<PAGE>
As filed with the Securities and Exchange Commission on July 20, 1999
Registration Statement No. 333-82273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PINNACLE HOLDINGS INC.
(Exact name of registrant as specified in its governing instruments)
---------------
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. WILLIAM M. HARTNETT, ESQ.
Holland & Knight LLP Cahill Gordon & Reindel
400 North Ashley Drive, Suite 2300 80 Pine Street
Tampa, Florida 33602 New York, New York 10005
(813) 227-8500 (212) 701-3000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered(1) per Share(2) Price(2)(3) Fee(4)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks, par value $.001
per share...................... 12,305,000 $27.4375 $337,618,438 $93,858
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 1,605,000 shares of Common Stock subject to a 30-day over-
allotment option granted to the Underwriters.
(2) Calculated based upon the average of high and low prices reported on the
NASDAQ National Market on July 19, 1999, in accordance with Rule 457(c)
under the Securities Act of 1933, as amended.
(3) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended, and includes
shares that may be purchased by the Underwriters pursuant to the over-
allotment option.
(4) $64,140 was previously paid with the original Registration Statement filed
July 2, 1999.
---------------
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>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The complete
U.S. Prospectus follows immediately. Following the U.S. Prospectus are certain
pages of the International Prospectus, which include an alternate front cover
page, an alternate underwriting section and an alternate back cover page. All
other pages of the U.S. Prospectus and the International Prospectus are
identical.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated July 20, 1999
------------------------------------------------------
Pinnacle Holdings Inc.
10,700,000 Shares
Common Stock
------------------------------------------------------
This is a public offering of common stock of Pinnacle Holdings Inc. We are
offering 10,700,000 shares of common stock of which 2,350,000 are being
offered by the selling stockholders listed under the heading "Selling
Stockholders" on page 59 and 8,350,000 are being offered by us. The
international underwriters are offering 2,140,000 shares outside the United
States and Canada and the U.S. underwriters are offering 8,560,000 shares in
the United States and Canada.
Our common stock trades on the Nasdaq National Market under the symbol
"BIGT". On July 19, 1999, the last reported sale price of our common stock
was $27.625 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to Pinnacle Holdings Inc. $ $
Proceeds, before expenses, to selling stockholders $ $
</TABLE>
We and the selling stockholders have granted the underwriters the right to
purchase up to 1,605,000 additional shares at the public offering price to
cover any over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payments in Baltimore,
Maryland on , 1999.
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Raymond James & Associates, Inc.
Salomon Smith Barney
Banc of America Securities LLC
The date of this Prospectus is , 1999.
<PAGE>
[PICTURES OF VARIOUS TOWERS]
<PAGE>
[MAP OF U.S. INDICATING COMPANY'S CURRENT
TOWER SITES AND PENDING TOWER SITES.]
<PAGE>
PROSPECTUS SUMMARY
As used in this Prospectus, unless the context otherwise requires, "we,"
"us," "our," "Company" or "Pinnacle" refers to Pinnacle Holdings Inc., the
issuer of the Common Stock, and its subsidiaries. The following summary
contains basic information about us and this offering. It likely does not
contain all the information that is important to you. For a more complete
understanding of this offering, we encourage you to read this entire Prospectus
and the documents we have referred you to.
THE COMPANY
Overview
We are the leading independent provider of wireless communications site
space in the Southeastern United States. We rent space on communications sites
to providers of wireless communication services such as PCS, cellular, paging,
SMR, wireless data transmission and radio and television broadcasting. We
believe renting communications site space allows us to achieve the highest cash
flow margins with the lowest level of risk on the capital we invest in the
communications site business. As a result of our extensive base of existing
communications sites, we believe that we are well positioned to continue
benefiting from the growth opportunities in the rapidly consolidating tower
industry and from the strong demand for tower rental space fueled by the
growing demand for wireless services.
Since our formation in May 1995, we have focused on creating a portfolio of
communications site clusters by concentrating our presence in high growth
markets such as Atlanta, Birmingham, New Orleans, Orlando and Tampa. As of
June 30, 1999, we have completed 279 acquisitions, acquiring 965 communications
sites and have constructed an additional 108 towers. Currently we have
agreements or letters of intent to acquire 1,971 additional communications
sites, including an agreement with Motorola, Inc. ("Motorola") to acquire 499
owned sites, 526 "managed" sites and 833 "leased" sites for $255 million plus
fees and expenses (the "Motorola Antenna Site Acquisition"). Managed sites are
tower or rooftop communications sites owned by others where we would have the
exclusive right to market antenna space on these sites. Leased sites are tower
or rooftop communications sites owned by others that we would have a non-
exclusive right to market antenna space. The pending Motorola Antenna Site
Acquisition will enhance our strong position in the Southeast, expand our
existing presence in the Northeast and West and introduce us to new markets in
the Midwest. Following the closing of the Motorola Antenna Site Acquisition and
the additional communications sites which are currently subject to agreement or
a letter of intent we will have 1,685 owned communications sites, 560 managed
communications sites and 833 leased communications sites. This offering is not
conditioned upon the consummation of the Motorola Antenna Site Acquisition and
we cannot assure you that we will consummate the Motorola Antenna Site
Acquisition. See "--Recent Developments." We had annualized site rental revenue
and EBITDA on a pro forma basis of $143.8 million and $64.1 million,
respectively, based upon the three months ended March 31, 1999, of which $83.7
million and $26 million, respectively, are derived from the pending Motorola
Antenna Site Acquisition. For the purpose of this Prospectus, EBITDA on a pro
forma basis is defined as earnings (loss) from operations before depreciation
and amortization after giving effect to the pro forma acquisitions referenced
in this Prospectus. See "Our Unaudited Pro Forma Financial Data."
We currently have over 800 customers renting space on one or more of our
communications sites. Our tenants consist of all forms of wireless
communications providers, operators of private wireless networks and government
agencies, including Southern Communications, Nextel, Sprint PCS, PageNet,
Motorola, BellSouth Mobility, MobileMedia Communications, Teletouch, Skytel,
Pagemart, Federal Bureau of Investigation and Bureau of Alcohol, Tobacco &
Firearms. Our customers are generally responsible for the installation of their
own equipment and the incremental utility costs associated with that equipment.
<PAGE>
In addition, adding customers on a communications site does not increase
monitoring, maintenance or insurance costs. Therefore, when new customers are
added to a communications site, we are able to increase revenue at low
incremental cost, thereby increasing cash flow margins.
We believe that "same tower" revenue growth is a meaningful indicator of our
success in growing our business. Same tower revenue growth is measured by
comparing the annualized revenues of our communications sites at the end of a
period to the annualized revenues for the same sites at the end of a prior
period without considering revenues from the communications sites we acquired
during the period. Taking into consideration leases for new tenants, as of
December 31, 1998 we experienced same tower revenue growth of approximately 20%
for the year ended December 31, 1998 on the base of communications sites we
owned as of December 31, 1997.
Our Business and Growth Strategy
Our objective is to create value both by capitalizing on our position as the
leading provider of wireless communications site space in the Southeastern
United States and applying our focused marketing and cluster enhancing strategy
to new markets we may enter, including markets where Motorola sites are
located.
. Marketing and Development Strategy. We aggressively market space on our
communications sites to leverage our fixed costs over a broader base of
customers. The key elements of our marketing and development strategy
include:
--owning and assembling clusters of communications sites in high growth
regions, which we believe allows us to offer our customers the ability to
rapidly and efficiently fulfill their network expansion plans across a
particular market or region;
--targeting a diversified customer base that uses differing types of
wireless technologies with different height requirements to maximize the
utilization of our communications sites;
--using our customer relationships and our established reputation as a
highly professional and reliable communications site space provider;
--premarketing communications site rental space to new wireless
communications service providers based on the market intelligence we gain
by tracking FCC filings; and
--using information obtained from our customers concerning their future
expansion plans to guide our acquisition and new construction programs.
. Acquisition Strategy. We believe that growth through acquisition is an
attractive strategy because it allows us to choose the location of our
communications sites, acquire sites with existing tenants and capacity to
add additional tenants, and avoid unprofitable "build-to-suit" mandates.
The key elements of our acquisition strategy include:
--targeting population centers and key transportation corridors in
wireless communications markets where there is evidence of high growth
potential;
--selecting communications sites that will allow us to create or enhance a
cluster of sites in a given area;
--employing a disciplined process to acquire communications sites that
have existing cash flow and potential for significant future cash flow
growth from additional tenants; and
--committing significant personnel to identifying, negotiating, and
closing communications site acquisitions.
. New Tower Construction Strategy. We also selectively construct new towers
in and around major markets where we already have a presence to enhance
our existing communications site
2
<PAGE>
clusters. We do not pursue large build-to-suit mandates or engage in
speculative construction projects. During 1997, 1998 and the first three
months of 1999, we constructed 22, 47 and 16 towers, respectively. We
estimate that we will identify 80 to 100 new tower build opportunities in
the next year. The key elements of our tower build program include:
--learning our customers' network build-out plans through our sales and
marketing relationships and identifying suitable tower construction sites
based on that information; and
--rapidly beginning construction after identifying an attractive
opportunity.
Our Strengths
We believe the following to be the strengths of our business:
. Focus on Communications Site Rental Business. We focus on the rental of
communications site space as opposed to other aspects of the tower
industry such as site acquisition services or tower construction
services. Furthermore, we do not engage in large scale "build-to-suit"
programs, preferring instead to focus on our core acquisition strategy
and complimentary selective construction strategy designed to enhance
coverage in targeted markets;
. Communications Site Portfolio. We believe that the size of our portfolio
coupled with our focus on creating and enhancing clusters of
communications sites create significant competitive advantages by
enabling us to provide our customers with multiple communications sites
in a given area;
. Successful Acquisition Strategy. Our acquisition process identifies
communications sites that typically have existing cash flow and enhance
our existing portfolio. We have demonstrated the ability to identify,
successfully negotiate the purchase of, and integrate what we believe to
be value enhancing acquisitions; and
. Ability to Increase Rental Revenue. Our aggressive marketing efforts to
all major wireless communication providers have resulted in the signing
of a significant number of new tenants over the last four years.
Additional tenants increase the operating leverage of our communications
site portfolio and generally increase our overall cash flow margins. We
have generated a cumulative increase in total monthly revenues for the 29
towers acquired in 1995 of approximately 133% through December 31, 1998.
In addition, the 119 towers acquired in 1996 and the 134 towers acquired
in 1997 have experienced cumulative increases in total monthly revenues
of approximately 68% and 14%, respectively, through December 31, 1998.
Recent Developments
Pending Motorola Antenna Site Acquisition
On June 29, 1999, we executed a definitive agreement to acquire 1,858
communications sites, including 499 owned sites, 526 managed sites, and 833
leased sites from Motorola for $255 million plus fees and expenses. We will
finance the Motorola Antenna Site Acquisition by (1) borrowing approximately
$225 million under our credit facility, of which $25 million was advanced by a
letter of credit issued to Motorola on June 29, 1999, and (2) (x) borrowing
under our credit facility to the extent additional borrowing is then available,
(y) applying a portion of the net proceeds from this offering or (z) a
combination of both (x) and (y) above. See "Description of Indebtedness" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources." The Motorola communications sites
are largely clustered in urban areas throughout the United States and Canada
with over 50% of the owned sites overlapping with our existing communications
site portfolio. We believe that the Motorola Antenna Site Acquisition will
greatly enhance our ability to offer our customers attractive tower clusters in
high growth markets and transportation corridors. In addition, the
3
<PAGE>
managed sites we expect to acquire in the Motorola Antenna Site Acquisition
will enable us to provide our customers premier urban rooftop sites such as the
World Trade Center in New York, Sears Tower in Chicago and the Allied Bank
Building in Houston. We believe these sites will allow us to further diversify
our customer base by providing us with an inventory of high altitude sites in
urban areas. For the three months ended March 31, 1999, the Motorola
communications sites generated $20.9 million and $6.5 million in site rental
revenue and EBITDA on a pro forma basis, respectively. See "Risk Factors--There
may be risks associated with the Motorola Antenna Site Acquisition." This
offering is not conditioned upon the consummation of the Motorola Antenna Site
Acquisition and we cannot assure you that we will consummate the Motorola
Antenna Site Acquisition.
Other Pending Acquisitions
We have executed letters of intent or purchase agreements with respect to
acquisitions for an aggregate purchase price of approximately $40 million.
Among the communications sites we expect to acquire are (1) 28 radio towers,
associated building and equipment (the "Radio Towers Acquisition") for a
purchase price of approximately $15 million and (2) 73 communications towers
and associated equipment, ground leases and leases of communications site space
to tenants (the "Communications Towers Acquisition") for a purchase price of
approximately $19 million. We expect to pay for the Radio Towers Acquisition
and approximately $6 million of the purchase price of the Communications Towers
Acquisition with either (1) borrowings under our credit facility, (2) proceeds
from our issuance of $20 million aggregate liquidation preference of senior
preferred pay-in-kind stock, series B ("Series B Preferred Stock"), to an
affiliate of Deutsche Bank Securities Inc. pursuant to a commitment letter
dated July 1, 1999 between us and such affiliate of Deutsche Bank Securities
Inc., which we would expect to redeem with proceeds from this offering,
(3) proceeds from the issuance of another series of our senior preferred pay-
in-kind stock that we may seek to issue to one or more of the Underwriters or
their affiliates or some other institutional investor, (4) cash on hand, or (5)
a combination of the foregoing. We expect to pay for the $13 million balance of
the Communications Towers Acquisition and approximately $5 million of smaller
pending acquisitions by (1) assuming that this offering is consummated prior to
the closing of the foregoing acquisitions, and applying the proceeds therefrom
or (2) if this offering is not consummated prior to the completion of such
acquisitions, by issuing pay-in-kind preferred stock, using cash on hand or by
borrowings under our credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Second Quarter 1999 Results
For the three months ended June 30, 1999, our revenues increased by
approximately 93% to $13.7 million from $7.1 million during the same period in
1998. Tower level cash flow increased to $11.1 million for the second quarter
from $5.5 million during the same period last year. EBITDA grew to $8.6 million
for the second quarter compared to $2.3 million for the same quarter last year.
The net loss for the second quarter was $12.1 million compared to $9.2 million
for the same period in 1998. During the second quarter we closed on the
acquisition of 49 communications sites and built 15 towers. Additionally,
during that period, we augmented 12 of our existing towers in order to
accommodate new tenants.
4
<PAGE>
THE OFFERING(/1/)
The offering of 8,560,000 shares of our Common Stock in the United States
and Canada (the "U.S. Offering") and the offering of 2,140,000 shares of our
Common Stock outside the United States and Canada (the "International
Offering") are collectively referred to in this Prospectus as this "offering."
<TABLE>
<S> <C>
Common Stock offered:
By Pinnacle............ 8,350,000 shares
By the Selling
Stockholders.......... 2,350,000 shares
-------------
Total................. 10,700,000 shares
-------------
-------------
Common Stock to be
outstanding after this
offering(/2/).......... 40,375,951 shares
Use of Proceeds......... We intend to use the net proceeds of this offering to
initially repay a limited amount of debt under our
credit facility, invest a substantial portion of the
proceeds in short-term liquid securities and then, upon
the expected consummation of the Motorola Antenna Site
Acquisition, repay a substantial amount of debt under
our credit facility, pay for a portion of the purchase
price of the Motorola Antenna Site Acquisition, fund
future acquisitions and redeem any pay-in-kind
preferred stock which we may issue to fund certain of
such acquisitions prior to the closing of this
offering. In the event that the Motorola Antenna Site
Acquisition is not consummated, we shall apply the net
proceeds of this offering as described above, except
that the proceeds that would otherwise be used to pay
for the Motorola Antenna Site Acquisition will be used
to further reduce our debt and to fund acquisitions.
The net proceeds of this offering received by the
Selling Stockholders will not be available to us. See
the "Use of Proceeds" section of this Prospectus for
further details.
Risk Factors............ See "Risk Factors" beginning on page 9 for a discussion
of factors you should carefully consider before
deciding to invest in our Common Stock.
NASDAQ National Market
Symbol................. "BIGT"
</TABLE>
- --------
(1) Does not include 1,605,000 shares of Common Stock subject to a 30-day over-
allotment option granted to the underwriters half by us and half by the
Selling Stockholders.
(2) Excludes approximately 3,000,000 shares of Common Stock reserved for
issuance pursuant to our stock incentive plan, 2,749,692 of which are
subject to outstanding options.
Our headquarters are located at 1549 Ringling Boulevard, Third Floor,
Sarasota, Florida 34236, and our telephone number is (941) 364-8886. Our
website is www.pinnacletowers.com. The information provided on our website is
not incorporated into this Prospectus.
5
<PAGE>
OUR SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents our summary historical and unaudited pro forma
consolidated financial data. The summary historical consolidated financial data
for the period of inception (May 3, 1995) through December 31, 1995 and for
each of the three years ended December 31, 1996, 1997 and 1998 were derived
from our consolidated historical financial statements contained elsewhere in
this Prospectus including their related notes, which have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants. The
unaudited consolidated statement of operations data for the three months ended
March 31, 1998 and 1999 are derived from our unaudited consolidated financial
statements, which are contained elsewhere in this Prospectus. The unaudited pro
forma consolidated financial data as of and for the three months ended March
31, 1998 and 1999 were derived from our Unaudited Pro Forma Consolidated
Financial Statements contained elsewhere in this Prospectus. The summary
financial information should be read in conjunction with, and is qualified in
its entirety by, the information contained in our audited consolidated
financial statements and their related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Our Unaudited Pro
Forma Financial Data" and "Our Selected Historical Consolidated Financial Data"
included elsewhere in this Prospectus.
The following summary unaudited pro forma statement of operations data have
been prepared to reflect the results of our operations as if each of the
following had been completed as of January 1, 1998:
. all individually insignificant acquisitions completed during 1998;
. acquisitions of other communications sites completed since January 1,
1999;
. the Southern Towers Acquisition described elsewhere in this Prospectus.
See "Business--Our Acquisition Strategy;"
. the MobileMedia Acquisition described elsewhere in this Prospectus. See
""Business--Our Acquisition Strategy;''
. the Motorola Antenna Site Acquisition;
. other individually insignificant acquisitions of communications sites
businesses for which we have entered into agreements or letters of intent
to acquire as of June 30, 1999, and that we believe are probable;
. related financing of the acquisitions referred to above;
. our initial public stock offering in February 1999 ("IPO"); and
. this offering and the application of the net proceeds therefrom as
described under "Use of Proceeds."
To the extent not consummated prior to April 1, 1999, the pro forma balance
sheet data as of March 31, 1999 have been prepared as if each such transaction
referred to above was completed by March 31, 1999. The pro forma adjustments
are based upon available information and certain assumptions that we believe
are reasonable. The pro forma consolidated financial data do not purport to
present what our results of operations or financial position would actually
have been, or to project our results of operations or financial position at any
future period.
6
<PAGE>
<TABLE>
<CAPTION>
Period from Pro Forma
Inception Three as Adjusted
(May 3, Months for Three
1995) Pro Forma Ended Months
through Years Ended December 31, as Adjusted March 31, Ended
December 31, -------------------------- December 31, ----------------- March 31,
1995 1996 1997 1998 1998 1998 1999 1999
------------ ------- ------- -------- ------------ ------- -------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Site rental revenue..... $ 733 $ 4,842 $12,881 $ 32,019 $142,198 $ 5,373 $ 12,008 $ 35,956
Direct site operating
expenses, excluding
depreciation and
amortization........... 181 1,135 2,633 6,166 59,749 851 2,233 14,587
------ ------- ------- -------- -------- ------- -------- ---------
Gross profit, excluding
depreciation and
amortization........... 552 3,707 10,248 25,853 82,449 4,522 9,775 21,369
Other expenses:
General and
administrative (a)..... 306 916 1,367 4,175 16,087 420 843 3,430
Corporate development
(a).................... 369 1,421 3,723 6,382 6,382 1,289 1,711 1,711
State franchise, excise
and minimum taxes...... -- 26 67 686 686 70 201 201
Depreciation............ 282 2,041 6,335 22,513 75,087 2,951 8,994 19,187
------ ------- ------- -------- -------- ------- -------- ---------
Loss from operations.... (405) (697) (1,244) (7,903) (15,793) (208) (1,974) (3,160)
Interest expense........ 181 1,155 6,925 12,300 31,156 3,103 3,900 6,574
Amortization of original
issue discount and debt
issuance costs......... 59 164 292 16,427 20,565 610 5,429 5,429
------ ------- ------- -------- -------- ------- -------- ---------
Loss before
extraordinary item..... (645) (2,016) (8,461) (36,630) (67,514) (3,921) (11,303) (15,163)
====== ======= ======= ======== ======== ======= ======== =========
Extraordinary loss from
Extinguishment of
debt................... -- -- -- 5,641 5,641 -- -- --
------ ------- ------- -------- -------- ------- -------- ---------
Net loss................ (645) 2,016 (8,461) (42,271) (73,155) (3,921) (11,303) (15,163)
====== ======= ======= ======== ======== ======= ======== =========
Dividends and accretion
on preferred stock..... -- -- -- 3,094 -- -- 2,930 --
------ ------- ------- -------- -------- ------- -------- ---------
Loss attributable to
common stock........... $ (645) $(2,016) $(8,461) $(45,365) $(73,155) $(3,921) $(14,233) $ (15,163)
====== ======= ======= ======== ======== ======= ======== =========
Basic loss per common
share:
Loss before
extraordinary item.... (6.32) (8.10) (27.29) (95.03) (1.67) (.43) (.79) (.38)
Extraordinary item..... -- -- -- (13.50) (.14) -- -- --
------ ------- ------- -------- -------- ------- -------- ---------
Net loss............... $(6.32) $ (8.10) $(27.29) $(108.53) $ (1.81) $ (.43) $ (0.79) $ (.38)
====== ======= ======= ======== ======== ======= ======== =========
Weighted average number
of shares of common
stock.................. 102 249 310 418 40,376 9,116 18,068 40,376
Other Operating Data:
Tower Level Cash Flow
(b).................... $ 552 $ 3,707 $10,248 $ 25,853 $ 82,449 $ 4,522 $ 9,775 $ 21,369
Tower Level Cash Flow
Margin (c)............. 75.3% 76.6% 79.6% 80.7% 58.0% 84.2% 81.4% 59.4%
Adjusted EBITDA (b)..... $ 246 $ 2,791 $ 8,881 $ 21,678 $ 66,362 $ 4,102 $ 8,932 $ 17,939
Adjusted EBITDA Margin
(c).................... 33.6% 57.6% 68.9% 67.7% 46.7% 76.3% 74.4% 49.9%
EBITDA Before Franchise,
Excise and Minimum
Taxes (b).............. $ (123) $ 1,370 $ 5,158 $ 15,296 $ 59,980 $ 2,813 $ 7,221 $ 16,228
EBITDA Before Franchise,
Excise and Minimum
Taxes Margin (c)....... -- 28.3% 40.0% 47.8% 42.2% 52.4% 60.1% 45.1%
EBITDA (b).............. $ (123) $ 1,344 $ 5,091 $ 14,610 $ 59,294 $ 2,743 $ 7,020 $ 16,027
EBITDA Margin (c)....... -- 27.8% 39.5% 45.6% 41.7% 51.1% 58.5% 44.6%
Number of Sites: (d)
Beginning of period.... 0 33 156 312 -- 312 876 --
Sites acquired during
the period............ 29 119 134 517 -- 238 109 --
Sites constructed
during the Period..... 4 4 22 47 -- 9 16 --
End of period.......... 33 156 312 876 -- 559 1,001 3,078
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
December 31, As Adjusted
------------------------------------ March 31, March 31,
1995 1996 1997 1998 1999 1999
------- ------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 31 $ 47 $ 1,694 $ 13,801 $ 1,276 $ 1,276
Working capital
deficit................ (1,077) (1,477) (12,790) (9,270) (14,741) (15,151)
Tower assets, net....... 11,532 48,327 127,946 473,942 553,889 893,561
Total assets............ 13,972 55,566 143,178 516,148 584,527 976,976
Total debt.............. 5,523 30,422 120,582 433,218 353,878 549,605
Mandatorily redeemable
stock:
Senior Preferred
Stock................. -- -- -- 29,882 -- --
Class B Common Stock... 1,200 1,200 1,761 1,761 -- --
Class D Common Stock... -- -- -- -- -- --
Junior Preferred Stock.. -- -- -- 59,929 -- --
Common Stock............ -- -- -- -- 32 40
Additional paid-in
capital................ 7,051 24,881 25,876 33,137 276,566 464,993
Stock subscription
receivable............. (180) -- -- -- -- --
Common stock warrants... -- -- -- 1,000 -- --
Accumulated deficit..... (645) (2,661) (11,123) (53,394) (64,697) (64,697)
------- ------- -------- -------- -------- --------
Stockholders' equity.... $ 6,226 $22,220 $ 14,753 $ 40,672 $211,901 $400,336
</TABLE>
- --------
(a) "General and administrative" expenses represent those costs directly
related to the day-to-day management and operation of our communications
sites. "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 sites.
(b) "Tower Level Cash Flow" is defined as site rental revenue minus site
operating expenses, excluding depreciation and amortization. "Adjusted
EBITDA" represents earnings (loss) from operations before depreciation,
amortization, corporate development expenses and state franchise, excise
and minimum taxes. "EBITDA Before Franchise, Excise and Minimum Taxes"
represents earnings (loss) from operations before depreciation,
amortization and state franchise, excise and minimum taxes. "EBITDA"
represents earnings (loss) from operations before depreciation and
amortization. We have included Tower Level Cash Flow, Adjusted EBITDA,
EBITDA Before Franchise, Excise and Minimum Taxes and EBITDA in Other
Operating Data because we believe such information may be useful to you in
evaluating our ability to service our debt. Tower Level Cash Flow, Adjusted
EBITDA, EBITDA Before Franchise, Excise and Minimum Taxes 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
our ability to meet our cash needs or as an indication of our operating
performance. Moreover, Tower Level Cash Flow, Adjusted EBITDA, EBITDA
Before Franchise, Excise and Minimum Taxes and EBITDA are not standardized
measures and may be calculated in a number of ways. Accordingly, the Tower
Level Cash Flow, Adjusted EBITDA, EBITDA Before Franchise, Excise and
Minimum Taxes 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, EBITDA Before Franchise,
Excise and Minimum Taxes and EBITDA each as a percentage of site rental
revenue.
(d) Includes sites that we manage, including 13 communications sites we
acquired in 1997, 17 communications sites we acquired in 1998, and, 1,359
communications sites we expect to acquire upon the consummation of the
pending Motorola Antenna Site Acquisition.
8
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RISK FACTORS
Before you invest in our Common Stock, you should be aware that the
occurrence of any of the events described in this Risk Factors section and
elsewhere in this Prospectus could have a material adverse effect on our
business, financial condition and results of operations. You should carefully
consider these risk factors, together with all of the other information
included in this Prospectus, before you decide to purchase our Common Stock.
This Prospectus contains certain forward-looking statements that involve risks
and uncertainties.
We have a history of operating losses. We have generated losses from
operations and negative cash flow, and we may continue to do so.
We have incurred losses from continuing operations in each of the fiscal
years since our inception. As a result, for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1999, our earnings were
insufficient to cover combined fixed charges by approximately $0.8 million,
$9.3 million and $1.7 million, respectively. We expect to continue to
experience net losses in the future, principally due to interest charges on
outstanding indebtness and substantial charges relating to depreciation of our
existing and future assets. These net losses may be greater than the net
losses we have experienced in the past.
Our substantial indebtedness could adversely affect our financial condition.
We have now, and after this offering will continue to have, a high level of
indebtedness. As of March 31, 1999, on a pro forma as adjusted basis after
giving effect to this offering, the application of the proceeds therefrom and
the consummation and financing of the pending acquisitions, we would have had
$549.6 million of indebtedness outstanding.
Our high level of indebtedness could have important consequences to you.
For example, it could:
. make it more difficult for us to satisfy our obligations with respect to
our indebtedness;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing;
. require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness thereby reducing the availability of such cash flow to fund
our growth strategy, working capital, capital expenditures or other
general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
. place us at a competitive disadvantage relative to our competitors with
less debt.
We may incur substantially more debt. This could further exacerbate the risks
described above.
We may incur substantial additional debt in the future. The terms of our
outstanding debt do not fully prohibit us from doing so. If new debt is added
to our current levels, the related risks that we now face could intensify. See
"Capitalization," "Our Selected Historical Consolidated Financial Data" and
"Description of Indebtedness."
We will require a significant amount of cash to service our indebtedness and
meet our other liquidity needs. Our ability to generate cash depends on many
factors beyond our control.
Our ability to meet our debt service and other obligations will depend on
our future performance, which is subject to general economic, financial,
competitive, legislative, regulatory and other factors that
9
<PAGE>
are beyond our control. We anticipate the need for substantial capital
expenditures in connection with our future expansion plans.
If we are unable to generate sufficient cash flow from operations to service
our indebtedness and fund our other liquidity needs, we 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 our 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 our Common Stock. We may also need to refinance all or a
portion of our debt on or before maturity. We cannot assure you that we will be
able to refinance any of our debt on commercially reasonable terms or at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
There may be risks associated with the Motorola Antenna Site Acquisition.
On June 29, 1999, we entered into an agreement, subject to certain
conditions, with Motorola to purchase 1,858 communication sites, including 499
owned sites, 526 managed sites and 833 leased sites for a purchase price of
$255 million plus fees and expenses (the "Motorola Purchase Agreement"). The
Motorola Antenna Site Acquisition would have increased our revenues and EBITDA
on a pro forma basis by $85.1 million and $23.7 million, respectively, for the
year ended December 31, 1998. The Motorola Antenna Site Acquisition and the
terms of the Motorola Purchase Agreement may be subject to anti-trust law
clearance. We cannot assure you that the Motorola Antenna Site Acquisition will
receive anti-trust law clearance, if required, or that the Motorola Antenna
Site Acquisition will ultimately be consummated. Additionally, most of the
leases to be assumed in connection with the Motorola Antenna Site Acquisition
are cancelable by either party on short-term notice. We cannot assure you that
tenants on the sites obtained in the Motorola Antenna Site Acquisition will not
cancel their leases. Additionally, Motorola's revenues decreased from $89.1
million in 1997 to $85.6 million in 1998, and from $21.7 million for the three
month period ended March 28, 1998 to $21.1 million for the three month period
ended April 3, 1999. The decrease was primarily the result of a reduction in
the number of communications sites used by Nextel for its analog SMR business.
We anticipate that Nextel will continue to phase out its analog SMR business
for the forseeable future.
Due to timing, logistical and other constraints, we may not have the ability
to access, analyze and verify all information regarding title and other issues
related to the Motorola sites prior to closing the Motorola Antenna Site
Acquisition. If within the 18 month period (three years for certain title
matters) following the closing of the Motorola Antenna Site Acquisition, we
determine that Motorola has breached any of the representations or warranties
set forth in the Motorola Purchase Agreement, we have the right to obtain
indemnification from Motorola for certain losses suffered as a result of any
such breach in an amount not to exceed approximately $63 million. However,
except as otherwise set forth above, we will not be compensated for defects in
title or other site-related and other issues. Accordingly, our ability to
recover damages that we may suffer as a result of any such defects may be
limited.
We are a holding company. Our only source of cash is from distributions from
our subsidiaries.
We are a holding company with no operations of our own and conduct all of
our business through our subsidiaries. Our only significant asset is the
outstanding capital stock of our subsidiaries. We are wholly dependent on the
cash flow of our subsidiaries and dividends and distributions from our
subsidiaries to us in order to service our current indebtedness and any of our
future obligations. The ability of our subsidiaries to pay such dividends and
distributions will be subject to, among other things, the terms of any debt
instruments of our subsidiaries then in effect and applicable law. Our rights,
and the rights of our creditors, to participate in the distribution of assets
of any subsidiary upon such
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<PAGE>
subsidiary's liquidation or reorganization will be subject to the prior claims
of such subsidiary's creditors, except to the extent that Pinnacle is itself
recognized as a creditor of such subsidiary, in which case our claims would
still be subject to the claims of any secured creditor of such subsidiary. As
of March 31, 1999, after giving effect to the acquisitions referred to herein
on a pro forma as adjusted basis, the aggregate amount of debt and other
obligations of our subsidiaries (including trade payables current, long-term
and other liabilities) plus other debt would have been approximately $576.6
million. See "Dividend Policy."
