping offer on the above terms. If MobileMedia enters into a
definitive agreement with a competing bidder, it shall have the right to
terminate the Purchase Agreement upon payment of $5.0 million to the Company
as liquidated damages.
In addition, in connection with the MobileMedia Acquisition, MobileMedia
Communications will lease from the Company certain space on the purchased
towers pursuant to the Master Lease to be entered into as of the closing of
the sale. Upon signing the Master Lease, MobileMedia Communications will
become the Company's largest customer. See "Customer Concentration." Due to
timing, logistical and other constraints, the Company may not have the ability
to access, analyze and verify all information regarding title and other issues
related to the MobileMedia sites prior to closing the MobileMedia
Acquisitions. If within the three-year period following the closing of the
MobileMedia Acquisition, the Company determines that MobileMedia or its
affiliates breached any of the representations set forth in the Purchase
Agreement, the Company has the right to obtain indemnity from MobileMedia and
its affiliates for its losses suffered as a result of such breach in an amount
not to exceed $25 million. Pursuant to the Master Lease, if a ground lease
related to a tower site expires within five years following the commencement
of the Master Lease or MobileMedia fails to deliver a valid title to any site,
the Company and MobileMedia Communications will in good faith attempt to
locate substitute tower space on another site of the Company and, if the
Company can make such space available, relocate the equipment of MobileMedia
Communications (at MobileMedia Communications' expense) to such substitute
tower space at the same rental rate. Regardless of whether MobileMedia
Communications relocates to another Company site, it will still be obligated
to continue to make monthly rental payments at the initial rent rate for the
remainder of the term of the Master Lease. However, except as otherwise set
forth above, the Company will not otherwise be compensated for defects in
title or other site-related issues. Accordingly, the Company's ability to
recover damages it may suffer as a result of any such defects may be limited.
The MobileMedia Acquisition is also subject to approval by the applicable
bankruptcy court on terms of the Purchase Agreement. The Company currently
expects such approval to be considered at a hearing scheduled for August 14,
1998. If such approval is obtained it may be appealed during the 10-day period
following the approval order. The Company currently anticipates that it would
close the transaction immediately after the
15
<PAGE>
expiration of such 10-day period. Although the closing of the MobileMedia
Acquisition is currently scheduled for August 25, 1998, there can be no
assurance that the bankruptcy court will approve the MobileMedia Acquisition
or that the MobileMedia Acquisition will ultimately be consummated.
CUSTOMER CONCENTRATION
The Company has certain customers that account for a significant portion of
its revenue. Southern Communications and its affiliates and MobileMedia
Communications and certain of its affiliates, after the consummation of the
MobileMedia Acquisition, would have accounted for approximately 16% and 32%,
respectively, of the Company's revenue, on a pro forma basis, for the year
ended December 31, 1997. Southern Communications holds leases with initial
terms of 10 years each. The Master Lease will have an initial term of 15
years. The loss of one or more of these major customers, or a reduction in
their utilization of the Company's tower rental space due to their insolvency
or other inability or unwillingness to pay, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "--Risks Associated with the MobileMedia Acquisition."
Because MobileMedia and certain of its affiliates are currently seeking
reorganization of its business under bankruptcy laws, after emerging from
bankruptcy, there can be no assurance that MobileMedia Communications will be
able to manage its operations successfully and meet its obligations under the
Master Lease. Nor can there be any assurance regarding who will control
MobileMedia Communications in the future. In the event of a default by
MobileMedia Communications as to the payment of rent, the Company has the
right to terminate the Master Lease with respect to either a particular site
space or all site spaces. Any default by MobileMedia Communications with
respect to some or all of the site spaces covered by the Master Lease, could
have a material adverse effect on the Company's business, operating results
and financial position.
SIGNIFICANT FUTURE CAPITAL REQUIREMENTS
The Company's acquisition and construction activities will create
substantial ongoing capital requirements. During 1996, 1997 and the first six
months of 1998, the Company made capital investments aggregating approximately
$42.8 million, $89.5 million and $160.8 million, respectively, in tower
acquisitions, site upgrades and new tower construction. The Company
anticipates that subsequent to June 30, 1998 it will spend approximately $229
million on capital expenditures in 1998, including $170.0 million for the
MobileMedia Acquisition and $59 million for the acquisition, construction and
upgrading of additional towers. The Company estimates capital expenditures in
1999 and 2000 to be approximately $150 million during each year. The Company
historically has financed its capital expenditures through a combination of
borrowings under bank credit facilities, the Senior Notes Offering, bridge
financings, equity issuances, seller financing and cash flow from operations.
Significant acquisition or tower construction opportunities could create a
need for additional capital financing. If the Company's revenue and cash flow
are not as expected, or if the Company's borrowing base is reduced as a result
of operating performance, the Company may have limited ability to access
necessary capital under its existing credit facilities or otherwise. There can
be no assurance that sufficient capital financing would be available on
favorable terms or cash generated by operations would be available to meet
ongoing capital requirements.
BARRIERS TO NEW CONSTRUCTION
As of June 30, 1998, the Company had 11 towers under construction and had in
excess of 100 additional tower projects in various stages of development. The
success of the Company's growth strategy is dependent in part on its ability
to construct new towers. Such construction can be delayed by factors beyond
the control of the Company, including zoning and local permitting
requirements, availability of erection equipment and skilled construction
personnel and weather conditions. Certain communities have placed restrictions
on new tower construction or have delayed granting permits required for
construction. In addition, as the pace of tower construction has increased in
recent years, manpower and equipment needed to erect towers have been in
increasing demand. The Company's expansion plans call for a significant
increase in construction activity. There can be no assurance that the Company
16
<PAGE>
will be able to overcome the barriers to new construction or that the number
of towers planned for construction will be completed. The failure of the
Company to complete the necessary construction could have a material adverse
effect on the Company's business, financial condition and results of
operations.
COMPETITION
The Company competes for customers with wireless communications providers
and utility companies that own and operate their own tower networks and lease
tower space to other carriers, site development companies that acquire space
on existing towers for wireless communications providers and manage new tower
construction, other independent tower companies and traditional local
independent tower operators. Wireless communications providers that own and
operate their own tower networks generally are substantially larger and have
greater financial resources than the Company. The Company believes that tower
location and capacity, price, quality of service, type of service and density
within a geographic market historically have been and will continue to be the
most significant competitive factors affecting tower rental companies. The
Company believes that competition for tower acquisitions will increase and
that additional competitors will enter the tower rental market, certain of
which may have greater financial resources than the Company.
DEPENDENCE ON THE WIRELESS COMMUNICATIONS INDUSTRY
Substantially all of the Company's revenue is derived from leases of tower
space, most of which are with wireless communications providers. Accordingly,
the future growth of the Company depends, to a considerable extent, upon the
continued growth and increased availability of cellular and other wireless
communications services. There can be no assurance that the wireless
communications industry will not experience severe and prolonged downturns in
the future or that the wireless communications industry will expand as quickly
as forecasted. The wireless communications industry, which includes paging,
cellular, PCS, fixed microwave, SMR, ESMR and other wireless communications
providers, has undergone significant growth in recent years and remains highly
competitive, with service providers in a variety of technologies and two or
more providers of the same service (up to 6 for PCS) within a geographic
market competing for subscribers. The demand for rental space on the Company's
towers is dependent on a number of factors beyond the Company's control,
including demand for wireless services, the financial condition and access to
capital of wireless communications providers, the strategy of wireless
communications providers with respect to owning or leasing towers, government
licensing of broadcast rights, changes in telecommunications regulations and
general economic conditions. The demand for space on the Company's towers is
primarily dependent on the demand for wireless communications services. A
slowdown in the growth of the wireless communications industry in the United
States would depress network expansion activities and reduce the demand for
the Company's rental towers. In addition, a downturn in a particular wireless
segment as a result of technological competition or other factors beyond the
control of the Company could adversely affect the demand for rental towers.
Advances in technology could also reduce the need for tower-based transmission
and reception. In addition, wireless services providers often enter into
"roaming" and "resale" arrangements that permit providers to serve customers
in areas where they do not have facilities. Specifically, in most cases, these
arrangements are intended to permit a provider's customers to obtain service
in areas outside the provider's license area or, in the case of resale
arrangements, to permit a provider that does not have any licenses to enter
the wireless marketplace. Current FCC rules, which are subject to sunset
requirements that vary from service to service and market to market, also give
licensed wireless service providers the right to enter into roaming and resale
arrangements with other providers licensed to serve overlapping service areas.
Such roaming and resale arrangements could be viewed by some wireless service
providers as superior alternatives to constructing their own facilities or
leasing space on communications sites owned by the Company. If such
arrangements were to become common, there could be a material adverse effect
on the Company's prospects, financial condition and results of operations. See
"Business--Industry Background." The occurrence of any of these factors could
have a material adverse effect on the Company's financial condition and
results of operations. This Prospectus contains a number of estimates by
industry experts regarding expected growth rates and penetration for wireless
communications technologies. There can be no assurance that these estimates
will prove to be accurate.
17
<PAGE>
REGULATORY COMPLIANCE AND APPROVAL
Both the Federal Communications Commission (the "FCC") and the Federal
Aviation Administration (the "FAA") regulate towers 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 registration of tower facilities. Wireless communications
equipment operating on towers is separately regulated and independently
licensed by the FCC. Certain proposals to construct new towers or to modify
existing towers are reviewed by the FAA to ensure that the tower will not
present a hazard to aviation. Tower owners may have an obligation to paint
towers or install lighting to conform to FAA standards and to maintain such
painting and lighting. Tower owners may also bear the responsibility of
notifying the FAA of any tower lighting failures. Failure to comply with
existing or future applicable requirements may lead to civil penalties or
other liabilities. Such factors could have a material adverse effect on the
Company's financial condition or results of operations.
Local regulations, including municipal or local ordinances, zoning
restrictions and restrictive covenants imposed by community developers, 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 the Company's ability to respond to customer
demand. In addition, such regulations increase costs associated with new tower
construction. There can be no assurance that existing regulatory policies will
not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted that increase such delays or result
in additional costs to the Company. Such factors could have a material adverse
effect on the Company's future growth. The Company's customers may also become
subject to new regulations or regulatory policies that adversely affect the
demand for tower sites.
The Company's growth strategy will be affected by its ability to obtain the
permits, licenses and zoning relief necessary to build new towers. The tower
rental industry often encounters significant public resistance when attempting
to obtain the necessary permits, licenses and zoning relief for construction
or improvements of towers. There can be no assurance that the Company can
obtain the permits, licenses and zoning relief necessary to continue the
expansion of its tower rental business. The failure of the Company to obtain
such permits, licenses and zoning relief would have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance personnel, certain of whom may be difficult to replace.
The loss of the services of certain of these executives could have a material
adverse effect on the Company. There can be no assurance that the services of
such personnel will continue to be available to the Company. The Company does
not maintain key man life insurance policies on its executives that would
adequately compensate the Company for any loss of services of such executives.
See "Management--Employment Agreements" and "Certain Relationships and
Transactions."
RISK ASSOCIATED WITH NEW TECHNOLOGIES
The emergence of new technologies could reduce the need for tower-based
transmission and reception and, thereby, have a negative impact on the
Company's operations. For example, the FCC has granted license applications
for several low-earth orbiting satellite systems that are intended to provide
mobile voice and/or data services. Although such systems are highly capital-
intensive and are not yet commercially tested, mobile satellite systems could
compete with land-based wireless communications systems, thereby reducing the
demand for the infrastructure services provided by the Company. Additionally,
the growth in delivery of video services by direct broadcast satellites and
the development and implementation of signal combining technologies (which
permit one antenna to service two different frequencies of transmission and,
thereby, two customers) and satellite-delivery systems may reduce the need for
tower-based broadcast transmission. The occurrence of any of these
18
<PAGE>
factors could have a material adverse effect on the Company's prospects,
financial condition and results of operations.
ENVIRONMENTAL MATTERS
The Company's operations and its ownership or leasing of real property are
subject to federal, state and local environmental laws and regulations
regarding the use, storage, disposal, emission, release and remediation of
hazardous and nonhazardous substances, materials or wastes ("Environmental
Laws"). Under certain Environmental Laws, the Company could be held jointly
and severally liable for the remediation of hazardous substance contamination
at its facilities or at third-party waste disposal sites regardless of fault
or the legality of the original disposal and could also be held liable for any
personal injury or property damage related to such contamination. Although the
Company is not presently aware of any material environmental liabilities
pertaining to its operation, ownership or use of real property, there can be
no assurance that liability under, or the costs of compliance with, existing
or future Environmental Laws will not have a material adverse effect on the
Company's financial condition and results of operations. See "Business--
Regulatory Matters."
RISKS ASSOCIATED WITH DAMAGE TO TOWERS
The Company's towers are subject to risks from vandalism and risks
associated with natural disasters such as tornados, hurricanes, fires and
earthquakes. The Company maintains certain insurance to cover the cost of
replacing damaged towers and general liability insurance to protect the
Company in the event of an accident involving a tower, but the Company does
not maintain business interruption insurance. Accordingly, damage to a group
of the Company's towers could result in a significant loss of revenue and
could have a material adverse effect on the Company's results of operations
and financial condition. In addition, a tower accident for which the Company
is uninsured or underinsured could have a material adverse effect on the
Company's financial condition or results of operations.
CONTROLLING STOCKHOLDER
After the Offering, ABRY Broadcast Partners II, L.P. ("ABRY II") the
Company's primary stockholder, will hold approximately % of the Company's
outstanding voting stock and will control four of seven seats on the Board of
Directors. Therefore, ABRY II has the power to control all matters submitted
to stockholders of the Company, to elect a majority of the directors of the
Company and to exercise control over the business, policies and affairs of the
Company. See "Certain Relationships and Transactions." If ABRY II no longer
controls the Company, the lenders under the Company's Senior Credit Facility
may accelerate borrowings thereunder and the Company will be required to offer
to repurchase all of its outstanding Senior Discount Notes.
Purchasers of Common Stock offered hereby will become minority stockholders
of the Company and will be unable to control the management or business
policies of the Company. Moreover, subject to contractual restrictions and
general fiduciary duties, the Company is not prohibited from engaging in
transactions with management and principal stockholders, or with entities in
which such persons are interested. The Company's certificate of incorporation
does not provide for cumulative voting.
PERCEIVED HEALTH RISKS ASSOCIATED WITH RADIO FREQUENCY EMISSIONS
The Company and the wireless communications providers that utilize the
Company's towers are subject to government requirements and other guidelines
relating to radio frequency ("RF") emissions. 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.
Although the Company has not been subject to any claims relating to RF
emissions, there can be no assurance that it will not be subject to such
claims in the future, which could have a material adverse effect on the
Company's results of operations and financial condition. See "Business--
Regulatory Matters."
19
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market after the Offering
under Rule 144 under the Securities Act or otherwise, or the perception that
such sales could occur, may adversely affect prevailing market prices of the
Common Stock and could impair the future ability of the Company to raise
capital through an offering of its equity securities or to consummate
acquisitions using Common Stock as consideration. The Company, its officers
and directors, and the Selling Stockholders have agreed, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. See "Shares Eligible for Future Sale" and "Underwriters."
ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS, BYLAWS AND STATE LAW
The Company's certificate of incorporation and bylaws as well as Delaware
law contain provisions that may have the effect of inhibiting a non-negotiated
merger or other business combination. These provisions are intended to
encourage a person interested in acquiring the Company to negotiate with, and
to obtain the approval of, the Board of Directors in connection with the
transaction. However, certain of these provisions may discourage a future
acquisition of the Company, including an acquisition in which stockholders
might otherwise receive a premium for their shares. As a result, stockholders
who might desire to participate in such a transaction may not have the
opportunity to do so. Additionally, because the Company wishes to retain its
status as a REIT, there are certain restrictions on transfers of both the
Common Stock and the Preferred Stock. See "Description of Capital Stock--
Certain Provisions of the Company's Certificate of Incorporation and Bylaws"
and "Certain Provisions of Delaware Law."
In addition to its authorized shares of Common Stock, the Company's
certificate of incorporation authorizes the issuance of up to 1,000,000 shares
of preferred stock, $.001 par value, (the "Preferred Stock"). The Board of
Directors has the authority to determine the price, rights, preferences,
privileges and restrictions, including the voting rights of those shares,
without any further vote or action by the stockholders. The rights of holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no current
plans to issue shares of Preferred Stock. See "Description of Capital Stock--
Preferred Stock."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or
continue following the Offering, or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock will be determined by negotiations among
the Company, the Selling Stockholders and the Underwriters based on several
factors, and may not be indicative of the market price for the Common Stock
after the Offering. See "Underwriters."
The Company believes that various factors, such as general economic
conditions and changes or volatility in the financial markets, announcements
or significant developments with respect to the wireless communications
industry, actual or anticipated variations in the Company's quarterly or
annual financial results, the introduction of new services by the Company or
its competitors, changes in or other trends in the Company's industry or in
the industries of any of the Company's significant customers, changes in
governmental regulation or changes in securities analysts' estimates of the
Company's future performance or that of its competitors or its industry, could
cause the market price of the Common Stock to fluctuate substantially.
20
<PAGE>
DILUTION
Investors purchasing Common Stock in the Offering will incur immediate
dilution in net tangible book value of $ per share (assuming on initial
public offering price of $ per share, the midpoint of the range set forth
on the cover page of this Prospectus). See "Dilution."
REIT STATUS
The Company has elected to be taxed as a Real Estate Investment Trust
("REIT") under Sections 856-860 of the Internal Revenue Code of 1986 (the
"Code"). The Company believes that it has been organized and operates in such
a manner as to qualify for taxation as a REIT, and it intends to continue to
operate in such a manner. However, prospective investors should be aware that
the federal tax rules and regulations relating to REITs are highly technical
and complex, and that the Company's qualification as a REIT during each
taxable year (including prior years) will depend upon its ability to meet
these requirements, through various factual matters and circumstances not
entirely within the Company's control, including actual annual operating
results, income distribution levels, stock ownership requirements and tests
relating to the Company's assets and sources of income. Although the Company
has not requested, and does not expect to request, a ruling from the Service
that it qualifies as a REIT, it has received an opinion of its counsel that,
based on certain assumptions and representations, it so qualifies. Investors
should be aware, however, that opinions of counsel are not binding on the
Service or any court. The REIT qualification opinion only represents the view
of counsel to the Company based on counsel's review and analysis of existing
law, which includes no controlling precedent. Furthermore, both the validity
of the opinion and the qualification of the Company as a REIT will depend on
the Company's continuing ability to meet various requirements concerning,
among other things, the ownership of its outstanding stock, the nature of its
assets, the sources of its income, and the amount of its distributions to its
stockholders. Therefore, no assurance can be given that the Company has
operated or will operate in a manner so as to qualify or remain qualified as a
REIT. In addition, no assurance can be given that new legislation, regulation,
administrative interpretation or court decision will not change the
requirements with respect to the Company's qualification as a REIT or the
federal income tax consequences of such qualification. The Company is not,
however, aware of any currently pending tax legislation that would adversely
affect its ability to continue to qualify as a REIT.
The Company could be subject to a variety of taxes and penalties if it
engages in certain prohibited transactions, fails to satisfy certain REIT
distribution requirements or recognizes gain on the sale or other disposition
of certain types of property. Further, if the Company fails to qualify as a
REIT, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at corporate rates
unreduced by distribution to stockholders, together with interest and
penalties. However, because the Company has not reported any net taxable
income (determined before the deduction of dividends) in its corporate income
tax returns following its filing of its election to be a REIT, unless its
reported net taxable loss is adjusted, the risk of any corporate income tax
liability with regard to prior periods would be minimal. However, with respect
to any year in which the Company recognizes positive taxable income, the loss
of REIT status may have a material adverse effect on the Company's financial
condition or results from operations. In addition, unless entitled to relief
under certain statutory provisions, the Company will also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to shareholders because of
the additional tax liability to the Company for the year or years involved.
Also, distributions would no longer be required to be made. To the extent that
distributions to shareholders would have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds
or to liquidate certain of its investments to pay the applicable tax. Failing
to qualify as a REIT would also constitute a default under certain debt
obligations of the Company which would cause the obligations to become due and
would have a negative impact on the Company's operating results and its
ability to pay dividends. See "Certain Federal Income Tax Considerations" for
a more detailed discussion of the consequences to the Company of a loss of or
failure to maintain the REIT status of the Company.
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company, assuming an initial public offering price
of $ per share (after deducting underwriting discounts and commissions and
the estimated expenses of the Offering payable by the Company), will be
approximately $ (approximately $ if the U.S. Underwriters' over-
allotment options are exercised in full). The Company will not receive any of
the net proceeds from the sale of Shares by the Selling Stockholders.
The Company intends to use such net proceeds of the Offering as follows: (i)
approximately $114.2 million to partially finance the MobileMedia Acquisition;
(ii) approximately $2.6 million to repay and retire all outstanding borrowings
and accrued interest under the ABRY Bridge Loan; and (iii) approximately $43.7
million to be distributed to certain stockholders in connection with the
Recapitalization to occur upon the closing of the Offering. The Company
intends to finance the balance of the MobileMedia Acquisition purchase price
(approximately $58.8 million including fees and expenses estimated to be
approximately $3.0 million) from borrowings under the Senior Credit Facility.
In April 1998, ABRY II advanced to the Company $2.5 million (the "ABRY
Bridge Loan") and may continue to make such advances. The proceeds were used
to partially fund certain acquisitions by the Company. Amounts outstanding
under the ABRY Bridge Loan bear interest at the rate of 9.0% per annum.
Interest and principal under the ABRY Bridge Loan are payable within one year
from the date of the related borrowing.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in short-term, investment grade, interest bearing securities or money
market instruments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Strategy."
DISTRIBUTION POLICY
In order to qualify as a REIT for federal income tax purposes, among other
things, the Company must make distributions each taxable year (not including
any return of capital for federal income tax purposes) equal to at least 95%
of its real estate investment trust taxable income, although the Board of
Directors, in its discretion, may increase that percentage as it deems
appropriate. See "Certain Federal Income Tax Considerations--Requirements for
REIT Qualification--Distribution Requirements." The declaration of
distributions is within the discretion of the Board of Directors and depends
upon the Company's cash available for distribution, current and projected cash
requirements, tax considerations and other factors.
The Company intends to make distributions to holders of the Common Stock
only to the extent necessary to satisfy the REIT distribution requirements
necessary to maintain REIT status and intends to retain available cash in
excess of such amount for future operation and expansion of the Company's
business. In this regard, the Company does not expect for the foreseeable
future that it will have "REIT taxable income" which would be required to be
distributed in order to maintain its REIT status. See "Certain Federal Income
Tax Considerations--Requirements for REIT Qualification--Distribution
Requirements." Any determination to declare or pay dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
on the Company's results of operations, financial condition and any
contractual restrictions, considerations imposed by applicable law and other
factors deemed relevant by the Board of Directors. The Senior Credit Facility
and Indenture currently limit the ability of the Company to make cash
distributions, except for such distributions necessary to maintain its REIT
status. See "Risk Factors--Substantial Indebtedness; Ability to Service
Indebtedness."
22
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual capitalization (including
short-term debt) of the Company as of June 30, 1998; (ii) the pro forma
capitalization of the Company after giving effect to all acquisitions
completed after June 30, 1998, the MobileMedia Acquisition and all other
individually immaterial acquisitions of rental towers for which the Company
has entered into letters of intent to acquire as of July 10, 1998 (the
acquisitions of which the Company believes are probable), as if each had been
completed on June 30, 1998; and (iii) the pro forma as adjusted capitalization
of the Company after giving effect to the Recapitalization and the Offering.
This table should be read in conjunction with the information contained in the
"Unaudited Pro Forma Financial Data" and the Company's consolidated financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------
PRO
PRO FORMA AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of notes payable................ $ 444 $ 444 $ 444
ABRY Bridge Loan................................ 2,500 2,500 --
-------- -------- --------
Total current maturities........................ 2,944 2,944 444
Long-term debt, net of current maturities:
10% Senior Discount Notes...................... 205,451 205,451 205,451
Senior Credit Facility......................... 63,500 253,772 139,609
Notes payable(1)............................... 18,276 18,276 18,276
-------- -------- --------
Total long-term debt............................ 287,227 477,499 363,336
-------- -------- --------
Redeemable stock:
Class B Common Stock, $0.001 par value, 12,000
shares authorized; 12,000 issued and outstand-
ing on an actual basis......................... 1,761 1,761 --
Class D Common Stock, $0.001 par value, 100,000
shares authorized; 40,000 issued and outstand-
ing on an actual basis......................... -- -- --
-------- -------- --------
Total redeemable stock.......................... 1,761 1,761 --
-------- -------- --------
Stockholders' equity(2):
Class A Common Stock, $0.001 par value, 202,500
shares authorized; 202,500 issued and outstand-
ing on an actual basis......................... $ -- $ -- $ --
Class E Common Stock, $0.001 par value, 300,000
shares authorized; 174,766 issued and outstand-
ing on an actual basis......................... -- -- --
Common Stock, $0.001 par value, shares autho-
rized; shares issued and outstanding on an
actual basis; shares issued on a pro forma
basis.......................................... -- -- 51
Additional paid-in capital...................... 36,231 36,231 154,704
Accumulated deficit............................. (24,262) (24,262) (24,262)
-------- -------- --------
Total stockholders' equity...................... 11,969 11,969 130,493
-------- -------- --------
Total capitalization........................... $303,901 $494,173 $494,273
======== ======== ========
</TABLE>
- --------
(1) Notes payable consists of notes issued to tower sellers in the Company's
acquisition of towers. Interest rates range from 8.5% to 13.0% and the
notes mature at varying dates through December 2020.
(2) Does not include shares of Common Stock reserved for issuance in
connection with incentive stock options expected to be granted at the time
of the Offering.
23
<PAGE>
DILUTION
As of June 30, 1998, the Company had a pro forma net tangible book value of
approximately $118.7 million or $ per share of Common Stock. Pro forma net
tangible book value represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding,
including all outstanding stock grants and excluding all outstanding stock
options. Without taking into account any other changes in the pro forma net
tangible book value after June 30, 1998, other than to give effect to the
receipt by the Company of the net proceeds from the sale of shares of
Common Stock offered by the Company hereby (assuming an initial public
offering price of $ per share), the pro forma net tangible book value of the
Company as of June 30, 1998 would have been approximately $120.1 million or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
of $ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
---
Pro forma net tangible book value per share at June 30,
1998........................................................ $
-------
Increase per share attributable to new investors.............
-------
Pro forma net tangible book value per share after the Offer-
ing...........................................................
---
Pro forma net tangible book value dilution per share to new in-
vestors....................................................... $
===
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid (assuming an initial public offering price of $
per share) and the average price per share paid:
<TABLE>
<CAPTION>
WEIGHTED
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------ ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... (2) % $ % $
New investors...........
--------- --------- ---------- ---------
Total................. 100% $ 100%
========= ========= ========== =========
</TABLE>
- --------
(1) These computations assume no exercise of any outstanding stock options or
of the U.S. Underwriters' over-allotment options. As of June 30, 1998,
there were no options to purchase Common Stock outstanding. See
"Management--Stock Incentive Plan." To the extent that any stock options
or the U.S. Underwriters' over-allotment options are exercised, there will
be further dilution to new investors. See "Underwriters" for information
concerning the U.S. Underwriters' over-allotment options.
(2) Does not reflect the sale by the Selling Stockholders in the Offering.
24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1998 gives
pro forma effect to: (1) the acquisition of individually immaterial rental
tower businesses completed by the Company in the period subsequent to June 30,
1998 through July 10, 1998; (ii) the MobileMedia Acquisition; (iii) other
individually immaterial acquisitions of rental tower businesses for which the
Company has entered into agreements or letters of intent to acquire as of July
10, 1998, and which the Company believes are probable; (iv) the related
financing of the acquisitions referred to in (i) through (ii) above; (v) the
Recapitalization; and (vi) the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds," as if each had
occurred as of June 30, 1998.
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 give pro forma
effect to: (i) the Southern Towers Acquisition; (ii) acquisitions of other
rental tower businesses by the Company completed during the period January 1,
1997 through July 10, 1998, in addition to the Southern Towers Acquisition;
(iii) the MobileMedia Acquisition; (iv) other individually immaterial
acquisitions of rental tower businesses for which the Company has entered into
agreements or letters of intent to acquire as of July 10, 1998, and which the
Company believes are probable; (v) the related financing of the acquisitions
referred to in (i) through (iv) above; (vi) the Senior Notes Offering (as
defined herein); (vii) the Recapitalization; and (viii) the Offering and the
application of the net proceeds therefrom as described under "Use of
Proceeds," as if each had occurred as of January 1, 1997.
The Company accounts for its acquisitions under the purchase method of
accounting. The total cost of rental tower businesses acquired including
related fees and expenses is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values. The purchase price allocations for the respective acquisitions
included in the unaudited pro forma data are preliminary. However, the Company
does not expect that the final allocation of the purchase price will be
materially different from its preliminary allocation.
The unaudited pro forma financial data are provided for informational
purposes only and are not necessarily indicative of the results of operations
or financial position of the Company had the transactions assumed therein
occurred, nor are they necessarily indicative of the results of operations
which may be expected to occur in the future. There can be no assurance
whether or when any of the probable acquisitions reflected in the unaudited
pro forma data will be completed. Furthermore, the unaudited pro forma
financial data are based upon assumptions that the Company believes are
reasonable and should be read in conjunction with the financial statements and
the accompanying notes thereto included elsewhere in this Prospectus.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS
ACQUISITIONS FOR SENIOR
PINNACLE COMPLETED ADJUSTMENTS ADJUSTMENTS PRO FORMA DISCOUNT
HOLDINGS SUBSEQUENT TO FOR MOBILEMEDIA FOR PROBABLE FOR NOTES AND PRO FORMA
JUNE 30, 1998 JUNE 30, 1998 (A) ACQUISITION (B) ACQUISITIONS (A) ACQUISITIONS OFFERING AS ADJUSTED
------------- ----------------- --------------- ---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 2,715 $-- $ -- $ -- $ 2,715 $ -- $ 2,715
Accounts
receivable...... 2,140 -- -- -- 2,140 -- 2,140
Prepaid expenses
and other
current assets.. 1,115 -- -- -- 1,115 -- 1,115
-------- ---- -------- ------- -------- --------- --------
Total current
assets.......... 5,970 -- -- -- 5,970 -- 5,970
Restricted cash.. 61 -- -- -- 61 -- 61
Tower assets,
net............. 279,785 903 173,016 16,353 470,057 -- 470,057
Fixed assets,
net............. 1,839 -- -- -- 1,839 -- 1,839
Land............. 12,153 -- -- -- 12,153 -- 12,153
Deferred debt
costs, net...... 11,337 -- -- -- 11,337 -- 11,337
Other assets..... 854 -- -- -- 854 -- 854
-------- ---- -------- ------- -------- --------- --------
$311,999 $903 $173,016 $16,353 $502,271 $ -- $502,271
======== ==== ======== ======= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts
payable......... $ 2,794 $-- $ -- $ -- $ 2,794 $ -- $ 2,794
Accrued
expenses........ 3,430 -- -- -- 3,430 (100)(f) 3,330
Deferred
revenue......... 1,335 -- -- -- 1,335 -- 1,335
Current portion
of long-term
debt............ 2,944 -- -- -- 2,944 (2,500)(f) 444
-------- ---- -------- ------- -------- --------- --------
Total current
liabilities...... 10,503 -- -- -- 10,503 (2,600) 7,903
Long-term debt.... 287,227 903 173,016 16,353 477,499 (114,163)(g) 363,336
Other
liabilities...... 539 -- -- -- 539 -- 539
-------- ---- -------- ------- -------- --------- --------
298,269 903 173,016 16,353 488,541 (116,763) 371,778
-------- ---- -------- ------- -------- --------- --------
REDEEMABLE STOCK:
Class B common
stock............ 1,761 1,761 (1,761)(c) --
Class D common
stock............ -- -- -- --
-------- ---- -------- ------- -------- --------- --------
1,761 -- -- -- 1,761 (1,761) --
-------- ---- -------- ------- -------- --------- --------
STOCKHOLDERS'
EQUITY:
Common stock...... -- -- -- -- -- 42 (c) 51
9 (d)
Additional paid-in
capital.......... 36,231 -- -- -- 36,231 1,719 (c) 154,704
160,491 (d)
(43,737)(e)
Accumulated
deficit (24,262) -- -- -- (24,262) -- (24,262)
-------- ---- -------- ------- -------- --------- --------
Total
stockholders'
equity.......... 11,969 -- -- -- 11,969 118,524 130,493
-------- ---- -------- ------- -------- --------- --------
$311,999 $903 $173,016 $16,353 $502,271 $ -- $502,271
======== ==== ======== ======= ======== ========= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Balance Sheet
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the Company's preliminary allocation of purchase price in
accordance with the purchase method of accounting for individually
immaterial acquisitions of rental tower assets, and the related debt
financing under the Senior Credit Facility, as follows:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF NUMBER OF PURCHASE
ACQUISITIONS (1) TOWERS PRICE (2)
---------------- --------- ---------
<S> <C> <C> <C>
(i) Acquisitions of individually
immaterial rental tower businesses
completed by the Company in the
period July 1, 1998 through
July 10, 1998..................... 3 1 $ 903
(ii) Other individually immaterial
acquisitions of rental tower
businesses for which the Company
has entered into agreements or
letters of intent to acquire as of
July 10, 1998, and which the
Company believes are probable..... 15 33 16,353
</TABLE>
--------
(1) Includes the completed acquisitions of two undeveloped zoned tower
sites.
(2) Includes estimated fees and expenses related to the acquisitions of
$39, and $403, respectively.
(b) Represents the pro forma impact of the MobileMedia Acquisition for a total
cost of $173,016 (including $3,016 in fees and expenses), and the
Company's preliminary allocation of purchase price in accordance with the
purchase method of accounting, and the related debt financing under the
Senior Credit Facility, as follows:
<TABLE>
<CAPTION>
MOBILEMEDIA AS OF PRO FORMA
JUNE 30, 1998 ADJUSTMENTS (1) MOBILEMEDIA
----------------- --------------- -----------
<S> <C> <C> <C>
Accounts receivable.............. $ 283 $ (283) $ --
Prepaid site lease rentals....... 46 (46) --
Property and equipment, net...... 5,768 167,248 173,016
------ -------- --------
Total assets.................... $6,097 $166,919 $173,016
====== ======== ========
Accounts payable................. $ 214 $ (214) $ --
Unearned revenue................. 173 (173) --
Long-term debt................... -- 173,016 173,016
Net tower operation assets....... 5,710 (5,710) --
------ -------- --------
Total liabilities and net tower
operation assets............... $6,097 $166,919 $173,016
====== ======== ========
</TABLE>
--------
(1) Reflects the elimination of assets not acquired and liabilities not
assumed as per the underlying Purchase Agreement, the preliminary
allocation of purchase price, and the incurrence of pro forma debt.
(c) Adjusted to give effect to the Recapitalization.
(d) Reflects the estimated net proceeds of the Offering to the Company of
$160,500, net of the estimated underwriting discounts and commissions and
offering expenses totaling $13,500.
(e) Represents the use of a portion of the net proceeds from the Offering to
pay the applicable distribution preference and yield to holders of Class A
Common Stock, Class B Common Stock and Class E Common Stock, as required
by the Stockholders' Agreement.
(f) Reflects the use of a portion of the net proceeds from the Offering to
repay the outstanding balance of the ABRY Bridge Loan and accrued interest
thereon, as required under the ABRY Bridge Loan Agreement.
(g) Reflects the use of the remaining net proceeds from the Offering to repay
a portion of the Senior Credit Facility previously borrowed on a pro forma
basis, to effect the MobileMedia Acquisition.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
PINNACLE ADJUSTMENTS FOR ADJUSTMENTS ADJUSTMENTS PRO FOR SENIOR
HOLDINGS FOR SOUTHERN FOR FOR FORMA DISCOUNT
DECEMBER 31, COMPLETED TOWERS MOBILEMEDIA PROBABLE FOR NOTES AND
1997 ACQUISITION (A) ACQUISITION (B) ACQUISITION (C) ACQUISITION (D) ACQUISITIONS OFFERING
------------ --------------- --------------- --------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Tower rental
revenue......... $12,881 $ 6,729 $ 6,247 $ 12,829 $ 1,344 $ 40,030 $ --
Tower operating
expenses
excluding
depreciation
and
amortization.... 2,633 1,278 1,058 1,332 395 6,696 --
------- ------- ------- -------- ------- -------- --------
Gross profit
excluding
depreciation
and
amortization.... 10,248 5,451 5,189 11,497 949 33,334 --
Other expenses:
General and
administrative.. 1,385 293 90 609 2,377 --
Corporate
development..... 3,772 -- -- -- 3,772 --
Depreciation and
amortization.... 6,627 6,214 5,730 11,534 1,090 31,195 --
------- ------- ------- -------- ------- -------- --------
11,784 6,507 5,820 12,143 1,090 37,344 --
Income (loss)
from
operations...... (1,536) (1,056) (631) (646) (141) (4,010) --
Interest
expense......... 6,925 7,923 6,795 14,706 1,390 37,739 (25,948)(e)
Amortization of
original issue
discount........ -- -- -- -- -- -- 20,760 (f)
------- ------- ------- -------- ------- -------- --------
Net loss......... $(8,461) $(8,979) $(7,426) $(15,352) $(1,531) $(41,749) $ 5,188
======= ======= ======= ======== ======= ======== ========
Pro forma net
loss per common
share...........
Pro forma
weighted
average number
of
common shares
outstanding.....
<CAPTION>
PRO
FORMA
AS
ADJUSTED
-----------
<S> <C>
Tower rental
revenue......... $ 40,030
Tower operating
expenses
excluding
depreciation
and
amortization.... 6,696
-----------
Gross profit
excluding
depreciation
and
amortization.... 33,334
Other expenses:
General and
administrative.. 2,377
Corporate
development.... 3,772
Depreciation and
amortization... 31,195
-----------
37,344
Income (loss)
from
operations..... (4,010)
Interest
expense........ 11,791
Amortization of
original issue
discount....... 20,760
-----------
Net loss........ $(36,561)
===========
Pro forma net
loss per common
share.......... $
Pro forma
weighted
average number
of
common shares
outstanding.... (g)
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PINNACLE
HOLDINGS
SIX ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
MONTHS FOR ADJUSTMENTS FOR ADJUSTMENTS PRO FOR SENIOR PRO
ENDED COMPLETED FOR SOUTHERN MOBILEMEDIA FOR FORMA DISCOUNT FORMA
JUNE 30, ACQUISITIONS TOWERS ACQUISITION PROBABLE FOR NOTES AND AS
1998 (H) ACQUISITION (I) (J) ACQUISITIONS (D) ACQUISITIONS OFFERING ADJUSTED
-------- ------------ --------------- ----------- ---------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tower rental
revenue......... $ 12,544 $ 1,025 $ 1,041 $ 6,415 $ 672 $ 21,697 $ -- $ 21,697
Tower operating
expenses
excluding
depreciation and
amortization.... 2,531 208 176 666 198 3,779 -- 3,779
-------- ------- ------- ------- ----- -------- ------- --------
Gross profit
excluding
depreciation and
amortization.... 10,013 817 865 5,749 474 17,918 -- 17,918
Other expenses:
General and
administrative.. 1,495 -- 15 283 -- 1,793 -- 1,793
Corporate
development..... 3,475 -- -- -- -- 3,475 -- 3,475
Depreciation and
amortization.... 7,971 1,038 955 5,767 549 16,280 -- 16,280
-------- ------- ------- ------- ----- -------- ------- --------
12,941 1,038 970 6,050 549 21,548 -- 21,548
Loss from
operations...... (2,928) (221) (105) (301) (75) (3,630) -- (3,630)
Interest
expense......... 4,550 1,512 1,332 8,651 824 16,869 (8,382)(e) 8,487
Amortization of
original issue
discount........ 5,661 -- -- -- 5,661 5,319 (f) 10,980
-------- ------- ------- ------- ----- -------- ------- --------
Net loss......... $(13,139) $(1,733) $(1,437) $(8,952) $(899) $(26,160) $ 3,063 $(23,097)
======== ======= ======= ======= ===== ======== ======= ========
Pro forma net
loss per common
share........... $
Pro forma
weighted average
number of
common shares
outstanding .... (g)
</TABLE>
See accompanying notes to Unaudited Consolidated Statements of Operations
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Reflects the historical, pre-acquisition results of operations (in
aggregate) for the acquisitions of rental tower businesses completed by the
Company in the period January 1, 1997 through their respective date of
acquisition (but no later than July 10, 1998), and the related debt
financing under the Senior Credit Facility, as follows:
<TABLE>
<CAPTION>
SHORE TIDEWATER MAJESTIC
FOR THE FOR THE FOR THE OTHER 1997 OTHER 1998
PERIOD PERIOD PERIOD INDIVIDUALLY INDIVIDUALLY PRO FORMA
ENDING ENDING ENDING IMMATERIAL IMMATERIAL PRO FORMA COMPLETED
12/3/97 7/31/97 6/27/97 ACQUISITIONS (1) ACQUISITIONS (2) ADJUSTMENTS (3) ACQUISITIONS
------- --------- -------- ---------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tower rental revenues... $667 $368 $192 $ 1,562 $3,940 $ -- $ 6,729
Tower operating
expenses, excluding
depreciation and
amortization........... 146 57 19 336 720 -- 1,278
---- ---- ---- ------- ------ ------- -------
Gross profit excluding
depreciation and
amortization........... 521 311 173 1,226 3,220 -- 5,451
General and
administrative......... 235 30 28 -- -- -- 293
Depreciation and
amortization........... 97 26 24 2,276 3,791 -- 6,214
---- ---- ---- ------- ------ ------- -------
Income (loss) from
operations............. 189 255 121 (1,050) (571) -- (1,056)
Interest expense........ 198 14 6 -- -- 7,705 7,923
Income tax expense
(benefit).............. (22) -- 10 -- -- 12 --
---- ---- ---- ------- ------ ------- -------
Net income (loss)....... $ 13 $241 $105 $(1,050) $ (571) $(7,717) $(8,979)
==== ==== ==== ======= ====== ======= =======
</TABLE>
--------
(1) Represents the aggregate adjustment to results of operations for 65
separate completed acquisitions of 134 total towers completed during
1997, other than the acquisitions of Shore, Tidewater and Majestic,
each of which acquisitions were individually immaterial, assuming such
transactions were completed as of January 1, 1997.
(2) Represents the aggregate adjustment to results of operations for 49
separate completed acquisitions of 115 total towers completed during
the period from January 1, 1998 through July 10, 1998, other than the
Southern Towers Acquisition, each of which acquisitions were
individually immaterial, assuming such transactions were completed as
of January 1, 1997.
(3) Reflects the pro forma increase in interest expense associated with the
financing of respective acquisitions.
29
<PAGE>
(b) Reflects the historical operating results of Southern Towers and the pro
forma effect of tower rental revenue, tower operating expenses and tower
asset depreciation, and the related debt financing of the Southern Towers
Acquisition under the Senior Credit Facility, assuming the transaction was
completed as of January 1, 1997, as follows:
<TABLE>
<CAPTION>
SOUTHERN TOWERS PRO FORMA
YEAR ENDED SOUTHERN
12/31/97 ADJUSTMENTS TOWERS
--------------- ----------- ---------
<S> <C> <C> <C>
Tower rental revenues.............. $ 1,017 $ 5,230 (1) $ 6,247
Tower operating expenses, excluding
depreciation and amortization..... 877 181 (1) 1,058
------- ------- -------
Gross profit excluding depreciation
and amortization.................. 140 5,049 5,189
General and administrative......... 90 -- 90
Depreciation and amortization...... 1,947 3,783 (2) 5,730
------- ------- -------
Loss from operations............... (1,897) 1,266 (631)
Interest expense................... -- 6,795 (3) 6,795
------- ------- -------
Net loss........................... $(1,897) $(5,529) $(7,426)
======= ======= =======
</TABLE>
--------
(1) Represents pro forma incremental tower revenue and operating expenses
pursuant to an executed lease agreement with Southern Communications
and its affiliates.
(2) Reflects pro forma increases in tower asset depreciation resulting from
the Company's preliminary application of purchase accounting.
(3) Reflects the pro forma increase in interest expense associated with the
financing of the Southern Towers Acquisition.
(c) Reflects the historical operating results of the MobileMedia
Communications, Inc. and its Subsidiaries Tower Operations and the pro
forma effect of tower rental revenue, tower operating expenses and tower
asset depreciation, and the related debt financing of the MobileMedia
Acquisition under the Senior Credit Facility, assuming the transaction was
completed as of January 1, 1997, as follows:
<TABLE>
<CAPTION>
MOBILEMEDIA
YEAR ENDED PRO FORMA
12/31/97 ADJUSTMENTS MOBILEMEDIA
----------- ----------- -----------
<S> <C> <C> <C>
Tower rental revenues............... $2,500 $ 10,329 (1) $ 12,829
Tower operating expenses, excluding
depreciation and amortization...... 1,114 218 (1) 1,332
------ -------- --------
Gross profit excluding depreciation
and amortization................... 1,386 10,111 11,497
General and administrative.......... 609 -- 609
Depreciation and amortization....... 521 11,013 (2) 11,534
------ -------- --------
Loss from operations................ 256 (902) (646)
Interest expense.................... -- 14,706 (3) 14,706
------ -------- --------
Net loss............................ $ 256 $(15,608) $(15,352)
====== ======== ========
</TABLE>
--------
(1) Represents pro forma incremental tower revenues and operating expenses
pursuant to the executed Master Lease.
(2) Reflects pro forma increases in tower asset depreciation resulting from
the Company's preliminary application of purchase accounting.
(3) Reflects the pro forma increase in interest expense associated with the
financing of the MobileMedia Acquisition.
(d) Reflects the adjustment to results of operations for 15 separate
acquisitions pending as of July 10, 1998 of 33 total towers, for which the
Company has entered into agreements or letters of intent, and which the
Company believes are probable, each of which are individually immaterial,
assuming such transactions were completed as of January 1, 1997.
(e) Reflects the decrease in pro forma interest expense resulting from the use
of a portion of the net proceeds from both the Senior Notes Offering and
the Offering to repay pro forma outstanding debt under the Senior Credit
Facility, assuming such transactions were completed as of January 1, 1997.
(f) Represents the increase in pro forma interest expense related to the
amortization of the original issue discount related to the debt issued in
the Senior Notes Offering, assuming such transaction was completed on
January 1, 1997.
(g) Reflects the pro forma effect of the Recapitalization and the Offering.
30
<PAGE>
(h) Represents the aggregate adjustment to results of operations for 51
separate completed acquisitions of 308 total towers completed during the
period from January 1, 1998 through July 10, 1998, other than the Southern
Towers Acquisition, each of which acquisitions were individually
immaterial, assuming such transactions were completed as of January 1,
1997.
(i) Reflects the historical operating results of Southern Towers for the
period January 1, 1998 through the acquisition date of March 4, 1998, as
well as the following pro forma adjustments to the pre-acquisition period:
(i) incremental increase in pro forma tower revenue and operating expenses
pursuant to an executed lease agreement with Southern Communications and
its affiliates; (ii) increase in pro forma depreciation on tower assets
acquired resulting from the Company's preliminary application of purchase
accounting; and (iii) increase in pro forma interest expense associated
with related debt financing under the Senior Credit Facility, assuming the
transaction was completed on January 1, 1997.
(j) Reflects the historical operating results of MobileMedia Communications,
Inc. and its Subsidiaries Tower Operations and the pro forma effect of
tower rental revenue, tower operating expenses and tower asset
depreciation, and the related financing of the MobileMedia Acquisition
under the Senior Credit Facility, assuming the transaction was completed
on January 1, 1997, as follows:
<TABLE>
<CAPTION>
PRO FORMA
MOBILEMEDIA MOBILEMEDIA
SIX MONTHS SIX MONTHS
ENDED ENDED
6/30/98 ADJUSTMENTS 6/30/98
----------- ----------- -----------
<S> <C> <C> <C>
Tower rental revenues.................. $1,262 $ 5,153 (1) $ 6,415
Tower operating expenses, excluding
depreciation and amortization......... 513 153 (1) 666
------ ------- -------
Gross profit excluding depreciation and
amortization.......................... 749 5,000 5,749
General and administrative............. 283 283
Depreciation and amortization.......... 265 5,502 (2) 5,767
------ ------- -------
Loss from operations................... 201 (502) (301)
Interest expense....................... -- 8,651 (3) 8,651
------ ------- -------
Net loss............................... $ 201 $(9,153) $(8,952)
====== ======= =======
</TABLE>
- --------
(1) Represents incremental increases in pro forma tower revenues and
operating expenses pursuant to the executed Master Lease.
(2) Reflects the increase in pro forma depreciation on tower assets acquired
resulting from the Company's preliminary application of purchase
accounting.
(3) Reflects the increase in pro forma interest expense associated with the
debt financing of the MobileMedia Acquisition under the Senior Credit
Facility.
31
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for the period
of inception (May 3, 1995) through December 31, 1995 and for each of the two
years ended December 31, 1996 and 1997 were derived from consolidated
historical financial statements of the Company, including the related notes
thereto, which have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants. The selected historical consolidated financial
data as of and for the six months ended June 30, 1997 and 1998 were derived
from the unaudited consolidated financial statements of the Company which, in
the opinion of management, include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the Company's
consolidated results of operations and financial condition for such periods.
The operating results for the respective six month periods ended June 30, 1997
and June 30, 1998 are not necessarily indicative of results to be expected for
the full fiscal year. The selected historical consolidated financial
information should be read in conjunction with and are qualified in their
entirety by, the information contained in the consolidated audited financial
statements of the Company and the related notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
"Unaudited Pro Forma Consolidated Financial Statements" included elsewhere
herein.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 3, 1995) SIX MONTHS SIX MONTHS
THROUGH YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1997 1998
------------- ------------ ------------ ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Tower rental revenue.... $ 733 $ 4,842 $12,881 $ 4,848 $ 12,544
Tower operating
expenses, excluding
depreciation and
amortization........... 181 1,135 2,633 847 2,531
------ ------- ------- ------- --------
Gross profit, excluding
depreciation and
amortization........... 552 3,707 10,248 4,001 10,013
Other expenses:
General and
administrative(a)..... 306 923 1,385 608 1,495
Corporate
development(a)........ 369 1,440 3,772 1,656 3,475
Depreciation and amor-
tization.............. 341 2,205 6,627 2,483 7,971
------ ------- ------- ------- --------
Loss from operations.... (464) (861) (1,536) (746) (2,928)
Interest expense........ 181 1,155 6,925 2,243 4,550
Amortization of original
issue discount......... -- -- -- -- 5,661
------ ------- ------- ------- --------
Net loss................ $ (645) $(2,016) $(8,461) $(2,989) $(13,139)
====== ======= ======= ======= ========
Loss per Common Share... $(6.31) $ (8.10) $(27.28) $ (9.76) $ (34.24)
Weighted average number
of Common Shares 102 249 310 306 384
OTHER OPERATING DATA:
Tower Level Cash
Flow(b)................ $ 552 $ 3,707 $10,248 $ 4,001 $ 10,013
Tower Level Cash Flow
Margin(c).............. 75.3% 76.6% 79.6% 82.5% 79.8%
Adjusted EBITDA(b)...... $ 246 $ 2,784 $ 8,863 $ 3,393 $ 8,518
Adjusted EBITDA
Margin(c).............. 33.6% 57.5% 68.8% 70.0% 67.9%
EBITDA(b)............... $ (123) $ 1,344 $ 5,091 $ 1,737 $ 5,043
EBITDA Margin(c)........ -- 27.8% 39.5% 35.8% 40.2%
Number of Towers:
Beginning of period.... 0 33 156 156 312
Towers acquired during
the period............ 29 119 134 31 315
Towers constructed
during the period..... 4 4 22 3 18
End of period.......... 33 156 312 190 645
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 31 $ 47 $ 1,694 $ 474 $ 2,715
Tower assets, net............... 11,551 48,327 127,946 87,404 279,785
Total assets.................... 14,573 55,566 143,178 98,329 311,999
Total debt...................... 6,124 30,422 120,582 75,177 290,171
Redeemable stock:
Class B common stock........... 1,200 1,200 1,761 1,200 1,761
Class D common stock........... -- -- -- -- --
Common stock.................... -- -- -- -- --
Additional paid-in capital...... 7,051 24,881 25,876 25,131 36,231
Stock subscription receivable... (180) -- -- -- --
Accumulated deficit............. (645) (2,661) (11,123) (5,651) (24,262)
------- ------- -------- ------- --------
Stockholders' equity............ 6,226 22,220 14,753 19,480 11,969
</TABLE>
- --------
(a) "General and administrative" expenses represent those costs directly
related to the day-to-day management and operation of towers owned by the
Company. "Corporate development" expenses represent costs incurred in
connection with acquisitions and development of new business initiatives,
consisting primarily of allocated compensation, benefits and overhead
costs that are not directly related to the administration or management of
existing towers.
(b) "Tower Level Cash Flow" is defined as tower rental revenue minus tower
operating expenses, excluding depreciation and amortization. "Adjusted
EBITDA" represents loss from operations before depreciation, amortization
and corporate development expenses. "EBITDA" represents loss from
operations before depreciation and amortization. The Company has included
Tower Level Cash Flow, Adjusted EBITDA and EBITDA in Other Operating Data
because the Company believes such information may be useful to certain
investors in evaluating the Company's ability to service its debt. Tower
Level Cash Flow, Adjusted EBITDA and EBITDA should not be considered as an
alternative to Gross Profit, net loss or net cash provided by operating
activities (or any other measure of performance in accordance with
generally accepted accounting principles) as a measure of the Company's
ability to meet its cash needs or as an indication of the Company's
operating performance. Moreover, Tower Level Cash Flow, Adjusted EBITDA
and EBITDA are standardized measures and may be calculated in a number of
ways. Accordingly, the Tower Level Cash Flow, Adjusted EBITDA and EBITDA
information provided may not be comparable to other similarly titled
measures provided by other companies.
(c) Represents Tower Level Cash Flow, Adjusted EBITDA and EBITDA each as a
percentage of tower rental revenue.
(d)Includes towers managed by the Company, which at June 30, 1998 were 27
towers.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of and for the period from inception (May 3,
1995) through December 31, 1995, for each of the two years ended December 31,
1996 and 1997 and as of and for the six months ended June 30, 1997 and 1998.
The discussion should be read in conjunction with the Financial Statements of
the Company and the notes thereto included in this Prospectus. The statements
in this discussion regarding the wireless communications industry, the
Company's expectations regarding its future performance and other non-
historical statements in this discussion are forward-looking statements. These
forward-looking statements include numerous risks and uncertainties, as
described in "Risk Factors."
OVERVIEW
The Company acquires and constructs rental towers and leases space on such
towers to a broad base of wireless communications providers, operators of
private networks, government agencies and other customers. The Company's
objective is to acquire or construct clusters of rental towers in areas where
there is significant existing and expected continued growth in the demand for
rental towers by wireless communications providers. The Company seeks to
obtain a significant ownership position of tower assets in its targeted
markets in order to offer "one-stop shopping" to wireless communications
providers who are deploying or expanding wireless communications networks.
The Company's growth has come primarily from the acquisition and
construction of towers. The Company's business strategy focuses on
aggressively pursuing tower acquisitions and selectively constructing towers
in areas that complement the Company's existing base of rental towers and the
expansion into additional high growth wireless communications markets. Since
commencing operations in May 1995, the Company has completed acquisitions and
builds as follows:
<TABLE>
<CAPTION>
PERIODS ENDED SIX MONTHS
DECEMBER 31, ENDED
-------------- JUNE 30,
1995 1996 1997 1998 TOTAL(1)
---- ---- ---- ---------- --------
<S> <C> <C> <C> <C> <C>
Number of towers acquired.................. 29 119 134 315 597
Number of towers built..................... 4 4 22 18 48
--- --- --- --- ---
Number of towers acquired or built during
the period................................ 33 123 156 333 645
=== === === === ===
Number of acquisition transactions complet-
ed........................................ 13 49 72 47 181
</TABLE>
- --------
(1) Included in the number of towers acquired are 27 tower sites that the
Company manages.
As of July 10, 1998, the Company also had agreements or letters of intent
with respect to 15 proposed acquisitions consisting of 196 towers and had 11
towers under construction and in excess of 100 additional tower projects in
various stages of development. In addition, the Company has identified
numerous additional acquisition candidates. The Company expects that internal
growth related to completed acquisitions and the business potential of pending
acquisitions will have a material impact on future revenues and EBITDA. In
particular, the MobileMedia Acquisition will significantly increase the scope
of the Company's operations. On a pro forma basis, the MobileMedia Acquisition
would have had revenues and EBITDA of $12.8 million and $10.9 million,
respectively, in 1997. The Company expects the MobileMedia Acquisition to
generate annualized Tower Level Cash Flow of $11.5 million upon closing.
The Company believes that significant opportunities for growth exist by
maximizing the use of existing and future towers. Because the costs of
operating a site are largely fixed, increasing tower utilization significantly
improves tower operating margins. The Company believes that "same tower"
revenue growth on towers (measured by comparing the Annualized Run Rate
Revenue of the Company's towers at the end of a period to the Annualized Run
Rate Revenue for the same towers at the end of a prior period), is a
meaningful indicator of
34
<PAGE>
the quality of the Company's towers and its ability to generate incremental
revenue on such towers. The Company experienced aggregate "same tower" revenue
growth on towers of 26.3% at year end 1997 over 1996 and 25.0% on an
annualized basis for the six months ended June 30, 1998 over year end 1997.
The Company has generated net losses since inception and at June 30, 1998,
had an accumulated deficit totalling $24.3 million. Due to the nature of the
Company's business (the leasing of cash-generating assets) and the Company's
plans to continue to grow the business, it is expected that charges relating
to depreciation of existing and future assets and interest expense associated
with related debt balances will be substantial. Accordingly, the Company
expects to continue to generate losses for the foreseeable future.
The Company's Annualized Run Rate Revenue is calculated as of a given date
by annualizing the monthly rental rates then in effect for customer lease
contracts as of such date. The Company believes that growth in its Annualized
Run Rate Revenue is a meaningful indicator of its performance. As of June 30,
1998, the Company's Annualized Run Rate Revenue was $29.3 million, without
giving effect to adjustments totalling $14.2 million in pro forma revenue from
probable acquisitions. At June 30, 1998, the Company's inventory of 645 towers
had an average Annualized Run Rate Revenue per tower of $45,370.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, each statement of
operations item as a percentage of total tower rental revenue. The results of
operations are not necessarily indicative of results for any future period.
The following data should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Tower rental revenue.... 100.0% 100.0% 100.0% 100.0% 100.0%
Tower operating ex-
penses, excluding de-
preciation and amorti-
zation................. 24.7 23.4 20.4 17.5 20.2
Gross profit............ 75.3 76.6 79.6 82.5 79.8
Expenses:
General and administra-
tive................... 41.7 19.1 10.8 12.5 11.9
Corporate development... 50.3 29.7 29.3 34.2 27.7
Depreciation and amorti-
zation................. 46.5 45.5 51.4 51.2 63.5
Loss from operations..... (63.2) (17.7) (11.9) (15.4) (23.3)
Interest expense......... 24.7 23.9 53.8 46.3 36.3
Amortization of original
issue discount.......... -- -- -- -- 45.1
Net loss................. (87.9%) (41.6%) (65.7%) (61.7%) (104.7%)
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Tower rental revenue increased 158.7% to $12.5 million for the six month
period ended June 30, 1998 from $4.8 million for the six month period ended
June 30, 1997. This increase is attributable to the acquisition and
construction of 333 towers during the six month period ended June 30, 1998,
the results of which are reflected in the six month period ended June 30, 1998
. In addition, the increase is due to growth in per tower revenue as a result
of expanded marketing efforts to increase the number of customers per tower,
as well as regular, contractual price escalations for existing customers.
Tower operating expenses, excluding depreciation and amortization, which
consist primarily of costs relating to the ongoing maintenance of properties
such as air conditioning and grounds maintenance, ground lease expense,
utilities, property taxes and other direct costs of tower operation, increased
198.8% to $2.5 million for the six month period ended June 30, 1998 from $.8
million for the six months ended June 30, 1997. This increase is consistent
with the purchase and construction of towers as discussed above. During the
period tower operating
35
<PAGE>
expenses (as a percentage of tower rental revenue) remained consistent with
the Company's historical percentage of approximately 20%.
General and administrative expenses, which are expenses associated with
supporting the Company's day-to-day management of its existing properties and
primarily consist of employee compensation and related benefits costs,
advertising, professional and consulting fees, office rent and related
expenses and travel costs, remained relatively constant for the six month
period ended June 30, 1998 and 1997 at approximately 12% of tower revenue.
Corporate development expenses, which represent costs incurred in connection
with acquisitions and construction of new towers, increased 109.9% to $3.5
million for the six month period ended June 30, 1998 from $1.7 million for the
six month period ended June 30, 1997. The increase in corporate development
expenses reflects the higher costs associated with the Company's expansion of
its acquisition and construction strategies. Corporate development expenses
decreased as a percentage of tower rental revenue from 34.2% for the six
months ended June 30, 1997 to 27.7% for the six months ended June 30, 1998
because of the incremental increase in tower rental revenue from the
comparative period in 1997 and economics resulting from such growth.
Interest expense, net of amortization of original issue discount, increased
102.9% to $4.6 million for the six months ended June 30, 1998 from $2.2
million for the six months ended June 30, 1997. The increase in interest
expenses was attributable to increased borrowing associated with the Company's
acquisitions during the period.
1997 COMPARED TO 1996
Tower rental revenue increased 166.0% to $12.9 million in 1997 from $4.8
million in 1996. This increase is primarily attributable to the acquisition
and construction of 156 towers during 1997 and, to a lesser extent, expanded
marketing efforts to increase the number of customers per tower as well as
regular, contractual price escalations for existing customers.
Tower operating expenses, excluding depreciation and amortization increased
132.0% to $2.6 million in 1997 from $1.1 million in 1996 due primarily to the
addition of 156 towers during the year. However, tower operating expenses,
excluding depreciation and amortization, decreased as a percentage of tower
rental revenue from 23.4% in 1996 to 20.4% in 1997, reflecting operating
efficiencies gained on existing towers as well as on new towers acquired or
constructed.
General and administrative expenses increased 50.1% to $1.4 million in 1997
from $0.9 million in 1996. General and administrative costs decreased as a
percentage of tower rental revenue from 19.1% in 1996 as compared to 10.8% in
1997 because of lower overhead costs as a percentage of tower rental revenue.
Corporate development expenses increased 161.9% to $3.8 million in 1997 from
$1.4 million in 1996. The increase in corporate development expenses reflects
the Company's expansion of its acquisition and construction strategies.
Corporate development expenses remained relatively constant as a percentage of
tower rental revenue at 29.3% in 1997 compared to 29.7% in 1996.
Interest expense increased 499.6% to $6.9 million in 1997 from $1.2 million
in 1996. The increase in interest expense was attributable to increased
borrowing levels associated with the Company's acquisitions during the period.
1996 COMPARED TO 1995
The Company commenced operations on May 3, 1995. The results described
herein reflect the effect of a full year of operations in 1996 as compared to
approximately eight months of activity for the period from inception (May 3,
1995) through December 31, 1995.
36
<PAGE>
Tower rental revenue increased 560.6% to $4.8 million in 1996 from $0.7
million in 1995. This increase is attributable to the acquisition and
construction of 123 towers during 1996 and a result of expanded marketing
efforts to increase the number of customers per tower, as well as regular,
contractual price escalations for existing customers.
Tower operating expenses, excluding depreciation and amortization, increased
527.1% to $1.1 million in 1996 from $0.2 million in 1995. This increase is
primarily attributable to the effect of a full year of operations in 1996
versus eight months in 1995 and the acquisition and construction of 123
towers. Tower operating expenses, excluding depreciation and amortization,
decreased as a percentage of tower rental revenue from 24.7% in 1995 to 23.4%
in 1996, due primarily to operating efficiencies resulting from a
significantly increased number of towers.
General and administrative expenses increased 201.6% to $0.9 million in 1996
from $0.3 million in 1995. This increase is attributable to the addition of
support personnel related to the Company's acquisition and construction
efforts during the period. General and administrative costs decreased as a
percentage of tower rental revenue from 41.7% in 1995 to 19.1% in 1996 due to
lower overhead costs as a percentage of tower rental revenue.
Corporate development expenses increased 290.2% to $1.4 million in 1996 from
$0.4 million in 1995 due to the Company's expansion of its acquisition and
construction strategies. Corporate development expenses decreased as a
percentage of tower rental revenue from 50.3% in 1995 to 29.7% in 1996.
Interest expense increased 538.1% to $1.2 million in 1996 from $0.2 million
in 1995. This increase was attributable to increased borrowing necessitated by
the Company's increased acquisition activity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from its acquisition-related activities,
debt service, working capital and capital expenditures. The Company has
historically funded its liquidity needs with proceeds from equity
contributions, bank borrowings, cash flow from operations and the offering of
its Senior Discount Notes (the "Senior Notes Offering"). The Company had a
working capital deficit of $4.5 million, $12.8 million and $1.5 million as of
June 30, 1998 and December 31, 1997 and 1996, respectively. Excluding the
current portion of long-term debt, current liabilities exceeded current assets
by $1.6 million, $1.7 million and $0.8 million as of June 30, 1998 and
December 31, 1997 and 1996, respectively. The Company's ratio of total debt to
stockholders' equity (excluding redeemable stock) was 24.2 to 1 at June 30,
1998, 8.2 to 1 at December 31, 1997 and 1.4 to 1 as of December 31, 1996. On a
pro forma basis as of June 30, 1998, after giving effect to the Transactions,
the Company would have had consolidated cash and cash equivalents of $2.7
million, consolidated long-term debt of $363.3 million, consolidated
stockholders' equity of $130.0 million and a ratio of total debt to
stockholders' equity (excluding redeemable stock) of 2.8 to 1.
The Company has entered into a senior secured credit agreement (the "Senior
Credit Facility") with NationsBank, N.A. and certain other lenders that
provides a revolving line of credit for borrowings of up to $250 million, of
which $150 million is currently committed. The Company intends to obtain
commitments that would increase the total commitment to $250 million. The
Company may make borrowings and repayments until December 31, 2005. Beginning
March 31, 2000, the availability under the revolving line of credit starts
reducing by specified amounts on a quarterly basis until December 31, 2005
when the availability will be reduced to zero. Loans under the Senior Credit
Facility bear interest at a rate per annum, at the borrower's request, equal
to the agent bank's prime rate plus a margin of up to 1.75% or the 90-day
London Interbank Offered Rate ("LIBOR") plus a margin of up to 2.875%.
Outstanding borrowings under the Senior Credit Facility amounted to $63.5
million at June 30, 1998. Advances under the Senior Credit Facility have been
used primarily to fund acquisitions and construction of towers. As of June 30,
1998, after giving effect to the Transactions, there would have been
approximately $94.6 million available under the Senior Credit Facility
(assuming a commitment of $250 million), after giving effect to approximately
$15.8 million of outstanding letters of credit, which reduce availability
under the Senior Credit Facility.
37
<PAGE>
The principal stockholders of the Company (ABRY II, and Messrs. Wolsey,
Dell'Apa and Day) are parties to a Subscription and Stockholders Agreement,
dated as of May 16, 1996, as amended (the "Stockholders Agreement"). Pursuant
to the Stockholders Agreement, ABRY II agreed to make capital contributions to
the Company, up to an aggregate capital contribution of $50.0 million. As of
June 30, 1998, ABRY II had contributed $39.7 million (including $2.5 million
outstanding under the ABRY Bridge Loan) and had guaranteed an additional $3.9
million of other debt of the aggregate $50.0 million capital contribution
commitment.
The Company also uses seller financing to fund certain of its tower
acquisitions. The Company had outstanding notes that it issued to sellers
bearing interest at rates ranging from 8.5% to 13.0% per annum in the
aggregate amount of $18.7 million at June 30, 1998.
In March 1998, the Company completed its Senior Notes Offering. The Company
received net proceeds of approximately $192.8 million from the Senior Notes
Offering. The proceeds were used to repay outstanding borrowings under the
Senior Credit Facility, to repay in full and retire a $12.5 million bridge
loan from ABRY II and accrued interest thereon and a $20 million subordinated
term loan and accrued interest thereon and to pay a distribution preference to
holders of Class B Common Stock. The Senior Discount Notes were issued under
the Indenture and will mature on March 15, 2008. Until March 15, 2003, the
Company's interest expense on the Senior Discount Notes will consist solely of
the accretion of original issue discount. Thereafter, the Senior Discount
Notes will require annual cash interest payments of $32.5 million.
The Company intends to use the net proceeds of the Offering as follows: (i)
approximately $114.2 million to partially finance the MobileMedia Acquisition;
(ii) approximately $2.6 million to repay and retire all outstanding borrowings
and accrued interest under the ABRY Bridge Loan; and (iii) approximately $43.7
million to be distributed to certain stockholders in connection with the
Recapitalization to occur upon the closing of the Offering. The Company
intends to finance the balance of the MobileMedia Acquisition purchase price
(approximately $58.8 million including fees and expenses estimated to be
approximately $3.0 million) from borrowings under the Senior Credit Facility.
Capital expenditures, including acquisitions, for the six months ended June
30, 1998 were $160.8 million, compared to $39.8 million in the comparable 1997
period. Capital expenditures, including acquisitions, were $12.7 million,
$42.8 million and $89.4 million for the periods ended December 31, 1995, 1996
and 1997, respectively, and related primarily to acquisitions.
The Company anticipates that it will spend approximately $229 million on
capital expenditures in the second half of 1998, including $170 million for
the MobileMedia Acquisition and $59 million for the acquisition, construction
and upgrading of additional towers. The Company estimates capital expenditures
in 1999 and 2000 to be approximately $150 million during each year.
The Company believes that the proceeds of the Offering, cash flow from
operations, borrowings under the Senior Credit Facility and existing cash
balances will be sufficient to meet working capital requirements for existing
properties. To the extent that the Company pursues future acquisitions, the
Company may be required to obtain additional financing. There can be no
assurance that such financing will be commercially available or permitted by
the terms of the Company's existing indebtedness. To the extent that the
Company is unable to finance future capital expenditures, it may not be able
to achieve its current business strategy.
INFLATION
Because of the relatively low levels of inflation experienced in 1995, 1996,
1997 and as of June 30, 1998, inflation did not have a significant effect on
the Company's results in such years.
38
<PAGE>
YEAR 2000
The Year 2000 is not expected to have a material impact on the Company's
current information systems because its software is either already Year 2000
compliant or required changes are not expected to be material. Based on the
nature of the Company's business, the Company anticipates it is not likely to
experience material business interruption due to the impact of Year 2000
compliance on its customers and vendors. As a result, the Company does not
anticipate that incremental expenditures to address Year 2000 compliance will
be material to the Company's liquidity, financial position or results of
operations over the next few years.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," was issued, establishing standards for public
enterprises to disclose certain information about operating segments and
related disclosures about products and services, geographic areas and
significant customers. The Company will adopt this pronouncement in 1998 in
accordance with the implementation requirements. Management believes that the
adoption of SFAS No. 131 will not have a material impact on the Company's
financial statements.
39
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is the leading provider of wireless communications rental tower
space in the Southeastern United States. Since commencing operations in May
1995, the Company has completed 184 acquisitions through which it has acquired
598 towers and has constructed an additional 48 towers in such high growth
markets as Atlanta, Birmingham, New Orleans, Orlando and Tampa. The Company
also has agreements or letters of intent to acquire 196 additional towers. As
a result of its extensive existing tower base, the Company believes it is
well-positioned to continue to capitalize on the growth opportunities
available in the rapidly consolidating and highly fragmented tower rental
industry. For the year ended December 31, 1997 and the six months ended
June 30, 1998, on a pro forma basis, the Company had tower rental revenue and
EBITDA of $40.0 million and $27.2 million, respectively, and $21.7 million and
$12.7 million, respectively. See "Unaudited Pro Forma Financial Data."
The Company has a diversified base of over 680 customers consisting of
wireless communications providers, operators of private networks and
government agencies that include Southern Communications, Nextel, Sprint PCS,
PageNet, Motorola, BellSouth Mobility, MobileMedia, Teletouch, Skytel,
Pagemart, Federal Bureau of Investigation and Bureau of Alcohol, Tobacco &
Firearms. The Company's leases generally range in duration from three to five
years and many provide for scheduled minimum rent increases of the greater of
a specified percentage (which typically ranges from 3-5%) or the change for
the relevant period in the CPI. Unlike a number of other participants in the
tower rental industry, the Company focuses exclusively on the rental of
wireless communications tower space. The Company's desirable tower locations,
long-term customer leases, diversified customer base and low levels of churn
have combined to produce operating margins that the Company believes are among
the highest in the industry.
The Company believes that its business will be favorably impacted by the
following considerations: (i) high cash flow margins with significant
operating leverage; (ii) consolidation opportunities in a highly fragmented
industry; (iii) attractive growth potential; (iv) stable and predictable cash
flow; (v) high barriers to entry; and (vi) low customer churn. The Company
believes that its tower portfolio provides the core asset base from which it
can continue to generate increasing revenue and cash flow through the
acquisition and construction of clusters of towers in attractive, high growth
markets.
The Company has designed and implemented a three-tiered growth strategy of:
(i) aggressively marketing available rental space on its towers to capitalize
on the operating leverage of its business; (ii) rapidly acquiring towers in
key markets; and (iii) implementing a selective tower construction program
designed to complement its acquisition strategy. In order to effect its
strategy, the Company has created a highly focused, structured organization in
which significant resources are devoted to acquiring or constructing towers on
strategically located sites supported by customer demand. The Company uses its
proprietary information systems and other systems to rapidly integrate new
towers and initiate sales and marketing efforts immediately following their
acquisition or construction.
Pursuant to its growth strategy, in March 1998, the Company acquired 201
towers from Southern Communications for $83.5 million plus fees and expenses.
The Company believes that the acquisition of these towers significantly
enhanced the Company's existing inventory and resulted in a level of
geographic coverage in the Southeastern United States that is far more
comprehensive than that offered by any of its competitors. The Company
believes it can effectively leverage these sites to obtain additional
customers and thereby increase revenues and margins. In addition, the Company
recently entered into an agreement, subject to certain conditions, to acquire
163 towers from MobileMedia and its affiliates for $170.0 million plus fees
and expenses. In connection with the MobileMedia Acquisition, the Company will
enter into a 15-year lease arrangement to provide rental tower space to
MobileMedia Communications. The Company believes the MobileMedia Acquisition
will further strengthen the Company's presence in certain existing markets,
provide entry into geographically contiguous markets and expand the Company's
operations into new markets in Southern California and New England.
40
<PAGE>
INDUSTRY BACKGROUND
Communications towers are primary infrastructure components for wireless
communications services such as cellular, paging, PCS, SMR, wireless data
transmission and radio and television broadcasting. Wireless communications
companies require specialized 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 carrier and
includes transmission equipment such as antennae, transmitters and receivers
placed at various locations throughout the covered area. These locations, or
communications sites, are critical to the operation of wireless communications
networks and consist of towers, rooftops and other structures upon which such
equipment may be placed. Wireless communications providers design their
network and select their communications sites in order to optimize available
frequencies relative to their projected usage patterns, topography and service
requirements.
The Wireless Communications Industry
The wireless communications industry is growing rapidly as: (i) consumers
become increasingly aware of the uses and benefits of wireless communications
services; (ii) the costs of wireless communications services decline; and
(iii) new wireless communications technologies continue to be developed.
Changes in U.S. federal regulatory policy have led to a significant increase
in the number of competitors in the wireless communications industry, most
recently through the auction of radio spectrum for PCS. This competition,
combined with an increasing reliance on wireless communications services by
consumers and businesses, has increased demand for higher quality networks
characterized by uninterrupted service and improved coverage. As new carriers
build out their networks and existing carriers upgrade and expand their
networks to maintain their competitiveness, the demand for communications
sites is expected to continue to increase dramatically.
The wireless communications industry is comprised of the following segments:
. Cellular--Currently each market in the United States has two cellular
operators. Cellular networks consist of numerous geographic "cells" in
which frequencies are reused every few miles. Each cell includes a
communications site which includes transmission equipment generally
residing on a wireless communications tower. According to industry
publications, as of June 30, 1997 there were 48.7 million wireless
telephone subscribers in the United States, representing a 27.5% growth
rate over the prior 12 months, and an overall penetration of approximately
18.0%. In addition, as the cellular market migrates from an analog based
transmission technology to a digital based transmission technology, demand
is expected to increase as prices decline. In order to increase network
capacity and improve service quality, cellular carriers are re-engineering
their networks to have smaller and more numerous cells. While historically
cellular operators have generally built their own towers, the growing
demand for tower space and restrictions on new tower construction are
making rental towers an increasingly important component of their
transmission networks.
The following illustrates the growth in the United States' wireless
communications industry from 1987 to 1996.
[Bar Chart showing growth in the United States' wireless communications
industry by subscribers.]
<TABLE>
<CAPTION>
NUMBER OF SUBSCRIBERS
YEAR (IN MILLIONS)
---- ---------------------
<S> <C>
1987 .9
1988 1.6
1989 2.7
1990 4.4
1991 6.4
1992 8.9
1993 13.1
1994 19.3
1995 28.2
1996 38.2
</TABLE>
Source: CTIA Reflects Cellular, ESMR, and PCS Subscribers
41
<PAGE>
. PCS--PCS is an emerging wireless communications technology competing with
cellular that offers a digital signal that is clearer and offers greater
privacy than typical analog cellular systems. Up to six PCS licenses have
been issued by the FCC in each market (versus two for cellular). PCS system
construction began in 1995, and due to their small cell size, PCS companies
are expected to be substantial users of tower space. According to industry
publications, there were approximately 2.2 million PCS subscribers in the
United States as of December 31, 1997. The Personal Communications Industry
Association ("PCIA") estimates that on December 31, 1997 there were
approximately 45,000 antennae sites (cellular and PCS) in the United
States. PCIA estimates that this number will increase by approximately
100,000 additional antennae sites over the next 10 years. While some of
these sites may use existing towers, it is expected that a large number of
new towers will be required for the deployment of PCS networks. As an
example, PrimeCo, Aerial and Sprint PCS are currently building out PCS
systems in the Company's target region and are co-locating their equipment
on many of the Company's rental towers, as opposed to constructing their
own towers.
. Paging--Paging has also enjoyed dramatic growth over the last ten years.
According to industry publications, there were 49.8 million pagers at the
end of 1997, representing an average annual growth rate of 26.8% since
1992. This growth was spurred by declining prices, wider coverage and
increasing expansion into the consumer market. While network construction
by the paging industry appears to be reaching a certain level of maturity,
the increased number of subscribers is expected to require utilization of
additional channels and related transmitter equipment. Utilization of these
additional channels will result in additional revenue on rental towers.
Paging companies have historically relied heavily on rental towers and are
expected to continue to do so.
. SMR / ESMR--SMR companies provide two-way radio communications for
primarily commercial purposes, especially fleet vehicles. Two-way private
business radio is used primarily for businesses engaged in dispatching
personnel or equipment to work sites and includes construction and trucking
companies, courier services, hospitals and taxicabs. Each service provider
holds an FCC radio license that allows it to transmit over a particular
frequency, and most lease space on a local tower for transmission purposes.
As a result of advances in digital technology, some wireless communications
providers have begun to design or modify networks that utilize SMR
frequencies by deploying advanced digital technologies called ESMR. ESMR
increases the capacity of radio networks allowing more efficient use of
allocated frequencies. These efficiencies and improvements allow ESMR to
provide wireless telephone service that can compete more effectively with
cellular and PCS. As more commercial users are attracted to such enhanced
services, the demand for tower space to support such usage also continues
to increase. Nextel and Southern Communications are the leading ESMR
providers in the United States.
. Government Agencies--Federal, state and local government agencies are major
users of wireless communications services and typically operate their own
dedicated frequencies. These government agencies, in certain circumstances,
often find it easier to lease rather than own tower space. As new
technologies are developed in law enforcement, emergency and other
government services, various municipalities and government agencies are
becoming more significant users of wireless communications services.
Examples of government customers of tower space include the Federal Bureau
of Investigation, U.S. Coast Guard, U.S. Secret Service and various
municipal agencies.
. Broadcast and Wireless Cable--Broadcasters transmit AM/FM radio signals and
VHF and UHF television signals in order to obtain the broadest, clearest
coverage available. A broadcast station's coverage is one of the primary
factors that influences the station's ability to attract advertising
revenue. Once a tower location is chosen, broadcasters rarely change sites
due to complex regulatory requirements, high switching costs and business
disruption. The U.S. broadcasting industry is generally mature with respect
to demand for transmission tower capacity. However, a significant increase
in demand for tower capacity may occur when digital spectrum is used to
deliver high definition television ("HDTV") or digital multi-casting, i.e.,
multiple "normal" definition television channels. In addition, wireless
cable television is being developed
42
<PAGE>
and positioned as a potentially more accessible alternative to traditional
cable television. Wireless cable operates by receiving programming from a
satellite which is retransmitted from an antenna on a tower to a receiving
antenna on a subscriber's residence. Several wireless cable companies are
now in the process of constructing their systems in the Company's region.
. Emerging Technologies and Availability of FCC Spectrum--Several new
entrants in the wireless communications industry are emerging as new
technology becomes available and additional radio spectrum is authorized
for use by the FCC. For example, Local Multipoint Distribution Service
("LMDS"), has diverse applications including wireless video, telephone,
paging and wireless local loop. Wireless local loop ("WLL") systems are
seen as an alternative to traditional copper and fiber-optic based services
with the potential to be implemented more quickly and at lower costs than
fixed wireline services. WLL systems provide non-mobile telecommunications
services to users by transmitting voice messages over radio waves from the
public switched network to the location of the fixed telephone. The
installation of WLL systems minimizes the need to obtain right-of-ways and
excavate existing roads and infrastructure in order to install or upgrade a
local telephone system serving non-mobile telephones. Also, wireless data
transmission is widely viewed as being in its infancy as the development of
Personal Digital Assistants and a variety of applications are being
developed. In addition to private networks, several companies are building
national wireless data transmission networks including Motorola's EMBARC
system, Nationwide Wireless Network (an affiliate of MTEL), RAM Mobile Data
(10% owned by BellSouth), and Racotek's and Geotek's SMR based data
networks. Automatic Vehicle Monitoring/Location and Monitoring Services
("AVM/LMS") systems generally require a minimum of three towers to band a
coverage area. The Company believes that AVM/LMS service providers will use
the band to provide fleet tracking, rail and container transportation
monitoring, security and access control, etc. Other new developments
including the auction of 220 and 450 Megahertz spectrum are expected to
increase available radio spectrum for commercial applications.
These recent developments in the wireless communications industry indicate
continuing opportunities for the tower rental industry. Industry analysts
project rapid and continued growth in the major wireless communications
industry segments and these projections all share a common outcome: more
equipment needs to be installed on a limited supply of towers.
The Tower Rental Industry
A typical tower consists of a compound enclosing the tower and an equipment
shelter which houses a variety of transmitting, receiving and switching
equipment. There are three types of towers: (i) guyed; (ii) self-supporting
lattice; and (iii) self-supporting monopole. Guyed towers gain their support
capacity from a series of cables attaching separate levels of the tower to
anchor foundations in the ground. A lattice model is usually tapered from the
bottom up and can have three or four legs. A monopole is a tubular structure
that typically accommodates fewer customers and may be used as a single
purpose tower or in locations where there are space constraints or a need to
address aesthetic concerns. Self-supporting towers typically range in height
from 50-200 feet for monopoles and up to 1,000 feet for lattices, while guyed
towers can reach a height of up to 2,000 feet. Different wireless
communications technologies require that equipment be located at various
heights to optimize signal propagation. As of June 30, 1998, the Company's
tower inventory was comprised of 531 guyed, 100 self-supporting lattices and
14 monopoles.
Wireless communications equipment can also be placed on building rooftops.
Traditionally, rooftop sites have been common in urban downtown areas where
tall buildings are available and multiple communications sites are required
because of high wireless traffic density. Today, rooftop sites are used less
for certain types of customers as current technology requirements cause an
increasing number of providers to place antennae lower on buildings.
The value of a rental tower is principally determined by the desirability of
its location to customers and the amount of customer equipment installations
that it can support. Several customers may share one tower through "vertical
separation" with each type of customer on a different level. While many
existing towers were not
43
<PAGE>
originally built with the capacity to support multiple customers, these towers
can often be upgraded to support additional equipment.
Historically, wireless communications providers and broadcasters built,
owned and operated their own towers, which were typically constructed and
designed for their exclusive use. As recent technologies emerged, the original
equipment on many of these towers became obsolete, resulting in these towers
becoming available for other uses, and in some cases, for acquisition. For
example, fiber optic cables have largely replaced transmission traffic
traditionally carried by wireless microwave networks. The paging and SMR
industries were traditionally owned by local or regional companies which
constructed their own networks and transmission towers. As these industries
consolidated over the past ten years, the acquiring companies typically
purchased the radio licenses and subscriber leases and entered into lease
agreements with the original tower owner. Wireless communications providers
today are generally more focused on developing their subscriber base and
relatively less focused on building and owning tower networks. An opportunity
to acquire towers arose as a result of these developments.
During the mid-to-late 1980s, a number of independent tower owners began to
emerge, marking the beginning of the tower rental industry. These independent
tower owners focused on owning and managing towers with multiple customers by
adding customers to existing and reconstructed towers. The Company believes
the majority of these tower operators were individuals with a small number of
local rental towers offering very limited coverage areas. In the last three
years, several larger independent tower owners have emerged as demand for
wireless communications services continued to grow and as additional high
frequency licenses were awarded for new wireless communications services
(including PCS, narrowband paging and LMDS) each requiring networks with
extensive tower infrastructure. As the demand for towers has been increasing,
there has been a growing trend by municipalities to slow the proliferation of
towers. These trends have contributed to a growing need for towers that can
accommodate co-location of wireless communications providers. In this regard,
an opportunity to acquire towers and lease space to multiple wireless
communications providers was created.
Ownership of rental towers in many parts of the United States remains highly
fragmented. Only a few independent tower owners have accumulated a large
number of towers and the Company believes it is the only provider of tower
services to have achieved a consolidated position in the Southeastern United
States. The pace of consolidation has begun to accelerate as larger
independent owners acquire small local owners in certain regions. The Company
believes achieving a consolidated position in a given market provides a
significant competitive advantage.
THE PINNACLE APPROACH TO THE TOWER RENTAL INDUSTRY
As a result of the recent developments in the wireless communications
industry and the highly fragmented nature of the tower rental industry, the
Company's founders recognized a significant opportunity to consolidate
strategically located wireless communications towers and enhance rental
revenue on those towers. In particular, the Company's founders developed a
strategy of acquiring clusters of towers that would provide strong positions
in selected, high growth wireless communications markets in the Southeastern
United States.
Business and Growth Strategy
The Company's objective is to create substantial value from both its
position as the leading provider of wireless communications rental tower space
in the Southeastern United States and its expansion into additional wireless
communication markets. In order to achieve its objective, the Company has
designed and implemented a three-tiered growth strategy that focuses on:
(i) aggressively marketing available rental space on its towers to capitalize
on the operating leverage of its business; (ii) rapidly acquiring towers in
key markets; and (iii) implementing a selective tower construction program
designed to complement its acquisition strategy. However, there can be no
assurance that the Company will successfully implement its strategy and
achieve its objective.
44
<PAGE>
Marketing and Development Strategy
The Company aggressively markets rental space on its towers to capitalize on
the operating leverage of its business. The Company's customers are generally
responsible for the installation of their own equipment and the incremental
utility costs associated with that equipment. In addition, adding customers to
an existing tower does not result in increased monitoring, maintenance or
insurance costs. Accordingly, the Company believes that when customers are
added to an existing tower, additional revenue can be achieved at low
incremental costs, thereby yielding increased profit margins. The key elements
of the Company's marketing and development strategy include the following:
. Offer Strategically Located Clusters of Towers. By owning and
assembling clusters of towers in high growth regions, the Company
believes it is able to offer its customers the ability to rapidly
fulfill their network expansion plans, which the Company believes
provides it with a significant competitive advantage. The Company also
believes that national and other large wireless service providers prefer
to deal with a company that can meet the needs of such providers within
a particular market or region.
. Leverage Customer Relationships. The Company believes it has established
a reputation among its customers as a highly professional and reliable
tower space provider. This has been achieved through ongoing investment
in the development of relationships at multiple levels of customer
organizations. The Company believes that making customers' technical and
planning personnel aware of the quality of a particular site is an
important factor in generating interest in the Company's towers.
. Provide a Dedicated Customer Service Group. The Company employs a group
of individuals who are entirely dedicated to assisting customers with
site location and installation logistics. The Company believes that the
use of effective information and other systems enables its customer
service group to respond quickly and accurately to customers' needs.
. Track FCC Filings. All FCC licensees must file applications for site
locations. Utilizing its proprietary databases and publicly available
information, the Company tracks these filings closely to identify tower
acquisition and construction opportunities. The Company also closely
monitors FCC auctions in order to identify new market entrants.
. Provide High Quality, Secure Facilities. The wireless communications
equipment typically stored in a tower building is becoming increasingly
sophisticated and is critical to the operations of wireless
communications providers. Accordingly, the Company believes its ability
to provide well-maintained and secure facilities has further enhanced
its ability to attract and maintain customers.
Acquisition Strategy
The Company's acquisition strategy is focused on: (i) the rapid acquisition
of towers in key markets as a means to quickly gain critical mass, thereby
discouraging other tower consolidators from entering its markets; (ii) follow-
on acquisitions to enhance its coverage in selected wireless communications
markets; and (iii) the penetration of new markets as a platform for future
growth. In executing its acquisition strategy, the Company generally targets
strategically located individual towers or small groups of towers. The
Company's focus on individual towers or small groups of towers, however, does
not preclude potential acquisitions of a large number of towers in a single
transaction. The Company's completion of the Southern Towers Acquisition (201
towers) in March 1998 and the Company's pending acquisition of the MobileMedia
Acquisition (163 towers) are two of the largest acquisition transactions in
the industry to date. Since commencing operations in 1995, the Company has
completed the acquisition of 598 towers in 184 separate transactions. As of
June 30, 1998, the Company had agreements or letters of intent with respect to
15 proposed acquisitions consisting of 196 towers and had identified and
initiated discussions concerning numerous additional acquisition
opportunities.
The Company conducts extensive due diligence prior to consummating an
acquisition, leveraging what the Company believes to be its competitive
advantage in terms of its experience in, and knowledge of, the tower rental
industry. Of the Company's 92 total employees, 22% are dedicated to completing
acquisitions. The
45
<PAGE>
Company utilizes 10 full-time tower buyers, who spend substantially all of
their time in the field identifying, evaluating and generating acquisition
opportunities for the Company. The Company uses a standardized process that it
has developed to ensure that acquisitions are evaluated, documented and
rapidly processed. In order to execute and ensure the integrity and quality of
this process, the Company utilizes outside independent professionals to verify
certain accounting, legal and engineering data. The Company believes that this
approach has proven effective in permitting the Company to more accurately
predict the performance of acquired assets and reduce the risks associated
with the Company's acquisitions. However, acquisitions involve a number of
potential risks, including the potential loss of customers and unanticipated
events or liabilities. Because of such risks, there can be no assurance that
the Company will be able to successfully implement its acquisition strategy.
See "Risk Factors--Dependence on Acquisitions; Integration of Acquisitions."
The key elements of the Company's acquisition strategy are set forth below:
. Target High Growth Wireless Communications Markets. The Company targets
population centers and transportation corridors in wireless communications
markets where there is evidence of high potential growth. The Southeastern
United States is attractive because of its relatively high population and
economic growth rates with 4 of the top 10 fastest growing cities in the
United States located in this region, according to the U.S. Census Bureau.
In addition, according to the U.S. Census Bureau, the population growth
rate in Florida for the three years ending July 1, 1997, was 5.0%, nearly
double that of the overall rate of 2.8% for the United States. Within the
Southeastern United States, the Company has established strong market
positions in densely populated areas such as Atlanta, Birmingham, New
Orleans, Orlando and Tampa. The MobileMedia Acquisition will provide the
Company with strong market positions in Knoxville, Mobile and Nashville.
The Company has also established strong market positions along the
following transportation corridors:
I-10 from Baton Rouge, Louisiana to Jacksonville, Florida
I-4 from Daytona Beach, Florida to Tampa, Florida
I-85 from Atlanta, Georgia to Montgomery, Alabama
I-75 from Atlanta, Georgia to Naples, Florida
I-65 from Birmingham, Alabama to Mobile, Alabama
I-16 from Atlanta, Georgia to Savannah, Georgia
I-59 from Birmingham, Alabama to New Orleans, Louisiana
. Focus on Compatibility with Existing Tower Network. The Company considers
many factors when evaluating a potential acquisition. In particular, the
Company considers whether an acquisition will, when combined with existing
tower inventory, result in the Company owning a cluster of towers in a
given area, thereby providing the Company with a stronger market position.
The Company also considers whether the towers in a particular acquisition
meet demand for enhanced coverage that has been previously identified by
customers. In some instances, the Company may acquire, as part of a group
of towers being purchased, an individual tower which falls outside of
normal acquisition parameters. Such acquisitions occur only when the
Company has determined that the overall transaction is attractive. In
general, the Company aims to acquire sites which will result in clusters of
towers that provide the critical mass necessary to achieve certain
competitive advantages within a given market. As a result of this approach,
the Company has primarily focused on achieving an expanded presence in the
Southeastern United States. The MobileMedia Acquisition will provide the
Company with a tower base that will include sites in new markets in
Southern California and New England that the Company believes can provide
the basis for further market penetration.
. Employ a Disciplined Valuation Process. The Company seeks to acquire towers
that have existing cash flow and the potential for significant future cash
flow growth. For each potential acquisition, the Company reviews the
current population coverage of each proposed tower, the nature and quality
of the customer base, coverage of current and future major transportation
corridors and the location and desirability of competing towers. The
Company also makes an assessment of potential cash flow growth and
estimates whether additional capital expenditures will be required to add
capacity to accommodate future growth.
46
<PAGE>
New Tower Construction Strategy
The Company will continue to construct new towers and tower networks in and
around major markets in which it already has a presence. The Company intends
to construct towers on a selective basis primarily to enhance coverage in
selected markets. In addition, the Company intends to pursue new build
opportunities in order to expand capacity or otherwise improve already
existing sites. During 1997 and the six months ended June 30, 1998, the
Company constructed 22 and 18 towers, respectively. The Company estimates that
it will identify 100 to 150 new tower build opportunities over the next 12
months. There are, however, risks associated with new development and tower
construction. Because of such barriers, there can be no assurance that the
Company's new tower construction strategy will be successful. See "Risk
Factors--Barriers to New Construction." The elements of the Company's tower
build program include the following:
. Disciplined Build Selection Criteria. Through its sales and marketing
efforts, the Company seeks to identify suitable tower construction sites
based on information obtained from wireless communications providers
regarding their network construction plans. The Company carefully evaluates
such plans to meet customer requirements, which may result in selling space
on an existing tower, acquiring an existing tower, augmenting an existing
tower or constructing a new tower. Once such opportunities are identified,
the Company acts quickly to select only those opportunities which are
financially attractive. Tower construction is only initiated after at least
one anchor customer is identified and after the Company has determined,
based on market research, that the capital outlay for the construction
project would be consistent with the Company's requirements of return on
capital.
. Rapid Construction/Build Implementation. After identifying an attractive
construction opportunity, the Company moves quickly to: (i) secure access
to the site by either purchasing or entering into a long-term lease for a
parcel of land; (ii) select the appropriate type of tower based on
structural capacity needs; (iii) initiate sales and marketing efforts to
rent space on the tower; and (iv) complete the necessary steps to obtain
zoning approvals and building permits. The Company oversees the
construction of the tower by hired sub-contractors.
. Effective Tower Design and Sourcing. New tower structures are available
from a variety of vendors. The number of customer attachments that can be
installed on any individual tower (the tower's capacity) depends on a
number of factors including the original engineering and design of the
tower, the geographic area and the specific nature of the attachments
(coaxial lines, mounting devices and antennas). These factors also
influence the amount of capital which must be invested to build such
towers, which in the case of a 500-foot guyed tower could range from
$35,000 to $1,000,000. The Company believes that by carefully balancing
these factors, it can economically improve the capacity of new and existing
towers.
While construction of new towers does not provide immediate cash flow like
that of existing towers, the Company believes that due to the generally lower
capital requirements for constructed towers versus acquired towers, new tower
construction generates a higher return than acquisitions once the new towers
are fully leased. Approximately 11 new towers are currently under construction
by the Company and there is in excess of 100 additional tower projects in
various stages of development.
COMPANY STRENGTHS
At June 30, 1998 the Company had a network of approximately 645 towers
(excluding 196 towers to be acquired pursuant to the MobileMedia Acquisition,
and other probable acquisitions) geographically clustered in the Southeastern
United States. The Company believes its business will be favorably impacted by
the following considerations:
. High Cash Flow Margins with Significant Operating Leverage. The
Company's towers are fixed-cost assets with minimal variable costs
associated with revenue from leasing available space to additional or
existing customers, as each customer generally assumes the costs of
installation, utilities and equipment maintenance. Accordingly, the Company
can generate increasing operating margins when new customers are added,
resulting in high incremental free cash flow. For the six months ended June
30, 1998, the Company's Tower Level Cash Flow Margin was 80%.
47
<PAGE>
. Consolidation Opportunities in a Highly Fragmented Industry. The tower
rental industry remains highly fragmented, with few independent operators
owning a large number of towers. The pace of consolidation has begun to
accelerate, however, as the larger independent operators continue to
acquire small local or regional operators and purchase communications sites
and related assets from wireless communications carriers. The Company
believes that a major factor contributing to such consolidation is the
emergence of national and other large wireless communications services
providers who prefer to deal with companies that can meet the majority of
such providers' needs within a particular market or region. The Company
further believes that significant opportunities for growth exist in this
current industry environment and that it is well-positioned to continue to
be a significant consolidator of towers. Since commencing operations in May
1995, the Company has successfully completed 184 acquisitions through which
it has acquired 598 towers.
. Attractive Growth Prospects. According to industry publications, as of
December 31, 1997, penetration for wireless services was approximately
21.0% and is projected to grow to 53.0% by 2007. The Company's rental
towers provide basic infrastructure components for all major wireless
communications services, including cellular, paging, two-way radio,
broadcast television, microwave, wireless data transmission and SMR
customers. As a result, the Company believes that it can achieve a level of
growth in its tower rental revenue that will in general reflect the growth
of its customer base over the next several years.
. Stable and Predictable Cash Flow. The Company believes that it benefits
from the long-term contract nature of its tower rental business and the
predictability and stability of monthly, prepaid and recurring revenue. The
Company generally leases space on its towers to wireless communications
providers under three- to five-year leases. In addition, a majority of the
Company's leases provide built-in annual rate increases of the greater of a
specified percentage (which typically ranges from 3-5%) or the change for
the relevant period in the CPI. Furthermore, because a significant
proportion of tower rental revenue is received from customers that are
predominantly large companies and because towers provide a basic utility-
like service (which can be terminated by a tower owner if rent is not
paid), the Company generally experiences low levels of bad debt expense. In
addition, the Company has a broad representation of wireless communications
providers and underlying technologies reflected in its customer base of 680
customers, which the Company believes enhance the stability and
predictability of its cash flow.
. Barriers to Entry. Towers are subject to a variety of federal and local
regulations that make the construction of towers difficult and increase the
time and expense associated with their construction, especially in highly
populated or high transmission areas. As a result, the Company believes
that in areas where it has established a critical mass of rental tower
inventory, construction of alternative towers will be less attractive to
others due to the likelihood of lower returns on those towers. Wireless
communications providers seeking to construct their own proprietary,
limited use towers face continued opposition by municipalities, which are
reducing the opportunities for such new towers to be built and supporting
the trend toward co-location on rental towers.
. Low Customer Churn. The tower rental industry typically experiences low
customer churn as a result of the high relocation costs incurred by
customers. When customers enter into long-term contracts for tower space,
those customers generally make significant capital and network engineering
commitments to the related site. The time and costs associated with network
reconfiguration and obtaining FCC and municipal or local approval may also
discourage customer relocation. The Company believes that the high levels
of commitment made by its customers benefit the Company in the form of a
recurring revenue stream.
CERTAIN ACQUISITIONS
The Southern Towers Acquisition. In March 1998, the Company completed the
acquisition of 201 towers from Southern Communications, a subsidiary of
Southern Company, one of the largest utility holding companies in the United
States and a large ESMR provider with a network in the Southeastern United
States. The Company paid $83.5 million plus fees and expenses for these
towers, which are located in Alabama, Florida, Georgia and
48
<PAGE>
Mississippi, substantially all of which were constructed within the last four
years. Prior to the acquisition, these towers were principally for the
exclusive use of Southern Communications and its affiliates and were used by
only a small number of third party tenants. As a result, the Company believes
the acquired towers have significant additional capacity and the Company
intends to leverage the acquired tower sites to obtain additional customers
and thereby increase revenues and potentially improve operating margins.
The Company believes that the Southern Towers Acquisition significantly
accelerated its progress in achieving its goal to become the leading provider
of rental tower space in the Southeastern United States. The locations of
these towers are complementary to the Company's previously existing inventory
of towers and gave the Company a level of geographic coverage that the Company
believes is far more comprehensive than that offered by any of its
competitors. In particular, the Southern Towers Acquisition provided the
Company with a strong market position in Atlanta, one of the fastest growing
wireless communications markets in the Southeastern United States. The
characteristics of these towers (predominately single tenant with significant
remaining capacity) are consistent with the Company's strategy to acquire
towers with the potential for substantial future growth.
The MobileMedia Acquisition. On July 7, 1998, the Company signed a
definitive purchase and sale agreement, subject to certain conditions, to
acquire 163 communications towers in 18 states from MobileMedia, a nationwide
paging company, and several of its affiliates for $170 million plus fees and
expenses. In connection with the MobileMedia Acquisition, the Company will
enter into the Master Lease. See "--Customers and Customer Leases."
MobileMedia and certain of its affiliates are currently operating as debtors-
in-possession under Chapter 11 of the Bankruptcy Code. See "Risk Factors--
Risks Associated with the MobileMedia Acquisition."
The Company believes the MobileMedia Acquisition will provide several
strategic advantages to the Company. The Company believes the towers located
in Alabama, Florida, South Carolina and Texas should strengthen the Company's
presence in key markets. In addition, the location of a substantial number of
towers in Kentucky and North Carolina, should provide a contiguous expansion
of the Company's already substantial coverage area in the Southeastern United
States. The Company also believes the MobileMedia Acquisition will provide an
opportunity for the Company to assemble clusters of towers in new high growth
markets in Southern California and New England. The MobileMedia Acquisition is
expected to initially generate, at closing, annualized Tower Level Cash Flow
of approximately $11.5 million.
Additional Acquisition Opportunities. The Company has achieved a leading
industry position primarily through acquisitions and intends to continue to
pursue strategic acquisitions of communications sites in new and existing
markets. Among the potential acquisitions are tower networks owned by major
wireless service providers and their affiliates, that may seek to divest their
ownership of such networks for reasons similar to those motivating them to
outsource their new construction requirements. Some of these acquisitions may
include plans or commitments to construct towers. The Company is actively
considering, and intends to continue actively considering, opportunities to
acquire communication sites and related properties, including possible
significant acquisitions. There can be no assurance that the Company will
enter into any binding agreements with respect to any such acquisitions, or if
it does, the terms or timing of any such acquisition.
COMPANY OPERATIONS
Through its centralized management structure, the Company is designed to be
an efficient consolidator and operator of rental towers. This is reflected in
the methods and processes that the Company employs in managing its day-to-day
operations, including the rapid integration of acquisition, tower construction
and sales and marketing data into the Company's proprietary management
information systems. This approach ensures that tower management is
coordinated across the Company's functional areas and that such information is
accurate, timely and easily available. The Company has invested heavily in its
information systems and believes that its
49
<PAGE>
investments in these areas will accommodate significant additional growth. As
the Company seeks to expand its size, it will continue to evaluate the need to
supplement its current workforce.
The key components of the Company's operations include: (i) effective
integration of tower assets into the Company's existing portfolio; (ii)
ongoing monitoring of the Company's portfolio of tower assets; and
(iii) customer sales and support.
Integration. The pace and level of activity which characterize the Company's
acquisition, construction and marketing strategies create certain operational
challenges including the efficient integration of the due diligence data and
other accounting, legal, regulatory, real estate, engineering and lease
information. In response to these challenges, two years ago the Company
committed substantial resources to the development of its proprietary
management information systems to accommodate the Company's overall
acquisition, construction and marketing strategies. As a result, the Company
has developed the capability to rapidly integrate new acquisitions and tower
construction activity and initiate sales and marketing efforts immediately
upon closing or completion.
Ongoing Monitoring. The Company's operations personnel perform routine,
ongoing monitoring to ensure the maintenance of accurate data with regard to
the Company's tower inventory. Such inventory management includes radio
frequency audits and regulatory compliance. The Company seeks to maintain
accurate information with regard to customers' equipment that is installed on
its towers. The Company believes that this area is overlooked by many rental
tower owners, resulting in erroneous information about the availability of
tower space and certain existing customers using more capacity than is
reflected in their lease. To minimize such errors, the Company conducts radio
frequency audits and matches each customer's equipment (which includes base
stations, frequencies, coaxial lines and antennas) to those allowed under the
customer's lease. Discrepancies are identified and customers are informed of
required modifications to the lease terms in order to provide for additional
rent. In addition, the Company utilizes this information to facilitate future
capacity calculations and predict where and when capital expenditures may be
required to provide additional space to new customers. Regulatory compliance
and respect for the needs of the communities in which the Company operates are
essential to the Company as well as to its customers. Operations personnel
ensure that all sites are in compliance with all FAA and FCC regulations and
other local requirements. Regulatory data is integrated into the Company's
management information systems and is provided to current and potential
customers as part of equipment installation support efforts.
Customer Sales and Support. The Company's customer sales support group is
dedicated to responding to the needs of current and potential customers.
Support is offered to customers in connection with assessing a selected
tower's capacity, determining the potential for radio frequency interference
from new equipment and providing required documentation as to ownership and
other property issues. This service function seeks to facilitate the
customer's decision to initiate installation on the Company's tower and, the
Company believes, has enhanced the Company's reputation as a full-service and
responsive provider of rental tower space.
CUSTOMERS AND CUSTOMER LEASES
As of June 30, 1998, the Company had over 2,935 separate tower space leases.
The Company has a diversified base of over 680 customers. MobileMedia
Communications and certain of its affiliates and Southern Communications and
certain of its affiliates will account for 32% and 16% of the Company's
revenues, respectively, for the year ended December 31, 1997 on a pro forma
basis. See "Risk Factors--Customer Concentration."
The Company has a diverse mix of customers representing the various
technologies and segments of the wireless communications industry. As a
result, the Company believes it is not dependent on any one segment of the
wireless communications industry for future revenue growth. The following is a
summary of the Company's
50
<PAGE>
Annualized Run Rate Revenue by customer type and approximate percentage of
revenue derived therefrom as of June 30, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
CUSTOMER TYPE REVENUE
------------- -------------
<S> <C>
SMR............................................................ 27%
Paging......................................................... 25
2-Way Services................................................. 19
PCS............................................................ 14
Cellular....................................................... 5
Broadcasting................................................... 5
Government..................................................... 4
Data........................................................... 1
---
Total........................................................ 100%
===
</TABLE>
The Company expects that the proportion of its total customer base
attributable to the paging segment of the wireless communications industry
will increase significantly as a result of the MobileMedia Acquisition.
The following is a summary of the Company's sites by state, as of June 30,
1998:
<TABLE>
<CAPTION>
NUMBER NUMBER TOTAL
OF TOWER OF TOWER NUMBER OF
STATE SITES OWNED SITES LEASED TOWER SITES*
----- ----------- ------------ ------------
<S> <C> <C> <C>
Florida................................ 77 79 170
Georgia................................ 73 66 139
Alabama................................ 21 75 96
Louisiana.............................. 20 50 70
Mississippi............................ 10 30 40
Tennessee.............................. 5 13 30
North Carolina......................... 4 23 27
South Carolina......................... 6 14 20
Virginia............................... 11 8 19
Texas.................................. 6 10 16
Maryland............................... 0 12 12
Arkansas............................... 2 3 5
New York............................... 0 0 1
--- --- ---
Total................................ 235 383 645
=== === ===
</TABLE>
- --------
* Includes 27 towers managed by the Company.
The Company believes it has effectively executed its strategy to accumulate
clusters of towers in designated market areas especially with respect to
certain urban areas within its targeted region. For example, as of June 30,
1998, the Company had 51 towers in the Orlando, Florida market, 48 towers in
the Atlanta, Georgia market, 40 towers in the Birmingham, Alabama market, 43
towers in the Tampa/Sarasota, Florida market and 28 towers in the New Orleans,
Louisiana market.
In connection with the Southern Towers Acquisition, the Company and Southern
Communications entered into leases providing that Southern Communications or
one of its affiliates would be a customer on each of the 201 towers acquired.
Under the Southern Communications Leases, Southern Communications and its
affiliates pay annual initial aggregate rents of $5.5 million. The leases have
initial terms of ten years with five optional renewal periods of five years
each exercisable at the customer's option on the same terms as the original
leases. Southern Communications has also indicated a desire to lease space on
these towers in addition to the space covered by the leases referred to above.
The Company also entered into a 10 year option agreement with Southern
Communications whereby Southern Communications may require the Company to use
commercially
51
<PAGE>
reasonable efforts to supply, acquire or construct an additional 80 sites
within Alabama, Florida, Georgia or Mississippi at locations designated by
Southern Communications, for rental of sites thereon by Southern
Communications or its affiliates. Any of these additional sites would be
rented under the same terms as the original leases of the 201 towers described
above.
At the closing of the MobileMedia Acquisition, the Company intends to enter
into the Master Lease with affiliates of MobileMedia to lease the "site
spaces" at the towers currently utilized by MobileMedia and its affiliates for
the installation and operation of transmitter systems. The Master Lease has a
15 year term with one five-year renewal term exercisable at the option of the
lessee. Rent under the Master Lease during the initial 15 year term is $1,300
per month per site space. During the renewal term, rent will be determined
based on then existing market rental rates. See "Risk Factors--Risks
Associated with the MobileMedia Acquisition."
PROPERTIES
The Company both owns and leases the real property upon which its towers are
located. As of June 30, 1998, the Company owned 383 towers on parcels of real
estate that are leased and 235 towers on parcels of real estate that are
owned. Additionally, the Company currently manages 27 tower sites. In rural
areas, a tower site typically consists of a three to five acre tract that
supports the tower, equipment shelter and guy wires that stabilize the tower.
Less than 2,500 square feet are needed for a self-supporting tower that is
typically used in metropolitan areas. Leases generally have 10 to 25 year
terms, with options for the Company to renew the leases for an average of
approximately 10 years. Pursuant to the Senior Credit Facility, the senior
lenders have liens on, among other things, tenant leases, equipment, inventory
and interests in all real property of the Company on which towers are located
or which constitute a tower. Approximately 50 of the sites to be acquired in
the MobileMedia Acquisition are owned in fee by MobileMedia or its affiliates.
MobileMedia or its affiliates hold leasehold interests in the other 90 sites.
The Lessor's interest in revenues and leases for space at the sites will also
be assigned to the Company.
The Company leases its corporate headquarters in Sarasota, Florida. The
aggregate square footage of office space under this lease is approximately
14,000. The lease term ends on September 30, 2000, and rent paid by the
Company for its headquarters was approximately $159,200 in 1997. The Company
believes that its facilities are adequate for its short-term needs and does
not expect difficulty replacing such facilities or locating additional
facilities, if needed.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes with wireless communications providers who own and operate
their own tower networks, site development companies which acquire space on
existing towers, rooftops and other sites, other independent tower companies
and traditional local independent tower operators. Wireless communications
providers who own and operate their own tower networks generally are larger
and have greater financial resources than the Company. The Company believes
that tower location and capacity, price, quality of service and density within
a geographic market historically have been and will continue to be the most
significant competitive factors affecting tower rental companies. The Company
believes that competition for tower acquisitions will increase and that
additional competitors will enter the tower rental market, some of which may
have greater financial resources than the Company. See "Risk Factors--
Competition."
REGULATORY MATTERS
Federal Regulations. Both the FCC and FAA promulgate regulations relative to
towers used for wireless communications. Such regulations primarily relate to
the siting, lighting and marking of towers. Most proposed antenna structures
that are higher than 200 feet above ground level or that may interfere with
the flight path of a nearby airport must be studied by the FAA and registered
with the FCC. Upon notification to the FAA of a potential new tower or a
proposed change in the height or location of certain existing towers, the FAA
assigns a number to and conducts an aeronautical study. Upon the finding that
a proposed tower, new or modified, does not constitute a hazard to air
navigation, the FAA will require certain painting and lighting requirements to
be met to maximize the visibility of the tower. All towers subject to the FAA
notification process must be registered by the tower owner with the FCC. At
FCC registration, the FCC generally requires the painting and lighting
52
<PAGE>
requirements of the FAA to be met. Tower owners may also bear the
responsibility of notifying the FAA of any tower lighting outage. The FCC
enforces the tower painting and lighting requirements. Failure to maintain
applicable requirements may lead to civil liabilities. Wireless communications
devices operating on towers are separately regulated by the FCC and
independently licensed based upon the particular frequency used.
The Telecommunications Act of 1996 (the "Telecom Act") amended the
Communications Act of 1934 to prevent the FCC preemption of local and state
land use decisions and preserves the authority of state and local governments
over zoning and land use matters concerning the construction, modification and
placement of towers, except in limited circumstances. The Telecom Act
prohibits any action that would (i) discriminate between different wireless
communications providers or (ii) ban altogether the construction, modification
or placement of radio communications towers. The Telecom Act requires the
federal government to establish procedures to make available on a fair,
reasonable and nondiscriminatory basis property rights-of-way and easements
under federal control for the placement of new telecommunications services.
This may require that federal agencies and departments work directly with
licensees to make federal property available for tower facilities.
All towers must maintain the National Environmental Policy Act of 1969 as
well as other federal environmental statutes. The FCC's environmental rules
place responsibility on each applicant to investigate any potential
environmental effect of tower placement and 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 significant environmental impact based on the standards the FCC has
developed, the FCC would be required to prepare an environmental impact
statement. This process could significantly delay the licensing of a
particular tower site.
Local Regulations. Local regulations include city, county 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 prior to tower construction.
Environmental Regulation. In addition to the FCC's environmental
regulations, the Company is subject to various other federal, state and local
health, safety and environmental laws and regulations. The current cost of
complying with those laws is not material to the Company's financial condition
or results of operations.
EMPLOYEES
As of June 30, 1998, the Company had approximately 89 full-time employees,
of which 66 work in the Company's Sarasota, Florida headquarters office. None
of the Company's employees are unionized, and the Company considers its
relationship with its employees to be good.
REIT STATUS
The Company has elected, and intends to continue to elect, to be treated as
a REIT. A REIT is generally not subject to federal corporate income taxes on
that portion of its ordinary income or capital gain for a taxable year that is
distributed to stockholders within such year. To qualify and remain qualified
as a REIT, the Company is required for each taxable year to satisfy certain
requirements pertaining to organization, sources of income, distributions and
asset ownership. Among the numerous requirements which must be satisfied with
respect to each taxable year in order to qualify and remain qualified as such,
a REIT generally must: (i) distribute to stockholders 95% of its taxable
income computed without regard to net capital gains and deductions for
distributions to stockholders; (ii) maintain at least 75% of the value of the
Company's total assets in real estate assets (generally real property and
interests therein), cash, cash items and government securities; (iii) derive
at least 75% of its gross income from investments in real property or
mortgages on real property; and (iv) derive at least 95% of its gross income
from real property investments described in (iii) and from dividends, interest
and gain from the sale or disposition of stock and securities and certain
other types of gross income. Income tax regulations provide that the term
"real property" for the foregoing requirements means land or improvements
53
<PAGE>
thereon, such as buildings or other inherently permanent structures thereon,
including items which are structural components of such buildings or
structures. The Internal Revenue Service (the "Service") has ruled in a
revenue ruling that transmitting and receiving communications towers built
upon pilings or foundations similar to those of the Company as well as
ancillary buildings, heating and air conditioning systems and fencing
constitutes inherently permanent structures and are therefore real estate
assets. See "Certain Federal Income Tax Considerations" for a detailed
discussion of the REIT qualification requirements.