We will not be able to effect our business plan if we do not have the required
cash.
Our business plan is materially dependent upon the acquisition of additional
suitable communications sites at prices we consider reasonable in light of the
revenue we believe we will be able to generate from such sites when acquired.
We will need significant additional capital to finance future acquisitions as
well as our tower construction plan and other capital expenditures. During
1996, 1997 and 1998, we made capital investments aggregating approximately
$42.2 million, $88.4 million and $372.1 million, respectively, in
communications site acquisitions, site upgrades and new tower construction. We
estimate capital investments in 1999 and 2000 will be approximately $500.1
million and $120 million, respectively. We cannot assure you that our actual
cash requirements will not materially exceed our estimated capital requirements
and available capital. We historically have financed our capital expenditures
through a combination of borrowings under bank credit facilities, a senior
discount notes offering, bridge financings, equity issuances, seller financing
and cash flow from operations. Significant additional acquisition or tower
construction opportunities will create a need for additional capital financing.
If our revenue and cash flow are not as expected, or if our borrowing base is
reduced as a result of operating performance, we may have limited ability to
access necessary capital. We cannot assure you that adequate funding will be
available as needed or, if available, on terms acceptable to us or permitted
under the terms of our existing indebtedness. The terms of additional debt
financing could have important consequences to you. See "--The terms of our
indebtedness impose significant restrictions on us." In addition, to qualify
and remain qualified as a REIT, we must distribute to our stockholders 95% of
our taxable income computed without regard to net capital gains and deductions
for distributions to our stockholders and 95% of certain foreclosure income. If
made, such distributions could reduce the amount of cash available to us to
effect our business plan. Insufficient available funds may require us to scale
back or eliminate some or all of our planned expansion. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The terms of our indebtedness impose significant restrictions on us.
Certain provisions of the indenture governing our 10% senior discount notes
due 2008 dated as of March 20, 1998 by and between us and The Bank of New York,
as trustee (the "Indenture"), contain covenants that restrict our ability to:
. incur additional indebtedness;
. incur liens;
. make investments;
. pay dividends or make certain other restricted payments;
. consummate certain asset sales;
. consolidate with any other person; and
. sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
In addition, our credit facility requires us to comply with certain
financial ratios and tests, under which we are required to achieve certain
financial and operating results. Our ability to meet these
11
<PAGE>
financial ratios and tests may be affected by events beyond our control, and
there can be no assurance that they will be met. In the event of a default
under our credit facility, the lenders may declare the indebtedness immediately
due and payable, which would result in a default under the Indenture. We cannot
assure you that we will have sufficient assets to pay indebtedness outstanding
under our credit facility and our 10% senior discount notes. Any refinancing of
our credit facility is likely to contain similar restrictive covenants. See
"Description of Indebtedness."
We depend on acquisitions and the integration of those acquisitions into our
business.
Our business plan is materially dependent upon the acquisition of additional
suitable communications sites at prices we consider reasonable in light of the
revenue we believe we will be able to generate from these sites when acquired.
Since our inception, however, the prices of acquisitions within the industry
have generally increased over time. Additionally, we compete with certain
wireless communications providers, site developers and other independent
communications site owners and operators for acquisitions of communications
sites, some of which have greater financial and other resources than we have.
Increased demand for acquisitions may result in fewer acquisition opportunities
for us as well as higher acquisition prices. Our inability to grow by
acquisition or to accurately estimate the amount of revenue that will be
generated from such acquisitions may affect us adversely. Although we believe
that opportunities may exist for us to grow through acquisitions, we cannot
assure you that we will be able to identify and consummate acquisitions on
terms we find acceptable. Certain provisions of our credit facility and our 10%
senior discount notes may limit our ability to effect acquisitions. See "--Our
substantial indebtedness could adversely affect our financial condition."
Further, we cannot assure you that we will be able to profitably manage and
market the space on additional communications sites acquired or successfully
integrate acquired sites with our 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 sites in geographically diverse markets. Accordingly, we cannot
assure you that one or more of our past or future acquisitions may not have a
material adverse effect on our financial condition and results of operations.
See "Business--Our Acquisition Strategy."
If we fail to protect our rights against persons claiming superior rights in
our communications sites, our business may be adversely affected.
Our real property interests relating to our communications sites consist of
fee interests, leasehold interests, private easements and licenses, easements
and rights-of-way. We generally obtain title insurance on fee properties we
acquire and rely on title warranties from sellers. Our ability to protect our
rights against persons claiming superior rights in communications sites depends
on our ability to:
. recover under title policies, the policy limits of which may be less than
the purchase price of the particular site;
. in the absence of insurance coverage, realize on title warranties given
by the sellers, which warranties often terminate after the expiration of
a specific period, typically one to three years; and
. realize on title covenants from landlords contained in leases.
The loss of any significant customer could adversely affect our business.
We have certain customers that account for a significant portion of our
revenue. MobileMedia Communications and its affiliates and Southern
Communications and certain of its affiliates would have accounted for
approximately 24% and 11%, respectively, of our revenue, on a run rate basis,
at December 31, 1998. After the Motorola Antenna Site Acquisition, Nextel will
represent approximately 13% of our revenues. Southern Communications holds
leases with initial terms of 10 years each. MobileMedia Communications holds a
lease with an initial term of 15 years. The loss of one or more of
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these major customers, or a reduction in their utilization of our
communications site rental space due to their insolvency or other inability or
unwillingness to pay, could have a material adverse effect on our business,
results of operations and financial condition. See "Business--Our Customers and
Customer Leases."
There are significant risks associated with construction of new towers.
As of March 31, 1999, we had 11 towers under construction and 50 additional
tower projects in various stages of development. The success of our growth
strategy is dependent in part on our ability to construct new towers. Such
construction can be delayed by factors beyond our control, 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. Additionally, we cannot assure you that build
opportunities will become available that meet our economic criteria. Our
expansion plans call for a significant increase in construction activity. We
cannot assure you that we will be able to overcome the barriers to new
construction or that the number of towers planned for construction will be
completed. Our failure to complete the necessary construction could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Our New Tower Construction Strategy."
We compete with companies that have greater financial resources.
We face competition for customers from various sources, including:
. wireless communications providers and utility companies that own and
operate their own communications site networks and lease communications
site space to other carriers;
. site development companies that acquire space on existing communications
sites for wireless communications providers and manage new tower
construction;
. other independent communications site companies; and
. traditional local independent communications site operators.
Wireless communications providers that own and operate their own
communications site networks generally are substantially larger and have
greater financial resources than we have. We believe that site 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 communications site rental companies.
We believe that competition for communications site acquisitions will increase
and that additional competitors will enter the tower rental market, certain of
whom may have greater financial and other resources than we have. See
"Business--Our Competition."
Our business depends on demand for wireless communications.
Substantially all of our revenue is derived from leases of communications
site space, most of which are with wireless communications providers.
Accordingly, our future growth depends, to a considerable extent, upon the
continued growth and increased availability of cellular and other wireless
communications services. We cannot assure you 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, personal
communications services ("PCS"), fixed microwave, specialized mobile radio
("SMR"), enhanced specialized mobile radio ("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 seven for PCS) within a
13
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geographic market competing for subscribers. The demand for rental space on our
communications sites is dependent on a number of factors beyond our control,
including the following:
. demand for wireless services;
. financial condition and access to capital of wireless communications
providers;
. strategy of wireless communications providers with respect to owning or
leasing communications sites;
. government licensing of broadcast rights;
. changes in telecommunications regulations; and
. general economic conditions.
The demand for space on our communications sites 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 our communications sites. In
addition, a downturn in a particular wireless segment as a result of
technological competition or other factors beyond our control could adversely
affect the demand for rental communications sites. Advances in technology could
also reduce the need for site-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 Federal Communications Commission ("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 that we own. If such
arrangements were to become common, there could be a material adverse effect on
our prospects, financial condition and results of operations. See "Business--
Industry Background."
Our business requires compliance and approval with regulatory authorities.
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 communications sites 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 our 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 our ability to respond to customer demand. In
addition, such regulations increase costs associated with new tower
construction. We cannot assure you that existing regulatory policies will not
adversely affect the
14
<PAGE>
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 us.
Such factors could have a material adverse effect on our future growth. Our
customers may also become subject to new regulations or regulatory policies
that adversely affect the demand for tower sites. tower construction. We cannot
assure you 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 us.
Such factors could have a material adverse effect on our future growth. Our
customers may also become subject to new regulations or regulatory policies
that adversely affect the demand for tower sites.
Our growth strategy will be affected by our 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. We cannot assure you that we can obtain the permits,
licenses and zoning relief necessary to continue the expansion of our
communications site rental business. The failure to obtain such permits,
licenses and zoning relief would have a material adverse effect on our
business, financial condition and results of operations. See "Business--
Regulatory Matters."
Our success depends upon our retaining key executives.
Our success depends to a significant degree upon the continued contributions
of key management, engineering, sales and marketing, customer support and
finance personnel, some of whom may be difficult to replace. Although we
maintain employment agreements with certain of our employees, we cannot assure
you that the services of such personnel will continue to be available to us. We
do not maintain key man life insurance policies on our executives that would
adequately compensate us for any loss of services of such executives. The loss
of the services of these executives could have a material adverse effect on our
business.
Competing technologies and other alternatives could reduce the demand for our
services.
Most types of wireless services currently require ground-based network
facilities, including communications sites, for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on a number of factors beyond our control, including the level of
demand for such wireless services, the financial condition and access to
capital of such providers, the strategy of providers with respect to owning or
leasing communications sites, government licensing of communications services,
changes in telecommunications regulations and general economic conditions. In
addition, wireless service providers frequently enter into agreements with
competitors allowing each other to utilize one another's wireless
communications facilities to accommodate customers who are out of range of
their home provider's services. Such agreements may be viewed by wireless
service providers as a superior alternative to leasing space for their own
antenna on communications sites we own. The proliferation of such agreements
could have a material adverse effect on our business, financial condition or
results of operations.
The emergence of new technologies that do not require terrestrial antenna
sites and can be substituted for those that do also could have a negative
impact on our operations. For example, the FCC has granted license applications
for four low-earth orbiting satellite systems that are intended to provide
mobile voice and data services. In addition, the FCC has issued licenses for
several low-earth orbiting satellite systems that are intended to provide
solely data services. Although such systems are currently highly capital-
intensive and technologically untested, mobile satellite systems could compete
with land-based wireless communications systems, thereby reducing the demand
for the infrastructure services we provide. The occurrence of any of these
factors could have a material adverse effect on our business, financial
condition or results of operations.
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We are subject to environmental laws that impose liability without regard to
fault and environmental regulations that could adversely affect our operations.
Our operations 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.
Under certain of these laws, we could be held strictly, jointly and severally
liable for the remediation of hazardous substance contamination at its
facilities or at third-party waste disposal sites and also could be held liable
for any personal or property damage related to such contamination. Although we
believe that we are in substantial compliance with and have no material
liability under all applicable environmental laws, there can be no assurance
that the costs of compliance with existing or future environmental laws and
liability related thereto will not have a material adverse effect on our
business, financial condition or results of operations.
The FCC requires tower owners subject to the agency's antenna structure
registration program to comply at the time of registration with federal
environmental rules which may restrict the siting of towers. Under these rules,
tower owners are required initially to identify whether proposed sites are in
environmentally sensitive locations. If so, the tower owners must prepare and
file environmental assessments, which must be reviewed by the FCC staff prior
to registration and construction of the particular towers. See "Business--
Regulatory Matters."
If we sustain damage to our communications sites in excess of our insurance
coverage, our business could be adversely affected.
Our communications sites are subject to risks from vandalism and risks
associated with natural disasters such as tornadoes, hurricanes, fires and
earthquakes. We maintain certain insurance to cover the cost of replacing
damaged communications sites and general liability insurance to protect us in
the event of an accident involving a communications site, but we do not
maintain business interruption insurance. Accordingly, damage to a group of our
communications sites could result in a significant loss of revenue and could
have a material adverse effect on our results of operations and financial
condition. In addition, a communications site accident for which we are
uninsured or underinsured could have a material adverse effect on our financial
condition or results of operations.
Certain of our stockholders have the power to control our business. Such
stockholders' interests may not be aligned with yours.
ABRY Broadcast Partners II, L.P. ("ABRY II"), our primary stockholder, holds
approximately 25.6% of our outstanding voting stock, and will own approximately
15.1% of our outstanding voting stock after this offering, and holds four of
seven seats on our board of directors. Therefore, ABRY II has the power to
exercise control over our business, policies and affairs. Moreover, subject to
contractual restrictions and general fiduciary duties, we are not prohibited
from engaging in transactions with management and principal stockholders, or
with entities in which such persons are interested. Our certificate of
incorporation does not provide for cumulative voting. See "Selling
Stockholders" and "Description of Capital Stock--Common Stock."
We may not be able to repurchase our 10% senior discount notes or repay debt
under our credit facility in the event of a change of control.
Upon the occurrence of certain change of control events, holders of our 10%
senior discount notes may require us to offer to repurchase all of their notes.
We may not have sufficient funds at the time of the change of control to make
the required repurchases or restrictions in our credit facility may not allow
such repurchases. Additionally, a "change of control" (as defined in the
Indenture) is an event of default under our credit facility, which would permit
the lenders to accelerate the debt, which also would cause an event of default
under the Indenture.
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The source of funds for any repurchase required as a result of any change of
control will be our available cash or cash generated from operating or other
sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling entity. We cannot assure you, however, that
sufficient funds will be available at the time of any change of control to make
any required repurchases of our 10% senior discount notes tendered and to repay
debt under our credit facility. Furthermore, the use of available cash to fund
the potential consequences of a change of control may impair our ability to
obtain additional financing in the future. Any future credit agreements or
other agreements relating to indebtedness to which we may become a party may
contain similar restrictions and provisions. See "Description of Indebtedness."
Furthermore, the use of available cash to fund the potential consequences of a
change of control may impair our ability to obtain additional financing in the
future. Any future credit agreements or other agreements relating to
indebtedness to which we may become a party may contain similar restrictions
and provisions. See "Description of Indebtedness."
Risks concerning potential negative health effects of radio frequency
emissions.
Along with wireless communications providers that utilize our communications
sites, we are subject to government requirements and other guidelines relating
to radio frequency emissions. The potential connection between radio frequency
emissions and certain negative health effects, including some forms of cancer,
has been the subject of substantial study by the scientific community in recent
years. To date, the results of these studies have been inconclusive. Although
we have not been subject to any claims relating to radio frequency emissions,
we cannot assure you that we will not be subject to such claims in the future,
which could have a material adverse effect on our results of operations and
financial condition. See "Business--Regulatory Matters."
If we fail to qualify as a REIT, we will be subject to a variety of taxes and
penalties.
We have elected to be taxed as a Real Estate Investment Trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986 (the "Code"). We believe
that we have been organized and operated to date in such a manner as to qualify
for taxation as a REIT. However, prospective investors should be aware that the
federal tax rules and regulations relating to REITs are highly technical and
complex, and that our qualification as a REIT during each taxable year
(including prior years) will depend on our ability to meet these requirements,
through actual annual operating results, income distribution levels, stock
ownership requirements and tests relating to our assets and sources of income.
Therefore, no assurance can be given that we have operated or will operate in a
manner so as to qualify or remain qualified as a REIT. Furthermore, depending
on our assessment of the strategic importance of acquisitions which may become
available to us in our existing line of business or in complementary non-real
estate based communication services activities, we may acquire, operate and
derive income from assets, businesses or entities that will cause us to no
longer qualify as a REIT. In this regard, we recently committed to acquire
certain assets from Motorola and have not yet determined whether such assets,
and the income derived from such assets, will permit us to continue to meet the
qualification requirements for a REIT. We could be subject to a variety of
taxes and penalties if we engage in certain prohibited transactions, fail to
satisfy REIT distribution requirements or recognize gain on the sale or other
disposition of certain types of property. See "Business--REIT Status" and
"Certain Federal Income Tax Considerations."
Virtually all of our shares will be eligible for sale after this offering,
which could result in a decline in our stock price.
If our stockholders sell substantial amounts of our Common Stock in the
public market following this offering, the market price of our Common Stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of June 30, 1999, upon completion
of this offering, we will
17
<PAGE>
have 40,375,951 shares of Common Stock outstanding. Of these shares, 32,726,000
shares will be freely tradable and 7,649,951 shares will become eligible for
sale in the public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
At various times after the date of this Prospectus pursuant to Rule
91,612 144
At various times after 90 days from the date of this Prospectus
7,558,339 pursuant to Rule 144
</TABLE>
These shares are subject to contractual restrictions with us and in, most
cases, with the Underwriters, that prevent them from being sold until 90 days
after the effective date of the registration statement for this offering
without the consent of Deutsche Bank Securities Inc.
As of June 30, 1999, options to purchase 2,749,692 shares of Common Stock
were outstanding and shares acquired upon exercise of these options will be
eligible for sale in the public market from time to
time subject to vesting and the 90-day lockup restrictions that apply to the
outstanding stock. The possible sale of a significant number of these shares
may cause the price of our Common Stock to decline.
We expect to experience volatility in our stock price that could affect your
investment.
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stock
of companies. In the past, certain broad market fluctuations have been
unrelated or disproportionate to the operating performance of these companies.
Any significant fluctuations in the future might result in a material decline
in the market price of our Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against such company. We may
become involved in this type of litigation in the future. Litigation is often
expensive and diverts management's attention and resources, which could have a
material adverse effect upon our business and operating results.
We have adopted anti-takeover provisions that could affect the sale of
Pinnacle.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. See "Description of Capital Stock--
Certain Provisions of Our Certificate of Incorporation and Bylaws and--Certain
Provisions of Delaware Law."
We cannot assure you that the impact of the Year 2000 date change on computer
systems will not have significant adverse effects on us.
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, many companies' software and computer systems may
need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. We and third parties with whom we do business rely on numerous
computer programs in our day-to-day operations. We are evaluating Year 2000
issues as they relate to our internal computer systems and third party computer
systems with whom we interact. We expect to incur internal staff costs as well
as consulting and other expenses related to the Year 2000 compliance program we
have undertaken in order to address these issues. In addition, the appropriate
course of action may include replacement or an upgrade of certain systems or
equipment at a substantial cost to us. We cannot assure you that our Year 2000
compliance program, or similar programs by third parties with whom we do
business, will be completed before the end of 1999 or that such programs will
be successful. We may incur significant costs in resolving our Year 2000
issues. If not resolved, these issues could have a significant adverse impact
on our business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
18
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this Prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
other similar statements), you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this Prospectus will happen as
described (or that they will happen at all). You should read this Prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these forward-
looking statements, even though our situation may change in the future. Whether
actual results will conform with our expectations and predictions is subject to
a number of risks and uncertainties including:
. the significant considerations discussed in this Prospectus;
. risks associated with the effect of economic conditions;
. our outstanding indebtedness and our ability to pay interest and
principal on our debt;
. future capital needs;
. restrictions imposed by the terms of our indebtedness;
. risks associated with Motorola Antenna Site Acquisition;
. our ability to successfully identify, complete and integrate
acquisitions;
. our ability to protect our rights in our property and to insure against
losses from damage to our communications sites;
. risks associated with retaining our significant customers;
. our ability to construct new towers;
. the impact of competition and technological change on us;
. our dependence on the wireless communications industry;
. the impact of legislation and regulation;
. the loss of key employees; and
. our ability to maintain our REIT status.
You should read carefully the section of this Prospectus under the heading
"Risk Factors" beginning on page 9. We assume no responsibility for updating
forward looking information contained in this Prospectus.
USE OF PROCEEDS
The net proceeds to Pinnacle from the sale of the 8,350,000 shares being
offered by us and the net proceeds to the Selling Stockholders from the sale of
the 2,350,000 shares being offered by them assuming a public offering price of
$23.75 per share, after deducting underwriting discounts, commissions and
estimated offering expenses, are estimated to be approximately $188.9 million
and $53.4 million, respectively, or $207.1 million and $71.6 million,
respectively, if the underwriters' over-allotment option is exercised in full.
We intend to use the net proceeds of this offering to initially repay a
limited amount of debt under our credit facility, invest a substantial portion
of the proceeds in short-term liquid securities and then, upon the expected
consummation of the Motorola Antenna Site Acquisition, repay a substantial
amount of debt under our credit facility, pay for a portion of the purchase
price of the Motorola Antenna Site Acquisition, fund future acquisitions and
redeem any pay-in-kind preferred stock which we may issue to fund certain of
such acquisitions prior to the closing of this offering. In the event that the
Motorola Antenna Site Acquisition is not consummated, we shall apply the net
proceeds of this offering as described above, except that the proceeds that
would otherwise be used to pay for the Motorola Antenna Site Acquisition will
be used to further reduce our debt and to fund acquisitions. The net proceeds
of this offering received by the Selling Stockholders will not be available to
us.
19
<PAGE>
DILUTION
The net tangible book value of our Common Stock at March 31, 1999 was $211.9
million or $6.62 per share. "Net tangible book value per share" represents the
amount of total tangible assets less total liabilities divided by the number of
shares of Common Stock outstanding, excluding all outstanding stock options and
the underwriters' over-allotment options. Without taking into account any other
changes in the pro forma net tangible book value after March 31, 1999, other
than to give effect to the receipt by us of the net proceeds from the sale of
8,350,000 shares of Common Stock in this offering (assuming an offering price
of $23.75 per share), the pro forma net tangible book value of our Common Stock
as of March 31, 1999 would have been $9.92 per share of Common Stock. This
represents an immediate increase in net tangible book value of $3.30 per share
to existing stockholders and an immediate dilution of $13.83 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................ $23.75
Net tangible book value per share at March 31, 1999.......... $6.62
Increase per share attributable to this offering............. 3.30
-----
Pro forma net tangible book value per share after this
offering...................................................... $ 9.92
------
Dilution per share to new investors............................ $13.83
======
</TABLE>
DIVIDEND POLICY
In order to qualify as a REIT for federal income tax purposes, among other
things we must make distributions each taxable year (not including any return
of capital for federal income tax purposes) equal to at least 95% of our real
estate investment trust taxable income, although our board of directors, in its
discretion, may increase that percentage as it deems appropriate and 95% of
certain foreclosure income. See "Certain Federal Income Tax Considerations--
Requirements for REIT Qualification--Distribution Requirements." The
declaration of distributions is within the discretion of our board of directors
and depends upon our cash available for distribution, current and projected
cash requirements, tax considerations and other factors.
We intend to make distributions to holders of our Common Stock only in the
minimum amount necessary to satisfy the REIT distribution requirements
necessary to maintain REIT status and intend to retain available cash in excess
of such amount for future operation and expansion of our business. In this
regard, we do not expect for the foreseeable future that we will have real
estate investment trust taxable income which will be required to be distributed
in order to maintain our 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 our board of directors and will depend upon our results
of operations, financial condition and any contractual restrictions,
considerations imposed by applicable law and other factors deemed relevant by
our board of directors.
20
<PAGE>
PRICE RANGE OF COMMON STOCK
Our Common Stock began trading on the Nasdaq National Market under the
symbol "BIGT" on February 19, 1999. The following table sets forth the range of
high and low sale prices per share for our Common Stock as reported on the
Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
1999
First quarter................................................. $15.125 $14.00
Second quarter................................................ $ 24.50 $15.00
</TABLE>
On July 1, 1999, the last sale price of our Common Stock as reported on the
Nasdaq National Market was $23.75 per share and there were 133 holders of
record of our Common Stock.
CAPITALIZATION
The Actual column in the following table sets forth our actual
capitalization as of March 31, 1999. The Pro Forma column gives effect to (1)
all acquisitions of communications site rental businesses completed after March
31, 1999 through June 30, 1999; (2) all other individually insignificant
acquisitions of communications site rental businesses for which we have entered
into agreements or letters of intent to acquire as of June 30, 1999, and that
we believe are probable; (3) the Motorola Antenna Site Acquisition; and (4) the
financing of the acquisitions referenced in (1) through (3) above under our
credit facility and the issuance of Series A Preferred Stock. The Pro Forma as
Adjusted column gives effect to items (1) through (4) above as well as this
offering and the application of the proceeds therefrom. The following table
does not include 3,000,000 shares reserved for issuance under our stock option
plan, 2,749,692 of which are subject to outstanding options with an average
exercise price of $15.82 per share.
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------------------
Pro Forma
Actual Pro Forma as Adjusted(1)
-------- --------- --------------
<S> <C> <C> <C>
Short-term debt:
Current portion of notes payable.......... $ 1,002 $ 1,002 $ 1,002
-------- -------- --------
Total current maturities.................. 1,002 1,002 1,002
Long-term debt, net of current maturities:
Credit facility(2)........................ 108,450 463,062 304,177
10% senior discount notes................. 221,201 221,201 221,201
Notes payable(3).......................... 23,225 23,225 23,225
-------- -------- --------
Total long-term debt.................... 352,876 707,488 548,603
-------- -------- --------
Redeemable stock:
Senior preferred stock.................... -- 29,550 --
Stockholders' equity:
Common Stock, $0.001 par value, 100,000,000
shares authorized; 32,025,951 shares issued
and outstanding............................ 32 32 40
Additional paid-in capital.................. 276,566 276,566 464,993
Accumulated deficit......................... (64,697) (64,697) (64,697)
-------- -------- --------
Total stockholders' equity.............. 211,901 211,901 400,336
-------- -------- --------
Total capitalization.................... $565,779 $949,941 $949,941
======== ======== ========
</TABLE>
- --------
(1) As adjusted to give effect to the sale of our Common Stock at an offering
price of $23.75 per share.
(2) Availability under our credit facility after giving effect to the use of
proceeds from this offering will be $116.6 after giving effect to $49.2
million of outstanding letters of credit, which reduce availability
thereunder.
(3) Notes payable consists of notes issued to tower sellers in our acquisition
of towers. Interest rates range from 8.5% to 13.0% and the notes mature at
varying dates through December 2020.
21
<PAGE>
OUR UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1999 gives
pro forma effect to:
. the acquisition of individually insignificant site rental businesses
completed subsequent to March 31, 1999 through June 30, 1999;
. the Motorola Antenna Site Acquisition;
. other individually insignificant acquisitions of site rental businesses
for which we have entered into agreements or letters of intent to acquire
as of June 30, 1999, and that we believe are probable;
. the related financing of the acquisitions referred to above; and
. this offering and the application of the net proceeds therefrom as
described under "Use of Proceeds,"
as if each had occurred as of March 31, 1999.
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1998 and the three months ended March 31, 1999 gives pro
forma effect to:
. all individually insignificant acquisitions completed during 1998;
. acquisitions of other site rental businesses completed since January 1,
1999;
. the Southern Towers Acquisition;
. the MobileMedia Acquisition;
. the Motorola Antenna Site Acquisition;
. other individually insignificant acquisitions of site rental businesses
for which we have entered into agreements or letters of intent to acquire
as of June 30, 1999, and that we believe are probable;
. related financing of the acquisitions referred to above;
. our IPO; and
. this offering and the application of the net proceeds therefrom as
described under "Use of Proceeds,"
as if each had occurred as of January 1, 1998.
We account for our acquisitions under the purchase method of accounting. The
total cost of site rental 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, we do 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 our results of operations
or financial position had the transactions assumed therein occurred, nor are
they necessarily indicative of the results of operations that 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 we believe are reasonable and should be read in conjunction
with the financial statements and the accompanying notes thereto included
elsewhere in this Prospectus.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Adjustments
for
Acquisitions Adjustments
Pinnacle Completed for Adjustments Pro
Holdings Subsequent to Motorola for Adjustments Forma
March 31, March 31, Antenna Site Probable Pro for the as
1999 1999(a) Acquisition(b) Acquisitions(a) Forma Offering(c) Adjusted
--------- ------------- -------------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 1,276 $ -- $ -- $ -- $ 1,276 $ -- $ 1,276
Accounts receivable.... 2,176 -- 3,702 -- 5,878 -- 5,878
Prepaid expenses and
other current assets.. 1,374 -- 4,175 -- 5,549 -- 5,549
-------- ------- -------- ------- -------- -------- --------
Total current assets... 4,826 -- 7,877 -- 12,703 -- 12,703
Tower assets, net...... 553,889 77,343 222,410 39,919 893,561 -- 893,561
Fixed assets, net...... 2,591 -- -- -- 2,591 -- 2,591
Land................... 15,766 -- -- -- 15,766 -- 15,766
Deferred debt costs,
net................... 6,502 -- 6,900 -- 13,402 -- 13,402
Other assets........... 953 -- 38,000 -- 38,953 -- 38,953
-------- ------- -------- ------- -------- -------- --------
$584,527 $77,343 $275,187 $39,919 $976,976 $ -- $976,976
======== ======= ======== ======= ======== ======== ========
Liabilities
Current liabilities:
Accounts payable....... $ 4,210 $ -- $ 1,518 $ -- $ 5,728 $ -- $ 5,728
Accrued expenses....... 11,444 -- 2,187 -- 13,631 -- 13,631
Deferred revenue....... 2,911 -- 4,582 -- 7,493 -- 7,493
Current portion of long-
term debt.............. 1,002 -- -- -- 1,002 -- 1,002
-------- ------- -------- ------- -------- -------- --------
Total current
liabilities........... 19,567 -- 8,287 -- 27,854 -- 27,854
Long-term debt.......... 352,876 77,343 237,350 39,919 707,488 (158,885) 548,603
Other liabilities....... 183 -- -- -- 183 -- 183
-------- ------- -------- ------- -------- -------- --------
372,626 77,343 245,637 39,919 735,525 (158,885) 576,640
Redeemable Stock:
Senior preferred stock.. -- -- 29,550 -- 29,550 (29,550) --
Stockholders' Equity:
Common stock............ 32 -- -- -- 32 8 40
Additional paid-in
capital................ 276,566 -- -- -- 276,566 188,877
(450) 464,993
Accumulated deficit..... (64,697) -- -- -- (64,697) -- (64,697)
-------- ------- -------- ------- -------- -------- --------
Total stockholders'
equity................ 211,901 -- -- -- 211,901 188,435 400,336
-------- ------- -------- ------- -------- -------- --------
$584,527 $77,343 $275,187 $39,919 $976,976 $ -- $976,976
======== ======= ======== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
(a) Reflects our preliminary allocation of purchase price in accordance with
the purchase method of accounting for individually insignificant
acquisitions of site rental assets, and the related debt financing of such
acquisitions under our credit facility, as follows:
<TABLE>
<CAPTION>
Number Aggregate
Number of of Purchase
Acquisitions Sites Price(1)
------------ ------ ---------
<S> <C> <C> <C>
Acquisitions of individually insignificant
site rental businesses that we completed in
the period April 1, 1999 through
June 30, 1999............................... 36 57 $77,343
Other individually insignificant acquisitions
of site rental businesses for which we have
entered into agreements or letters of intent
to acquire as of June 30, 1999, and which we
believe are probable........................ 8 113 $39,919
</TABLE>
--------
(1) Includes estimated fees and expenses related to the acquisitions of
$2,625, and $1,886, respectively.
(b) Represents the pro forma impact of the Motorola Antenna Site Acquisition
for a total cost of $260,000 (including $5,000 in fees and expenses), and
our preliminary allocation of purchase price in accordance with the
purchase method of accounting, and the related debt financing under our
credit facility and issuance of the Series A Preferred Stock, as follows:
<TABLE>
<CAPTION>
Motorola Pro Forma
as of for Motorola
April 3, 1999 Adjustments(1) Acquisition
------------- -------------- ------------
<S> <C> <C> <C>
Accounts receivable.............. $ 3,702 $ -- $ 3,702
Prepaid rent..................... 4,175 -- 4,175
Property and equipment, net...... 37,464 184,946 222,410
Deferred debt costs.............. -- 6,900 6,900
Other assets..................... 570 37,430 38,000
------- -------- --------
Total assets..................... $45,911 $229,276 $275,187
======= ======== ========
Accounts payable................. 1,518 -- 1,518
Accrued expenses................. 2,187 -- 2,187
Deferred revenue................. 4,582 -- 4,582
Debt............................. -- 237,350 237,350
Senior preferred stock........... -- 29,550 29,550
Net assets....................... 37,624 (37,624) --
------- -------- --------
Total liabilities and net
assets........................ $45,911 $229,276 $275,187
======= ======== ========
</TABLE>
--------
(1) Reflects the Company's preliminary allocation of purchase price, the
incurrence of pro forma debt under the credit facility and the issuance
of the Series A Preferred Stock.