LEGAL PROCEEDINGS
The Company is from time to time involved in ordinary litigation incidental
to the conduct of its business. The Company believes that none of its pending
litigation will have a material adverse effect on the Company's business,
financial condition or results of operations.
54
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information concerning the Company's directors,
executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert Wolsey............... 47 Director, President and Chief Executive Officer
and Chief Operating Officer
James Dell'Apa.............. 40 Director, Executive Vice President
Steven Day.................. 45 Director, Vice President, Secretary and Chief
Financial Officer
David Zahn.................. 33 Vice President of Operations
Ben Gaboury................. 47 Vice President of Sales and Marketing
Martin Alvarez.............. 44 Chief Information Officer
Andrew Banks................ 43 Director
Peni Garber................. 35 Director
Peggy Koenig................ 41 Director
Royce Yudkoff............... 42 Director
</TABLE>
ROBERT WOLSEY is primarily responsible for the overall direction of the
Company's acquisitions and operations and has substantial experience in
consolidating fragmented industries. From 1990 to 1994, Mr. Wolsey, as Chief
Executive Officer of Pittencrieff Communications, Inc. (PCI), a regional
consolidator of SMR operators, spearheaded the acquisition of 28 SMR
businesses and related assets (including over 100 towers) for a purchase price
of over $30 million. During Mr. Wolsey's tenure at PCI, revenue increased from
$100,000 to over $28 million. In June 1993, PCI raised over $74 million in its
initial public offering. At the time of Mr. Wolsey's departure from PCI in
April 1994, PCI had a market capitalization in excess of $200 million. From
1983 to 1989, Mr. Wolsey, as President of Pittencrieff PLC and a predecessor
company, negotiated and acquired over $30 million in oil and gas assets in 16
separate transactions. He has a Bachelor of Science (Honors) degree in Color
Physics from the University of Manchester.
JAMES DELL'APA is principally responsible for managing the initiation and
negotiation of acquisitions. Mr. Dell'Apa has brokered SMR, tower, paging, and
two-way businesses since 1991 and has had various levels of involvement with
over 250 transactions with a combined valuation of over $650 million. Before
his acquisitions work, he was a technical consultant in Washington, D.C.
responsible for planning large-scale military networks for government
consulting firms, under the employment of Booz Allen & Hamilton and Advanced
Technology (later Planning Research Corporation and Black and Decker). Mr.
Dell'Apa also worked for Georgetown University's International Law Institute
developing long-term, intensive training programs on Negotiation and Policy
for Developing Telecommunications Infrastructure for senior level government
ministers. He has a law degree from American University in Washington, D.C., a
technical Masters degree in Telecommunications from the University of Colorado
(Boulder), and a liberal arts/bachelors degree from the University of Northern
Colorado.
STEVEN DAY is primarily responsible for the Company's financial, legal and
administrative affairs and for the integration of acquired properties. Mr. Day
was a partner in the accounting firm of Price Waterhouse LLP until joining the
Company in February 1997. Since 1986, he has been involved with high-growth
companies, principally in technology-based industries and, for the last
several years, worked with large venture capital and leveraged buyout firms in
his role in the Price Waterhouse Mergers and Acquisitions Group. Mr. Day has
55
<PAGE>
substantial experience in dealing with companies that have filed initial
public offerings. Mr. Day earned a Masters of Business Administration at
Loyola University of Chicago and a Bachelor of Arts degree at the University
of West Florida.
BEN GABOURY is primarily responsible for the sales and marketing operations
of the Company. Mr. Gaboury was employed for 17 years with Motorola Inc. in
various sales and sales management positions. Before joining the Company in
October 1996, Mr. Gaboury was responsible for planning the strategy that
Motorola employed in connection with the build out of its SMR network in New
York and the New England area. He then executed the plan to market SMR
services as well as related rental towers. Mr. Gaboury holds a Masters Degree
from Jersey City State College and a Bachelors Degree from Fairleigh Dickinson
University.
DAVID ZAHN is primarily responsible for the ongoing maintenance of the
Company's existing tower inventory, new site construction, capacity
augmentation and new customer equipment integration. He joined Pinnacle in
September 1996. From 1987 to 1996, Mr. Zahn worked for 360(degrees)
Communications (formerly Sprint Cellular and Centel Cellular) where he held a
variety of positions including Project Manager, Transmission Engineer, Radio
Frequency Engineering Supervisor and Traffic Engineering Manager. His most
recent management position was Director of Engineering where he was
responsible for a $50 million capital program related to the construction of
cellular transmission towers and the associated communications network. Mr.
Zahn earned his degrees in Bachelor of Science in Electrical Engineering
Technology and an Associate in Applied Electronic Communications Engineering
Technology from the Milwaukee School of Engineering.
MARTIN ALVAREZ is primarily responsible for the Company's Information
Technology and Services. Prior to joining the Company in June 1997, Mr.
Alvarez was a Senior Manager in the Management Consulting Services division of
Price Waterhouse LLP. Mr. Alvarez has been involved with the growth and
management of Information Technology and Services at Pinnacle since April of
1996. His experience includes work for a variety of industries that include
telecommunications, entertainment, manufacturing, utilities, among other
industries. Mr. Alvarez' experience includes management of various technology
areas, systems development and implementation, systems programming,
effectiveness evaluation and strategic planning. Mr. Alvarez earned his degree
in Bachelor of Science in Engineering Science, Computer Science Option from
the University of South Florida.
ANDREW BANKS is Chairman of ABRY Holdings Inc. Previously, Mr. Banks was
affiliated with Bain & Company, an international management consulting firm.
At Bain, where he was a partner from 1986 until 1988, he shared significant
responsibility for the firm's media practice. Mr. Banks is presently a
director (or the equivalent) of various companies, including DirecTel and Cat,
Ltd. Mr. Banks is a graduate of the Harvard Law School, a Rhodes Scholar
holding a Master's degree from Oxford University and a graduate of the
University of Florida.
PENI GARBER is a principal and secretary of ABRY Partners, Inc. ("ABRY").
She joined ABRY in 1990 from Price Waterhouse LLP where she served as Senior
Accountant in the Audit Division from 1985 to 1990. Ms. Garber is presently a
director (or the equivalent) of Nexstar Broadcasting Group, LLC and Network
Music Holdings LLC and Quorum Broadcast Holdings Inc. Ms. Garber graduated
summa cum laude from Bryant College.
PEGGY KOENIG is a partner in ABRY. She joined ABRY in 1993. From 1988 to
1992, Ms. Koenig was a Vice President, partner and member of the Board of
Directors of Sillerman Communications Management Corporation, a merchant bank,
which made investments principally in the radio industry. Ms. Koenig was the
Director of Finance from 1986 to 1988 for Magera Management, an independent
motion picture financing company. She is presently a director (or the
equivalent) of Connoisseur Communications Partners, L.P., Avalon Cable
Holdings LLC, Network Music Holdings LLC and Weather Services Corporation. She
received her MBA from the Wharton Business School and received an
undergraduate degree from Cornell University.
ROYCE YUDKOFF is President and Managing Partner of ABRY. Previously, Mr.
Yudkoff was affiliated with Bain & Company, an international management
consulting firm. At Bain, where he was a partner from 1985
56
<PAGE>
through 1988, he shared significant responsibility for the firm's media
practice. Mr. Yudkoff is presently a director (or the equivalent) of various
companies including Quorum Broadcast Holdings Inc., Nexstar Broadcasting
Group, LLC and Metrocall. He graduated as a Baker Scholar from the Harvard
Business School and is an honors graduate of Dartmouth College.
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Certificate of Incorporation and
Bylaws, the Board of Directors has the power to set the number of directors
(not less than one nor more than 10) by resolution adopted by the directors of
the Company. Each director is elected to serve until the next annual meeting
of the stockholders, except in the case of removal or vacancy, and until his
successor is duly elected and qualified or until his death or retirement or
until he resigns or is removed. Currently, the number of directors is set at
seven. The Company intends to maintain at all times at least two independent
directors on its Board of Directors.
The Company currently intends to add two new independent members to its
Board of Directors within 90 days of the completion of the Offering. Upon the
appointment of such new officers, Mr. Day and Mr. Dell'Apa will resign as
directors. It may be necessary for the Company to appoint the independent
directors in 90 days in order to maintain its Nasdaq National Market listing.
If that is necessary, the failure to appoint such directors could result in a
delisting of the Common Stock from the Nasdaq National Market.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company has established an Audit Committee composed of
Mr. Day, Ms. Garber and Ms. Koenig. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the accountants, reviews the
independence of the accountants, considers the range of audit and non-audit
fees and reviews the adequacy of the Company's internal accounting controls.
The Audit Committee is also responsible for the review of transactions between
the Company and any affiliate or entity in which a Company affiliate has a
material interest.
Compensation Committee. The Company has established a Compensation
Committee, consisting of Mr. Yudkoff, Ms. Koenig and Mr. Day. The Compensation
Committee establishes the compensation of the Company's executive officers.
The Compensation Committee also administers the Company's Stock Incentive Plan
and determines the amount, exercise price and vesting schedules of stock
options awarded thereunder.
Executive Committee. The Company has established an Executive Committee
consisting of Mr. Wolsey, Ms. Koenig and Mr. Yudkoff. The Executive Committee
has the authority to act in place of the Board of Directors on all matters
which would otherwise come before the Board, except for such matters which are
required by law or by the Company's Certificate of Incorporation or Bylaws to
be acted upon exclusively by the Board.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time.
COMPENSATION OF DIRECTORS
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board of Directors. Directors who
are employees of the Company do not receive any fee in addition to their
regular salary for serving on the Board of Directors. Non-employee directors
will be eligible to participate in the Company's Stock Incentive Plan.
57
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
each of the last three years for the Chief Executive Officer and the four
other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- ----------------------------------
AWARDS PAYOUTS
OTHER ---------------------- -----------
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION(A) YEAR SALARY ($) BONUS ($) SATION ($) AWARDS ($) OPTIONS (#) PAYOUTS ($) SATION ($)
------------------ ---- ---------- --------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Wolsey........... 1997 156,000 70,000 6,500(b) -- -- -- --
Chief Executive 1996 129,698 30,000 -- -- -- -- --
Officer, Chief 1995 50,000 -- -- $10,000 -- -- --
Operating Officer and
President
James Dell'Apa.......... 1997 156,248 -- -- -- -- -- --
Executive Vice 1996 128,125 30,000 -- -- -- -- --
President 1995 50,000 -- -- 10,000 -- -- --
Steven Day.............. 1997 131,250 -- -- 12,000 -- -- --
Vice President, 1996 -- -- -- -- -- -- --
Secretary and 1995 -- -- -- -- -- -- --
Chief Financial Officer
Ben Gaboury............. 1997 126,094 -- -- -- -- -- --
Vice President of Sales 1996 31,789 -- -- 1,200 -- -- --
and Marketing 1995 -- -- -- -- -- -- --
David Zahn.............. 1997 126,260 -- -- -- -- -- --
Vice President of 1996 36,102 -- -- 1,200 -- -- --
Operations 1995 -- -- -- -- -- -- --
</TABLE>
- --------
(a) See also, "Employment Agreements".
(b) Amount of reimbursement for payment of income taxes.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with each of Messrs. Wolsey, Dell'Apa and Day (the "Principal
Employees"). The terms of the Employment Agreements are substantially similar.
The Employment Agreements provide that each of the Principal Employees will be
employed by the Company until his resignation, death or disability or other
incapacity, or until terminated by the Company. Under the Employment
Agreements, each of the Principal Employees will receive, among other things,
(i) an annual base salary and (ii) other benefits as described in the
Employment Agreements (including those provided all employee benefit plans and
arrangements that are generally available to other employees). Each of the
Employment Agreements includes noncompetition and nonsolicitation provisions
restricting the respective employees' ability to engage in activities
competitive with the Company for a period of two years following termination
of employment. In the event of the termination of an executive, the agreements
provide for severance benefits including salary and health plan benefits for
periods ranging from six to 18 months.
STOCK OPTIONS
There were no stock options granted or exercised during the last fiscal
year. The Company currently intends to grant no more than one-half of the
options available under its Stock Incentive Plan to its employees during the
next twelve months. A significant portion of those options are expected to be
granted on or about the date of
58
<PAGE>
the consummation of the Offering. The Company currently anticipates that less
than one-half of such options granted during such twelve months will be
granted to Named Executive Officers and that substantially all such options
will have an exercise price no less than the fair market value of the Common
Stock on the date of grant.
STOCK INCENTIVE PLAN
General
The Pinnacle Holdings, Inc. Stock Incentive Plan became effective July 1,
1998. The Stock Incentive Plan provides for awards consisting of stock option
and restricted stock grants ("Awards") to employees, non-employee directors,
and other persons who perform services for the Company.
Administration
The Stock Incentive Plan is administered by a committee consisting of at
least two directors of the Company who are "non-employee directors" within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and
who are "outside directors" within the meaning of Section 162(m) of the Code
and the regulations promulgated under Section 162(m) of the Code (the
"Committee"). The Committee is authorized to select the individuals to whom
Awards will be granted, determine the type, size and terms and conditions of
Awards, and construe and interpret the Stock Incentive Plan. The Company's
Board of Directors may appoint a different committee for the purpose of
approving Awards to persons who are not subject to the requirements of Section
16(b) of the Exchange Act and Section 162(m) of the Code.
Shares
The maximum number of shares of Common Stock that may be made subject to
Awards granted under the Stock Incentive Plan is . In the event of any
change in capitalization of the Company, however, the Committee shall adjust
the maximum number and class of shares with respect to which Awards may be
granted, the number and class of shares which are subject to outstanding
Awards and the purchase price therefor. In addition, if any Award expires or
terminates without having been exercised, the shares of Common Stock subject
to the Award again become available for grant under the Stock Incentive Plan.
Eligibility
The Committee may grant Awards to any employee, non-employee director,
consultant, advisor or independent contractor of the Company.
Stock Options
The Committee is authorized to grant to eligible persons options to purchase
a specified number of shares of Common Stock at a stated price per share
("Options"). During any calendar year, the Committee shall not grant to any
eligible person Options to purchase more than 1,000,000 shares of Common
Stock. An Option may be intended to qualify as an "incentive stock option"
("ISO") pursuant to the Code, or may be intended to be a nonqualified option
("NSO"). The term of an ISO cannot exceed 10 years, and the exercise price of
any ISO must be equal to or greater than the fair market value of the shares
of Common Stock on the date of the grant. Any ISO granted to a holder of 10%
or more of the combined voting power of the capital stock of the Company must
have an exercise price equal to or greater than 110% of the fair market value
of the Common Stock on the date of grant and may not have a term exceeding
five years from the grant date. The exercise price and the term of an NSO
shall be determined by the Committee on the date that the NSO is granted.
59
<PAGE>
Options shall become exercisable in whole or in part by the Optionee on the
date or dates specified by the Committee. The Committee may provide that an
Option becomes exercisable in installments over a period of years or upon the
attainment of stated goals. The Committee, in its sole discretion, may
accelerate the date or dates on which an Option becomes exercisable.
Each Option shall expire on such date or dates as the Committee shall
determine at the time the Option is granted. Upon termination of an Optionee's
employment with the Company (including by reason of the Optionee's death),
each unexercised Option (whether or not then exercisable) shall terminate and
be forfeited, except that any such Options which are then exercisable shall
remain exercisable for such period after termination of the Optionee's
employment as the Committee may have determined at the time the Option was
granted. If an Optionee's employment with the Company is terminated for cause
(as defined in the Stock Incentive Plan), all of such person's Options shall
immediately terminate.
Payment for shares of Common Stock purchased upon exercise of an Option must
be made in full at the time of purchase. Payment may be made in cash or in any
other manner as may be authorized by the Committee. Each Option shall be
evidenced by a written agreement containing such terms and conditions
consistent with the Incentive Plan as shall be established by the Committee.
Restricted Stock
The Committee may grant to an eligible person an award of Common Stock
subject to future service and such other restrictions and conditions as the
Committee may determine ("Restricted Stock"). The Committee will determine the
terms of such Restricted Stock, including the price, if any, to be paid by the
recipient for the restricted stock, the restrictions placed on the shares and
the time or times when the restrictions will lapse, at the time of the
granting thereof.
60
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of June 30, 1998, after giving effect to
the Recapitalization, information as to the Company's stock beneficially owned
by (i) each director of the Company; (ii) each executive officer named in the
Summary Compensation Table; (iii) all directors and executive officers of the
Company as a group; (iv) any person who is known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of the Company's
capital stock; and (v) each of the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES OFFERING(B)
NAME AND ADDRESS OF ---------------------- TO BE ----------------------
BENEFICIAL OWNER(A) NUMBER PERCENT OFFERED NUMBER PERCENT
-------------------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
ABRY II(c).............. 82.0
Robert Wolsey(d)........ 6.1
James Dell'Apa.......... 4.5
Steven Day(e)........... 3.7
Ben Gaboury............. *
David Zahn.............. *
Andrew Banks............ *
Peni Garber............. *
Peggy Koenig............ *
Royce Yudkoff(f)........ 82.0
All directors and
executive officers as a
group.................. 97.0
</TABLE>
- --------
* Indicates less than 1 percent.
(a) The address of all persons in this table is c/o Pinnacle Towers Inc., 1549
Ringling Blvd., Sarasota, Florida 34236.
(b) Assumes no exercise of the Underwriters' over-allotment options to
purchase up to an aggregate of shares of Common Stock from the
Company or the Selling Stockholders. If the over-allotment options are
exercised in full, the total number of shares held by , , and
after the Offering will be reduced to ( %), ( %) and ( %),
respectively.
(c) ABRY Holdings, Inc., the general partner of ABRY Capital, which is the
general partner of ABRY II, is wholly-owned by Mr. Yudkoff.
(d) Mr. Wolsey is deemed the beneficial owner of his Class B Common Stock and
his Class D Common Stock through his control of Pantera, Inc. and Pantera
Partnership Ltd.
(e) Mr. Day is deemed the beneficial owner of his Class D Common Stock through
his control of South Creek, Inc. and South Creek Partnership Ltd.
(f) Mr. Yudkoff is deemed the beneficial owner of the Class A Common Stock and
Class E Common Stock held by ABRY II. See note (c) above.
61
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
SUBSCRIPTION AND STOCKHOLDERS AGREEMENT
The principal stockholders of the Company (ABRY II, and Messrs. Wolsey,
Dell'Apa and Day) are parties to the Stockholders Agreement. The Stockholders
Agreement gives such stockholders the preemptive right, with some exceptions,
to acquire their pro rata share of future issuances of capital stock of the
Company. The following issuances are exempt from this preemptive right: (a) to
any employee of the Company; (b) in connection with an acquisition or merger;
(c) pursuant to a public offering; (d) upon the exercise, conversion, or
exchange of any option or convertible security; (e) of up to a total of
200,000 shares of Class A Common Stock to ABRY II at a price of $100 per
share; (f) as a part of any recapitalization or reorganization; (g) upon the
conversion of Class D Common Stock into Class C Common Stock; and (h) as a
distribution to stockholders in the form of securities of the Company. This
preemptive right will terminate upon the closing of the Offering. The
Stockholders Agreement also provides that ABRY II will make a capital
contribution of up to an aggregate of $50 million.
Parties to the Stockholders Agreement have certain rights and obligations in
connection with (i) a sale by ABRY II of shares in the Company, (ii) a sale of
the Company, and (iii) a reorganization or recapitalization of the Company in
anticipation of a sale of the Company or a public offering. In the case of a
sale by ABRY II of shares in the Company, the other stockholders party to the
Stockholders Agreement will have the right to participate pro rata in such a
sale, but such right to participate will terminate upon the closing of the
Offering. In the case of a sale of the Company approved by its stockholders or
a reorganization or recapitalization in anticipation of a sale or a public
offering, stockholders party to the Stockholders Agreement will have the
obligation to participate in such transaction.
The Stockholders Agreement also governs the vesting of the Class D Common
Stock issued to certain executives and employees of the Company. Pursuant to
the Agreement, all shares of Class D Common stock issued and outstanding will
automatically vest and convert into Class C Common stock upon the consummation
of the Offering (and thereafter will convert into Common Stock). The
Stockholders Agreement also provides for certain put and call rights among the
Company and its current stockholders with respect to the Class B Common Stock
and Class D Common Stock upon the termination of employment or death of
Messrs. Wolsey, Dell'Apa or Day.
The parties to the Stockholders Agreement have also entered into an
agreement to effect the Recapitalization.
CAPITAL CONTRIBUTION AGREEMENT
The Company and ABRY II entered into a capital contribution agreement with
NationsBank of Texas, N.A. (the "Capital Contribution Agreement"), pursuant to
which ABRY II agreed to make capital contributions to the Company, up to an
aggregate capital contribution of $50.0 million, in an amount equal to (i)
100.0% of the Company's general and administrative expenses and corporate
development expenses and (ii) the amount necessary to cure any payment or
financial covenant default under the Senior Credit Facility. As of June 30,
1998, ABRY II had contributed $39.7, including $2.5 million of the ABRY Bridge
Loan and had guaranteed an additional $3.9 million of other debt of the
aggregate $50.0 million associated with capital contribution commitment. Upon
the closing of the Offering, the Capital Contribution Agreement will
terminate.
PINNACLE TOWERS II INC.
In November 1997, certain Company stockholders formed Pinnacle Towers II
Inc. ("PTI II"). PTI II is under common control with, and therefore is an
affiliate of the Company, because ABRY II and certain executives of the
Company control a majority of PTI II stock. PTI II was formed for the purpose
of pursuing certain opportunities such as potential joint ventures and other
businesses related to the tower rental industry.
In November 1997, the Company sold to PTI II, for approximately $2.2
million, certain of its towers and projects-in-progress. Effective April 30,
1998, the Company repurchased all of those assets from PTI II. Currently, PTI
II has minimal assets and is an inactive company.
62
<PAGE>
MANAGEMENT INDEBTEDNESS
At June 30, 1998, the Company had a loan receivable from Mr. Dell'Apa, an
executive officer, in the amount of $94,000. The loan to Mr. Dell'Apa is
secured by a mortgage on certain real property and by a pledge of all of Mr.
Dell'Apa's Class D Common Stock of the Company. The loan bears interest
payable quarterly at a rate equal to the Company's bank rate less 600 basis
points. On June 30, 1998, the loan to Mr. Dell'Apa is accruing interest at a
rate of 2.41%.
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
The Company and ABRY entered into a Management Services and Consulting
Agreement as of April 17, 1995, pursuant to which the Company pays up to
$75,000 per year plus reimbursable expenses in exchange for certain consulting
services. The Company paid approximately $12,500 for such services and
expenses from the period of inception through December 31, 1995 and
approximately $55,162 and $78,166 for such services and expenses for the years
ended December 31, 1996 and 1997, respectively. The Management Services and
Consulting Agreement is terminable at any time by either party with prior
written notice.
63
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
The Company has entered into the Senior Credit Facility with NationsBank,
N.A. and certain other lenders that provides a revolving line of credit for
borrowings of up to $250 million, of which $150 million is currently
committed. The Company intends to obtain commitments that would increase the
total commitment to $250 million. The Company may make borrowings and
repayments until December 31, 2005. Beginning March 31, 2000, the availability
under the revolving line of credit starts reducing by specified amounts on a
quarterly basis until December 31, 2005 when the availability will be reduced
to zero. Loans under the Senior Credit Facility bear interest at a rate per
annum, at the borrower's request, equal to the agent bank's prime rate plus a
margin of up to 1.75% or the 90-day LIBOR plus a margin of up to 2.875%.
Outstanding borrowings under the Senior Credit Facility amounted to $63.5
million at June 30, 1998. Advances under the Senior Credit Facility have been
used primarily to fund acquisitions and construction of towers. As of June 30,
1998, after giving effect to the Transactions, there would have been
approximately $94.6 million available under the Senior Credit Facility
(assuming a commitment of $250 million), after giving effect to approximately
$15.8 million of outstanding letters of credit, which reduce availability
under the Senior Credit Facility.
The Senior Credit Facility is secured by a lien on substantially all of the
assets of the Company and its subsidiaries and a pledge of substantially all
of the capital stock of the subsidiaries and the Company has guaranteed the
obligations of Pinnacle Towers, Inc. under the Senior Credit Facility. The
credit agreement contains customary covenants such as limitations on the
Company's ability to incur indebtedness, to incur liens or encumbrances on
assets, to make certain investments, to make distributions to stockholders, or
to prepay subordinated debt. In addition, the Company may not permit the
Senior Leverage Ratio (as defined therein) to exceed certain amounts.
ABRY BRIDGE LOAN
In April 1998, ABRY II advanced to the Company a total of $2.5 million to
partially finance certain acquisitions. ABRY II may continue to make such
advances. Amounts outstanding under the ABRY Bridge Loan bear interest at the
rate of 9.0% per annum. Interest and principal under the ABRY Bridge Loan are
payable within one year from the date of the related borrowing. The ABRY
Bridge Loan will be repaid in full and retired with a portion of the net
proceeds of the Offering.
10% SENIOR DISCOUNT NOTES
The Senior Discount Notes were initially issued in aggregate principal
amount of $325 million and are senior unsecured obligations of the Company.
The Senior Discount Notes will mature on March 15, 2008. Prior to March 15,
2003, the Company's interest expense on the Senior Discount Notes will be
comprised solely of the accretion of original issue discount. Thereafter, the
Senior Discount Notes will accrue cash interest at a rate of 10% per annum,
payable semi-annually in arrears on March 15 and September 15 of each year,
commencing September 15, 2003.
The Senior Discount Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after March 15, 2003 at a redemption price
equal to 105% of the principal amount thereof during the twelve-month period
beginning March 15, 2003, 103.333% of the principal amount thereof during the
twelve-month period beginning March 15, 2004, 101.667% of the principal amount
thereof during the twelve-month period beginning March 15, 2005 and 100% of
the principal amount thereof on or after March 15, 2006, together with accrued
and unpaid interest to the redemption date. In addition, the Company at its
option, may redeem at least $5 million and in the aggregate up to 35% of the
original principal amount of the Senior Discount Notes at any time on or
before March 15, 2001, at a redemption price equal to 110% of the Accreted
Value (as defined in the Indenture) thereof to but excluding the redemption
date plus accrued and unpaid Liquidated Damages (as defined in the Indenture)
to the redemption date with the net proceeds of one or more Public Equity
Offerings (as defined in the Indenture); provided, however, that at least
$211,250,000 aggregate principal amount remains outstanding and that such
redemption occurs within 60 days following the closing any such Public Equity
Offering.
64
<PAGE>
In the event of a Change of Control (as defined in the Indenture) of the
Company, the Company will be required to make an offer to purchase all
outstanding Senior Discount Notes at a price equal to 101% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages to the
date of purchase. If such offer to purchase is to be consummated prior to
March 15, 2003, the purchase price will be equal to 101% of the Accreted Value
thereof on the date of purchase plus accrued and unpaid Liquidated Damages
thereon to the date of purchase.
The Indenture contains covenants for the benefit of the holders of the
Senior Discount Notes that, among other things, and subject to certain
exceptions, restrict the ability of the Company and its Restricted
Subsidiaries (as defined in the Indenture) to: (i) incur additional
indebtedness; (ii) guarantee payment of debt; (iii) pay dividends and make
distributions; (iv) restrict dividend or other payments of Restricted
Subsidiaries; (v) create liens; (vi) issue stock of subsidiaries; (vii) enter
into transactions with affiliates; (viii) merge or consolidate the Company;
and (ix) transfer and sell assets.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's capital stock currently consists of 824,500 shares of common
stock with a par value of $.001 per share and 100,000 shares of preferred
stock with a par value of $.001 per share. Of the 824,500 shares of common
stock that the Company is authorized to issue: (a) 202,500 shares are
designated as Class A Common Stock (the "Class A Common Stock"); (b) 12,000
shares are designated as Class B Common Stock (the "Class B Common Stock");
(c) 200,000 shares are designated as Class C Common Stock; (d) 100,000 shares
are designated as Class D Common Stock (the "Class D Common Stock"); (e)
300,000 shares are designated as Class E Common Stock (the "Class E Common
Stock"); and (f) 100,000 shares are designated as Class F Common Stock (the
"Class F Common Stock"). Currently, 202,500 shares of Class A Common Stock,
12,000 shares of Class B Common Stock, 40,000 shares of Class D Common Stock
and 174,766 shares of Class E Common Stock are outstanding, There are no
shares of Class C Common Stock, Class F Common Stock or Preferred Stock
currently outstanding.
As a result of the Recapitalization, effective immediately prior to the
closing of the Offering, the following will occur: (i) the holders of Class B
and Class E Common Stock will receive cash in payment of the distribution
preference; (ii) the holders of Class A Common Stock will receive cash in
payment of both the distribution preference and guaranteed yield related to
such stock (iii) the holders of Class A, Class B and Class E Common Stock will
receive shares of the Company's Common Stock for each of such shares; (iv)
all of the outstanding Class D Common Stock will immediately become vested and
will convert into 1.6221 shares of Class C Common Stock; (v) each of the
shares of Class C Common Stock will convert into shares of Common Stock;
(vi) certain amounts equal to the amount of the existing preferential amounts
and accreted yield on the Class A Common Stock, Class B Common Stock and Class
E Common Stock will be paid to the holders thereof out of the proceeds of the
Offering; and (vii) the Company's certificate of incorporation will be amended
to reflect that only the Common Stock and Preferred Stock is authorized. In
addition, approximately shares of Common Stock will be reserved for
issuance with respect to the exercise of certain rights under the Stock
Incentive Plan. Therefore, upon the completion of the Offering, there will be
outstanding only one class of common stock, to be known as the "Common Stock."
After giving effect to the Recapitalization, the authorized capital stock of
the Company will consist of shares of Common Stock and 1,000,000
shares of Preferred Stock.
COMMON STOCK
Each holder of Common Stock will be entitled to one vote for each share
held. Stockholders will not have the right to cumulate their votes in
elections of directors. Accordingly, holders of a majority of the issued and
outstanding Common Stock will have the right to elect all the Company's
directors and otherwise control the affairs of the Company, subject to any
voting rights of the then outstanding preferred stock, if any. See "Risk
Factors--Controlling Stockholders" and "Anti-Takeover Effect of Charter
Provisions, Bylaws and State Law."
Holders of Common Stock will be entitled to dividends on a pro rata basis
upon declaration of dividends by the Board of Directors. Dividends will be
payable only out of unreserved and unrestricted surplus that is legally
available for the payment of dividends. Any determination to declare or pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend on the Company's results of operations, financial
condition, contractual or legal restrictions and other factors deemed relevant
by the Board of Directors. Because of the Company's REIT status, however, the
Company is required to distribute to stockholders 95% of its taxable income.
The Senior Credit Facility and Senior Note Indenture currently prohibit the
Company from paying any dividends other than those required to be paid to
maintain the Company's REIT Status. See "Distribution Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after
payment of all amounts owed to the Company's creditors, and subject to any
preferential amount payable to holders of Preferred Stock of the Company, if
any.
66
<PAGE>
PREFERRED STOCK
The Company's certificate of incorporation permits the Company's Board of
Directors to issue shares of Preferred Stock in one or more series, and to fix
the relative rights, preferences and limitations of each series. Among such
rights, preferences and limitations are dividend rights and rates, provisions
for redemption, rights upon liquidation, conversion privileges and voting
powers. Any issuance of Preferred Stock with a dividend preference over the
Common Stock could adversely affect the dividend rights of holders of Common
Stock. The Board of Directors of the Company currently has no plans to issue
any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Restrictions on Transfer. Because the Company wishes to retain its status as
a REIT, the Company's certificate of incorporation provides that no holder of
Common Stock may transfer any such share or interest therein, if as a result,
either (a) the total number of stockholders would thereby drop to less than
100 (the "Aggregate Ownership Limit"), or (b) a violation of the Percentage
Ownership Limit (as defined herein) would occur. The certificate of
incorporation also provides that no share of any series of Preferred Stock may
be sold or otherwise transferred to any individual if such transfer would
result in the ownership by such individual in combination with four or fewer
individuals of more than 50% of the aggregate value of all shares of all
classes of capital stock of the Company (the "Percentage Ownership Limit").
Any transfer of shares of Common Stock or Preferred Stock which would violate
the Aggregate Ownership Limit or the Percentage Ownership Limit will be void
and of no legal effect. Any such purported transfer will cause such shares to
be transferred to the Company, as trustee, in trust for the benefit of one or
more qualified charitable organizations. The Company will be deemed to own
such shares as trustee on the day prior to the purported transfer. While such
shares are held in trust, any dividends or distributions paid to the purported
transferee of the shares will be disgorged and repaid to the Company as
trustee, and any vote taken by the purported transferee prior to the discovery
of such purported transfer will be void ab initio. All certificates
representing shares of Common Stock or Preferred Stock will bear a legend
referring to the restrictions described above.
Such restrictions may delay or make more difficult acquisitions or changes
of control of the Company.
Preferred Stock and Additional Common Stock. As discussed above, the
Company's Board of Directors has the authority to provide by board resolution
for the issuance of shares of one or more series of Preferred Stock. The
Company's Board of Directors is authorized to fix by resolution the terms and
conditions of each such series.
The Company believes that the availability of additional Preferred Stock,
issuable in series, and additional shares of Common Sock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs that might arise. The authorized shares of Preferred Stock, as
well as authorized but unissued shares of Common Stock, will be available for
issuance without further action by the Company's stockholders, unless
stockholder action is required by applicable law or by the rules of any stock
exchange on which any series of the Company's stock may then be listed.
These provisions give the Company's Board of Directors the power to approve
the issuance of a series of Preferred Stock, or additional shares of Common
Stock, that could, depending on its terms, either impede or facilitate the
completion of a merger, tender offer or other takeover attempt.
Limitation of Liability and Indemnification. As permitted by the Delaware
General Corporation Law (the "DGCL"), the Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. In addition, the Company's Bylaws provide that
the Company shall, to the fullest extent authorized by Section 145 of the
DGCL, as amended from time to time, indemnify all directors and officers and
all persons serving at the request of the Company as director, trustee,
officer, employee or agent of another corporation or of a partnership, trust
or other enterprise. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and, therefore, is unenforceable.
67
<PAGE>
CERTAIN PROVISIONS OF DELAWARE LAW
Delaware Business Combination Statute. Section 203 of the DGCL ("Section
203") provides that, subject to certain exceptions specified therein, an
interested stockholder of a Delaware corporation shall not engage in any
business combination with the corporation for a three-year period following
the date that such stockholder becomes an interested stockholder unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as otherwise specified in Section 203, an
interested stockholder is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates
of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The certificate of incorporation does not exclude the Company from
the restrictions imposed under Section 203. The provisions of Section 203 may
encourage companies interested in acquiring the Company to negotiate in
advance with the Company's board of directors because the stockholder approval
requirement can be avoided if a majority of the directors then in office
approve either the business combination or the transaction which results in
the stockholder becoming an interested stockholder. Such provisions also may
have the effect of preventing changes in the management of the Company. It is
possible that such provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their best
interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of
shares of Common Stock outstanding ( shares if the U.S.
Underwriters' over-allotment options are exercised in full). Of these shares,
the shares of Common Stock offered hereby ( shares if the
U.S. Underwriters' over-allotment options are exercised in full) will be
freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined in the
Securities Act, who would otherwise be required to sell such shares under Rule
144 under the Securities Act ("Rule 144"). The remaining shares of Common
Stock outstanding will be "restricted securities" as defined by Rule 144 (the
"Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act.
In general, pursuant to Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities for at least one
year (including the holding period of any prior owner except an affiliate),
including persons who may be deemed "affiliates" of the Company, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of one percent of the number of shares of Common Stock then
outstanding (approximately shares upon completion of the Offerings) or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at the time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
is entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not restricted securities must nonetheless maintain
the same restrictions applicable to restricted securities, with the exception
of the holding period requirement.
Each of the Company and certain stockholders of the Company and each of the
directors and executive officers of the Company have agreed that, without the
prior written consent of Morgan Stanley on behalf of the Underwriters, they
will not, during the period ending 180 days after the date of this Prospectus,
engage in specified transactions relating to the Common Stock. See
"Underwriters."
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to the exercise of outstanding options or the grant of
Common Stock pursuant to written compensation plan or contracts prior to the
Offering may be resold by persons other than affiliates beginning 90 days
after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its one-year
minimum holding period requirement.
Approximately shares of Common Stock are reserved for issuance
under the Stock Incentive Plan. The Company currently intends to file a
registration statement on Form S-8 under the Securities Act to register all
shares of Common Stock issuable pursuant to the Stock Incentive Plan. The
Company expects to file such registration statement within 90 days following
the date of this Prospectus, and such registration statement will become
effective upon filing. Shares covered by the registration statement on Form S-
8 will thereon be eligible for sale in the public markets, subject to Rule 144
under the Securities Act limitations applicable to affiliates.
Prior to the Offering, there has been no public market for the Common Stock,
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through a
future offering of its equity securities.
69
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material federal income tax
considerations that may be relevant to a holder of Common Stock. The summary
does not address all aspects of taxation that may be relevant to particular
shareholders in light of their personal investment or tax circumstances, or to
certain types of shareholders (including insurance companies, tax-exempt
organizations (except as described herein), financial institutions or broker-
dealers, foreign corporations and persons who are not citizens or residents of
the U.S. (except as described herein), and persons who acquired their Common
Stock pursuant to the exercise of an employee stock option or otherwise as
compensation) subject to special treatment under the federal income tax laws.
This summary discusses only Common Stock which is held as a capital asset
within Section 1221 of the Code. The summary is based on current provisions of
the Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of statements in the summary as applicable to transactions entered
into or contemplated prior to the effective date of such changes.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH SHAREHOLDER
IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF THE COMMON STOCK
AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
TAXATION OF THE COMPANY
The Company currently has in effect an election to be taxed as a REIT under
Sections 856 through 860 of the Code. The Company believes that it has since
its inception been organized and operated in such a manner as to qualify for
taxation as a REIT under the Code and its proposed method of operation will
enable it to continue to meet the requirements for continued qualification and
taxation as a REIT under the Code. The Company's continued qualification as a
REIT will depend upon the Company's qualification as a REIT in prior years.
The Company intends to continue to operate in a manner so as to qualify as a
REIT, but no assurance can be given that the Company will qualify or remain
qualified as a REIT. In the opinion of Holland & Knight LLP, the Company has
been organized and operated in conformity with the requirements for
qualification as a REIT under the Code. It must be emphasized that such
opinion of counsel as to REIT qualification is based on certain customary
assumptions and factual representations regarding, among other things, the
ownership of stock of the Company, the nature of the Company's assets, the
conduct of its business, the sources of its revenues, the amounts distributed
by it to shareholders and other matters germane to the requirements for
qualification as a REIT. In addition, Holland & Knight LLP will not review the
Company's compliance with these requirements on an ongoing basis, and there
can be no assurance that the Company, the sources of its income, the
composition of its assets, the level of its dividends or the diversity of its
share ownership for any given year will satisfy the requirements for
qualification and taxation as a REIT. Prospective investors also should be
aware that an opinion of counsel is not binding on the Service or any court,
but merely represents counsel's best judgment with respect to the probable
outcome on the merits. There can be no assurance that a position contrary to
the opinion of counsel will not be taken by the Service, or that any court
considering the issues would not hold contrary to such opinion.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex, and only limited judicial or administrative
interpretations are available. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
70
<PAGE>
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder
levels) that generally results from investment in a corporation. However, the
Company will be subject to federal income tax in the following circumstances.
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on undistributed items of tax preference, if any.
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate
on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to
customers in the ordinary course of business), such income will be subject to
a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and nonetheless has
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to tax in an amount equal to (a) the gross income
attributable to the greater of the amount by which it fails the 75% or 95%
gross income test, multiplied by (b) a fraction intended to reflect its
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, it would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. If the Company elects to retain and pay income tax on
its net long-term capital gain in a taxable year, any retained amounts would
be treated as having been distributed for purposes of the 4% excise tax. See
"--Requirements for REIT Qualification--Distribution Requirements." Seventh,
if the Company acquires any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a transaction in which the
basis of the asset in the Company's hands is determined by reference to the
basis of the asset (or any other asset) in the hands of the C corporation and
the Company recognizes gain on the disposition of such asset during the 10-
year period beginning on the date on which such asset was acquired by it, then
to the extent of such asset's "built-in-gain" (i.e., the excess of the fair
market value of such asset at the time of acquisition by the Company over the
adjusted basis in such asset at such time), such gain will be subject to tax
at the highest regular corporate rate applicable (as to be provided in
Treasury Regulations that have not yet been promulgated). The results
described above with respect to the recognition of "built-in-gain" assume that
the Company has made an election pursuant to IRS Notice 88-19 as to such
acquisitions and will do so as to any future such acquisition.
REQUIREMENTS FOR REIT QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation,
but for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding shares of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of each taxable year (the
"5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Internal Revenue Service
(the "Service") that must be met in order to elect and maintain REIT status;
(viii) that uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Code and Treasury Regulations
promulgated thereunder; and (ix) that meets certain other tests, described
below, regarding the nature of its income and assets. The Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or
a portion of a
71
<PAGE>
trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. A trust that is a qualified trust under
Code section 401(a), however, generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of the 5/50
Rule.
The Company's certificate of incorporation contains restrictions regarding
transfer of its shares that are intended to assist the Company in continuing
to satisfy the share ownership requirements described in clauses (v) and (vi)
above. Such transfer restrictions are described in "Description of Capital
Stock--Certain Provisions of the Company's Certificate of Incorporation and
Bylaws."
The Company currently has wholly-owned corporate subsidiaries (the
"Corporate Subsidiaries"). The Company may have additional corporate
subsidiaries in the future. Code section 856(i) provides that a corporation
that is a "qualified REIT subsidiary" will not be treated as a separate
corporation, and all assets, liabilities, and items of income, deduction, and
credit of a "qualified REIT subsidiary" will be treated as assets,
liabilities, and items of income, deduction, and credit of the REIT. For
taxable years beginning after December 31, 1997, a "qualified REIT subsidiary"
is a corporation all of the capital stock of which is owned by the REIT.
However, for taxable years beginning before January 1, 1998, a "qualified REIT
subsidiary" was a corporation, all of the capital stock of which was owned by
the REIT at all times during the period such corporation was in existence.
Legislative history provided, however, that an existing corporation acquired
by a REIT would be deemed to satisfy this requirement if a Section 338
election was made by the corporation. Thus, in applying the requirements
described herein, any "qualified REIT subsidiaries" of the Company will be
ignored, and all assets, liabilities, and items of income, deduction, and
credit of such subsidiaries will be treated as assets, liabilities, and items
of income, deduction, and credit of the Company. The Company believes its
current Corporate Subsidiaries are "qualified REIT subsidiaries" and will
continue to be "qualified REIT subsidiaries", such that no Corporate
Subsidiary will be subject to federal corporate income taxation (although it
may be subject to state and local taxation).
In addition, in order to become qualified and remain qualified as a REIT, as
of the close of each taxable year, a REIT must not have any accumulated
"earnings and profits" attributable to a non-REIT year, including for this
purpose any such accumulated "earnings and profits" carried over or deemed
carried over to it from a C corporation. The Company believes that neither it
has, nor any acquisition by it of a C corporation has resulted in the Company
having any such accumulated "earnings and profits." However, an adjustment of
the Company's earnings and profits for a prior year, resulting from an audit
adjustment of the Service or otherwise, could cause the Company to fail to
satisfy such requirement effective for the year of such adjustment and
subsequent years.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests described below.
Income Tests
In order for the Company to qualify and to maintain its qualification as a
REIT, two requirements relating to gross income must be satisfied annually.
First, at least 75% of its gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types
of income derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of its gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from such
real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or
from any combination of the foregoing. The specific application of these tests
to the Company is discussed below.
72
<PAGE>
The rent received by the Company from its tenants ("Rent") will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
Rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant of the Company will not qualify as
"rents from real property" in satisfying the gross income tests if the Company
or a direct or indirect owner of 10% or more of the Company directly or
constructively owns 10% or more of the ownership interests in such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real property."
Finally, for the Rent to qualify as "rents from real property," the Company
generally must not operate or manage its properties or furnish or render
services to the tenants of such properties, other than through an "independent
contractor" who is adequately compensated and from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant." In addition, beginning
with its 1998 taxable year, the Company may render a de minimis amount of
"noncustomary" services to the tenants of a property other than through an
independent contractor as long as the amount the Company receives with respect
to such services does not exceed 1% of its total receipts from the property.
For that purpose, the amount attributable to such services will be at least
equal to 150% of the Company's direct cost of providing the services.
The Company does not charge Rent for any portion of any property that is
based, in whole or in part, on the sales, receipts, income or profits of any
person. In addition, the Company has not received and does not anticipate
receiving any Rent from a Related Party Tenant. Also, the Rent attributable to
personal property leased in connection with any lease (a "Lease") of real
property by the Company does not exceed 15% of the total Rent received under
the Lease. Finally, subject to the 1% de minimis exception, the Company
provides no noncustomary services to its tenants, other than through an
independent contractor.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with
any Lease of real property exceeds 15% of the total Rent received under the
Lease for a taxable year, the portion of the Rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if the Rent attributable to personal
property,plus any other income received by the Company during a taxable year
that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of its gross income during such year, it likely would lose its REIT
status. If, however, any portion of the Rent received under a Lease does not
qualify as "rents from real property" because either (i) the Rent is
considered based on the income or profits of any person or (ii) the tenant is
a Related Party Tenant, none of the Rent received by the Company under such
Lease would qualify as "rents from real property." In that case, if the Rent
received by the Company under such Lease, plus any other income received by it
during the taxable year that is not qualifying income for purposes of the 95%
gross income test, exceeds 5% of its gross income for such year, it likely
would lose its REIT status. Finally, subject to the 1% de minimis exception,
if any portion of the Rent does not qualify as "rents from real property"
because the Company furnishes noncustomary services with respect to a property
other than through a qualifying independent contractor, none of the Rent
received by it with respect to the such property would qualify as "rents from
real property." In that case, if the Rent received by the Company with respect
to such property, plus any other income received by it during the taxable year
that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of its gross income for such year, it would lose its REIT status.
In addition to the Rent, certain of the Company's tenants may be required to
pay additional charges, such as late fees. To the extent that such charges
represent either (i) reimbursements of amounts a tenant is obligated to pay to
third parties or (ii) penalties for nonpayment or late payment of such
amounts, such charges should qualify as "rents from real property." To the
extent that additional charges represent interest that is accrued on the late
payment of the Rent or such additional charges, such should be treated as
interest that qualifies for the 95% gross income test, but not the 75% gross
income test.
73
<PAGE>
From time to time, the Company has entered into hedging transactions with
respect to one or more of its assets or liabilities, and the Company may
continue to enter into such hedging transactions. Such transactions include or
may include interest rate swap contracts, interest rate cap or floor
contracts, futures or forward contracts, and options. To the extent that the
Company has entered or enters into an interest rate swap or cap contract,
option, futures contract, forward rate agreement, or similar financial
instrument to reduce the interest rate risk with respect to any indebtedness
incurred or to be incurred to acquire or carry real estate assets, any
periodic income or gain from the disposition of such contract will be
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. To the extent that the Company hedges with other types of
financial instruments or in other situations, it is not entirely clear how the
income from those transactions will be treated for purposes of the income
tests that apply to REITs under the Code. The Company has structured, and the
Company intends to structure in the future, any hedging transactions in a
manner that will not jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. Those
relief provisions generally will be available if the Company's failure to meet
such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of those relief provisions. As
discussed above in "Certain Federal Income Tax Considerations--Taxation of the
Company," even if those relief provisions apply, a tax in an amount equal to
(a) the gross income attributable to the greater of the amount by which the
75% and 95% gross income tests are failed, multiplied by (b) a fraction
intended to reflect profitability.
Asset Tests
The Company, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of its total assets must be represented by cash or cash items
(including certain receivables), government securities, "real estate assets,"
or, in cases where it raises new capital through stock or long-term (at least
five-year) debt offerings, temporary investments in stock or debt instruments
during the one-year period following its receipt of such capital. The term
"real estate assets" includes interests in real property, interests in
mortgages on real property to the extent the principal balance of a mortgage
does not exceed the value of the associated real property, and shares of other
REITs. For purposes of the 75% asset test, the term "interest in real
property" includes an interest in land and improvements thereon, such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), a leasehold of real
property, and an option to acquire real property (or a leasehold of real
property). The Service has ruled in a revenue ruling that transmitting and
receiving communications towers built upon pilings or foundations similar to
those of the Company as well as ancillary buildings, heating and air
conditioning systems and fencing constitute inherently permanent structures
and are therefore real estate assets. Second, of the investments not included
in the 75% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of its total assets and the Company may
not own more than 10% of any one issuer's outstanding voting securities
(except for the interest of the Company in any qualified REIT subsidiary).
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of its assets and the asset
test requirements was not wholly or partly caused by an acquisition of non-
qualifying assets and arose from changes in the market values of its assets.
If the condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute with
respect to each taxable year dividends (other than capital gain dividends or
retained capital gains) to its shareholders in an aggregate amount
74
<PAGE>
at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its federal
income tax return for such year and if paid on or before the first regular
dividend payment date after such declaration. To the extent that the Company
does not distribute all of its net capital gain or distributes at least 95%,
but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at capital gains and regular ordinary corporate tax
rates, as the case may be. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for
such year, and (iii) any undistributed taxable income from prior periods, it
would be subject to a 4% nondeductible excise tax on the excess of such
required distribution over the amounts actually distributed. To the extent
that the Company elects to retain and pay income tax on its long-term capital
gain in a taxable year, as described in "--Taxation of Taxable U.S.
Shareholders," such retained amount will be treated as having been distributed
for purposes of the 4% excise tax. To the extent that the Company is required
to include items in "REIT taxable income" in advance of the receipt of cash
payments associated with such income or is required to expend cash for the
repayment of debt or in any other manner for which no current deduction is
available in computing the Company's "REIT taxable income," the Company may
find it necessary to arrange for short-term (or possibly long-term)
borrowings, raise funds through the issuance of additional shares of Common or
Preferred Stock, or pay dividends in the form of taxable share dividends in
order to meet the 95% distribution requirement necessary to maintain its REIT
qualification.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in its deduction
for dividends paid for the earlier year. Although the Company may be able to
avoid being taxed on amounts distributed as deficiency dividends, it will be
required to pay to the Service interest based upon the amount of any deduction
taken for deficiency dividends.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to qualify as a REIT,
the Company must maintain certain records. In addition, to avoid a monetary
penalty, the Company must request on an annual basis certain information from
its shareholders designed to disclose the actual ownership of its outstanding
shares.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, it will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
it ceased to qualify as a REIT. It is not possible to predict whether in all
circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Stock
that for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate whose income from sources without the
United States is includible in gross income for U.S. federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States, or (iv) any trust with respect to which (A) a U.S.
court is able to exercise primary supervision over the administration of such
trust and (B) one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust.
75
<PAGE>
Taxation of Shareholders on Distributions
As long as the Company qualifies as a REIT, distributions made to taxable
U.S. Shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or retained capital gains) will be taken
into account by such U.S. Shareholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. For purposes of determining whether distributions are out of
current or accumulated earnings and profits, earnings and profits are first
allocated to preferred stock and then allocated to common stock. Distributions
that are designated as capital gain dividends will be taxed as long-term
capital gains (to the extent they do not exceed the Company's actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held his shares. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Beginning with its 1998 taxable year, the Company may elect to retain
and pay income tax on its net long-term capital gains. In that case, the
Company's shareholders would include in income as long-term capital gain their
proportionate share of its undistributed long-term capital gains. In addition,
the shareholders would be deemed to have paid their proportionate share of the
tax paid by the Company, which would be credited or refunded to the
shareholders. Each shareholder's basis in his shares would be increased by the
amount of the undistributed long-term capital gains included in the
shareholder's income, less the shareholder's share of the tax paid by the
Company.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
shareholder's shares, such distributions will be included in income as long-
term capital gain (or short-term capital gain if such shares have been held
for one year or less), assuming that such shares are capital assets in the
hands of the shareholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided that the distribution is actually paid by the Company
during January of the following calendar year. The Company may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their nonforeign status to the Company.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of Common Stock will not be treated as passive
activity income and, therefore, shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a shareholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Common Stock (or
distributions treated as such), however, will be treated as investment income
only if the shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. The Company will notify shareholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.
Taxation of Shareholders on the Disposition of Common Stock
In general, any gain or loss realized upon a taxable disposition of shares
of Common Stock by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the shares have been held for
more than one year and otherwise as short-term capital gain or loss. However,
any loss upon a sale or exchange by a shareholder who has held such shares for
six months or less (after applying certain holding period rules), will be
treated as a long-term capital loss to the extent that a distribution from the
Company is required to be treated by such shareholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of
shares of Common Stock may be disallowed if other shares of the same Common
Shares are purchased within 30 days before or after the disposition.
76
<PAGE>
Capital Gains and Losses
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is
39.6%. The maximum tax rate on net capital gains applicable to noncorporate
taxpayers is 28% for sales and exchanges of assets held for more than one year
but not more than 18 months (although there is currently pending legislation
to reduce this rate to 20%), and 20% for sales and exchanges of assets held
for more than 18 months. The maximum tax rate on long-term capital gain
applicable to noncorporate taxpayers from the sale or exchange of "section
1250 property" (i.e., depreciable real property) is 25% to the extent that
such gain would have been treated as ordinary income if the property were
"section 1245 property."
With respect to distributions designated by the Company as capital gain
dividends and any retained capital gains that the Company is deemed to
distribute in taxable years beginning on and after January 1, 1998, the
Company may designate (subject to certain limits) whether such a dividend or
distribution is taxable to its noncorporate shareholders at a 20%, 25% or 28%
rate. Thus, the tax rate differential between capital gain and ordinary income
for individuals may be significant. In addition, the characterization of
income as capital or ordinary may affect the deductibility of capital losses.
Capital losses not offset by capital gains may be deducted against an
individual's ordinary income only up to a maximum annual amount of $3,000, and
capital losses not currently deductible due to such limitation may be carried
forward indefinitely. All net capital gain of a corporate taxpayer is subject
to tax at ordinary corporate rates. A corporate taxpayer can deduct capital
losses only to the extent of capital gains, with unused losses being carried
back three years and forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. Shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will
be creditable against the shareholder's income tax liability.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"). While many investments in
real estate generate UBTI, the Service has issued a published ruling that
dividend distributions from a REIT to an exempt employee pension trust do not
constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Based
on that ruling, amounts distributed by the Company to Exempt Organizations
generally will not constitute UBTI, provided that (i) the Exempt Organization
has not financed its acquisition of shares of Common Stock with acquisition
indebtedness within the meaning of the Code and (ii) the shares of Common
Stock are not otherwise used by the Exempt Organization in an unrelated trade
or business. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Code section 501(c) are subject to different
UBTI rules, which generally will require them to characterize distributions
from the Company as UBTI. In addition, in certain circumstances, a pension
trust that owns more than 10% of the Common Stock of the Company may be
required to treat a percentage of the dividends received with respect to its
Company shares as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived by the Company from an unrelated trade or business
(determined as if the Company were a pension trust) divided by the gross
income of the Company for
77
<PAGE>
the year in which the dividends are paid. The UBTI rule applies to a pension
trust holding more than 10% of the Common Stock of the Company only if (i) the
UBTI Percentage is at least 5%, (ii) the Company qualifies as a REIT by reason
of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of the Company in proportion to
their actuarial interests in the pension trust, and (iii) either (A) one
pension trust owns more than 25% of the value of the Company's shares or (B) a
group of pension trusts individually holding more than 10% of the value of the
Company's shares collectively owns more than 50% of the value of the Company's
shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
holders of Common Stock (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a summary of such
rules. NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD
TO AN INVESTMENT IN COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Taxation of Shareholders on Distributions
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges of U.S. real property interests and are not designated
by the Company as capital gains dividends or retained capital gains (i.e.,
undistributed capital gains to the extent so designated by the Company) will
be treated as dividends of ordinary income to the extent that they are made
out of the Company's current or accumulated earnings and profits. For purposes
of determining whether distributions are made out of current or accumulated
earnings and profits, earnings and profits are allocated first to preferred
stock and then to common stock. Such distributions ordinarily will be subject
to a withholding tax equal to 30% of the gross amount of the distribution
unless an applicable tax treaty reduces or eliminates that tax. However, if
income from the investment in Common Stock is treated as effectively connected
with the Non-U.S. Shareholder's conduct of a U.S. Trade or business, the Non-
U.S. Shareholder generally will be subject to federal income tax at graduated
rates, in the same manner as U.S. Shareholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the
case of a Non-U.S. Shareholder that is a non-U.S. corporation). The Company
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any such distributions made to a Non-U.S. Shareholder unless (i) a lower
treaty rate applies and any required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder files
an IRS Form 4224 with the Company claiming that the distribution is
effectively connected income. The Service has issued regulations that modify
the manner in which the Company must comply with the withholding requirements.
Those regulations are effective for distributions made after December 31,
1999.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Stock but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
his Common Stock, as described below. Because it generally cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of the Company's current and accumulated earnings and
profits, the entire amount of any distribution normally will be subject to
withholding at the same rate applicable to dividend distributions. However,
amounts so withheld are refundable to the extent it is determined subsequently
that such distribution was, in fact, in excess of the Company's current and
accumulated earnings and profits.
For any year in which the Company qualifies as a REIT, to the extent that a
distribution is attributable to gain from sales or exchanges of U.S. real
property interests, the distribution will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales
of U.S. real property interests are taxed to a Non-
78
<PAGE>
U.S. Shareholder as if such gain were effectively connected with a U.S.
business without regard to whether the Company designates such distribution as
capital gain dividends. Non-U.S. Shareholders thus would be taxed at the
normal capital gain rates applicable to U.S. Shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA
also may be subject to the 30% branch profits tax in the hands of a non-U.S.
corporate shareholder not entitled to treaty relief or exemption. The Company
is required to withhold 35% of any distribution that is designated or could be
designated by it as a capital gains dividend. The amount withheld is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Taxation of Shareholders on the Disposition of Common Stock
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. The Company believes that it is currently,
and expects to continue to be, a "domestically controlled REIT" and,
therefore, the sale of Common Stock will not be subject to taxation under
FIRPTA. However, no assurance can be given that the Company will continue to
be a "domestically controlled REIT." Furthermore, gain not subject to taxation
under FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in
Common Stock is effectively connected with the Non-U.S. Shareholder's U.S.
Trade or business, in which case the Non-U.S. Shareholder will be subject to
the same treatment as U.S. Shareholders with respect to such gain, or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
U.S. for 183 days or more during the taxable year and certain other conditions
apply, in which case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains. If the Company were not a "domestically
controlled REIT, " gain recognized upon the sale of Common Stock by a Non-U.S.
Shareholder generally will not be subject to tax under FIRPTA provided that
(a) the Common Stock is regularly traded, as defined in applicable Treasury
Regulations, on an established securities market and (b) the Non-U.S.
Shareholder held 5% or less of the Common Stock of the Company at all times
within a specified testing period. If the gain on the sale of Common Stock
were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be
subject to the same treatment as U.S. Shareholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of non-U.S. corporations). In
addition, the purchaser would be required to withhold 10% of the purchase
price and remit such amount to the Service.
Information Reporting Requirements and Backup Withholding
The Company will report to its Non-U.S. Shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a Non-U.S. Shareholder
may be subject to backup withholding at the rate of 31% with respect to
distributions paid unless such holder certifies as to its Non-U.S. status
under penalties of perjury or otherwise establishes an exemption (provided
that neither the Company nor its paying agent has actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied). The Service has issued final regulations regarding the
backup withholding rules that apply to Non-U.S. Shareholders. Those
regulations alter the current system of backup withholding compliance and are
effective for distributions made after December 31, 1999. Such regulations do
not significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards.
Estate Tax
Common stock held (or treated as held) by an individual who is not a citizen
or resident (as specially defined for U.S. Federal estate tax purposes) of the
United States at the time of his or her death will be includable in the
individual's estate for U.S. Federal estate tax purposes unless an applicable
estate tax treaty provides otherwise. Such individual's estate may be subject
to U.S. Federal estate tax on the property includable in the estate for U.S.
Federal estate tax purposes.
79
<PAGE>
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective holders of Common Stock should recognize that the present
federal income tax treatment of the Company and an investment in the Company
may be modified by legislative, judicial or administrative action at any time,
and that any such action may affect the Company and investments and
commitments previously made. The rules dealing with federal income taxation
are constantly under review by persons involved in the legislative process and
by the Service and Treasury Department, resulting in revisions of regulations
and revised interpretations of established concepts as well as statutory
changes. Revisions in federal tax laws and the interpretations thereof could
adversely affect the tax consequences to the Company or of an investment in
the Company.
OTHER TAX CONSEQUENCES
The Company, the Corporate Subsidiaries, or the shareholders of the Company
may be subject to state or local taxation in various state or local
jurisdictions, including those in which it or they own property, transact
business, or reside. The state and local tax treatment of the Company, and its
shareholders may not conform to the federal income tax consequences discussed
above. CONSEQUENTLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN
THE COMPANY.
80
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Smith Barney Inc.,
Goldman, Sachs & Co., NationsBanc Montgomery Securities LLC and Raymond James
& Associates, Inc. are acting as U.S. Representatives, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
Smith Barney Inc., Goldman Sachs International, NationsBanc Montgomery
Securities LLC and Raymond James & Associates, Inc. are acting as
International Representatives, have severally agreed to purchase, and the
Company and the Selling Stockholders have agreed to sell to them, the
respective number of shares of Common Stock set forth opposite the names of
such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................................
Smith Barney Inc.......................................................
Goldman, Sachs & Co. ..................................................
NationsBanc Montgomery Securities LLC..................................
Raymond James & Associates, Inc. ......................................
----
Subtotal.............................................................
----
International Underwriters:
Morgan Stanley & Co. International Limited.............................
Smith Barney Inc. .....................................................
Goldman Sachs International............................................
NationsBanc Montgomery Securities LLC..................................
Raymond James & Associates, Inc. ......................................
Subtotal.............................................................
----
Total..............................................................
====
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of
Common Stock offered hereby are subject to approval of certain legal matters
by their counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered hereby
(other than those covered by the U.S. Underwriters over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any Shares for the account of anyone other than a United
States or Canadian Person (as defined herein) and (b) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any prospectus relating to the Shares outside the United States or
Canada or to anyone other than a United States or Canadian Person. Pursuant to
the Agreement Between U.S. and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions, (a) it
is not purchasing any Shares for the account of any United States or Canadian
Person and (b) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any prospectus relating to
the Shares in the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter shall apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter shall apply
81
<PAGE>
only to it in its capacity as an International Underwriter. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation,
pension, profit-sharing, or other trust or other entity organized under the
laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
All shares of Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters under the Underwriting Agreement are referred to
herein as the "Shares."
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed upon. The per share price of
any Shares so sold shall be the public offering price set forth on the cover
page hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer of Shares in Canada will be made
only pursuant to an exemption from the requirements to file a prospectus in
the province or territory of Canada in which such offer is made. Each U.S
Underwriter has further agreed to send to any dealer who purchases from it any
Shares a notice stating in substance that, by purchasing such Shares, such
dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada, or to, or for the benefit of, any resident of any
province or territory of Canada in contravention of the securities laws
thereof and that any offer of Shares in Canada will be made only pursuant to
an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made, and that such dealer
will deliver to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (a) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell any Shares in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing, or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (b) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from, or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, or to any person to whom such
document may lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents that it has not
offered or sold, and agrees that it will not offer or sell, any of such
Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof except
82
<PAGE>
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the initial public offering
price. Any Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ a share to other Underwriters or to certain other
dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
1,500,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option to purchase solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common stock offered hereby. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately to the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
Each of the Company, its executive officers and directors and the Selling
Stockholders have agreed that, subject to certain exceptions, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by deliver of Common Stock or such other securities, in cash or
otherwise.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and
may end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Certain of the Underwriters have performed various investment banking
services for the Company in the past and may do so from time to time in the
future.
83
<PAGE>
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations among the
Company, the Selling Stockholders and the U.S. Representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company
in recent periods and the price-earnings ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Prospectus is subject
to change as a result of market conditions and other factors.
LEGAL MATTERS
Certain legal matters with respect to the sale of the shares of Common Stock
offered hereby will be passed upon for the Company by its counsel, Holland &
Knight LLP, Tampa, Florida, and certain legal matters will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements for Pinnacle Holdings Inc. as of December 31, 1997
and 1996 and for the years then ended and for the period from inception
through December 31, 1995, Shore Communications as of December 3, 1997 and for
the period from January 1, 1997 through December 3, 1997, Tidewater
Communications as of July 31, 1997 and for the period from January 1, 1997
through July 31, 1997 and Majestic Communications as of June 27, 1997 and for
the period from January 1, 1997 through June 27, 1997 included in this
Prospectus, have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of the Tower Operations of Southern Communications
Services, Inc., as of December 31, 1997 and 1996 and for the years then ended,
included in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
The financial statements of MobileMedia Communications, Inc. and
Subsidiaries Tower Operations at December 31, 1997 and 1996, and for the years
then ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files, or will file when appropriate,
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W. Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
84
<PAGE>
The Company has filed with the Commission a registration statement on Form
S-11 (the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original registration statement and any and
all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement,
including the exhibits and schedules filed as part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits filed as a
part thereof, may be inspected and copied at the public reference facilities
maintained by the Commission as set forth above.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PINNACLE HOLDINGS INC.
Report of Independent Certified Public Accountants....................... F-2
Consolidated Balance Sheets as of December 31, 1997, 1996 and June 30,
1998 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the period from inception
through
December 31, 1995 and for each of the two years ended December 31, 1997
and for the six months ended June 30, 1998 and 1997 (unaudited)......... F-4
Consolidated Statements of Changes in Stockholders' Equity for the period
from inception through December 31, 1995 and for each of the two years
ended December 31, 1997 and for the six months ended June 30, 1998 (un-
audited)................................................................ F-5
Consolidated Statements of Cash Flows for the period from inception
through December 31, 1995 and for each of the two years ended December
31, 1997 and for the six months ended June 30, 1998 and 1997 (unau-
dited).................................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES TOWER OPERATIONS
Report of Independent Auditors........................................... F-18
Balance Sheets as of December 31, 1997, 1996 and June 30, 1998
(unaudited)............................................................. F-19
Statements of Income for each of the two years ended December 31, 1997
and for the six months ended June 30, 1998 and 1997 (unaudited)......... F-20
Statements of Changes in Net Tower Operation Assets as of December 31,
1997 and 1996 and June 30, 1998 (unaudited)............................. F-21
Statements of Cash Flows for each of the two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited)............................................................. F-22
Notes to Financial Statements............................................ F-23
SOUTHERN COMMUNICATIONS SERVICES, INC. TOWER OPERATIONS
Report of Independent Public Accountants................................. F-26
Balance Sheets as of December 31, 1997 and 1996.......................... F-27
Statements of Operations for the years ended December 31, 1997 and 1996.. F-28
Statements of Changes in Accumulated Deficit for the years ended December
31, 1997 and 1996....................................................... F-29
Statements of Cash Flows for the years ended December 31, 1997 and 1996.. F-30
Notes to Financial Statements............................................ F-31
SHORE COMMUNICATIONS
Report of Independent Certified Public Accountants....................... F-34
Combined Balance Sheet as of December 3, 1997............................ F-35
Combined Statement of Operations and Retained Earnings for the period
from
January 1, 1997 through December 3, 1997................................ F-36
Combined Statement of Cash Flows for the period from January 1, 1997
through
December 3, 1997........................................................ F-37
Notes to Combined Financial Statements................................... F-38
TIDEWATER COMMUNICATIONS
Report of Independent Certified Public Accountants....................... F-43
Combined Balance Sheet as of July 31, 1997............................... F-44
Combined Statement of Operations and Retained Earnings for the period
from
January 1, 1997 through July 31, 1997................................... F-45
Combined Statement of Cash Flows for the period from January 1, 1997
through
July 31, 1997........................................................... F-46
Notes to Combined Financial Statements................................... F-47
MAJESTIC COMMUNICATIONS
Report of Independent Certified Public Accountants....................... F-52
Combined Balance Sheet as of June 27, 1997............................... F-53
Combined Statement of Operations and Retained Earnings for the period
from
January 1, 1997 through June 27, 1997................................... F-54
Combined Statement of Cash Flows for the period from January 1, 1997
through
June 27, 1997........................................................... F-55
Notes to Combined Financial Statements................................... F-56
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pinnacle Holdings Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of Pinnacle Holdings Inc. and its subsidiaries (the "Company") at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1997, and for the
period from inception (May 3, 1995) through December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Price Waterhouse LLP
Tampa, Florida
March 4, 1998
F-2
<PAGE>
PINNACLE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 47,419 $ 1,693,923 $ 2,715,465
Accounts receivable, less allowance
for doubtful accounts
of $45,000, $70,000, and $195,000,
respectively....................... 483,883 1,577,575 2,139,752
Prepaid expenses and other current
assets............................. 291,148 1,037,447 1,115,142
----------- ------------ ------------
Total current assets............... 822,450 4,308,945 5,970,359
Restricted cash....................... 34,072 59,822 60,976
Tower assets, net of accumulated
depreciation of $2,229,274,
$8,278,524, and $15,223,593,
respectively......................... 48,327,035 127,946,070 279,785,438
Fixed assets, net..................... 757,595 1,495,121 1,838,776
Land.................................. 4,112,000 6,850,951 12,152,758
Deferred debt issue costs, net of
accumulated amortization of $121,184,
$346,618 and $425,429, respectively.. 1,159,080 1,871,242 11,336,531
Other assets.......................... 353,405 645,752 854,676
----------- ------------ ------------
$55,565,637 $143,177,903 $311,999,514
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................... $ 807,092 $ 2,242,397 $ 2,793,562
Accrued expenses.................... 723,444 3,095,049 3,429,557
Deferred revenue.................... 132,423 639,460 1,334,677
Current portion of long-term debt... 636,214 11,122,077 2,943,986
----------- ------------ ------------
Total current liabilities.......... 2,299,173 17,098,983 10,501,782
Long-term debt........................ 29,785,966 109,459,790 287,226,872
Other liabilities..................... 60,759 105,012 541,082
----------- ------------ ------------
32,145,898 126,663,785 298,269,736
----------- ------------ ------------
Commitments and contingencies (Note 7)
Redeemable stock:
Class B common stock, 12,000 shares
issued and outstanding at December
31, 1996 and 1997 and June 30,
1998............................... 1,200,000 1,761,000 1,761,000
Class D common stock (convertible,
see Note 9), 38,000 shares issued
and outstanding at December 31,
1996 and 39,000 shares issued and
outstanding at December 31, 1997
and June 30, 1998.................. 38 39 40
----------- ------------ ------------
1,200,038 1,761,039 1,761,040
----------- ------------ ------------
Stockholders' equity:
Common stock:
Class A common stock--202,500 shares
issued and outstanding at December
31, 1996 and 1997 and June 30,
1998............................... 203 203 203
Class E common stock--51,300,
67,089, and 174,766 shares issued
and outstanding at December 31,
1996, 1997 and June 30, 1998,
respectively....................... 51 67 175
Additional paid-in capital.......... 24,881,219 25,875,752 36,230,464
Accumulated deficit................. (2,661,772) (11,122,943) (24,262,104)
----------- ------------ ------------
22,219,701 14,753,079 11,968,738
----------- ------------ ------------
$55,565,637 $143,177,903 $311,999,514
=========== ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-3
<PAGE>
PINNACLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 3, 1995) SIX MONTHS ENDED
THROUGH YEAR ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tower rental revenue.... $ 733,003 $ 4,841,752 $12,880,631 $4,848,314 $ 12,544,096
Tower operating
expenses, excluding
depreciation and
amortization........... 180,919 1,135,023 2,632,274 846,655 2,530,987
---------- ----------- ----------- ---------- ------------
Gross margin.......... 552,084 3,706,729 10,248,357 4,001,659 10,013,109
Other expenses:
General and
administrative....... 306,180 923,168 1,385,382 607,986 1,494,861
Corporate
development.......... 369,496 1,439,749 3,772,140 1,655,551 3,475,619
Depreciation and
amortization......... 340,614 2,205,176 6,626,912 2,483,489 7,970,717
---------- ----------- ----------- ---------- ------------
1,016,290 4,568,093 11,784,434 4,747,026 12,941,197
---------- ----------- ----------- ---------- ------------
Loss from operations.... (464,206) (861,364) (1,536,077) (745,367) (2,928,088)
Interest expense........ 181,212 1,154,990 6,925,094 2,243,495 4,550,342
Amortization of original
issue discount......... -- -- -- -- 5,660,731
---------- ----------- ----------- ---------- ------------
Net loss................ $ (645,418) $(2,016,354) $(8,461,171) (2,988,862) $(13,139,161)
========== =========== =========== ========== ============
Loss per common share... $ (6.31) $ (8.10) $ (27.28) $ (9.76) $ (34.24)
Weighted average number
of common shares
outstanding............ 102,250 248,950 310,122 306,300 383,685
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-4
<PAGE>
PINNACLE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE STOCK
----------------------------------
CLASS B CLASS D CLASS A CLASS E
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL STOCK
------------------ --------------- -------------- -------------- PAID-IN SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
------ ---------- ------- ------ ------- ------ ------- ------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock, net
of issuance
costs:
Class A......... $ 75,500 $ 76 $-- $ 7,051,405
Class B......... 12,000 $1,200,000
Class D......... 30,000 30
Stock subscrip-
tion............. $(180,015)
Net loss........ $ (645,418)
------ ---------- ------- ---- ------- ---- ------- ---- ----------- --------- ------------
Balance at Decem-
ber 31, 1995..... 12,000 1,200,000 30,000 30 75,500 76 -- -- 7,051,405 (180,015) (645,418)
Issuance of
common stock, net
of issuance
costs:
Class A......... 127,000 127 12,699,873
Class D......... 8,000 8
Class E......... 51,300 51 5,129,941
Payment received
for stock
subscriptions.... 180,015
Net loss......... (2,016,354)
------ ---------- ------- ---- ------- ---- ------- ---- ----------- --------- ------------
Balance at
December 31,
1996............. 12,000 1,200,000 38,000 38 202,500 203 51,300 51 24,881,219 -- (2,661,772)
Issuance of
common stock, net
of issuance
costs:
Class B......... 500
Class D......... 11,000 11
Class E......... 15,789 16 1,555,533
Retirement of
common stock:
Class B......... (500)
Class D......... (10,000) (10)
Net loss......... (8,461,171)
Adjustment to
Class B common
stock............ 561,000 (561,000)
------ ---------- ------- ---- ------- ---- ------- ---- ----------- --------- ------------
Balance at Decem-
ber 31, 1997..... 12,000 1,761,000 39,000 39 202,500 203 67,089 67 25,875,752 -- (11,122,943)
Unaudited:
Issuance of
common stock, net
of issuance
costs:
Class D......... 1,000 1
Class E......... 107,677 108 10,767,600
Distribution to
Class B common
stockholders
(Note 6)......... (412,888)
Net loss......... (13,139,161)
------ ---------- ------- ---- ------- ---- ------- ---- ----------- --------- ------------
Balance at June
30, 1998......... 12,000 $1,761,000 40,000 $ 40 202,500 $203 174,766 $175 $36,230,464 -- $(24,262,104)
====== ========== ======= ==== ======= ==== ======= ==== =========== ========= ============
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of
common stock, net
of issuance
costs:
Class A......... $ 7,051,481
Class B.........
Class D.........
Stock subscrip-
tion............. (180,015)
Net loss........ (645,418)
-------------
Balance at Decem-
ber 31, 1995..... 6,226,048
Issuance of
common stock, net
of issuance
costs:
Class A......... 12,700,000
Class D.........
Class E......... 5,129,992
Payment received
for stock
subscriptions.... 180,015
Net loss......... (2,016,354)
-------------
Balance at
December 31,
1996............. 22,219,701
Issuance of
common stock, net
of issuance
costs:
Class B.........
Class D.........
Class E......... 1,555,549
Retirement of
common stock:
Class B.........
Class D.........
Net loss......... (8,461,171)
Adjustment to
Class B common
stock............ (561,000)
-------------
Balance at Decem-
ber 31, 1997..... 14,753,079
Unaudited:
Issuance of
common stock, net
of issuance
costs:
Class D.........
Class E......... 10,767,708
Distribution to
Class B common
stockholders
(Note 6)......... (412,888)
Net loss......... (13,139,161)
-------------
Balance at June
30, 1998......... $11,968,738
=============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-5
<PAGE>
PINNACLE HOLDINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 3, 1995) SIX MONTHS ENDED
THROUGH YEAR ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1997 1997 1998
------------- ------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (645,418) $(2,016,354) $(8,461,171) $(2,988,862) $(13,139,161)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization.......... 340,614 2,205,176 6,626,912 2,483,489 7,970,717
Amortization of
original issue
discount.............. -- -- -- -- 5,660,731
Provision for doubtful
accounts.............. -- 45,000 25,000 (15,000) 125,000
(Increase) decrease
in:
Accounts receivable,
gross............... (74,818) (454,065) (1,118,692) (82,636) (687,177)
Notes receivable..... (387,455) 387,455 -- -- --
Prepaid expenses and
other current
assets.............. (13,544) (277,604) (746,299) (2,005) (77,695)
Other assets......... (175,172) (237,408) (358,587) (669,601) (5,121,565)
Increase (decrease)
in:
Accounts payable..... 173,381 633,711 1,435,305 668,389 551,165
Accrued expenses..... 293,665 429,779 2,371,605 334,508
Deferred revenue..... 55,006 77,417 507,037 78,679 695,217
Other current
liabilities......... 490,000 (490,000) -- --
Other liabilities.... -- 49,491 44,253 1,105 436,070
----------- ----------- ----------- ----------- ------------
Total adjustments.... 701,677 2,368,952 8,786,534 2,462,420 9,886,971
----------- ----------- ----------- ----------- ------------
Net cash provided by
operating activities... 56,259 352,598 325,363 (526,442) (3,252,190)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Payments made in
connection with
acquisitions:
Tower assets......... (10,553,958) (31,845,153) (70,852,422) (32,189,173) (134,121,682)
Land................. (774,153) (3,337,847) (2,738,951) (663,458) (5,313,807)
Capital expenditures:
Tower assets......... (1,121,150) (7,036,048) (14,815,863) (6,471,101) (20,692,616)
Fixed assets......... (287,711) (563,646) (1,023,513) (481,043) (630,374)
(Increase) decrease in
restricted cash....... (297,118) 138,157 (25,750) (1,521,810) (1,154)
----------- ----------- ----------- ----------- ------------
Net cash used in
investing activities... (13,034,090) (42,644,537) (89,456,499) (41,326,585) (160,759,633)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Borrowings under long-
term debt, net
of deferred
loan costs............ 4,937,200 24,866,994 89,918,073 47,000,000 360,913,785
Repayment of long-term
debt.................. -- (568,516) (695,982) (4,966,282) (206,235,241)
Proceeds from issuance
of redeemable stock,
net of issuance
costs................. 1,200,030 8 -- --
Proceeds from issuance
of common stock, net
of
issuance costs and
stock subscriptions
receivable............ 6,871,466 18,010,007 1,555,549 246,300 10,767,709
Payment of accretion
in Class B common
stock................. -- -- -- -- (412,888)
----------- ----------- ----------- ----------- ------------
Net cash provided by
financing activities... 13,008,696 42,308,493 90,777,640 42,280,018 165,033,365
----------- ----------- ----------- ----------- ------------
Net increase in cash and
cash equivalents....... 30,865 16,554 1,646,504 426,991 1,021,542
----------- ----------- ----------- ----------- ------------
Cash and cash
equivalents, beginning
of year................ -- 30,865 47,419 47,419 1,693,923
----------- ----------- ----------- ----------- ------------
Cash and cash
equivalents, end of
year................... $ 30,865 $ 47,419 $ 1,693,923 $ 474,410 $ 2,715,465
=========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS:
Cash paid for inter-
est................... $ 185,980 $ 1,037,452 $ 5,786,816 $ 2,028,345 $ 5,462,202
=========== =========== =========== =========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-6
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the financial
position and results of operations and cash flows of Pinnacle Holdings Inc.
and its wholly owned subsidiaries: Pinnacle Towers Inc., Coverage Plus Antenna
Systems, Inc. and Tower Systems, Inc., collectively referred to as the
"Company." The Company acquires, develops and operates telecommunication
towers and leases space on its towers to customers in the wireless
communications industries located in the United States. All significant
intercompany balances and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results may vary from estimates used.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid temporary cash investments with a maturity of three months or less to
be cash equivalents.
Concentration of Credit Risk
Substantially all of the accounts receivable are with federal, state and
local government agencies and national and local wireless communications
providers. The Company performs ongoing credit evaluations of its customers
but does not require collateral to support customer receivables. The Company
maintains an allowance for doubtful accounts on its customer receivables based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
Restricted Cash
Restricted cash reflects cash held in escrow restricted for the acquisition
of tower sites.
Tower Assets
Tower assets consists of towers and related attachments which are recorded
at cost and depreciated using the straight-line method over the estimated
useful life of the assets, which is 15 years for towers and 30 years for
buildings. Also included in tower assets are towers in progress of $2,815,153
and $3,452,045 as of December 31, 1996 and 1997, respectively. Improvements,
renewals and extraordinary repairs which increase the value or extend the life
of the asset are capitalized. Repairs and maintenance costs are expensed as
incurred.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the fixed assets. Equipment held
under capital leases is amortized on a straight-line basis over the term of
the lease or the remaining life of the leased property, whichever is shorter.
Betterments, renewals and extraordinary repairs which increase the value or
extend the life of the asset are capitalized. Repairs and maintenance costs
are expensed as incurred.
F-7
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Assets
Other assets consists primarily of organization costs of $98,553 and $32,313
at December 31, 1996 and 1997, respectively, (net of accumulated amortization
of $101,570 and $167,810, respectively), and costs associated with the
acquisition of debt, which are capitalized and amortized over the terms of the
related debt arrangements.
Impairment of Long-lived Assets
The Company evaluates the recoverability of its long-lived assets whenever
adverse events or changes in business climate indicate that the expected
undiscounted future cash flows from the related asset may be less than
previously anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. As of December 31, 1997 management does
not believe that an impairment reserve is required.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments at December 31,
1996 and 1997, which includes cash, accounts receivable and debt, approximates
fair value due to the short maturity of those instruments. The Company
considers the fixed rate and variable rate financial instruments to be
representative of current market interest rates and, accordingly, the recorded
amounts approximate their present fair market value.
Accounting for Interest Rate Swaps
The Company is exposed to credit losses in the event of nonperformance by
counterparties on interest rate swaps and other risk management instruments.
The Company does not believe there is a significant risk of nonperformance by
any of the parties to these instruments. Amounts due to the Company under
these agreements were not significant at December 31, 1997.
Tower Rental Revenue Recognition
Tower rental revenue is recognized on a straight-line basis over the life of
the related lease agreements. Revenue is recorded in the month in which it is
due. Any rental amounts received in advance of the month due are recorded as
deferred revenue.
Corporate Development Expenses
Corporate development expenses represent costs incurred in connection with
acquisitions, construction activities and expansion of the customer base.
These expenses consist primarily of allocated compensation and overhead costs
that are not directly related to the administration or management of existing
towers, and are expensed as incurred.
Income Taxes
The Company qualifies and intends to continue to qualify to be taxed as a
Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986,
as amended, for each taxable year of operations. As a REIT, the Company is
allowed a tax deduction for the amount of dividends paid to its stockholders,
thereby effectively subjecting the distributed net income of the Company to
taxation at the stockholder level only, provided it distributes at least 95%
of its REIT taxable income and meets certain other requirements for qualifying
as a REIT. The Company incurred a loss for both book and tax purposes in the
years ended December 31, 1996 and 1997 and, therefore, was not required to pay
a cash dividend in order to retain its REIT status.
F-8
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings Per Share
Basic net income per common share is based on the weighted average number of
shares of common stock outstanding during each period. The computation of
diluted earnings per share, assuming conversion of the Class D common shares
described in Note 9, has an antidilutive effect on earnings per share.
Interim Financial Information
The interim financial data includes the accounts and operations of the
Company. The interim financial data is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results of
the interim period and are prepared on the same basis as the audited annual
financial statements.
Reclassifications
Certain amounts from prior years have been reclassified for consistency with
current presentation. These reclassifications were not material to the
consolidated financial statements.
3. ACQUISITIONS
The Company actively acquires towers and assumes the sellers' related
customer activity on an ongoing basis. In January 1996, the Company acquired
telecommunications tower sites and related assets from an individual for cash
of $4,443,000. During May of 1996, the Company acquired the rooftop of the
Plaza Tower building including all of the related tower assets and fixtures
from Baha Towers Limited Partnership for a purchase price of $3,000,000 which
was paid in cash. In July 1996, the Company purchased the tower leases and
subleases of Florida Mobile Telephone, Inc. for a purchase price of
$2,270,000, which was also paid in cash. In September 1996, the Company
purchased 10 tower sites and related assets for $3,010,000, which consisted of
$792,325 in cash and $2,217,675 of notes payable to Tall Towers Rentals, Inc.
Additionally, the Company completed 44 other acquisitions of towers and
related assets, all of which were individually insignificant to the Company,
from various sellers during the year ended December 31, 1996. The aggregate
purchase price of $20,854,055 consisted of $15,578,475 in cash and $5,275,580
of notes payable to the former tower owners (see Note 6).
The Company completed 63 acquisitions during the year ended December 31,
1997, all of which were individually insignificant to the Company. The
aggregate purchase price for acquisitions for the year ended December 31, 1997
was $73,591,373, which consisted of $54,339,523 in cash and $19,251,850 of
notes payable to the former tower owners.
On March 4, 1998, the Company completed the acquisition of 201 towers from
Southern Communications Services, Inc. (see Note 12).
The Company accounts for its acquisitions using the purchase method of
accounting. The results of operations of the acquired assets are included with
those of the Company from the dates of the respective acquisitions. The pro-
forma results of operations listed below reflect purchase accounting and pro-
forma adjustments as if the transactions occurred as of January 1, 1996. The
unaudited pro- forma consolidated financial statements are not necessarily
indicative of the results that would have occurred if the assumed transaction
had occurred on the dates indicated and are not necessarily indicative of the
expected financial position or results of operations in the future.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1996 1997 1998
------------ ------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tower rental revenue............. $ 13,358,428 $ 19,478,425 $13,234,011
Gross profit, excluding
depreciation and amortization... 10,520,070 15,526,592 10,132,041
Net loss......................... (18,483,536) (18,787,322) (15,597,380)
Net loss per common share........ $ (74.25) $ (60.58) $ (40.65)
</TABLE>
F-9
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES IN --------------------
YEARS 1996 1997
--------- -------- ----------
<S> <C> <C> <C>
Vehicles................................... 5 $257,304 $ 489,778
Furniture, fixtures and other office
equipment................................. 5 426,542 504,759
Data processing equipment.................. 5 167,511 880,333
-------- ----------
851,357 1,874,870
Accumulated depreciation................... (93,762) (379,749)
-------- ----------
Fixed assets, net.......................... $757,595 $1,495,121
======== ==========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- ----------
<S> <C> <C>
Construction costs....................................... $ -- $1,071,719
Interest................................................. 199,385 1,337,662
Professional fees........................................ 146,000 150,000
Sales tax and other...................................... 109,446 148,115
Payroll and other........................................ 268,613 387,553
-------- ----------
$723,444 $3,095,049
======== ==========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- ------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Senior Credit Facility, monthly
interest at variable rates (7.75%,
8.25% and 8.41% at December 31,
1996, 1997 and June 30, 1998,
respectively), secured, quarterly
principal installments beginning
June 30, 2000, maturing December 31,
2004................................ $21,100,000 $ 72,000,000 $ 63,500,000
Notes payable to former tower owners,
interest from 8.5% to 13% per annum,
monthly installments of principal
and interest of varying amounts
through December 31, 2021, secured
by various letters of credit........ 9,322,180 28,581,867 18,719,627
Subordinated term note, quarterly
interest at variable rates (11.88%
at December 31, 1997), unsecured,
principal and interest maturing
September 22, 2000.................. -- 20,000,000 --
ABRY Bridge Loan, interest at 9% with
principal payable on or before April
15, 1999............................ -- -- 2,500,000
Senior Discount Notes, interest at
10%, less unamortized discount
(1998--$124,599,092), unsecured,
maturing March 15, 2008............. -- -- 205,451,231
----------- ------------ ------------
30,422,180 120,581,867 290,170,858
Less current portion of long-term
debt................................ (636,214) (11,122,077) (2,943,986)
----------- ------------ ------------
$29,785,966 $109,459,790 $287,226,872
=========== ============ ============
</TABLE>
F-10
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The remaining principal payments at December 31, 1997 were due as follows:
1999-$357,561; 2000-$30,713,259; 2001-$10,243,954; 2002-$11,256,324; and 2003
and thereafter $56,888,692.
Senior Credit Facility
In September 1995, the Company entered into a credit agreement which
provided for $25,000,000 of senior debt financing through a reducing revolving
line of credit and revolver/term loan (as amended, the "Senior Credit
Facility"). In September 1996, the Company and its senior lender agreed to
expand the commitment amount to $100,000,000. Advances under the credit
agreement are limited to a borrowing base, which is based on the Company's
cash flows, as defined in the agreement.
Advances under the Senior Credit Facility accrue interest at the Company's
option at either LIBOR plus a margin of up to 2.375%, as defined in the
related agreement, or at the greater of the Federal Funds Effective Rate plus
0.50% or the prime rate, plus a margin of up to 1.375%. Advances under the
Senior Credit Facility bear interest payable in quarterly installments. In
addition, the Company is required to pay commitment fees based on the unused
portion of the commitments and customary facility fees on the total amount of
the commitments.
The Senior Credit Facility is secured by a lien on substantially all of the
Company's assets and a pledge of substantially all of the Company's capital
stock. The credit agreement contains customary covenants such as limitations
on the Company's ability to incur indebtedness, to incur liens or encumbrances
on assets, to make certain investments, to make distributions to shareholders,
or prepay subordinated debt. Under the credit agreement, the Company may not
permit the ratio of debt to annualized EBITDA to exceed certain amounts, as
defined in the agreement.
For the period from inception (May 3, 1995) through December 31, 1995 and
for the years ended December 31, 1996 and 1997, the Company incurred
commitment fees of approximately $38,000, $52,000, and $192,000, respectively.
Subsequent Events
On March 4, 1998, the Company amended the Senior Credit Facility to provide
for borrowings initially of up to $200,000,000. The facility comprises a
revolving line of credit under which the Company may make borrowings and
repayments until March 31, 2000, at which time the facility will convert into
a term loan payable through December 31, 2004. Advances under the Senior
Credit Facility accrue interest at the Company's option of either LIBOR plus a
margin of up to 2.75%, as defined in the related agreement, or at the greater
of the Federal Funds Effective Rate plus 0.50% or the prime rate, plus a
margin of up to 1.75%. Advances under the facility are available to fund
acquisitions and construction of towers and for general corporate purposes. In
connection with the closing of the Private Offering, the Senior Credit
Facility was amended to reduce the commitment amount to $150.0 million and to
change the maximum LIBOR margin to 2.875%.
In February 1998, the Company entered into an agreement with its principal
stockholder (the "Bridge Loan"), whereby the Company borrowed $12,500,000 in
cash. Amounts outstanding under the Bridge Loan earn interest at the rate of
9% per annum. Interest and principal under the Bridge Loan are payable within
one year from the date of the related borrowing. During April 1998, the
Company borrowed $2.5 million under this Bridge Loan to partially fund
acquisitions.
On March 17, 1998, the Company issued $325,000,000 of 10% Senior Discount
Notes with a scheduled maturity in 2008 through a private placement offering
to institutional investors. The Senior Discount Note holders have the right to
require the Company to redeem the notes on or after March 15, 2003 at a price
105.0%,
F-11
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
103.3%, 102.6% and 100.0% during the twelve month period ending March 15,
2003, 2004, 2005, and 2006 and thereafter, respectively. In addition, the
Company at any time prior March 15, 2001 may redeem up to 35% of the Senior
Discount Notes upon a public equity offering at a redemption price equal to
110% of the accreted value of the notes plus unpaid liquidating damages, if
any, as of the redemption date. The notes will accrete interest, representing
the amortization of the original issue discount, at a rate of 10% compounded
semi-annually to a maturity of $325,000,000 by March 15, 2003. Thereafter, the
notes will pay interest at the rate of 10% semi annually, payable in arrears
on March 15 and September 16. The proceeds of this issuance were used to repay
approximately $158.6 million of outstanding borrowing under the Senior Credit
Facility, to repay and retire $20 million and approximately $1.2 million in
accrued interest outstanding under the Subordinated Term Loan, to repay in
full and retire the $12.5 million of principal and $.1 million in accrued
interest outstanding under the ABRY Bridge Loan, and to pay approximately $.4
million in the aggregate to holders of the Company's Class B common stock in
settlement of a distribution preference on such stock.
Subordinated Term Loan
On September 22, 1997, the Company entered into a term loan agreement for
$20,000,000, which is subordinated to the Company's Senior Credit Facility.
Borrowings under this agreement accrue interest, at interest rates equal to a
margin amount (as defined in the agreement), plus LIBOR. The amount of the
related margins are 6% through March 22, 1998, 7.5% through September 22,
1998, 10% through March 22, 1999 and the ratio increases by 2% for each
successive six month period to a maximum combined rate of 18%. The Company may
extend the maturity of the subordinated debt to September 22, 2007 if the
Company complies with the subordinated debt covenants, as defined in the
agreement. The Company may prepay this loan at any time at the Company's
option. In connection with the term loan agreement, the Company issued
warrants to lenders for 10,000 shares of the Company's Class F Common Stock
(see Note 9). As of December 31, 1997, no value was assigned to the warrants.
Interest Rate Swap
The Company entered into interest rate swap agreements to manage the
interest rate risk associated with certain of its variable rate debt. The swap
agreement effectively converts the credit agreement floating rate debt from
LIBOR plus a margin, as defined in the agreement, to a fixed rate debt plus
the applicable margin under the credit agreement on an amount equal to the
notional value of the interest rate swap. The following table summarizes the
interest rate swap agreement:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
-----------------------------------
FIXED
PAY RATE DECEMBER 31, 1996 DECEMBER 31, 1997
-------- ----------------- -----------------
<S> <C> <C> <C>
EXPIRATION DATE
September 30, 2000.............. 5.75% $20,000,000 $20,000,000
May 1, 1998..................... 6.22% -- 20,000,000
December 24, 1998............... 5.90% -- 30,000,000
</TABLE>
Approximately $28,000 and $51,000 of interest expense was incurred in 1996
and 1997, respectively, related to the interest rate swap agreements.
F-12
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under noncancellable leases for office space,
machinery and equipment and ground leases which expire at various times
through 2015. The majority of these leases have renewal options which range up
to 10 years. Certain of the leases have purchase options at the end of the
original lease term. The future minimum lease commitments under these leases
are as follows:
<TABLE>
<S> <C>
YEAR ENDING
DECEMBER 31,
1998.......................................................... $ 787,532
1999.......................................................... 781,319
2000.......................................................... 722,262
2001.......................................................... 574,192
2002.......................................................... 541,397
2003 and thereafter........................................... 6,623,432
-----------
Total minimum lease payments................................ $10,030,134
===========
</TABLE>
Total rent expense under noncancellable operating leases was approximately
$118,000, $468,083 and $1,468,323 for the period ended December 31, 1995 and
for the years ended December 31, 1996 and 1997, respectively.
Employment Agreements
The Company has severance agreements with certain officers of the Company
which grant these employees the right to receive their base salary and
continuation of certain benefits for periods ranging from six to eighteen
months in the event of a termination (as defined by the agreement) of such
employees.
Litigation
The Company is not a party to any material legal proceedings other than
routine litigation incidental to its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
8. TENANT LEASES
The following is a schedule by year of total rentals to be received for
tower space under noncancellable lease agreements as of December 31, 1997:
<TABLE>
<S> <C>
YEAR ENDING
DECEMBER 31,
1998........................................................... $ 6,333,611
1999........................................................... 5,813,840
2000........................................................... 5,204,757
2001........................................................... 3,858,188
2002........................................................... 3,046,291
2003 and thereafter............................................ 2,211,626
-----------
$26,468,313
===========
</TABLE>
Principally all of the leases provide for renewal at varying escalations.
These escalations have not been reflected above.
F-13
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9.STOCKHOLDERS' EQUITY
Capital Contribution Commitment
In 1995, the Company and its principal shareholder entered into a capital
contribution agreement whereby the principal shareholder committed to invest
up to $20,000,000 as equity in the Company (the "Capital Contribution
Agreement") and at that time, management contributed $1,200,000. In February
1996, the Capital Contribution Agreement was amended and the principal
shareholder's equity commitment to the Company was increased to $50,000,000.
Redeemable Stock
Class D common stock is convertible into shares of Class C common stock. The
number of shares of Class C common stock issuable upon conversion will be 25%
of the aggregate number of Class A and Class B common stock outstanding at the
close of business on the Conversion date, as defined in the agreement. Such
conversion will be effected by the surrender of the Class D common stock in
exchange for the Class C common stock on a date to be approved by the Board of
Directors, or upon consummation of an initial public offering. Any Class D
common stock converted into Class C common stock will maintain the vesting
characteristics such Class D common stock had prior to the time of conversion.
Shares of Class D Common Stock are held by various officers and employees of
the Company. Vesting of the ownership of these shares is subject to varying
schedules. Certain employees vest into the ownership of the shares at the rate
of 20% per year. Other employees vest according to the following schedule:
<TABLE>
<CAPTION>
VESTING FRACTION
OF SHARES
REMAINING UNVESTED
------------------
<S> <C>
ANNIVERSARY OF
THE CLOSING DATE
First................................................... 1/10
Second.................................................. 1/9
Third................................................... 1/8
Fourth.................................................. 2/7
Fifth................................................... 1/2
Sixth................................................... 1/1
</TABLE>
If certain employees cease to be employed prior to the third anniversary of
the date their respective shares were granted, any vested shares will become
unvested. In the event of an initial public offering or sale of the Company,
all unvested shares for any employee still employed will become vested shares.
In the event of termination of employment, all shares of Class D common stock
are subject to repurchase provisions, as defined below.
If any employee ceases to be employed, then such employee's Class B and
Class D common stock will be subject to repurchase by the Class A stockholders
and the Company. The employee will have the right to require the Company to
purchase any or all Class B and D common stock which are held, if such
employee's termination was with or without cause and any Class D stock if
termination is as a result of death or disability. If the employee is
terminated with or without cause, the repurchase price for Class B common
stock and vested Class D common stock will be fair market value, while the
repurchase price for unvested Class D common stock will be $.001 per share.
During 1997, the Company repurchased 500 shares of Class B common stock from a
former employee. The purchase price approximated $147 per share, resulting in
the determination of a new fair market value of the stock. Accordingly, the
Class B common stock and additional paid in capital accounts have been
adjusted to reflect this increase in fair market value.
F-14
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's obligation to repurchase the Class D stock in the event of
death or disability of an employee stockholder is limited to the amount of
shares the Company could purchase with the proceeds of the life insurance
policy covering the respective Class D employee stockholder. Additionally, all
repurchases of shares are subject to the applicable restrictions contained in
the Company's debt agreements.
Common Stock
The Company has six classes of authorized common stock: Class A, B, C, D, E
and F. Under the Company's Amended and Restated Certificate of Incorporation,
the relative rights and preferences of each class of common stock are as
follows:
Voting Rights
All classes of common stock will vote together as a single combined class on
all matters submitted to a vote of the shareholders, with each holder of Class
A, B, C, E or F common shares being entitled to one vote per share of such
stock held and each holder of Class D common shares being entitled to a number
of votes equal to the number of shares of Class C stock which would be issued
upon conversion of the Class D stock, as described below.
Distributions
The holders of the Class A and B common shares have an initial distribution
preference equal to 15% per annum (the "Yield") based on the initial purchase
price of $100 per share from the date of issuance through June 30, 1997. In
addition to the Yield, the holders of Class A, Class B and Class E common
stock are entitled to a distribution preference of $100 per share (the
"Preference Amount").
Holders of Class A common stock are entitled to receive their respective
Preference Amounts before any distributions are to be made to any other class
of stock. Similarly, holders of Class E Common stock are entitled to receive
their respective Preference Amount before any distributions are to be made to
the holders of Class B, C, D or F common stock. Once distributions have been
made to Class A and E, holders of Class B common stock will receive their
Preference Amounts. Remaining distributions will be made to all classes of
common stock on the basis of the number of Units (as defined by the Company's
Certificate of Incorporation) assigned to the respective shares.
F-15
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additional stock information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Preferred stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 100,000 100,000
Shares issued and outstanding................................ -- --
Class A common stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 202,500 202,500
Shares issued and outstanding................................ 202,500 202,500
Class B common stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 12,000 12,000
Shares issued and outstanding................................ 12,000 12,000
Class C common stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 200,000 200,000
Shares issued and outstanding................................ -- --
Class D common stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 100,000 100,000
Shares issued and outstanding................................ 38,000 39,000
Class E common stock:
Par value per share.......................................... $ 0.001 $ 0.001
Shares authorized............................................ 300,000 300,000
Shares issued and outstanding................................ 51,300 67,089
Class F common stock:
Par value per share.......................................... $ -- $ 0.001
Shares authorized............................................ -- 10,000
Shares issued and outstanding................................ -- --
</TABLE>
10. RELATED PARTY TRANSACTIONS
Certain board members and/or stockholders provide management services to the
Company. The Company pays up to $75,000 plus reimbursable expenses each year
for such management services. For the period from inception (May 3, 1995)
through December 31, 1995, the Company paid approximately $12,500 for such
services and related expenses. The Company paid approximately $55,162 and
$78,166 for such services and related reimbursable expenses for the years
ended December 31, 1996 and 1997, respectively. At December 31, 1996 and 1997,
$88,016 and $29,950, respectively, was due to these related parties for
management services and related reimbursable expenses. A balance due from
current or former officers of $200,000 is included in other assets at December
31, 1997.
During 1997, the majority stockholder of the Company guaranteed a note
payable to a tower seller of $3,904,600 associated with a tower acquisition
(see Note 6).
F-16
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11.EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company began participating in a 401(k) plan
of the majority stockholder. The plan covers substantially all employees.
Benefits vest based on number of years of service. To participate in the plan,
employees must be at least 21 years old and have completed six months of
service.
12.SUBSEQUENT EVENTS
Acquisitions
On March 4, 1998, the Company completed the acquisition of 201 towers from
Southern Communications Services, Inc. ("Southern Communications"), a
subsidiary of Southern Company. The Company paid $83,500,000 for these towers,
located in Georgia, Alabama, Mississippi, and Florida.
In connection with the acquisition of these towers, the Company and Southern
Communications or one of its affiliates have entered into leases whereby
Southern Communications or one of its affiliates is a customer on each of the
201 towers acquired. Under the lease agreement, Southern Communications and
its affiliates will pay initial annual aggregate rent of approximately
$5,500,000 in 1998. The leases have initial terms of ten years with five
optional renewal periods of five years exercisable at the customer's option.
On a pro forma basis as of December 31, 1997, Southern Communications would
have represented approximately 21.0% of the Company's total revenue. The
Company anticipates that Southern will continue to represent a significant,
but declining percentage of the Company's revenues as the Company grows. The
Company has also entered into an option agreement with Southern Communications
under which the Company may supply, acquire or develop an additional 80 sites.
Any of these additional sites would be rented under the same terms as the
original leases of the 201 towers described above.
Common Stock
In connection with the Subordinated Term Loan agreement (see Note 6), the
Company issued warrants to the lenders for 10,000 shares of the Company's
Class F Common Stock. The warrants are exercisable by the holders only in the
event the Company defaults (as defined in the agreement) under the terms of
its loans or does not repay the Subordinated Term Loan on or before
September 22, 2000.
Acquisitions Subsequent to the Date of Independent Auditors' Report
(Unaudited)
MOBILEMEDIA ACQUISITION
On July 7, 1998, the Company signed a definitive purchase and sale
agreement, subject to certain conditions, to acquire 163 communications towers
from MobileMedia Communications Inc. (MobileMedia) and several of its
affiliates for $170 million plus fees and expenses. In connection with the
acquisition, the company entered into a 15 year lease arrangement to provide
rental tower space to MobileMedia for 683 sites generating initial annual
aggregate rent of approximately $10,665,000 (excluding third party rent), the
lease provides for one five year renewal option exercisable at the customer's
option. Completion of the transaction is subject to, among other factors,
bankruptcy approval, as MobileMedia and its affiliates are debtors-in-
possession in proceedings for reorganization under Chapter 11 of the
Bankruptcy Court.
In addition to the Southern Communications transaction described above,
subsequent to December 31, 1997 the Company purchased a total of 115 towers
for an aggregate consideration of approximately $56,865,000. Also subsequent
to December 31, 1997 the Company entered into several letters of intent with
various third parties to purchase 33 towers, reflecting an aggregate
commitment to pay approximately $16,353,000.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MobileMedia Communications, Inc. and
Subsidiaries
We have audited the accompanying balance sheets of the tower operations (the
"Tower Operations") of MobileMedia Communications, Inc. and Subsidiaries (the
"Parent") as of December 31, 1997 and 1996 and the related statements of
income, changes in net tower operation assets, and cash flows for the years
then ended. These financial statements are the responsibility of the Parent's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Tower Operations of
MobileMedia Communications, Inc. and Subsidiaries as of December 31, 1997 and
1996 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 4, on July 7, 1998, MobileMedia Corporation and the
Parent entered into an agreement to sell certain assets of the Tower
Operations to Pinnacle Towers Inc. Tower Operations is not a separate legal
entity, subsidiary, division or segment of the Parent and, accordingly, it has
no independent financing sources. On January 30, 1997, MobileMedia, the Parent
and all seventeen of the Parent's subsidiaries (collectively with the Parent
and MobileMedia, the "Debtors"), filed for protection under Chapter 11 of
Title 11 of the United States Code. The Debtors are operating as debtors-in-
possession and are subject to the jurisdiction of the United State Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). Accordingly, the
aforementioned sale transaction is subject to Bankruptcy Court approval.
Management believes it will receive the consent of its debt holders and the
Bankruptcy Court for the sale of the Tower Operations free and clear of all
liens. As a result of the uncertainties of the Debtor's bankruptcy and the
collateralization of the Tower Operations' assets, and the potential effect on
the Tower Operations' assets, there is substantial doubt that the Tower
Operations would continue as a going concern if the necessary consents are not
received or if for some other reason the sale transaction is not consummated.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classifications
of assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 13, 1998
F-18
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable (net of allowance
for doubtful accounts of $80,000,
$57,000 and $18,000 at June 30, 1998,
December 31, 1997 and 1996, respective-
ly).................................... $ 283,294 $ 196,307 $ 179,960
Prepaid site lease rentals.............. 46,248 49,710 46,934
----------- ----------- ----------
Total current assets................. 329,542 246,017 226,894
Property and equipment:
Land.................................... 2,401,987 2,401,987 2,401,987
Tower assets and other equipment........ 4,910,330 4,891,859 4,670,431
Less accumulated depreciation........... (1,544,396) (1,279,937) (758,456)
----------- ----------- ----------
Net property and equipment............... 5,767,921 6,013,909 6,313,962
----------- ----------- ----------
Total assets......................... $ 6,097,463 $ 6,259,926 $6,540,856
=========== =========== ==========
LIABILITIES AND NET TOWER OPERATION
ASSETS
Liabilities:
Accounts payable........................ $ 214,316 $ 520,318 $ 282,045
Unearned revenue........................ 172,829 165,241 29,411
----------- ----------- ----------
387,145 685,559 311,456
Commitments and contingencies
Net tower operation assets............... 5,710,318 5,574,367 6,229,400
----------- ----------- ----------
Total liabilities and net tower oper-
ation assets........................ $ 6,097,463 $ 6,259,926 $6,540,856
=========== =========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, -----------------------
1998 1997 1997 1996
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................ $1,262,201 $1,246,855 $ 2,500,185 $ 2,608,321
Expenses:
Operations..................... 513,105 525,572 1,113,663 1,001,018
General and administrative..... 283,413 292,413 609,179 540,015
Depreciation................... 264,459 257,576 521,481 489,271
---------- ---------- ----------- -----------
Total expenses.............. 1,060,977 1,075,561 2,244,323 2,030,304
---------- ---------- ----------- -----------
Net income...................... $ 201,224 $ 171,294 $ 255,862 $ 578,017
========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
STATEMENTS OF CHANGES IN NET TOWER OPERATION ASSETS
<TABLE>
<S> <C>
Net tower operation assets as of December 31, 1995.................. $3,958,877
Net income......................................................... 578,017
Net activity with Parent........................................... 1,692,506
----------
Net tower operation assets as of December 31, 1996.................. 6,229,400
Net income......................................................... 255,862
Net activity with Parent........................................... (910,895)
----------
Net tower operation assets as of December 31, 1997.................. 5,574,367
Net income (unaudited)............................................. 201,224
Net activity with Parent (unaudited)............................... (65,273)
----------
Net tower operation assets as of June 30, 1998 (unaudited).......... $5,710,318
==========
</TABLE>
See accompanying notes.
F-21
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, -------------------------
1998 1997 1997 1996
----------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 201,224 $ 171,294 $ 255,862 $ 578,017
Adjustments to reconcile
net income to net cash
provided by operating ac-
tivities:
Depreciation............. 264,459 257,576 521,481 489,271
Change in operating as-
sets and liabilities:
Accounts receivable.... (86,987) (6,186) (16,347) (50,889)
Prepaid expenses....... 3,462 (2,777) (2,776) --
Accounts payable....... (306,002) 131,694 238,273 248,015
Unearned revenue....... 7,588 89,654 135,830 (27,082)
--------- --------- ----------- ------------
Net cash provided by oper-
ating activities.......... 83,744 641,255 1,132,323 1,237,332
INVESTING ACTIVITIES
Tower acquisitions and cap-
ital expenditures......... (18,471) (216,973) (221,428) (2,929,838)
--------- --------- ----------- ------------
Net cash used in investing
activities................ (18,471) (216,973) (221,428) (2,929,838)
FINANCING ACTIVITIES
Net activity with Parent... (65,273) (424,282) (910,895) 1,692,506
--------- --------- ----------- ------------
Net cash (used in) provided
by financing activities... (65,273) (424,282) (910,895) 1,692,506
--------- --------- ----------- ------------
Net increase in cash....... -- -- -- --
Cash at beginning of peri-
od........................ -- -- -- --
--------- --------- ----------- ------------
Cash at end of period...... $ -- $ -- $ -- $ --
========= ========= =========== ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the financial position and the
results of operations of the tower operations (the "Tower Operations") of
MobileMedia Communications, Inc. and Subsidiaries (the "Parent"), which
includes the Parent's business of leasing space on the 163 tower sites that
are being acquired by Pinnacle Towers Inc. ("Pinnacle") (see Note 4) to
customers in the broadcast and wireless communication industries. The Parent
also utilizes the tower sites for its own transmitter systems.
Tower Operations is not a separate legal entity, subsidiary, division or
segment of the Parent and, accordingly, it has no independent financing
sources. All funding has been summarized in the accompanying financial
statements as "Net activity with Parent".
The financial statements of the Tower Operations business have been derived
from the financial statements of the Parent and have been prepared to present
the financial position, results of operations, and cash flows on a stand-alone
basis. All revenues and expenses specifically identifiable to Tower ownership
are included. Additionally, the accompanying financial statements include
certain costs and expenses that have been allocated to the Tower business from
the Parent. These costs have been allocated on a pro rata basis primarily
based upon revenues or total costs of certain infrastructure operations,
depending upon the nature of the cost.
On January 30, 1997, MobileMedia Corporation ("MobileMedia"), the Parent and
all seventeen of the Parent's subsidiaries (collectively with the Parent and
MobileMedia, the "Debtors"), filed for protection under Chapter 11 of Title 11
of the United States Code. The Debtors are operating as debtors-in-possession
and are subject to the jurisdiction of the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court").
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
CONCENTRATIONS OF CREDIT RISK
The owned tower site lease receivables potentially subject the business to
credit risk, as the Tower Operations generally does not require collateral or
other security to support customer receivables. The carrying amount of the
Tower Operations receivables approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives, which vary from 5 to
29 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Management periodically reviews the values assigned to long-lived assets to
determine whether any impairments are other than temporary. Management
believes that no impairment exists with respect to the long-lived assets in
the accompanying balance sheets.
F-23
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Tower Operations earns revenues by leasing space on its towers to
customers in the broadcast and communication industries or to customers that
have internal communication systems. Lease revenues are recognized on a
periodic basis over the non-cancelable lease term. The effect of escalation
clauses within such leases is not material. No revenue is recognized in the
accompanying financial statements related to the Parent's usage of space on
the Tower Operations towers.
ALLOCATION OF EXPENSES
Certain administrative expenses were allocated from the Parent based on the
ratio of revenue generated from the Tower Operations to the Parent's revenues
from services, rents and maintenance. Additionally, certain operational
expenses were allocated from the Parent based on the estimated percentage of
such costs which are deemed to be applicable to the Tower Operations.
Management believes that these are the most appropriate methodologies for
allocating such expenses.
INCOME TAXES
The Tower Operations is not in itself a taxable entity and no provision or
benefit for United States federal or state income taxes has been recorded.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial information as of June 30, 1998 and the six months
ended June 30, 1998 and 1997 contained herein is unaudited but, in the opinion
of management, includes all adjustments of a normal recurring nature which are
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the periods presented. Results of operations
for the periods presented herein are not necessarily indicative of results of
operations for the entire year.
2. COMMITMENTS AND CONTINGENCIES
The Tower Operations' property and equipment are part of the collateral for
MobileMedia's secured debt. MobileMedia is seeking the consent of the secured
debt holders and the Bankruptcy Court for the sale of certain assets of the
Tower Operations to Pinnacle free and clear of the liens (see Note 4).
Management believes it will receive such consents from the secured debt
holders and the Bankruptcy Court.
The land on which certain towers are constructed is leased pursuant to
operating leases. Rental expenses under operating leases were approximately
$277,000, $298,000, $597,000 and $563,000 for the six months ended June 30,
1998 (unaudited) and 1997 (unaudited) and the years ended December 31, 1997
and 1996, respectively. The effect of escalation clauses within such leases is
not material. At December 31, 1997, the aggregate minimum rental commitments
under leases were as follows:
<TABLE>
<S> <C>
1998........................................................... $ 570,916
1999........................................................... 454,913
2000........................................................... 330,408
2001........................................................... 203,091
2002........................................................... 177,582
Thereafter..................................................... 639,760
----------
$2,376,670
==========
</TABLE>
F-24
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
One ground lease, which extends until October 2003, stipulates that the
tower on the land becomes the property of the city in which it is located upon
expiration of the lease.
One tower asset represents an exclusive lease agreement for use of the tower
by the Tower Operations. Additionally, the Company believes that it has title
to all Tower Operations land; however, for one such parcel, the Tower
Operations may only have an easement to use the property.
3. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Parent's
computer programs that have time-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
While the Parent is aware that certain of its software requires
modification, it is in the process of determining the full extent that it will
be required to modify or replace significant portions of its software so that
its computer systems function properly with respect to dates in the Year 2000
and thereafter. If such modifications and conversions are not made, or are not
completed timely, the Year 2000 issue could have a material impact on the
operations of the Parent and the Tower Operations.
4. SUBSEQUENT EVENT--SALE AND LEASEBACK OF TOWER ASSETS
On July 7, 1998, MobileMedia and the Parent entered into an agreement to
sell 163 towers and 49 parcels of land related to the Tower Operations to
Pinnacle Towers Inc. for $170,000,000. The transaction also includes the
assignment of leases and related lease payments for 89 land leases related to
towers included in the sale. It is anticipated that such transaction will
close on August 25, 1998, subject to the approval of the Bankruptcy Court.