(c) Reflects the receipt and use of estimated net proceeds of this offering to
us of $188,885 net of the estimated underwriting discounts and commissions
and expenses from this offering totaling $9,428.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adjustments Adjustments
Pinnacle Adjustments for Adjustments for Adjustments
Holdings for Southern for Motorola Adjustments for
December 31, Completed Towers MobileMedia Antenna Sites for Probable Initial Public
1998 Acquisition(a) Acquisition(b) Acquisition(c) Acquisition(d) Acquisitions(e) Offering(f)
------------ -------------- -------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Site rental
revenue.......... $ 32,019 $ 12,271 $ 836 $ 8,863 $ 85,108 $ 3,101 $ --
Site operating
expenses,
excluding
depreciation and
amortization..... 6,166 2,073 185 836 49,916 573
-------- -------- ------- -------- -------- ------- -------
Gross profit,
excluding
depreciation and
amortization..... 25,853 10,198 651 8,027 35,192 2,528 --
Other expenses:
General and
administrative.. 4,175 -- 15 381 11,516 -- --
Corporate
development..... 6,382 -- -- -- -- -- --
State franchise,
excise and
minimum taxes... 686 -- -- -- -- -- --
Depreciation.... 22,513 11,295 955 7,636 30,027 2,661 --
-------- -------- ------- -------- -------- ------- -------
(7,903) (1,097) (319) 10 (6,351) (133) --
Interest
expense.......... 12,300 14,839 (1,969) 5,599 21,160 3,393 (10,661)(h)
Amortization of
original issue
discount and debt
issuance costs... 16,427 -- 4,138 -- -- -- --
-------- -------- ------- -------- -------- ------- -------
Income/(loss)
before
extraordinary
item............. (36,630) (15,936) (2,488) (5,589) (27,511) (3,526) 10,661
Extraordinary
loss from
extinguishment of
debt............. 5,641 -- -- -- -- -- --
-------- -------- ------- -------- -------- ------- -------
Net loss......... $(42,271) $(15,936) $(2,488) $ (5,589) $(27,511) $(3,526) $10,661
======== ======== ======= ======== ======== ======= =======
Payable in kind
preferred
dividends and
accretion........ 3,094 -- -- 6,438 4,508 -- (9,532)
-------- -------- ------- -------- -------- ------- -------
Net loss
attributable to
common
shareholders..... $(45,365) $(15,936) $(2,488) $(12,027) $(32,019) $(3,526) $20,193
======== ======== ======= ======== ======== ======= =======
Basic loss per
common share:
Loss before
extraordinary
Item............ $ (95.03)
Extraordinary
item............ (13.50)
--------
Net loss......... $(108.53)
========
Weighted average
number of common
shares........... 418
<CAPTION>
Adjustments Pro Forma
for the as
Pro Forma Offering(g) Adjusted
---------- ----------- ----------
<S> <C> <C> <C>
Site rental
revenue.......... $142,198 $ -- $142,198
Site operating
expenses,
excluding
depreciation and
amortization..... 59,749 59,749
---------- ----------- ----------
Gross profit,
excluding
depreciation and
amortization..... 82,449 -- 82,449
Other expenses:
General and
administrative.. 16,087 -- 16,087
Corporate
development..... 6,382 -- 6,382
State franchise,
excise and
minimum taxes... 686 -- 686
Depreciation.... 75,087 -- 75,087
---------- ----------- ----------
(15,793) -- (15,793)
Interest
expense.......... 44,661 (13.505) 31,156
Amortization of
original issue
discount and debt
issuance costs... 20,565 -- 20,565
---------- ----------- ----------
Income/(loss)
before
extraordinary
item............. (81,019) 13,505 (67,514)
Extraordinary
loss from
extinguishment of
debt............. 5,641 -- 5,641
---------- ----------- ----------
Net loss......... $(86,660) $13,505 $(73,155)
========== =========== ==========
Payable in kind
preferred
dividends and
accretion........ 4,508 (4,508) --
---------- ----------- ----------
Net loss
attributable to
common
shareholders..... $(91,168) $18,013 $(73,155)
========== =========== ==========
Basic loss per
common share:
Loss before
extraordinary
Item............ $ (2.67) $ (1.67)
Extraordinary
item............ (.18) (.14)
---------- ----------
Net loss......... $ (2.85) $ (1.81)
========== ==========
Weighted average
number of common
shares........... 32,036 40,376
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
25
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
Three Months Ended March 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adjustments
Pinnacle Adjustments for Adjustments
Holdings for Motorola Adjustments for Adjustments Pro Forma
March 31, Completed Antenna Site for Probable Initial Public for the as
1999 Acquisition(i) Acquisition(j) Acquisitions(e) Offering(f) Pro Forma Offering(g) Adjusted
--------- -------------- -------------- --------------- -------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Site rental
revenue.......... $ 12,008 $ 2,252 $20,921 $ 775 $ -- $ 35,956 $ -- $ 35,956
Site operating
expenses,
excluding
depreciation and
amortization..... 2,233 383 11,828 143 14,587 14,587
-------- ------- ------- ----- ------- -------- ------- --------
Gross profit
excluding
depreciation and
amortization..... 9,775 1,869 9,093 632 -- 21,369 -- 21,369
Other expenses:
General and
administrative.. 843 -- 2,587 -- -- 3,430 -- 3,430
Corporate
development..... 1,711 -- -- -- -- 1,711 -- 1,711
State franchise,
excise and
minimum taxes... 201 -- -- -- -- 201 -- 201
Depreciation.... 8,994 2,021 7,507 665 -- 19,187 -- 19,187
-------- ------- ------- ----- ------- -------- ------- --------
11,749 2,021 10,094 665 -- 24,529 -- 24,529
Income/(loss)
from operations.. (1,974) (152) (1,001) (33) -- (3,160) -- (3,160)
Interest
expense.......... 3,900 2,577 5,290 848 (2,665)(h) 9,950 (3,376) 6,574
Amortization of
original issue
discount and debt
issuance costs... 5,429 -- -- -- -- 5,429 -- 5,429
-------- ------- ------- ----- ------- -------- ------- --------
Net loss......... $(11,303) $(2,729) $(6,291) $(881) $ 2,665 $(18,539) $ 3,376 $(15,163)
======== ======= ======= ===== ======= ======== ======= ========
Dividends and
accretion on
preferred stock.. 2,930 -- 1,188 -- (2,930) 1,188 (1,188) --
-------- ------- ------- ----- ------- -------- ------- --------
Net loss
attributable to
common stock..... $(14,233) $(2,729) $(7,479) $(881) $ 5,595 $(19,727) $ 4,564 $(15,163)
======== ======= ======= ===== ======= ======== ======= ========
Basic and diluted
loss per common
share............ $ (0.79) $ (.62) $ (.38)
Weighted average
number of shares
of common stock
outstanding...... 18,068 32,036 40,376
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(a) Reflects the historical, pre-acquisition results of operations (in
aggregate) for the acquisitions of rental site businesses other than the
Southern Towers Acquisition and the MobileMedia Acquisition completed by us
during 1998 and those completed in the period January 1, 1999 through their
respective date of acquisition (but no later than June 30, 1999), and the
related debt financing of such acquisitions under our credit facility, as
follows:
<TABLE>
<CAPTION>
Acquisitions Acquisitions
Completed Completed Adjustments
as of Subsequent to for
December 31, December 31, Completed
1998 1998 Acquisitions
------------ ------------- ------------
<S> <C> <C> <C>
Site rental revenues............... $ 1,699 $ 10,572 $ 12,271
Site operating expenses, excluding
depreciation and amortization..... 340 1,733 2,073
------- -------- --------
Gross profit excluding depreciation
and amortization.................. 1,359 8,839 10,198
General and administrative......... -- -- --
Depreciation....................... 1,948 9,347 11,295
------- -------- --------
Loss from operations............... (589) (508) (1,097)
Interest expense................... 2,922 11,917 14,839
------- -------- --------
Net income (loss).................. $(3,511) $(12,425) $(15,936)
======= ======== ========
</TABLE>
(b) Reflects the historical operating results of Southern Communications site
operations and the pro forma effect of site rental revenue, site operating
expenses and site asset depreciation, and the related financing of the
Southern Towers Acquisition under our credit facility, assuming the
transaction was completed on January 1, 1998, as follows:
<TABLE>
<CAPTION>
Southern Towers
for the Period from Adjustments
January 1, 1998 for Southern
through Towers
March 3, 1998 Adjustments Acquisition
------------------- ----------- ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Site rental revenues........ $ 178 $ 658(1) $ 836
Site operating expenses,
excluding depreciation and
amortization............... 153 32(1) 185
----- ------- -------
Gross profit excluding
depreciation and
amortization............... 25 626 651
General and administrative.. 15 -- 15
Depreciation................ 340 615(2) 955
----- ------- -------
Loss from operations........ (330) 11 (319)
Interest income............. -- (1,969)(3) (1,969)
Amortization of original
issue discount and debt
issuance costs............. -- 4,138(3) 4,138
----- ------- -------
Net loss.................... $(330) $(2,158) $(2,488)
===== ======= =======
</TABLE>
--------
(1) Represents incremental increases in pro forma site rental revenues and
operating expenses pursuant to the executed lease agreement with
Southern Communications, and related affiliates.
(2) Reflects the increase in pro forma depreciation on site assets acquired
resulting from our preliminary application of purchase accounting.
(3) Reflects the pro forma increase in net interest expense associated with
the financing of the Southern Towers Acquisition and the subsequent
issuance of our 10% senior discount notes.
27
<PAGE>
(c) Reflects the historical operating results of MobileMedia and its
subsidiaries' tower operations and the pro forma effect of site rental
revenue, site operating expenses and site asset depreciation, and the
related financing of the MobileMedia Acquisition, assuming the transaction
was completed on January 1, 1998, as follows:
<TABLE>
<CAPTION>
MobileMedia
for the
Period from
January 1, 1998 Adjustments for
through MobileMedia
September 2, 1998 Adjustments Acquisitions
----------------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Site rental revenues...... $ 1,698 $ 7,165 (1) $ 8,863
Site operating expenses,
excluding depreciation
and amortization......... 690 146 (1) 836
------- -------- --------
Gross profit excluding
depreciation and
amortization............. 1,008 7,019 8,027
General and
administrative........... 381 -- 381
Depreciation.............. 356 7,280 (2) 7,636
------- -------- --------
Loss from operations...... 271 (261) 10
Interest expense.......... -- 5,599 (3) 5,599
------- -------- --------
Net income (loss)......... 271 (5,860) (5,589)
Dividends and accretion on
preferred stock.......... -- 6,438 (4) 6,438
------- -------- --------
Net income (loss)
attributate to Common
Stock.................... $ 271 $(12,298) $(12,027)
======= ======== ========
--------
(1) Represents incremental increases in pro forma tower revenues and
operating pursuant to the executed lease agreement with MobileMedia,
and its subsidiaries.
(2) Reflects the increase in pro forma depreciation on tower assets
acquired resulting from our preliminary application of purchase
accounting.
(3) Reflects the increase in pro forma interest expense associated with the
debt financing of the MobileMedia Acquisition under our credit
facility.
(4) Reflects dividends accrued and accretion to liquidation value on
preferred stock we previously had outstanding.
(d) Reflects the historical operating results of Motorola antenna site business
and the pro forma effect of operations, and the related financing of the
Motorola Antenna Site Acquisition under our credit facility and the
issuance of the Series A Preferred Stock, assuming the transaction was
completed on January 1, 1998, as follows:
<CAPTION>
Motorola for the Adjustments for
Period Ended Motorola
December 31, Antenna Site
1998 Adjustments Acquisition(1)
----------------- ----------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Site rental revenue....... $85,608 $ (500)(1) $ 85,108
Site operating expenses,
excluding depreciation
and amortization......... 50,416 (500)(1) 49,916
------- -------- --------
Gross margin excluding
depreciation and
amortization............. 35,192 -- 35,192
Other expenses:
General and
administrative.......... 11,516 11,516
Allocated costs from
parent.................. 4,168 (4,168)(2) --
Depreciation and
amortization............ 8,476 21,551 (3) 30,027
------- -------- --------
Income (loss) from
operations............... 11,032 (17,383) (6,351)
Interest expense.......... -- 21,160 (4) 21,160
------- -------- --------
Net income (loss) before
income taxes............. 11,032 (38,543) (27,511)
------- -------- --------
Dividends and accretion on
existing preferred
stock.................... -- 4,508 (5) 4,508
------- -------- --------
Net income (loss)
attributable to common
stock.................... $11,032 $(43,501) $(32,019)
======= ======== ========
</TABLE>
--------
(1) Represents the pro forma adjustment to site rental revenue and site
operating expense for those sites leased from us by the Motorola
antenna site business, as such amounts will be eliminated as a direct
result of the Motorola Antenna Site Acquisition.
28
<PAGE>
(2) Represents the elimination of historical corporate personnel and other
related employee benefits costs charged to the Motorola antenna site
business under Motorola corporate cost allocation policies. These
costs, comprised primarily of corporate-level treasury, legal, patent,
tax, insurance administration, payroll administration, accounting,
audit and human resources services were allocated to the Motorola
antenna site business on a budget formula and will not continue under
the Motorola Purchase Agreement. In the opinion of management, these
services are adequately performed by existing Company resources and no
additional costs are expected to be incurred.
(3) Represents the increase in depreciation and amortization expense as a
result of our application of purchase accounting and our preliminary
fair value determination of acquired assets.
(4) Represents the additional pro forma interest expense associated with
the financing of the Motorola Antenna Site Acquisition under our credit
facility.
(5) Represents dividends accrued and accretion to liquidation value on the
Series A Preferred Stock.
(e) Reflects the adjustment to results of operations for eight separate
acquisitions pending as of June 30, 1999 of 113 sites, for which we have
entered into agreements or letters of intent, and which we believe are
probable, each of which is individually immaterial, assuming such
transactions were completed as of January 1, 1998.
(f) Reflects the pro forma effects of our IPO, assuming it was completed as of
January 1, 1998.
(g) Reflects the pro forma effect of the offering of our Common Stock.
(h) Reflects the decrease in pro forma interest expense resulting from the use
of a portion of the net proceeds from both our 10% senior discount notes
offering and our IPO to repay pro forma outstanding debt under our credit
facility, assuming such transactions were completed as of January 1, 1998.
(i) Reflects the historical, pre-acquisition results of operations (in
aggregate) for the acquisitions of rental tower businesses other than the
Motorola Antenna Site Acquisition that we completed in the period January
1, 1999 through their respective date of acquisition (but no later than
June 30, 1999), and the related debt financing under our credit facility,
as follows:
<TABLE>
<CAPTION>
Acquisitions Acquisitions
Completed Completed Adjustments
as of Subsequent to for
March 31, March 31, Completed
1999 1999 Acquisitions(1)
------------ ------------- ---------------
<S> <C> <C> <C>
Site rental revenues............ $ 846 $ 1,406 $ 2,252
Site operating expenses,
excluding depreciation and
amortization................... 179 204 383
----- ------- -------
Gross profit excluding
depreciation and amortization.. 667 1,202 1,869
General and administrative...... -- -- --
Depreciation.................... 732 1,289 2,021
----- ------- -------
Loss from operations............ (65) (87) (152)
Interest expense................ 933 1,644 2,577
----- ------- -------
Net loss........................ $(998) $(1,731) $(2,729)
===== ======= =======
</TABLE>
--------
(1) Represents the aggregate adjustment to results of operations for 63
separate acquisitions of 164 total sites completed during the period
from January 1, 1999 through June 30, 1999, other than the Motorola
Antenna Site Acquisition, each of which acquisitions were individually
immaterial, assuming such transactions were completed as of January 1,
1999.
29
<PAGE>
(j) Reflects the historical operating results of the Motorola antenna site
business and the pro forma effect of operations and the related financing
of the Motorola Antenna Site Acquisition under our credit facility and the
issuance of Series A Preferred Stock, assuming the transaction was
completed on January 1, 1998, as follows:
<TABLE>
<CAPTION>
Adjustments for
Motorola for the Motorola
Period Ended Antenna
April 3, Site
1999 Adjustments Acquisition
---------------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Site rental revenue........ $21,088 $ (167)(1) $20,921
Site operating expenses,
excluding depreciation and
amortization.............. 11,995 (167)(1) 11,828
------- -------- -------
Gross margin, excluding
depreciation and
amortization.............. 9,093 -- 9,093
Other expenses:
Selling, general and ad-
ministrative............. 2,587 -- 2,587
Allocated costs from par-
ent...................... 718 (718)(2) --
Depreciation and amortiza-
tion..................... 2,185 5,322 (3) 7,507
------- -------- -------
Income (loss) from
operations................ 3,603 (4,604) (1,001)
Interest expense........... -- 5,290 (4) 5,290
------- -------- -------
Net income (loss) before
income taxes.............. 3,603 (9,894) (6,291)
Dividends and accretion on
existing preferred stock.. -- 1,188 (5) 1,188
------- -------- -------
Net income (loss)
attributable to common
stock..................... $ 3,603 $(11,082) $(7,479)
======= ======== =======
</TABLE>
--------
(1) Represents the pro forma adjustment to site rental revenue and site
operating expense for those sites leased from us by the Motorola
antenna site business, as such amounts will be eliminated as a direct
result of the Motorola Antenna Site Acquisition.
(2) Represents the elimination of historical corporate personnel and other
related employee benefit costs charged to the Motorola antenna site
business under Motorola corporate cost allocation policies. These
costs, comprised primarily of corporate-level treasury, legal, patent,
tax, insurance administration, payroll administration, accounting,
audit and human resources services were allocated to the Motorola
antenna site business on a budget formula and will not continue under
the Motorola Purchase Agreement. In the opinion of management, these
services are adequately performed by existing Company resources and no
additional costs are expected to be incurred.
(3) Represents the increase in depreciation and amortization expense as a
result of our application of purchase accounting and its preliminary
fair value determination of acquired assets.
(4) Represents the additional pro forma interest expense associated with
the financing of the Motorola Antenna Site Acquisition under our credit
facility.
(5) Represents dividends accrued and accretion to liquidation value on the
Series A Preferred Stock.
30
<PAGE>
OUR SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for the period
of our inception (May 3, 1995) through December 31, 1995 and for each of the
three years ended December 31, 1996, 1997 and 1998 were derived from our
consolidated historical financial statements, including the related notes
thereto, which have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants. The unaudited consolidated statement of
operations data for the three months ended March 31, 1998 and 1999 are derived
from our unaudited consolidated financial statements, which are contained
elsewhere in this Prospectus. The selected historical consolidated financial
information should be read in conjunction with and are qualified in their
entirety by, the information contained in our consolidated audited financial
statements and the related notes thereto. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Our Unaudited
Pro Forma Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from
Inception Three Months
(May 3, 1995) Ended
through Years Ended December 31, March 31,
December 31, -------------------------- -----------------
1995 1996 1997 1998 1998 1999
------------- ------- ------- -------- ------- --------
(in thousands, except per share
amounts) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Tower rental revenue.... $ 733 $ 4,842 $12,881 $ 32,019 $ 5,373 $ 12,008
Tower operating
expenses, excluding
depreciation and
amortization........... 181 1,135 2,633 6,166 851 2,233
------ ------- ------- -------- ------- --------
Gross profit, excluding
depreciation and
amortization........... 552 3,707 10,248 25,853 4,522 9,775
Other expenses:
General and
administrative (a).... 306 916 1,367 4,175 420 843
Corporate development
(a)................... 369 1,421 3,723 6,382 1,289 1,711
State franchise, excise
and minimum taxes..... -- 26 67 686 70 201
Depreciation........... 282 2,041 6,335 22,513 2,951 8,994
------ ------- ------- -------- ------- --------
Loss from operations.... (405) (697) (1,244) (7,903) (208) (1,974)
Interest expense........ 181 1,155 6,925 12,300 3,103 3,900
Amortization of original
issue discount and debt
issuance costs......... 59 164 292 16,427 610 5,429
------ ------- ------- -------- ------- --------
Loss before
extraordinary item..... (645) (2,016) (8,461) (36,630) (3,921) (11,303)
====== ======= ======= ======== ======= ========
Extraordinary loss from
extinguishment of
debt................... -- -- -- 5,641 -- --
Net loss................ (645) (2,016) (8,461) (42,271) (3,921) (11,303)
====== ======= ======= ======== ======= ========
Dividends and accretion
on preferred stock..... -- -- -- 3,094 -- 2,930
Loss attributable to
common stock........... $ (645) $(2,016) $(8,461) $(45,365) $(3,921) $(14,233)
====== ======= ======= ======== ======= ========
Basic loss per common
share:
Loss before
extraordinary item.... $(6.32) $ (8.10) $(27.29) $ (95.03) $ (.43) $ (.79)
Extraordinary item..... -- -- -- (13.50) -- --
------ ------- ------- -------- ------- --------
Net loss............... $(6.32) $ (8.10) $(27.29) $(108.53) $ (0.43) $ (0.79)
====== ======= ======= ======== ======= ========
Weighted average number
of shares of common
stock.................. 102 249 310 418 9,116 18,068
Other Operating Data:
Tower Level Cash Flow
(b).................... $ 552 $ 3,707 $10,248 $ 25,853 $ 4,522 $ 9,775
Tower Level Cash Flow
Margin (c)............. 75.3% 76.6% 79.6% 80.7% 84.2% 81.4%
Adjusted EBITDA (b)..... $ 246 $ 2,791 $ 8,881 $ 21,678 $ 4,102 $ 8,932
Adjusted EBITDA Margin
(c).................... 33.6% 57.6% 68.9% 67.7% 76.3% 74.4%
EBITDA Before Franchise,
Excise and Minimum
Taxes (b).............. $ (123) $ 1,370 $ 5,158 $ 15,296 $ 2,813 $ 7,221
EBITDA Before Franchise,
Excise and Minimum
Taxes Margin (c)....... -- 28.3% 40.0% 47.8% 52.4% 60.1%
EBITDA (b).............. $ (123) $ 1,344 $ 5,091 $ 14,610 $ 2,743 $ 7,020
EBITDA Margin (c)....... -- 27.8% 39.5% 45.6% 51.1% 58.5%
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Period from
Inception Three
(May 3, 1995) Years Ended Months
through December 31, Ended
December 31, -------------- March 31,
1995 1996 1997 1998 1999
------------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Number of Sites(d):
Beginning of period..................... -- 33 156 312 876
Sites acquired during the period........ 29 119 134 517 109
Sites constructed during the period..... 4 4 22 47 16
End of period........................... 33 156 312 876 1,001
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------ March 31,
1995 1996 1997 1998 1999
------- ------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents....... $ 31 $ 47 $ 1,694 $ 13,801 $ 1,276
Working capital
deficit........... (1,077) (1,477) (12,790) (9,270) (14,740)
Tower assets, net.. 11,532 48,327 127,946 473,942 553,889
Total assets....... 13,972 55,566 143,178 516,148 584,527
Total debt......... 5,523 30,422 120,582 433,218 353,878
Redeemable stock:
Series A senior
preferred stock.. -- -- -- 29,882 --
Class B common
stock............ 1,200 1,200 1,761 1,761 --
Class D common
stock............ -- -- -- --
Series B junior
preferred stock... -- -- -- 59,929 --
Common stock....... -- -- -- -- 32
Additional paid-in
capital........... 7,051 24,881 25,876 33,137 276,566
Stock subscription
receivable........ (180) -- -- -- --
Common stock
warrants.......... -- -- -- 1,000 --
Accumulated
deficit........... (645) (2,661) (11,123) (53,394) (64,697)
------- ------- -------- -------- --------
Stockholders'
equity............ $ 6,226 $22,220 $ 14,753 $ 40,672 $211,901
</TABLE>
- --------
(a) "General and administrative" expenses represent those costs directly
related to the day-to-day management and operation of our communications
sites. "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 sites.
(b) "Tower Level Cash Flow" is defined as site rental revenue minus site
operating expenses, excluding depreciation and amortization. "Adjusted
EBITDA" represents earnings (loss) from operations before depreciation,
amortization, corporate development expenses and state franchise, excise
and minimum taxes. "EBITDA Before Franchise, Excise and Minimum Taxes"
represents earnings (loss) from operations before depreciation,
amortization and state franchise, excise and minimum taxes. "EBITDA"
represents loss from operations before depreciation and amortization. We
have included Tower Level Cash Flow, Adjusted EBITDA, EBITDA Before
Franchise, Excise and Minimum Taxes and EBITDA in Other Operating Data
because we believe such information may be useful to you in evaluating our
ability to service our debt. Tower Level Cash Flow, Adjusted EBITDA, EBITDA
Before Franchise, Excise and Minimum Taxes 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 our ability
to meet our cash needs or as an indication of our operating performance.
Moreover, Tower Level Cash Flow, Adjusted EBITDA, EBITDA Before Franchise,
Excise and Minimum Taxes and EBITDA are standardized measures and may be
calculated in a number of ways. Accordingly, the Tower Level Cash Flow,
Adjusted EBITDA, EBITDA Before Franchise, Excise and Minimum Taxes 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, EBITDA Before Franchise,
Excise and Minimum Taxes and EBITDA each as a percentage of tower rental
revenue.
(d) Includes communications sites that we manage, which at March 31, 1999 were
34 communications sites.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of
operations for each of the three years ended December 31, 1996, 1997, 1998 and
the three months ended March 31, 1999. The discussion should be read in
conjunction with our Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The statements regarding the wireless
communications industry, our expectations regarding our 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
We acquire and construct rental towers and lease space on these towers to a
broad base of wireless communications providers, operators of private networks,
government agencies and other customers. Our 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. We seek to obtain a significant ownership
position of tower assets in our targeted markets in order to offer "one-stop
shopping" to wireless communications providers who are deploying or expanding
wireless communications networks.
Our growth has come primarily from the acquisition and construction of
towers and from adding new tenants to these towers. Our business strategy
focuses on aggressively pursuing tower acquisitions and selectively
constructing towers in areas that complement our existing base of rental towers
and the expansion into additional high growth wireless communications markets.
Since commencing operations in May 1995, we have completed acquisitions and
builds as follows:
<TABLE>
<CAPTION>
Acquisitions
Periods Ended Completed Pro Forma
December 31, Subsequent to for
------------------- March 31, March 31, Probable
1995 1996 1997 1998 1999 1999 Acquisitions Total
---- ---- ---- ---- --------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of towers
acquired............... 29 119 134 517 109 57 612 1,577
Number of towers built.. 4 4 22 47 16 15 -- 108
--- --- --- --- --- --- --- -----
Number of towers
acquired or built
during the period...... 33 123 156 564 125 72 612 1,685
=== === === === === === === =====
Number of towers
managed................
Number of acquisition
transactions
completed.............. 13 49 72 82 27 36 8 287
</TABLE>
As of March 31, 1999, we also had 11 towers under construction and 50
additional tower projects in various stages of development. As of March 31,
1999, we had agreements or letters of intent to acquire 35 additional
communications sites. In addition, we have identified numerous additional
acquisition candidates. We expect that internal growth related to completed
acquisitions and the business potential of pending acquisitions will have a
material impact on our future revenues and EBITDA.
We believe that significant opportunities for growth exist by maximizing the
use of our existing and future communications sites. Because the costs of
operating a communications site are primarily fixed on owned sites, increasing
tower utilization significantly improves tower level operating margins on these
sites. We believe that "same tower" revenue growth on owned communications
sites (measured by comparing the annualized run rate revenue of our owned
communications sites at the end of a period to the annualized run rate revenue
for the same owned communications sites at the end of a prior period), is a
meaningful indicator of the quality of these sites and our ability to generate
incremental
33
<PAGE>
revenue on such sites. Taking into consideration new leases written as of
December 31, 1998, we experienced "same tower" revenue growth of approximately
20% for the year ended December 31, 1998 on the base of communications sites we
owned as of December 31, 1997.
We have generated net losses since inception and at March 31, 1999, had an
accumulated deficit totaling approximately $64.7 million. Due to the nature of
our business (the leasing of cash-generating assets) and our 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, we expect to continue to generate
losses for the foreseeable future.
Our 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. We believe that growth in our annualized run rate
revenue is a meaningful indicator of our performance. As of March 31, 1999, our
annualized run rate revenue was $51.6 million.
On June 29, 1999, we entered into an agreement to consummate the Motorola
Antenna Site Acquisition. In connection with that transaction, we anticipate
acquiring approximately 1,858 communications sites, consisting of 499 owned
sites, 526 managed sites and 833 leased sites, for $255 million plus fees and
expenses. For the three months ended March 31, 1999 on pro forma basis, the
Motorola sites generated $20.9 million in revenue, $9.1 million in tower level
cash flow and $6.5 million in EBITDA. Accordingly, the closing of that
acquisition will significantly increase our revenue, tower level cash flow and
EBITDA. Previously, we have not had a significant number of managed or leased
sites in our portfolio. Generally, managed and leased sites have higher
operating costs than owned towers, primarily as a result of higher rental costs
related to revenue sharing with site owners. In addition, on leased sites, we
generally have a right to lease only a limited portion of a site, which limits
total revenue potential. Higher relative operating costs and limited revenue
growth results in substantially lower tower cash flow and EBITDA margin
performance on managed and leased sites. Accordingly, the acquisition of
managed and leased sites in the Motorola Antenna Site Acquisition or any other
potential future acquisitions substantially will decrease our tower level
operating margins.
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 our consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended Period Period
December 31, Ended Ended
---------------------- March 31, March 31,
1996 1997 1998 1998 1999
----- ----- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Site rental revenue............. 100.0% 100.0% 100.0% 100.0% 100.0%
Site operating expenses,
excluding depreciation and
amortization................... 23.4 20.4 19.3 15.8 18.6
Gross profit.................... 76.6 79.6 80.7 84.2 81.4
Expenses:
General and administrative...... 18.9 10.6 13.0 7.8 7.0
Corporate development........... 29.3 28.9 19.9 24.0 14.3
State franchise, excise and
minimum taxes.................. 0.5 0.5 2.1 1.3 1.7
Depreciation.................... 42.2 49.2 70.3 54.9 74.9
Loss from operations.............. (14.3) (9.6) (24.6) (3.8) (16.04)
Interest expense.................. 23.9 53.8 38.4 57.8 32.5
Amortization of original issue
discount......................... 3.4 2.3 51.3 11.4 45.2
Net loss before extraordinary
items............................ (41.6%) (65.7%) (114.3%) (73.0%) (94.1%)
</TABLE>
34
<PAGE>
Three Months Ended March 31, 1999 compared to Three Months Ended March 31,
1998
Site rental revenue increased 123.5% to $12.0 million for the three month
period ended March 31, 1999 from $5.4 million for the three month period ended
March 31, 1998. This increase is attributable to additional revenue resulting
from (1) the acquisition and construction of 125 communications sites during
the three month period ended March 31, 1999, the results of which are reflected
from the time of acquisition or construction in the three month period ended
March 31, 1999, (2) the inclusion of results from 308 communications sites
acquired or constructed during the period from April 1, 1998 through December
31, 1998 for the entire three month period ended March 31, 1999 and (3) the
inclusion of results from 201 communications sites acquired in March 1998 for
the full three month period ended March 31 1999. In addition, the increase is
due to growth in per communications site revenue as a result of expanded
marketing efforts to increase the number of customers per communications site,
as well as regular, contractual price escalations for existing customers.
Site 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 expenses,
utilities, property taxes and other direct costs of communications site
operation, increased 162.2% to $2.2 million for the three month period ended
March 31, 1999 from $0.9 million for the three month period ended March 31,
1998. This increase is consistent with the purchase and construction of
communications sites and the related increases in revenue as discussed above.