In connection with the transaction, MobileMedia and the Parent will enter
into a lease agreement with Pinnacle in which the Parent will lease space on
towers for 683 transmitters for a period of fifteen years at a cost of $1,300
per month per transmitter.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Southern Communications Services, Inc.:
We have audited the accompanying balance sheets of the tower operations (the
"Tower Operations" or "Company") of SOUTHERN COMMUNICATIONS SERVICES, INC. (a
Delaware corporation) as of December 31, 1997 and 1996 and the related
statements of operations, changes in accumulated deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Tower Operations of
Southern Communications Services, Inc. as of December 31, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 20, 1998
F-26
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable................................. $ 39,459 $ 169,994
Prepaids and other.................................. 117,599 102,942
----------- -----------
Total current assets.............................. 157,058 272,936
----------- -----------
Property and Equipment, at cost:
Tower investment.................................... 40,191,788 38,139,393
Less accumulated depreciation....................... (3,875,184) (1,928,510)
----------- -----------
Net property and equipment........................ 36,316,604 36,210,883
----------- -----------
Total assets...................................... $36,473,662 $36,483,819
=========== ===========
LIABILITIES AND ACCUMULATED DEFICIT
Current Liabilities:
Accounts Payable.................................... $ 78,342 $ 115,865
Due to Parent......................................... 40,930,277 39,007,286
Commitments and Contingencies
Accumulated Deficit................................... (4,534,957) (2,639,332)
----------- -----------
Total liabilities and accumulated deficit......... $36,473,662 $36,483,819
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................. $ 1,017,305 $ 349,428
Expenses:
Operations......................................... 876,614 748,001
Administrative and General......................... 89,642 54,072
Depreciation....................................... 1,946,674 1,810,282
----------- -----------
Total expenses..................................... 2,912,930 2,612,355
----------- -----------
Net Loss............................................. $(1,895,625) $(2,262,927)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
STATEMENTS OF CHANGES IN ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Accumulated Deficit as of December 31, 1995....................... $ (376,405)
Net Loss.......................................................... (2,262,927)
-----------
Accumulated Deficit as of December 31, 1996....................... (2,639,332)
Net Loss.......................................................... (1,895,625)
-----------
Accumulated Deficit as of December 31, 1997....................... $(4,534,957)
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss........................................... $(1,895,625) $(2,262,927)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation...................................... 1,946,674 1,810,282
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable....... 130,535 (169,994)
Decrease (increase) in prepaids and other........ (14,657) (102,942)
(Decrease) increase in accounts payable.......... (37,523) 115,865
----------- -----------
Total adjustments.............................. 2,025,029 1,653,211
----------- -----------
Net cash provided by (used in) operating activities.. 129,404 (609,716)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures............................... (2,052,395) (8,657,518)
----------- -----------
Net cash used by investing activities................ (2,052,395) (8,657,518)
CASH FLOW FROM FINANCING ACTIVITIES:
Change in Due to Parent............................ 1,922,991 9,267,234
----------- -----------
Net cash provided from financing activities.......... 1,922,991 9,267,234
Increase In Cash..................................... $ 0 $ 0
----------- -----------
Cash at Beginning of Year............................ $ 0 $ 0
=========== ===========
Cash at End of Year.................................. $ 0 $ 0
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the financial position and the
results of operations of the Tower Operations (the "Company") of Southern
Communications Services, Inc. (the "Parent"), which include the Parent's
business of leasing space on the 201 tower sites that are being acquired by
Pinnacle Towers Inc. ("Pinnacle") (See Note 4) to customers in the broadcast
and wireless communication industries. Tower leasing has been incidental to
the Parent's communications services business, and it has had no concentrated
marketing and sales effort to generate revenues from tower leases.
Tower Operations is not a separate subsidiary, division or segment of the
Parent. The financial statements of the Tower Operations business have been
derived from the financial statements of the Parent and have been prepared to
present the financial position, results of operations, and cash flows on a
stand-alone basis. All revenues and expenses specifically identifiable to
tower ownership are included. Additionally, the accompanying financial
statements include certain costs and expenses that have been allocated to the
tower business from the Parent. These costs have been allocated on a pro rata
basis primarily on either revenues or total costs of infrastructure
operations, depending upon the nature of the cost. Management believes this
allocation methodology is reasonable.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Credit Risk
The owned tower site lease receivables potentially subject the business to
credit risk, as collateral is generally not required. The business risk of
loss is limited due to the significant number of leases with affiliated
companies and the superior credit ratings of non-affiliated lessees. The
carrying amount of the Company's receivables approximates fair value.
Property and Equipment
Towers are recorded at cost and include certain capitalized overhead costs
(primarily engineering). Depreciation is computed using the straight-line
method over the estimated useful lives of its towers, which are 20 years.
Long-Lived Assets
The business periodically reviews the values assigned to long-lived assets
to determine whether any impairments are other than temporary. Management
believes that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Income Taxes
The Company is not in itself a taxable entity, and no provision or benefit
for United States federal or state income taxes has been recorded.
F-31
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company earns revenues by leasing space on its towers to customers in
the broadcast and communication industries or to customers that have internal
communication systems. Lease revenues are recognized on a straight-line basis
over the noncancelable lease term.
2. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases land for certain tower sites under long-term operating
leases. The majority of these leases contain renewal provisions which
generally require renewals to be exercised at market rates. Rental expense for
the years ended December 31, 1997 and 1996 totaled $228,688 and $195,075,
respectively, and are included in Operations Expense in the accompanying
statements of operations.
Future minimum rental payments required under the operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 240,320
1999.............................................................. 240,320
2000.............................................................. 218,840
2001.............................................................. 203,544
2002 and thereafter............................................... 854,096
----------
Total............................................................. $1,757,120
==========
</TABLE>
3. RELATED-PARTY TRANSACTIONS
Certain specialized services are performed for the Company by Southern
Company Services, Inc., an affiliate. Services provided include support in
major functional areas, such as engineering, site acquisition, site leasing,
benefits, cash management, legal, risk management, accounting, payroll, and
taxes. These services are provided at cost and totaled $38,994 and $37,054 in
1997 and 1996, respectively.
The Company purchases electrical power and leases land for towers from
affiliated companies. The costs of these services were $117,061 and $112,623
in 1997 and 1996, respectively.
The Company leases space on towers to certain of its affiliates. Revenues
for these sales and services were $371,936 and $169,995 in 1997 and 1996,
respectively.
At December 31, 1997 and December 31, 1996, the Company owed approximately
$26,574 and $71,267, respectively, to its affiliates for amounts due under the
agreements discussed above.
4. SALE AND LEASEBACK OF TOWER ASSETS
On January 9, 1998, the Parent entered into a definitive agreement to sell
201 towers and 90 parcels of land to Pinnacle for a purchase price of
$83,500,000 and received $6,000,000 from Pinnacle as a nonrefundable deposit
for the transaction. The transaction also includes the assignment of leases
and related lease payments for
F-32
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A CARVE-OUT ENTITY OF SOUTHERN COMMUNICATIONS SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
111 land leases related to towers included in the sale. The transaction is
expected to close on March 4, 1998. The sale price will be adjusted
proportionately to the average price per tower site if the Parent or Pinnacle
elect not to include certain sites in the transaction for certain casualty,
title, or lease defects.
In connection with the transaction, the Parent and Pinnacle have entered
into a lease agreement in which the Parent will lease space on each tower
included in the transaction for a period of 10 years at a cost of $1,500 per
month per site. Five five-year option periods are included in the lease
agreement.
The Parent and Pinnacle have also entered into an option agreement, in which
at the sole option of the Parent, Pinnacle may be used to construct up to 80
additional towers for the purpose of permitting the Parent to place thereon
communications antennae and related equipment.
F-33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pinnacle Holdings Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Shore
Communications ("Shore") at December 3, 1997, and the results of its
operations and their cash flows for the eleven month period from January 1,
1997 through December 3, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Shore's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Price Waterhouse LLP
Tampa, Florida
February 9, 1998
F-34
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 3, 1997
----------------
<S> <C>
ASSETS
Current assets:
Accounts receivable......................................... $ 3,548
Due from affiliate.......................................... 58,107
Prepaid expenses............................................ 16,447
Stockholder receivable...................................... 91,745
Deferred tax asset.......................................... 22,007
Other current assets........................................ 6,948
----------
Total current assets...................................... 198,802
Fixed assets, net............................................. 9,638
Tower assets, net of accumulated depreciation of $229,580..... 2,254,591
Deferred loan costs, net of accumulated amortization of
$26,777...................................................... 48,599
----------
$2,511,630
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and other current liabilities.............. $ 62,251
Deferred revenue............................................ 60,391
Stockholder payable......................................... 328,494
Short-term debt............................................. 2,000,084
----------
Total current liabilities................................. 2,451,220
Customer deposits............................................. 2,600
----------
2,453,820
----------
Commitments and Contingencies (Note 6)
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized; 100
shares issued and outstanding.............................. 100
Common stock, no par value; 5,000 shares authorized; 100
shares issued and outstanding.............................. --
Additional paid in capital.................................. 66,900
Retained earnings........................................... (9,190)
----------
57,810
----------
$2,511,630
==========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these combined financial statements.
F-35
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH DECEMBER 3, 1997
------------------------
<S> <C>
Revenue.............................................. $667,263
Tower operating expenses, excluding depreciation and
amortization........................................ 145,938
--------
Gross margin..................................... 521,325
--------
Expenses:
General and administrative expenses................ 235,108
Depreciation and amortization...................... 96,554
--------
331,662
--------
Income from operations............................... 189,663
Interest expense..................................... 197,909
--------
Loss from operations................................. (8,246)
Income tax benefit................................... 22,007
--------
Net income........................................... $ 13,761
========
Pro-forma income tax benefit......................... $ 2,849
--------
Pro-forma net loss................................... $ (5,397)
========
Retained earnings at December 31, 1996............... $(22,951)
Net income........................................... 13,761
--------
Retained earnings at December 3, 1997................ $ (9,190)
========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these combined financial statements.
F-36
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC., WEST SHORE COMMUNICATIONS,
INC., AND 28 WALKER ASSOCIATES, LLC)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH DECEMBER 3, 1997
------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 13,761
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization...................... 96,554
Deferred tax asset................................. (22,007)
(Increase) decrease in:
Accounts receivable............................... (3,548)
Due from affiliate................................ (58,107)
Prepaid expenses.................................. (11,261)
Stockholder receivable............................ 146,567
Other current assets.............................. 40,722
Increase (decrease) in:
Accounts payable and other current liabilities.... 52,011
Deferred revenue.................................. 42,874
Stockholder payable............................... 181,800
---------
Total adjustments............................... 465,605
---------
Net cash provided by operating activities............. 479,366
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures:
Tower assets...................................... (571,259)
Fixed assets...................................... (3,023)
---------
Net cash used in investing activities................. (574,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term note.......................... 339,379
Repayment of short-term debt........................ (403,662)
---------
Net cash used in financing activities................. (64,283)
Net decrease in cash.................................. (159,199)
---------
Cash at December 31, 1996............................. 159,199
---------
Cash at December 3, 1997.............................. $ --
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Cash paid for interest................................ $ 199,547
=========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these combined financial statements.
F-37
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
On December 3, 1997, Pinnacle Towers Inc. acquired all of the outstanding
stock of Shore Communications, Inc. ("Shore Communications", a C Corporation)
and West Shore Communications, Inc. ("West Shore", a C Corporation) and
certain of the assets and business operations of 28 Walker Associates, LLC (
"Walker", a limited liability company). Shore Communications and West Shore
were wholly-owned by an individual. Walker is owned by two individuals.
Collectively, the acquired corporations, assets and related operations are
referred to hereafter as Shore Communications ("Shore"). Shore owns
telecommunication towers and leases space on these towers to customers in the
wireless communications industries in Maryland and Virginia.
Basis of Presentation
The combined financial statements of Shore have been derived from the
accounting records of Shore Communications, West Shore and Walker. Additional
allocations were made to reflect Shore's share of general and administrative
expenses on a carve-out basis as described in Note 2.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results may vary from those estimates.
Due from Affiliate
Tower revenues related to Walker are collected by an affiliate on behalf of
Walker. Similarly, all direct tower operating expenses and general and
administrative expenses are paid by an affiliate on behalf of Walker.
Accordingly, a receivable from and payable to affiliates are recorded (see
Note 8).
Tower Assets
Tower assets consist of towers, buildings, and related attachments which are
recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, which range from 6 to 31.5 years.
Improvements, renewals and extraordinary repairs which increase the value or
extend the life of the asset are capitalized. Repairs and maintenance costs
are expensed as incurred.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful life of the assets, which range from 5 to 7
years. Improvements, renewals and extraordinary repairs which increase the
value or extend the life of the assets are capitalized. Repairs and
maintenance costs are expensed as incurred.
F-38
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-lived Assets
Shore evaluates the recoverability of its long-lived assets whenever adverse
events or changes in business climate indicate that the expected undiscounted
future cash flows from the related asset may be less than previously
anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. As of December 3, 1997, management does
not believe that an impairment reserve is required.
Fair Value of Financial Instruments
The carrying amount of Shore's financial instruments at December 3, 1997,
which consists of accounts receivable, due from affilliate and short-term
debt, approximates fair value due to the short maturity of those instruments.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the life of the
related lease agreements. Revenue is recorded in the month in which it is due.
Allocation of Expenses
The accompanying financial statements include certain costs and expenses
that have been allocated to the tower business from the Parent. These costs
have been allocated on a pro rata basis primarily on either revenues or total
costs of infrastructure operations, depending upon the nature of the cost.
Management believes this allocation is reasonable.
Income Taxes
Shore accounts for income taxes using the liability method as required by
Statement No. 109, Accounting for Income Taxes, issued by the Financial
Accounting Standards Board.
Deferred income taxes are provided for temporary differences between the
basis of assets and liabilities for financial reporting and income tax
reporting.
As described in Note 1, Shore consisted of two C Corporations and a portion
of a limited liability company. As such, the combined accounts reflect an
income tax benefit for only the operations of the C Corporations at December
3, 1997. The Combined Statement of Operations and Retained Earnings also
reflects an income tax benefit for the operations of Shore at December 3, 1997
on a pro-forma basis as if Shore were treated as a C Corporation.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 3,
IN YEARS 1997
------------ -----------
<S> <C> <C>
Furniture, fixtures................................. 5, 7 $ 11,691
Automobile.......................................... 5 13,784
--------
25,475
Accumulated depreciation............................ (15,837)
--------
Fixed assets, net................................... $ 9,638
========
</TABLE>
F-39
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. SHORT-TERM DEBT
Shore maintained line of credit facilities with a bank under guidance line
notes which provided for secured borrowings up to $1,900,000. Amounts borrowed
under these lines of credit have been converted to term notes which bore
interest from 9.75% to 10.5% through December 3, 1997. At December 3, 1997,
$400,223 was available under the line of credit facilities. Shore paid $2,637
in unused commitment fees as of December 3, 1997. Shore also had a term note
which bore a variable interest rate (10.25% at December 3, 1997) which
$500,277 was outstanding at December 3, 1997. The term notes provided
borrowings for construction of tower sites and were secured by all of the
business assets of Shore Communications and the towers owned by Shore
Communications and West Shore. The term notes originally matured through
December 10, 2002. However, the outstanding balance was repaid subsequent to
December 3, 1997 as part of the purchase agreement with Pinnacle Towers, Inc.
(Note 10).
5. INCOME TAXES
As described in Note 1, Shore consisted of two C Corporations and a portion
of a limited liability company. As such, the combined accounts reflect an
income tax benefit for only the operations of the C Corporations at December
3, 1997. The Combined Statement of Operations and Retained Earnings also
reflects an income tax benefit for the operations of Shore at December 3, 1997
on a pro-forma basis as if Shore were treated as a C Corporation.
Significant components of the income tax benefit on a historical and pro-
forma basis were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
DECEMBER 3, 1997 DECEMBER 3, 1997
---------------- ----------------
<S> <C> <C>
Current:
Federal.................................. $17,867 $2,313
State.................................... 4,140 536
------- ------
Income tax benefits........................ $22,007 $2,849
======= ======
</TABLE>
Significant components of the deferred tax asset on a historical and pro-
forma basis were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
DECEMBER 3, 1997 DECEMBER 3, 1997
---------------- ----------------
<S> <C> <C>
Deferred tax asset:
Net operating loss....................... $22,007 $2,849
------- ------
$22,007 $2,849
======= ======
</TABLE>
The effective tax rate approximates the statutory federal and state rates on
a historical and pro-forma basis as no permanent differences exist for either
the C Corporations or Shore.
At December 3, 1997, Shore had cummulative federal tax net operating loss
("NOL") carryforward of approximately $8,246 which the Company was unable to
use due to its operating loss. This NOL carryforward expires in the year
ending December 3, 2013. Shore believes that it is more likely than not that
the NOL
F-40
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
carryforward will be utilized prior to its expiration by continuing to achieve
future profitable operations. Shore does not believe that the change in
ownership (Note 10) will impact such operations. Because of the extremely long
period that is available to realize these future tax benefits, a valuation
allowance for the deferred tax asset is not necessary.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Shore is obligated under noncancelable leases for ground leases which expire
at various times through 2009. The majority of these leases have renewal
options which range up to 15 years. The future minimum lease commitments under
these leases are as follows:
<TABLE>
<S> <C>
PERIOD FROM DECEMBER 4, 1997 THROUGH DECEMBER 31, 1997........... $ 4,583
YEAR ENDED DECEMBER 31,
1998........................................................... 55,554
1999........................................................... 47,864
2000........................................................... 34,521
2001........................................................... 22,806
2002........................................................... 14,419
2003 and thereafter............................................ 131,531
----------
$ 311,278
==========
</TABLE>
Rental expense under noncancelable ground leases for the period ended
December 3, 1997 was $52,299.
7. TENANT LEASES
The following is a schedule by year of total future rentals to be received
for tower space under noncancelable lease agreements as of December 3, 1997:
<TABLE>
<S> <C>
PERIOD DECEMBER 4, 1997 THROUGH DECEMBER 31, 1997................ $ 87,124
YEAR ENDED DECEMBER 31,
1998........................................................... 732,032
1999........................................................... 685,567
2000........................................................... 594,445
2001........................................................... 419,552
2002........................................................... 139,683
2003 and thereafter............................................ 13,200
----------
$2,671,603
==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
Shore paid certain expenses related to development of a microwave
communications system on behalf of a company wholly owned by the sole
stockholder of Shore Communications and West Shore. Expenditures related to
the development of the microwave communications system were to be reimbursed
to Shore upon completion
F-41
<PAGE>
SHORE COMMUNICATIONS
(A CARVE-OUT ENTITY OF SHORE COMMUNICATIONS, INC.,
WEST SHORE COMMUNICATIONS, INC., AND 28 WALKER ASSOCIATES, LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of the project. However, as Shore entered into a purchase agreement with
Pinnacle Towers Inc. (Note 10), the project was terminated and the entire
receivable from the related party of $91,461 was expensed as of December 3,
1997 and is included in general and administrative expenses.
Prior to the acquisition by Pinnacle Towers Inc., the carve-out entity of
Walker included transactions with the surviving Walker ("affiliate"). These
transactions are disclosed as related party transactions in these financial
statements.
The affiliate received rent payments related to Walker's lease agreements.
At December 3, 1997, due from affiliate of $72,818 reflected these receipts.
The affiliate paid tower operating expense related to Walker. For the period
January 1, 1997 through December 3, 1997, Walker incurred tower operating
expense of $6,701.
For the period January 1, 1997 through December 3, 1997, general and
administrative expenses of $8,010 were allocated to Walker from the affiliate.
9. EMPLOYEE BENEFIT PLANS
Shore Communications has defined contribution plans covering employees with
two years of service and are of the age of 21. Contributions under these plans
are based primarily on the performance of Shore Communications and employee
compensation. Total expense amounted to $7,130 for the period from January 1,
1997 through December 3, 1997.
10. SUBSEQUENT EVENTS
On December 3, 1997, Shore sold all of the outstanding stock of Shore
Communications and West Shore and certain of the assets of Walker to Pinnacle
Towers Inc. In accordance with the purchase agreement, Shore received
approximately $8,973,300 for the outstanding stock, a tower and related
assets. Also under the agreement, rent revenue reverted to Pinnacle Towers
Inc. as of December 4, 1997. Deferred revenue as of December 3, 1997 reflects
rent received by Shore to be remitted to Pinnacle Towers Inc. Of the total
purchase price, $2,000,084 was used by Pinnacle Towers Inc. to repay the
outstanding bank notes subsequent to December 3, 1997 in accordance with the
purchase agreement.
F-42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pinnacle Holdings Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Tidewater
Communications ("Tidewater") at July 31, 1997, and the results of their
operations and their cash flows for the seven month period January 1, 1997
through July 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Tidewater's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Tidewater is a member of a group of affiliated companies and, as disclosed
in the financial statements, has extensive transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of these transactions are not the same as those that would result from
transactions among wholly unrelated parties.
/s/PricewaterhouseCoopers LLP
Price Waterhouse LLP
Tampa, Florida
February 9, 1998
F-43
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC., AND DARE COUNTY PROPERTIES)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31, 1997
-------------
<S> <C>
ASSETS
Current assets:
Due from affiliate.............................................. $ 249,796
Accounts receivable............................................. 33,843
Prepaid expenses................................................ 1,043
----------
Total current assets.......................................... 284,682
Tower assets, net of accumulated depreciation of $326,373......... 553,450
Land.............................................................. 380,009
----------
$1,218,141
==========
LIABILITIES AND RETAINED EARNINGS
Current liabilities:
Accounts payable and other current liabilities.................. $ 10,596
Deferred revenue................................................ 10,505
Short-term debt................................................. 264,982
----------
Total current liabilities..................................... 286,083
Commitments and Contingencies (Note 5)
Retained earnings................................................. 932,058
----------
$1,218,141
==========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these combined financial statements.
F-44
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC.,
AND DARE COUNTY PROPERTIES)
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH JULY 31, 1997
----------------------
<S> <C>
Revenue.................................................. $368,011
Tower operating expenses, excluding depreciation....... 56,961
--------
Gross margin......................................... 311,050
--------
Other expenses:
General and administrative expenses.................... 29,609
Depreciation........................................... 26,009
--------
55,618
--------
Income from operations................................... 255,432
Interest expense......................................... 14,055
--------
Net income............................................... $241,377
========
Pro-forma income tax expense............................. $ 91,785
--------
Pro-forma net income..................................... $149,592
========
Retained earnings at December 31, 1996................... $690,681
Net income............................................... 241,377
--------
Retained earnings at July 31, 1997....................... $932,058
========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these combined financial statements.
F-45
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC., AND DARE COUNTY PROPERTIES)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH JULY 31, 1997
----------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 241,377
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation......................................... 26,009
(Increase) decrease in:
Due from affiliates................................. (249,796)
Accounts receivable................................. (11,529)
Prepaid expenses.................................... 2,353
Increase (decrease) in:
Accounts payable and other current liabilities...... 661
Deferred revenue.................................... (9,075)
---------
Total adjustments................................. (241,377)
---------
Net cash provided by operating activities............... --
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (46,189)
---------
Net cash used in investing activities................... (46,189)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt.......................... (28,811)
Borrowing under promissory notes...................... 75,000
---------
Net cash provided by financing activities............... 46,189
---------
Net increase in cash.................................... --
---------
Cash at December 31, 1996............................... --
---------
Cash at July 31, 1997................................... $ --
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Cash paid for interest.................................. $ 12,863
=========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these combined financial statements.
F-46
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC., AND DARE COUNTY PROPERTIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
On July 31, 1997, Pinnacle Towers Inc. acquired certain of the assets and
business operations of Antenna Rentals Corporation, Inc. (an S Corporation),
John Harris & Associates, Inc. (a partnership), and Dare County Properties (a
partnership). John W. Harris is the majority shareholder of Antenna Rentals
Corporation, Inc. and the general partner of John Harris & Associates, Inc.
and Dare County Properties. Collectively, the acquired assets and related
operations are referred to hereafter as Tidewater Communications
("Tidewater"). Tidewater owns telecommunication towers and leases space on
these towers to customers in the wireless communications industries in
Virginia and North Carolina.
Basis of Presentation
The combined financial statements of Tidewater have been derived from the
accounting records of Antenna Rentals Corporation, Inc., John Harris &
Associates, Inc., and Dare County Properties. Additional allocations were made
to reflect Tidewater's share of general and administrative expenses on a
carve-out basis as described in Note 2.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results may vary from estimates used.
Due from Affiliate
All tower rent revenues are collected by affiliates on behalf of Tidewater.
Similarly, all direct tower operating expenses, general and administrative
expenses, and interest are paid by affiliates on behalf of Tidewater.
Accordingly, a receivable from and payable to affiliates are recorded (see
Note 7).
Tower Assets
Tower assets consist of towers, buildings, and related attachments which are
recorded at cost and depreciated using the straight-line method over the
estimated useful life of the assets, which range from 15 to 30 years.
Improvements, renewals and extraordinary repairs which increase the value or
extend the life of the asset are capitalized. Repairs and maintenance costs
are expensed as incurred.
Impairment of Long-lived Assets
Tidewater evaluates the recoverability of its long-lived assets whenever
adverse events or changes in business climate indicate that the expected
undiscounted future cash flows from the related asset may be less than
previously anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. As of July 31, 1997, management does not
believe that an impairment reserve is required.
F-47
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC.,
AND DARE COUNTY PROPERTIES)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying amount of Tidewater's financial instruments at July 31, 1997,
which includes due from affiliate, accounts receivable and short-term debt,
approximates fair value due to the short maturity of those instruments.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the life of the
related lease agreements. Revenue is recorded in the month in which it is due.
Allocation of Expenses
The accompanying financial statements include certain costs and expenses
that have been allocated to the tower business from the Parent. These costs
have been allocated on a pro rata basis primarily on either revenues or total
costs of infrastructure operations, depending upon the nature of the cost.
Management believes this allocation is reasonable.
Income Taxes
Tidewater consisted of certain assets of an S Corporation and two
partnerships. As such, net income was not subject to income taxes as the
income is taxed directly to their owners. Pro forma income taxes are presented
using the liability method as required by Statement No. 109, Accounting for
Income Taxes, issued by the Financial Accounting Standards Board. Deferred
income taxes are provided for temporary differences between the basis of
assets and liabilities for financial reporting and income tax reporting.
3. SHORT-TERM DEBT
At July 31, 1997, $264,982 was outstanding under three bank loans, which
provided secured borrowings for the purchases of land and towers in North
Carolina. The loans were secured by mortgage deeds of trust on the land, the
tower assets and an assignment of rents and leases. The interest rates on all
the notes were prime plus 0.5%. The original maturity dates were July 30,
2001, October 9, 2001, and February 12, 2002. However, the outstanding balance
was repaid subsequent to July 31, 1997 as part of the purchase agreement with
Pinnacle Towers, Inc. (see Note 8).
4. INCOME TAXES
As described in Note 1, Tidewater consisted of certain assets of an S
Corporation and of two partnerships. As such, net income related to the S
Corporation and partnerships was not subject to income taxes as the income is
taxed directly to their owners. The Combined Statement of Operations and
Retained Earnings reflects a tax provision for the operations of Tidewater at
July 31, 1997 on a pro-forma basis as if Tidewater were treated as a C
Corporation.
F-48
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC.,
AND DARE COUNTY PROPERTIES)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the provision for income taxes on a pro-forma basis
were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
JULY 31, 1997
-------------
<S> <C>
Current:
Federal..................................................... $ 85,918
State....................................................... 17,567
--------
Total current............................................. 103,485
Deferred:
Federal..................................................... (9,822)
State....................................................... (1,878)
--------
Total deferred............................................ (11,700)
--------
Provision for income taxes.................................... $ 91,785
========
</TABLE>
Significant components of the deferred tax liability on a pro-forma basis
were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
JULY 31, 1997
-------------
<S> <C>
Deferred tax liability:
Tax over book depreciation................................... $68,607
=======
The effective tax rate approximates the statutory federal and state rates on
a pro-forma basis as no permanent differences exist for Tidewater.
5. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a noncancelable lease for land which expires
February 20, 2005. The lease has two five-year renewal options. The future
minimum lease commitments under these leases are as follows:
PERIOD AUGUST 1, 1997 THROUGH DECEMBER 31, 1997................ $ 2,750
YEAR ENDED DECEMBER 31,
1998......................................................... 6,500
1999......................................................... 6,500
2000......................................................... 6,500
2001......................................................... 6,500
2002......................................................... 6,500
2003 and thereafter.......................................... 14,300
-------
$49,550
=======
</TABLE>
Rental expense for the seven month period ended July 31, 1997 was $3,792.
F-49
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC.,
AND DARE COUNTY PROPERTIES)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. TENANT LEASES
The following is a schedule by year of total future rentals to be received
for tower space under noncancelable lease agreements as of July 31, 1997.
<TABLE>
<S> <C>
PERIOD AUGUST 1, 1997 THROUGH DECEMBER 31, 1997.................. $ 202,501
YEAR ENDED DECEMBER 31,
1998........................................................... 431,775
1999........................................................... 388,806
2000........................................................... 335,024
2001........................................................... 139,554
2002........................................................... 82,200
2003 and thereafter............................................ 151,550
----------
$1,731,410
==========
</TABLE>
7. RELATED PARTY TRANSACTIONS
Prior to the acquisition by Pinnacle Towers Inc. as described in Note 1, the
carve out entity of Tidewater included transactions with the surviving Antenna
Rentals Corporation, Inc., John Harris and Associates, Inc. and Dare County
Properties ("affiliates"). These transactions are disclosed as related party
transactions in these financial statements.
Affiliates received rent payments related to Tidewater's lease agreements.
At July 31, 1997, due from affiliates of $347,407 reflected these receipts.
Affiliates paid tower operating and interest expense as well as short-term
debt related to Tidewater. For the period January 1, 1997 through July 31,
1997, Tidewater incurred tower operating and interest expense of $56,961 and
$14,055, respectively. Short-term debt of $28,811 was paid by affiliates for
this period.
For the period January 1, 1997 through July 31, 1997, general and
administrative expenses of $29,609 were allocated to Tidewater from
affiliates.
Bay Tower Corporation, a minority shareholder in one of the entities which
owned Tidewater, is a customer on one tower. Bay Tower performs monthly
routine maintenance on all of Tidewater's towers at a reduced price, in
exchange for free rent on the tower. Tidewater has recorded both revenue and
maintenance expense related to Bay Tower Corporation at their fair market
value. Tower revenue and maintenance expense amounted to $2,100 and $5,600,
respectively, for the period January 1, 1997 through July 31, 1997.
Additionally, Bay Tower has built all of Tidewater's towers. Other related
parties are customers on two towers. Accounts receivable of $2,120 is due from
these related parties at July 31, 1997 and $6,920 of rent revenue was earned
for the period January 1, 1997 through July 31, 1997. Management believes that
these transactions were under terms no different than those arranged with
other parties.
F-50
<PAGE>
TIDEWATER COMMUNICATIONS
(A CARVE-OUT ENTITY OF ANTENNA RENTALS CORPORATION, JOHN HARRIS & ASSOCIATES,
INC.,
AND DARE COUNTY PROPERTIES)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENTS
On July 31, 1997, Tidewater was sold to Pinnacle Towers Inc. In accordance
with the purchase agreement, the owners of Tidewater received approximately
$8,400,000 for thirteen towers, related assets and management contracts on two
additional towers. Deferred revenue as of July 31, 1997 reflects rent received
by Tidewater to be remitted to Pinnacle Towers Inc. Of the total purchase
price, $264,982 was used by Pinnacle Towers Inc. to repay outstanding bank
loans (see Note 3) subsequent to July 31, 1997 in accordance with the purchase
agreement.
Prior to the closing, Pinnacle Towers Inc. placed approximately $650,000 in
escrow due to conflicts with the terms under a land lease agreement related to
one of the management contracts. However, as the lease between Tidewater and
the lessor was amended to increase the initial lease period from 15 to 20
years, the consideration in escrow will be released in fulfillment of the
purchase agreement.
F-51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pinnacle Holdings Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Majestic
Communications ("Majestic") at June 27, 1997, and the results of their
operations and their cash flows for the six month period January 1, 1997
through June 27, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Majestic's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Price Waterhouse LLP
Tampa, Florida
February 9, 1998
F-52
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 27, 1997
-------------
<S> <C>
ASSETS
Current assets:
Due from affiliate.............................................. $133,348
Accounts receivable............................................. 5,290
Prepaid expenses................................................ 4,014
--------
Total current assets.......................................... 142,652
Tower assets, net of accumulated depreciation of $227,974......... 511,571
Land.............................................................. 277,562
--------
$931,785
========
LIABILITIES AND RETAINED EARNINGS
Current liabilities:
Accounts payable and other current liabilities.................. $ 5,801
Taxes payable................................................... 10,339
Deferred revenue................................................ 18,831
Short-term debt................................................. 161,712
--------
Total current liabilities..................................... 196,683
Deferred tax liability............................................ 48,257
--------
244,940
Retained earnings................................................. 686,845
--------
$931,785
========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these combined financial statements.
F-53
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH JUNE 27, 1997
----------------------
<S> <C>
Revenue.................................................. $192,123
Tower operating expenses, excluding depreciation....... 19,425
--------
Gross margin......................................... 172,698
--------
Other expenses:
General and administrative expenses.................... 27,739
Depreciation........................................... 24,033
--------
51,772
--------
Income from operations................................... 120,926
Interest expense......................................... 6,036
--------
Income before taxes...................................... 114,890
Income tax expense....................................... 9,838
--------
Net income............................................... $105,052
========
Pro-forma income tax expense............................. $ 40,895
--------
Pro-forma net income..................................... $ 73,995
========
Retained earnings at December 31, 1996................... $581,793
Net income............................................... 105,052
--------
Retained earnings at June 27, 1997....................... $686,845
========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these combined financial statements.
F-54
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1,
THROUGH JUNE 27, 1997
----------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $105,052
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation......................................... 24,033
(Increase) decrease in:
Due from affiliates................................. (133,348)
Accounts receivable................................. (1,530)
Prepaid expenses.................................... (4,014)
Increase (decrease) in:
Accounts payable and other current liabilities...... 3,444
Taxes payable....................................... 10,339
Deferred revenue.................................... 9,351
Deferred tax liability.............................. (501)
--------
Total adjustments................................. (92,226)
--------
Net cash provided by operating activities............... 12,826
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt.......................... (12,826)
--------
Net increase in cash.................................... --
--------
Cash at December 31, 1996............................... --
--------
Cash at June 27, 1997................................... $ --
--------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Cash paid for interest.................................. $ 6,036
========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these combined financial statements.
F-55
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
On June 27, 1997, Pinnacle Towers Inc. acquired certain of the assets and
business operations of Majestic Communications, Inc. (a C Corporation) and two
sole proprietors. Majestic Communications, Inc. is owned 75%/25% by these two
sole proprietors. Collectively, the acquired assets and related operations are
referred to hereafter as Majestic Communications ("Majestic"). Majestic owns
telecommunication towers and leases space on these towers to customers in
wireless communications industries in Tennessee and Mississippi.
Basis of Presentation
The combined financial statements of Majestic have been derived from the
accounting records of Majestic Communications, Inc. and the two sole
proprietors. Additional allocations were made to reflect Majestic's share of
general and administrative expenses on a carve-out basis as described in Note
2.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results may vary from those estimates.
Due from Affiliate
All tower rent revenues are collected by affiliates on behalf of Majestic.
Similarly, all direct tower operating expenses, general and administrative
expenses, and interest are paid by affiliates on behalf of Majestic.
Accordingly, a receivable from and payable to affiliates are recorded (see
Note 6).
Tower Assets
Tower assets consist of towers, buildings, and related attachments which are
recorded at cost and depreciated using the straight-line method over the
estimated useful life of the assets, which range from 15 to 30 years.
Improvements, renewals and extraordinary repairs which increase the value or
extend the life of the asset are capitalized. Repairs and maintenance costs
are expensed as incurred.
Impairment of Long-lived Assets
Majestic evaluates the recoverability of its long-lived assets whenever
adverse events or changes in business climate indicate that the expected
undiscounted future cash flows from the related asset may be less than
previously anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. As of June 27, 1997, management does not
believe that an impairment reserve is required.
Fair Value of Financial Instruments
The carrying amount of Majestic's financial instruments at June 27, 1997,
which includes due from affiliate, accounts receivable and short-term debt,
approximates fair value due to the short maturity of those instruments.
F-56
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the life of the
related lease agreements. Revenue is recorded in the month in which it is due.
Allocation of Expenses
The accompanying financial statements include certain costs and expenses
that have been allocated to the tower business from the Parent. These costs
have been allocated on a pro rata basis primarily on either revenues or total
costs of infrastructure operations, depending upon the nature of the cost.
Management believes this allocation is reasonable.
Income Taxes
Majestic accounts for income taxes using the liability method as required by
Statement No. 109, Accounting for Income Taxes, issued by the Financial
Accounting Standards Board.
Deferred income taxes are provided for temporary differences between the
basis of assets and liabilities for financial reporting and income tax
reporting.
As described in Note 1, Majestic consisted of a C Corporation and of two
sole proprietorships. As such, the combined accounts reflect a tax provision
for only the operations of the C Corporation at June 27, 1997. The Combined
Statement of Operations and Retained Earnings also reflects a tax provision
for the operations of Majestic at June 27, 1997 on a pro-forma basis as if
Majestic were treated as a C Corporation.
3. SHORT-TERM DEBT
At June 27, 1997, $161,712 was outstanding under a bank loan, which provided
secured borrowings for the purchases of land, a building and a tower in
Tennessee. The loan was secured by a mortgage deed of trust on the land, the
tower assets and an assignment of rents and leases. In addition, the loan as
guaranteed by Majestic Communications, Inc. The interest rate on this
borrowing was 7%. The original maturity date was August 1, 1999. However, the
outstanding balance was repaid subsequent to June 27, 1997 as part of the
purchase agreement with Pinnacle Towers Inc. (see Note 7).
4. INCOME TAXES
As described in Note 1, Majestic consisted certain assets of a C Corporation
and of two sole proprietorships. As such, the combined accounts reflect a tax
provision for only the operations of the C Corporation at June 27, 1997. The
Combined Statement of Operations and Retained Earnings also reflects a tax
provision for the operations of Majestic at June 27, 1997 on a pro-forma basis
as if Majestic were treated as a C Corporation.
F-57
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the provision for income taxes on a historical and
pro-forma basis were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
JUNE 27, 1997 JUNE 27, 1997
------------- -------------
<S> <C> <C>
Current:
Federal....................................... $ 7,449 $37,610
State......................................... 2,890 6,840
------- -------
Total current............................... 10,339 44,450
Deferred:
Federal....................................... (367) (3,034)
State......................................... (134) (521)
------- -------
Total Deferred.............................. (501) (3,555)
------- -------
Provision for income taxes...................... $ 9,838 $40,895
======= =======
</TABLE>
Significant components of the deferred tax liability on a historical and
pro-forma basis were as follows:
<TABLE>
<CAPTION>
PRO-FORMA
JUNE 27, 1997 JUNE 27, 1997
------------- -------------
<S> <C> <C>
Deferred tax liability:
Tax over book depreciation..................... $48,257 $24,756
======= =======
</TABLE>
The effective tax rate approximates the statutory federal and state rates on
a historical and pro-forma basis as no permanent differences exist for either
the C Corporation or Majestic.
Net income related to sole proprietors was not subject to income taxes as
the income is taxed directly to their owners. The reported amounts for fixed
assets related to these sole proprietors was approximately $169,400 less than
its tax basis.
5. TENANT LEASES
The following is a schedule by year of total future rentals to be received
for tower space under noncancelable lease agreements as of June 27, 1997.
<TABLE>
<S> <C>
PERIOD JUNE 28, 1997
THROUGH DECEMBER 31, 1997.......................................... $187,929
YEAR ENDED DECEMBER 31,
1998.............................................................. 247,633
1999.............................................................. 185,029
2000.............................................................. 155,688
2001.............................................................. 84,493
2002.............................................................. 11,250
2003 and thereafter............................................... 25,860
--------
$897,882
========
</TABLE>
F-58
<PAGE>
MAJESTIC COMMUNICATIONS
(A CARVE-OUT ENTITY OF MAJESTIC COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS
Prior to the acquisition by Pinnacle Towers Inc. (as described in Note 1),
the carve out entity of Majestic included transactions with the surviving
Majestic Communications, Inc. ("affiliates"). These transactions are disclosed
as related party transactions in these financial statements.
Affiliates received rent payments related to Majestic's lease agreements. At
June 27, 1997, due from affiliates of $199,944 reflected these receipts.
Affiliates paid tower operating and interest expense as well as short-term
debt related to Majestic. For the period January 1, 1997 through June 27,
1997, Majestic incurred tower operating and interest expense of $19,425 and
$6,036, respectively. Short-term debt of $12,826 was paid by affiliates for
this period.
For the period January 1, 1997 through June 27, 1997, general and
administrative expenses of $27,739 were allocated to Majestic from affiliates.
7. SUBSEQUENT EVENTS
On June 27, 1997, Majestic was sold to Pinnacle Towers Inc. In accordance
with the purchase agreement, the owners of Majestic received approximately
$4,758,500 for four towers and related assets. Also under the agreement, rent
revenue reverted to Pinnacle Towers Inc. as of July 1, 1997. Rent received by
Majestic related to the remaining days in June 1997 was adjusted as part of
the purchase price. Deferred revenue as of June 27, 1997 reflects rent
received by Majestic to be remitted to Pinnacle Towers Inc. Of the total
purchase price, $161,712 was used by Pinnacle Towers Inc. to repay the
outstanding bank loan subsequent to June 27, 1997 in accordance with the
purchase agreement.
F-59
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All
such fees and expenses shall be borne by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $67,850
NASD filing fee..................................................... $23,500
Nasdaq listing fee.................................................. $
Printing and engraving expenses..................................... $
Accounting fees and expenses........................................ $
Legal fees and expenses............................................. $
Blue Sky fees and expenses.......................................... $
Transfer Agent's fees and expenses.................................. $
Miscellaneous....................................................... $
-------
Total............................................................. $
=======
</TABLE>
- --------
* Estimated
ITEM 32. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
The securities issued or sold by the Company since May 1995, the date of
inception, which were not registered under the Securities Act are listed
below:
(i) On March 17, 1998, the Company issued $325,000,000 in principal
amount of its 10% Senior Discount Notes due 2008, pursuant to a Purchase
Agreement dated as of March 17, 1998, between the Company and the initial
purchasers thereof.
(ii)
The shares of capital stock issued in the above transactions were offered
and sold in reliance upon the exemption from registration under Section 4(2)
as transactions by an issuer not involving any public offering. The recipients
of securities in each such transaction represented their intentions to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transaction. All recipients had
adequate access, through their relationship with the Company to information
about the Company.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pinnacle Holdings Inc., a Delaware corporation (the "Delaware Corporation").
The Delaware Corporation's Certificate of Incorporation and Bylaws contain
provisions limiting the personal liability of its directors for monetary
damages resulting from breaches of their duty of care to the extent permitted
by Section 102(b)(7) of the Delaware General Corporation Law. The Delaware
Corporation's Certificate of Incorporation and Bylaws also contain provisions
making indemnification of the Delaware Corporation's directors and officers
mandatory to the fullest extent permitted by the Delaware General Corporation
Law, including circumstances in which indemnification is otherwise
discretionary.
II-1
<PAGE>
The Delaware General Corporation Law permits the indemnification by a
Delaware corporation of its directors, officers, employees and other agents
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than
derivative actions which are by or in the right of the corporation) if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceedings, had no reasonable cause to believe their
conduct was illegal. A similar standard of care is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement
of such an action and require court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.0 Underwriting Agreement*
3.1.1 Amended and Restated Certificate of Incorporation of the Company**
Amendment to the Amended and Restated Certificate of
3.1.2 Incorporation*
3.1.3 Bylaws of the Company**
4.1 Indenture dated as of March 20, 1998 among the Company and The
Bank of New York, as Trustee**
4.2 Exchange and Registration Rights Agreement dated as of March 20,
1998 by and among the Company and each of the Purchasers referred
to therein**
4.3 Specimen Stock Certificate*
5.1 Opinion of Holland & Knight LLP
8.1 Opinion of Holland & Knight LLP
10.1 Second Amended and Restated Credit Agreement dated February 26,
1998 by and among Pinnacle Towers, Inc., a wholly-owned subsidiary
of the Company ("PTI"), NationsBank of Texas, N.A. and Goldman,
Sachs Credit Partner L.P.**
First Amendment to Second Amended and Restated Credit Agreement
10.2 dated March 17, 1998**
10.3 Form of Purchase and Sale Agreement dated January 9, 1998 by and
among PTI and Southern Communications**
10.4 Form of Southern Communications Master Site Lease Agreement by and
among PTI and Southern Communications**
10.5 Form of Option to Direct Construction or Acquisition of Additional
Tower Facilities by and among PTI and Southern Communications**
Form of Exchange Agreement by and among PTI and Southern
10.6 Communications**
10.7 Form of Lease Agreement--Non-Restricted Premises**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.8 Form of Lease Agreement--Restricted Premises**
Form of Master Antenna Site Lease by and among PTI and Teletouch
10.9 Communications, Inc.**
10.10 Contract of Sale by and among PTI and Teletouch Communications,
Inc. and First Amendment to Contract of Sale**
Executive Employment Agreement between the Company and Robert
10.11 Wolsey dated May 3, 1995**
10.12 Executive Employment Agreement between the Company and Steven Day
dated February 17, 1997**
10.13 Executive Employment Agreement between the Company and James
Dell'Apa dated May 3, 1995**
Subscription Agreement dated December 31, 1995 by and among ABRY
10.14 II and PTI**
10.15 Second Amended and Restated Subscription and Stockholders
Agreement dated May 16, 1996 by and among PTI, the Company and
certain stockholders**
10.16 Capital Contribution Agreement dated February 26, 1998**
10.17 Convertible Promissory Note due 1998 dated February 11, 1998 by
and among the Company and ABRY II**
10.18 Services Agreement by and among PTI and PTI II**
10.19 Amended Capital Contribution Agreement dated May 29, 1998***
10.20 Third Amended and Restated Credit Agreement dated May 29, 1998***
Purchase Agreement dated as of July 7, 1998 among MobileMedia, its
10.21 affiliates and the Company
10.22 Proposed Form of Master Lease for Transmitter Systems Space
between the Company and MobileMedia Communications, Inc.
10.23 Management and Consulting Services Agreement dated as of April 17,
1995 between Pinnacle Towers, Inc. and ABRY*
21.1 List of Subsidiaries**
23.1 Consent of Holland & Knight LLP (contained in Exhibit 5.1)
Consent of PricewaterhouseCoopers LLP, independent certified
23.2 public accountants
Consent of Arthur Andersen LLP, independent certified public
23.3 accountants
Consent of Ernst & Young LLP, independent certified public
23.4 accountants
Powers of Attorney (included on signature pages of Registration
24.1 Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed on April 1, 1998 with the Company's Registration
Statement on Form S-4 SEC file no. 333-49147.
*** Previously filed on June 11, 1998 with Amendment No. 1 to the Company's
Registration Statement on Form S-4.
(b) Financial Statement Schedules
None
II-3
<PAGE>
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described in Item 14, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF SARASOTA, STATE OF FLORIDA, ON JULY
17, 1998, 1998.
Pinnacle Holdings, Inc.
/s/ Steven Day
By: _________________________________
Steven Day, Chief Financial
Officer
POWER OF ATTORNEY
EACH OF THE UNDERSIGNED OFFICERS AND DIRECTORS OF PINNACLE HOLDINGS INC.
(THE "COMPANY"), A DELAWARE CORPORATION, FOR HIMSELF AND NOT FOR ONE ANOTHER,
DOES HEREBY CONSTITUTE AND APPOINT ROBERT WOLSEY AND STEVEN DAY, AND EACH AND
ANY OF THEM AND THEIR SUBSTITUTES, A TRUE AND LAWFUL ATTORNEY IN THEIR NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN THEIR NAME TO ANY AND ALL
AMENDMENTS TO THIS REGISTRATION STATEMENT, INCLUDING POST-EFFECTIVE
AMENDMENTS, AND ANY REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY
THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO
RULE 462(B) OF THE SECURITIES ACT, AND TO CAUSE THE SAME TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS AND EACH OF
THEM FULL POWER OF SUBSTITUTION AND FULL POWER AND AUTHORITY TO DO AND PERFORM
ANY ACT AND THING NECESSARY AND PROPER TO BE DONE IN THE PREMISES, AS FULLY TO
ALL INTENTS AND PURPOSES AS THE UNDERSIGNED COULD DO IF PERSONALLY PRESENT,
AND EACH OF THE UNDERSIGNED FOR HIMSELF HEREBY RATIFIES AND CONFIRMS ALL THAT
SAID ATTORNEYS OR ANY ONE OF THEM SHALL LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE HEREOF.
SIGNATURES TITLE DATE
/s/ Robert Wolsey Chief Executive July 17, 1998
- ------------------------------------- Officer, President,
ROBERT WOLSEY Chief Operating
Officer and
Director
/s/ Steven Day Vice President, July 17, 1998
- ------------------------------------- Chief Financial
STEVEN DAY Officer, Secretary
and Director
/s/ James Dell'Apa Executive Vice July 17, 1998
- ------------------------------------- President and
JAMES DELL'APA Director
/s/ Andrew Banks Director July 17, 1998
- -------------------------------------
ANDREW BANKS
/s/ Peni Garber Director July 17, 1998
- -------------------------------------
PENI GARBER
/s/ Peggy Koenig Director July 17, 1998
- -------------------------------------
PEGGY KOENIG
/s/ Royce Yudkoff Director July 17, 1998
- -------------------------------------
ROYCE YUDKOFF
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.0 Underwriting Agreement*
3.1.1 Amended and Restated Certificate of Incorporation of the Company**
Amendment to the Amended and Restated Certificate of
3.1.2 Incorporation*
3.1.3 Bylaws of the Company**
4.1 Indenture dated as of March 20, 1998 among the Company and The
Bank of New York, as Trustee**
4.2 Exchange and Registration Rights Agreement dated as of March 20,
1998 by and among the Company and each of the Purchasers referred
to therein**
4.3 Specimen Stock Certificate*
5.1 Opinion of Holland & Knight LLP
8.1 Opinion of Holland & Knight LLP
10.1 Second Amended and Restated Credit Agreement dated February 26,
1998 by and among Pinnacle Towers, Inc., a wholly-owned subsidiary
of the Company ("PTI"), NationsBank of Texas, N.A. and Goldman,
Sachs Credit Partner L.P.**
First Amendment to Second Amended and Restated Credit Agreement
10.2 dated March 17, 1998**
10.3 Form of Purchase and Sale Agreement dated January 9, 1998 by and
among PTI and Southern Communications**
10.4 Form of Southern Communications Master Site Lease Agreement by and
among PTI and Southern Communications**
10.5 Form of Option to Direct Construction or Acquisition of Additional
Tower Facilities by and among PTI and Southern Communications**
Form of Exchange Agreement by and among PTI and Southern
10.6 Communications**
10.7 Form of Lease Agreement--Non-Restricted Premises**
10.8 Form of Lease Agreement--Restricted Premises**
Form of Master Antenna Site Lease by and among PTI and Teletouch
10.9 Communications, Inc.**
10.10 Contract of Sale by and among PTI and Teletouch Communications,
Inc. and First Amendment to Contract of Sale**
Executive Employment Agreement between the Company and Robert
10.11 Wolsey dated May 3, 1995**
10.12 Executive Employment Agreement between the Company and Steven Day
dated February 17, 1997**
10.13 Executive Employment Agreement between the Company and James
Dell'Apa dated May 3, 1995**
Subscription Agreement dated December 31, 1995 by and among ABRY
10.14 II and PTI**
10.15 Second Amended and Restated Subscription and Stockholders
Agreement dated May 16, 1996 by and among PTI, the Company and
certain stockholders**
10.16 Capital Contribution Agreement dated February 26, 1998**
10.17 Convertible Promissory Note due 1998 dated February 11, 1998 by
and among the Company and ABRY II**
10.18 Services Agreement by and among PTI and PTI II**
10.19 Amended Capital Contribution Agreement dated May 29, 1998***
10.20 Third Amended and Restated Credit Agreement dated May 29, 1998***
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
Purchase Agreement dated as of July 7, 1998 among MobileMedia, its
10.21 affiliates and the Company
10.22 Proposed Form of Master Lease for Transmitter Systems Space
between the Company and MobileMedia Communications, Inc.
10.23 Management and Consulting Services Agreement dated as of April 17,
1995 between Pinnacle Towers, Inc. and ABRY*
21.1 List of Subsidiaries**
23.1 Consent of Holland & Knight LLP (contained in Exhibit 5.1)
Consent of PricewaterhouseCoopers LLP, independent certified
23.2 public accountants
Consent of Arthur Andersen LLP, independent certified public
23.3 accountants
Consent of Ernst & Young LLP, independent certified public
23.4 accountants
Powers of Attorney (included on signature pages of Registration
24.1 Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed on April 1, 1998 with the Company's Registration
Statement on Form S-4.
*** Previously filed on June 11, 1998 with Amendment No. 1 to the Company's
Registration Statement on Form S-4.
<PAGE>
Exhibit 5.1
______, 1998
Pinnacle Holdings Inc.
1549 Ringling Boulevard, 3rd Floor
Sarasota, Florida 34236
Re: Registration Statement on Form S-11
(File No. 333- )
Gentlemen:
We refer to the Registration Statement on Form S-11 (File No. 333- ) (the
"Registration Statement"), filed by Pinnacle Holdings Inc. (the "Company"), with
the Securities and Exchange Commission, for the purpose of registering under the
Securities Act of 1933 (the "Securities Act"), an aggregate of 11,500,000 shares
of common stock, par value $.001 per share (the "Common Stock"), of the Company
being offered to the public pursuant to an underwriting agreement (the
"Underwriting Agreement"), between the Company, certain stockholders of the
Company, and Morgan Stanley & Co. Incorporated, Smith Barney Inc., Goldman,
Sachs & Co., NationsBanc Montgomery Securities LLC and Raymond James &
Associates, Inc. as the U.S. Underwriters.
In connection with the foregoing registration, we have acted as counsel for
the Company, and have examined originals, or copies certified to our
satisfaction, of all such corporate records of the Company, certificates of
public officials and representatives of the Company, and other documents as we
deemed it necessary to require as a basis for the opinion hereafter expressed.
Based upon the foregoing, and having regard for legal considerations that we
deem relevant, it is our opinion that the Common Stock will be, when and if sold
in accordance with the Underwriting Agreement, duly authorized, legally issued
and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part thereof. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
HOLLAND & KNIGHT LLP
<PAGE>
Exhibit 8.1
[HOLLAND & KNIGHT LLP LETTERHEAD]
July ___, 1998
Pinnacle Holdings, Inc.
1549 Ringling Boulevard, Third Floor
Sarasota, FL 34236
Re: Registration Statement on Form S-11
Registration No. _________________
Ladies and Gentlemen:
We have acted as counsel to Pinnacle Holdings, Inc., a Delaware corporation
(the "Company"), in connection with the Common Stock as more fully described in
the Company's Registration Statement on Form S-11 (the "Registration Statement,"
which includes the "Prospectus"), filed with the Securities and Exchange
Commission on or about the date hereof. In connection therewith, we have been
asked to provide an opinion regarding certain federal income tax matters related
to the Company. Capitalized terms used in this letter and not otherwise defined
herein have the meaning set forth in the Prospectus.
BASIS FOR OPINIONS
The opinions set forth in this letter are based on relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder (including proposed and temporary Regulations), and interpretations
of the foregoing as expressed in court decisions, the legislative history, and
existing administrative rulings and practices of the Internal Revenue Service
(the "IRS") (including its practices and policies in issuing private letter
rulings (which rulings are not binding on the IRS except, in the case of each
such ruling, with respect to the taxpayer that receives such ruling), all as of
the date hereof. These provisions and interpretations are subject to change,
which may or may not be retroactive in effect, which changes could adversely
affect the opinions rendered herein and the tax consequences to the Company and
the investors in the Common Stock.
In rendering this opinion, we have examined the following documents: (1) the
Registration Statement and the facts and descriptions set forth therein of the
Company and its investments, activities, operations and governance; (2) the
Company's
<PAGE>
Pinnacle Holdings, Inc.
July __, 1998
Page 2
Certificate of Incorporation, as amended, Bylaws and stock ownership
information; (3) the Articles of Incorporation, Bylaws and stock ownership
information of each QRS Corporation (for a list of QRS Corporations see Exhibit
A); and (4) the quarterly REIT qualification testing schedules prepared by the
Company with the assistance of the Company's accountants, PricewaterhouseCoopers
LLP. The opinions set forth in this letter also are premised on certain
additional information and representations through consultation with officers of
the Company and the Company's accountants, PricewaterhouseCoopers LLP, including
those contained in the Company's management representation certificate to us
dated July __, 1998 (the "Management Representation Certificate") regarding
certain facts and other matters (including among other things, the Company's
stock ownership, assets, acquisitions, revenues, and distributions) as are
germane to the determination that the Company has been and will be owned and
operated in such a manner that the Company has and will continue to satisfy the
requirements for qualification as a REIT under the Code.
We have made such factual and legal inquiries, including the procedures
described above and examination of the documents set forth above, as we have
deemed necessary or appropriate for purposes of our opinion. For purposes of
rendering our opinion, however, we have not made an independent investigation or
audit of the facts set forth in the above-referenced documents, including the
Registration Statement and the Management Representation Certificate. We
consequently have relied upon the representations in the Management
Representation Certificate that the information presented therein and in such
documents or otherwise furnished to us is accurate, and we have assumed that the
information presented in such documents or otherwise furnished to us is accurate
and complete with respect to all material facts relevant to our opinion.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents that we reviewed
(including, without limitation, the Management Representation Certificate) are
true and correct, and each of the obligations imposed by any such document on
the parties thereto, including obligations imposed under the Certificate of
Incorporation of the Company and each QRS Corporation, have been and will be
performed or satisfied in accordance with their terms. Moreover, we have
assumed that the Company and each QRS Corporation has been and will continue to
be operated in the manner described in the relevant articles of incorporation or
other organizational documents and in the Prospectus. We also have assumed the
genuineness of all signatures, the proper execution of all documents, the
authenticity of all documents submitted to us as originals, the conformity to
originals of documents submitted to us as copies, and the authenticity of the
originals from which any copies were made.
We assume for the purposes of this opinion that the Company and each QRS is
validly organized and duly incorporated under the laws of the jurisdiction of
its incorporation.
<PAGE>
Pinnacle Holdings, Inc.
July __, 1998
Page 3
OPINIONS
Based upon, subject to, and limited by the assumptions and qualifications set
forth herein, we are of the opinion that:
(a) the Company was organized and has operated in conformity with the
requirements for qualification and taxation as a real estate investment trust
("REIT") pursuant to Sections 856 through 860 of the Code for its taxable years
ended December 31, 1995, December 31, 1996, and December 31, 1997, and the
Company's current organization and method of operation should enable it to
continue to meet the requirements for qualification and taxation as a REIT; and
(b) the descriptions of the law and the legal conclusions contained in the
Prospectus under the caption "Certain Federal Income Tax Considerations" are
correct in all material respects and the discussion thereunder fairly summarizes
the federal income tax considerations that are likely to be material to a holder
of Common Stock.
We assume no obligation to advise you of any changes in our opinion subsequent
to the delivery of this opinion letter, and we do not undertake to update the
opinion letter from time to time. The Company's qualification and taxation as a
REIT depends upon the Company's ability to meet on a continuing basis, through
actual annual operating and other results, the various requirements under the
Code and described in the Prospectus with regard to, among other things, the
sources of its gross income, the composition of its assets, the level of its
distribution to stockholders, and the diversity of its stock ownership. Holland
& Knight LLP will not review the Company's compliance with these requirements on
a continuing basis. Accordingly, no assurance can be given that the actual
results of the operations of the Company, and the QRS Corporations, the sources
of their income, the nature of their assets, the level of the Company's
distributions to stockholders and the diversity of its stock ownership for any
given taxable year will satisfy the requirements under the Code for
qualification and taxation as a REIT. In addition, as noted above, our opinions
are based solely on the documents that we have examined, the additional
information that we have obtained, and the representations that have been made
to us, and cannot be relied upon if any of the facts contained in such documents
or in such additional information is, or later becomes, inaccurate or if any of
the representations made to us is, or later becomes, inaccurate.
An opinion of counsel merely represents counsel's best judgment with respect
to the probable outcome on the merits and is not binding on the IRS or the
courts. There can be no assurance that positions contrary to our opinions will
not be taken by the IRS, or that a court considering the issues would not hold
contrary to such opinions.
<PAGE>
Pinnacle Holdings, Inc.
July __, 1998
Page 4
This opinion letter has been prepared solely for your use in connection with
the filing of the Registration Statement on the date of this opinion letter and
should not be quoted in whole or in part or otherwise referred to, nor filed
with or furnished to any governmental agency or other person or entity, without
the prior written consent of this firm.
We hereby consent to the filing of our opinion, together with the attachments
thereto, as Exhibit 8.1 to the Registration Statement and to the use of the name
of our firm in the Registration Statement. In giving this consent, however, we
do not thereby admit that we are an "expert" within the meaning of the
Securities Act of 1933, as amended.
Very truly yours,
HOLLAND & KNIGHT LLP
By:_____________________
<PAGE>
EXHIBIT A
QRS Corporations
of
Pinnacle Holdings, Inc.
Pinnacle Towers Inc.
Coverage Plus Antenna Systems, Inc.
Tower Systems, Inc.
<PAGE>
EXHIBIT 10.22
==============================================================
PURCHASE AGREEMENT
dated as of
July 7, 1998
among
MOBILEMEDIA CORPORATION,
MOBILEMEDIA COMMUNICATIONS, INC.,
MOBILE COMMUNICATIONS CORPORATION OF AMERICA,
MOBILECOMM OF THE WEST, INC.,
MOBILECOMM OF THE SOUTHWEST, INC.,
MOBILECOMM OF TENNESSEE, INC.,
MOBILECOMM NATIONWIDE OPERATIONS, INC.,
MOBILEMEDIA COMMUNICATIONS, INC. (CALIFORNIA),
MOBILEMEDIA DP PROPERTIES, INC.,
MOBILEMEDIA PCS, INC.,
DIAL PAGE SOUTHEAST, INC.,
RADIO CALL CO. OF VIRGINIA, INC.
MOBILEMEDIA PAGING, INC.,
MOBILECOMM OF THE SOUTHEAST, INC.,
MOBILECOMM OF THE NORTHEAST, INC.,
MOBILECOMM OF THE SOUTHEAST PRIVATE CARRIERS
OPERATIONS, INC.,
MOBILECOMM OF FLORIDA, INC.,
MOBILECOMM OF THE MIDSOUTH, INC.,
FWS RADIO, INC.
and
PINNACLE TOWERS INC.
==============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS........................................................... 3
SECTION 1.02. Interpretation......................................... 11
ARTICLE II
PURCHASE, SALE AND ASSUMPTION......................................... 12
SECTION 2.01. Purchase and Sale...................................... 12
SECTION 2.02. Purchase Price......................................... 12
SECTION 2.03. Assumption of Liabilities.............................. 12
SECTION 2.04. ASSETS IN "AS IS" CONDITION............................ 13
SECTION 2.05. Excluded Assets........................................ 13
ARTICLE III
CLOSING............................................................... 14
SECTION 3.01. The Closing............................................ 14
SECTION 3.02. Supplemental Payments to Sellers Regarding
Post-Closing Revenue Leases............................ 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER.............................. 17
SECTION 4.01. Authorization; Contravention........................... 17
SECTION 4.02. Title to Assets........................................ 18
SECTION 4.03. Legal Proceedings...................................... 19
SECTION 4.04. Compliance With Law.................................... 19
SECTION 4.05. Ground Leases and Revenue Leases....................... 19
SECTION 4.06. Environmental Matters.................................. 19
SECTION 4.07. Certain Site and Tower Matters......................... 20
SECTION 4.08. Reaffirmation at Closing............................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER........................... 21
SECTION 5.01. Authorization; Contravention........................... 21
SECTION 5.02. Sufficient Funds....................................... 22
SECTION 5.04. Reaffirmation at Closing............................... 22
ARTICLE VI
EXCLUSIVITY; COMPETING BIDS AND BIDDING PROCEDURES.................... 22
SECTION 6.01. Bankruptcy Actions..................................... 22
SECTION 6.02. Exclusivity............................................ 22
SECTION 6.03. Competing Bids......................................... 23
</TABLE>
-i-
<PAGE>
CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 6.04. Purchaser's Liquidated Damages......................... 25
SECTION 6.05. Expense Reimbursement.................................. 25
ARTICLE VII
OTHER AGREEMENTS...................................................... 25
SECTION 7.01. Conduct of the Business Pending Closing................ 25
SECTION 7.02. Access................................................. 26
SECTION 7.03. Confidentiality........................................ 27
SECTION 7.04. Maintenance of Records................................. 27
SECTION 7.05. Deposit; Liquidated Damages............................ 28
SECTION 7.06. Pre-Closing Claims and Rights.......................... 29
SECTION 7.07. Prorations............................................. 29
SECTION 7.08. Certain Seller Undertakings Regarding
Ground Leases, Sites and Related Matters............... 30
SECTION 7.09. Certain Post-Closing Obligations....................... 32
SECTION 7.10. Further Assurances..................................... 33
SECTION 7.11. Indemnification........................................ 33
ARTICLE VIII
TERMINATION OF AGREEMENT.............................................. 37
SECTION 8.01. Termination............................................ 37
SECTION 8.02. Certain Termination Events Cure Period................. 38
SECTION 8.03. Effect of Termination.................................. 39
ARTICLE IX
CLOSING CONDITIONS.................................................... 39
SECTION 9.01. Closing Conditions..................................... 39
ARTICLE X
MISCELLANEOUS......................................................... 40
SECTION 10.01. Notices............................................... 40
SECTION 10.02. Binding Effect........................................ 41
SECTION 10.03. Amendments............................................ 41
SECTION 10.04. Counterparts.......................................... 41
SECTION 10.05. Expenses.............................................. 41
SECTION 10.06. Calculations.......................................... 42
SECTION 10.07. Entire Agreement...................................... 42
SECTION 10.08. Brokers............................................... 42
SECTION 10.09. Governing Law......................................... 42
SECTION 10.10. No Third Party Beneficiaries.......................... 43
</TABLE>
-ii-
<PAGE>
SCHEDULES
SCHEDULE I Towers, Leased Sites,
Owned Sites and Easement Sites
SCHEDULE II Ground Leases
SCHEDULE III Revenue Leases
SCHEDULE IV Leased Tower Space
SCHEDULE V Existing Pinnacle-MobileMedia Leases
DISCLOSURE SCHEDULE
EXHIBITS
EXHIBIT A Master Lease
EXHIBIT B General Assignment And Bill Of Sale
EXHIBIT C Liabilities Assumption Agreement
EXHIBIT D Form of Estoppel Agreement
EXHIBIT E Form of Memorandum of Lease
-iii-
<PAGE>
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is entered into as of July
7, 1998 by and among PINNACLE TOWERS INC., a Delaware corporation
("Purchaser"), MOBILEMEDIA CORPORATION, a Delaware corporation, as debtor and
debtor-in-possession ("MobileMedia"), MOBILEMEDIA COMMUNICATIONS, INC., a
Delaware corporation, as debtor and debtor-in-possession ("MobileMedia
Communications"), MOBILE COMMUNICATIONS CORPORATION OF AMERICA, a Mississippi
corporation, as debtor and debtor-in-possession ("MCCA"), MOBILECOMM OF THE
WEST, a California corporation, as debtor and debtor-in-possession ("MCWEST"),
MOBILECOMM OF THE SOUTHWEST, INC. a Texas corporation, as debtor and debtor-in-
possession ("MCSW"), MOBILECOMM OF TENNESSEE, INC. a Tennessee corporation, as
debtor and debtor-in-possession ("MCTN"), MOBILECOMM NATIONWIDE OPERATIONS,
INC., a Delaware corporation, as debtor and debtor-in-possession ("MCNO"),
MOBILEMEDIA COMMUNICATIONS, INC. (California), a California corporation, as
debtor and debtor-in-possession ("MCCAL"), MOBILEMEDIA DP PROPERTIES, INC., a
Delaware corporation, as debtor and debtor-in-possession ("MDP"), MOBILEMEDIA
PCS, INC., a Delaware corporation, as debtor and debtor-in-possession ("MPCS"),
DIAL PAGE SOUTHEAST, INC., a Delaware corporation, as debtor and debtor-in-
possession ("DPS"), RADIO CELL CO. OF VIRGINIA, INC, a Virginia corporation, as
debtor and debtor-in-possession ("RCC"), MOBILEMEDIA PAGING, INC., a Delaware
corporation, as debtor and debtor-in possession ("MPI"), MOBILECOMM OF THE
SOUTHEAST INC., a Delaware corporation, as debtor and debtor-in-possession
("MCSE"), MOBILECOMM OF THE NORTHEAST, INC., a Delaware corporation, as debtor
and debtor-in-possession ("MCNE"), MOBILECOMM OF THE SOUTHEAST PRIVATE CARRIER
OPERATIONS, INC., a Georgia corporation, as debtor and debtor-in-possession
("MCSPCO"), MOBILECOMM OF FLORIDA, INC., a Florida corporation, as debtor and
debtor-in-possession ("MCFL"), MOBILECOMM OF THE MIDSOUTH, INC., a Missouri
corporation, as debtor and debtor-in-possession ("MCMS"), and FWS RADIO, INC., a
Texas corporation, as debtor and debtor-in-possession ("FWS"), and each of
MobileMedia, MobileMedia Communications, MCCA, MCWEST, MCSW, MCTN, MCNO, MCCAL,
MDP, MPCS, DPS, RCC, MPI, MCSE, MCNE, MCSPCO, MCFL, MCMS and FWS, together with
their respective successors and permitted assigns, are individually referred to
herein as a "Seller" and collectively referred to herein as the "Sellers".
RECITALS
A. Each of the Sellers and certain other Affiliates of MobileMedia
(the "Debtors") are debtors-in-possession in proceedings for reorganization
under chapter 11 of the Bankruptcy Code, 11 U.S.C. (S)(S) 101, et seq. (the
-- ----
"Code"), currently pending
<PAGE>
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court").
B. Certain of the Sellers own the 163 towers including attached guy
wires (the "Towers") described on Schedule I hereto, which are located on the
140 sites (the "Sites") listed on Schedule I.
C. At the Sites, certain of the Sellers have installed various
equipment, including transmitters, antennas and microwaves, used in the course
of the Seller communications business.
D. Certain of the Sellers own the land and fixtures ("Real
Property") constituting the Sites at 49 of the Sites (the "Owned Sites"), and in
the case of two (2) of the Sites easements to use the land constituting such
Sites (the "Easement Sites"), as identified on Schedule I. Certain of the
Sellers lease the land constituting the Sites at 89 of the Sites (the "Leased
Sites"), as identified on Schedule I, pursuant to the leases (the "Ground
Leases") identified on Schedule II.
E. Certain of the Sellers are the lessors under 366 separate leases
(the "Revenue Leases") with various tenants ("Tenants") which have leased space
on certain Towers, as identified on Schedule III.
F. Pursuant to the terms and conditions set forth herein, Sellers
desire to sell and assign (or cause to be sold and assigned) to Purchaser and
Purchaser desires to purchase and acquire from Sellers, all right, title and
interest of Sellers, as of the Closing Date, in and to the Assets, and Sellers
desire to assign (or to cause to be assigned) to Purchaser and Purchaser desires
to assume the obligations and liabilities of Sellers in connection with the
Ground Leases and the Revenue Leases and such other assumed Liabilities as are
expressly provided in Section 2.03 herein.
G. Immediately upon the conclusion of the transactions referred to
in the preceding Recital F, MobileMedia Communications desires to lease back (or
to have one or more successors, assigns or Affiliates of MobileMedia
Communications lease back) from Purchaser and Purchaser desires to lease to
MobileMedia Communications (or such other entities) certain space on the Towers
identified in Schedule IV hereto pursuant to a lease substantially in the form
of Exhibit A hereto (the "Master Lease").
NOW, THEREFORE, in consideration of the foregoing premises and of the
covenants contained herein, the parties hereto hereby agree as follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
-----------
the following meanings:
"Affiliate" means, when used with reference to a specific Person, any
---------
Person that, directly or indirectly, or through one or more intermediaries, owns
or controls, is owned or controlled by, or is under common ownership or common
control with, such specific Person. As used herein, "control" means the power
to direct the management or affairs of a Person and "ownership" means the
beneficial ownership of more than 50% of the equity interests of the Person.
"Agreement" has the meaning specified in the preamble hereto.
---------
"Ancillary Agreements" means the General Assignment And Bill Of Sale
--------------------
and the Liabilities Assumption Agreement.
"Applicable Laws" means all laws, rules, regulations, Orders or
---------------
determinations of any governmental authority, including without limitation the
rules and regulations of the FAA and the FCC.
"Assets" means (i) the Towers (provided that each Seller at its
------ --------
discretion, in the ordinary course of business, may remove any of the Sellers'
transmitter systems and related equipment, fittings and other equipment which
are on the Towers or on the Sites, and in no event shall the Assets be deemed to
include any transmitter systems or other equipment of any Seller that are
installed on any Tower or exist at any Site from which any Seller will lease
space under the Master Lease), (ii) the Real Property, (iii) each Seller's
interest as tenant in and to the Ground Leases in effect on the Closing Date,
(iv) each Seller's interest as lessor in and to the Revenue Leases in effect on
the Closing Date, (v) each Seller's interest in the Easement Site, (vi)
approvals, permits, licenses, registrations, certificates and variances obtained
from governmental agencies to the extent relating to the Sites, and which
according to their respective terms are freely assignable by such Seller to
another Person, and (vii) originals or copies of plats, architectural plans,
drawings and specifications to the extent relating to the Towers or Sites, which
are material to the operation or ownership thereof and which are in any Seller's
possession.
3
<PAGE>
"Bankruptcy Court" has the meaning specified in Recital A.
----------------
"Bankruptcy Court Order" means a final, non-appealable order of the
----------------------
Bankruptcy Court, in form and substance reasonably satisfactory to Seller and
Purchaser, approving this Agreement, the Master Lease and the Ancillary
Agreements, and authorizing, pursuant to all applicable sections of the Code,
all of the transactions and agreements contemplated hereby and by the Master
Lease, which order shall not have been stayed, vacated or otherwise rendered
ineffective, and with respect to which no appeal shall be pending and all
applicable periods for appeal shall have expired, and which includes, without
limitation, the following provisions:
(i) a finding that the Assets are property of the Debtors' estates
within the meaning of section 541 of the Code;
(ii) a finding that all parties in interest, including each person or
entity known to any Seller to have any ownership interest or lien in the
Assets have been given proper and adequate notice of the motion seeking
entry of the Bankruptcy Court Order and of the hearing on the motion;
(iii) express approval of the Sellers' assumption and assignment to
Purchaser of the Ground Leases and the Revenue Leases in accordance with
section 365 of the Code;
(iv) express approval of the Sellers' assumption of all of its
existing leases with Pinnacle, as described on Schedule V, in accordance
with section 365 of the Code;
(v) a provision that authorizes the sale of the Assets to Purchaser
free and clear of all Liens (other than Permitted Liens);
(vi) a finding that the Purchaser has acted in good faith within the
meaning of section 363(m) of the Code;
(vii) a provision providing that, on and as of the effective date of
any plan of reorganization of Sellers in the Bankruptcy Proceedings,
Sellers will assign this Agreement, the Ancillary Agreements and the Master
Lease to the successor to Sellers under such plan of reorganization;
(viii) a provision expressly approving the Master Lease and the
applicable Seller's obligations thereunder, and finding that such Seller's
obligations thereunder, as and when accrued, are actual, necessary costs
and expenses of preserving the Debtors' estates, which obligations will
4
<PAGE>
be satisfied in full by the assignment by Lessee of the Master Lease to the
successor to Lessee under and as of the effective date of any plan of
reorganization for Lessee; and
(ix) a provision providing that, to the extent applicable to the
Assets, no stamp tax or similar tax may be imposed on the transfer of the
Assets from Sellers to Purchaser.
"Bankruptcy Proceedings" means the proceedings in the Bankruptcy Court
----------------------
involving the Debtors, Case No. 97-174(PJW).
"Bidding Deadline" has the meaning specified in Section 6.03(a).
----------------
"Breaching Party" has the meaning specified in Section 8.02.
---------------
"Claim Notice" has the meaning specified in Section 7.11(e).
------------
"Closing" has the meaning specified in Section 3.01(a).
-------
"Closing Date" has the meaning specified in Section 3.01(a).
------------
"Code" has the meaning specified in Recital A.
----
"Competing Bidders" has the meaning specified in Section 6.02.
-----------------
"Competing Bid Notice" has the meaning specified in Section 6.03(b).
--------------------
"Competing Bids" has the meaning specified in Section 6.03(a).
--------------
"Competing Transaction" has the meaning specified in Section 6.02.
---------------------
"Consequential Damages" means any special, incidental, consequential,
---------------------
exemplary, or punitive damages, arising under any legal or equitable theory.
"Debtors" has the meaning specified in Recital A.
-------
"DIP Lenders" means each Person that is a "Lender" on the Closing Date
-----------
under and as defined in that certain Revolving Credit and Guarantee Agreement
dated as of January 30, 1997, as amended.
5
<PAGE>
"Disclosure Schedule" means the Disclosure Schedule to this Agreement.
-------------------
"DPS" means Dial Page Southeast, Inc., a Delaware corporation, as
---
debtor and debtor-in-possession.
"Easement Sites" has the meaning specified in Recital D.
--------------
"Employees" has the meaning specified in Section 6.02.
---------
"Environmental Impaired Site" has the meaning specified in Section
---------------------------
2.05(a).
"Environmental Law" means any Applicable Law concerning protection of
-----------------
the environment or human health and safety.
"Estoppel Agreement" has the meaning specified in Section 7.08(a).
------------------
"Excluded Assets" has the meaning specified in Section 2.05(b).
---------------
"Exclusivity Period" has the meaning specified in Section 6.02.
------------------
"Expenses" means any and all expenses incurred in connection with
--------
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including without
limitation court filing fees, court costs, witness fees, and reasonable fees and
expenses of legal counsel, investigators, expert witnesses, consultants,
accountants and other professionals).
"FAA" means the Federal Aviation Administration.
---
"FCC" means the Federal Communications Commission.
---
"FWS" means FWS Radio, Inc., a Texas corporation, as debtor and
---
debtor-in-possession.
"General Assignment And Bill Of Sale" has the meaning specified in
-----------------------------------
Section 3.01(d).
"Ground Leases" as of the date hereof has the meaning specified in
-------------
Recital D, provided, however, for purposes of the purchase, sale and assignment
-------- -------
hereunder on the Closing Date, Ground Leases shall refer to leases in effect on
the Closing Date under which a Seller, as tenant, leases land at a Leased Site
and which are identified in Schedule II, as such Schedule may be revised by
Sellers as of the Closing Date to reflect any
6
<PAGE>
attrition with respect to such leases in the ordinary course of business, and
subject to Section 7.01.
"Hazardous Materials" means any chemicals, pollutants or contaminants,
-------------------
hazardous substances (as such term is defined under 42 U.S.C. Secs. 9601 et seq.
-- ----
or other Environmental Law), solid wastes and hazardous wastes (as such terms
are defined under 42 U.S.C. Secs. 6901 et seq. or other Environmental Law),
-- ----
toxic materials, oil or petroleum, or any other material subject to regulation
under any Environmental Law, except for normal office and cleaning products.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
---------
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" has the meaning specified in Section 7.11(e).
-----------------
"Indemnitor" has the meaning specified in Section 7.11(e).
----------
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended, and the rules and regulations promulgated thereunder.
"Issuing Bank" means NationsBank.
------------
"Leased Sites" has the meaning specified in Recital D.
------------
"Lessee" means MobileMedia Communications, or, as applicable, one or
------
more successors, assigns or Affiliates of MobileMedia Communications as the
lessee party or parties under the Master Lease.
"Letter of Credit" means the standby irrevocable letter of credit in
----------------
the amount of $5,000,000 issued within three (3) business days after the date
hereof by NationsBank to MobileMedia Communications (on behalf of Sellers) as
the beneficiary, which letter of credit shall in a form satisfactory to Sellers.
"Letter of Credit Disbursement" means the $5,000,000 which is payable
-----------------------------
to MobileMedia Communications under the Letter of Credit upon presentment
thereof to the Issuing Bank in accordance with the terms and conditions of the
Letter of Credit.
"Liabilities" has the meaning specified in Section 2.03.
-----------
"Liabilities Assumption Agreement" has the meaning specified in
--------------------------------
Section 3.01(e).
7
<PAGE>
"Liens" means liens, mortgages, pledges, claims, charges, security
-----
interests or encumbrances.
"Losses" means any and all losses, costs, obligations, liabilities,
------
settlement payments, awards, judgments, fines, penalties or damages.
"Master Lease" has the meaning specified in Recital G.
------------
"Memorandum of Lease" has the meaning specified in Section 7.08(a).
-------------------
"MCCA" means Mobile Communications Corporation Of America, a
----
Mississippi corporation, as debtor and debtor-in-possession.
"MCCAL" means MobileMedia Communications, Inc. (California), a
-----
California corporation, as debtor and debtor-in-possession.
"MCFL" means MobileComm of Florida, Inc., a Florida corporation, as
----
debtor and debtor-in-possession.
"MCMS" means MobileComm of the Midsouth, Inc., a Missouri corporation,
----
as debtor and debtor-in-possession.
"MCNE" means MobileComm of the Northeast, Inc., a Delaware
----
corporation, as debtor and debtor-in-possession.
"MCNO" means MobileComm Nationwide Operations, Inc., a Delaware
----
corporation, as debtor and debtor-in-possession.
"MCSE" means MobileComm of the Southeast, Inc., a Delaware
----
corporation, as debtor and debtor-in-possession.
"MCSPCO" means MobileComm of the Southeast Private Carrier Operations,
------
Inc., a Georgia corporation, as debtor and debtor-in-possession.
"MCSW" means MobileComm Of The Southwest, a Texas corporation, as
----
debtor and debtor-in-possession.
"MCTN" means MobileComm Of Tennessee, Inc. a Tennessee corporation, as
----
debtor and debtor-in-possession.
"MCWEST" means MobileComm Of The West, Inc. a California corporation,
------
as debtor and debtor-in-possession.
"MDP" means MobileMedia DP Properties, Inc., a Delaware corporation,
---
as debtor and debtor-in-possession.
8
<PAGE>
"MobileMedia" means MobileMedia Corporation, Inc. a Delaware
-----------
corporation, as debtor and debtor-in-possession.
"MobileMedia Communications" means MobileMedia Communications, Inc., a
--------------------------
Delaware corporation, as debtor and debtor-in-possession.
"MPCS" means MobileMedia PCS, Inc., a Delaware corporation, as debtor
----
and debtor-in-possession.
"MPI" means MobileMedia Paging, Inc., a Delaware corporation, as
---
debtor and debtor-in-possession.
"NationsBank" means NationsBank, N.A., a national banking association.
-----------
"Order" means any court or administrative order, judgment, writ,
-----
injunction or decree applicable specifically to the Assets, any Seller or
Purchaser, as the case may be, including the Bankruptcy Court Order.
"Owned Sites" has the meaning specified in Recital D.
-----------
"Permitted Liens" means (i) Liens for taxes not yet due and payable,
---------------
(ii) any Liens set forth in the Disclosure Schedule, and (iii) any other Liens,
encumbrances or other imperfections in title the existence of which are
immaterial to the ownership, use or operation of the applicable Tower or Site.
"Person" means any general partnership, limited partnership,
------
corporation, limited liability company, joint venture, trust, business trust,
governmental agency, cooperative, association, individual or other entity, and
the heirs, executors, administrators, legal representatives, successors and
assigns of such Person as the context may require.
"Post-Closing Period Ground Leases Prepaid Rent" has the meaning
----------------------------------------------
specified in Section 7.07(b).
"Post-Closing Period Revenue Leases Prepaid Rent" has the meaning
-----------------------------------------------
specified in Section 7.07(a).
"Post-Closing Revenue Leases" has the meaning specified in Section
---------------------------
3.02.
"Pre-Closing Rights" has the meaning specified in Section 7.06.
------------------
"Pre-Petition Lenders" means the financial institutions from time to
--------------------
time party as "Lenders" to the Credit Agreement dated as of December 4, 1995, as
amended.
9
<PAGE>
"Procedures Order" has the meaning specified in Section 6.01.
----------------
"Purchase Price" has the meaning specified in Section 2.02.
--------------
"Purchaser" means Pinnacle Towers Inc., a Delaware corporation.
---------
"Purchaser Group Member" means Purchaser, its Affiliates and their
----------------------
respective directors, officers, employees and agents.
"Purchaser's Liquidated Damages" has the meaning specified in Section
------------------------------
6.04.
"Qualified Competing Bid" has the meaning specified in Section
-----------------------
6.03(a).
"Qualified Competing Bidder" has the meaning specified in Section
--------------------------
6.03(b).
"RCC" means Radio Call Co. of Virginia, a Virginia corporation, as
---
debtor and debtor-in-possession.
"Real Property" has the meaning specified in Recital D of this
-------------
Agreement.
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment.
"Remedial Action" means actions required to: (a) clean up, remove,
---------------
treat or in any other way address Hazardous Materials in the indoor or outdoor
environment; (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials; or (c) perform pre-remedial studies and
investigations and post-remedial care.
"Representatives" has the meaning specified in Section 6.02.
---------------
"Revenue Leases" as of the date hereof has the meaning specified in
--------------
Recital E, provided, however, for purposes of the purchase, sale and assignment
-------- -------
hereunder on the Closing Date, Revenue Leases shall refer to leases in effect on
the Closing Date under which a Seller, as lessor, leases out space on a Tower
and which are identified in Schedule III, as such Schedule may be revised by
Sellers as of the Closing Date to reflect any attrition (or addition) with
respect to such leases in the ordinary course of business, and subject to
Section 7.01.
10
<PAGE>
"Seller" or "Sellers" has the meaning specified in the introductory
------ -------
paragraph of this Agreement.
"Seller Group Members" means each Seller, its Affiliates and their
--------------------
respective directors, officers, employees and agents.
"Seller's Knowledge" means the actual knowledge of any present
------------------
employee of the Sellers.
"Sellers' Liquidated Damages" has the meaning specified in Section
---------------------------
7.05(c).
"Sites" has the meaning specified in Recital B.
-----
"Survey" has the meaning specified in Section 7.08(c).
------
"Tenants" has the meaning specified in Recital E.
-------
"Termination Notice" has the meaning specified in Section 8.02.
------------------
"Topping Offer" has the meaning specified in Section 6.03(b).
-------------
"Topping Right" has the meaning specified in Section 6.03(b).
-------------
"Towers" has the meaning specified in Recital B.
------
"Transfer Taxes And Charges" has the meaning specified in Section
--------------------------
3.01(k).
SECTION 1.02. Interpretation. Reference to the singular includes the
--------------
plural and reference to the plural includes the singular, according to the
context. Reference to the neuter gender includes the masculine and feminine
where appropriate. References to any statute shall include any amendments
thereto, any successor statutes and all regulations, rulings and orders
promulgated thereunder, in effect at any applicable date of determination. The
headings to the Articles and Sections are for convenience of reference and shall
not affect the meaning or interpretation of this Agreement. Except as otherwise
stated, reference to Articles, Sections, Recitals, Exhibits and Schedules means
the Articles, Sections, Recitals, Exhibits and Schedules of this Agreement. The
words "including" or "includes" or similar terms used herein shall be deemed to
be followed by the words "without limitation", whether or not such additional
words are actually set forth herein. The Exhibits and Schedules are hereby
incorporated into this Agreement by reference thereto, and shall be deemed a
part of, this Agreement, provided that no Exhibit
11
<PAGE>
that consists of a form of agreement or instrument shall be deemed to become
effective until executed and delivered by the appropriate parties.
ARTICLE II
PURCHASE, SALE AND ASSUMPTION
SECTION 2.01. Purchase and Sale. Subject to the satisfaction of the
-----------------
applicable conditions provided for herein, on the Closing Date, except as set
forth in the Disclosure Schedule, Sellers shall sell, convey and assign to
Purchaser and Purchaser shall purchase from Sellers, all right, title and
interest of Sellers, as of the Closing Date, in and to the Assets, free and
clear of all Liens other than Permitted Liens, and Sellers shall assign to
Purchaser and Purchaser shall assume all of the Liabilities.
SECTION 2.02. Purchase Price. The aggregate purchase price hereunder
--------------
for the purchase, sale, assignment and conveyance of Sellers' right, title and
interest in and to the Assets, and the assumption by Purchaser of the
Liabilities, shall be $170,000,000 (the "Purchase Price").
SECTION 2.03. Assumption of Liabilities.
-------------------------
Subject to the terms and conditions set forth herein, as of the
Closing, Purchaser shall assume and fully and timely pay, perform and discharge,
each of the following obligations and liabilities (of every kind and nature,
including contingent) (the "Liabilities"):
(i) all obligations and liabilities of Sellers in connection
with the Ground Leases, which arise out of or relate to the period on and after
the Closing Date, and which obligations or liabilities are contemplated by the
Ground Leases;
(ii) all obligations and liabilities of Sellers in connection
with the Revenue Leases, which arise out of or relate to the period on and after
the Closing Date, and which obligations or liabilities are contemplated by the
Revenue Leases; and
(iii) all other obligations and liabilities which arise out of
or relate to the period on and after the Closing Date with respect to the
ownership, possession, use, maintenance, licensing or operation of the Assets.
Except as expressly provided in this Agreement, in the Ancillary Agreements or
in the Master Lease, Purchaser is not assuming any other obligations or
liabilities of Sellers under the
12
<PAGE>
transactions contemplated by this Agreement. Without limiting the foregoing,
Purchaser will not be liable for any of the following debts, liabilities and
obligations of any Seller (except as otherwise agreed by Purchaser and Sellers):
(a) employee salary, payroll or benefit obligations, (b) general or
administrative expenses of Sellers, whether or not related to the Assets (except
as provided in Sections 3.01(k), 7.07 or 7.11), (c) sales commissions (except as
provided in Sections 3.02 or 7.11), or (d) Seller obligations in respect of
insurance policies.
SECTION 2.04. ASSETS IN "AS IS" CONDITION. SUBJECT TO THE
---------------------------
REPRESENTATIONS AND WARRANTIES OF EACH SELLER SET FORTH IN ARTICLE IV, PURCHASER
ACKNOWLEDGES AND AGREES THAT THE ASSETS ARE BEING SOLD, ASSIGNED AND CONVEYED
HEREUNDER ON AN "AS IS" AND "WHERE IS" BASIS AS OF THE CLOSING DATE. WITHOUT
LIMITING THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF EACH
SELLER SET FORTH IN ARTICLE IV, PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
NO SELLER HAS MADE, IS MAKING OR IS DEEMED TO HAVE MADE OR BE MAKING ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE ASSETS, INCLUDING WITH RESPECT TO
THE TITLE, WORKMANSHIP, CONDITION, DESIGN, STRUCTURAL INTEGRITY, OPERATION OR
FITNESS FOR USE OR A PARTICULAR PURPOSE OF THE ASSETS OR ANY PORTION THEREOF, AS
TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO
THE ABSENCE OF ANY CONDITION OR OTHER CHARACTERISTIC RELATING TO ENVIRONMENTAL
OR SAFETY MATTERS, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT,
TRADEMARK, COPYRIGHT OR OTHER PROPERTY RIGHT, WHETHER TANGIBLE OR INTANGIBLE OR
REAL OR PERSONAL, AS TO ANY EASEMENTS, COVENANTS, CONDITIONS OR RESTRICTIONS
AFFECTING THE ASSETS, OR AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT
LIABILITY IN TORT, OR ANY OTHER REPRESENTATIONS AND WARRANTIES.
SECTION 2.05. Excluded Assets. (a) If by the earlier of the Closing
---------------
Date and August 15, 1998, as to any Site ("Environmental Impaired Site")
Purchaser demonstrates and describes in reasonable written detail to Sellers
that (i) the applicable Seller at such Site is not in compliance in all material
respects with all Environmental Laws and related permits and licenses applicable
to such Seller's operations at the Site, except for any non-compliance that will
not materially adversely affect the value of such Site, or (ii) any Hazardous
Materials are present at such Site, except for any such Hazardous Materials
which are presently in compliance in all material respects with all applicable
Environmental Laws or the presence of which will not materially adversely affect
the value of such Site, Purchaser at its option may exclude the Assets relating
to such Environmental Impaired Site from the Assets that will be conveyed and
assigned hereunder (including all interests in Ground Leases and Revenue Leases
relating to such Environmental Impaired Site). Notwithstanding the preceding
provisions of this Section 2.05(a),
13
<PAGE>
at such Seller's option (but not its obligation) if such Seller cures the
problem at the Environmental Impaired Site prior to the Closing, to the
reasonable satisfaction of Purchaser, then Purchaser shall not be entitled to
exclude the Assets relating to such Site from the Assets that will be conveyed
and assigned hereunder and such Site shall no longer be deemed an Environmental
Impaired Site.
(b) With respect to any Assets which become excluded from the Assets that
will be conveyed and assigned hereunder pursuant to Section 2.05(a) ("Excluded
Assets"), Purchaser shall have no right, claim or remedy regarding any of
Sellers' representations, warranties, covenants or agreements hereunder relating
to any of such Excluded Assets, and, without limiting the foregoing, Purchaser
shall have no right or claim under Sections 7.11 or 8.01(d) with respect
thereto.
ARTICLE III
CLOSING
SECTION 3.01. The Closing.
-----------
(a) Subject to the terms and conditions set forth herein, the closing
(the "Closing") of the purchase, sale, assignment and conveyance of the Assets
and the assumption of the Liabilities pursuant to this Agreement shall take
place at the offices of Sidley & Austin, 875 Third Avenue, New York, New York on
August 25, 1998, or, if the conditions pursuant to Section 9.01 are not
satisfied by such date then on the date five (5) business days after such
conditions are satisfied, or on such other date as the parties may agree (the
"Closing Date"). Sellers and Purchaser shall communicate with each other
regarding the status and completion of the conditions that are to be satisfied
pursuant to Section 9.01.
(b) At the Closing, Purchaser shall pay to MobileMedia Communications
on behalf of Sellers an amount equal to the Purchase Price in immediately
available federal funds by wire transfer to such account as MobileMedia
Communications shall designate.
(c) At the Closing, MobileMedia Communications (or one or more
successors, assigns or Affiliates of MobileMedia Communications as applicable)
and Purchaser shall execute and deliver the Master Lease.
(d) At the Closing, Sellers and Purchaser shall execute and deliver a
General Assignment And Bill Of Sale
14
<PAGE>
substantially in the form of Exhibit B hereto (the "General Assignment And Bill
Of Sale").
(e) At the Closing, Sellers and Purchaser shall execute and deliver a
Liabilities Assumption Agreement substantially in the form of Exhibit C hereto
(the "Liabilities Assumption Agreement").
(f) At the Closing, with respect to any Real Property regarding which
the title company of Purchaser issues a policy to Purchaser confirming that one
or more Sellers is the fee owner thereof, the applicable Sellers shall execute
and deliver to Purchaser, in recordable form, special warranty deeds (or the
local equivalent) conveying such Seller's interest in the Real Property to
Purchaser, and Purchaser (at its expense as to recordation fees) shall promptly
cause the appropriate recordation of such deeds, subject to Sections 7.09(b) and
7.09(c) in the event that such Seller is unable to provide such recordable deeds
at the Closing.
(g) At the Closing, each of the applicable Sellers shall execute and
deliver to Purchaser, in recordable form, assignments for each Ground Lease, and
Purchaser (at its expense as to recordation fees) shall promptly cause the
appropriate recordation of such assignments.
(h) At the Closing, MobileMedia Communications on behalf of Sellers
shall pay to Purchaser an amount equal to the amount, if any, of any Post-
Closing Period Revenue Leases Prepaid Rent.
(i) At the Closing, Purchaser shall pay to MobileMedia Communications
on behalf of Sellers an amount equal to the amount, if any, of any Post-Closing
Period Ground Leases Prepaid Rent.
(j) At the Closing, as applicable, each party shall pay to the other
party the amount or amounts, if any, as are required to be paid as prorations
for certain costs, expenses and charges pursuant to Section 7.07(c).
(k) This Section 3.01(k) shall be subject to Sections 3.01(f), 3.01(g)
and 3.01(r). At or prior to the Closing, Purchaser shall pay or cause to be
paid (either to the appropriate taxing authority, or to the applicable Seller
for payment by such Seller to the appropriate taxing authority, as the case may
be) all transfer, stamp, sales, use, excise or similar taxes or duties, and any
applicable escrow fees or similar charges, payable in connection with the sale,
assignment or conveyance of such Seller's interest in and to the Assets or the
assumption of the Liabilities hereunder to the extent not
15
<PAGE>
covered by section 1146(c) of the Code (collectively "Transfer Taxes And
Charges"). At the Closing, Sellers shall reimburse Purchaser in the amount of
fifty percent (50%) of the Transfer Taxes And Charges. Notwithstanding the
foregoing, in the event that any deed recordation fees or escrow fees or similar
charges are not due and payable until after the Closing, Purchaser may elect to
pay such fees or charges when due, rather than at or prior to the Closing, and
in such event Sellers shall reimburse Purchaser in the amount of fifty percent
(50%) of such fees or charges promptly after Purchaser's payment of the same and
Purchaser's notifying Sellers of such payment and providing Sellers appropriate
supporting documentation with respect thereto. If Purchaser receives any
refunds, credits, rebates or similar payments with respect to any Transfer Taxes
and Charges, Purchaser shall as soon as reasonably practicable remit fifty
percent (50%) of the amount thereof to MobileMedia Communications on behalf of
Sellers. (Any payments by Sellers to Purchaser under this Section 3.01(k) may
be paid by MobileMedia Communications on behalf of Sellers.)
(l) At the Closing, MobileMedia Communications on behalf of Sellers
shall return the Letter of Credit to Purchaser.
(m) At or prior to the Closing, each Seller shall deliver the
applicable items which are to be delivered by such Seller pursuant to Sections
7.08(a) and 7.08(b).
(n) At the Closing, each Seller shall deliver the applicable documents
and materials, or copies thereof, which are listed in clause (vii) of the
definition of Assets in Section 1.01.
(o) At or prior to the Closing, Purchaser shall deliver to Sellers
resale certificates for each state or local jurisdiction in which Purchaser will
either resell or lease any Asset that is treated as tangible personal property
under any applicable sales, use, excise or similar tax laws.
(p) As applicable, each Seller shall deliver to Purchaser certificates
certifying that such Seller is not a foreign person within the meaning of
Section 1445 of the Internal Revenue Code.
(q) Subject to the terms hereof, Sellers shall deliver revised
Schedules II and III, as applicable.
(r) At the Closing (or soon as reasonably practicable thereafter as to
non-Owned Sites), Purchaser and Lessee shall prepare a memorandum of the Master
Lease for recordation in the appropriate jurisdictions, at Lessee's expense as
to recordation
16
<PAGE>
fees (except to the extent that the parties are unable to effect such
recordation as to non-Owned Sites).
(s) At the Closing, as applicable, Purchaser shall deliver to the
Lessee nondisturbance agreements and similar agreements pursuant to Section 18
of the Master Lease.
(t) At the Closing, a Seller and Purchaser shall execute a lease for
Site 61 (Greensboro, NC) as contemplated by the Disclosure Schedule.
(u) At or prior to the Closing, Sellers will provide Purchaser a
complete list of paging terminals that are excluded from the Assets as
contemplated by the Disclosure Schedule.
SECTION 3.02. Supplemental Payments to Sellers Regarding Post-Closing
-------------------------------------------------------
Revenue Leases
--------------
If Purchaser or any of its Affiliates, as lessor, enters into a lease
("Post-Closing Revenue Leases") for space on Towers with a Person or its
Affiliates whom any Seller has contacted or has been engaged in discussions
with, whether prior to or following the Closing Date, regarding the leasing of
space on Towers which Post-Closing Revenue Lease becomes effective on the
Closing Date or at any time within one (1) year following the Closing Date,
Purchaser shall pay such Seller an amount equal to fifty percent (50%) of the
stipulated annual rent under such Post-Closing Revenue Lease. The payment from
Purchaser shall be due and payable to Seller in one lump sum no later than
thirty (30) days after the effective date of the applicable Post-Closing Revenue
Lease. "Post-Closing Revenue Leases" include arrangements with any existing
tenant under a Revenue Lease regarding such tenant installing different
equipment or leasing other space or additional space on the same or different
Towers, but does not refer to an extension or renewal of an existing Revenue
Lease for the same equipment at the same Tower Site.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
As of the date hereof, each of the Sellers jointly and severally
represents and warrants to Purchaser that:
SECTION 4.01. Authorization; Contravention. Except as set forth in
----------------------------
the Disclosure Schedule, (i) each Seller is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and (ii) subject to the issuance and effectiveness of the
Bankruptcy Court Order, the execution, delivery and performance of this
Agreement and the Ancillary Agreements by such Seller, and the execution,
17
<PAGE>
delivery and performance of the Master Lease by MobileMedia Communications (or
the applicable Lessee), and the consummation of the transactions contemplated
hereby and thereby, are within such Seller's corporate power, have been duly
authorized by all necessary corporate action of such Seller, and, other than
breaches that by operation of law are deemed cured or waived and consents that
by operation of law are deemed granted or inapplicable, as reflected in the
Bankruptcy Court Order, do not contravene or constitute a default under any
provision of (x) its certificate of incorporation or by-laws, or (y) subject to
receipt of the consent of the DIP Lenders, any Applicable Laws, or any agreement
or other instrument or Order binding upon it or any of its properties. Except
for the issuance and effectiveness of the Bankruptcy Court Order, and except as
set forth in the Disclosure Schedule, the execution, delivery and performance by
each Seller of this Agreement and the Ancillary Agreements, and the execution,
delivery and performance by MobileMedia Communications (or the applicable
Lessee) of the Master Lease, require no action or consent by, filing with or
notice to any governmental body, agency or official or other Person (including
with respect to the FAA or FCC). Subject to the issuance and effectiveness of
the Bankruptcy Court Order, this Agreement is a valid and binding agreement of
each Seller enforceable against such Seller in accordance with its terms. Each
of the Ancillary Agreements will constitute a valid and binding agreement of
each Seller enforceable against such Seller in accordance with its terms, upon
the execution and delivery thereof. The Master Lease will constitute a valid
and binding agreement of MobileMedia Communications (or the applicable Lessee)
enforceable against MobileMedia Communications (or the applicable Lessee) in
accordance with its terms upon the execution and delivery thereof.
SECTION 4.02. Title to Assets. Except as set forth in the Disclosure
---------------
Schedule, each Seller has (i) valid leasehold interests as a tenant under the
Ground Leases to which it is a party and valid leasehold interests as a lessor
under the Revenue Leases to which it is a party, and (ii) good title to all of
the Assets which it purports to own (subject to the Permitted Liens and except
for Liens in favor of the Pre-Petition Lenders or the DIP Lenders). Except for
Permitted Liens, upon consummation of the Closing, the Assets will be conveyed
and assigned by Sellers to Purchaser free and clear of all Liens (including
without limitation free and clear of all Liens in favor of the Pre-Petition
Lenders or the DIP Lenders). Except as set forth in the Disclosure Schedule, no
Seller has entered into any contracts or granted any options or similar rights
for the sale of the Assets to any Person other than to Purchaser pursuant to
this Agreement, other than as contemplated by Article VI, and, upon consummation
of the Closing, the Assets will no longer be subject to any such options or
similar rights entered into by any Seller.
18
<PAGE>
SECTION 4.03. Legal Proceedings. Except as set forth in the
-----------------
Disclosure Schedule, no Seller has received notice of, and to such Seller's
Knowledge there are not, any claims, actions, suits, investigations or
proceedings before any court or governmental body against the Assets, an outcome
of which would likely have a material adverse effect on such Seller's interest
in and to the Assets taken as a whole.
SECTION 4.04. Compliance With Law. Except as set forth in the
-------------------
Disclosure Schedule, each Seller is in compliance in all material respects with
all material laws and regulations applicable to the Assets which it purports to
own and the business operations presently conducted by such Seller at the Sites.
Except as set forth in the Disclosure Schedule, to such Seller's Knowledge, such
Seller possesses all licenses, franchises, permits, zoning variances, and other
governmental authorizations that are necessary to operate the Towers. Each
Seller has provided to Purchaser or made available to Purchaser or its
representatives copies of all applicable material licenses, franchises, permits,
zoning variances and other governmental authorizations regarding the operation
of such Towers, which are in such Seller's possession. The representations and
warranties under this Section 4.04 shall not apply with respect to
environmental, health and safety matters which, instead, are covered exclusively
by the representations and warranties set forth in Sections 4.01 and 4.06.
SECTION 4.05. Ground Leases and Revenue Leases. Except as set forth
--------------------------------
in the Disclosure Schedule, and except with respect to the Bankruptcy
Proceedings, each of the Ground Leases and Revenue Leases to which any Seller is
a party (i) has been duly and validly executed and delivered by such Seller, and
(ii) constitutes a valid and binding agreement of such Seller. Except as set
forth in the Disclosure Schedule, to such Seller's Knowledge, neither the lessor
nor tenant under any Ground Lease or Revenue Lease is in material breach
thereunder. Schedule III sets forth the approximate amount of gross monthly
rent paid to Sellers under each of the Revenue Leases indicated thereon
(exclusive of expense reimbursements and related expense components) for the
period indicated thereon. Except as set forth in the Disclosure Schedule, each
Seller has made available to Purchaser or its representatives true and correct
copies of any Ground Leases, Revenue Leases or easements for the Easement Sites
to which such Seller is party and which Purchaser or its representatives has
requested to review.
SECTION 4.06. Environmental Matters. This Section 4.06 and Section
---------------------
4.01 contain the exclusive representations and warranties of each Seller
concerning environmental, health and safety matters, including but not limited
to Environmental Laws and Hazardous Materials. Except as set forth in the
Disclosure
19
<PAGE>
Schedule, to such Seller's Knowledge, such Seller is in compliance in all
material respects with all Environmental Laws and related permits and licenses
applicable to such Seller's operations at the Sites, except for any non-
compliance that will not materially adversely affect the value of such Site, and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced, and is pending, against Seller
alleging any failure to so comply. Except as set forth in the Disclosure
Schedule, no Hazardous Materials are present at a Site which have been placed
thereon by any Seller, except for any such Hazardous Materials which are
presently in compliance in all material respects with all applicable
Environmental Laws or the presence of which will not materially adversely affect
the value of such Site. Each Seller has provided or made available to Purchaser
or its representatives copies of all environmental studies and reports, which
were prepared during the five (5)-year period preceding the date hereof and are
in such Seller's possession regarding Hazardous Materials on Sites operated by
such Seller.
SECTION 4.07. Certain Site and Tower Matters.
------------------------------
(a) Except as set forth in the Disclosure Schedule, no Seller has
received notice of any existing action by governmental authorities to terminate
or materially reduce the current access from the Sites to existing highways and
roads, or to sewer or other utility services serving the Sites. Except as set
forth in the Disclosure Schedule, to Sellers' Knowledge, (i) all utilities
required for the operation of the Towers enter the Sites through adjoining
public streets or, if they pass through an adjoining private tract, do so in
accordance with valid public easements, and (ii) all utilities required for the
operation of the Towers are installed and operating and all installation and
connection charges have been paid in full.
(b) Except as set forth in the Disclosure Schedule, to Sellers'
Knowledge, (i) the Towers are located within the boundary lines of the
applicable Real Property, (ii) the Towers are not in violation of applicable
setback requirements, zoning laws, and ordinances, and (iii) the Towers do not
encroach on any easement that may materially burden the Sites.
(c) Except as set forth in the Disclosure Schedule, to Sellers'
Knowledge, (i) the Real Property is not located within any flood plain or
subject to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained, and (ii) none of the Real
Property is within any area determined by the Department of Housing and Urban
Development to be flood prone under the Federal Flood Protection Act of 1973.
20
<PAGE>
(d) Except as set forth in the Disclosure Schedule, there are no
leases, subleases or other agreements granting to any Person the right of use or
occupancy of any portion of the Real Property, other than the use or occupancy
by any Seller, its Affiliates, Tenants under applicable Revenue Leases or
Persons performing maintenance, repair or related services. Except as set forth
in the Disclosure Schedule, there are no Persons in possession of such Real
Property, other than any Seller, its Affiliates, Tenants under applicable
Revenue Leases or Persons performing maintenance, repair or related services.
SECTION 4.08. Reaffirmation at Closing. At the Closing, each Seller
------------------------
shall be deemed to reaffirm to Purchaser the accuracy and correctness in all
material respects of the representations and warranties of such Seller set forth
in this Article IV (without further action by such Seller), except to the extent
that prior to the Closing Purchaser receives from Sellers a written instrument
(which shall become a Schedule hereto) that discloses any modifications and
exceptions to such representations and warranties.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As of the date hereof, Purchaser represents and warrants to each
Seller that:
SECTION 5.01. Authorization; Contravention. (i) Purchaser is a
----------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and (ii) the execution, delivery and
performance of this Agreement, the Ancillary Agreements and the Master Lease by
Purchaser and the consummation of the transactions contemplated hereby and
thereby are within Purchaser's corporate power, have been duly authorized by all
necessary corporate action of Purchaser, and do not contravene or constitute a
default under any provision of (x) its certificate of incorporation or by-laws
or (y) any Applicable Laws, or any agreement or other instrument or Order
binding upon it or any of its properties. Except for the issuance and
effectiveness of the Bankruptcy Court Order, the execution, delivery and
performance by Purchaser of this Agreement, the Ancillary Agreements and the
Master Lease require no action or consent by, filing with or notice to any
govern mental body, agency or official or other Person (including with respect
to the FAA or FCC). This Agreement is a valid and binding agreement of Purchaser
enforceable against Purchaser in accordance with its terms. Each of the
Ancillary Agreements and Master Lease will constitute a valid and binding
agreement of
21
<PAGE>
Purchaser enforceable against Purchaser in accordance with its terms, upon the
execution and delivery thereof.
SECTION 5.02. Sufficient Funds. On or before August 15, 1998,
----------------
Purchaser will have sufficient funds, under binding financing commitments and/or
from Purchaser's cash on-hand, which will fully enable Purchaser to purchase the
Assets and to assume the Liabilities pursuant to this Agreement. No condition
(contractual or otherwise) will exist to prevent Purchaser from applying
borrowed funds under any such financing commitment and Purchaser's cash on-hand
to purchase the Assets and otherwise to consummate the transactions contemplated
hereunder in a timely manner.
SECTION 5.03. No H-S-R Act Filing. The transactions contemplated by
-------------------
this Agreement are exempt from the filing requirements under the H-S-R Act based
on (i) such transactions being deemed an acquisition of investment real property
assets for purposes of the H-S-R Act and (ii) the fair market value of any
equipment located on such real property not exceeding $15,000,000 in the
aggregate.
SECTION 5.04. Reaffirmation at Closing. At the Closing, Purchaser
------------------------
shall be deemed to reaffirm to each Seller the accuracy and correctness in all
material respects of the representations and warranties set forth in Article V
(without further action by Purchaser), except to the extent that prior to the
Closing Sellers receive from Purchaser a written instrument (which shall become
a Schedule hereto) that discloses any modifications and exceptions to such
representations and warranties.
ARTICLE VI
EXCLUSIVITY; COMPETING BIDS AND BIDDING PROCEDURES
--------------------------------------------------
SECTION 6.01. Bankruptcy Actions. No later than five (5) business
------------------
days after the date hereof, Sellers will file a motion, supporting papers and a
proposed order, in form and substance reasonably acceptable to Sellers and
Purchaser (the "Procedures Order"), seeking approval of the terms of this
Article VI.
SECTION 6.02. Exclusivity. From and after the date hereof through
-----------
and including the earlier of the date of the closing of the transaction
contemplated by this Agreement and the date on which this Agreement is
terminated pursuant to Article VIII (the "Exclusivity Period"), no Seller shall
(i) make any
22
<PAGE>
offer, or initiate or solicit the making of any proposal, that constitutes, or
may reasonably be expected to lead to, any Competing Transaction (as hereinafter
defined), or (ii) authorize or permit any of the officers, directors or
employees (collectively, "Employees") of such Seller or any investment banker,
financial advisor, attorney, accountant, agent or other representative
(collectively, "Representatives") retained by such Seller to take any such
action. Notwithstanding the foregoing, each Seller and their respective
Employees and Representatives may, until such time as the Bankruptcy Court has
entered the Procedures Order (at which time the Procedures Order shall govern),
(i) respond to inquiries from one or more third parties, including third parties
previously contacted by such Seller ("Competing Bidders"), (ii) review written
proposals from Competing Bidders for Competing Transactions, (iii) enter into
confidentiality agreements with Competing Bidders and provide Competing Bidders
with access to information, confidential or otherwise, concerning the Company
and its business, (iv) negotiate Competing Bids with Competing Bidders, (v) to
the extent that a Competing Bid is made and not exceeded by a Topping Offer as
described in Section 6.03, consummate Competing Transactions with Competing
Bidders, (vi) disclose to the maker of the Qualifying Competing Bid the terms of
a Topping Offer as described in Section 6.03 and (vii) take any action not
otherwise prohibited by this Agreement in furtherance of any of the foregoing or
as otherwise permitted by the Procedures Order. During the Exclusivity Period,
such Seller shall (x) promptly notify Purchaser of any inquiries or proposals
received by it or by any such officer, director or Representative relating to
any such matters, (y) promptly notify Purchaser of all relevant terms (including
the identify of the person or entity) of any such inquiry or proposal, and (z)
if the inquiry or proposal is in writing, deliver or cause to be delivered to
Purchaser a copy of such inquiry or proposal. For purposes of this Agreement,
"Competing Transaction" shall mean the sale of any of the Assets to a Person or
Persons other than Purchaser, in one transaction or a series of related
transactions, and the entering into of leasing transactions as contemplated by
the Master Lease. Upon expiration of the Exclusivity Period, each Seller and
their respective Employees and Representatives may initiate or solicit the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Competing Transaction, without further restriction under this Section
6.02.
SECTION 6.03. Competing Bids.
--------------
(a) On or before August 7, 1998 (the "Bidding Deadline"), third
parties may submit proposals for Competing Transactions ("Competing Bids"),
which proposals shall be delivered to such Seller and such other parties as may
be specified in the Procedures Order. In order for any Seller to
23
<PAGE>
consider any Competing Bid, the Competing Bid must be: (i) in writing; (ii)
identical in all material respects to the terms set forth in this Agreement
(except that no other Person shall be entitled to the Purchaser's Liquidated
Damages or to the expense reimbursement provided for in Section 6.05), the
Ancillary Agreements and the Master Lease; (iii) accompanied by a deposit in
cash or collected funds in the amount of $5,000,000 to be held by Seller; (iv)
accompanied by evidence satisfactory to Seller, in its sole discretion that the
bidder has sufficient financial resources to complete the transactions
contemplated by this Agreement; and (v) reflect a cash purchase price of at
least $178,000,000. If more than one Competing Bid is made before the Bidding
Deadline, Sellers shall determine the Competing Bid that provides the greatest
value to, and is in the best interests of the estate, which bid shall be the
"Qualifying Competing Bid" for purposes of clauses (b) and (c) below.
(b) Within five (5) calendar days after the Bidding Deadline,
MobileMedia Communications on behalf of Sellers will promptly notify Purchaser
and shall indicate in such notice the terms of the Qualifying Competing Bid,
including the identity of the third party submitting the Qualifying Competing
Bid (the "Qualifying Competing Bidder") and the consideration offered by the
Qualifying Competing Bidder (a "Competing Bid Notice"). Upon delivery of a
Competing Bid Notice, Purchaser shall have the right (a "Topping Right") to
deliver to Sellers, within [five (5)] calendar days following the receipt by
Purchaser of such Competing Bid Notice, a written offer (a "Topping Offer") to
amend the terms of this Agreement in order to provide for a Purchase Price
exceeding the Qualifying Competing Bid. A Topping Offer shall exceed the
Qualifying Competing Bid by a minimum of $500,000.