Communications site operating expenses as a percentage of revenue increased to
18.6% for the three month period ended March 31, 1999 from 15.9% for the three
month period ended March 31, 1998. The change primarily resulted from the
continuing change in the mix of communications site assets due to ongoing
acquisition and build activity occurring since March 31, 1998. The portfolio of
communications site assets that we owned during the three month period ended
March 31, 1999 have slightly higher expenses as a percentage of communications
site revenue than the substantially smaller portfolio of tower assets owned
during the three month period ended March 31, 1998. The specific areas of
expenses effected include ground rents, property taxes and certain maintenance
costs related to our site improvement program, which is designed to enhance
marketability of sites to our customers.
General and administrative expenses, which are associated with supporting
our day-to-day management of our 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, as a
percentage of revenue, decreased to 7.0% of revenue for the three month period
ended March 31, 1999 from 7.8% for the three month period ended March 31, 1998
reflecting the growth in revenues resulting from our continued success in
implementing our growth strategy over the past year. This decrease results from
decreases in personnel and infrastructure costs as our tower revenues increased
as a result of our acquisitions and construction of communications sites,
offset partially by the effect of increases in expenses from additional
staffing due to us becoming a public registrant and related increases in
professional fees, increased levels of advertising and marketing expenditures
and increases in rent and related costs associated with our growth.
Corporate development expenses, which represent costs incurred in connection
with acquisitions and construction of new communications sites, increased 32.8%
to $1.7 million for the three month period ended March 31, 1999 from $1.3
million for the three month period ended March 31, 1998. The increase in
corporate development expenses reflects the higher costs associated with
expansion of our acquisition and construction strategies and related
communications site development efforts. Corporate development expenses
decreased as a percentage of revenue from 24.0% for the three month period
ended March 31, 1998 to 14.2% for the three month period ended March 31, 1999
because of the incremental increase in revenue from the comparative period in
1998 and our ability to use our personnel and infrastructures more effectively
as we grow.
State franchise, excise and minimum taxes, which represent taxes assessed in
connection with our operations in various state jurisdictions, increased to
$0.20 million for the three month period ended
35
<PAGE>
March 31, 1999 from $0.01 million for the three month period ended March 31,
1998. Such taxes are calculated using various methods such as a portion of our
property within a given state, our capital structure or based upon a minimum
tax in lieu of income taxes. The increase in 1999 is primarily attributable to
our significant expansion of our geographic region primarily through
acquisitions.
Depreciation expense increased 204.8% to $9.0 million for the three month
period ended March 31, 1999 from $3.0 million for the three month period ended
March 31, 1998 as a result of the increase in tower assets through our
acquisition activities as described above.
Interest expense, net of amortization of original issue discount and debt
issuance costs, increased 25.6% to $3.9 million for the three month period
ended March 31, 1999 from $3.1 million for the three month period ended March
31, 1998. The increase in interest expense was attributable to increased
average borrowings associated with our acquisitions during the three month
period ended March 31, 1999 as compared to the three month period ended March
31, 1998, offset by us being subject to lower average interest rates on our
average borrowings for the three month period ended March 31, 1999 as compared
to the three month period ended March 31, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Site rental revenue increased 148.6% to $32.0 million in 1998 from $12.9
million in 1997. This increase is attributable to the acquisition and
construction of 564 communications sites during the twelve month period ended
December 31, 1998. In addition, the increase is due to growth in per
communications site revenue as a result of expanded marketing efforts to
increase the number of customers per communications site, as well as regular,
contractual price escalations for existing customers.
Site operating expenses, excluding depreciation and amortization, increased
134.2% to $6.2 million in 1998 from $2.6 million in 1997. This increase is
consistent with the purchase and construction of communications sites as
discussed above.
General and administrative expenses increased to 13.0% of revenue in 1998
from 10.6% in 1997. This increase resulted from increases in staffing when we
became a public registrant and related increases in professional fees and
travel costs, increased levels of advertising and marketing expenditures in
connection with attracting new tenants to our communications sites and
increases in rent and related costs.
Corporate development expenses increased 71.4% to $6.4 million in 1998 from
$3.7 million in 1997. The increase in corporate development expenses reflects
the higher costs associated with the expansion of our acquisition and
construction strategies. Corporate development expenses decreased as a
percentage of site rental revenue to 19.9% in 1998 from 28.9% in 1997 because
of the incremental increase in communications site rental revenue from the
comparative period in 1997 and our ability to use our personnel and
infrastructure more effectively as we grow.
State franchise, excise and minimum taxes, which represent taxes assessed in
connection with our operations in various state jurisdictions, increased to
$0.7 million in 1998 from $0.1 million in 1997. Such taxes are calculated using
various methods such as a portion of our property within a given state, our
capital structure or based upon a minimum tax in lieu of income taxes. The
increase in 1998 is primarily attributable to the significant expansion of our
geographic region primarily through acquisitions.
Interest expense, net of amortization of original issue discount, increased
77.6% to $12.3 million in 1998 from $6.9 million in 1997. The increase in
interest expense was attributable to increased borrowing associated with our
acquisitions and construction activity during the period.
36
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Site 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 communication 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.
Site operating expenses, excluding depreciation and amortization, increased
131.9% to $2.6 million in 1997 from $1.1 million in 1996 due primarily to the
addition of 156 communication towers during the year. However, site operating
expenses, excluding depreciation and amortization, decreased as a percentage of
site rental revenue to 20.4% in 1997 from 23.4% in 1996, reflecting operating
efficiencies gained on existing communications sites as well as on new
communication towers acquired or constructed.
General and administrative expenses increased 49.2% to $1.4 million in 1997
from $0.9 million in 1996. General and administrative costs decreased as a
percentage of site rental revenue to 10.6% in 1997 from 18.9% in 1996 because
of lower overhead costs as a percentage of site rental revenue.
Corporate development expenses increased 162.0% to $3.7 million in 1997 from
$1.4 million in 1996. The increase in corporate development expenses reflects
the expansion of our acquisition and construction strategies. Corporate
development expenses remained relatively constant as a percentage of site
rental revenue at 28.9% in 1997 compared to 29.3% 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 our acquisitions during the period.
Liquidity and Capital Resources
Our liquidity needs arise from our acquisition-related activities, debt
service obligations, working capital needs and capital expenditures. We have
historically funded our liquidity needs with proceeds from equity
contributions, bank borrowings, the issuance of our 10% senior discount notes,
cash flow from operations and our IPO. We had a working capital deficit of
$14.7 million, $9.3 million (inclusive of a $15.0 million bridge loan owed to
ABRY II, which was repaid on February 24, 1999), $12.8 million and $1.5 million
as of March 31, 1999, December 31, 1998, 1997 and 1996, respectively. Excluding
the current portion of long-term debt, current liabilities exceed current
assets by $13.7 million, $6.4 million, $1.7 million and $0.8 million as of
March 31, 1999, December 31, 1998, 1997 and 1996, respectively. Our ratio of
total debt to stockholders' equity was 1.7 to 1.0 at March 31, 1999, 10.7 to
1.0 at December 31, 1998, 8.2 to 1.0 at December 31, 1997 and 1.4 to 1.0 as of
December 31, 1996. On a pro forma basis as of March 31, 1999, we would have had
consolidated cash and cash equivalents of $1.3 million, $549.6 million of
consolidated long-term debt outstanding, consolidated stockholders' equity of
$400.3 million and a ratio of total debt to stockholders' equity of 1.37 to
1.0.
Our credit facility provides us with two revolving lines of credit and two
term loans for aggregate borrowings of up to $470 million, of which $225
million (including letters of credit) is currently outstanding. Approximately
$220 million is intended to be drawn to partially finance the Motorola Antenna
Site Acquisition. Under the two revolving lines of credit, we may make
borrowings and repayments until June 30, 2006. Under one term loan, advances
must be repaid in full by June 30, 2006. Under the other term loan, advances
must be repaid in full by June 30, 2007. Once repaid, amounts under term loans
may not be reborrowed. Advances under one revolving line of credit and one term
loan may be used for acquisitions, working capital, and other general corporate
purposes. Advances under the other revolving credit and the other term loan are
limited to acquisitions. Advances under our credit facility have been used
primarily to fund acquisitions and construction of sites.
37
<PAGE>
Beginning September 30, 2001, the availability under each revolving line of
credit and one term loan starts reducing by specified amounts on a quarterly
basis until June 30, 2006, when the availability under such credits will be
reduced to zero. Beginning September 30, 2001, the availability under the other
term loan starts reducing by specified amounts on a quarterly basis until June
30, 2007, when the term loan must be repaid in full. Advances under the
revolving credits and the term loan maturing June 30, 2006 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 1.5% or the 90-day London Interbank Offered Rate plus a
margin of up to 2.75%. Advances under the term loan maturing June 30, 2007 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 plus a margin of up to 3.0%. As of March 31, 1999, after giving
effect to the acquisitions referred to in this Prospectus on a pro forma
adjusted basis, there would have been $116.6 million available under our credit
facility, after giving effect to approximately $49.2 million of outstanding
letters of credit, which would have reduced availability under our credit
facility.
We also use seller financing to fund certain of our communications site
acquisitions. As of March 31, 1999, we had outstanding, in the aggregate
amount, $24.2 million of seller notes bearing interest at rates ranging from
8.5% to 13.0% per annum.
In March 1998, we completed the offering of our 10% senior discount notes.
We received net proceeds of approximately $192.8 million from that offering.
The proceeds were used to repay outstanding borrowings under our 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 certain
holders of our Common Stock. Our 10% senior discount notes were issued under
the Indenture and will mature on March 15, 2008. Cash interest is not payable
on our 10% senior discount notes prior to March 15, 2003. Thereafter, our 10%
senior discount notes will require annual cash interest payments of
$32.5 million.
On February 19, 1999, we completed our IPO where we sold 20,000,000 shares
of our Common Stock and on March 19, 1999, the over-allotment options were
exercised and an additional 2,026,000 shares were sold. The initial price per
share was $14, resulting in net proceeds of approximately $290 million before
deducting the costs of our IPO.
We recently received a commitment from an institutional investor to purchase
$30 million aggregate liquidation preference of senior preferred pay-in-kind
stock, series A (the "Series A Preferred Stock"). Proceeds from the issuance of
the Series A Preferred Stock would be available to partially fund the Motorola
Antenna Site Acquisition. If issued, it is anticipated that holders of Series A
Preferred Stock will be entitled to receive dividends, payable quarterly, at an
initial rate equal to 14% per annum for the first two quarters after its
issuance, 14.75% per annum for the following quarter, 15.5% per annum for the
following quarter and 16% per annum thereafter. At our option, we will be able
to pay dividends in cash or by the issuance of additional shares of Series A
Preferred Stock having an aggregate liquidation preference equal to the amount
of the dividends. Five years after issuance, we will be able to pay dividends
by paying a 14% per annum cash dividend and a 2% per annum dividend by the
issuance of additional shares of Series A Preferred Stock having an aggregate
liquidation preference equal to the amount of the 2% per annum dividend. The
Series A Preferred Stock will be redeemable at our option, in whole (but not in
part), at any time at a redemption price equal to the aggregate liquidation
preference thereof, plus all accumulated but unpaid dividends to the date of
redemption. In addition, we will be required, subject to certain conditions, to
redeem all of the shares of Series A Preferred Stock outstanding 10 years from
the date of its issuance at a redemption price equal to 100% of the liquidation
preference thereof, plus accumulated and unpaid dividends to the date of
redemption. If issued, we would expect to redeem the Series A Preferred Stock
with proceeds from this offering.
38
<PAGE>
To partially fund the Radio Towers Acquisition and approximately $6 million
of the Communications Towers Acquisition, we have signed a commitment letter
dated July 1, 1999 between us and an affiliate of Deutsche Bank Securities
Inc., for us to issue $20 million aggregate liquidation preference of the
Series B Preferred Stock. The Series B Preferred Stock will be entitled to
receive dividends, payable quarterly in additional shares of Series B Preferred
Stock at an initial rate equal to 17% per annum. At our option, we will be able
to pay dividends in cash or by the issuance of additional shares of Series B
Preferred Stock. The Series B Preferred Stock will rank junior in right of
payment of dividends and upon liquidation to the Series A Preferred Stock and
will rank senior to all other classes of our preferred and common stock. The
Series B Preferred Stock will be redeemable, at our option, in whole or in
part, at any time at a redemption price equal to 100% of the aggregate
liquidation preference thereof, plus all accumulated but unpaid dividends
thereon, if any, to the date of redemption. The commitment relating to the
provision of the Series B Preferred Stock expires on July 31, 1999 if no
designated acquisitions have been funded with bridge or interim financing. We
expect that, if funded, we will redeem the Series B Preferred Stock with
proceeds from this offering.
Capital investments, including acquisitions, for the three months ended
March 31, 1999 were $85.7 million, compared to $111 million in the comparable
1998 period. We anticipate that we will spend approximately $414.4 million on
capital investments during the period from April 1, 1999 through December 31,
1999, including various individually immaterial acquisitions in our current
targeted acquisitions pipeline, construction and upgrading of additional
towers. Depending on availability of additional capital, we expect that we may
make substantial capital investments for acquisitions, construction and
upgrading of additional towers in 1999 and 2000.
We estimate capital investments in 2000 to be approximately $150 million.
We believe that the proceeds from this offering of our Common Stock,
availability under our credit facility, cash flow from operations and existing
cash balances will be sufficient to meet working capital requirements for
existing properties and to fund our current probable acquisitions. To the
extent that we pursue additional acquisitions, construction activity and other
capital expenditures requiring funding in excess of that then available under
our credit facility, we will be required to obtain additional financing. To the
extent that we are unable to finance future capital expenditures, we may not be
able to achieve our current business strategy.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business and, in some cases, relate to our acquisitions of
related businesses. We are subject to interest rate risk on our credit facility
and any future financing requirements. Our fixed rate debt consists primarily
of outstanding balances on our 10% senior discount notes and notes payable to
former tower owners and our variable rate debt relates to borrowings under our
credit facility. See "--Liquidity and Capital Resources."
The following table presents the future principal payment obligations and
weighted-average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term indebtedness of $329,651,613
under our 10% senior discount notes and our credit facility as of March 31,
1999:
<TABLE>
<CAPTION>
Expected Maturity Date
-----------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term Debt
Fixed Rate (10.00%).... -- -- -- -- -- $325,000,000
Variable Rate (Weighted
Average Interest Rate
of 8.58%)............. -- $10,845,000 $16,267,500 $21,690,000 $59,647,500 --
</TABLE>
39
<PAGE>
Our primary market risk exposure relates to the following:
. the interest rate risk on long-term and short-term borrowings;
. our ability to refinance our 10% senior discount notes at maturity at
market rates;
. the impact of interest rate movements on our ability to meet interest
expense requirements and exceed financial covenants; and
. the impact of interest rate movements on our ability to obtain adequate
financing to fund future acquisitions.
We manage interest rate risk on our outstanding long-term and short-term
debt through our use of fixed and variable rate debt. While we cannot predict
or manage our ability to refinance existing debt or the impact interest rate
movements will have on our existing debt, we continue to evaluate our financial
position on an ongoing basis.
Inflation
Because of the relatively low levels of inflation experienced in 1996, 1997,
1998 and as of March 31, 1999, inflation did not have a significant effect on
our results in such years.
Year 2000
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years. As a result, such systems will
recognize the year 2000 as "00" or 1900. This could cause many computer
applications to fail completely or to create erroneous results unless
corrective measures are taken.
We utilize management information systems and software technology that may
be affected by Year 2000 issues throughout our businesses. During 1996, we
began to implement plans to assess our systems to determine their ability to
meet our internal and external requirements. During 1998, we completed our
initial comprehensive testing of and modifications to our information systems
in response to that testing. We have developed questionnaires and contacted key
suppliers regarding their Year 2000 compliance to determine any impact on our
operations. In general, our suppliers and customers appear to have developed or
are in the process of developing plans to address Year 2000 issues. We will
continue to monitor and evaluate the progress of our suppliers and customers on
this matter.
Year 2000 issues are not expected to have a material impact on our current
information systems as a result of the steps already completed to try and make
our systems Year 2000 compliant. Based on the nature of our business, we
anticipate that we are not likely to experience material business interruption
due to the impact of Year 2000 compliance on our customers and vendors,
although if our customers and vendors experience Year 2000 problems, our
results of operations could be materially adversely affected. We estimate that
we will spend approximately $100,000 in 1999 to continue to monitor and test
our systems for Year 2000 compliance including our software applications that
we continuously develop and enhance. As a result, we do not anticipate that
incremental expenditures to address Year 2000 compliance will be material to
our liquidity, financial position or results of operations prior to the Year
2000. See "Risk Factors--We cannot assure you that the impact of the Year 2000
date change on computer systems will not have significant adverse effects on
us."
40
<PAGE>
BUSINESS
Company Overview
We are the leading independent provider of wireless communications site
space in the Southeastern United States. We rent space on communications sites
to providers of wireless communication services such as PCS, cellular, paging,
SMR, wireless data transmission and radio and television broadcasting. We
believe renting communications site space allows us to achieve the highest cash
flow margins with the lowest level of risk on the capital we invest in the
communications site business. As a result of our extensive base of existing
communications sites, we believe that we are well positioned to continue to
benefit from the growth opportunities in the rapidly consolidating tower
industry and from the strong demand for tower rental space fueled by the
growing demand for wireless services.
Since our formation in May 1995, we have focused on creating a portfolio of
communications site clusters by concentrating our presence in high growth
markets such as Atlanta, Birmingham, New Orleans, Orlando and Tampa. As of
June 30, 1999, we have completed 279 acquisitions, acquiring 965 communications
sites and have constructed an additional 108 towers. Currently we have
agreements or letters of intent to acquire 1,971 additional communications
sites, including an agreement with Motorola, to acquire 499 owned sites, 526
managed sites and 833 leased sites for $255 million plus fees and expenses.
Managed sites are tower or rooftop communications sites owned by others where
we would have the exclusive right to market antenna space on these sites.
Leased sites are tower or rooftop communications sites owned by others that we
would have a non-exclusive right to market antenna space. The pending Motorola
Antenna Site Acquisition will enhance our strong position in the Southeast,
expand our existing presence in the Northeast and West and introduce us to new
markets in the Midwest. Following the closing of the Motorola Antenna Site
Acquisition and the additional communications sites which are currently subject
to agreement or a letter of intent we will have 1,685 owned communications
sites, 560 managed communications sites and 833 leased communications sites. We
had annualized tower rental revenue and EBITDA on a pro forma basis of $143.8
million and $64.1 million, respectively, based upon the three months ended
March 31, 1999, of which $83.7 million and $26 million, respectively, are
derived from the pending Motorola Site Acquisition.
We currently have over 800 customers renting space on one or more of our
communications sites. Our tenants consist of all forms of wireless
communications providers, operators of private wireless networks and government
agencies, including Southern Communications, Nextel, Sprint PCS, PageNet,
Motorola, BellSouth Mobility, MobileMedia Communications, Teletouch, Skytel,
Pagemart, Federal Bureau of Investigation and Bureau of Alcohol, Tobacco &
Firearms. Our customers are generally responsible for the installation of their
own equipment and the incremental utility costs associated with that equipment.
In addition, adding customers on a communications site does not increase
monitoring, maintenance or insurance costs. Therefore, when new customers are
added to a communications site, we are able to increase revenue at low
incremental cost, thereby increasing cash flow margins.
Industry Background
Communications sites are primary infrastructure components for wireless
communications services such as PCS, cellular, paging, 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 to
meet the requirements of a particular carrier to cover a geographic area and
include transmission equipment such as antenna, 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 on which the
equipment may be placed. Wireless communications providers design their
networks and select their communications sites in order to optimize their
transmission frequencies, taking into account the projected geographic area the
site will cover, the topography of the area and the requirements of the
technology being deployed.
41
<PAGE>
The Wireless Communications Industry
The wireless communications industry is growing rapidly as:
. consumers become increasingly aware of the uses and benefits of wireless
communications services;
. the costs of wireless communications services decline; and
. new wireless communications technologies are developed.
Changes in federal regulatory laws have led to a significant increase in the
number of competitors in the wireless communications industry. This
competition, combined with an increasing reliance on wireless communications
services by consumers and businesses, has increased demand for higher quality
networks with wide reaching and reliable service. As new service 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 increase dramatically.
The wireless communications industry is comprised of the following segments:
. Cellular. Currently each market in the United States has two cellular
service operators. Cellular networks consist of numerous geographic
"cells" located every few miles that rebroadcast the cellular frequency.
Each cell includes a communications site consisting of transmission
equipment typically located on a wireless communications tower. According
to industry publications, as of December 31, 1998 there were 65.4 million
wireless telephone subscribers in the United States, representing a 21.3%
growth rate over the prior 12 months, and an overall penetration of the
market of approximately 25%, with demand expected to increase as prices
decline.
. PCS. PCS is an emerging wireless communications technology competing with
cellular that offers a digital signal that is clearer and offers greater
privacy than analog cellular systems. PCS companies are expected to be
substantial users of tower space primarily because:
--up to six PCS licenses have been issued by the FCC in each market
(versus two licenses for cellular); and
--PCS technology requires more communications sites to cover the same
geographic area as cellular technology.
According to industry publications, there were approximately 6.5 million
PCS subscribers in the United States as of December 31, 1998. The
Personal Communications Industry Association ("PCIA") estimates that as
of December 31, 1998 there were approximately 84,000 antenna sites
(cellular and PCS) in the United States. PCIA estimates that this number
will increase by approximately 66,000 additional antenna sites by 2005.
While some of these sites may use existing communications sites, it is
expected that a large number of new sites will be required for the
deployment of PCS networks. PrimeCo, Aerial and Sprint PCS are currently
building out PCS systems in the Southeast, and are placing their
equipment on many of our rental communications sites, rather than
constructing their own towers;
. Paging. Paging has also enjoyed dramatic growth over the last ten years.
According to industry publications, there were 54.2 million pagers at the
end of 1998, representing a compound annual growth rate of 23% since
1993. This growth was spurred by declining prices, wider geographic reach
and increasing demand by consumers. While network construction by the
paging industry appears to be reaching a level of maturity, even at the
current subscriber levels it is expected that additional transmission
frequencies and, in-turn, additional transmitter equipment will be
required both to service existing paging customers and deploy new paging
technologies. Paging companies have historically relied heavily on rental
towers and are expected to continue to do so;
42
<PAGE>
. SMR/ESMR. SMR companies provide two-way radio communications primarily
for commercial purposes. Two-way private business radio is used primarily
for businesses engaged in dispatching personnel or equipment to work
sites with users including 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 communications sites 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 with cellular and PCS. As more commercial users are attracted to
enhanced SMR services, the demand for communications site space to
support this broader use should also increase. Nextel and Southern
Communications are currently 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 on
their own dedicated frequencies. These government agencies often find it
easier to lease rather than own communications site 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 communications site 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 and
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 communications site location is chosen,
broadcasters rarely change sites because of complex regulatory
requirements, high switching costs and business disruption. Although the
U.S. broadcasting industry is generally mature in its demand for
transmission communications site capacity, a significant increase in
demand for communications site space may occur when digital spectrum is
used to deliver high definition television or digital multi-casting,
i.e., multiple "normal" definition television channels. Additionally,
wireless cable television is being developed and positioned as a
potential alternative to traditional cable television. Wireless cable
operates by receiving programming from a satellite which is then
retransmitted from an antenna on a communications site to an antenna on a
subscriber's residence. Several wireless cable companies are now in the
process of constructing their systems in our regions; and
. Emerging Technologies and Availability of FCC Spectrum. Several new
entrants in the wireless communications industry are emerging as new
technology becomes available and as additional radio spectrum is
authorized for use by the FCC. For example, wireless local loop 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. Wireless local loop 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. Wireless data transmission is also
widely viewed as being in its infancy as several companies endeavor to
build national wireless data transmission networks including, Nationwide
Wireless Network (an affiliate of MTEL), RAM Mobile Data (10% owned by
BellSouth), and Racotek's SMR based data networks. Automatic Vehicle
Monitoring/Location and Monitoring Services such as "Lo Jack" also
require a minimum of three towers to provide their services in a
particular coverage area. In addition to their current uses, we believe
that monitoring/tracking service providers will use the band to provide
fleet tracking, rail and container transportation monitoring, security
and access control, etc.
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These recent developments in the wireless communications industry indicate
continuing opportunities for growth in the communications site 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
communications sites.
The Communications Site Rental Industry
A typical tower site consists of a fenced area containing a tower and an
equipment shelter that houses a variety of transmitting, receiving and
switching equipment. There are three types of towers:
. Guyed towers (which can reach heights of up to 2,000 feet) gain their
support from a series of cables attached at different levels on the tower
to anchor foundations in the ground;
. Lattice towers (which can reach heights of up to 1,000 feet) are self-
supporting structures usually tapered from the bottom up, with either
three or four legs; and
. Monopoles (which range in height from 50-200 feet) are self-supporting
tubular structures, which typically accommodate fewer tenants. Monopoles
are often used as single purpose towers or in locations where there are
space constraints or a need to address aesthetic concerns.
In addition to towers, wireless communications equipment can also be placed
on building rooftops. Rooftop sites are common in urban downtown areas where
tall buildings are available and multiple communications sites are required
because of the high volume of wireless traffic. As of March 31, 1999, our tower
portfolio was comprised of 696 guyed, 234 self supporting lattices, 64
monopoles and 17 rooftop sites. With the pending Motorola Antenna Site
Acquisition, we are acquiring or have the right to manage or lease an
additional 1,117 guyed, 342 self supporting lattices, 30 monopoles and 369
rooftop sites.
The value of a rental communications sites is principally determined by the
desirability of its location to customers and the amount of equipment that can
be located at a particular site. Multiple customers can share one tower through
"vertical separation" with each type of customer (i.e., cellular, PCS or
paging) located at a different height on the tower, while multiple customers
can share a single rooftop communications site through "horizontal separation"
of each type of customer. Additionally, although many existing towers and
rooftops were not originally built with the capacity to support multiple
customers, these communications sites can often be upgraded or reinforced 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. There have been a number of changes in the
communications industry, however, that have resulted in communications sites
becoming available for multiple uses and for acquisition by independent
communications site operators:
. As new technologies emerged, much of the transmission and broadcast
equipment located on many communications sites became obsolete. For
example, fiber optic cables have largely replaced transmission traffic
traditionally carried by wireless microwave networks;
. Paging and SMR providers traditionally owned their own networks and
transmission towers. As these industries have consolidated over the past
10 years, the service providers consolidated their equipment, resulting
in unutilized or underutilized towers; and
. Wireless communications providers today are generally more focused on
developing their subscriber base and less focused on building and owning
proprietary tower networks.
During the mid-to-late 1980s, a number of independent communications site
owners began to emerge, marking the beginning of the site rental industry.
These independent tower owners focused on
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owning and managing towers and rooftops with multiple customers. We believe the
majority of these operators were individuals with a small number of local
rental towers offering very limited coverage areas. Since 1995, however,
several larger independent communications site owners have emerged as demand
for wireless communications services has continued to grow and as additional
high frequency licenses were awarded for new wireless communications services.
Both trends led to a need for networks with an extensive tower infrastructure.
As the demand for communications sites has been increasing, there has been a
growing trend by municipalities to slow the proliferation of towers. These
trends have contributed to an increasing need for strategically located towers
that can accommodate multiple wireless communications providers.
Our 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, our
founders recognized a significant opportunity to consolidate strategically
located wireless communications towers and enhance rental revenue on those
towers. In particular, our 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.
Our Business and Growth Strategy
Our objective is to create substantial value by both maintaining our
position as the leading provider of wireless communications tower space in the
Southeastern United States and expanding into additional wireless
communications markets. In order to achieve this objective, we have designed
and implemented a three-tiered growth strategy that includes:
. increasing our revenue per tower by aggressively marketing available
space;
. continuing to acquire towers in key markets; and
. implementing a selective tower construction program designed to
complement our acquisition strategy.
Our Marketing and Development Strategy
We aggressively market rental space on our towers to capitalize on our
method of business operation. Our customers are generally responsible for the
installation of their own equipment and the utility costs associated with
operating their equipment. In addition, adding customers to an existing tower
does not increase our monitoring, maintenance or insurance costs. Accordingly,
when customers are added to an existing tower, there is little expense and the
additional revenue increases our cash flow margins. The key elements of our
marketing and development strategy include the following:
. We Offer Strategically Located Clusters of Communications Sites. By
owning and assembling clusters of towers in high growth regions, we
believe that we are able to offer our customers the ability to rapidly
and efficiently fulfill their network expansion plans across a particular
market or region, which we believe provides us with a significant
competitive advantage. We also believe that the management and leasing
contracts we will acquire in the Motorola Antenna Site Acquisition will
enhance our competitive position by allowing us to make more
communications sites, in more locations, available to our customers;
. We Target a Diversified Customer Base. The number of antennas a tower can
accommodate varies depending on the type of tower (guyed, self-supporting
lattice or self-supporting monopole), the height of the tower and the
nature of the services provided by such antennas. The substantial
majority of our towers are self-supporting lattice and guyed towers that
can support a large number of antennas and therefore enable us to market
our tower space to a
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diverse group of wireless communications providers. In addition, rooftop
sites allow us to further diversify our customer base by providing us with
an inventory of high altitude sites suitable for newer LMDS and HDTV
technologies;
. We Take Advantage of Our Strong Customer Relationships. We believe that
we have established a reputation among our customers as a highly
professional and reliable tower space provider. This reputation has been
achieved through ongoing investment in the development of relationships
at multiple levels of our customers' organizations. We believe that
important factors in generating interest in our towers are the customer's
awareness of the quality of a particular site, the ease of doing business
with one lessor, the location of our other towers and our ability to
construct new towers; and
. We Track FCC Filings. All FCC licensees must file applications for site
locations. As part of a disciplined approach to acquisitions and new
tower construction activities, we track these filings, which provide us
with market intelligence as to existing wireless communications
providers' build-out plans and new market entrants.
Our Acquisition Strategy
Rental communications sites in many parts of the United States are still
largely owned by many different companies and individuals, even though the
consolidation of communications site ownership has begun to accelerate as
larger independent owners acquire small local owners. We believe that our
acquisition strategy has allowed us to achieve the highest density of towers
across nine states located in the Southeastern United States, as well as
create dense clusters of communications sites. Our objective is to create
value both by capitalizing on our position as the leading independent provider
of wireless communications site rental space in the Southeastern United States
and applying our focused marketing and cluster enhancing strategy to new
markets we may enter, including markets where Motorola sites are located.
We believe that growth through acquisition is an attractive strategy
because it allows us to:
. choose the location of our communications sites in key urban and other
desired locations;
. acquire communications sites with existing tenants and the capacity to
add multiple, additional tenants;
. not seek "build-to-suit" mandates from customers, which may result in
towers being built in unprofitable locations; and
. lower our risk as cash flow from existing tenants is predetermined and
immediate.
Our acquisition strategy continues to focus on:
. rapidly acquiring communications sites in key markets as a means to
quickly gain critical mass which discourages other site consolidators
from entering our markets;
. completing follow-on acquisitions to enhance our coverage in selected
wireless communications markets; and
. entering new markets as a platform for future growth.
In executing our acquisition strategy, we generally target strategically
located individual communications sites or small groups of communications
sites. Our focus on individual communications sites or small groups of
communications sites, however, does not preclude potential acquisitions of a
large number of sites in a single transaction, as is the case with the
Southern Towers Acquisition, the MobileMedia Acquisition, and the pending
Motorola Antenna Site Acquisition.
We conduct extensive due diligence prior to consummating an acquisition,
leveraging what we believe to be our competitive advantage in terms of our
experience in, and knowledge of, the
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communications site rental industry. We utilize 10 full-time communications
site buyers who spend substantially all of their time in the field identifying,
evaluating and generating acquisition opportunities using a standardized
process that we have developed to ensure that acquisitions are evaluated,
documented and rapidly processed. In order to execute and ensure the integrity
and quality of this process, we use outside independent professionals to verify
certain accounting, legal and engineering data. We believe that this approach
has proven effective in permitting us to more accurately predict the
performance of acquired assets and reduce the risks associated with our
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 we will be
able to successfully implement our acquisition strategy. See "Risk Factors--We
depend on acquisitions and the integration of those acquisitions into our
business."
The key elements of our acquisition strategy are set forth below:
. We Target High Growth Wireless Communications Markets. We target
population centers and key transportation corridors in wireless
communications markets where there is evidence of high potential growth.