(c) In the event that Purchaser exercises such Topping Right, Sellers
shall disclose such Topping Offer to the Qualifying Competing Bidder and, within
three (3) calendar days following receipt by Sellers of Purchaser's notice of
Topping Offer, Purchaser and Sellers shall enter into an amendment to this
Agreement to reflect Sellers' acceptance of Purchaser's Topping Offer, unless,
within such three (3) day period, the Qualifying Competing Bid is increased to
exceed the Topping Offer by a minimum of $500,000, in which event Purchaser may
again exercise its Topping Right. If, however, within the time period specified
in clause (b) of this Section 6.03, Purchaser has failed to make a Topping Offer
or has notified Sellers in writing that it does not intend to make a Topping
Offer, Sellers may enter into a definitive agreement with the Qualifying
Competing Bidder and Sellers' only obligation to Purchaser shall be the payment
of Purchaser's Liquidated Damages as set forth in Section 6.04 and the return of
the Deposit as provided for in Section 8.01(b).
24
<PAGE>
(d) Following the execution of any amendment to this Agreement
pursuant to subsection (c) above, unless specifically amended in such
amendments, the provisions of this Article VI shall remain in effect and the
receipt by Seller of any other offers, proposals or inquiries relating to any
Competing Bid shall be subject to the provisions of this Article VI.
SECTION 6.04. Purchaser's Liquidated Damages. In the event this
------------------------------
Agreement is terminated pursuant to Section 8.01(b) and Purchaser has not
breached this Agreement, Sellers shall pay to Purchaser, upon the earlier to
occur of (i) December 1, 1998 and (ii) the closing of a Competing Transaction,
an amount equal to $5,000,000 ("Purchaser's Liquidated Damages"). The parties
acknowledge that any damages to Purchaser arising from a termination of this
Agreement are not reasonably ascertainable and cannot be calculated with any
degree of certainty. Therefore, the parties have agreed that Purchaser's
Liquidated Damages are necessary and appropriate to compensate Purchaser for the
actual damages expected to result from out-of-pocket expenses, the payment of
commitment fees for financing, professional fees and expenses, and likely
opportunity costs to be incurred by Purchaser.
SECTION 6.05. Expense Reimbursement. In the event this Agreement is
---------------------
terminated by Purchaser pursuant to Section 8.01(c) or (d) and Section 8.03,
Seller shall pay to Purchaser, within 10 business days after the effectiveness
of such termination, an amount equal to the reasonable expenses actually
incurred by Purchaser in connection with the transactions contemplated hereby
and by the Master Lease and the Ancillary Documents, which expenses shall be
evidenced by invoices or other documentation delivered to Seller together with
the Termination Notices, and which may include, without limitation, reasonable
attorneys' and accountants' fees and expenses, commitment or other financing
fees and fees relating to title reports or surveys.
ARTICLE VII
OTHER AGREEMENTS
SECTION 7.01. Conduct of the Business Pending Closing. Each Seller
---------------------------------------
covenants and agrees that, prior to the earlier of the Closing or termination of
this Agreement, except as (x) set forth in the Disclosure Schedule, (y)
otherwise agreed to by Purchaser, or (z) otherwise required by the Bankruptcy
Court or resulting from the Bankruptcy Proceedings:
(i) such Seller will operate the Assets in the ordinary course
of its business, consistent with past practice as a debtor-in-possession;
25
<PAGE>
(ii) such Seller will not encumber the Assets with any Liens except
for Liens incurred in the ordinary course of its business or with Permitted
Liens or Liens in favor of the Pre-Petition Lenders or the DIP Lenders (and any
such Liens in favor of the Pre-Petition Lenders or DIP Lenders shall not survive
the Closing);
(iii) such Seller will not amend, in any material respect, any
Revenue Leases or Ground Leases, except for amendments in the ordinary course of
its business, and, without limiting the foregoing, the extension or renewal of
any Revenue Leases or Ground Leases shall not be deemed to be an amendment for
purposes of this Section 7.01, provided, that (x) such Seller shall not extend
--------
or renew any Revenue Lease at a rental rate that is less than the present rental
rate thereunder, without the consent of Purchaser which consent shall not be
unreasonably withheld or delayed, and (y) such Seller shall not extend or renew
any Ground Lease at a rental rate that exceeds the greater of (1) one hundred
twenty five percent (125%) of the present rental rate thereunder or (2) $500 per
month more than the present rental rate thereunder, without the consent of
Purchaser which consent shall not be unreasonably withheld or delayed;
(iv) such Seller shall notify Purchaser of any pending or threatened
governmental investigations or hearings, within such Seller's Knowledge, that
would be expected to materially adversely affect the Assets taken as a whole;
and
(v) such Seller will comply with all Applicable Laws in all
material respects, the compliance with which is required for consummation of the
transactions contemplated by this Agreement.
SECTION 7.02. Access. Each Seller shall provide Purchaser and its
------
representatives, at reasonable times and upon reasonable advance notice to such
Seller, with reasonable access to the Assets that are purported to be owned by
such Seller, and such Seller shall make available to Purchaser or its
representatives all documents, records and information as Purchaser may
reasonably request with respect to the ownership or operation of such Assets or
the terms of related Liabilities, subject to any confidentiality agreements
restricting such disclosure or access. At reasonable times and upon reasonable
advance notice to any Seller, Purchaser and its representatives shall have the
right to enter Sites that are operated by such Seller for purposes of Purchaser
or its representatives conducting surveys, tests and studies that are necessary
or appropriate in connection with inspecting such Sites; provided that if such
--------
surveys, tests or studies include sampling, Purchaser shall provide such Seller
with a reasonable opportunity to review the scope of work for sampling before it
is performed,
26
<PAGE>
and Purchaser shall defend, indemnify and hold harmless such Seller against any
and all Losses and Expenses to the extent caused by such sampling.
SECTION 7.03. Confidentiality. (a) If this Agreement is terminated,
---------------
Purchaser hereby agrees that Purchaser, its Affiliates and its representatives
will immediately (and without request by any Seller) deliver to MobileMedia
Communications on behalf of Sellers, and Purchaser will not retain any copies of
all documents, work papers and other material obtained by Purchaser or on its
behalf from any Seller or any of their Affiliates or representatives in
connection with this Agreement, whether so obtained before or after the
execution hereof. If this Agreement is terminated, Purchaser (and its Affiliates
and representatives) will not use or disclose, directly or indirectly, any
information so obtained, and will have all such information kept confidential
and not used in any way detrimental to any Seller or any of their Affiliates;
provided, that: (i) Purchaser may use and disclose any such information which
- --------
has been publicly disclosed (other than by the Purchaser or any of its
Affiliates or representatives in breach of their obligations under this Section
7.03), and (ii) to the extent that Purchaser or any of its Affiliates or
representatives may become legally compelled to disclose any of such
information, Purchaser, its Affiliate or representative may disclose such
information if they shall have accorded the applicable Seller the opportunity to
obtain an appropriate protective order, or other satisfactory assurance of
confidential treatment, for the information required to be so disclosed.
(b) Purchaser, its Affiliates and its representatives shall comply
with the requirements of all existing agreements to which Purchaser is a party
applicable to the use or confidentiality of information regarding the Assets,
any Seller, any of their Affiliates or any of their respective businesses.
(c) Without limiting the other provisions of this Section 7.03, the
applicable Seller may impose reasonable confidentiality restrictions on
Purchaser and its representatives regarding any inspection by Purchaser and its
representatives in connection with Section 7.02.
SECTION 7.04. Maintenance of Records. For a period of fifteen (15)
----------------------
years from the Closing Date: (i) Purchaser and its Affiliates shall keep and
maintain all documents and records relating to the Assets or Liabilities, or
(ii) Purchaser shall (at its expense) deliver to the applicable Seller copies of
any of such documents or records which Purchaser chooses not to maintain (unless
such Seller grants permission, in writing, for Purchaser to destroy specified
documents and records). Upon reasonable notice and request, Purchaser shall make
such
27
<PAGE>
documents and records available to such Seller for inspection and copying, at
such Seller's expense, during regular business hours in order to permit such
Seller to (i) prepare for, dispute or respond to any claim or proceeding,
including, without limitation, audits in connection with tax returns or
proceedings under the Internal Revenue Code, and (ii) comply with governmental
requirements applicable to such Seller or any of its Affiliates; provided, that
--------
any such inspection pursuant to this Section 7.04 shall be conducted in such a
manner so as not to unreasonably interfere with the normal conduct of the
business by Purchaser.
SECTION 7.05. Deposit; Liquidated Damages.
---------------------------
(a) Purchaser shall cause the Letter of Credit to be issued to
MobileMedia Communications (on behalf of Sellers) within three (3) business days
after the date hereof, which Letter of Credit shall be drawn on by MobileMedia
Communications or returned to Purchaser as provided below, and in accordance
with the terms of the Letter of Credit:
(i) if the Closing shall occur, the Letter of Credit shall be
returned to Purchaser at the Closing;
(ii) if this Agreement is terminated pursuant to Section 8.01(c)
and a breach by the Purchaser of this Agreement causes such termination event,
or if this Agreement is terminated pursuant to Section 8.01(e), MobileMedia
Communications on behalf of Sellers may present and draw on the Letter of
Credit, in partial or full payment of the Sellers' Liquidated Damages as the
case may be; and
(iii) if this Agreement is terminated pursuant to Sections
8.01(a), 8.01(b) or 8.01(d), or if this Agreement is terminated pursuant to
Section 8.01(c) and there is no breach by the Purchaser of this Agreement which
causes the Section 8.01(c) termination event, MobileMedia Communications on
behalf of Sellers shall promptly return the Letter of Credit to Purchaser.
(b) Each of Purchaser and each Seller shall perform and act with
respect to the Letter of Credit consistent with the provisions of this Section
7.05 and the applicable provisions of the Letter of Credit.
(c) Purchaser hereby acknowledges that the actual damages to Sellers
in the event that this Agreement is terminated pursuant to Section 8.01(e) or
the Closing does not occur by the date specified in Section 8.01(c) due to a
breach by Purchaser of any of its representations, warranties, covenants or
agreements under this Agreement will equal or exceed $12,500,000 ("Sellers'
Liquidated Damages"), provided that Sellers' Liquidated Damages
--------
28
<PAGE>
shall be $5,000,000 if this Agreement is terminated pursuant to Section 8.01(e)
prior to the issuance of the Bankruptcy Court Order. In the event that the
Closing does not occur by the date specified in Section 8.01(c) due to such
breach by Purchaser of this Agreement or this Agreement is terminated pursuant
to Section 8.01(e), Purchaser shall promptly pay to MobileMedia Communications
(on behalf of Sellers) cash in the amount, if any, that the Sellers' Liquidated
Damages exceeds the amount of any payment made under the Letter of Credit to
MobileMedia Communications (on behalf of Sellers). In the event of such breach
by Purchaser, the Letter of Credit Disbursement shall be paid to MobileMedia
Communications (on behalf of Sellers) and applied to Sellers' Liquidated Damages
pursuant to Section 7.05(a)(ii), provided, that, Purchaser shall be and remain
--------
primarily liable to Sellers for the full and prompt payment of the entire amount
of Sellers' Liquidated Damages (in the event that the Issuing Bank does not so
promptly pay the full amount of the Letter of Credit Disbursement to MobileMedia
Communications, and upon any such payment by Purchaser of the full amount of the
Sellers' Liquidated Damages, MobileMedia Communications shall return the Letter
of Credit to Purchaser).
SECTION 7.06. Pre-Closing Claims and Rights. The parties acknowledge
-----------------------------
and agree that the Assets that are being sold and assigned hereunder shall not
include any claims, causes of actions, indemnities, recoveries or similar rights
(individually and collectively the "Pre-Closing Rights") that may exist in favor
of any Seller with respect thereto regarding acts or events which arise or occur
prior to the Closing Date or otherwise relate to the period prior to the Closing
Date, and such Seller shall not be deemed to have sold or assigned the Pre-
Closing Rights to Purchaser hereunder.
SECTION 7.07. Prorations.
----------
(a) Each Seller shall be entitled to all rent and related payments
under the Revenue Leases to which it is party relating to any period (or portion
thereof) preceding the Closing Date (regardless of the actual rent receipt
date). Purchaser shall promptly remit to MobileMedia Communications on behalf of
Sellers, all rent and related payments that Purchaser receives or collects from
Tenants under the Revenue Leases regarding rent relating to any period (or
portion thereof) preceding the Closing Date. Such rent shall include the
application of any guarantee payments, indemnities, setoffs or similar payments
or recoveries that are applied to rent. The parties agree that all such payments
received by Purchaser or its representatives from or on behalf of a Tenant shall
applied in the following order: (i) first, to unpaid rent that has been due
within sixty (60) days preceding such rent receipt date, first applied to rent
that is most remotely in arrears, (ii) next, to rent that is due on
29
<PAGE>
such rent receipt date or comes due during the immediately succeeding forty
(40) -day period, (iii) next, to unpaid rent that has been due more than sixty
(60) days preceding such rent receipt date, first applied to rent that is most
remotely in arrears, and (iv) then, to rent coming due more than forty (40) days
after such rent receipt date. Notwithstanding the foregoing provisions of this
Section 7.07(a), Purchaser shall be entitled to all rent under the Revenue
Leases which comprises rental payments relating to any period (or portion
thereof) on or after the Closing Date ("Post-Closing Period Revenue Leases
Prepaid Rent"), and Sellers shall deliver to Purchaser at Closing by payment of
an amount equal to any Post-Closing Period Revenue Leases Prepaid Rent.
(b) Sellers shall be responsible for paying all rent under the Ground
Leases relating to any period (or portion thereof) which ends on or prior to the
date immediately preceding the Closing Date. As applicable, with respect to rent
under any Ground Lease that has been paid by or for any Seller and which
comprises rental payments relating to any period (or portion thereof) on or
after the Closing Date ("Post-Closing Period Ground Leases Prepaid Rent"),
Purchaser shall reimburse Sellers at Closing by payment of an amount equal to
the amount of any Post-Closing Period Prepaid Ground Lease Rent.
(c) Utility charges, personal property taxes, real estate taxes and
similar items relating to the Assets shall be ratably adjusted among the parties
at the Closing (or as soon as reasonably practicable thereafter to the extent
that the allocation is undetermined by the Closing Date). Subject to Section
3.01(k) regarding the allocation of Transfer Taxes And Charges, and without
limiting the foregoing provision of this Section 7.07(c), Sellers shall be
responsible for taxes relating to the Assets regarding any period (or portion
thereof) which ends on or prior to the date immediately preceding the Closing
Date and Purchaser shall be responsible for all taxes relating to the Assets
regarding any period (or portion thereof) on or after the Closing Date.
SECTION 7.08. Certain Seller Undertakings Regarding Ground Leases,
----------------------------------------------------
Sites and Related Matters.
- -------------------------
(a) Prior to the Closing, with respect to each Leased Site the
applicable Seller which purports to lease such Site will, at its reasonable
expense, forward to its lessor at the Leased Site, the following documents,
requesting the execution and delivery thereof: (i) a landlord estoppel agreement
(the "Estoppel Agreement"), substantially in the form of Exhibit D hereto, and
(ii) a memorandum of lease ("Memorandum of Lease"), substantially in the form of
Exhibit E hereto (subject to the final sentence of this Section 7.08(a)). Such
Seller shall not
30
<PAGE>
be responsible for any recordation costs or related fees with respect to any
Memorandum of Lease. Such Seller will forward to Purchaser any Estoppel
Agreement and Memorandum of Lease that have been so executed and delivered by
such lessor and returned to such Seller. The parties acknowledge and agree that
(x) no Seller makes any representation or warranty as to whether any lessor will
so execute and deliver any Estoppel Agreement or Memorandum of Lease, (y) no
Seller shall have further responsibility in attempting to obtain the execution
and delivery thereof, and (z) Purchaser shall not be entitled to exclude any
Towers at a Leased Site from the Assets, and no Seller shall have any other
liability or responsibility, solely because of such Seller's failure to deliver
an executed and delivered Estoppel Agreement or Memorandum of Lease from the
lessor at such Site. Sellers and Purchaser shall reasonably cooperate in
connection with modifying the forms of Estoppel Agreement and Memorandum of
Lease as appropriate for specific Sites.
(b) On or prior to the Closing, the applicable Seller shall provide
to Purchaser, at such Seller's reasonable expense as to the items listed in
clauses (i) through (iii) and (v) below, the following affidavits and
undertakings, each in form acceptable to such Seller in its reasonable
discretion, to the extent that the same are required by Purchaser's title
insurance company, if Purchaser elects to purchase owner's and/or leasehold
title insurance policies, as the case may be (written on ALTA Form B-1970, if
available in the applicable jurisdictions), for each of the Sites: (i)
affidavits regarding parties in possession of the real property, (ii) affidavits
certifying as to matters that would give rise to the filing of a mechanic's or
materialman's lien, (iii) so-called "gap" undertakings, (iv) such other
documents that a title company customarily requests from an owner of real
property which are necessary either to allow the deed or Memorandum of Lease to
be recorded or to remove standard preprinted exceptions regarding factual
matters (provided that the same can be furnished at no additional expense to any
Seller), and (v) evidence reasonably satisfactory to Purchaser and the title
company that the Persons executing closing documents on behalf of such Seller
have appropriate right, power and authority to do so. Any such title insurance
policies shall be subject only to Permitted Liens. In furtherance of this
Section 7.08(b) the applicable Seller will provide to Purchaser copies of any or
all of the following items for each of the Sites which may then be in the
possession of such Seller or any of its a wholly-owned subsidiaries, and which
have been prepared within the five (5)-year period preceding the date hereof:
(1) title reports, commitments and policies, (2) surveys, and (3) zoning
reports.
(c) If Purchaser elects to order a current survey (the "Survey") of
any Site that any Seller owns, leases, or subleases
31
<PAGE>
and which is included in the Assets, such Seller shall cooperate in all
commercially reasonable respects with Purchaser's reasonable requests to obtain,
at Purchaser's sole cost and expense, any such current survey. If the Survey
shall disclose any defect(s) or encroachment(s) from or onto the Site that has
not been cured, or will not be insured over by Purchaser, and such defect(s) or
encroachment(s), in the aggregate, have a material adverse effect on the value
of the Site in question, then Seller and Purchaser shall in good faith attempt
to correct such defect consistent with the provisions of Section 7.09(b),
including the limitation on the obligation to expend funds set forth therein.
SECTION 7.09. Certain Post-Closing Obligations.
--------------------------------
(a) For a period of four (4) months following the Closing Date,
Seller shall make Bruce Hightower available on a substantially full-time basis
to assist Purchaser regarding any Purchaser efforts to negotiate renewals or
extensions of Ground Leases, to the extent that Bruce Hightower is an employee
of Seller during such period (at no cost to Purchaser). If Bruce Hightower is
not an employee of Seller during such period, Seller's obligation under this
Section 7.09(a) shall apply to any employee of Seller who succeeds to Bruce
Hightower's duties and responsibilities (at no cost to Purchaser); provided,
--------
that Seller's obligations under this Section 7.09(a) shall cease as of any date
on which Purchaser or its Affiliates hire Bruce Hightower as an employee or
consultant. Purchaser acknowledges and agrees that Seller is not making any
representation or warranty or agreement under this Section 7.09(a) that Seller
will retain Bruce Hightower as an employee or consultant at any time following
the date hereof through the four (4)-month anniversary of Closing Date.
(b) Without limiting each Seller's obligations under Section 7.10,
each Seller shall reasonably cooperate with Purchaser, and each Seller shall use
commercially reasonable efforts, to cure any breaches of such Seller's
representations and warranties in Section 4.02 regarding title defects, and to
correct Survey defects pursuant to Section 7.08(c); provided that Purchaser
--------
acknowledges and agrees that this Section 7.09(b) shall not be construed as
obligating any Seller to expend any funds or to incur any expenses in connection
with any such cure or correction.
(c) In the event that any Seller is unable to convey good title to
any Real Property (or portion thereof) to Purchaser, such Seller and Purchaser
shall in good faith attempt to implement a commercially reasonable and feasible
arrangement that will provide Purchaser with a non-fee ownership possessory
interest to such Real Property (or portion thereof).
32
<PAGE>
(d) Purchaser and Sellers shall amend Schedule I, from time to time,
to include the legal descriptions of any Site that is in such party's
possession.
(e) The Master Lease, in Section 2(c), contemplates certain
procedures for the compensation of Purchaser (including without limitation by
the substitution of rental sites in the event that Seller and Purchaser are
unable to extend the terms of Ground Leases to at least the fifth (5th)
anniversary of the date of the Master Lease), or are unable to cure certain
title defects for any owned Site. The Master Lease, in Section 11, contemplates
certain procedures and obligations of Lessee regarding the "overloading" of any
Tower.
SECTION 7.10. Further Assurances. Each of the Purchaser and each
------------------
Seller further agrees that prior to the Closing it will use reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under the Code, the Internal Revenue Code
and other applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including reasonable efforts to
obtain all necessary waivers, consents and approvals and to effect all necessary
filings and notices including, but not limited to: (i) obtaining the Order, and
(ii) Purchaser making all applicable filings with the FCC as contemplated by
Section 9.01(d). Furthermore, each of the Purchaser and each Seller agrees
either prior to or after the Closing (subject to the provisions hereof
concerning responsibility for costs and expenses)to execute and deliver other
documents and take other actions as the other party may reasonably request which
are necessary to consummate the transactions contemplated hereby.
SECTION 7.11. Indemnification. (a) Subject to the provisions of
---------------
this Section 7.11, each Seller shall jointly and severally indemnify, protect
and hold harmless each Purchaser Group Member from and against any and all
Losses and Expenses, whether or not litigation is commenced, imposed in any
manner upon, incurred by or asserted against such Purchaser Group Member in
connection with or arising from:
(i) any breach of any representation or warranty of a Seller
contained in this Agreement or in an Ancillary Agreement;
(ii) any breach of any covenant or agreement of a Seller
contained in this Agreement or in an Ancillary Agreement; or
(iii) any claim by any broker, finder or investment banker
engaged or allegedly engaged by a Seller or any
33
<PAGE>
Affiliate thereof in connection with any of the transactions contemplated by
this Agreement;
provided, that no Seller shall be required to indemnify, protect or hold any
- --------
Purchaser Group Member harmless from or against any such Loss or Expense to the
extent that such Loss or Expense arises out of (A) such Purchaser Group Member's
own gross negligence or willful misconduct or (B) the breach of any of the
representations or warranties of Purchaser contained in this Agreement or in an
Ancillary Agreement, or the breach of any covenant or agreement of Purchaser
contained in this Agreement or in an Ancillary Agreement.
(b) The indemnification obligation provided for in Section 7.11(a)(i)
shall terminate with respect to any claim on the earlier of the third (3rd)
anniversary of the Closing Date and the expiration of the applicable statute of
limitations. The indemnification obligation provided for in Section 7.11(a)(ii)
shall continue until the earlier of three (3) years after the applicable
Purchaser Group Member knew or should have known of the breach of the covenant
or agreement by the applicable Seller and the expiration of the applicable
statute of limitations, except that indemnification by Sellers with respect to a
breach of Section 7.07 shall continue until the expiration of the applicable
statute of limitations. The indemnification obligation provided for in Section
7.11(a)(iii) shall continue until the expiration of the applicable statute of
limitations.
(c) Subject to the provisions of this Section 7.11, Purchaser shall
indemnify, protect and hold harmless each Seller Group Member from and against
any and all Losses and Expenses, whether or not litigation is commenced, imposed
in any manner upon, incurred by or asserted against such Seller Group Member in
connection with or arising from:
(i) any breach of any representation or warranty of Purchaser
contained in this Agreement or in an Ancillary Agreement;
(ii) any breach (other than as specified in clause (iii) below)
of any covenant or agreement of Purchaser contained in this Agreement or in an
Ancillary Agreement;
(iii) any breach by Purchaser of any covenant or agreement
contained in Section 2.03 or Section 7.02; or
(iv) any claim by any broker, finder or investment banker
engaged or allegedly engaged by Purchaser or any Affiliate thereof in connection
with any of the transactions contemplated by this Agreement; or
34
<PAGE>
provided, that Purchaser shall not be required to indemnify, protect or hold any
- --------
Seller Group Member harmless from or against any such Loss or Expense to the
extent that such Loss or Expense arises out of (A) such Seller Group Member's
own gross negligence or willful misconduct or (B) the breach of any of the
representations or warranties of a Seller contained in this Agreement or in an
Ancillary Agreement, or the breach of any of covenant or agreement of a Seller
contained in this Agreement or in an Ancillary Agreement.
(d) The indemnification obligation provided for in Section 7.11(c)(i)
shall terminate with respect to any claim on the earlier of the third (3rd)
anniversary of the Closing Date and the expiration of the applicable statute of
limitations. The indemnification obligation provided for in Section 7.11(c)(ii)
shall continue until the earlier of three (3) years after the applicable Seller
Group Member knew or should have known of the breach of the covenant or
agreement by Purchaser and the expiration of the applicable statute of
limitations, except that indemnification by Purchaser with respect to a breach
of Section 7.07 shall continue until the expiration of the applicable statute of
limitations. The indemnification obligation provided for in Sections
7.11(c)(iii) or 7.11(c)(iv) shall continue until the expiration of the
applicable statute of limitations.
(e) Any Seller Group Member or Purchaser Group Member (the
"Indemnified Party") seeking indemnification hereunder shall promptly give
notice (a "Claim Notice") to the party obligated to provide indemnification to
such Indemnified Party (the "Indemnitor") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any Ancillary Agreement upon which such claim is based; provided, however, that
-------- -------
a Claim Notice in respect of any action at law or suit in equity by or against a
third Person as to which indemnification will be sought shall be given in
accordance with Section 7.11(f). In calculating any Loss or Expense there shall
be deducted (i) any insurance recovery in respect thereof (and no right of
subrogation shall accrue hereunder to any insurer) and (ii) the amount of any
tax benefit to the Indemnified Party (or any of its Affiliates) with respect to
such Loss or Expense (after giving effect to the tax effect of receipt of the
indemnification payments). The Indemnified Party shall have the burden of proof
in establishing the amount of Loss and Expense suffered by it.
(f) (i) In order for an Indemnified Party to be entitled to any
indemnification provided for under this Agreement in respect of, arising out of
or involving a claim or demand made by any third Person against an Indemnified
Party (whether or not
35
<PAGE>
in writing), such Indemnified Party shall notify the Indemnitor in writing, and
in reasonable detail, of the third Person claim within ten (10) business days
after receipt by such Indemnified Party of written notice of the third Person
claim. Thereafter, the Indemnified Party shall deliver to the Indemnitor,
promptly after the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnified Party
relating to the third Person claim.
(ii) In the event of the initiation of any legal proceeding,
claim or demand against the Indemnified Party by a third Person, the Indemnitor
shall have the sole and absolute right after the receipt of notice, at its
option and at its own expense, to be represented by counsel of its choice and to
control, defend against, negotiate, settle or otherwise deal with any
proceeding, claim, or demand which relates to any Loss or Expense indemnified
against hereunder; provided, that the Indemnified Party may participate in any
--------
such proceeding with counsel of its choice and at its expense. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such legal proceeding, claim or demand. To the
extent the Indemnitor elects not to defend such proceeding, claim or demand, and
the Indemnified Party defends against or otherwise deals with any such
proceeding , claim or demand, the Indemnified Party may retain counsel, at the
expense of the Indemnitor, and control the defense of such proceeding. Neither
the Indemnitor nor the Indemnified Party may settle any such proceeding which
settlement obligates the other party to pay money, to perform obligations or to
admit liability without the consent of the other party, such consent not to be
unreasonably withheld.
(g) Notwithstanding anything to the contrary in this Agreement, the
Sellers in the aggregate shall be required to indemnify and hold harmless
Purchaser Group Members under Section 7.11(a)(i) with respect to Losses and
Expenses incurred by Purchaser Group Members only up to a cumulative aggregate
maximum of $25,000,000, it being agreed and acknowledged that indemnification
claims under Sections 7.11(a)(ii) or 7.11(a)(iii) shall not be subject to any
such maximum limit. The indemnifiable Losses and Expenses claims limitation in
the preceding sentence refers to the cumulative claims by Purchaser Group
Members against any and all of the Sellers in the aggregate. Notwithstanding
anything to the contrary in this Agreement, Purchaser shall be required to
indemnify and hold harmless Seller Group Members under Section 7.11(c)(i) with
respect to Losses and Expenses incurred by Seller Group Members only up to a
cumulative aggregate maximum of $25,000,000, it being agreed and acknowledged
that indemnification claims under Sections 7.11(c)(ii), 7.11(c)(iii) or
7.11(c)(iv) shall not be subject to any such maximum limit. Notwithstanding the
foregoing,
36
<PAGE>
Purchaser's maximum liability hereunder to Seller Group Members regarding any
breaches of this Agreement by Purchaser which cause the Closing not to occur by
the date specified in Section 8.01(c) or this Agreement to terminate pursuant to
Section 8.01(e) shall be an amount equal to the Sellers' Liquidated Damages
pursuant to Section 7.05(c).
(h) No Seller shall be required to indemnify any Purchaser Group
Member for any claims arising under Sections 7.11(a)(i) or 7.11(a)(ii) with
respect to any claim or group of claims arising from the same facts unless the
amount of the aggregate Losses arising under Sections 7.11(a)(i) and 7.11(a)(ii)
from the same or different facts exceeds $1,000,000 (in which event the entire
amount of such indemnifiable claims arising under Sections 7.11(a)(i) or
7.11(a)(ii) may be recovered, subject to Section 7.11(g)). Purchaser shall not
be required to indemnify any Seller Group Member for any claims arising under
Sections 7.11(c)(i) or 7.11(c)(ii) with respect to any claim or group of claims
arising from the same facts unless the amount of the aggregate Losses arising
under Sections 7.11(c)(i) and 7.11(c)(ii) from the same or different facts
exceeds $1,000,000 (in which event the entire amount of such indemnifiable
claims arising under Sections 7.11(c)(i) or 7.11(c)(ii) may be recovered,
subject to Section 7.11(g)).
(i) In no event shall any Seller, Purchaser or any of their
respective Affiliates be liable for any Consequential Damages arising under or
in connection with this Agreement or any Ancillary Agreement, other than
Consequential Damages resulting from breaches of Section 2.03 or Section 7.02.
ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.01. Termination. This Agreement and the transactions
-----------
contemplated hereby may be terminated at any time prior to the Closing Date:
(a) by mutual written consent of MobileMedia Communications (on
behalf of Sellers) and Purchaser;
(b) by Sellers' entering into a definitive agreement for a Competing
Transaction (and promptly thereafter MobileMedia Communications (on behalf of
Sellers) shall return the Letter of Credit to Purchaser), in which event Sellers
shall pay the Purchaser's Liquidated Damages in accordance with Section 6.04
(provided that Purchaser has not breached this Agreement), and Sellers shall
have no further obligation or liability to Purchaser in connection with this
Agreement and Sellers shall not
37
<PAGE>
be subject to damages or other liability to Purchaser in connection with Sellers
terminating this Agreement;
(c) by Purchaser or by MobileMedia Communications (on behalf of
Sellers) if the Closing shall not have occurred prior to the close of business
on December 31, 1998 (subject to extension as provided in Section 8.02);
provided, that the party seeking to terminate this Agreement pursuant to this
- --------
Section 8.01(c) shall be permitted to do so only if the delay in the Closing
shall not have resulted from the failure of such party to materially comply with
any of the terms of this Agreement;
(d) by Purchaser if prior to the Closing (i) Sellers provide
modifications and exceptions to their representations and warranties hereunder
which modifications and exceptions in their entirety represent a materially
adverse change to Purchaser's interests under this Agreement, the Ancillary
Agreements and the Master Lease taken as a whole, as compared with the
representations and warranties that Sellers make as of the date hereof, (ii)
Sellers materially breach their representations and warranties contained herein
taken as a whole (subject to modification thereof pursuant to Section 4.08), or
(iii) any Seller materially breaches a covenant or agreement contained herein,
and the effect of such breach is materially adverse to Purchaser's interests
under this Agreement, the Ancillary Agreements and the Master Lease taken as a
whole; or
(e) by MobileMedia Communications (on behalf of Seller) if prior to
the Closing (i) Purchaser provides modifications and exceptions to its
representations and warranties hereunder which modifications and exceptions in
their entirety represent a materially adverse change to Sellers' interests under
this Agreement, the Ancillary Agreements and the Master Lease taken as a whole,
as compared with the representations and warranties that Purchaser makes as of
the date hereof, (ii) Purchaser materially breaches its representations and
warranties contained herein taken as a whole (subject to modification thereof
pursuant to Section 5.04), or (iii) Purchaser materially breaches a covenant or
agreement contained herein and the effect of such breach is materially adverse
to Sellers' interests under this Agreement, the Ancillary Agreements and the
Master Lease taken as a whole.
SECTION 8.02. Certain Termination Events Cure Period.
--------------------------------------
In the event that Purchaser wishes to terminate this Agreement
pursuant to Section 8.01(d) or MobileMedia Communications (on behalf of Sellers)
wishes to terminate this Agreement pursuant to Section 8.01(e), as the case may
be, the party seeking termination shall notify the breaching party (the
"Breaching Party") in writing of the existence of such breach
38
<PAGE>
(the "Termination Notice") and thereupon the Breaching Party shall have the
right (but not the obligation) to cure such breach within the 120-day period
following delivery of the Termination Notice, and this Agreement shall not
terminate if such breach is cured within the 120-day cure period. If the
duration of the 120-day period would extend beyond December 31, 1998 then such
date shall be extended to the end of such 120-day period or such earlier date as
soon as reasonably practicable after such breach is cured or some other date as
the parties may agree upon.
SECTION 8.03. Effect of Termination. If this Agreement shall be
---------------------
terminated pursuant to Section 8.01, all further obligations of Purchaser and
Sellers under this Agreement shall terminate without further liability of any
party hereto except for those further obligations of the Purchaser and Sellers
under the proviso in Section 7.02 and under Sections 7.03, 7.05, 7.11, 10.05 and
10.08.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.01. Closing Conditions. Unless waived by the applicable
------------------
party (and consummation of the Closing shall be deemed to constitute such
waiver), the obligations of the parties to enter into and consummate the Closing
transactions contemplated in Article III hereof shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions:
(a) the Bankruptcy Court Order shall have been issued and shall be in
full force and effect, and all conditions contemplated by the Bankruptcy Court
Order to consummation of the transactions contemplated hereby shall have been
satisfied;
(b) in the case of Purchaser, the representations and warranties of
Sellers contained herein (as such representations and warranties may be modified
pursuant to Section 4.08) shall be true and correct in all material respects,
and Sellers shall have complied with the covenants of Sellers contained in
Article VII in all material respects, unless waived by Purchaser;
(c) in the case of Sellers, the representations and warranties of
Purchaser contained herein (as such representations and warranties may be
modified pursuant to Section 5.04) shall be true and correct in all material
respects, and Purchaser shall have complied with the covenants of Purchaser
contained in Article VII in all material respects, unless waived by Seller;
39
<PAGE>
(d) in the case of Sellers, Purchaser shall have made all filings with
the FCC with respect to consummating the transactions contemplated by this
Agreement if applicable;
(e) there shall not be any statute, rule or regulation promulgated or
enacted which makes it illegal for Sellers to sell and assign the Assets or for
Purchaser to purchase the Assets and assume the Liabilities, or any order or
judgment enjoining Sellers or Purchaser from consummating the transactions
contemplated hereby; and
(f) the Debtors shall have assumed and assigned, pursuant to section
365 of the Code, the Revenue Leases and Ground Leases to which the Debtors are
party.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. All notices or other communications required
-------
or permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered personally, by courier or facsimile transmission or
mailed (first class postage prepaid) to the parties at the addresses or
facsimile numbers set forth below:
If to Purchaser to:
------------------
Pinnacle Towers Inc.
1549 Ringling Blvd., Third Floor
Sarasota, FL 34236
Telecopy: (941) 364-8761
Attention: Robert J. Wolsey
With a copy to:
Holland & Knight LLP
400 N. Ashley Drive, Suite 2000
Tampa, FL 33602
Telecopy: (813) 229-0134
Attention: Trey Baldy
If to any Seller to:
-------------------
MobileMedia Communications, Inc.
Fort Lee Executive Park
One Executive Drive, Suite 500
Fort Lee, NJ 07024
Telecopy: (201) 969-4506
Attention: Joseph A. Bondi
40
<PAGE>
With a copy to:
Sidley & Austin
875 Third Avenue
New York, NY 10022
Telecopy: (212) 906-2021
Attention: David L. Ridl
All such notices and other communications will (x) if delivered
personally or by courier to the address provided in this Section 10.01, be
deemed given upon delivery, (y) if delivered by facsimile transmission to the
facsimile number provided in this Section 10.01, be deemed given when receipt of
transmission has been orally confirmed by the sending party, and (z) if
delivered by first class or registered mail in the manner described above to the
address as provided in this Section 10.01, be deemed given three (3) business
days after deposit in the United States mail (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a copy of such notice is to be delivered pursuant to this Section 10.01).
Any party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other party.
SECTION 10.02. Binding Effect. This Agreement shall be binding upon
--------------
and shall inure to the benefit of the parties and their respective successors
and assigns. This Agreement may not be assigned by Sellers or Purchaser without
the consent of the other party, except for an assignment by any party to any
successor of all or substantially all the operating assets of such party and its
Affiliates taken as a whole (which shall not require the consent of the other
party).
SECTION 10.03. Amendments. This Agreement may be amended only by
----------
written agreement of all of the parties. Any consents or waivers hereunder
shall require the written agreement of all of the parties.
SECTION 10.04. Counterparts. This Agreement may be executed in one
------------
or more counterpart all of which shall be considered one and the same instrument
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to each of the other parties.
SECTION 10.05. Expenses. Except as otherwise expressly provided
--------
herein, all legal and other costs and expenses incurred in connection herewith
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
41
<PAGE>
SECTION 10.06. Calculations. MobileMedia Communications (on behalf
------------
of Sellers and Purchaser) shall calculate any payments under this Agreement
which require any calculation, including without limitation payment amounts
under Sections 3.01 and 7.07, which calculations shall be binding on the parties
absent error. The parties shall provide MobileMedia Communications with
necessary information for enabling MobileMedia Communications to make accurate
calculations hereunder. Purchaser shall have the right to verify any such
calculations, and to contest the computation of any calculation regarding which
Purchaser disagrees in good faith.
SECTION 10.07. Entire Agreement. This Agreement and the Schedules
----------------
and Exhibits described herein or attached or delivered pursuant hereto set forth
the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof.
SECTION 10.08. Brokers. Purchaser represents and warrants to Seller
-------
that Purchaser has not employed any broker, finder or investment banker which
might be entitled to any brokerage, finder's or other fee or commission from
Purchaser or Seller in connection with this Agreement or the consummation of any
transaction contemplated hereunder. Each Seller severally represents and
warrants to Purchaser that other than The Blackstone Group, L.P., whose fees
shall be paid by Seller, it has not employed any broker, finder or investment
banker which might be entitled to any brokerage, finder's or other fee or
commission from Seller or Purchaser in connection with this Agreement or the
consummation of any transactions contemplated hereunder.
SECTION 10.09. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the internal laws of the State of New York.
42
<PAGE>
SECTION 10.10. No Third Party Beneficiaries. This Agreement shall
----------------------------
not create any rights, claims or benefits inuring to any Person that is not a
party hereto or establish any third-party beneficiary of any of the obligations
of the parties set forth herein (except as expressly provided in Section 7.11).
43
<PAGE>
IN WITNESS WHEREOF, this Purchase Agreement has been executed and
delivered by the parties hereto as of the day and year first above written.
PINNACLE TOWERS INC., a Delaware MOBILEMEDIA CORPORATION,a Delaware
corporation corporation, as debtor and
debtor-in-possession
By: /s/ Robert J. Wolsey By: /s/ Joseph A. Bondi
---------------------- -------------------------------
Name: Robert J. Wolsey Name: Joseph A. Bondi
Title: President Title: Chairman-Restructuring
MOBILEMEDIA COMMUNICATIONS, INC. MOBILEMEDIA COMMUNICATIONS, INC., a
(CALIFORNIA), a California Delaware corporation, as debtor and
corporation, as debtor and debtor-in-possession
debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
----------------------------- ------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
MOBILEMEDIA DP PROPERTIES, INC., a MOBILE COMMUNICATIONS CORPORATION OF
Delaware corporation, as debtor and AMERICA, a Mississippi corporation,
debtor-in-possession as debtor and debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
----------------------------- -------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
MOBILEMEDIA PCS, INC., a Delaware MOBILECOMM OF THE WEST, INC., a
corporation, as debtor and California corporation, as debtor and
debtor-in-possession debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
--------------------------- ----------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
44
<PAGE>
DIAL PAGE SOUTHEAST, INC., a Delaware MOBILECOMM OF THE SOUTHWEST, INC., a
corporation, as debtor and Texas corporation, as debtor and
debtor-in-possession debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
--------------------------- ----------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Chairman-Restructuring Title: Chairman-Restructuring
RADIO CALL CO., OF VIRGINIA, INC., a MOBILECOMM OF TENNESSEE, INC., a
Virginia corporation, as debtor and Tennessee corporation, as debtor and
debtor-in-possession debtor-in-possession
By:/s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
--------------------------- -----------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
MOBILECOMM OF FLORIDA, INC., a MOBILECOMM NATIONWIDE OPERATIONS,
Florida corporation, as debtor and INC., a Delaware corporation, as
debtor-in-possession debtor and debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
--------------------------- ------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
MOBILECOMM OF THE MIDSOUTH, INC., a MOBILECOMM OF THE SOUTHEAST, INC., a
Missouri corporation, as debtor and Delaware corporation, as debtor and
debtor-in-possession debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
------------------------- -----------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restricting
FWS RADIO, INC., a Texas corporation, MOBILEMEDIA PAGING, INC., a Delaware
as debtor and debtor-in-possession corporation, as debtor and
debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
-------------------------- ------------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
45
<PAGE>
MOBILECOMM OF THE NORTHEAST, INC., a MOBILECOMM OF THE SOUTHEAST PRIVATE
Delaware corporation, as debtor and CARRIER OPERATIONS, INC., a Georgia
debtor-in-possession corporation, as debtor and
debtor-in-possession
By: /s/ Joseph A. Bondi By: /s/ Joseph A. Bondi
------------------------- --------------------------
Name: Joseph A. Bondi Name: Joseph A. Bondi
Title: Chairman-Restructuring Title: Chairman-Restructuring
46
<PAGE>
EXHIBIT B
---------
GENERAL ASSIGNMENT AND BILL OF SALE
-----------------------------------
1. Reference is made to that certain Purchase Agreement dated as of
July 7, 1998 (the "Purchase Agreement") among MOBILEMEDIA CORPORATION, a
Delaware corporation, MOBILEMEDIA COMMUNICATIONS, INC., a Delaware corporation,
MOBILE COMMUNICATIONS CORPORATION OF AMERICA, a Mississippi corporation,
MOBILECOMM OF THE WEST, INC., a California corporation, MOBILECOMM OF THE
SOUTHWEST, INC., a Texas corporation, MOBILECOMM OF TENNESSEE, INC., a Tennessee
corporation, MOBILECOMM NATIONWIDE OPERATIONS, INC., a Delaware corporation,
MOBILEMEDIA COMMUNICATIONS, INC. (CALIFORNIA), a California corporation,
MOBILEMEDIA DP PROPERTIES, INC., a Delaware corporation, MOBILEMEDIA PCS, INC.,
a Delaware corporation, DIAL PAGE SOUTHEAST, INC., a Delaware corporation, RADIO
CALL CO. OF VIRGINIA, INC., a Virginia corporation, MOBILEMEDIA PAGING, INC., a
Delaware corporation, MOBILECOMM OF THE SOUTHEAST, INC., a Delaware corporation,
MOBILECOMM OF THE NORTHEAST, INC., a Delaware corporation, MOBILECOMM OF THE
SOUTHEAST PRIVATE CARRIER OPERATIONS, INC., a Georgia corporation, MOBILECOMM OF
FLORIDA, INC., a Florida corporation, MOBILECOMM OF THE MIDSOUTH, INC., a
Missouri corporation, and FWS RADIO, INC., a Texas corporation (each a
"Grantor"), and PINNACLE TOWERS INC., a Delaware corporation ("Grantee").
Capitalized terms used herein shall have the meanings specified in the Purchase
Agreement unless otherwise defined herein.
2. Grantors in consideration of the payment of the Purchase Price
and the assumption of Liabilities by Grantee pursuant to the Purchase Agreement,
does hereby grant, bargain, sell, assign, set over and deliver unto Grantee, its
successors and assigns, all right, title and interest of Grantors in and to the
Assets.
3. The representations and warranties of each Grantor in Article IV
of the Purchase Agreement (as modified by the Disclosure Schedule thereto) which
relate to the Assets are incorporated by reference herein.
4. In the event of any inconsistency or conflict between any
provisions of this General Assignment And Bill Of Sale and the Purchase
Agreement, the Purchase Agreement provisions shall control.
5. This General Assignment And Bill Of Sale may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
47
<PAGE>
IN WITNESS WHEREOF, this General Assignment And Bill Of Sale has been
executed and delivered by the parties hereto as of the ___ day of __________.
PINNACLE TOWERS INC., MOBILEMEDIA CORPORATION,
a Delaware corporation a Delaware corporation
By:_______________________________ By:_____________________________________
MOBILEMEDIA DP PROPERTIES, INC., MOBILEMEDIA COMMUNICATIONS, INC.,
a Delaware corporation a Delaware corporation
By:_______________________________ By:_____________________________________
Name: Name:
Title: Title:
MOBILEMEDIA PCS, INC., MOBILE COMMUNICATIONS CORPORATION
a Delaware corporation OF AMERICA, a Mississippi corporation
By:_______________________________ By:_____________________________________
Name: Name:
Title: Title:
DIAL PAGE SOUTHEAST, INC., MOBILECOMM OF THE WEST, INC.
a Delaware corporation a California corporation
By:_______________________________ By:_____________________________________
Name: Name:
Title: Title:
RADIO CALL CO. OF VIRGINIA, MOBILECOMM OF THE SOUTHWEST, INC.
INC., a Virginia corporation a Texas corporation
By:_______________________________ BY:_____________________________________
Name: Name:
Title: Title:
48
<PAGE>
MOBILEMEDIA PAGING, INC., MOBILECOMM OF TENNESSEE, INC.,
a Delaware corporation a Tennessee corporation
By:_______________________________ By:_____________________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE SOUTHEAST, MOBILECOMM NATIONWIDE OPERATIONS,
INC., a Delaware corporation INC., a Delaware corporation
By:_______________________________ By:____________________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE NORTHEAST, MOBILEMEDIA COMMUNICATIONS, INC.
INC., a Delaware corporation (CALIFORNIA), a California corporation
By:_______________________________ By:____________________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE SOUTHEAST MOBILECOMM OF THE MIDSOUTH, INC.,
PRIVATE CARRIER OPERATIONS, a Missouri corporation
INC., a Georgia corporation
By:_______________________________ By:____________________________________
Name: Name:
Title: Title:
MOBILECOMM OF FLORIDA, INC., FWS RADIO, INC.,
a Florida corporation a Texas corporation
By:_______________________________ By:____________________________________
Name: Name:
Title: Title:
49
<PAGE>
EXHIBIT C
---------
LIABILITIES ASSUMPTION AGREEMENT
--------------------------------
THIS LIABILITIES ASSUMPTION AGREEMENT is made as of this __ day of
_________, by and among PINNACLE TOWERS INC., a Delaware corporation
("Purchaser"), MOBILEMEDIA CORPORATION, a Delaware corporation, MOBILEMEDIA
COMMUNICATIONS, INC., a Delaware corporation, MOBILE COMMUNICATIONS CORPORATION
OF AMERICA, a Mississippi corporation, MOBILECOMM OF THE WEST, INC., a
California corporation, MOBILECOMM OF THE SOUTHWEST, INC., a Texas corporation,
MOBILECOMM OF TENNESSEE, INC., a Tennessee corporation, MOBILECOMM NATIONWIDE
OPERATIONS, INC., a Delaware corporation, MOBILEMEDIA COMMUNICATIONS, INC.
(CALIFORNIA), a California corporation, MOBILEMEDIA DP PROPERTIES, INC., a
Delaware corporation, MOBILEMEDIA PCS, INC., a Delaware corporation, DIAL PAGE
SOUTHEAST, INC., a Delaware corporation, RADIO CALL CO. OF VIRGINIA, INC., a
Virginia corporation, MOBILEMEDIA PAGING, INC., a Delaware corporation,
MOBILECOMM OF THE SOUTHEAST, INC., a Delaware corporation, MOBILECOMM OF THE
NORTHEAST, INC., a Delaware corporation, MOBILECOMM OF THE SOUTHEAST PRIVATE
CARRIER OPERATIONS, INC., a Georgia corporation, MOBILECOMM OF FLORIDA, INC., a
Florida corporation, MOBILECOMM OF THE MIDSOUTH, INC., a Missouri corporation,
and FWS RADIO, INC., a Texas corporation (each a "Seller"), pursuant to the
Purchase Agreement dated as of July 7, 1998 (the "Purchase Agreement") among
-
Purchaser and Seller. Capitalized terms herein shall have the meanings
specified in the Purchase Agreement unless otherwise defined herein.
WHEREAS, pursuant to Section 2.03 of the Purchase Agreement, at the
Closing, Purchaser has agreed to assume certain liabilities and obligations
relating to the Assets.
NOW, THEREFORE, pursuant to the Purchase Agreement, Purchaser and Seller
hereby agrees as follows:
1. Assumption of Liabilities. In consideration of the sale, transfer,
-------------------------
assignment, conveyance and delivery by Sellers of Sellers' interests and to in
the Assets pursuant to the Purchase Agreement, Purchaser does hereby assume and
agree to fully and timely pay, perform and discharge each of the following
obligations and liabilities (of every kind and nature, including contingent)
(the "Liabilities"):
(a) all obligations and liabilities of Sellers in connection with the
Ground Leases, which arise out of or relate to the period on and
after the
50
<PAGE>
Closing Date, and which obligations or liabilities are
contemplated by the Ground Leases;
(b) all obligations and liabilities of Sellers in connection with the
Revenue Leases, which arise out of or relate to the period on and
after the Closing Date, and which obligations or liabilities are
contemplated by the Revenue Leases; and
(c) all other obligations and liabilities which arise out of or
relate to the period on and after the Closing Date with respect
to the ownership, possession, use, maintenance, licensing or
operation of the Assets.
2. Further Assurances. Each of the parties agree to take such
------------------
further actions and execute and deliver such other documents, certificates,
agreements and other instruments as may be necessary or desirable in order to
consummate or implement the assumption of the Liabilities contemplated hereby.
3. The Purchase Agreement. In the event of any inconsistency or
----------------------
conflict between any provisions of this Liabilities Assumption Agreement and the
Purchase Agreement, the Purchase Agreement provisions shall control.
4. Governing Law. This Liability Assumption Agreement shall be
-------------
governed by and construed in accordance with the internal laws of the State of
New York.
5. Counterparts. This Liabilities Assumption Agreement may be
------------
executed in counterparts, all of which together shall constitute one and the
same instrument.
51
<PAGE>
IN WITNESS WHEREOF, this Liabilities Assumption Agreement has been
executed and delivered by the parties hereto as of the day and year first above
written.
PINNACLE TOWERS INC., MOBILEMEDIA CORPORATION,
a Delaware corporation a Delaware corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILEMEDIA DP PROPERTIES, INC., MOBILEMEDIA COMMUNICATIONS, INC.,
a Delaware corporation a Delaware corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILEMEDIA PCS, INC., MOBILE COMMUNICATIONS CORPORATION
a Delaware corporation OF AMERICA, a Mississippi
corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
DIAL PAGE SOUTHEAST, INC., MOBILECOMM OF THE WEST, INC.
a Delaware corporation a California corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
RADIO CALL CO. OF VIRGINIA, MOBILECOMM OF THE SOUTHWEST, INC.
INC., a Virginia corporation a Texas corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
52
<PAGE>
MOBILEMEDIA PAGING, INC., MOBILECOMM OF TENNESSEE, INC.,
a Delaware corporation a Tennessee corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE SOUTHEAST, MOBILECOMM NATIONWIDE OPERATIONS,
INC., a Delaware corporation INC., a Delaware corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE NORTHEAST, MOBILEMEDIA COMMUNICATIONS, INC.
INC., a Delaware corporation (CALIFORNIA), a California
corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILECOMM OF THE SOUTHEAST MOBILECOMM OF THE MIDSOUTH, INC.,
PRIVATE CARRIER OPERATIONS, a Missouri corporation
INC., a Georgia corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
MOBILECOMM OF FLORIDA, INC., FWS RADIO, INC.,
a Florida corporation a Texas corporation
By:__________________________ By:__________________________
Name: Name:
Title: Title:
53
<PAGE>
EXHIBIT 10.23
-------------
MASTER LEASE FOR TRANSMITTER SYSTEMS SPACE
LESSOR: PINNACLE TOWERS INC. LESSEE: MOBILEMEDIA
1549 Ringling Blvd. COMMUNICATIONS, INC.
Third Floor Suite 116
Sarasota, FL 34236 6221 North O'Connor Blvd.
Telecopy: (941) 364-3761 Irving, TX 75039-3541
Attn: Robert S. Wolsey Telecopy: (972) 501-1599
Attn: Site Lease
Administrator
DATE: ______________, 1998
A. Lessor or its Affiliates own, lease or manage the antenna tower sites
and the related underlying land as identified in Schedule A hereto ("Initial
Lessor Sites"). As used in this Master Lease For Transmitter Systems Space
(this "Lease"), "Lessor Sites" refers individually and collectively to the
Initial Lessor Sites and any other antenna tower sites and the related
underlying land ("Additional Lessor Sites") that Lessor or its Affiliates may
own, lease or manage from time to time during the Initial Term (defined in
Section 2(a) below) or the Renewal Term (defined in Section 2(a) below).
Schedule A indicates whether the Lessor Site is owned, leased or managed by
Lessor or a specified Affiliate. The Lessor Sites include antenna tower sites
and the related underlying land at which, as of the date hereof, Lessee rents
space from Lessor as a tenant under other leases ("Existing Other Leases").
Each Lessor Site shall include such portion of the related underlying land (the
"Land") which shall provide appropriate and adequate space thereon for Lessee to
install its Transmitter System (defined in Paragraph B below), and other
equipment upon the antenna tower (or towers) and in the equipment shelter at
each Lessor Site, as is commercially reasonable under the circumstances.
Schedule A also lists the existence of any mortgages or other liens which
encumber any Lessor Sites as of the date hereof. As used herein, "Affiliate"
means, when used with reference to a specific individual or entity, any
individual or entity that, directly or indirectly, or through one or more
intermediaries, owns or controls, is owned or controlled by, or is under common
ownership or common control with, such individual or entity. As used herein,
"control" means the power to direct the management or affairs of an entity, and
"ownership" means the beneficial
<PAGE>
ownership of more than 50% of the equity interests of such entity.
B. Lessor desires to lease to Lessee and Lessee desires to lease from
Lessor space at all the Lessor Sites specified on Schedule B hereto (as such
Schedule may be amended periodically in connection with a substitution of Site
Spaces pursuant to Sections 1(c), 2(c), 2(d), 5(a), 5(d), 10(a), 10(d) or 11
below) (the "Premises Sites") for installation and operation of Lessee's
Transmitter Systems on the terms set forth herein (including the Schedules
hereto). As used herein, a "Transmitter System" means any radio frequency
transmission and reception equipment, including, but not limited to,
transmitter, receiver, satellite reception dish, transmit antenna, receive
antennas and associated cabinetry and cabling (including existing equipment and
any upgrades, enhancements and related substitutions, improvements, accessions
and additions thereto), but in any event, for purposes hereof, a single
Transmitter System shall not exceed a single cabinet (including a hot standby),
three (3) antennas, a satellite dish, a multicopuler, a multiplexer (or similar
devices if applicable), and battery back-up equipment, except to the extent that
from time to time Lessee makes changes to the composition thereof (which changes
shall not include installing an additional transmitter) that are consistent with
the prevailing industry practices and which changes do not materially detract
from the remaining capacity of the subject tower.
1. LEASED PREMISES; LESSOR SITES; SUPPLEMENTAL SITES. (a) Schedule B
-------------------------------------------------
lists the particular Premises Sites at which Lessor shall make space available
on towers (the "Towers") and the Land for the installation and operation by
Lessee of Transmitter Systems and related equipment, and indicates the number of
such spaces that will be available at each of the Premises Sites (the "Site
Spaces", as such list may from time to time be amended in connection with a
substitution of Site Spaces pursuant to Sections 1(c), 2(c), 2(d), 5(a), 5(d),
10(a), 10(d) or 11 below). As used herein, "Site Space" includes the related
Land at the applicable Lessor Site. The Site Spaces shall be made available to
Lessee at the specific tower heights at which Lessee presently operates
Transmitter Systems thereon as of the date hereof, and as soon as reasonably
practicable after the date hereof, Schedule B shall be amended to list such
specific tower heights. For this Lease, there shall not be more than one (1)
Transmitter System per individual Site Space. Lessor hereby leases to Lessee
space at the Site Spaces for the Transmitter Systems and related equipment
permitted hereunder on the terms and conditions specified herein. If Lessee's
equipment will be connected to a multiplexer or similar device at any of the
Site Spaces, Lessee shall be responsible for all costs of multiplexer modules
and other equipment required for the connection.
-2-
<PAGE>
(b) At any time and from time to time during the term of this Lease,
upon Lessee's request, Lessor shall promptly notify Lessee of the existence of
all Additional Lessor Sites in the locations requested by Lessee, and Schedule A
shall be automatically supplemented to include such Additional Lessor Sites (but
no such Additional Lessor Site shall be a Premises Site except in accordance
with the other terms hereof). Lessor shall furnish to Lessee from time to time
other information regarding Additional Lessor Sites as Lessee may reasonably
request.
(c) From time to time throughout the term of this Lease, Lessee shall
have the right to request that space at any Lessor Sites, at specific heights
designated by Lessee, be made available to Lessee as a "Site Space" in
substitution for an existing Site Space, on a one-for-one substitution basis.