We have established strong market positions in densely populated areas
such as Atlanta, Birmingham, New Orleans, Orlando, Tampa, Knoxville,
Mobile and Nashville. In addition, we have strong market positions in
Southern California and New England;
. We Focus on the Compatibility with Our Existing Communications Site
Network. We consider many factors when evaluating a potential
acquisition. In particular, we consider whether an acquisition will
enhance or create a cluster of communications sites in a given area,
thereby providing us with a stronger market position and competitive
advantage. We also consider whether the communications sites in a
particular acquisition meet previously identified customer demand for
enhanced coverage. In some instances, we may acquire, as part of a group
of communications sites being purchased, an individual communications
site that falls outside of normal acquisition parameters. Such
acquisitions occur only when we have determined that the overall
transaction is attractive; and
. We Employ a Disciplined Valuation Process. We seek to acquire
communications sites that have existing cash flow and identified
potential for significant future cash flow growth from additional
tenants. Prior to acquiring a communications site we consider each of the
following factors:
--current population coverage of each communications site to be
acquired;
--nature and quality of the existing and potential customer base;
--coverage of current and future transportation corridors; and
--location and desirability of competing communications sites.
We also make an assessment of potential cash flow growth and estimate
whether additional capital expenditures will be required to add capacity to
accommodate future growth.
While we have completed an average of 5.6 acquisitions a month over the last
four years, consistent with our acquisition criteria and strategy, we have
completed or entered into an agreement to complete the following major
acquisitions since March 1998:
Southern Towers Acquisition. In March 1998, we acquired 201 towers from
Southern Communications for approximately $83.5 million plus fees and expenses
(the "Southern Towers Acquisition"). Southern Communications is a subsidiary of
Southern Company, one of the largest utility holding companies in the United
States and an ESMR provider. Substantially all of the towers, which are located
in Georgia, Alabama, Mississippi and Florida, were constructed within the past
five years.
In connection with the Southern Towers Acquisition, we entered into leases
with Southern Communications and its affiliates to provide communications site
space for their ESMR network. The
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leases provide for an initial 10-year term with five optional renewal periods
of five-years each exercisable at the customer's option on the same terms as
the original leases. In addition, we have entered into an option agreement with
Southern Communications where Southern Communications could require us to use
commercially reasonable efforts to supply, acquire or construct an additional
80 towers for rental to Southern Communications or its affiliates. We have
initiated construction on approximately half of the tower opportunities
presented by Southern Communications to date.
Prior to the Southern Towers Acquisition, these towers were principally for
the use of Southern Communications and its affiliates and had only a limited
number of third party tenants. The towers were generally constructed with
capacity that significantly exceeded Southern Communications' specific capacity
requirements. Accordingly, we believe that there is substantial potential for
additional revenue from these towers.
MobileMedia Acquisition. In September 1998, we acquired 166 towers from
MobileMedia and its affiliates for approximately $170 million (the "MobileMedia
Acquisition"). MobileMedia recently merged with Arch Communications, Inc.,
making it part of the second largest paging company in the United States.
In connection with this acquisition, we entered into a lease arrangement to
provide rental tower space to MobileMedia Communications, an affiliate of
MobileMedia. This lease provides for an initial 15 year noncancellable term
with one five-year renewal period, exercisable at the customer's option. Under
this lease, MobileMedia Communications secured communications site space for
its currently existing 683 transmitters on the acquired towers at a monthly
rental rate of $1,300 per transmitter or $888,000 per month. In connection with
the lease, we have also given MobileMedia Communications the right to a defined
pricing discount for additional communications site space on our tower
portfolio that MobileMedia Communications may lease in the future as it
continues to expand its paging network. We believe that the discount
arrangement is an incentive for MobileMedia Communications to use us as a
preferred provider of rental communications site space for new communications
site locations they may require in the future.
Motorola Antenna Site Acquisition On June 29, 1999, we executed a definitive
agreement to acquire 1,858 communications sites, including 499 owned sites, 526
managed sites, and 833 leased sites from Motorola for $255 million plus fees
and expenses. The Motorola communications sites are largely clustered in urban
areas throughout the United States and Canada with over 50% of the owned sites
overlapping with our existing communications site portfolio. We believe that
the Motorola Antenna Site Acquisition greatly enhances our ability to offer our
customers attractive tower clusters in high growth markets and transportation
corridors. In addition, the managed sites we expect to acquire in the Motorola
Antenna Site Acquisition will enable us to provide our customers premier urban
rooftop sites such as the World Trade Center in New York, Sears Tower in
Chicago and the Allied Bank Building in Houston. We believe these sites will
allow us to further diversify our customer base by providing us with an
inventory of high altitude sites in urban areas. For the three months ended
March 31, 1999, the Motorola communications sites generated $20.9 million and
$6.5 million in revenue and EBITDA on a pro forma basis, respectively.
This offering is not conditioned upon the consummation of the Motorola
Antenna Site Acquisition and we cannot assure you that we will consummate the
Motorola Antenna Site Acquisition. See "Risk Factors--There may be risks
associated with the Motorola Antenna Site Acquisition."
Our New Tower Construction Strategy
An additional element of our growth strategy is to selectively construct new
towers in and around major markets where we already have a presence to enhance
our tower coverage in existing markets. Additionally, we also intend to build
new towers to expand the capacity of, or otherwise improve,
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existing sites. In both cases, we adhere to our own requirements of return on
invested capital. We do not engage in speculative construction projects or
large scale "build-to-suit" projects. During 1997, 1998 and the first three
months of 1999, we constructed 22, 47 and 16 towers, respectively. As a result
of opportunities generated through our marketing efforts, we estimate that we
will identify 80 to 100 new tower build opportunities in the next year. As of
December 31, 1998, we had 11 new towers under construction and over 50
additional tower projects in various stages of development. See "Risk Factors--
There are significant risks associated with construction of new towers."
The elements of our tower build program include the following:
. We Have a Disciplined Build Selection Criteria. Through our sales and
marketing efforts, we seek to identify suitable tower construction sites
based on information obtained from wireless communications providers
about their network construction plans. By knowing our customers' plans,
we can market space on an existing tower or determine whether it makes
sense to acquire or construct a new tower to meet our customers' needs.
Once a potential opportunity is identified, we act quickly to select only
those opportunities that are financially attractive. Tower construction
is only initiated after at least one anchor customer is identified and
after we have determined, based on market research, that the capital
outlay for the construction project would generate returns that exceed
our minimum required return on invested capital; and
. We Rapidly Implement Construction. After identifying an attractive
construction opportunity, we move quickly to:
--secure access to the site by either purchasing or entering into a
long-term lease for a parcel of land;
--select the appropriate type of tower based on capacity needs;
--initiate sales and marketing efforts to rent additional space on the
tower; and
--complete the necessary steps to obtain zoning approvals and building
permits.
We acquire tower structures from a variety of vendors and oversee the
construction of the tower with hired sub-contractors.
Our Strengths
We believe the following to be the strengths of our business:
. We Focus on the Communications Site Rental Business. We focus on the
rental of wireless communications site space as opposed to other aspects
of the tower industry such as site acquisition services, tower
construction services and ancillary services. Furthermore, we do not
engage in large scale "build-to-suit" programs, preferring instead to
focus on our core acquisition strategy and complimentary selective
construction strategy designed to enhance coverage in targeted markets.
We believe that by focusing on this sector of the communications site
industry, we can earn the highest risk adjusted return on invested
capital;
. We Target and Acquire Clusters of Communications Sites. We believe that
the site of our portfolio coupled with our focus on creating and
enhancing clusters of communications sites create significant competitive
advantages by enabling us to provide our customers with multiple
communications sites in a given area;
. We are a Disciplined and Efficient Acquirer of Communications Site
Assets. At March 31, 1999 we had a network of approximately 1,035
communications sites (excluding 57 sites we acquired subsequent to March
31, 1999, and 1,971 towers to be acquired pursuant to probable
acquisitions including the Motorola Antenna Site Acquisition). Our proven
acquisition process identifies communications sites that typically have
existing cash flow and are complementary to our
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existing portfolio. We have demonstrated the ability to identify and
successfully negotiate the purchase of what we believe to be value
enhancing acquisitions; and
. We Have the Ability to Successfully Increase Communications Site Rental
Revenue. Our aggressive marketing efforts to all major wireless
communications providers have resulted in the signing of a significant
number of new tenants over the last three years. Additional tenants
increase the operating leverage of our communications site portfolio and
generally increase our overall cash flow margins. In order to measure the
revenue growth performance of acquired communications sites, we track the
cumulative increase in monthly revenue from communications sites acquired
during different periods. We have generated a cumulative increase in
total monthly revenues for the 29 communications sites acquired in 1995
of approximately 133% through December 31, 1998. In addition, the 119
communications sites acquired in 1996 and the 134 communications sites
acquired in 1997 have generated cumulative increases in total monthly
revenues of approximately 68% and 14%, respectively, through December 31,
1998.
In addition to the above strengths, we believe that our business will be
characterized by the following:
. Consolidation Opportunities in a Highly Fragmented Industry. The
communications site rental industry remains highly fragmented, with a 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. We believe that significant opportunities for
growth exist in this current industry environment and that we are well-
positioned to continue to be a significant consolidator of communications
sites. Since commencing operations in May 1995, through June 30, 1999, we
have successfully completed 279 acquisitions through which we have
acquired 999 communications sites;
. Attractive Growth Prospects. Our rental communications sites provide
basic infrastructure components for all major wireless communications
services, including cellular, PCS, paging, two-way radio, broadcast
television, microwave, wireless data transmission and SMR customers. As a
result, we believe that we can achieve a level of growth in our
communications site rental revenue that will in general reflect the
growth of our customer base over the next several years;
. Stable and Predictable Cash Flow. We believe that we benefit from the
fact that our contracts are generally long-term (although most of the
leases relating to the pending Motorola Antenna Site Acquisition are
cancelable by either party on short-term notice) and are characterized by
predictable and stable monthly, prepaid recurring revenue. Additionally,
because a significant proportion of communications site rental revenue is
received from customers that are large companies and because
communications sites provide a basic utility-like service (which can be
terminated by a communications site owner if rent is not paid), we
generally experience low levels of bad debt expense;
. Barriers to Entry. Communications sites 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, we believe that in areas where we have established a
critical mass of rental communications site inventory, construction of
alternative communications sites 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 communications sites to be built and
supporting the trend toward co-location on rental communications sites;
and
. Low Customer Churn. The communications site 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
communications site space, those customers generally make significant
capital and network engineering commitments to the related site. The time
and costs
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associated with network reconfiguration and obtaining FCC and municipal or
local approval may also discourage customer relocation. We believe that
the high levels of commitment made by our customers benefit us in the form
of recurring and highly predictable revenue stream. We experienced
customer churn of approximately 1% per annum for the twelve month period
ended March 31, 1999.
Our Operations
Through our centralized management structure, we are designed to be an
efficient consolidator and operator of rental communications sites. This is
reflected in the methods and processes that we employ in managing our day-to-
day operations, including the rapid integration of acquisition, tower
construction and sales and marketing data into our proprietary management
information systems. This approach ensures that communications site management
is coordinated across our functional areas and that the information is
accurate, timely and easily available. We have invested heavily in our
information systems and believe that our investments in these areas will
accommodate significant additional growth. As we seek to expand our
communications site portfolio, we will continue to evaluate the need to
supplement our current workforce.
The key components of our operations include:
. effective integration of communications site assets into our existing
portfolio;
. ongoing monitoring of our portfolio of communications site assets; and
. customer sales and support.
Integration. The pace and level of activity that characterize our
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, over the past four years we
committed substantial resources to the development of our proprietary
management information systems to accommodate our overall acquisition,
construction and marketing strategies. As a result, we have 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. Our operations personnel perform routine, ongoing site
monitoring to ensure the maintenance of accurate data with regard to our
communications site inventory. Inventory management includes radio frequency
audits and regulatory compliance. We seek to maintain accurate information
with regard to customers' equipment that is installed on our communications
sites. We believe that this area is overlooked by many rental communications
site owners, resulting in erroneous information about the availability of
communications site space and payments owed by some existing customers. To
minimize errors, we conduct radio frequency audits and match 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, we use 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 we operate are essential to us as well as to our 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 our management information systems and is provided to current and
potential customers as part of equipment installation support efforts.
Customer Sales and Support. Our 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
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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 our communications sites
and, we believe, has enhanced our reputation as a full-service and responsive
provider of rental communications site space.
Our Customers and Customer Leases
As of March 31, 1999, we had over 4,500 separate communications site leases.
We have a diversified base of over 800 customers. MobileMedia Communications
and certain of its affiliates and Southern Communications and certain of its
affiliates would have accounted for approximately 24% and 11% of our revenues,
respectively, at December 31, 1998. Pro forma for the pending Motorola Antenna
Site Acquisition, Nextel will account for approximately 18% of our revenues.
See "Risk Factors--The loss of any significant customer would adversely affect
our business" and "Risk Factors--There may be risks associated with the
Motorola Antenna Site Acquisition."
We have a diverse mix of customers representing the various technologies and
segments of the wireless communications industry. As a result, we believe that
we are not dependent on any one segment of the wireless communications industry
for future revenue growth. Our diverse mix of customers will continue following
the consummation of the pending Motorola Antenna Site Acquisition, although we
anticipate the percentage of revenue we derive from paging customers will
decrease while the percentage of revenue we derive from SMR customers and
private business customers will increase. The following is a summary of our
annualized run rate revenue by customer type and approximate percentage of
revenue derived therefrom (without giving effect to any pending acquisitions)
as of March 31, 1999:
<TABLE>
<CAPTION>
Percentage
Customer Type of Revenue
------------- ----------
<S> <C>
Paging.......................................................... 41.8%
SMR............................................................. 13.8
PCS............................................................. 13.2
Land Mobile..................................................... 12.0
Cellular........................................................ 8.5
Broadcasting.................................................... 3.6
Other........................................................... 6.7
Data............................................................ .3
----
Total......................................................... 100%
====
</TABLE>
In connection with the Southern Towers Acquisition, we entered into leases
with Southern Communications providing that Southern Communications or one of
its affiliates would be a customer on each of the 201 towers acquired. Under
these leases, Southern Communications and its affiliates pay annual initial
aggregate rents of $5.5 million. The leases have initial terms of 10 years with
five optional renewal periods of five years, each of which is 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. We also entered
into a 10 year option agreement with Southern Communications whereby Southern
Communications may require us to use commercially 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
for the 201 towers described above.
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<PAGE>
In connection with the MobileMedia Acquisition, we entered into a lease with
affiliates of MobileMedia leasing the "site spaces" at the towers that were
previously utilized by MobileMedia and its affiliates for the installation and
operation of transmitter systems. The lease has a 15-year term with one five-
year renewal term exercisable at the option of the customer. Rent under the
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.
Upon consummation of the Motorola Antenna Site Acquisition, we will assume a
substantial number of tenant leases for the owned communications sites we are
acquiring from Motorola. Most of these leases are cancelable by either party on
short-term notice. See "Risk Factors--There may be risks associated with the
Motorola Antenna Site Acquisition."
Our Properties
We both own and lease the real property upon which our communications sites
are located. As of March 31, 1999, we owned 653 towers on parcels of real
estate that are leased and 358 towers on parcels of real estate that are owned.
The following is a summary of our sites by state, as of March 31, 1999:
<TABLE>
<CAPTION>
Number of Number of Total Number of
Communications Communications Communications
State Sites Leased Sites Owned Sites*
- ----- -------------- -------------- ---------------
<S> <C> <C> <C>
Georgia........................... 125 90 211
Florida........................... 123 80 203
Alabama........................... 84 29 113
Louisiana......................... 67 16 83
Tennessee......................... 47 24 71
Mississippi....................... 27 34 61
North Carolina.................... 38 18 56
California........................ 30 12 42
South Carolina.................... 24 12 36
Texas............................. 20 16 36
Virginia.......................... 17 2 19
Maryland.......................... 13 0 13
Washington........................ 10 0 10
New Hampshire..................... 3 6 9
Kentucky.......................... 6 1 7
New York.......................... 3 4 7
Ohio.............................. 4 3 7
Arkansas.......................... 3 2 5
Rhode Island...................... 1 4 5
Maine............................. 1 2 3
New Jersey........................ 2 1 3
Connecticut....................... 2 0 2
Massachusetts..................... 2 0 2
New Mexico........................ 2 0 2
Delaware.......................... 1 0 1
Indiana........................... 0 1 1
Michigan.......................... 1 0 1
Pennsylvania...................... 0 1 1
Wisconsin......................... 1 0 1
--- --- -----
657 358 1,011
=== === =====
</TABLE>
- --------
* Includes 34 communications sites that we managed as of March 31, 1999.
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<PAGE>
Most of our sites are located on small parcels in urban areas. In rural
areas, a 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. Our existing leases generally have 10 to 25 year terms,
with options for us to renew the leases for an average of approximately 10
years. Most of the leases we expect to acquire in the Motorola Antenna Site
Acquisition are cancellable by either party on short-term notice. Pursuant to
our credit facility, the senior lenders have liens on, among other things,
tenant leases, equipment, inventory and interests in certain of our real
property on which communications sites are located or which constitute of a
site.
A significant portion of the ground leases assumed in connection with the
MobileMedia Acquisition are subject to renewal within the next five years. In
the event that we are not satisfied with the renewal terms with respect to such
leases, we have the right to put back these properties to MobileMedia and
MobileMedia will still be obligated to pay its rent on these properties. We may
incur significant additional operating expenses in connection with the renewal
of such leases. There can be no assurance regarding the extent of such
increases or whether such increases could have an adverse effect on our results
of operations.
We lease our 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 we paid rent of approximately
$207,000 in 1998. We believe that our facilities are adequate for our short-
term needs. We are currently considering alternative local facilities and do
not expect difficulty replacing such facilities or locating additional
facilities, if needed.
Our Competition
The markets in which we operate are highly competitive. We compete with
wireless communications providers who own and operate their own communications
site networks, site development companies that acquire space on existing
towers, rooftops and other sites, other independent communications site
companies and traditional local independent communications site operators.
Wireless communications providers who own and operate their own communications
site networks generally are larger and have greater financial resources than we
have. We believe that communications site 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. We believe that competition for tower acquisitions will
increase and that additional competitors will enter the communications site
rental market, some of which may have greater financial and other resources
than we have. See "Risk Factors--We compete with companies that have greater
financial resources."
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 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 and
54
<PAGE>
other communications sites are separately regulated by the FCC and
independently licensed based upon the particular frequently used. See "Risk
Factors--Our business requires compliance and approval with regulatory
authorities."
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 comply with 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. See "Risk Factors--We are subject to environmental laws that impose
liability without regard to fault and environmental regulations that could
adversely affect our operations."
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 Regulations. In addition to the FCC's environmental
regulations, we are 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 our financial condition or results of
operations.
Our Employees
As of March 31, 1999, we had approximately 95 full-time employees, of which
74 work in our Sarasota, Florida headquarters office. None of our employees are
unionized, and we consider our relationship with our employees to be good.
REIT Status
We have elected 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, we are required for each
taxable year to satisfy certain requirements pertaining to organization,
sources of income, distributions and asset ownership, among others. Among the
numerous requirements that must be satisfied with respect to each taxable year
in order to qualify and remain qualified as such, a REIT generally must:
. distribute to stockholders 95% of its taxable income computed without
regard to net capital gains and deductions for distributions to
stockholders and 95% of certain foreclosure income;
. maintain at least 75% of the value of its total assets in real estate
assets (generally real property and interests therein), cash, cash items
and government securities;
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<PAGE>
. derive at least 75% of its gross income from investments in real
property or mortgages on real property; and
. derive at least 95% of its gross income from real property investments
described above 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 thereon, such as buildings or
other inherently permanent structures thereon, including items that 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
ours as well as ancillary buildings, heating and air conditioning systems and
fencing constitutes inherently permanent structures and are therefore real
estate assets. However, depending on our assessment of the strategic importance
of acquisitions which may become available to us in our existing line of
business or in complementary non-real estate based communication services
activities, we may acquire, operate and derive income from assets businesses or
entities that will cause us to no longer qualify as a REIT. In this regard we
recently committed to acquire certain assets from Motorola and have not yet
determined whether such assets, and the income derived from such assets, will
permit us to continue to meet the qualification requirements for a REIT. See
"Certain Federal Income Tax Considerations."
Legal Proceedings
We are from time to time involved in ordinary litigation incidental to the
conduct of our business. We believe that none of our pending litigation will
have a material adverse effect on our business, financial condition or results
of operations.
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<PAGE>
MANAGEMENT AND DIRECTORS
Set forth below is certain information concerning our directors, executive
officers and key employees as of June 30, 1999. All of the directors have
served as our directors since our inception, except for Steven Day who has
served since February 1997.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert Wolsey........... 48 Director, President and Chief Executive Officer
James Dell'Apa.......... 41 Director, Executive Vice President and Chief Operating Officer
Steven Day.............. 46 Director, Vice President, Secretary and Chief Financial Officer
Ben Gaboury............. 47 President of Pinnacle Towers Inc.
David Zahn.............. 34 Vice President of Operations of Pinnacle Towers Inc.
Martin Alvarez.......... 44 Chief Information Officer
Andrew Banks............ 44 Director
Peni Garber............. 35 Director
Peggy Koenig............ 42 Director
Royce Yudkoff........... 43 Director
</TABLE>
Robert Wolsey is primarily responsible for the overall direction of our
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 of its common stock. 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 our 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 us
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 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 our sales and marketing operations.
Mr. Gaboury was employed for 17 years with Motorola in various sales and sales
management positions. Before joining us
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<PAGE>
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 our
existing communications site inventory, new site construction, capacity
augmentation and new customer equipment integration. He joined us 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 our Information Technology and
Services. Prior to joining us 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 and utilities, among other industries. Mr.
Alvarez's 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 DirecTel. Mr. Banks is a graduate of 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. She joined
ABRY Partners, Inc. 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,
Network Music Holdings LLC, Quorum Broadcast Holdings Inc. and Audio
Communications Network, LLC. Ms. Garber graduated summa cum laude from Bryant
College.
Peggy Koenig is a partner in ABRY Partners, Inc. She joined ABRY Partners,
Inc. 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 and Network Music Holdings LLC. 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 Partners, Inc.
Previously, Mr. Yudkoff was affiliated with Bain & Company, an international
management consulting firm. At Bain, where he was a partner from 1985 through
1988, he shared significant responsibility for the firm's media practice.
Mr. Yudkoff is presently a director (or the equivalent) of Quorum Broadcast
Holdings Inc., Nexstar Broadcasting Group, LLC, Audio Communications Network,
LLC and Metrocall. He graduated as a Baker Scholar from the Harvard Business
School and is an honors graduate of Dartmouth College.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Selling Stockholders, as of July 1, 1999, and as adjusted as
of that date to reflect the sale of our Common Stock in this offering. Except
as otherwise noted, the address of each person listed in the table is c/o
Pinnacle Holdings Inc., 1549 Ringling Boulevard, Third Floor, Sarasota, Florida
34236. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and includes voting and investment
power with respect to shares. To our knowledge, except under applicable
community property laws or as otherwise indicated, the Selling Stockholders
named in the table have sole voting and sole investment control with respect to
all shares beneficially owned. The applicable percentage of ownership for each
Selling Stockholder is based on 32,025,951 million shares of our Common Stock
outstanding as of June 30, 1999, and 40,375,951 shares outstanding after this
offering. Shares of our Common Stock issuable upon exercise of options and
other rights beneficially owned are deemed outstanding for the purpose of
computing the percentage ownership of the person holding those options and
other rights, but are not deemed outstanding for computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Before Offering After Offering
-------------------- Number of --------------------
Number of Shares Number of
Name of Beneficial Owner Shares Percentage Offered Shares Percentage
- ------------------------ --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
ABRY II(a)................. 8,196,983 25.6% 2,115,000 6,081,983 15.1%
Robert Wolsey(b)........... 613,082 2.0 84,187 528,895 1.3
James M. Dell'Apa(c)....... 408,639 1.3 56,113 352,526 *
Steven Day(d).............. 368,182 1.1 50,557 317,624 *
David Zahn................. 35,717 * 4,905 30,812 *
Ben Gaboury................ 35,717 * 4,905 30,812 *
Martin Alvarez............. 35,717 * 4,905 30,812 *
Shirley Putnam............. 35,717 * 4,905 30,812 *
James Bokish............... 35,717 * 4,905 30,812 *
Slade Lindsay(e)........... 143,969 * 19,618 124,351 *
Royce Yudkoff(f)........... 8,198,083 25.6% 2,115,000 6,083,083 15.1%
</TABLE>
- --------
*Indicates less than 1 percent
(a) ABRY Holdings, Inc., the general partner of ABRY Capital L.P., which is the
general partner of ABRY II, is wholly owned by Mr. Yudkoff.
(b) Includes 5,774 shares of Common Stock held by Pantera, Inc. and 288,682
shares of Common Stock held by Pantera Partnership Ltd.
(c) Excludes 36,618 shares of Common Stock held by relatives of Mr. Dell'Apa of
which he disclaims beneficial ownership.
(d) Includes 67,863 shares of Common Stock held by Mr. Day's spouse, 7,143
shares of Common Stock held by South Creek, Inc. and 214,304 shares of
Common Stock held by South Creek Partnership Ltd.
(e) Includes 132,280 shares of Common Stock held by Lindsay Investments, L.P.
and 550 shares of Common Stock held by Mr. Lindsay's spouse.
(f) Mr. Yudkoff is deemed the beneficial owner of the Common Stock held by ABRY
II. See note (a) above. Also includes 550 shares of Common Stock held by
Mr. Yudkoff's spouse.
59
<PAGE>
DESCRIPTION OF INDEBTEDNESS
Credit Facility
We have entered into the Fourth Amended and Restated Credit Agreement dated
June 25, 1999 with NationsBank, N.A. and certain other lenders that provides
one $75 million and one $95 million revolving line of credit for borrowings in
the aggregate of up to $157 million ("Revolver A" and "Revolver B"), a $125
million term loan ("Term Loan A"), and a $175 million term loan ("Term
Loan B"). Under the revolving lines of credit we may make borrowings and
repayments until June 30, 2006. Under Term Loan A, advances must be repaid in
full by June 30, 2006. Under Term Loan B, advances must be repaid in full by
June 30, 2007. Once repaid, advances under Term Loan A and Term Loan B may not
be re-drawn. Advances under Revolver A and Term Loan B may be used for
acquisitions, working capital, and other general corporate purposes. Advances
under Revolver B and Term Loan A are limited to acquisitions. Advances under
our credit facility have been used primarily to fund acquisitions and
construction of towers.
Beginning September 30, 2001, the availability under each of Revolver A,
Revolver B, and Term Loan A starts reducing by specified amounts on a quarterly
basis until June 30, 2006 when the availability under such credits will be
reduced to zero. Beginning September 30, 2001, the availability under Term
Loan B starts reducing by specified amounts on a quarterly basis until June 30,
2007, when Term Loan B must be repaid in full. Advances under Revolver A,
Revolver B, and Term Loan A 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
1.5% or the 90-day London Interbank Offered Rate plus a margin of up to 2.75%.
Advances under Term Loan B 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 plus a margin of up to 3.0%.
Currently, all outstanding advances under our credit facility bear interest at
the maximum margins above the applicable base rates. Those margins decrease
under certain circumstances if our leverage, as calculated in our credit
facility, decreases. Aggregate outstanding borrowings under our credit facility
were $200 million at March 31, 1999.
As of March 31, 1999, after giving effect to the acquisitions referenced in
this Prospectus on a pro forma basis, there would have been $116.6 million
available under our credit facility, after giving effect to approximately $49.2
million of outstanding letters of credit, which reduce availability under our
credit facility.
Our credit facility is secured by a lien on substantially all of our assets
and a pledge of substantially all of the capital stock of our subsidiaries and
we have guaranteed the obligations of the borrower, Pinnacle Towers Inc., under
our credit facility. The credit facility contains customary covenants such as
limitations on our 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. A "change of control" (as defined
in our credit facility) constitutes an event of default under our credit
facility and includes the acquisition by a person or group of related persons
(other than Mr. Wolsey and his affiliates) of control of in excess of 30% of
the ordinary voting power of our Common Stock. A further event of default
includes any one of the President, Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of the borrower failing to perform the
primary roles and functions of such positions on our behalf (whether pursuant
to death, extended disability, termination, resignation or otherwise) and we do
not replace such executive officer with a new employee reasonably acceptable to
51% of the lending banks within 60 days of such failure. In addition, we may
not permit the Leverage Ratio (as defined in our credit facility) to exceed
certain amounts.
10% Senior Discount Notes
Our 10% senior discount notes due 2008 were initially issued in aggregate
principal amount at maturity of $325 million, are senior unsecured obligations
and will mature on March 15, 2008. Cash
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<PAGE>
interest is not payable on our 10% senior discount notes, prior to March 15,
2003. Thereafter, interest on our 10% senior discount notes will be payable at
a rate of 10% per annum, semi-annually in arrears on March 15 and September 15
of each year, commencing September 15, 2003.
Our 10% senior discount notes are redeemable at our option, 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, we have the option to
redeem up to 35% of the original principal amount of our 10% 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 with the net
proceeds of one or more Public Equity Offerings (as defined in the Indenture);
provided, however, that at least 65% of the original principal amount remains
outstanding and that such redemption occurs within 60 days following the
closing any such Public Equity Offering.
In the event of a Change of Control (as defined in the Indenture) we will be
required to make an offer to purchase all outstanding notes at a price equal to
101% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages (as defined in the Indenture) 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. A "Change of Control" under the Indenture includes the acquisition by
a person or group of related persons (other than ABRY II, Mr. Wolsey and their
affiliates) of control of a majority of the ordinary voting power of our Common
Stock.
The Indenture contains covenants for the benefit of the holders of our 10%
senior discount notes that, among other things, and subject to certain
exceptions, restrict our ability and our Restricted Subsidiaries (as defined in
the Indenture) to:
. incur additional indebtedness;
. guarantee payment of debt;
. pay dividends and make distributions;
. restrict dividend or other payments of Restricted Subsidiaries;
. create liens;
. issue stock of subsidiaries;
. enter into transactions with affiliates;
. merge or consolidate Pinnacle; and
. transfer and sell assets.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 100,000,000 shares of Common Stock, $.001 par
value per share, and 5,000,000 shares of undesignated preferred stock, $.001
par value per share.
Common Stock
Each holder of our 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 of our directors and otherwise
control us, subject to any voting rights of the then outstanding preferred
stock, if any.
Holders of our Common Stock will be entitled to dividends on a pro rata
basis upon declaration of dividends by our 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 our board of directors and
will depend on our results of operations, financial condition, contractual or
legal restrictions and other factors deemed relevant by our board of directors.
In order to maintain our REIT status, however, we are required to distribute to
stockholders 95% of our taxable income. See "Certain Federal Income Tax
Considerations--Requirements for REIT Qualification" and "Risk Factors--If we
fail to qualify as a REIT, we will be subject to a variety of taxes and
penalties." Our credit facility and the Indenture currently prohibit us from
paying any dividends other than those required to be paid to maintain our REIT
Status. See "Dividend Policy."
Upon our liquidation, holders of our Common Stock will be entitled to a pro
rata distribution of our assets, after payment of all amounts owed to our
creditors, and subject to any preferential amount payable to holders of our
preferred stock, if any.
Preferred Stock
Our certificate of incorporation permits our 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 divided rights and rates, provisions for
redemption, rights upon liquidation, conversion privileges and voting powers.
Any issuance of preferred stock with a dividend preference over our Common
Stock could adversely affect the dividend rights of holders of our Common
Stock. Our board of directors currently has no plans to issue any shares of
preferred stock, other than possibly the Series A Preferred Stock, the Series B
Preferred Stock and possibly other preferred stock to finance certain
acquisitions. We would expect to redeem any such preferred stock that may be
issued with proceeds from this offering.
Certain Provisions of Our Certificate of Incorporation and Bylaws
Restrictions on Transfer. Because we wish to retain our status as a REIT, no
holder of Common Stock may transfer any such share or interest, if as a result,
either (1) beneficial ownership of all shares of Common Stock would be held by
less than 100 persons, if beneficial ownership of all shares of Common Stock
was held by 100 or more persons prior to such transfer or (2) a violation of
the percentage ownership limit would occur.