Lessor shall use commercially reasonable efforts to facilitate and accommodate
all Lessee requests regarding the substitution of Site Spaces. The substitution
of Site Spaces shall become effective on the date designated by Lessee in its
substitution request notice, which date shall not be less than thirty (30) days
nor more than ninety (90) days following Lessee's delivery of the substitution
request notice and by the designated date Lessee shall remove its Transmitter
Systems and related equipment from such existing Site Space, unless Lessor
within twenty (20) days after it receives such request notice denies the request
by providing Lessee with a written explanation regarding the unavailability of
such space due to capacity constraints. Notwithstanding the foregoing, with
respect to space at a Lessor Site for which Lessor has denied a request by
Lessee for substitution space, Lessor shall be entitled to modify, renew or
extend any existing leases, provided, however, if space at the applicable
Tower(s) becomes available within six (6) months after Lessor has denied
Lessee's space substitution request, Lessor shall not otherwise be entitled to
enter into new leases, licenses or other similar arrangements for space at such
Lessor Site unless Lessor gives Lessee an opportunity of first refusal,
exercisable by Lessee within ten (10) days following written notice from Lessor,
entitling Lessee to designate a specific height at such Lessor Site (to the
extent of availability) as a substitution site space ("Substitution Site Space")
pursuant to the above provisions of this Section 1(c), and in its exercise
notice Lessee shall designate a date, which shall not exceed thirty (30) days
after the exercise notice date, when such substitution of Site Spaces shall
become effective and by when Lessee shall remove its Transmitter Systems and
related equipment from the existing Site Space. The lease term of any
substitution Site Space pursuant to this Section 1(c) or Sections 2(c), 2(d),
5(a), 5(d), 10(a), 10(d) or 11 below shall be a continuation of the then-
existing lease term of the predecessor Site Space. "Substitution Site Space"
includes the related Land at the
-3-
<PAGE>
applicable Lessor Site. Upon the effectiveness of the substitution of a Site
Space, the Substitution Site Space shall become a Site Space for purposes of
this Lease, including any substitution of Site Spaces pursuant to Lessee
designations of Other Lease Spaces (defined in Section 2(c) below) as Site
Spaces pursuant to Sections 1(f), 2(c), 2(d), 5(a), 5(d), 10(a), 10(d) or 11
below, and the parties shall as soon as practicable amend Schedule B to reflect
such substitution.
(d) Lessor shall provide Lessee with such information and officer's
certificates as Lessee may reasonably request of Lessor, from time to time, to
demonstrate Lessor's compliance with this Section l.
(e) With respect to any new lease that Lessee may enter into with
Lessor for antenna tower space at Lessor Sites that are not Site Spaces under
this Lease ("New Other Leases" and together with the Existing Other Leases, the
"Other Leases"), Lessor shall use commercially reasonable efforts to lease such
other space (the "Supplemental Sites") to Lessee at a rental rate which is at
least twenty percent (20%) less than the prevailing rental rate that Lessor is
then charging for the leasing of space for equivalent Transmitter Systems at the
applicable Supplemental Site, and the lease for the Supplemental Site shall
contain other commercially reasonable terms as Lessor and Lessee may agree upon
(and shall not be governed by the other terms of this Lease). Lessor and Lessee
shall in good faith negotiate New Other Leases regarding the leasing of antenna
tower space by Lessee at Lessor Sites for Lessee's Transmitter Systems and
related equipment, which as of the date hereof are installed on Towers
("Acquired Towers") that Lessor acquired under the Purchase Agreement dated as
of July 7, 1998 (the "Purchase Agreement") among Lessor, Lessee and certain of
its Affiliates, and which Transmitter Systems are not listed on Schedule B (but
neither Lessor nor Lessee shall be under any obligation to enter into any such
lease).
(f) The provisions of this Section 1(f) shall be applicable only in
the event that as of the date hereof Lessee has installed fewer than 683
Transmitter Systems on the Acquired Towers ("Site Space Shortfall"). The
positive numerical difference (if any) between 683 and the number of Transmitter
Systems that Lessee has installed on the Acquired Towers as of the date hereof
is referred to herein as the "Shortfall Number". In the event of a Site Space
Shortfall, Lessee may in its discretion (from time to time) designate such
number of Other Lease Spaces ("Shortfall Substitution Site Spaces") under any
Other Leases up to the Shortfall Number, which designated Other Lease Spaces
shall become Site Spaces under this Lease, the Other Leases shall terminate as
to the Other Lease Spaces and Lessee shall have no further rental or other
obligation under the Other
-4-
<PAGE>
Leases with respect thereto. The parties shall amend Schedule B to reflect such
substitution, as applicable. (In the event that pursuant to the above
provisions of this Section 1(f) Lessee has not designated Other Lease Spaces in
an amount equal to the Shortfall Number, Lessee shall remain obligated to pay
any Shortfall Monthly Payment pursuant to the below provisions of this Section
1(f).) The dollar amount difference, if any, between (i) $1,300 multiplied by
the Shortfall Number less (ii) the aggregate monthly rental payable by Lessee
for the Shortfall Substitution Site Spaces is referred to herein as the
"Shortfall Monthly Payment". As applicable under this Section 1(f), for each
month until the fifth (5th) anniversary of the date of this Lease, Lessee shall
pay to Lessor the amount (if any) of the Shortfall Monthly Payment. Each
Shortfall Monthly Payment shall be considered to be the payment of rent for
purposes of Sections 3(b), 3(c) and 15 below. Notwithstanding the foregoing, in
the event that Lessee terminates any lease of Site Spaces (including Shortfall
Substitution Site Spaces) hereunder pursuant to Sections 2(d), 5(d), 10(a),
10(d), 11 or 16 below prior to the fifth (5th) anniversary of the date of this
Lease, for purposes of calculating any Shortfall Payment Amount, the Shortfall
Number shall be reduced by the aggregate number of Site Spaces (including
Shortfall Substitution Site Spaces) as to which this Lease is so terminated.
There shall be no Shortfall Monthly Payment relating to any period on or after
the fifth (5th) anniversary of the date of this Lease.
2. TERM.
----
(a) The initial lease term for each Site Space shall be fifteen (15)
years (the "Initial Term") from the date hereof; provided that the lease term
for each Site Space shall automatically renew for one (1) renewal period of five
(5) years (the "Renewal Term"), unless Lessee terminates this Lease with respect
to such Site Space (i) upon prior written notice by Lessee to Lessor no later
than ninety (90) days before the expiration of the Initial Term. Lessee in its
termination notice may designate any or all of the Site Spaces for termination.
(b) If Lessee holds over at a Site Space after the expiration of the
term with respect thereto, this Lease shall revert to a month-to-month term with
respect to such Site Space, and rent for such Site Space shall be the rent for
such Site Space during the last month of the preceding term. Each of Lessor and
Lessee shall have the right during any month-to-month term to terminate this
Lease with respect to such Site Space, without cause, upon thirty (30) days'
prior written notice to the other party.
(c) If with respect to a Premises Site (i) any ground lease ("Assigned
Ground Lease") that was assigned or deeded to
-5-
<PAGE>
Lessor under the Purchase Agreement terminates on a date prior to the fifth
(5th) anniversary of this Lease because the stated term thereof ended prior to
the fifth (5th) anniversary of this Lease and Lessor has not committed a breach
or default with respect thereto or (ii) any other non-fee ownership possessory
interest ("Assigned Non-Fee Possessory Interest") that was assigned to Lessor
under the Purchase Agreement terminates on a date prior to the fifth (5th)
anniversary of this Lease and Lessor has not committed a breach or default in
respect thereto, Lessee shall remain obligated to pay the per month rent
provided under Section 3(a) below for the duration of the Initial Term as to the
Site Space(s) at such Premises Sites ("Terminated Assigned Interest Site
Space"), unless Lessee occupies a Substitution Site Space pursuant to the below
provisions of this Section 2(c). (The Assigned Ground Leases and Assigned Non-
Fee Possessory Interests are referred to herein individually as an "Assigned
Ground Lease or Possessory Interest".) A "non-fee ownership possessory
interest" includes any real property which is referred to as an "Owned Site"
under the Purchase Agreement but as to which the "Sellers" thereunder have not
conveyed fee title to Purchaser. Lessor shall use commercially reasonable
efforts to cause the terms (including any options of renewal) of each Assigned
Ground Lease or Possessory Interest to be at least coextensive with the term of
this Lease (including the Renewal Term), and Lessee shall cooperate in
connection therewith as provided in Section 7.09(a) of the Purchase Agreement.
With respect to any Terminated Assigned Interest Site Space, for the duration of
the Initial Term following termination of the relevant Assigned Ground Lease or
Possessory Interest, unless there is a Substitution Site Space that is
identified and made available to Lessee, Lessor and Lessee shall in good faith
attempt to determine whether other space at any Lessor Site is comparable to
such Terminated Assigned Interest Site Space in terms of location and geography,
functionality and other relevant factors (except to the extent that Lessee
waives the requirement of comparability), and if such space can be identified by
the parties Lessor shall use commercially reasonable efforts to make such space
available to Lessee as soon as reasonably practicable, and such other space and
the related land shall become a Substitution Site Space in substitution for the
Terminated Assigned Interest Site Space. Lessee shall pay all the costs incurred
by Lessee in moving Transmitter Systems and related equipment to such
Substitution Site Space. As an alternative to the Site Space substitution
procedures provided above, Lessee shall have the option to designate space and
the related land under any Other Lease at which Lessee leases space for a
Transmitter System and related equipment ("Other Lease Space") as a Substitution
Site Space, in which event such Other Lease Space shall become a Substitution
Site Space in substitution for the Terminated Assigned Interest Site Space, such
Other Lease Space shall become a Substitution Site Space under this Lease, the
Other Lease shall terminate as
-6-
<PAGE>
to the Other Lease Space and Lessee shall have no further rental or other
obligation under the Other Lease with respect thereto.
(d) If with respect to a Premises Site where Lessor is a ground lessee
or Lessor is otherwise not the fee owner of the underlying land, if effective on
or after the fifth (5th) anniversary of the date hereof Lessor's leasehold or
other non-fee ownership possessory interest in the Premises Site expires or
terminates ("Early Termination Site Space"), Lessee shall have no further rental
or other obligation hereunder with respect to such Early Termination Site Space
(subject to Sections 8(b), 13(a)(ii) and 17 below). Lessor shall use
commercially reasonable efforts to cause the terms of such ground leases and
other non-fee ownership possessory interests to be at least coextensive with the
term of this Lease (including the Renewal Term). If this Lease expires or
terminates as to a Early Termination Site Space, Lessor and Lessee shall in good
faith attempt to determine whether other space at any Lessor Site is comparable
to such Early Termination Site Space in terms of location and geography,
functionality and other relevant factors, and if such space can be identified by
the parties and provided that Lessor is in a position to make such space
available to Lessee no later than (30) days after the expiration or other
termination of this Lease as to the Early Termination Site Space, such other
space and the related land shall become a Substitution Site Space in
substitution for the Early Termination Site Space. Lessor shall pay all the
reasonable costs incurred by Lessee in moving Transmitter Systems and related
equipment from the Early Termination Site Space to such Substitution Site Space.
As an alternative to the Site Space substitution procedures provided above,
Lessee shall have the option to designate any Other Lease Space as a
Substitution Site Space in substitution for the Early Termination Site Space, in
which event such Other Lease Space shall become a Substitution Site Space under
this Lease, the Other Lease shall terminate as to such Other Lease Space and
Lessee shall have no further rental or other obligation under the Other Lease
with respect thereto.
3. RENT.
----
(a) During the Initial Term, for each Site Space that is subject to
this Lease, Lessee shall pay rent at a rate equal to $1,300 per month. During
the Renewal Term, for each Site Space that is subject to this Lease, Lessee
shall pay the "fair market monthly rent" applicable to each Site Space. For
purposes of this Section 3(a), "fair market monthly rent" as to each Site Space
refers to the rent that is generally being charged at the time of commencement
of the Renewal Term in the market where such Site Space is located for making
tower space available for Transmitter Systems, at spaces and sites and with
respect to Transmitter Systems which are similar to the Site Space and
-7-
<PAGE>
Lessee's Transmitter System that is then-installed at such Site Space. Between
two hundred forty (240) and one hundred eighty (180) days prior to the end of
the Initial Term, Lessor shall deliver to Lessee a proposal by Lessor as to the
fair market monthly rent for each Site Space for the Renewal Term. If Lessor
and Lessee cannot agree on the fair market monthly rent with respect to one or
more Site Spaces at least one hundred thirty (130) days prior to the end of the
Initial Term, then Lessor and Lessee shall at least one hundred twenty (120)
days prior to the end of the Initial Term each appoint an appraiser for purposes
of determining the fair market monthly rent as to such Site Spaces. If the
appraisers are unable to agree on the fair market monthly rent within the
succeeding thirty (30)-day period, they shall select a third appraiser within
fifteen (15) days thereafter. If they are unable to agree on the third
appraiser, either party, by giving ten (10) days' written notice to the other
can apply to the presiding judge of the trial court of the general jurisdiction
in the county in which the subject Site Space is situated, for the selection of
a third appraiser. The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for either party. Within thirty (30)
days after the selection of the third appraiser, a majority of the appraisers
shall set the fair market monthly rent. If a majority of the appraisers are
unable to do so within such thirty (30) day period, the two closest appraisals
shall be added together and their total shall be divided by two, and the
resulting quotient shall be deemed to be the fair market monthly rent. Each
party shall be responsible for compensating their respective appraiser, and
shall bear equally the compensation payable to any third appraiser.
(b) Rent shall be due no later than the first day of each calendar
month with respect to which such rent is payable (subject to Section 3(c)
below). Rent for any fractional month at the beginning or end of a term shall
be prorated. If payment is not delivered by the 10th business day of such
month, Lessor has the option to charge a late fee not to exceed one and one-half
percent (1.5%) of the delinquent amount. Notice of the imposition of any such
late fee must be given in writing to Lessee within ten (10) business days after
such tenth (10th) business day. Failure to give such notice will result in
forfeiture of any late fee in such month.
(c) Lessee in its discretion from time to time may withhold and setoff
against rent payable hereunder the amount of any payments or reimbursements that
Lessor is delinquent in making under Section 6 below, and any such withholding
and setoff by Lessee shall not be deemed a breach by Lessee, and shall not limit
Lessee's other rights and remedies under this Lease or available to Lessee at
law or in equity.
-8-
<PAGE>
4. INSTALLATION.
------------
(a) Lessee shall install and operate at the Site Spaces only the
Transmitter Systems and related equipment, and the cost of Lessee's installation
and licensing fees shall be borne solely by Lessee.
(b) During the installation, repair or maintenance of a Transmitter
System and related equipment at a Premises Site, Lessee shall not cause material
interference to the activities of Lessor or other lessees at such Premises Site.
Lessee shall install its Transmitter Systems and related equipment in a manner
consistent with good engineering practices. If such interference is caused by
Lessee and cannot be reduced to levels reasonably acceptable to Lessor, Lessee
shall immediately halt all installation work, repair or maintenance and Lessor
may elect to terminate this Lease as to such Site Space by giving Lessee at
least ten (10) days written notice and thereafter Lessee's only obligation
hereunder with respect to such Site Space shall be the removal of the
Transmitter System and equipment in accordance with Section 16 below and the
payment of any past due rent remaining for such Site Space.
5. USES OF LEASED PREMISES.
-----------------------
(a) Lessee shall use the Site Space and conduct its communications
operations thereon in compliance with the terms of its Federal Communications
Commission ("FCC") licenses and applicable regulations imposed by the FCC or any
other govern mental agency and shall otherwise comply with all applicable laws
relating to its use of the Site Spaces. Lessee shall, if requested, provide
Lessor with copies of such licenses. If a license is denied or Lessee is
otherwise prohibited from operating a Transmitter System at a Site Space because
of any law, regulation, governmental decree, court order or similar action, and
Lessee notifies Lessor and provides evidence to Lessor of such denial or
prohibition, Lessee may terminate this Lease as to the applicable Site Space,
or, if the denial or prohibition relates to a Transmitter System, Lessee may
terminate this Lease as to such number of Site Spaces that equal the number of
denied or prohibited Transmitter Systems, as so designated by Lessee ("License
Termination Site Space"). Licensee shall use commercially reasonable efforts to
obtain and maintain any FCC licenses that Lessee is required to hold in order to
operate at such Site Space. The termination of this Lease with respect to a
License Termination Site Space shall become effective thirty (30) days following
written notification from Lessee to Lessor, and Lessee shall have no further
rental or other obligation hereunder with respect to such License Termination
Site Space (subject to Sections 8(b), 13(a)(ii) and 17 below). Notwithstanding
the foregoing, until the fifth (5th) anniversary of the date of this
-9-
<PAGE>
Lease, Lessee shall continue to have rental obligations hereunder with respect
to a License Termination Site Space (although Lessee might not be operating a
Transmitter System at the License Termination Site Space) unless Lessee occupies
a Substitution Site Space pursuant to the provisions set forth below in this
Section 5(a). If this Lease terminates as to a License Termination Site Space,
Lessor and Lessee shall in good faith attempt to determine whether other space
at any Lessor Site is comparable to the License Termination Site Space in terms
of location and geography, functionality and other relevant factors, and if such
space can be identified by the parties and provided that Lessor is in a position
to make such space available to Lessee no later than thirty (30) days after the
termination of this Lease as to the License Termination Site Space, such other
space and the related land shall become a Substitution Site Space in
substitution for the License Termination Site Space. Lessee shall pay all the
costs incurred by Lessee in moving Transmitter Systems and related equipment
from the License Termination Site Space to such Substitution Site Space. As an
alternative to the Site Space substitution procedures provided above, Lessee
shall have the option to designate any Other Lease Space as a Substitution Site
Space in substitution for the License Termination Site Space, in which event
such Other Lease Space shall become a Substitution Site Space under this Lease,
the Other Lease shall terminate as to such Other Lease Space and Lessee shall
have no further rental or other obligation under the Other Lease with respect
thereto.
(b) Lessee shall have a non-exclusive right of access to all Site
Spaces and Premises Sites twenty-four (24) hours a day, 365 days a year for its
employees, agents, contractors or representatives; provided that with respect to
Substitution Site Spaces, Lessee shall be subject to any reasonable access
restrictions that apply uniformly to all tenants at the Substitution Site Space
if the restrictions are described on Schedule B prior to the date on which
Lessee commits to lease such Substitution Site Space pursuant to this Lease.
(c) Neither the Lessee nor the Lessor shall bring onto any of the
Premises Sites any hazardous substances or hazardous wastes in violation of
applicable laws.
(d) Lessee shall not cause objectionable interference of any kind to
the operations of Lessor or other lessees at any of the Premises Sites.
"Objectionable interference" means any material degradation of signal in excess
of levels permitted by the FCC, as well as interference to consumer electronic
devices and blanketing interference under the applicable FCC rules. If Lessee
is notified in writing by Lessor that Lessee's operations are causing such
objectionable interference, Lessee shall, at its expense, immediately undertake
all reasonable steps to determine
-10-
<PAGE>
the cause of and eliminate such interference. If the inter ference continues
for a period in excess of seventy-two (72) consecutive hours following
notification, Lessor shall have the right to cause Lessee to promptly cease
operating the offending equipment or to reduce the power sufficiently to remove
the interference until the condition can be remedied. Lessee shall continue to
be obligated to pay rent with respect to the applicable Site Spaces (subject to
the next sentence), and Lessor shall not be held liable for any damages or loss
of revenues resulting therefrom. If Lessee is required to discontinue its
operation at one (1) or more Site Spaces under this Section 5(d) for a period in
excess of sixty (60) days, and provided that Lessee has diligently pursued all
reasonable cures and is unable to eliminate the interference, then Lessee shall
have the right to terminate this Lease as to the affected Site Space(s)
("Interference Site Spaces") at such Premises Site and (commencing on the
applicable termination date) Lessee shall have no further rental or other
obligation hereunder with respect to such Site Space (subject to Sections 8(b),
13(a)(ii) and 17 below). If this Lease terminates as to an Interference Site
Space, Lessor and Lessee shall in good faith attempt to determine whether other
space at any Lessor Site is comparable to the Interference Site Space in terms
of location and geography, functionality and other relevant factors, and if such
space can be identified by the parties and provided that Lessor is in a position
to make such space available to Lessee within thirty (30) days following the
termination of this Lease as to the Interference Site Space, such other space
and the related land shall become a Substitution Site Space in substitution for
the Interference Site Space. Lessee shall pay all the costs incurred by Lessee
in moving Transmitter Systems and related equipment from the Interference Site
Space to such Substitution Site Space. As an alternative to the Site Space
substitution procedures provided above, Lessee shall have the option to
designate any Other Lease Space as a Substitution Site Space in substitution for
the Interference Site Space, in which event such Other Lease Space shall become
a Substitution Site Space under this Lease, the Other Lease shall terminate as
to such Other Lease Space and Lessee shall have no further rental or other
obligation under the Other Lease with respect thereto. Provided that Lessee's
equipment is operating properly, if the operations of any equipment that is
installed by another person or entity at any Lessor Site subsequent to Lessee's
installation of its Transmitter System and related equipment at such Lessor Site
causes objectionable interference to Lessee's operations as reasonably
determined by Lessee, then Lessor shall require the interfering person or entity
to remedy promptly the interference, and Lessor and/or such other person or
entity shall bear the costs thereof.
-11-
<PAGE>
(e) Lessee understands that it is the intention of Lessor to
accommodate as many users as reasonably practicable at the Premises Sites
subject to the rights of Lessee hereunder. As reasonably requested by Lessor,
and provided that Lessor is not in material breach of this Lease, Lessee shall
in good faith cooperate with Lessor's reasonable requests with respect to
Lessee's rescheduling transmitting activities, reducing power or interrupting
its activities for limited periods of time in order to permit the safe
installation of new equipment on the Towers or to permit repair to the equipment
of any user of the Towers; provided, however, that any such work to be performed
by or on behalf of Lessor shall be performed between the hours of 11:00 p.m. and
5:00 a.m., except with respect to any emergency for which necessary work
relating thereto may be performed at any time as necessary under the
circumstances. Without limiting Lessee's installation and repair rights under
other Sections of this Lease, as reasonably requested by Lessee, and provided
that Lessee is not in material breach of this Lease, Lessor shall in good faith
cooperate with Lessee's reasonable requests that Lessor cause other tenants at
the applicable Premises Sites to reschedule transmitting activities, reduce
power or interrupt their activities for limited periods of time in order to
permit the safe installation by Lessee of new equipment on the Towers or to
permit repair to the equipment of Lessee on the Towers; provided, however, that
any such work to be performed by or on behalf of Lessee shall be performed
between the hours of 11:00 p.m. and 5:00 a.m., except with respect to any
emergency for which necessary work relating thereto may be performed at any time
as necessary under the circumstances.
(f) From time to time Lessee at its sole discretion may move and
substitute Transmitter Systems and related equipment among Site Spaces, subject
to the other applicable provisions of this Agreement.
(g) Lessor represents and warrants to Lessee that: (i) throughout the
Initial Term and any Renewal Term (x) with respect to any Lessor Sites which
Lessor acquired under the Purchase Agreement, Lessor will maintain the title
sufficient for Lessor to perform its obligations and for Lessee to have the
rights as contemplated hereunder; that Lessor acquired thereunder, and (y) with
respect to any Lessor Sites which Lessor did not acquire under the Purchase
Agreement, Lessor has and will maintain good and valid title thereto sufficient
for Lessor to perform its obligations and for Lessee to have the rights as
contemplated hereunder; (ii) neither Lessor nor any of its employees,
Affiliates, agents, representatives or mortgagees or lenders or other lessees
will interfere with Lessee's quiet enjoyment with respect to the use, operation
or occupancy of the Site Spaces (other than in connection with Lessor's exercise
of permitted eviction or dispossession remedies in the event of a
-12-
<PAGE>
default by Lessee hereunder and following the expiration of applicable grace and
cure periods);and (iii) Lessor shall be deemed to have provided all
representations and warranties that a lessor is deemed to provide pursuant to
applicable leasing statutes. Lessee acknowledges and agrees that Lessee has
sold and assigned to Lessor under the Purchase Agreement various Towers, land
and ground leaseholds where Site Spaces hereunder are located (the "Acquired
Sites"). Lessee hereby holds harmless Lessor from and against, and waives, any
and all claims of Lessee relating to any real property title defect pertaining
to the Acquired Sites existing as of the date when the Acquired Sites were sold
and assigned by Lessee to Lessor.
6. UTILITIES. Lessee shall pay its pro rata share of installation costs
---------
for any new electrical power feeds, phone lines, and other utilities to its
equipment. Lessee shall not pay any costs associated with any new, updated or
enhanced metering of its electrical usage at the Premises Sites. Lessor shall
pay for all of Lessee's electrical power usage at the Premises Sites, by direct
payment to the utility company, or, at Lessee's request by reimbursement to
Lessee for payments made by Lessee to the utility company.
7. INSURANCE.
---------
(a) Before the commencement of and continuing through the lease term
Lessee shall procure and maintain comprehensive public liability and property
damage insurance with a responsible insurance company legally qualified to do
business in the States where the applicable Lessor Site Spaces are located,
covering its operations and activities on or in connection with the Site Spaces
with a single occurrence limit of not less than $1,000,000 and naming Lessor as
an "Additional Insured." Lessee shall furnish Lessor with a certificate
evidencing such insurance and stating that coverage shall be canceled or changed
only upon thirty (30) days' written notice to Lessor.
(b) Before the commencement of and continuing through the lease term
Lessor shall procure and maintain comprehensive public liability and property
damage insurance with a responsible insurance company legally qualified to do
business in the States where the applicable Site Spaces are located, covering
all its operations and activities on or in connection with the Site Spaces with
a single occurrence limit of not less than $1,000,000 and naming Lessee as an
"Additional Insured." Lessor shall furnish Lessee with a certificate evidencing
such insurance and stating that coverage shall be canceled or changed only upon
thirty (30) days' written notice to Lessee.
-13-
<PAGE>
8. MAINTENANCE OF SITES.
--------------------
(a) Lessor shall maintain the Lessor Sites in good repair, ordinary
wear and tear excepted, and in compliance with applicable rules and regulations
of the FCC, Federal Aviation Administration ("FAA") and other governmental
agencies pertaining to lighting, marking, inspection, and maintenance. In cases
where any governmental regulations require the painting of Lessee's feedlines
(including without limitation FAA regulations), Lessee hereby consents to such
painting. Without limiting the foregoing, (i) Lessor shall comply with all of
Lessee's reasonable instructions or requests regarding Lessor compliance with
any relevant rules, regulations or standards promulgated by the FAA, FCC or
other applicable governmental agencies from time to time, including without
limitation in connection with radio frequency emission standards and lighting
standards promulgated by the FCC or FAA, (ii) Lessor shall comply with
applicable Tower registration requirements of the FCC and any other applicable
governmental agencies, and Lessor shall maintain such registrations in full
force and effect, and (iii) Lessor shall maintain appropriate climate control at
each Site Space to assure proper functioning of the Transmitter Systems and
related equipment. With respect to Acquired Sites, Lessor shall only be
obligated to maintain the climate control at no less than the quality levels
existing thereon as of the date hereof. Subject to the applicable provisions of
Section 5 above, Lessor and its authorized representatives, upon reasonable
advance notice to Lessee as practicable under the circumstances, shall have the
right to enter upon the Site Spaces as necessary in order to comply with
Lessor's maintenance and compliance obligations under this Section 8(a).
(b) Lessee shall maintain its equipment in accordance with standards
of good engineering practice and in material compliance with the rules and
regulations of the FCC, FAA and other applicable governmental agencies. At the
conclusion of the term with respect to a Site Space, Lessee shall surrender
possession to Lessor of such Site Space in substantially the same condition as
existed at the commencement of the leasing of such Site Space under this Lease,
ordinary wear and tear excepted. Lessor shall be entitled to charge Lessee the
reasonable cost of any and all maintenance and repair undertaken by Lessor,
which was the express obligation of Lessee under this Lease or which was
necessary as a direct result of a failure by Lessee to perform its obligations
under this Lease, if Lessee has not commenced and continued to use commercially
reasonable efforts to complete such maintenance and repair within thirty (30)
days after written notice from Lessor requesting such maintenance and repair and
providing sufficient detail of the basis for the Lessee maintenance and repair
obligation hereunder, or, in any event Lessee has not completed such maintenance
and repair within
-14-
<PAGE>
sixty (60) days after such notice, or such longer period as is reasonably
necessary not to exceed one hundred twenty (120) days provided that Lessee is
diligently proceeding with such repair and maintenance. Lessee shall reimburse
Lessor for all such maintenance and repair costs that are reasonably incurred by
Lessor under this Section 8(b) within thirty (30) days after Lessor's delivery
to Lessee of written invoices, receipts and similar bills detailing and
describing the costs and the related maintenance and repair work.
9. ALTERATION BY LESSEE.
--------------------
Lessee may alter and replace its Transmitter Systems and related
equipment that are installed at a Site Space, provided that such alteration or
replacement does not materially increase the "wind loading" at the applicable
Tower. At Lessor's request and expense, Lessee will provide an independent
professional analysis of "wind loading" to determine whether the alteration or
replacement causes a material increase in "wind loading" at such Tower. Subject
to the terms of this Lease, Lessee may make improvements to the Site Space. Any
such improvements that are made by Lessee on a Transmitter System or other
property of Lessee at a Site Space shall be the property of Lessee (the "Lessee
Owned Improvements"). All other improvements made by Lessee at a Site Space
shall become the property of Lessor upon the termination or expiration of the
Lease. Lessee shall remove the Lessee Owned Improvements as provided in Section
17 below.
10. SITE DAMAGE; DAMAGE TO LESSEE'S EQUIPMENT; SERVICE INTERRUPTION.
---------------------------------------------------------------
(a) If a Site Space is fully or partially destroyed or damaged,
Lessee, at its option, may elect to terminate this Lease with respect to such
Site Space ("Damaged Site Space") upon at least ten (10) days written notice to
Lessor, provided that Lessee has not been a primary cause of such destruction or
damage. In such event, Lessee shall owe rent only up to the date on which
Lessee was unable to conduct its normal operations at such Site Space because of
the damage or destruction, and Lessee shall have no further rental or other
obligation hereunder with respect to such Damaged Site Space (subject to Section
8(b) above and Sections 13(a)(ii) and 17 below). If this Lease is terminated as
to a Damaged Site Space, Lessor and Lessee shall in good faith attempt to
determine whether other space at any Lessor Site is comparable to the Damaged
Site Space in terms of location and geography, functionality and other relevant
factors, and if such space can be identified by the parties and provided that
Lessor is in position to make such space available to Lessee no later than
thirty (30) days after the termination of this Lease as to the Damaged Site
Space, such other space and the related land shall become a Substitution Site
Space in substitution for
-15-
<PAGE>
the Damaged Site Space. Provided that Lessee has not been a primary cause of
such destruction or damage, Lessor shall pay all the reasonable costs incurred
by Lessee in moving Transmitter Systems and related equipment from the Damaged
Site Space to such Substitution Site Space. As an alternative to the Site Space
substitution procedures provided above, Lessee shall have the option to
designate Other Lease Space as a Substitution Site Space in substitution for the
Damaged Site Space, in which event such Other Lease Space shall become a
Substitution Site Space under this Lease, the Other Lease shall terminate as to
such Other Lease Space and Lessee shall have no further rental or other
obligation under the Other Lease with respect thereto.
(b) Notwithstanding Section 10(a) above, Lessor, at its option by
notice to Lessee within ten (10) days after the occurrence of such damage or
destruction, may elect to repair or rebuild the Damaged Site Space, in which
case, Lessee shall not be entitled to terminate this Lease as to the Damaged
Site Space, and this Lease shall remain in force with respect to the Damaged
Site Space (although Lessee shall not be obligated to pay rent for any period
during which Lessee is unable to conduct its normal operations at the Damaged
Site Space because of the damage or destruction), as long as reconstruction or
repair can be promptly undertaken and diligently completed within thirty (30)
days following the occurrence of such damage or destruction and without
materially interrupting Lessee's business at such Site Space.
(c) Subject to Sections 5(d) and 5(g) above, Lessor shall not be
liable to Lessee for any loss or damage, actual or consequential, sustained by
Lessee, arising out of or related to any loss or interruption of communication
or the use of the Premises Sites, whatever the cause, or any diminution or
failure of the signal emanating from or being received at the Towers, except to
the extent that such events or circumstances are caused (in whole or part) by
any breach by Lessor of this Lease or by acts or negligent omissions of Lessor,
its Affiliates or their respective agents or representatives.
(d) Lessor and Lessee shall incur no liability to the other party, if
Lessor or Lessee (as the case may be) is prevented from performing its
obligations hereunder or conducting its operations at a Site Space as a result
of any of the following events beyond such performing party's reasonable
control: war, fire, flood, lightning, earthquake or other acts of God
(individually and collectively the "Force Majeure Events"). Without limiting the
foregoing, if either Lessor or Lessee is prevented from performing its
obligations hereunder or conducting its operations at a Site Space as a result
of Force Majeure Event, such party shall not be liable to the other party for
any financial loss due to business interruption, or be liable for any
-16-
<PAGE>
loss or damage, actual or consequential, sustained by the other party or third
parties making claims against such other party arising out of or relating to any
loss or interruption of communication or the use of the Premises Site affected
by the Force Majeure Event or any diminution or failure of the signal emanating
from or being received at the Tower affected by the Force Majeure Event. Lessee
shall be entitled to a pro rata abatement of rent for the time it is unable to
conduct substantially normal operations at such Site Space as a result of a
Force Majeure Event except that Lessee shall not be entitled to any abatement
for outages of less than seventy-two (72) consecutive hours duration unless such
outages exceed 216 cumulative hours during any thirty (30)-day period; provided,
that if Lessee is unable to conduct such normal operations for more than fifteen
(15) consecutive days as a result of a Force Majeure Event ("Force Majeure
Termination Right Period"), Lessee at any time during the Force Majeure
Termination Right Period may terminate this Lease as to such affected Site Space
and Lessee shall have no further rental or other obligation hereunder with
respect to such Site Space (subject to Section 8(b) above and Sections 13(a)(ii)
and 17 below). If this Lease is terminated as to a Site Space affected by a
Force Majeure Event, Lessor and Lessee shall in good faith attempt to determine
whether other space at any Lessor Site is comparable to such Site Space in terms
of location and geography, functionality and other relevant factors, and if such
space can be identified by the parties and provided that Lessor is in a position
to make such space available to Lessee no later than thirty (30) days after the
termination of this Lease with respect to the affected Site Space, such other
space and the related land shall become a Substitution Site Space in
substitution for the Force Majeure Site Space. Lessor shall pay all the
reasonable costs incurred by Lessee in moving Transmitter Systems and related
equipment from the Force Majeure Site Space to such Substitution Site Space. As
an alternative to the Site Space substitution procedures provided above, Lessee
shall have the option to designate Other Lease Space as a Substitution Site
Space in substitution for such Site Space, in which event such Other Lease Space
shall become a Substitution Site Space under this Lease, the Other Lease shall
terminate as to such Other Lease Space and Lessee shall have no further rental
or other obligation under the Other Lease with respect thereto.
11. OVERLOADING.
-----------
(a) If within six (6) months after the date hereof, Lessor determines that
any of the Acquired Towers, based on the antennae that are installed thereon as
of the date hereof, is then overloaded in excess of levels permitted by
applicable laws (existing as of the date hereof), and Lessor notifies Lessee
thereof by Lessor providing reasonable detail in respect of its
-17-
<PAGE>
conclusions as to overloading regarding the affected Towers, and if Lessee in
good faith disagrees with Lessor's conclusions, the parties shall mutually
select an engineering firm to conduct a study regarding overloading at such
Towers, at Lessor's expense. In the event of a determination of such
overloading, whether confirmed by Lessee agreement with Lessor's conclusions, or
pursuant to the findings of any such engineering firm, as to each such affected
Tower Lessee shall undertake any one of the following actions: (i) correct the
overloading (which correction may include, without limitation, making
improvements to the affected Tower to be or removing non-operable antennas);
(ii) remove such number of Lessee's Transmitter Systems from Site Spaces
("Overloaded Site Spaces") on the affected Tower to cause the affected Tower to
be in compliance with the loading levels permitted by applicable laws (existing
as of the date hereof), in which event the parties shall attempt to identify
appropriate Substitution Site Spaces pursuant to the procedures of Section 11(b)
below; or (iii) pay Lessor $10,000 in cash for each antenna that would need to
be removed to cause the affected Tower to be in compliance with the loading
levels permitted by applicable laws (existing as of the date hereof). Upon
Lessee removing its Transmitter Systems and related equipment from an Overloaded
Site Space pursuant to the preceding clause (ii), Lessee shall have no further
rental or other obligation under this Lease with respect to such Overloaded Site
Space (subject to Section 8(b) above and Section 13(a)(ii) below). If Lessee
does not so elect one of the options set forth in the preceding clauses (i)
through (iii) as to an affected Tower, or if Lessee elects to correct the
overloading pursuant to the preceding clause (i) or to remove Transmitter
Systems pursuant to the preceding clause (ii) but Lessee does not complete such
action by the one (1) year anniversary of the date hereof, then Lessee shall be
obligated to promptly pay Lessor the applicable amounts pursuant to the
preceding clause (iii) regarding such affected Tower (in lieu of Lessee's
performance of the act under clauses (i) or (ii)).
(b) If Lessee pursuant to clause (ii) of Section 11(a) above requests
that Lessor and Lessee attempt to identify Substitution Site Spaces, Lessor and
Lessee shall in good faith attempt to determine whether other space at any
Lessor Site is comparable to an Overloaded Site Space in terms of location and
geography, functionality and other relevant factors, and if such space can be
identified by the parties and provided that Lessor is in position to make such
space available to Lessee no later than one hundred twenty (120) days after
Lessee delivers its notice pursuant to clause (ii) of Section 11(a) above, such
other space and the related land shall become a Substitution Site Space in
substitution for the Overloaded Site Space. Lessee shall pay all the costs
incurred by Lessee in moving Transmitter Systems and related equipment from the
Overloaded Site Space to such
-18-
<PAGE>
Substitution Site Space. As an alternative to the Site Space substitution
procedures provided above, Lessee at its option shall designate Other Lease
Space as a Substitution Site Space in substitution for the Overloaded Site
Space, in which event such Other Lease Space shall become a Substitution Site
Space under this Lease, the Other Lease shall terminate as to such Other Lease
Space and Lessee shall have no further rental or other obligation under the
Other Lease with respect thereto.
12. EMINENT DOMAIN. If a Premises Site or the land upon which a Premises
--------------
Site is located or a Premises Site is acquired or condemned under the power of
eminent domain, whether by public authority, public utility, or otherwise, in an
amount that renders the Site Space materially unusable for Lessee's purposes,
then this Lease shall terminate with respect to the Site Spaces at such Premises
Site as of the date of the acquisition, and Lessee shall not be responsible for
rental or other obligation hereunder with respect to Site Spaces after such
termination. Lessor shall be entitled to the entire amount of any condemnation
award, and Lessee shall be entitled to make claim for and retain a condemnation
award based on and attributable to the expense and damage of removing its
fixtures.
13. INDEMNIFICATION.
---------------
(a) Lessee shall indemnify, hold harmless, and defend Lessor (together
with Lessor's Affiliates, officers, directors, employees, agents and
representatives) from and against any and all liabilities, claims, demands,
suits, damages, actions, recoveries, judgments, and expenses (including court
costs, reasonable attorneys' fees, and costs of investigation) resulting (i)
from Lessee's breach of this Lease (including any representation, warranty or
covenant set forth herein), or (ii) from injury to or death of any person or any
damage to property or loss of rent due to discontinuance of operations at the
Site Spaces (excluding discontinuance of operations in connection with the
substitution of Site Spaces or as otherwise permitted hereunder), which injury,
death, damage or loss in the case of this clause (ii) results from the willful
misconduct or gross negligence of Lessee or its contractors, subcontractors,
agents or representatives in or around the applicable Site Spaces (individually
and collectively "Lessee Indemnity Liabilities"), except to the extent that any
such Lessee Indemnity Liabilities are directly caused by the willful misconduct
or gross negligence of Lessor, its Affiliates or their respective officers,
directors, employees, contractors, subcontractors, agents or representatives.
(b) Lessor shall indemnify, hold harmless, and defend Lessee (together
with Lessee's Affiliates, officers, directors, employees, agents and
representatives) from and against any and
-19-
<PAGE>
all liabilities, claims, demands, suits, damages, actions, recoveries, judgments
and expenses (including court costs, reasonable attorneys' fees, and costs of
investigation) resulting (i) from Lessor's breach of this Lease (including any
representation, warranty or covenant set forth herein), or (ii) from injury to
or death of any person or any damage to property or loss of revenues due to
discontinuance of operations at the Site Spaces (excluding discontinuance of
operations in connection with the substitution of Site Spaces or as otherwise
permitted hereunder), which injury, death, damage or loss in the case of this
clause (ii) results from the willful misconduct or gross negligence of Lessor or
its contractors, subcontractors, agents or representatives in or around the
applicable Site Spaces (individually and collectively "Lessor Indemnity
Liabilities"), except to the extent that any such Lessor Indemnity Liabilities
are directly caused by the willful misconduct or gross negligence of Lessee, its
Affiliates or their respective officers, directors, employees, contractors,
subcontractors, agents or representatives.
14. ASSIGNMENT. (a) With respect to any Site Space, Lessee shall not
----------
assign, mortgage, or encumber Lessee's interest under this Lease and shall not
sublet or permit the leased premises or any part thereof to be used by others
without the express written approval of Lessor, which approval shall not be
unreasonably withheld or delayed, except that Lessee may assign or sublet its
rights and obligations hereunder or sublet the leased premises or any portion
thereof (i) to an Affiliate of Lessee or (ii) to any successor of all or
substantially all the operating assets of Lessee and its Affiliates, which
Affiliate or successor agrees to be bound hereby. No sublease or assignment or
authorized use by others shall relieve Lessee of its obligations under this
Lease, except for an assignment by Lessee pursuant to clause (ii) of the
preceding sentence.
(b) With respect to a Site Space, Lessor shall not assign, mortgage,
or encumber the Lessor Sites nor Lessor's interest under this Lease (except for
mortgages or encumbrances which are identified on Schedule A) without the
express written approval of Lessee, which approval shall not be unreasonably
withheld or delayed, except that Lessor may assign its rights and obligations
hereunder (i) to an Affiliate of Lessor, (ii) to any successor of all or
substantially all the operating assets of Lessor and its Affiliates, which
Affiliate or successor agrees to be bound hereby, or (iii) to a lender of Lessor
or an agent for a group of lenders under a collateral assignment in form
reasonably satisfactory to Lessee, subject to the applicable provisions of
Section 18 below.
15. DEFAULT BY LESSEE. If, with respect to any Site Space, Lessee fails
-----------------
to pay rent hereunder within ten (10) days after
-20-
<PAGE>
Lessor provides Lessee with a written notice regarding such breach, or Lessee
breaches Section 5(d) above by not ceasing any objectionable interference at a
Premises Site within three (3) days after Lessor provides Lessee with notice of
such interference, or Lessee fails to comply with any other term of this Lease
and does not cure such other failure within thirty (30) days after Lessor
provides Lessee with a written notice regarding the applicable breach or for
such longer period not to exceed one hundred eighty (180) days if Lessee is
using commercially reasonable efforts to cure such breach, and provided that
Lessee is not otherwise excused from performing hereunder, Lessor shall have the
option (i) (x) if such default is a default in the payment of rent, to terminate
this Lease as to the subject Site Space or to terminate this Lease as to all
Site Spaces, and (y) if such default is a default other than a default in the
payment of rent, to terminate this Lease only as to the subject Site Space, in
which event Lessee shall surrender possession of such Site Space(s) within
thirty (30) days after Lessor's delivery of a termination notice, and (ii) to
pursue any other remedy available to Lessor under this Lease or otherwise
provided by law or equity with respect to such Site Spaces. Lessee shall be
liable for reasonable expenses incurred by Lessor for its recovery and
repossession of the Site Space in accordance with the provisions hereof.
Repossession by Lessor shall terminate this Lease as to such repossessed Site
Space, including terminating all further rental and other obligations of Lessee
for the unexpired term with respect to such Site Space, but any such termination
shall not mitigate or abate any payment obligation under Section 2(c) above if
applicable. Lessor shall use its commercially reasonable efforts to re-lease
any Site Space for which this Lease has been so terminated, and Lessor shall use
commercially reasonable efforts to mitigate Lessor's damages and related costs.
16. DEFAULT BY LESSOR. If, with respect to a Site Space, Lessee's right
-----------------
to quiet enjoyment is interfered with in contravention of Section 5(g)(ii) above
or otherwise under this Lease and Lessor does not cure such violation within ten
(10) days after Lessee provides Lessor with written notice regarding such
violation, or Lessor fails to comply with any other term of this Lease and does
not cure such failure within thirty (30) days after Lessee provides Lessor with
written notice regarding the applicable breach or for such longer period not to
exceed one hundred eighty (180) days if Lessor is using commercially reasonable
efforts to cure such breach, Lessee shall have the option (i) to terminate this
Lease as to such Site Space, in which event Lessee shall surrender possession of
such Site Space within ninety (90) days after Lessee's delivery of a termination
notice, and (ii) to pursue any other remedy available to Lessee under this Lease
or otherwise provided by law or equity with respect to such Site Space. Lessee
shall use commercially
-21-
<PAGE>
reasonable efforts to deliver to mortgagees which are listed on Schedule A,
copies of any default notices that Lessee delivers to Lessor under this Section
15. In the event of a termination pursuant to this Section 15, Lessor shall be
liable for all reasonable expenses incurred by Lessee in connection with the
removal of Lessee's equipment and improvements from the Site Space. Lessee
shall use commercially reasonable efforts to mitigate Lessee's damages and
related costs.
17. CERTAIN TRANSITION RIGHTS. Approximately ninety (90) days prior to
-------------------------
the end of the term of this Lease as to a Site Space (whether the Initial Term
or Renewal Term, as applicable) Lessor and Lessee shall in good faith agree upon
a plan to enable an orderly and efficient wind-down period ("Wind-Down Period")
during which Lessee will remove its Transmitter Systems and related equipment
from such Site Space(s) and the parties anticipate that the Wind-Down Period
will provide for Lessee to remove all of its Transmitter Systems and related
equipment from such Site Space(s) no later than one hundred eighty (180) days
following the end of such term. Lessee shall be deemed as holding over for
purposes of Section 2(b) above for any portion of the Wind-Down Period that
extends beyond the end of such term, provided that Lessee shall not be obligated
to pay rent for any partial month during which Lessee so holds over at any Site
Space. Except as otherwise provided in Section 1(c) above, the period for
moving Transmitter Systems and related equipment from a Site Space to a
Substitution Site Space shall be thirty (30) days, provided that Lessee shall
remove its Transmitter Systems and related equipment from a Terminated Assigned
Interest Site Space under Section 2(c) above promptly after Lessee has notice of
such termination thereunder ("Terminated Assigned Interest Removal Period").
Upon the termination of this Lease with respect to a Site Space pursuant to
Section 16 above, Lessee shall have up to ninety (90) days to remove its
Transmitter Systems and related equipment. (Each of such Wind-Down Period,
applicable removal period under Section 1(c) above, Terminated Assigned Interest
Removal Period, thirty (30)-day removal period or ninety (90)-day removal period
are a "Removal Period", as applicable.) Lessee shall pay all costs in
connection with the removal of its Transmitter Systems and related equipment
(other than as provided in Sections 2(d), 10(a), 10(d) and 16 above). Lessee's
rental obligation (if any) during a Removal Period regarding the substitution of
Site Spaces shall be governed by the applicable provisions of this Lease
relating to such substitution event. During any Removal Period Lessee may
continue to operate its Transmitter Systems and related equipment at such Site
Space. If the Transmitter Systems and equipment are not removed by Lessee
during the applicable Removal Period, and the failure to remove is caused by the
intentional, reckless or negligent acts or omissions of Lessor, then for all
days subsequent to the applicable Removal Period during which the
-22-
<PAGE>
Transmitter Systems and related equipment remain on such Site Space, Lessee
shall not be deemed to be holding over and Lessee shall not be obligated to pay
rent pursuant to Section 2(b) above. The applicable Removal Period shall be
extended by the number of days that any Force Majeure Events prevent Lessee from
working on the removal of its Transmitter Systems and related equipment from a
Site Space.
18. SUBORDINATION. (a) Subject to the terms and continuing conditions
-------------
of this Section 18(a), this Lease is and shall be subject and subordinate to all
existing or future mortgages, deeds of trust, security deeds or other similar
instruments (collectively "Security Instruments") that as of the date hereof or
at any time in the future encumber the Premises Sites and to all renewals,
modifications, consolidations, replacements, and extensions thereof, provided
that such subordination shall only be effective upon the following terms and
conditions:
(i) if judicial or non-judicial foreclosure proceedings or other remedies
are instituted under any such Security Instruments or otherwise and Lessee
is not in default under this Lease (following the expiration of applicable
grace and cure periods), then (a) Lessee shall not be made a party
defendant in any such proceedings or other action, (b) this Lease shall not
be terminated, and (c) Lessee's possession and quiet enjoyment with respect
to the use, operation or occupancy of the Site Spaces shall not be
disturbed by the holder of such Security Instruments or by the purchaser at
any such foreclosure proceedings or other action nor shall Lessee's
possession and quiet enjoyment with respect to the use, operation or
occupancy of the Site Spaces be otherwise affected by such proceedings or
other action;
(ii) upon the completion of any such foreclosure proceedings and the sale
of one(1) or more of the Lessor Sites, or if such the holder of such
Security Instrument should otherwise acquire any or all of the Lessor
Sites, Lessee shall attorn to the purchaser at foreclosure or to the holder
of such Security Instrument as the case may be, and shall recognize such
purchaser or the holder of such Security Instrument as Lessee's landlord
under this Lease, and from time to time, upon the request of the purchaser
at foreclosure or the holder of such Security Instrument as the case may
be, Lessee shall execute and deliver any instrument reasonably specified in
such request to evidence such attornment or this subordination; and
-23-
<PAGE>
(iii) upon an attornment by Lessee pursuant to the immediately preceding
clause (ii), this Lease shall continue in full force and effect as a direct
lease between the purchaser at foreclosure or otherwise or the holder of
such Security Instrument as the case may be, and Lessee, upon all of the
terms of this Lease, except that such purchaser or the holder of such
Security Instrument as the case may be, shall not (a) be liable for any
previous act or omission of Lessor under this Lease, (b) be subject to any
setoff which shall have theretofore accrued to Lessee against Lessor under
this Lease (provided that Lessee shall be entitled to exercise set off
rights under Section 3(c) above prior to the completion of any such
foreclosure proceeding and sale), or (c) be bound by any prepayment of more
than one (1) month's rent unless such prepayment shall have been approved
by the holder of such Security Instrument.
(b) Lessee shall retain all rights and remedies available to Lessee
under this Lease or at law or in equity relating to any disturbance of Lessee's
quiet enjoyment with respect to the use, operation or occupancy of Site Spaces.
(c) Subject to the terms and conditions of Sections 18(a) and 18(b)
above:
(i) this subordination shall be self-operative and no further
instrument of subordination and nondisturbance shall be required by the
holder of any such Security Instruments; and
(ii) upon written request from Lessor, Lessee shall execute a
certificate confirming such subordination in form reasonably satisfactory
to Lessee and the holder of such Security Instrument.
19. MECHANICS' LIENS.
----------------
(a) Lessee shall not suffer or permit any liens to stand against the
Premises Sites or any part thereof by reason of any work, labor, service, or
materials done for, or supplied for, or supplied to or claimed to have been done
for, or supplied to, Lessee or anyone holding Lessee's property or any part
thereof through or under Lessee ("Lessee's Mechanics' Liens"). If any Lessee's
Mechanics' Lien shall at any time be filed against the Premises Site, Lessee
shall cause it to be discharged of record within thirty (30) days after the date
of filing by either payment, deposit, or bond. If Lessee fails to discharge any
such Lessee's Mechanics' Lien within such period, then, in addition to any other
right or remedy of Lessor, Lessor may, but shall not be obligated to, procure
the discharge of the Lessee's Mechanics' Lien. All amounts incurred by Lessor,
including reasonable
-24-
<PAGE>
attorneys' fees, in procuring the discharge of such Lessee's Mechanics' Lien,
together with interest thereon at twelve percent (12%) per annum from the date
of incurrence, shall become due and payable immediately by Lessee to Lessor.
(b) Lessor shall not suffer or permit any liens to stand against any
Transmitter System or any part thereof by reason of any work, labor, service, or
materials done for, or supplied for, or supplied to or claimed to have been done
for, or supplied to, Lessor or anyone holding Lessor's property or any part
thereof through or under Lessor ("Lessor's Mechanics' Liens"). If any Lessor's
Mechanics' Lien shall at any time be filed against the Transmitter System,
Lessor shall cause it to be discharged of record within thirty (30) days after
the date of filing by either payment, deposit, or bond. If Lessor fails to
discharge any such Lessor's Mechanics' Lien within such period, then, in
addition to any other right or remedy of Lessee, Lessee may, but shall not be
obligated to, procure the discharge of the Lessor's Mechanics' Lien. All
amounts incurred by Lessee, including reasonable attorneys' fees, in procuring
the discharge of such Lessor's Mechanics' Lien, together with interest thereon
at twelve percent (12%) per annum from the date of incurrence, shall become due
and payable immediately by Lessor to Lessee.
20. ESTOPPEL CERTIFICATES. At any time, but not with less than ten (10)
---------------------
days prior notice, Lessee shall execute, acknowledge, and deliver to Lessor a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or, if there have been any modifications, that the Lease is in full
force and effect as modified and stating the modifications), and the dates to
which rent and other charges, if any, have been paid in advance.
21. MISCELLANEOUS.
-------------
(a) The remedies provided herein shall be cumulative and shall not
preclude the assertion by any party hereto of any other rights or the seeking of
any other remedies against the other parties hereto; provided, that Lessor
--------
acknowledges and agrees that any claim it may have in the chapter 11 bankruptcy
proceedings of Lessee and its Affiliates (Case No. 97-174 (PJW)), other than a
claim for breach of this Lease, shall be satisfied in full by assumption by the
Lessee (or a successor to Lessee) of this Lease under and as of the effective
date of any plan of reorganization for Lessee (or a successor to Lessee).
(b) Should Lessor permit a continuing default by Lessee under this
Lease, the obligations of Lessee hereunder shall continue, and such permissive
default shall not be construed as a renewal of the term hereof nor as a waiver
of any of the rights of Lessor or obligations of Lessee hereunder.
-25-
<PAGE>
(c) This Lease may be executed in counterparts, and any number of
counterparts signed in the aggregate by the parties will constitute a single,
original instrument.
(d) This Lease, including the Schedules and other documents referred
to herein contain the entire understanding of the parties with respect to its
subject matter. There are no restrictions, agreements, promises, warranties,
covenants, or understandings other than expressly set forth herein or therein.
This Lease supersedes all prior agreements and understandings between the
parties with respect to its subject matter. No modification of this Lease shall
be effective unless contained in a writing signed, dated and fully witnessed by
the authorized representative of both parties.
(e) All notices, requests, claims, demands, and other communications
hereunder ("Notices") shall be in writing and shall be deemed to have been duly
given if delivered by personal delivery, by telecopy (other than Notices with
respect to Sections 13, 15, 16 or 18 which shall be delivered by another
permitted means under this Section 21(e)), by overnight courier or mailed
(certified mail, postage prepaid, return receipt requested): (i) to Lessor, at
the address and telecopy number shown above or to such other address and
telecopy number as Lessor may have furnished to Lessee in writing in accordance
with this Section 21(e); and (ii) to Lessee, at the address and telecopy number
shown above, except that Notices to Lessee with respect to Sections 13, 15, 16
or 18 above shall (instead) be delivered to MobileMedia Communications, Inc.,
Fort Lee Executive Park, One Executive Drive, Suite 500, Fort Lee, NJ 07024,
attention General Counsel, or to such other address as Lessee may have furnished
to Lessor in writing in accordance with this Section 21(e).
(f) This Lease shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York.
(g) Reference to Sections, Schedules and Paragraphs refer to Sections,
Schedules and Paragraphs of this Lease, except as otherwise indicated herein.
(h) Reference to the singular includes the plural and reference to the
plural includes the singular, according to the context.
-26-
<PAGE>
x IN WITNESS WHEREOF, this Lease has been duly executed and delivered by
Lessor and Lessee as of the day and year first above written.
LESSOR: PINNACLE TOWERS INC.,
a Delaware corporation
BY:___________________________
Name:
Title:
LESSEE: MOBILEMEDIA COMMUNICATIONS,
INC., a Delaware corporation
BY:____________________________
Name:
Title:
-27-
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-11 of Pinnacle Holdings Inc. of the following:
(1) our report dated March 4, 1998 relating to the consolidated financial
statements of Pinnacle Holdings Inc., (2) our report dated February 9, 1998
relating to the combined financial statements of Shore Communications, (3) our
report dated February 9, 1998 relating to the combined financial statements of
Tidewater Communications and (4) our report dated February 9, 1998 relating to
the combined financial statements of Majestic Communications, which appear in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- -----------------------------------
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
June 17, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated February 20, 1998, on the Tower Operations of Southern Communications
Services, Inc. and to all references to our Firm included in or made a part of
this Registration Statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 16, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 13, 1998, with respect to the financial statements
of the Tower Operations of MobileMedia Communications, Inc. and Subsidiaries
included in the Registration Statement (Form S-11 dated July 17, 1998) and
related Prospectus of Pinnacle Holdings Inc. for the registration of shares of
its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 1,693,923 2,715,465
<SECURITIES> 0 0
<RECEIVABLES> 1,647,575 2,334,752
<ALLOWANCES> 70,000 195,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,308,945 5,970,359
<PP&E> 137,719,715 296,847,807
<DEPRECIATION> 8,278,524 15,223,593
<TOTAL-ASSETS> 143,177,903 311,999,514
<CURRENT-LIABILITIES> 17,098,983 10,501,782
<BONDS> 109,459,790 287,226,872
1,761,039 1,761,040
0 0
<COMMON> 270 378
<OTHER-SE> 14,752,809 11,968,738
<TOTAL-LIABILITY-AND-EQUITY> 143,177,903 311,999,514
<SALES> 12,880,631 12,544,096
<TOTAL-REVENUES> 12,880,631 12,544,096
<CGS> 2,632,274 2,530,987
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 11,784,434 12,941,197
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,925,094 10,211,073
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,461,171) (13,139,161)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,461,171) (13,139,161)
<EPS-PRIMARY> (27.28) (34.24)
<EPS-DILUTED> (27.28) (34.24)
</TABLE>