Under the percentage ownership limit test, no share of any series of our
capital stock may be sold or otherwise transferred to any individual if such
transfer would result in the ownership of such individual in combination with
four or fewer individuals of more than 50% of the aggregate value of all shares
of all classes of our capital stock.
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Such restrictions may delay or make more difficult acquisitions or changes
of control of the Company.
Preferred Stock and Additional Common Stock. Under our certificate of
incorporation, our board of directors has the authority to provide by board
resolution for the issuance of shares of one or more series of preferred stock.
Our board of directors is authorized to fix by resolution the terms and
conditions of each such series.
We believe that the availability of additional preferred stock, issuable in
series, and additional shares of Common Stock 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 our stockholders, unless stockholder action is
required by applicable law or by the rules of any stock exchange on which any
series of our stock may then be listed.
These provisions give our 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, our certificate of incorporation provides that our
directors shall not be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director. In addition, our Bylaws
provide that we shall, to the fullest extent authorized under Delaware law,
indemnify all directors and officers and all persons serving at our request 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 of 1933, as amended (the
"Securities Act"), may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and, therefore, is unenforceable.
Certain Provisions of Delaware Law
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation, such as us, from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date that the person became an interested stockholder unless, subject to
exceptions, the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. Generally,
a "business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. Generally an
"interested stockholder" is a person who, together with affiliates and
associates owns, or within three years prior, did own, 15% or more of the
corporation's voting stock. These provisions may have the affect of delaying,
defining, or preventing a change in central of Pinnacle without further action
by the stockholders.
The provisions of Section 203 may encourage companies interested in
acquiring Pinnacle to negotiate in advance with our board of directors to avoid
obtaining our stockholders approval if a majority of the directors then in
office approve either the business combination or the transaction that results
in the stockholder becoming an interested stockholder. Such provisions also may
have the effect of preventing changes in management. 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 our Common Stock is First Union
National Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 40,375,951 shares
of Common Stock, including the 12,305,000 shares sold in this offering
(assuming the full exercise of the 1,605,000 shares available under the
Underwriters' over-allotment option). A total of 34,331,000 will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates," which generally includes officers, directors or 10% stockholders
as that term is defined in Rule 144 under the Securities Act.
The remaining 7,649,951 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. Sales of the restricted shares
in the public market, or the availability of these shares for sale, could
adversely affect the market price of our Common Stock.
Certain of our stockholders have entered into lock-up agreements generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of our Common Stock or any securities
exercisable for or convertible into our Common Stock owned by them for a period
of 90 days after the effective date of the registration statement filed in
connection with this offering without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar lock-up agreement with Deutsche Bank
Securities Inc. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements will not be salable until these
agreements expire or are waived by the designated underwriters' representative.
Taking into account the lock-up agreements, and assuming Deutsche Bank
Securities Inc. does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the
following times:
. Beginning 90 days after the effective date of this offering,
approximately 7,558,539 shares will be eligible for sale pursuant to
Rules 144, 144(k) and 701.
. An additional 91,612 shares will become eligible for sale pursuant to
Rule 144 at various times after the date of this Prospectus. Shares
eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions as described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, which is 90 days after the effective date
of the registration statement, a person, or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (1) one percent of the number of shares of
common stock then outstanding, which will equal approximately 403,760 shares
immediately after this offering; or (2) the average weekly trading volume of
the common stock during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to manner of sale provisions and notice requirements
and to the availability of current public information about Pinnacle. Under
Rule 144(k), a person who is not deemed to have been an affiliate of Pinnacle
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
The Company has agreed to indemnify the underwriters in connection with this
offering against some specified types of liabilities, including liabilities
under the Securities Act.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material federal income tax
considerations that may be relevant to you. The summary does not address all
aspects of taxation that may be relevant to particular stockholders in light of
their personal investment or tax circumstances, or to certain types of
stockholders (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 United States
(except as described herein), persons who hold Common Stock through
partnerships or other pass-through entities, 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 Service, 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. YOU ARE ADVISED TO
CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF
THE ACQUISITION, OWNERSHIP AND SALE OF THE COMMON STOCK AND OF OUR 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 Pinnacle
We currently have in effect an election to be taxed as a REIT under Sections
856 through 860 of the Code. We believe that since our inception we have been
organized and operated in such a manner as to qualify for taxation as a REIT
under the Code. Our continued qualification as a REIT will depend upon our
qualification as a REIT in prior years. No assurance can be given that we will
qualify or remain qualified as a REIT. Depending on our assessment of the
strategic importance of acquisitions which may become available to us in our
existing line of business or in complementary non-real estate based
communication services activities, we may acquire, operate and derive income
from assets businesses or entities that will cause us to no longer qualify as a
REIT. In this regard we recently committed to acquire certain assets from
Motorola and have not yet determined whether such assets, and the income
derived from such assets, will permit us to continue to meet the qualification
requirements for a REIT. In the opinion of Holland & Knight LLP, we have been
organized and operated in conformity with the requirements for qualification as
a REIT under the Code through December 31, 1998. 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 Pinnacle, the nature of Pinnacle's assets, the conduct of
its business, the sources of its revenues, the amounts distributed by it to
stockholders and other matters germane to the requirements for qualification as
a REIT. In addition, Holland & Knight LLP will not review our compliance with
these requirements on an ongoing basis, and there can be no assurance that we,
the sources of our income, the composition of our assets, the level of our
dividends or the diversity of our share ownership for any given year will
satisfy the requirements for qualification and taxation as a REIT. As stated
above, we may undertake acquisitions which may have the effect of terminating
our REIT qualification. 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 based on counsel's review and analysis of existing law, regulations and
interpretations, which include no controlling precedent. In certain instances,
due to the lack of relevant precedent, counsel's opinion is
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based on administrative policies and practices of the Service as indicated in
existing private letter rulings (which rulings are not binding on the Service)
or authority considered by counsel to be analogous. 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 stockholders. 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.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income tax on our net income that is distributed currently to
its stockholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally
results from investment in a corporation. However, we will be subject to
federal income tax in the following circumstances. First, we will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, we may be
subject to the "alternative minimum tax" on undistributed items of tax
preference, if any. Third, if we have (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 we have 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 we
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), and nonetheless have maintained our qualification as a
REIT because certain other requirements have been met, we 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 we should fail
to distribute during each calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior periods, we
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. If we elect to retain and pay income tax
on our 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
we acquire 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 our hands is determined by reference to the basis of the asset (or any
other asset) in the hands of the C corporation and we recognize gain on the
disposition of such asset during the 10-year period beginning on the date on
which such asset was acquired by us, 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 us 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 we have 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
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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
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 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.
Our certificate of incorporation contains restrictions regarding transfer of
its shares that are intended to assist us 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 Our Certificate of Incorporation and Bylaws."
In connection with the Offering, our executive officers and directors, who
will own in the aggregate approximately 18.7% of our stock outstanding after
the completion of the Offering have entered into agreements (the "Lock-Up
Agreements") not to, without prior written consent of the Underwriters, sell,
offer, contract to sell, pledge, grant any option to purchase, or otherwise
transfer or dispose of any such shares for a period of 90 days after the date
of this Prospectus. See "Underwriting." These same persons were subject to the
same restriction in connection with an earlier offering (the "Prior Lock-Up
Agreements"). In addition, since the time we were organized, an agreement among
us and our major stockholders has imposed certain restrictions on the transfers
of shares our stock under certain circumstances (the "Stockholders Agreement").
Furthermore, in connection with the issuance of certain classes of its stock,
we have imposed certain restrictions on the transferability of such shares (the
"Restrictive Legends"). As described above, one of the REIT qualification
requirements is that the shares of a REIT be transferable. The opinion of
Holland & Knight LLP is based in part on the conclusion that none of the Lock-
Up Agreements, the Prior Lock-Up Agreements, the Stockholders Agreement or the
Restrictive Legends will render the shares of stock restricted thereby to be
deemed other than transferable for purposes of such REIT qualification
requirement. Investors should be aware that there is no relevant authority
involving transfer restrictions similar to those contained in any of the Lock-
Up Agreements, the Prior Lock-Up Agreements, the Stockholders Agreement or the
Restrictive Legends or that discuss whether such restrictions may violate such
transferability requirement. Therefore, the opinion of Holland & Knight LLP
with respect to the transferability requirement is based upon the plain
language of the REIT provisions of the Code and authorities addressing
transferability in situations that are considered to be analogous, certain of
which authorities have been rendered obsolete for unrelated reasons by more
recent administrative pronouncements. Opinions of counsel are not binding upon
the Service or the courts, and there can be no assurance that the Service will
not assert successfully a contrary position. If any of the Lock-Up Agreements,
Prior Lock-Up Agreements, Stockholders Agreement or the Restrictive Legends is
deemed to be a transfer restriction contrary to the transferability requirement
for REIT qualification, we may not currently qualify as a REIT or may, in
connection with the completion of the Offering, may lose our REIT status and
possibly incur other adverse tax consequences. See "Risk Factors--If we fail to
qualify as a REIT, we will be subject to a variety of taxes and penalties."
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We currently have wholly-owned corporate subsidiaries (the "Corporate
Subsidiaries"). We 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 of our "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities, and items of
income, deduction, and credit of such subsidiaries will be treated as our
assets, liabilities, and items of income, deduction, and credit. We believe our
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. We believe that neither we have, nor
any acquisition by us of a C corporation has resulted in our having, any such
accumulated "earnings and profits." However, an adjustment of our earnings and
profits for a prior year, resulting from an audit adjustment of the Service or
otherwise, could cause us 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 us to qualify and to maintain our 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 us
is discussed below.
The rent received by us from our 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 us will not qualify as "rents from real
property" in satisfying the gross income tests if we or a direct or indirect
owner of 10% or more of us directly or constructively owns 10% or more of the
ownership interests in such tenant (a "Related Party
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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," we generally must not
operate or manage our 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 we derive no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by us 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 our 1998 taxable year, we 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 we
receive 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 our direct cost of providing the services.
We do 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, we have not received and do 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 us does not exceed
15% of the total Rent received under the Lease. Finally, subject to the 1% de
minimis exception, we provide 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 us 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 is likely we would lose our 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 us under such Lease would qualify as
"rents from real property." In that case, if the Rent received by us 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, we likely would lose our 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 we furnish noncustomary services
with respect to a property other than through a qualifying independent
contractor, none of the Rent received by us with respect to such property would
qualify as "rents from real property." In that case, if the Rent received by us
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, we would lose our REIT
status.
In addition to the Rent, certain of our 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.
From time to time, we have entered into hedging transactions with respect to
one or more of our assets or liabilities, and we 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 we have entered or do enter into an
interest rate swap
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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 we hedge 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. We have structured, and for so long as we
otherwise remain qualified as a REIT we intend to structure in the future, any
hedging transactions in a manner that will not jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we nevertheless may qualify as a REIT for such year if we are
entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if our failure to meet such tests is due
to reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our 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 we would be entitled to the
benefit of those relief provisions. As discussed above in "Certain Federal
Income Tax Considerations--Taxation of Pinnacle," even if those relief
provisions apply, we will be subject to 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
At the close of each quarter of each taxable year, we also must satisfy two
tests relating to the nature of our assets. First, at least 75% of the value of
our 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 which we presently own as
well as ancillary buildings, heating and air conditioning systems and fencing
constitute inherently permanent structures and are therefore real estate
assets. Based on this ruling and limited authorities bearing on the issue, our
communication sites will be regarded as real estate assets for this purpose,
and the opinion of Holland & Knight LLP is based in part on its conclusion that
such authorities are so applicable. Second, of the investments not included in
the 75% asset class, the value of any one issuer's securities owned by us may
not exceed 5% of the value of your total assets and we may not own more than
10% of any one issuer's outstanding voting securities (except for an interest
in any qualified REIT subsidiary).
If we should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause us to lose our REIT status if (i) we
satisfied the asset tests at the close of the preceding calendar quarter and
(ii) the discrepancy between the value of our 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 our assets. If
the condition described in clause (ii) of the preceding sentence were not
satisfied, we still could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arose.
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Distribution Requirements
In order to qualify as a REIT, we are required to distribute with respect to
each taxable year dividends (other than capital gain dividends or retained
capital gains) to our stockholders in an aggregate amount at least equal to (i)
the sum of (A) 95% of our "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
we timely file our 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 we do not distribute all of our net capital gain or distributes at
least 95%, but less than 100%, of our "REIT taxable income," as adjusted, we
will be subject to tax thereon at capital gains and regular ordinary corporate
tax rates, as the case may be. Furthermore, if we should fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for such year, (ii) 95% of our REIT capital gain income for such year,
and (iii) any undistributed taxable income from prior periods, we 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 we elect
to retain and pay income tax on its long-term capital gain in a taxable year,
as described in "--Taxation of Taxable U.S. Stockholders," such retained amount
will be treated as having been distributed for purposes of the 4% excise tax.
To the extent that we are required to include items in "REIT taxable income" in
advance of the receipt of cash payments associated with such income or are
required to expend cash for the repayment of debt or in any other manner for
which no current deduction is available in computing our "REIT taxable income,"
we 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 our REIT
qualification.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirements for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in its deduction for
dividends paid for the earlier year. Although we may be able to avoid being
taxed on amounts distributed as deficiency dividends, we 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,
we must maintain certain records. In addition, to avoid a monetary penalty
(with respect to our 1998 and later tax years) or disqualification as a REIT
(with respect to our 1997 and earlier tax years), we must have requested and
continue to request on an annual basis certain information from its
stockholders designed to disclose the actual ownership of its outstanding
shares.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail 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 stockholders 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, we 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 we would be
entitled to such statutory relief. Unless we are qualified as a REIT at the
time of any sale of our assets, we will not be able to distribute such proceeds
as a dividend distribution to stockholders as a means of avoiding the
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incurrence of a corporate level income tax at regular corporate rates on any
gain on sale of such assets. Although a corporate level tax consequence could
be avoided if substantially all our assets were disposed of in a transaction
qualifying for non-recognition under the reorganization provisions of the Code,
due to the carryover basis provisions of the Code applicable to such
transactions and the acquiror's inability to "step-up" the basis of those
assets to then current value for federal income tax purposes, than the
consideration offered in such a transaction to us or our stockholders would
likely be less in a purchase of assets described in the preceding sentence.
Taxation of Taxable U.S. Stockholders
As used herein, the term "U.S. Stockholder" 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 created or organized in or under the laws of
the United States or 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.
Taxation of Stockholders on Distributions
As long as we qualify as a REIT, distributions made to taxable U.S.
Stockholders 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. Stockholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed our
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held his shares. However, corporate stockholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income. Beginning with our 1998 taxable year, we may elect to retain and pay
income tax on its net long-term capital gains. In that case, our stockholders
would include in income as long-term capital gain their proportionate share of
its undistributed long- term capital gains. In addition, the stockholders would
be deemed to have paid their proportionate share of the tax paid by us, which
would be credited or refunded to the stockholders. Each stockholder's basis in
his shares would be increased by the amount of the undistributed long-term
capital gains included in the stockholder's income, less the stockholder's
share of the tax paid by us.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder'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
stockholder'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 stockholder. In addition, any distribution declared by us in October,
November, or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
distribution is actually paid by us during January of the following calendar
year. We may be required to withhold a portion of capital gain distributions to
stockholders who fail to certify their nonforeign status to us.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses. Instead, such losses would be carried over
by us for potential offset against our future income (subject to certain
limitations). Taxable distributions made by us and gain from the disposition of
Common Stock will not be treated as passive activity income and, therefore,
stockholders generally will
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not be able to apply any "passive activity losses" (such as losses from certain
types of limited partnerships in which a stockholder is a limited partner)
against such income. In addition, taxable distributions from us 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 (or any portion of either), however, will be
treated as investment income only if the stockholder so elects, in which case
such capital gains will be taxed at ordinary income rates. We will notify
stockholders after the close of our 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 Stockholders on the Disposition of Common Stock
In general, any gain or loss realized upon a taxable disposition of shares
of Common Stock by a stockholder 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 made by us is
required to be treated by such stockholder 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.
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%.
For taxable years ending after 1997, the maximum tax rate on net capital gains
applicable to noncorporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. 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 us as capital gain dividends and
any retained capital gains that we are deemed to distribute in taxable years
beginning on and after January 1, 1998, we may designate (subject to certain
limits) whether such a dividend or distribution is taxable to its noncorporate
stockholders at a 20% or 25% 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
We will report to its U.S. Stockholders 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 stockholder 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 stockholder who does not provide us 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 stockholder's income tax liability.
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Taxation of Tax-Exempt Stockholders
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 us 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 us as UBTI. In addition,
in certain circumstances, a pension trust that owns more than 10% of our stock
(by value) may be required to treat a percentage of the dividends received with
respect to our shares as UBTI (the "UBTI Percentage"). The UBTI Percentage
equals the gross income derived by us from an unrelated trade or business
(determined as if we were a pension trust) divided by our total gross income
for the year in which the dividends are paid. The UBTI rule applies to a
pension trust holding more than 10% of our outstanding stock (by value) only if
(i) the UBTI Percentage is at least 5%, (ii) we qualify 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 us 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 our shares or (B) a group of pension trusts
individually holding more than 10% of the value of our shares collectively owns
more than 50% of the value of our shares.
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, and other foreign holders of Common Stock
(collectively, "Non-U.S. Stockholders") are complex and no attempt will be made
herein to provide more than a summary of such rules. NON-U.S. STOCKHOLDERS
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 Stockholders on Distributions
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges of U.S. real property interests and are not designated
by us as capital gains dividends or retained capital gains (i.e., undistributed
capital gains to the extent so designated by us) will be treated as dividends
of ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. 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. Stockholder's conduct of a U.S. trade or business, the Non-
U.S. Stockholder generally will be subject to federal income tax at graduated
rates, in the same manner as U.S. Stockholders 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. Stockholder that is a non-U.S. corporation). We expect 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. Stockholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with us or (ii) the Non-U.S. Stockholder files an IRS Form 4224 or its
successor form with us claiming that the distribution is effectively connected
income. The Service has issued regulations that modify the manner in which we
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must comply with the withholding requirements. Those regulations are effective
for distributions made after December 31, 2000.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Stockholder to the extent that such distributions do
not exceed the adjusted basis of the Stockholder'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. Stockholder's Common Stock, such distributions will give
rise to tax liability if the Non-U.S. Stockholder 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 our 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 our
current and accumulated earnings and profits.
For any year in which we qualify 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. Stockholder
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-U.S. Stockholder as if such gain
were effectively connected with a U.S. business without regard to whether we
designate such distribution as capital gain dividends. Non-U.S. Stockholders
thus would be taxed at the normal capital gain rates applicable to U.S.
Stockholders (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. We are 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. Stockholder's FIRPTA tax
liability.
Taxation of Stockholders on the Disposition of Common Stock
Gain recognized by a Non-U.S. Stockholder upon a sale of his Common Stock
generally will not be taxed under FIRPTA if we are 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. We believe that we are currently a
"domestically controlled REIT" and, therefore, the sale of Common Stock will
not be subject to taxation under FIRPTA, but such may not be the case in future
years (see "--Taxation of Pinnacle") and therefore no assurance can be given
that we will continue to be a "domestically controlled REIT." Furthermore, gain
not subject to taxation under FIRPTA will be taxable to a Non-U.S. Stockholder
if (i) investment in Common Stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. Stockholders with respect to such
gain, or (ii) the Non-U.S. Stockholder 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 we were not
a "domestically controlled REIT," gain recognized upon the sale of Common Stock
by a Non-U.S. Stockholder 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. Stockholder held 5% or less of our Common Stock 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. Stockholder would be
subject to the same treatment as U.S. Stockholders 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
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purchaser would be required to withhold 10% of the purchase price and remit
such amount to the Service.
Information Reporting Requirements and Backup Withholding
We will report to our Non-U.S. Stockholders 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. Stockholder 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 we nor our
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. Stockholders. Those regulations alter the current system of backup
withholding compliance and are effective for distributions made after December
31, 2000. 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.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective holders of Common Stock should recognize that the present
federal income tax treatment of us and an investment in us may be modified by
legislative, judicial or administrative action at any time, and that any such
action may affect us 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 us or of an investment in us.
Other Tax Consequences
We, our Corporate Subsidiaries, or our stockholders 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 us and our stockholders may not conform to the federal
income tax consequences discussed above. CONSEQUENTLY, YOU SHOULD CONSULT YOUR
OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN
INVESTMENT IN PINNACLE.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the "U.S.
Underwriting Agreement"), the underwriters named below (the "U.S.
Underwriters"), through their representatives Deutsche Bank Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Raymond James & Associates,
Inc., Salomon Smith Barney Inc. and Banc of America Securities LLC (the "U.S.
Representatives") have severally agreed to purchase from the Company and the
Selling Stockholders the following respective numbers of shares of Common Stock
at the public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................
Raymond James & Associates, Inc.......................................
Salomon Smith Barney Inc. ............................................
Banc of America Securities LLC........................................
-------
Total...............................................................
=======
</TABLE>
The Company has also entered into an international underwriting agreement
(the "International Underwriting Agreement") with certain international
underwriters for whom Deutsche Bank AG London, Merrill Lynch International,
Raymond James & Associates, Inc., Salomon Brothers International Limited, and
Bank of America International Limited (collectively the "International
Underwriters" and, together with the U.S. Underwriters, the "Underwriters") are
acting as representatives (the "International Representatives" and, together
with the U.S. Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the International Underwriting Agreement, and
concurrently with the sale of 8,560,000 shares of Common Stock to the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, the Company and the
Selling Stockholders have agreed to sell to the International Underwriters, and
each of the International Underwriters severally and not jointly has agreed to
purchase from the Company and the Selling Stockholders, an aggregate of
2,140,000 shares of Common Stock. The public offering price per share of Common
Stock and the underwriting discount per share of Common Stock are identical
under the U.S. Underwriting Agreement and the International Underwriting
Agreement.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and the International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by an underwriter, the
U.S. Underwriting Agreement and the International Underwriting Agreement
provide that, in certain circumstances, the commitments of non-defaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings with respect to the sale of shares of Common Stock to be purchased by
the U.S. Underwriters and the International Underwriters are conditioned upon
one another.
The underwriting agreements provide that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are subject
to conditions. The Underwriters are obligated to purchase all of the shares of
Common Stock offered hereby, other than those covered by the over-allotment
option described below, if any of these shares are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and to
dealers at a price that represents a concession not in excess of
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$ per share under the public offering price. The Underwriters may allow, and
these dealers may re-allow, a concession not in excess of $ per share to
other dealers. The expenses of this offering, all of which are being paid by
the Company, are estimated to be .
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to 1,605,000 additional shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. The Underwriters may exercise this option only
to cover over-allotments made in connection with the sale of the Common Stock
offered hereby. To the extent that the Underwriters exercise the option, each
of the Underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of Common Stock as the
number of shares of Common Stock to be purchased by it in the above table bears
to 10,700,000. The Company will be obligated, pursuant to the option, to sell
these shares to the Underwriters to the extent the option is exercised. If any
additional shares of Common Stock are purchased, the Underwriters will offer
additional shares on the same terms as those on which the 10,700,000 shares are
being offered.
The Company has agreed to indemnify the Underwriters against some specified
types of liabilities, including liabilities under the Securities Act.
Certain of the Company's officers, directors and stockholders have agreed
not to offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 90 days after
the effective date of the registration statement of which this Prospectus is a
part without the prior written consent of Deutsche Bank Securities Inc. This
consent may be given at any time without public notice. The Company has entered
into a similar agreement with Deutsche Bank Securities Inc.
Deutsche Bank Securities Inc., a Representative of the U.S. Underwriters,
acted as representative of the underwriters in connection with the IPO. An
affiliate of Deutsche Bank Securities Inc. and Deutsche Bank AG London, a
Representative of the International Underwriters, signed a commitment letter to
purchase $20 million of shares of Series B Preferred Stock. Banc of America
Securities LLC, an affiliate of Bank of America International Limited, was an
initial purchaser of the 10% senior discount notes due 2008 of the Company. In
addition, an affiliate of Banc of America Securities LLC and Bank of America
International Limited is a lender and agent under our credit facility.
An affiliate of Banc of America Securities LLC, a Representative of the U.S.
Underwriters, and Bank of America International Limited, a Representative of
the International Underwriters, may receive more than 10% of the net proceeds
from the sale of the Common Stock to repay debt under our credit facility.
Under the Conduct Rules of the National Association of Securities Dealers, Inc.
(the "NASD"), special considerations apply to a public offering of securities
where a "member" or a "person associated with a member" (as such terms are
defined in the Conduct Rules of the NASD) and their affiliates collectively
beneficially own more than 10% of the outstanding voting securities of a
company which is a corporation. Therefore, this offering is being made pursuant
to Rule 2710(c)(8) of the Conduct Rules of the NASD, in conjunction with which,
Raymond James & Associates, Inc., a Representative of the Underwriters, has
assumed the responsibilities of acting as a "qualified independent underwriter"
in pricing this offering, preparing this Prospectus and conducting due
diligence.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock. Specifically, the Underwriters may over-allot
shares of the Common Stock in connection with this offering, thus creating a
short position in the Common Stock for their own account. Additionally, to
cover these over-allotments or to stabilize the market price of the Common
Stock, the Underwriters may bid for, and purchase, shares of the Common Stock
in the open market. Finally, the Representatives, on behalf of the
Underwriters, also may reclaim selling concessions allowed to an Underwriter or
dealer if
78
<PAGE>
the underwriting syndicate repurchases shares distributed by that Underwriter
or dealer. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Pinnacle by Holland & Knight LLP, Tampa, Florida. Some legal matters
related to this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New
York, New York.
EXPERTS
The financial statements for Pinnacle Holdings Inc. as of December 31, 1998
and 1997 and for each of the years in the three year period ended December 31,
1998 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 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.
The financial statements of the North American Antenna Site Business of
Motorola, Inc. as of December 31, 1997 and 1998 and for each of the years in
the three-year period ended December 31, 1998, have been included herein in
reliance upon the report of KPMG LLP, independent auditors, and upon the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Pinnacle has filed with the SEC a registration statement on Form S-3
pursuant to the Securities Act with respect to our Common Stock offered by this
Prospectus. This prospectus does not contain all the information set forth in
the registration statement, the exhibits and the schedule. For further
information about Pinnacle and the securities offered by this Prospectus,
reference is made to the registration statement and to the consolidated
financial statements, exhibits and schedule filed as a part thereof.
Pinnacle is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the SEC. The registration
statement, the exhibits and schedule forming a part thereof and the reports and
other information filed by Pinnacle with the SEC in accordance with the
Exchange Act may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the SEC: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or
any part thereof may also be obtained
79
<PAGE>
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. You may obtain information regarding the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet Web site at http://www.sec.gov that contains
reports, proxy statements and other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act
until we sell all of the securities.
. Annual Report on Form 10-K for the year ended December 31, 1998.
. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
On request we will provide at no cost to each person, including any
beneficial owner, who receives a copy of this Prospectus, a copy of any or all
of the documents incorporated in this Prospectus by reference. We will not
provide exhibits to any of such documents, however, unless such exhibits are
specifically incorporated by reference into those documents. Written or
telephone requests for such copies should be addressed to our principal
executive offices, attention: Steven Day, Chief Financial Officer, 1549
Ringling Boulevard, Third Floor, Sarasota, Florida 34236, telephone number
(941) 364-8886.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PINNACLE HOLDINGS INC.
Report of Independent Certified Public Accountants........................ F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. F-4
Consolidated Statements of Operations for each of the three years ended
December 31, 1996, 1997 and 1998......................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for each of the
three years ended December 31, 1996, 1997 and 1998....................... F-6
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996, 1997 and 1998......................................... F-7
Notes to Consolidated Financial Statements................................ F-8
PINNACLE HOLDINGS INC. (Unaudited Interim Consolidated Financial
Statements--March 31, 1999 and 1998)
Condensed Consolidated Balance Sheets as of March 31, 1999 and December
31, 1998................................................................. F-22
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1999.................................................. F-23
Condensed Consolidated Statement of Changes in Common Stockholders' Equity
for the three months ended March 31, 1999................................ F-24
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1999.................................................. F-25
Notes to Condensed Consolidated Financial Statements...................... F-26
NORTH AMERICAN ANTENNA SITES BUSINESS OF MOTOROLA, INC
Report of Independent Auditors............................................ F-29
Statements of Net Assets as of December 31, 1997 and 1998 and April 3,
1999 (unaudited)......................................................... F-30
Statements of Operations and Changes in Net Assets for the years ended
December 31, 1996, 1997 and 1998 (unaudited) and the three months ended
March 28, 1998 and April 3, 1999 (unaudited)............................. F-31
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 (unaudited) and the three months ended March 28, 1998 and April 3,
1999 (unaudited)......................................................... F-32
Notes to Financial Statements............................................. F-33
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES TOWER OPERATIONS
Report of Independent Auditors............................................ F-39
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 and
1996..................................................................... F-40
Statements of Income for the six months ended June 30, 1998 and 1997
(unaudited) and for each of the two years ended December 31, 1997 and
1996..................................................................... F-41
Statements of Changes in Net Tower Operation Assets as of December 31,
1996 and 1997 and June 30, 1998 (unaudited).............................. F-42
Statements of Cash Flows for the six months ended June 30, 1998 and 1997
(unaudited) and for each of the two years ended December 31, 1997 and
1996..................................................................... F-43
Notes to Financial Statements............................................. F-44
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
SOUTHERN COMMUNICATIONS SERVICES, INC. TOWER OPERATIONS
Report of Independent Auditors........................................... F-47
Balance Sheets as of December 31, 1997 and 1996.......................... F-48
Statements of Operations for the years ended December 31, 1997 and 1996.. F-49
Statements of Changes in Accumulated Deficit for the years ended December
31, 1997 and 1996....................................................... F-50
Statements of Cash Flows for the years ended December 31, 1997 and 1996.. F-51
Notes to Financial Statements............................................ F-52
</TABLE>
F-2
<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,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our 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.
PricewaterhouseCoopers LLP
Tampa, Florida
January 11, 1999
F-3
<PAGE>
PINNACLE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 1,693,923 $ 13,801,190
Accounts receivable, less allowance for doubtful
accounts
of $70,000 and $125,000, respectively.......... 1,577,575 1,679,390
Prepaid expenses and other current assets....... 1,037,447 1,432,428
------------ ------------
Total current assets........................... 4,308,945 16,913,008
Restricted cash................................... 59,822 --
Tower assets, net of accumulated depreciation of
$8,278,524 and $28,964,462, respectively......... 127,946,070 473,942,309
Fixed assets, net................................. 1,495,121 2,476,666
Land.............................................. 6,850,951 14,613,365
Deferred debt issue costs, net of accumulated
amortization of $514,898 and $6,765,601,
respectively..................................... 1,871,242 6,686,683
Other assets...................................... 645,752 1,516,070
------------ ------------
$143,177,903 $516,148,101
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................ $ 2,242,397 $ 3,280,809
Accrued expenses................................ 3,095,049 5,761,016
Deferred revenue................................ 639,460 1,448,432
Current portion of long-term debt............... 11,122,077 15,692,912
------------ ------------
Total current liabilities...................... 17,098,983 26,183,169
Long-term debt.................................... 109,459,790 417,524,802
Other liabilities................................. 105,012 125,152
------------ ------------
126,663,785 443,833,123
------------ ------------
Commitments and contingencies (Note 7)
Redeemable stock (Note 8):
Series A senior preferred stock, mandatorily
redeemable, dividends payable-in-kind; $.001
par value; 145,000 shares authorized; 0 and
31,383 shares issued and outstanding at
December 31, 1997 and 1998, respectively;
includes accrued dividends and accretion of
$1,434,341 at December 31, 1998 ............... -- 29,882,298
Class B common stock, 12,000 shares issued and
outstanding at December 31, 1997 and 1998,
respectively................................... 1,761,000 1,761,000
Class D common stock, $.001 par value; 39,000,
and 40,000 shares issued and outstanding at
December 31, 1997 and 1998, respectively....... 39 40
------------ ------------
1,761,039 31,643,338
------------ ------------
Stockholders' equity (Note 8):
Series B junior preferred stock, redeemable, 14%
dividends, $.001 par value; 100 shares
authorized; 0 and 60 shares issued and
outstanding at December 31, 1997 and 1998,
includes accrued dividends of $1,659,821 ...... -- 59,928,980
Common stock:
Class A common stock--202,500 shares issued and
outstanding at December 31, 1997 and 1998,
respectively.............................. 203 203
Class E common stock--67,089, and 174,766
shares issued and outstanding at December
31, 1997 and 1998, respectively........... 67 175
Warrants ...................................... -- 1,000,000
Additional paid-in capital..................... 25,875,752 33,136,302
Accumulated deficit............................ (11,122,943) (53,394,020)
------------ ------------
14,753,079 40,671,640
------------ ------------
$143,177,903 $516,148,101
============ ============
</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 OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Site rental revenue................. $ 4,841,752 $12,880,631 $ 32,018,651
Site operating expenses, excluding
depreciation and amortization...... 1,135,023 2,632,274 6,165,897
----------- ----------- ------------
Gross margin, excluding
depreciation and amortization.... 3,706,729 10,248,357 25,852,754
----------- ----------- ------------
Other expenses:
General and administrative........ 916,237 1,367,400 4,175,477
Corporate development............. 1,420,879 3,723,180 6,381,516
State franchise, excise and
minimum taxes.................... 25,801 66,942 686,040
Depreciation...................... 2,041,085 6,334,769 22,512,819
----------- ----------- ------------
4,404,002 11,492,291 33,755,852
----------- ----------- ------------
Loss from operations................ (697,273) (1,243,934) (7,903,098)
Interest expense.................... 1,154,990 6,925,094 12,300,182
Amortization of original issue
discount and debt issuance costs... 164,091 292,143 16,426,224
----------- ----------- ------------
Loss before extraordinary item...... (2,016,354) (8,461,171) (36,629,504)
Extraordinary loss from
extinguishment of debt............. -- -- 5,641,573
----------- ----------- ------------
Net loss............................ $(2,016,354) $(8,461,171) $(42,271,077)
=========== =========== ============
Payable-in-kind preferred dividends
and accretion...................... -- -- 3,094,162
Net loss attributable to common
shareholders....................... $(2,016,354) $(8,461,171) $(45,365,239)
=========== =========== ============
Basic loss per common share:
Loss before extraordinary item..... $ (8.10) $ (27.28) $ (94.95)
Extraordinary item................. -- -- (13.48)
----------- ----------- ------------
Net loss............................ $ (8.10) $ (27.28) $ (108.43)
=========== =========== ============
Weighted average number of common
shares outstanding................. 248,950 310,122 418,363
=========== =========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-5
<PAGE>
PINNACLE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B Junior Class A common Class E common
preferred stock stock stock Additional Stock
------------------ -------------- -------------- paid-in subscriptions Accumulated
Shares Amount Shares Amount Shares Amount Warrants capital receivable deficit
------ ----------- ------- ------ ------- ------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............. -- $ -- 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.........
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............. -- -- 202,500 203 51,300 51 -- 24,881,219 -- (2,661,772)
Issuance of
common stock, net
of issuance
costs:
Class E......... 15,789 16 1,555,533
Net loss......... (8,461,171)
Adjustment to
Class B common
stock............ (561,000)
----- ----------- ------- ---- ------- ---- ---------- ----------- --------- ------------
Balance at
December 31,
1997............. -- -- 202,500 203 67,089 67 -- 25,875,752 -- (11,122,943)
Issuance of
common stock,
net of issuance
costs:
Class E......... 107,677 108 10,767,600
Distribution to
Class B common
stockholders ... (412,888)
Issuance of
preferred stock,
net of issuance
costs:
Series A senior
preferred
stock........... 1,000,000
Series B junior
preferred
stock........... 58.74 58,269,159 (1,434,341)
Dividends and
accretion on
preferred
stock........... 1.66 1,659,821 (1,659,821)
Net loss........ (42,271,077)
----- ----------- ------- ---- ------- ---- ---------- ----------- --------- ------------
Balance at
December 31,
1998............. 60.40 $59,928,980 202,500 $203 174,766 $175 $1,000,000 $33,136,302 $ -- $(53,394,020)
===== =========== ======= ==== ======= ==== ========== =========== ========= ============
<CAPTION>
Stockholders'
equity
-------------
<S> <C>
Balance at
December 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 E......... 1,555,549
Net loss......... (8,461,171)
Adjustment to
Class B common
stock............ (561,000)
-------------
Balance at
December 31,
1997............. 14,753,079
Issuance of
common stock,
net of issuance
costs:
Class E......... 10,767,708
Distribution to
Class B common
stockholders ... (412,888)
Issuance of
preferred stock,
net of issuance
costs:
Series A senior
preferred
stock........... 1,000,000
Series B junior
preferred
stock........... 56,834,818
Dividends and
accretion on
preferred
stock........... --
Net loss........ (42,271,077)
-------------
Balance at
December 31,
1998............. $40,671,640
=============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-6
<PAGE>
PINNACLE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................... $ (2,016,354) $ (8,461,171) $ (42,271,077)
------------ ------------ -------------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation....................... 2,041,085 6,334,769 22,512,819
Amortization of original issue
discount and debt issuance
costs............................. 164,091 292,143 16.426,224
Extraordinary loss from
extinguishment of debt............ -- -- 5,641,573
Provision for doubtful accounts.... 45,000 25,000 55,000
(Increase) decrease in:
Accounts receivable, gross....... (454,065) (1,118,692) (156,815)
Prepaid expenses and other
current assets.................. (277,604) (746,299) (394,981)
Notes receivable................. 387,455 -- --
Other assets..................... (237,408) (358,587) (902,630)
Increase (decrease) in:
Accounts payable................. 633,711 1,435,305 1,038,412
Accrued expenses................. 429,779 2,371,605 2,665,967
Deferred revenue................. 77,417 507,037 808,972
Other current liabilities........ (490,000) -- --
Other liabilities................ 49,491 44,253 20,140
------------ ------------ -------------
Total adjustments................ 2,368,952 8,786,534 47,714,681
------------ ------------ -------------
Net cash provided by operating
activities......................... 352,598 325,363 5,443,604
------------ ------------ -------------
Cash flows from investing
activities:
Payments made in connection with
acquisitions:
Tower assets..................... (31,845,153) (70,852,422) (320,834,472)
Land............................. (3,337,847) (2,738,951) (7,762,414)
Capital expenditures:
Tower assets..................... (7,036,048) (14,815,863) (43,535,621)
Fixed assets..................... (563,646) (1,023,513) (1,553,493)
(Increase) decrease in restricted
cash.............................. 138,157 (25,750) 59,822
------------ ------------ -------------
Net cash used in investing
activities......................... (42,644,537) (89,456,499) (373,626,178)
------------ ------------ -------------
Cash flows from financing
activities:
Borrowings under long-term debt,
net .............................. 24,866,994 89,918,073 487,247,329
Repayment of long-term debt........ (568,516) (695,982) (205,029,425)
Proceeds from issuance of
redeemable stock, net............. 8 -- --
Proceeds from issuance of PIK
preferred stock and warrants,
net............................... -- -- 87,717,116
Proceeds from issuance of common
stock, net........................ 18,010,007 1,555,549 10,767,709
Payment of accretion in Class B
common stock...................... -- -- (412,888)
------------ ------------ -------------
Net cash provided by financing
activities......................... 42,308,493 90,777,640 380,289,841
------------ ------------ -------------
Net increase (decrease) in cash and
cash equivalents................... 16,554 1,646,504 12,107,267
Cash and cash equivalents, beginning
of period.......................... 30,865 47,419 1,693,923
------------ ------------ -------------
Cash and cash equivalents, end of
period............................. $ 47,419 $ 1,693,923 $ 13,801,190
============ ============ =============
Supplemental disclosure of cash
flows:
Cash paid for interest............. $ 1,037,452 $ 5,786,816 $ 12,271,070
============ ============ =============
Non-cash transactions:
Seller debt issued in connection
with acquisitions................. $ 7,493,255 $ 19,251,850 $ 2,414,965
Payable-in-kind preferred
dividends and accretion........... $ -- $ -- $ 3,094,162
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-7
<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 site
and leases space on its sites 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. Sales to two customers accounted for 14.4% and
13.3% of revenues in 1998.
Restricted Cash
Restricted cash reflects cash held in escrow restricted for the acquisition
of tower sites.
Tower Assets
Tower assets consists of towers, licenses, permits and tower 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, 30 years
for buildings and from 5 to 10 years for equipment and other improvements to
tower sites. Also included in tower assets are towers under construction of
$3,452,045 and $9,231,475 as of December 31, 1997 and 1998, 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
F-8
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Other Assets
Other assets includes $747,000 of costs incurred in connection with a
pending initial public offering by the Company at December 31, 1998, which will
be deducted from the net proceeds of the offering in determining the amount of
additional paid in capital to be recorded upon completion of the public
offering or recorded as expense should the Company not be able to complete the
initial public offering, and tenant lease receivables recorded in connection
with the revenue recognition on non-cancellable tenant leases in accordance
with Financial Accounting Standards Board Opinion No. 13, "Accounting for
Leases."
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 and 1998
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,
1997 and 1998, which includes cash and accounts receivable, approximates fair
value due to the short maturity of those instruments. The Company considers the
variable rate financial instruments including interest rate swaps to be
representative of current market interest rates and, accordingly, the recorded
amounts approximate fair market value. The Company's Senior 10% discount notes
are publicly traded and were trading based on an 11.1% yield at December 31,
1998, indicating a fair value of the Notes of approximately $188.5 million.
Site Rental Revenue Recognition
Site 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
F-9
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1997 and
1998 and, therefore, was not required to pay a cash dividend in order to retain
its REIT status.
Loss Per Share
Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding during each period. The computation of
diluted loss per share, assuming conversion of the Class D common shares and
the exercise of warrants issued in connection with the Series A Senior
Preferred Stock and the Subordinated-Term Loan Agreement, has an antidilutive
effect on loss per share.
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 communications sites 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 site assets and fixtures
for a purchase price of $3,000,000 which was paid in cash. In July 1996, the
Company purchased the site 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 sites and related assets for
$3,010,000, which consisted of $792,325 in cash and $2,217,675 of notes payable
to the seller. Additionally, the Company completed 44 other acquisitions of
sites 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 72 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 sites 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 sites 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. The Company anticipates that Southern
Communications will continue to represent a significant, but declining
percentage of the Company's revenues as the Company grows. The Company
F-10
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
On September 3, 1998, the Company acquired from MobileMedia Corporation
("MobileMedia") and several of its affiliates 166 sites for an aggregate
purchase price of approximately $170 million. MobileMedia assigned its existing
tenant leases on the sites to the Company. The Company entered into a lease
(the "Lease") with MobileMedia Communications, Inc., an affiliate of
MobileMedia, providing such affiliate of MobileMedia the non-exclusive right to
install a certain amount of its equipment on the acquired towers for an
aggregate rent of $10.7 million per year. The Lease has an initial term of 15
years and one five-year renewal term exercisable at the option of the lessee.
Prior to this acquisition, space on the towers was primarily for the exclusive
use of MobileMedia and its affiliates. The towers are located in the
Southeastern United States, Southern California and New England. The
MobileMedia transaction was funded with proceeds from the sale of two separate
newly authorized series of preferred stock of the Company as described below, a
loan from ABRY Broadcast Partners II, L.P., a controlling stockholder of the
Company, and borrowings under the Company's senior credit facility with
NationsBank, N.A. and certain other lenders.
In addition to the Southern Communications and MobileMedia transactions
described above, the Company completed 80 acquisitions of 526 sites and related
assets, all of which were individually insignificant to the Company, from
various sellers during the year ended December 31, 1998 for an aggregate
purchase price of $331,204,262, consisting of $328,789,297 in cash and
$2,414,965 of notes payable to the former tower owners.
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, 1997. This
unaudited pro-forma information is 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,
--------------------------
1997 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Site rental revenue............................ $ 38,427,583 $ 43,416,231
Gross profit, excluding depreciation and
amortization.................................. 31,970,369 35,889,471
Net loss....................................... (40,363,789) (48,938,067)
Basic net loss per common share................ $ (160.89) $ (153.89)
</TABLE>
4. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
Estimated useful ----------------------
lives in years 1997 1998
---------------- ---------- ----------
<S> <C> <C> <C>
Vehicles.......................... 5 $ 489,778 $ 657,062
Furniture, fixtures and other
office equipment................. 5 504,759 315,345
Data processing equipment......... 5 880,333 2,439,895
---------- ----------
1,874,870 3,412,302
Accumulated depreciation.......... (379,749) (935,636)
---------- ----------
Fixed assets, net................. $1,495,121 $2,476,666
========== ==========
</TABLE>
F-11
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Construction and acquisition costs.................... $1,071,719 $2,429,893
Interest.............................................. 1,337,662 1,334,552
Professional fees..................................... 150,000 543,705
Taxes other than income............................... 148,115 736,698
Payroll and other..................................... 387,553 716,168
---------- ----------
$3,095,049 $5,761,016
========== ==========
</TABLE>
6. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Senior Credit Facility, interest at variable rates
(8.25% at December 31, 1997 and 8.55% to 8.63% at
December 31, 1998, respectively), secured,
quarterly principal installments beginning June
30, 2000, maturing December 31, 2005............. $ 72,000,000 $182,450,000
Senior 10% discount notes, net of unamortized
original issue discount of $0 and $109,041,993,
respectively, unsecured cash interest payable
semi-annually in arrears beginning September 16,
2003, balloon principal payment of $325,000,000
due at maturity on March 15, 2008................ -- 215,958,009
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 or guaranty by related party
(Note 9)......................................... 28,581,867 19,809,705
ABRY bridge loan, interest at 9% per annum,
principal and interest due in April 1999 and
September 1999 (Note 9).......................... -- 15,000,000
Subordinated term note, interest at variable rates
(11.88% at December 31, 1997), unsecured,
principal and interest maturing September 22,
2000............................................. 20,000,000 --
------------ ------------
120,581,867 433,217,714
Less: current potion of long-term debt............ (11,122,077) (15,692,912)
------------ ------------
Long-term debt.................................... $109,459,790 $417,524,802
============ ============
</TABLE>
The remaining principal payments at December 31, 1998 were due as follows:
1999-$15,692,912; 2000-$22,914,363; 2001-$28,464,878; 2002-$38,499,435; 2003-
$37,014,388; 2004-$74,673,731 and thereafter $325,000,000.
F-12
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Senior Credit Facility
During 1995, the Company entered into a credit agreement of senior debt
financing through a reducing revolving line of credit and revolver/term loan
(as amended, the "Senior Credit Facility"). 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. 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, 2005. Advances under the Senior Credit Facility accrued 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.
In December 1998 the Company significantly amended its Senior Credit
Facility to provide $200 million of financing. Advances under the Senior Credit
Facility accrue interest at the Company's option of either LIBOR plus a margin
of up to 3.00%, 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 2.00%. Additionally, certain financial covenants were modified. As a result
of this significant modification, a write-off of the deferred debt costs of
$5.6 million relating to original debt issue costs is reflected in the
accompanying financials statements as an extraordinary item.
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 senior debt to annualized EBITDA to exceed certain amounts,
as defined in the agreement.
For the years ended December 31, 1996, 1997, and 1998 the Company incurred
commitment fees of approximately $52,000, $192,000, and $210,000, respectively.
Senior Discount Notes
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 Company has the right to redeem the notes on or
after March 15, 2003 at a price 105.0%, 103.3%, 102.6% and 100.0% during the
twelve month periods ending March 15, 2003, 2004, 2005, and 2006 and
thereafter, respectively. In addition, the Company at any time prior to 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 liquidated 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 an amount 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.
Amortization of original issue discount for the year ended December 31, 1998
was $16,167,507.
F-13
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ABRY Bridge Loan
In February 1998, the Company entered into an agreement with its principal
stockholder (the "ABRY 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. The Company satisfied the loan
balance in March 1998 in conjunction with the issuance of Senior Discount
Notes, including interest due of $114,041.
During April 1998, the Company borrowed $2.5 million under the ABRY Bridge
Loan to partially fund acquisitions. In September 1998, the Company borrowed
$12,500,000 under the ABRY Bridge Loan to partially finance the MobileMedia
Acquisition. An aggregate amount of $15,000,000 is outstanding under the ABRY
Bridge Loan at December 31, 1998. At December 31, 1998, accrued interest of
$526,438 is included in accrued expenses.
Subordinated Term Loan
On September 22, 1997, the Company entered into a term loan agreement for
$20,000,000, which was 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. Additionally, the
Company issued warrants for the Company's Class F Common Stock in connection
with this loan. This loan was repaid in full in March 1998 with proceeds
obtained from the issuance of the Senior Discount Notes. The warrants were
cancelled upon repayment of this loan.
Interest Rate Swap
The Company enters into interest rate swap agreements to manage the interest
rate risk associated with certain of its variable rate debt. The swap
agreements 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 Company is exposed to credit losses in the
event of non-performance by counterparties on these agreements, which the
Company does not believe is significant. The following table summarizes the
interest rate swap agreements:
<TABLE>
<CAPTION>
Notional Amount
--------------------------------------------
Fixed
pay rate December 31, 1997 December 31, 1998
-------- ----------------- -----------------
Expiration date
<S> <C> <C> <C>
May 1, 1998..................... 6.22% $20,000,000 $ --
December 24, 1998............... 5.90% 30,000,000 --
June 24, 1999................... 5.14% -- 30,000,000
September 30, 2000.............. 5.75% 20,000,000 20,000,000
May 1, 2001..................... 5.85% -- 50,000,000
</TABLE>
Approximately $28,000, $51,000 and $216,696 of interest expense was incurred
in 1996, 1997 and 1998, respectively, related to the interest rate swap
agreements.
F-14
<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 site 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 at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999........................................................... $ 3,190,114
2000........................................................... 2,752,952
2001........................................................... 2,266,092
2002........................................................... 2,063,840
2003........................................................... 1,713,007
2004 and thereafter............................................ 15,072,586
-----------
Total minimum lease payments................................. $27,058,591
===========
</TABLE>
Total rent expense under noncancellable operating leases was approximately
$468,083, $1,468,323, and $3,623,798 for the years ended December 31, 1996,
1997 and 1998, 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.
Tenant Leases
The following is a schedule by year of total rentals to be received for site
space under noncancellable lease agreements as of December 31, 1998:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999........................................................... $ 39,155,536
2000........................................................... 35,541,604
2001........................................................... 32,474,747
2002........................................................... 28,766,328
2003........................................................... 21,756,859
2004 and thereafter............................................ 129,193,435
------------
$286,888,509
============
</TABLE>
F-15
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principally all of the leases provide for renewal at varying escalations.
Leases provided for fixed-rate escalations have been reflected above.
8. 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.
As of December 31, 1998, and after giving affect to guaranty of certain
notes payable to former tower owners of $3.9 million, approximately $8.9
million remained outstanding under the Capital Contribution Agreement.
Mandatorily Redeemable Preferred Stock, Preferred Stock and Warrants
On September 30, 1998, in connection with the MobileMedia Acquisition the
Company sold 30,000 shares of newly authorized Series A Senior Preferred Stock
(the "Senior Preferred Stock"). These shares carry a liquidation preference of
$30 million in the aggregate, and were sold with an attached warrant to
purchase 10,000 shares of Class F Common Stock at $.01 per share. Dividends on
the Senior Preferred Stock accrue at a rate of 14% through March 31, 1999,
14.75% from April 1, 1999 through June 30, 1999, 15.5% from July 1, 1999
through September 30, 1999 and 16% thereafter. At the Company's option, such
dividends can be paid by the issuance of additional shares of such stock. The
Senior Preferred Stock is redeemable at the Company's option, at liquidation
preference, at any time upon 30 days advance notice. The Senior Preferred Stock
is mandatorily redeemable on September 30, 2008. The warrants (valued using the
Black-Scholes option pricing model) are recorded at fair value of $1,000,000
and are exercisable at a nominal price for a period of eight and one-half years
commencing 18 months following the issuance of the Senior Preferred Stock. If
the Senior Preferred Stock is redeemed prior to 18 months after its initial
issuance, the warrants may not be exercised and will be cancelled. The warrants
expire on September 3, 2008.
ABRY/Pinnacle, Inc., an affiliate of ABRY Broadcast Partners II, L.P.,
purchased newly authorized Series B Junior Preferred Stock of the Company (the
"Junior Preferred Stock") with a liquidation preference of $32.5 million.
Dividends accrue at a rate of 14% and, at the Company's option, may be paid by
the issuance of additional shares of such stock. The Junior Preferred Stock is
not mandatorily redeemable. In December 1998, the Company sold additional
shares of the Series B Junior Preferred Stock to ABRY/Pinnacle, Inc. with a
liquidation preference of $26.2 million. The Junior Preferred Stock is
redeemable at the Company's option, at liquidation preference, at any time.
The Senior Preferred Stock and the Junior Preferred Stock have not been and
will not be registered under the Securities Act of 1933 and may not be offered
or sold in the United States absent registration or an applicable exemption
from the registration requirements.
Redeemable Common 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
F-16
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
Anniversary of of shares
the closing date remaining unvested
---------------- ------------------
<S> <C>
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.
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:
F-17
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The
distribution amount related to the Yield was fixed at June 30, 1997 at
approximately $4.8 million. 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"), which approximated $38.9 million at
December 31, 1998.
In 1998 the Company paid $412,888 in distributions to the holders of Class B
Common Stock in settlement of a distribution preference on such stock in
connection with the issuance of the senior 10% discount notes (Note 6).
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-18
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional stock information is as follows:
<TABLE>
<CAPTION>
December 31
-------------------
1997 1998
-------- ----------
<S> <C> <C>
Preferred Stock:
Par value per share....................................... $ 0.001 $ 0.001
Shares authorized......................................... 100,000 1,000,000
Designated as Series A Senior preferred stock............ -- 145,000
Designated as Series B Junior preferred stock............ -- 100
Shares issued and outstanding:
Series A Senior.......................................... -- 31,383
Series B Junior.......................................... -- 60
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............................ 39,000 40,000
Class E common stock:
Par value per share....................................... $ 0.001 $ 0.001
Shares authorized........................................ 300,000 302,500
Shares issued and outstanding............................ 67,089 174,766
Class F common stock:
Par value per share....................................... $ 0.001 $ 0.001
Shares authorized........................................ 10,000 1,000,000
Shares issued and outstanding............................ -- --
</TABLE>
Stock Incentive Plan
The Pinnacle Holdings, Inc. Stock Incentive Plan (the "Plan") became
effective July 1, 1998. The 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. The Plan is
administered by a committee consisting of at least two non-employee directors
of the Company (the "Committee")
The maximum number of shares of Common Stock that may be made subject to
Awards granted under the Stock Incentive Plan is approximately 3,000,000. 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
F-19
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outstanding 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 the Award again become available for grant under the Stock
Incentive Plan. No shares have been granted at December 31, 1998.
The Committee is authorized to grant to eligible persons incentive stock
options ("ISO") or nonqualified stock options ("NSO"). 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. 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.
Options shall become exercisable in whole or in part on the date or dates
specified by the Committee. 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.
The Committee may also 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.
9. Related Party Transactions
Certain board members and/or stockholders provide management services to the
Company. The Company pays up to $75,000, plus certain reimbursable costs
incurred on behalf of the Company, each year for such management services. The
Company paid approximately $55,162, $78,166, and $834,192 for such services and
related reimbursable expenses for the years ended December 31, 1996, 1997, and
1998, respectively. At December 31, 1997 and 1998, $29,950 and $ 232,500,
respectively, was due to these related parties for management services and
related reimbursable costs. A balance due from current or former officers of
$200,000 and $16,097 is included in other assets at December 31, 1997 and 1998,
respectively. During 1997, the majority stockholder of the Company guaranteed a
note payable to a tower seller of $3.9 million associated with a tower
acquisition. Also see Note 6 for related party debt and Note 8 for certain
related party equity transactions.
10. 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
F-20
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
service. To participate in the plan, employees must be at least 21 years old
and have completed six months of service. The Company has not made any
contributions to the plan.
11. Subsequent Events
Acquisitions
Subsequent to December 31, 1998 the Company is party to several letters of
intent with various third parties to purchase 135 sites, reflecting an
aggregate commitment to pay approximately $60.2 million.
F-21
<PAGE>
PINNACLE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 13,801,190 $ 1,276,209
Accounts receivable, net......................... 1,679,390 2,176,233
Prepaid expenses and other current assets........ 1,432,428 1,374,081
------------ ------------
Total current assets......................... 16,913,008 4,826,523
Tower assets, net.................................. 473,942,309 553,888,537
Fixed assets, net.................................. 2,476,666 2,591,363
Land............................................... 14,613,365 15,765,504
Deferred debt issue costs, net..................... 6,686,683 6,501,787
Other assets....................................... 1,516,070 953,542
------------ ------------
$516,148,101 $584,527,256
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................. $ 3,280,809 $ 4,209,825
Accrued expenses................................. 5,761,016 11,443,695
Deferred revenue................................. 1,448,432 2,911,099
Current portion of long-term debt................ 15,692,912 1,002,136
------------ ------------
Total current liabilities.................... 26,183,169 19,566,755
Long-term debt..................................... 417,524,802 352,876,045
Other liabilities.................................. 125,152 183,627
------------ ------------
443,833,123 372,626,427
------------ ------------
Redeemable stock:
Series A senior preferred stock, Class B common
stock, and Class D common stock................. 31,643,338 --
------------ ------------
Stockholders' equity:
Series B junior preferred stock.................. 59,928,980 --
Common stock:
Class A common stock, 202,500 and 0 shares
issued and outstanding at December 31, 1998
and March 31, 1999, respectively.............. 203 --
Class E common stock, 174,766 and 0 shares
issued and outstanding at December 31, 1998
and March 31, 1999, respectively.............. 175 --
Common Stock , $.001 par value, 100,000,000
shares authorized; 0 and 32,026,000 shares
issued and outstanding at December 31, 1998
and March 31, 1999, respectively.............. -- 32,026
Warrants......................................... 1,000,000 --
Additional paid-in capital....................... 33,136,302 276,565,895
Accumulated deficit.............................. (53,394,020) (64,697,092)
------------ ------------
40,671,640 211,900,829
------------ ------------
$516,148,101 $584,527,256
============ ============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed financial statements.
F-22
<PAGE>
PINNACLE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1999
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Site rental revenue................................. $ 5,372,833 $ 12,008,208
Site operating expenses, excluding depreciation and
amortization....................................... 851,371 2,232,651
----------- ------------
Gross margin, excluding depreciation and
amortization................................... 4,521,462 9,775,557
Other expenses:
General and administrative........................ 419,809 843,464
Corporate development............................. 1,288,807 1,711,283
State franchise, excise and minimum taxes......... 70,424 200,975
Depreciation...................................... 2,950,850 8,994,211
----------- ------------
Loss from operations................................ (208,428) (1,974,376)
Interest expense.................................... 3,102,826 3,900,192
Amortization of original issue discount and debt
issuance costs..................................... 610,471 5,428,504
----------- ------------
Net loss............................................ $(3,921,725) $(11,303,072)
Payable-in-kind preferred dividends and accretion... -- 2,930,338
----------- ------------
Net loss attributable to common shareholders........ $(3,921,725) $(14,233,410)
=========== ============
Basic and diluted loss per common share(a).......... $ (0.43) $ (0.79)
=========== ============
Weighted average number of common shares
outstanding........................................ 9,115,653 18,067,533
=========== ============
</TABLE>
- --------
(a) Basic loss per common share in 1999 and 1998 have been computed based on
the weighted average number of common shares outstanding during the
periods, after giving retroactive effect for the conversion of the
Company's common stock outstanding prior to the Company's initial public
offering in accordance with the recapitalization effected contemporaneously
with the completion of the initial public offering (Note 3).
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed financial statements.
F-23
<PAGE>
PINNACLE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B
Junior Class A Class E
Preferred Stock Common Stock Common Stock Common Stock Additional
------------------- ------------------ ---------------- ---------------- Paid-in
Shares Amount Shares Amount Shares Amount Shares Amount Warrants Capital
------ ----------- ---------- ------- -------- ------ -------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998............ 60.40 $59,928,980 -- $ -- 202,500 $203 174,766 $175 $1,000,000 $ 33,136,302
Unaudited:
Dividends and
accretion on
Preferred
Stock........... 1.27 1,767,106 (2,930,338)
Issuance of
common stock,
net of issuance
costs, and
conversion (Note
2).............. 32,026,000 32,026 (202,500) (203) (174,766) (175) 290,064,403
Liquidation of
Series A Senior
Preferred
Stock........... (1,000,000)
Liquidation of
Series B Junior
Preferred
Stock........... (61.67) (61,696,086)
Distribution of
contributed
capital and
yield on various
classes of
common stock.... (43,704,472)
Net Loss........
Balance at March
31, 1999........
------ ----------- ---------- ------- -------- ---- -------- ---- ---------- ------------
-- $ -- 32,026,000 $32,026 -- $-- -- $-- $ -- $276,565,895
====== =========== ========== ======= ======== ==== ======== ==== ========== ============
<CAPTION>
Accumulated Stockholders'
Deficit Equity
------------- --------------
<S> <C> <C>
Balance at
December 31,
1998............ $(53,394,020) $ 40,671,640
Unaudited:
Dividends and
accretion on
Preferred
Stock........... (1,163,232)
Issuance of
common stock,
net of issuance
costs, and
conversion (Note
2).............. 290,096,051
Liquidation of
Series A Senior
Preferred
Stock........... (1,000,000)
Liquidation of
Series B Junior
Preferred
Stock........... (61,696,086)
Distribution of
contributed
capital and
yield on various
classes of
common stock.... (43,704,472)
Net Loss........
Balance at March
31, 1999........ (11,303,072) (11,303,072)
------------- --------------
$(64,697,092) $211,900,829
============= ==============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed financial statements.
F-24
<PAGE>
PINNACLE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (3,921,725) $ (11,303,072)
------------- -------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation.................................... 2,950,850 8,994,211
Amortization of original issue discount and
debt issuance costs............................ 610,471 5,428,504
Provision for doubtful accounts................. 30,000 --
(Increase) decrease in:
Accounts receivable, gross..................... (408,193) (487,059)
Prepaid expenses and other current assets...... (1,589,765) 58,347
Other assets................................... 60,736 562,528
Increase (decrease) in:
Accounts payable............................... 2,307,159 929,016
Accrued expenses............................... (203,553) 5,682,679
Deferred revenue............................... 698,038 1,462,667
Other liabilities.............................. (21,721) 58,475
------------- -------------
Total adjustments............................. 4,434,022 22,689,368
------------- -------------
Net cash provided by operating activities.... 512,297 11,386,296
------------- -------------
Cash flows from investing activities:
Payments made in connection with acquisitions:
Tower assets.................................... (96,440,006) (71,020,067)
Land............................................ (4,268,873) (1,152,139)
Capital expenditures:
Tower assets.................................... (10,122,475) (13,134,730)
Fixed assets.................................... (216,188) (350,473)
------------- -------------
Net cash used in investing activities......... (111,047,542) (85,657,409)
------------- -------------
Cash flows from financing activities:
Borrowings under long-term debt, net............ 307,028,824 50,000,000
Repayment of long-term debt..................... (204,023,448) (139,142,790)
Proceeds from issuance of common stock, net..... 9,567,709 288,335,011
Liquidation of PIK preferred stock and
warrants....................................... -- (93,741,617)
Distribution of contributed capital and payment
of accretion on various classes of common
stock.......................................... (412,888) (43,704,472)
------------- -------------
Net cash provided by financing activities.... 112,160,197 61,746,132
------------- -------------
Net increase (decrease) in cash and cash
equivalents..................................... 1,624,952 (12,524,981)
Cash and cash equivalents, beginning of period... 1,693,923 13,801,190
------------- -------------
Cash and cash equivalents, end of period......... $ 3,318,875 $ 1,276,209
============= =============
Supplemental disclosure of cash flows:
Cash paid for interest.......................... $ 4,416,557 $ 4,702,341
============= =============
Non-Cash Transactions:
Seller debt issued in connection with
acquisitions................................... $ -- $ 4,559,650
</TABLE>
The accompanying notes to Condensed Consolidated Financial Statements are an
integral part of these condensed financial statements.
F-25
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements
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". All significant intercompany balances and transactions have been
eliminated. Preparation of the consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements. Actual results may vary from estimates used.
Results of operations for any interim period are not necessarily indicative
of results of any other periods or for the year. The consolidated statements as
of March 31, 1999 and for the three month periods ended March 31, 1999 and 1998
are unaudited, but in the opinion of management include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of results for such periods. These consolidated financial statements should be
read in conjunction with the Company's financial statements and notes thereto
for the year ended December 31, 1998.
The Company's Consolidated Statements of Operations for the three month
period ended March 31, 1999, reflect all components of Comprehensive Income as
defined by SFAS No. 130, "Reporting Comprehensive Income." Accordingly, no
separate Consolidated Statement of Comprehensive Income is presented as would
otherwise be required.
2. Acquisitions
The Company actively acquires communications sites and related real estate
assets.
On March 4, 1998, the Company completed the acquisition of 201 sites 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.
On September 3, 1998, the Company acquired from MobileMedia Corporation
("MobileMedia") and several of its affiliates 166 sites for an aggregate
purchase price of approximately $170 million (the "MobileMedia Acquisition").
MobileMedia assigned its existing tenant leases on the towers to the Company.
The Company entered into a lease (the "Lease") with MobileMedia Communications,
Inc., an affiliate of MobileMedia, providing such affiliate of MobileMedia the
non-exclusive right to install a certain amount of its equipment on the
acquired towers for aggregate rent of $10.7 million per year. The Lease has an
initial term of 15 years and one five-year renewal term exercisable at the
option of the lessee. Prior to this acquisition, space on the sites was
primarily for the exclusive use of MobileMedia and its affiliates. The Company
has integrated these sites into its site rental business and is leasing space
on these sites to other third party wireless communications providers. The
sites are located in the Southeastern United States, Southern California and
New England.
In addition to the Southern Communications and MobileMedia transactions
described above, the Company completed 80 acquisitions of 526 sites and related
assets, all of which were individually insignificant to the Company, from
various sellers during the year ended December 31, 1998 for an aggregate
purchase price of $331,204,262, consisting of $328,789,297 in cash and
$2,414,965 of notes payable to the former tower owners.
During the three months ended March 31, 1999, the Company completed 27
acquisitions of 109 sites and related assets, all of which were individually
insignificant to the Company, from various
F-26
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sellers for an aggregate purchase price of $58,513,409 consisting of
$53,953,759 in cash and $4,559,650 of notes payable to the former tower owners.
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, 1998. The
unaudited pro forma consolidated financial statements are not necessarily
indicative of the results that would have occurred if the assumed transactions
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>
Pro Forma
--------------------------
March 31, March 31,
1998 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Site rental revenue............................. $ 9,061,275 $ 12,854,268
Gross margin, excluding depreciation............ 7,305,093 10,442,837
Net loss........................................ (14,458,152) (12,355,972)
Net loss attributable to common shareholders.... (14,458,152) (15,286,310)
Net loss per common share....................... (1.59) (0.85)
</TABLE>
3. Initial Public Offering and Stockholders' Equity
On February 19, 1999, the Company completed its initial public offering of
common stock ("the Offering") whereby the Company sold 20,000,000 shares of a
new class of common stock (the "Common Stock"). In addition, on March 19, 1999,
the Underwriters over-allotment options were exercised to the extent that an
additional 2,026,000 shares were sold. The initial price per share was $14,
resulting in net proceeds from the Offering of approximately $288 million.
In connection with the Offering, pursuant to a recapitalization agreement
between the Company, its largest stockholder, ABRY Broadcast Partners II, L.P.
("ABRY II"), and certain members of the Company's management that are
stockholders of the Company, the Company converted all outstanding shares of
each class of the Company's five classes of common stock into shares of the
Common Stock sold in the Offering and paid to the holders of certain of such
classes of common stock preferential amounts and yields. The certificate of
incorporation of the Company was amended immediately prior to the consummation
of the Offering to eliminate the multiple classes of the Company's common stock
and create the now single class of Common Stock, and all of the outstanding
shares of all the classes of common stock of the Company other than Class D
Common Stock were converted into approximately 8,571,309 shares of Common Stock
and all shares of Class D common Stock were converted into approximately
1,428,691 shares of Common Stock.
The holders of the Company's outstanding (prior to the above described
conversion) shares of Class A Common Stock, Class B Common Stock and Class E
Common Stock were collectively paid approximately $38.9 million by the Company
from proceeds of the Offering, which amount equaled the amount of preferences
such shares were entitled to over the other classes of the Company's common
stock pursuant to the Company's certificate of incorporation before giving
effect to the amendment relative to the conversion of those shares as described
above. In addition, the holders of the Company's outstanding (prior to the
above described conversion) shares of Class A Common Stock were collectively
paid approximately $4.8 million by the Company from proceeds of the Offering,
which amount equaled the amount of yield such shares had accrued from the date
of their issuances through June 30, 1997
F-27
<PAGE>
PINNACLE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
pursuant to the Company's certificate of incorporation before giving effect to
the amendment relative to the conversion of those shares as described above.
Other uses of proceeds from the Offering were: (1) approximately $32.0
redeemed the outstanding shares of the Company's Series A Senior Preferred
Stock (the "Senior Preferred Stock"); (2) approximately $61.7 million redeemed
the outstanding shares of the Company's Series B Junior Preferred Stock (the
"Junior Preferred Stock"); (3) approximately $15.7 million repaid in full and
retired loan from ABRY II; (4) approximately $123.8 million repaid outstanding
borrowings under the Company's Senior Credit Facility (as defined herein); and,
(5) $11.4 was used to fund the closing of pending acquisitions proximate to the
date the funds were available from the Offering.
4. Commitments
As of and subsequent to March 31, 1999, the Company entered into several
letters of intent with various third parties to purchase 35 sites, reflecting
an aggregate commitment to pay approximately $54,345,000, all of which are
subject to consummation of a transaction pending completion of due diligence
efforts and any further negotiation which may result therefrom.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Motorola, Inc.:
We have audited the accompanying statements of net assets of the North
American Antenna Sites Business of Motorola, Inc. (Business), as of December
31, 1997 and 1998 and the related statements of operations and changes in net
assets and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Business' 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.
The accompanying financial statements were prepared on the basis of
presentation described in Note 2. The accompanying financial statements include
allocations for common services provided by Motorola, Inc. and are not
necessarily indicative of the financial position, results of operations, and
cash flows had the Business operated as a stand-alone entity.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of the Business as of December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1998, on the basis
described in Note 2, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, IL
June 16, 1999
F-29
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
STATEMENTS OF NET ASSETS
December 31, 1997 and 1998 and April 3, 1999 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------- April 3,
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $227, $49, and $234 at
December 31, 1997 and 1998, and April 3, 1999.. $ 3,908 $ 2,892 $ 3,702
Prepaid rent.................................... 4,037 3,606 4,175
------- ------- -------
Total current assets.......................... 7,945 6,498 7,877
Property and equipment, net....................... 41,593 39,533 37,464
Goodwill, net of accumulated amortization of $134,
$138, and $141 at December 31, 1997 and 1998, and
April 3, 1999.................................... 183 574 570
------- ------- -------
Total assets.................................. $49,721 $46,605 $45,911
======= ======= =======
Liabilities and Net Assets
Current liabilities:
Accounts payable................................ $ 1,838 $ 1,717 $ 1,518
Accrued expenses................................ 2,457 1,988 2,187
Deferred revenue................................ 1,786 1,793 4,582
------- ------- -------
Total current liabilities..................... 6,081 5,498 8,287
Net assets........................................ 43,640 41,107 37,624
------- ------- -------
Total liabilities and net assets.............. $49,721 $46,605 $45,911
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Years ended December 31, 1996, 1997, and 1998 and the months
ended March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December Quarters ended
31, -----------------
------------------------- March 28, April
1996 1997 1998 1998 3, 1999
------- ------- ------- --------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
Parent......................... $10,163 $ 8,917 $ 7,563 $ 2,652 $ 1,723
Other parties.................. 78,473 80,182 78,045 19,094 19,365
------- ------- ------- ------- -------
Total net revenue............ 88,636 89,099 85,608 21,746 21,088
Operating expenses:
Direct tower costs............. 50,466 51,553 50,416 12,613 11,995
Selling, general, and
administrative................ 8,194 10,966 11,516 2,750 2,587
Depreciation and amortization.. 9,292 9,271 8,476 2,186 2,185
Allocated costs from the
parent........................ 9,871 6,265 4,168 1,730 718
------- ------- ------- ------- -------
Income before income taxes... 10,813 11,044 11,032 2,467 3,603
Income taxes..................... 4,318 4,398 4,382 978 1,427
------- ------- ------- ------- -------
Net income................... 6,495 6,646 6,650 1,489 2,176
Net assets, beginning of period.. 47,329 43,878 43,640 43,640 41,107
Transfers to Parent.............. (9,946) (6,884) (9,183) (3,630) (5,659)
------- ------- ------- ------- -------
Net assets, end of period........ $43,878 $43,640 $41,107 $41,499 $37,624
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1997, and 1998 and the quarters
ended March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31, Quarters ended
---------------------------- ------------------
March 28, April 3,
1996 1997 1998 1998 1999
-------- -------- -------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 6,495 $ 6,646 $ 6,650 $ 1,489 $ 2,176
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 9,292 9,271 8,476 2,186 2,185
Allowance for doubtful
accounts................... (124) 148 (178) (98) 185
Change in assets and
liabilities:
Accounts receivable........ 2,879 (1,358) 1,194 (145) (995)
Prepaid rent............... (766) 479 431 (130) (569)
Accounts payable........... (391) 229 (121) (339) (199)
Accrued expenses and
deferred revenue.......... (843) 391 (463) 2,360 2,989
-------- -------- -------- ------- -------
Net cash provided by
operating activities..... 16,542 15,806 15,989 5,323 5,772
-------- -------- -------- ------- -------
Cash used in investing
activities--capital
expenditures................. (6,596) (8,922) (6,806) (1,693) (113)
-------- -------- -------- ------- -------
Cash used in financing
activities--net cash
transferred to Parent........ (9,946) (6,884) (9,183) (3,630) (5,659)
-------- -------- -------- ------- -------
Cash at beginning and end
of period................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
(1) Description of Business
The primary function of the North American Antenna Sites Business of
Motorola, Inc. (Business) is the renting, managing, and operating of antenna
and transmitter space on communication towers and provides related services to
and for companies using or providing cellular telephone, personal
communications services, paging, microwave, and specialized mobile radio
services. The Business currently owns, manages, and/or leases approximately
2,000 communication tower sites located in both the United States and Canada.
The Business is wholly-owned by its parent, Motorola, Inc. (Parent).
(2) Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles utilizing the accounting practices and
procedures of its Parent and have been derived from the accounting records of
the Parent. The financial statements include allocations for common services
provided by the Parent and are not necessarily indicative of the financial
position, results of operations, or cash flows had the Business operated as a
stand-alone entity.
The statements of net assets, statements of operations and changes in net
assets, and statements of cash flows as of and for the quarters ended March 28,
1998 and April 3, 1999 are unaudited but include, in the opinion of management
of the Business, all adjustments, consisting only of normal recurring items,
necessary for a fair presentation of such financial statements.
The Business' cash resources are managed under a centralized system wherein
receipts are deposited to the Parent's corporate accounts and disbursements are
centrally funded. Accordingly, cash, income taxes, and other common services or
activities provided by the Parent and related-party transactions are reflected
as a change in the net assets account.
Where it is possible to specifically identify operating costs with the
activities of the Business, these amounts have been charged or credited
directly to the Business without allocation or apportionment.
Expenses for certain common services provided by the Parent, such as cash
management and other treasury services, legal, patent, tax, insurance
administration, payroll administration, corporate accounting, audit, and human
resources have been included in the financial statements. Expenses for common
services provided by the Parent have been allocated to the Business based on a
budget formula that was agreed upon at the beginning of each year. Individual
expense categories are generally allocated on the basis of revenue or other
measures of business unit activity levels.
In management's opinion, the methods employed in allocating the expenses
described above are reasonable. However, the amounts may not represent the
amounts that would have been incurred had these transactions occurred with
third parties at "arm's length".
(3) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-33
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(b) Property and Equipment
Property and equipment is stated at cost. Depreciation of antenna towers and
related equipment is calculated using accelerated and straight-line methods
over the estimated useful lives of the assets, which are five to seven years.
Depreciation of buildings is calculated using accelerated methods over the
estimated useful lives of the assets, which are twenty years. Depreciation of
office equipment is calculated using accelerated and straight-line methods over
the estimated useful lives of the assets, which are three to seven years.
Depreciation of automobiles is calculated using straight-line methods over the
estimated useful lives of the assets, which are two to four years.
Repairs and maintenance are expensed as incurred and betterments are
capitalized.
(c) Goodwill
The excess of cost over fair value of antenna sites acquired is amortized on
a straight-line basis over its estimated useful life of ten years.
(d) Deferred Revenue
Deferred revenue consists of advance site rent payments from customers. The
amount is amortized to revenue when the Business provides the customer with the
site rental service.
(e) Revenue Recognition
Revenues are recognized as tower services are provided. Amounts received
prior to services being performed are deferred until such time as the revenue
is earned.
(f) Income Taxes
The Business represents a business unit of Motorola, Inc. and as such does
not file separate income tax returns. The results of operations are included in
the consolidated tax return of the Parent. The income tax provision included in
the accompanying statements of operations and changes in net assets has been
computed as if the Business were a separate company.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Income taxes are settled
through net transfers to Parent.
(g) Concentration of Customer and Credit Risks
The Business' customers are comprised of wireless communication providers
who rent antenna and transmitter space on the Business' antenna towers.
Financial instruments which potentially subject the Business to concentrations
of credit risk consist principally of accounts receivable. As of December 31,
F-34
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
1997 and 1998, one customer accounted for 11% and 24% of the total accounts
receivable balance, respectively. For the years ended December 31, 1996, 1997,
and 1998, the Parent accounted for 11%, 10%, and 9% of net revenue,
respectively and one other customer accounted for 24%, 21%, and 18% of net
revenue, respectively.
Accounts receivable are generally unsecured; management believes its
allowance for doubtful accounts is adequate to cover any exposure to loss.
(h) Fair Values of Financial Instruments
The Business believes that the carrying amounts of its financial
instruments, consisting of accounts receivable, accounts payable, and accrued
expenses, approximate the fair value of such items due to the short term nature
of these instruments.
(i) Reclassifications
Certain amounts in prior years' financial statements and related notes have
been reclassified to conform to the 1998 presentation. In addition, certain
amounts previously classified as an element of net assets have been
reclassified to property and equipment and prepaid rent to properly reflect the
assets that are specifically identifiable to the Business.
(4) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Antenna towers and related equipment................... $ 107,481 $ 107,313
Buildings.............................................. 32,365 33,620
Land................................................... 5,750 5,822
Office equipment....................................... 2,501 2,420
Automobiles............................................ 1,419 1,407
--------- ---------
149,516 150,582
Less accumulated depreciation.......................... (107,923) (111,049)
--------- ---------
$ 41,593 $ 39,533
========= =========
</TABLE>
F-35
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
(5) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Accrued real estate taxes..................................... $ 200 $ 200
Accrued bonus................................................. 799 --
Accrued vacation.............................................. 172 193
Accrued commissions........................................... 84 132
Accrued rent.................................................. 945 1,221
Accrued other................................................. 257 242
------ ------
$2,457 $1,988
====== ======
</TABLE>
(6) Related-party Transactions
Details with respect to the net transfers from (to) Parent, follow:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash receipts by the Parent on behalf of the
Business.................................... $(90,297) $(87,735) $(86,624)
Cash disbursements by the Parent on behalf of
the Business................................ 76,033 76,453 73,059
Current and deferred income tax liabilities.. 4,318 4,398 4,382
-------- -------- --------
$ (9,946) $ (6,884) $ (9,183)
======== ======== ========
</TABLE>
Employees of the Business are eligible for various benefits under programs
maintained by the Parent. Related liabilities or assets are not included in the
Business' financial statements but rather are reported as an element of net
assets.
The Business engages in transactions with its Parent in the normal course of
its business. These transactions include the renting of antenna tower space and
the allocation of certain expenses.
In management's opinion, the foregoing transactions were consummated based
on amounts agreed upon between the respective parties and are reasonable.
However, these amounts may not represent the amounts that would have been
incurred has these transactions occurred with third parties at "arms-length."
F-36
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
(7) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1996, 1997,
and 1998 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1996:
U.S. Federal..................................... $4,415 $(1,239) $3,176
State and local.................................. 949 (267) 682
Foreign.......................................... 460 -- 460
------ ------- ------
$5,824 $(1,506) $4,318
====== ======= ======
Year ended December 31, 1997:
U.S. Federal..................................... $4,759 $(1,409) $3,350
State and local.................................. 1,023 (303) 720
Foreign.......................................... 328 -- 328
------ ------- ------
$6,110 $(1,712) $4,398
====== ======= ======
Year ended December 31, 1998:
U.S. Federal..................................... $3,069 $ 370 $3,439
State and local.................................. 660 80 740
Foreign.......................................... 203 -- 203
------ ------- ------
$3,932 $ 450 $4,382
====== ======= ======
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to income before income taxes as a result of
the following:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income tax expense at statutory rate............ $ 3,785 $ 3,866 $ 3,861
Increase in tax expense resulting from:
State and local income taxes, net of Federal
benefit...................................... 444 468 481
Taxes on non-U.S. earnings.................... 89 64 40
-------- -------- --------
$ 4,318 $ 4,398 $ 4,382
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets--liabilities not currently deductible
for tax purposes........................................ $ 944 $ 729
Deferred tax liabilities--property and equipment,
principally due to differences in depreciation.......... (1,850) (2,085)
------- -------
Net deferred tax liability............................. $ (906) $(1,356)
======= =======
</TABLE>
F-37
<PAGE>
NORTH AMERICAN ANTENNA SITES
BUSINESS OF MOTOROLA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 1996, 1997, and 1998 and the quarters ended
March 28, 1998 (unaudited) and April 3, 1999 (unaudited)
(dollars in thousands)
The foregoing net deferred tax liability has been settled through Transfers
to Parent and is included as a component of net assets at December 31, 1997 and
1998.
(8) Commitments and Contingencies
Leases
Certain antenna sites are leased by the Business under operating leases with
noncancelable lease terms expiring at various dates through 2029. Future
minimum payments under these lease agreements are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ -------
<S> <C>
1999........................................................... $ 6,055
2000........................................................... 5,372
2001........................................................... 4,546
2002........................................................... 3,621
2003........................................................... 3,431
Thereafter..................................................... 15,299
-------
$38,324
=======
</TABLE>
Rent expense for the years ended December 31, 1996, 1997, and 1998 amounted
to $37,319, $38,895, and $38,484, respectively, and is reported in the
statements of operations as an element of direct tower costs.
F-38
<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-39
<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,
respectively).......................... $ 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-40
<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-41
<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-42
<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
activities:
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-43
<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-44
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A Carve-Out Entity of MobileMedia Communications, Inc. and Subsidiaries)
NOTES TO FINANCIAL STATEMENTS--(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-45
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
TOWER OPERATIONS
(A Carve-Out Entity of MobileMedia Communications, Inc. and Subsidiaries)
NOTES TO FINANCIAL STATEMENTS--(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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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.
F-53
<PAGE>
SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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 antenna and related equipment.
F-54
<PAGE>
[LOGO]
<PAGE>
You may rely only on the information contained in this Prospectus. We have not
authorized anyone to provide information different from that contained in this
Prospectus. Neither the delivery of this Prospectus nor sale of Common Stock
means that information contained in this Prospectus is correct after the date
of this Prospectus. This Prospectus is not an offer to sell or solicitation of
an offer to buy these shares of Common Stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
The Offering............................................................. 5
Our Summary Historical and Unaudited Pro Forma Consolidated Financial
Data.................................................................... 6
Risk Factors............................................................. 9
Disclosure Regarding Forward-Looking Statements.......................... 19
Use of Proceeds.......................................................... 19
Dilution................................................................. 20
Dividend Policy.......................................................... 20
Price Range of Common Stock.............................................. 21
Capitalization........................................................... 21
Our Unaudited Pro Forma Financial Data................................... 22
Our Selected Historical Consolidated Financial Data...................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 41
Management and Directors................................................. 57
Selling Stockholders..................................................... 59
Description of Indebtedness.............................................. 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 64
Certain Federal Income Tax Considerations................................ 65
Underwriting............................................................. 77
Legal Matters............................................................ 79
Experts.................................................................. 79
Where You Can Find More Information...................................... 79
Incorporation of Certain Documents by Reference.......................... 80
Index to Financial Statements............................................ F-1
</TABLE>
--------------------------------------
[Pinnacle Holdings Inc. Logo appears here]
Pinnacle Holdings Inc.
10,700,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Raymond James & Associates, Inc.
Salomon Smith Barney
Banc of America Securities LLC
Prospectus
, 1999
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Subject to Completion, Dated July 20, 1999
------------------------------------------------------
Pinnacle Holdings Inc.
10,700,000 Shares
Common Stock
------------------------------------------------------
This is a public offering of common stock of Pinnacle Holdings Inc. We are
offering 10,700,000 shares of common stock of which 2,350,000 are being
offered by the selling stockholders listed under the heading "Selling
Stockholders" on page 59 and 8,350,000 are being offered by us. The
international underwriters are offering 2,140,000 shares outside the United
States and Canada and the U.S. underwriters are offering 8,560,000 shares in
the United States and Canada.
Our common stock trades on the Nasdaq National Market under the symbol
"BIGT". On July 19, 1999, the last reported sale price of our common stock
was $27.625 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to Pinnacle Holdings Inc. $ $
Proceeds, before expenses, to selling stockholders $ $
</TABLE>
We and the selling stockholders have granted the underwriters the right to
purchase up to 1,605,000 additional shares at the public offering price to
cover any over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payments in Baltimore,
Maryland on , 1999.
Deutsche Bank
Merrill Lynch International
Raymond James & Associates, Inc.
Salomon Smith Barney International
Bank of America International Limited
The date of this Prospectus is , 1999.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"International Underwriting Agreement"), the underwriters named below (the
"International Underwriters"), through their representatives Deutsche Bank AG
London, Merrill Lynch International, Raymond James & Associates, Inc., Salomon
Brothers International Limited and Bank of America International Limited (the
"International Representatives") have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of shares
of Common Stock at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Deutsche Bank AG London...............................................
Merrill Lynch International...........................................
Raymond James & Associates, Inc.......................................
Salomon Brothers International Limited................................
Bank of America International Limited.................................
-------
Total...............................................................
=======
</TABLE>
The Company has also entered into a U.S. and Canadian underwriting agreement
(the "U.S. Underwriting Agreement") with certain U.S. and Canadian underwriters
for whom Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorported, Raymond James & Associates, Inc., Salomon Smith Barney Inc. and
Banc of America Securities LLC (collectively the "U.S. Underwriters" and,
together with the International Underwriters, the "Underwriters") are acting as
representatives (the "U.S. Representatives" and, together with the
International Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the U.S. Underwriting Agreement, and concurrently with
the sale of 2,140,000 shares of Common Stock to the International Underwriters
pursuant to the U.S. Underwriting Agreement, the Company and the Selling
Stockholders have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally and not jointly has agreed to purchase from the Company
and the Selling Stockholders, an aggregate of 8,560,000 shares of Common Stock.
The public offering price per share of Common Stock and the underwriting
discount per share of Common Stock are identical under the International
Underwriting Agreement and the U.S. Underwriting Agreement.
In the International Underwriting Agreement and the U.S. Underwriting
Agreement, the several International Underwriters and the U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by an underwriter, the
International Underwriting Agreement and the U.S. Underwriting Agreement
provide that, in certain circumstances, the commitments of non-defaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings with respect to the sale of shares of Common Stock to be purchased by
the International Underwriters and the U.S. Underwriters are conditioned upon
one another.
The underwriting agreements provide that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are subject
to conditions. The Underwriters are obligated to purchase all of the shares of
Common Stock offered hereby, other than those covered by the over-allotment
option described below, if any of these shares are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and to
dealers at a price that represents a concession not in excess of
77
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
$ per share under the public offering price. The Underwriters may allow, and
these dealers may re-allow, a concession not in excess of $ per share to
other dealers. The expenses of this offering, all of which are being paid by
the Company, are estimated to be .
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to 1,605,000 additional shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. The Underwriters may exercise this option only
to cover over-allotments made in connection with the sale of the Common Stock
offered hereby. To the extent that the Underwriters exercise the option, each
of the Underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of Common Stock as the
number of shares of Common Stock to be purchased by it in the above table bears
to 10,700,000. The Company will be obligated, pursuant to the option, to sell
these shares to the Underwriters to the extent the option is exercised. If any
additional shares of Common Stock are purchased, the Underwriters will offer
additional shares on the same terms as those on which the 10,700,000 shares are
being offered.
The Company has agreed to indemnify the Underwriters against some specified
types of liabilities, including liabilities under the Securities Act.
Certain of the Company's officers, directors and stockholders have agreed
not to offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 90 days after
the effective date of the registration statement of which this Prospectus is a
part without the prior written consent of Deutsche Bank Securities Inc. This
consent may be given at any time without public notice. The Company has entered
into a similar agreement with Deutsche Bank Securities Inc.
Deutsche Bank Securities Inc., a Representative of the U.S. Underwriters,
acted as representative of the underwriters in connection with the IPO. An
affiliate of Deutsche Bank Securities Inc. and Deutsche Bank AG London, a
Representative of the International Underwriters, signed a commitment letter to
purchase $20 million of shares of Series B Preferred Stock. Banc of America
Securities LLC, an affiliate of Bank of America International Limited, was an
initial purchaser of the 10% senior discount notes due 2008 of the Company. In
addition, an affiliate of Banc of America Securities LLC and Bank of America
International Limited is a lender and agent under our credit facility.
An affiliate of Banc of America Securities LLC, a Representative of the U.S.
Underwriters, and Bank of America International Limited, a Representative of
the International Underwriters, may receive more than 10% of the net proceeds
from the sale of the Common Stock to repay debt under our credit facility.
Under the Conduct Rules of the National Association of Securities Dealers, Inc.
(the "NASD"), special considerations apply to a public offering of securities
where a "member" or a "person associated with a member" (as such terms are
defined in the Conduct Rules of the NASD) and their affiliates collectively
beneficially own more than 10% of the outstanding voting securities of a
company which is a corporation. Therefore, this offering is being made pursuant
to Rule 2710(c)(8) of the Conduct Rules of the NASD, in conjunction with which,
Raymond James & Associates, Inc., a Representative of the Underwriters, has
assumed the responsibilities of acting as a "qualified independent underwriter"
in pricing this offering, preparing this Prospectus and conducting due
diligence.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock. Specifically, the Underwriters may over-allot
shares of the Common Stock in connection with this offering, thus creating a
short position in the Common Stock for their own account. Additionally, to
cover these over-allotments or to stabilize the market price of the Common
Stock, the Underwriters may bid for, and purchase, shares of the Common Stock
in the open market. Finally, the Representatives, on behalf of the
Underwriters, also may reclaim selling concessions allowed to an Underwriter or
dealer if
78
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
the underwriting syndicate repurchases shares distributed by that Underwriter
or dealer. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Pinnacle by Holland & Knight LLP, Tampa, Florida. Some legal matters
related to this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New
York, New York.
EXPERTS
The financial statements for Pinnacle Holdings Inc. as of December 31, 1998
and 1997 and for each of the years in the three year period ended December 31,
1998 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 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.
The financial statements of the North American Antenna Site Business of
Motorola, Inc. as of December 31, 1997 and 1998 and for each of the years in
the three-year period ended December 31, 1998, have been included herein in
reliance upon the report of KPMG LLP, independent auditors, and upon the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Pinnacle has filed with the SEC a registration statement on Form S-3
pursuant to the Securities Act with respect to our Common Stock offered by this
Prospectus. This prospectus does not contain all the information set forth in
the registration statement, the exhibits and the schedule. For further
information about Pinnacle and the securities offered by this Prospectus,
reference is made to the registration statement and to the consolidated
financial statements, exhibits and schedule filed as a part thereof.
Pinnacle is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
reports and other information with the SEC. The registration statement, the
exhibits and schedule forming a part thereof and the reports and other
information filed by Pinnacle with the SEC in accordance with the Exchange Act
may be inspected without charge at the public reference facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or any part
thereof may also be obtained
79
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. You may obtain information regarding the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet Web site at http://www.sec.gov that contains
reports, proxy statements and other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act
until we sell all of the securities.
. Annual Report on Form 10-K for the year ended December 31, 1998.
. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
On request we will provide at no cost to each person, including any
beneficial owner, who receives a copy of this Prospectus, a copy of any or all
of the documents incorporated in this Prospectus by reference. We will not
provide exhibits to any of such documents, however, unless such exhibits are
specifically incorporated by reference into those documents. Written or
telephone requests for such copies should be addressed to our principal
executive offices, attention: Steven Day, Chief Financial Officer, 1549
Ringling Boulevard, Third Floor, Sarasota, Florida 34236, telephone number
(941) 364-8886.
80
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
You may rely only on the information contained in this Prospectus. We have not
authorized anyone to provide information different from that contained in this
Prospectus. Neither the delivery of this Prospectus nor sale of Common Stock
means that information contained in this Prospectus is correct after the date
of this Prospectus. This Prospectus is not an offer to sell or solicitation of
an offer to buy these shares of Common Stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
The Offering............................................................. 5
Our Summary Historical and Unaudited Pro Forma Consolidated Financial
Data.................................................................... 6
Risk Factors............................................................. 9
Disclosure Regarding Forward-Looking Statements.......................... 19
Use of Proceeds.......................................................... 19
Dilution................................................................. 20
Dividend Policy.......................................................... 20
Price Range of Common Stock.............................................. 21
Capitalization........................................................... 21
Our Unaudited Pro Forma Financial Data................................... 22
Our Selected Historical Consolidated Financial Data...................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 33
Business................................................................. 41
Management and Directors................................................. 57
Selling Stockholders..................................................... 59
Description of Indebtedness.............................................. 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 64
Certain Federal Income Tax Considerations................................ 65
Underwriting............................................................. 77
Legal Matters............................................................ 79
Experts.................................................................. 79
Where You Can Find More Information...................................... 79
Incorporation of Certain Documents by Reference.......................... 80
Index to Financial Statements............................................ F-1
</TABLE>
-------------------------------------
[Pinnacle Holdings Inc. Logo appears here]
Pinnacle Holdings Inc.
10,700,000 Shares
Common Stock
Deutsche Bank
Merrill Lynch International
Raymond James & Associates, Inc.
Salomon Smith Barney International
Bank of America International Limited
Prospectus
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. 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 undersigned registrant (the
"Company").
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 93,858
NASD filing fee................................................. $ 17,500*
Nasdaq listing fee.............................................. $ 17,500
Printing and engraving expenses................................. $ 125,000*
Accounting fees and expenses.................................... $ 200,000*
Legal fees and expenses......................................... $ 300,000*
Blue Sky fees and expenses...................................... $ 5,000*
Transfer Agent's fees and expenses.............................. $ 5,000*
Miscellaneous................................................... $ 236,142*
----------
Total......................................................... $1,000,000*
==========
</TABLE>
- --------
* Estimated
Item 15. Indemnification of Directors and Officers
The Company'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 Company's Certificate of
Incorporation and Bylaws also contain provisions making indemnification of its
directors and officers mandatory to the fullest extent permitted by the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary.
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. The Company
has obtained directors' and officers' liability insurance, consistent with the
provisions of the Delaware General Corporation Law, to protect directors and
officers from liabilities under various laws, including the Securities Act of
1933, as amended (the "Securities Act").
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.0 U.S. Underwriting Agreement++
1.1 International Underwriting Agreement++
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1.1 Amended and Restated Certificate of Incorporation of the Company**
3.1.2 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**
4.4 Registration Agreement**
4.5 Recapitalization Agreement**
5.1 Opinion of Holland & Knight LLP
8.1 Tax Opinion of Holland & Knight LLP
10.1 Fourth Amended and Restated Credit Agreement, dated June 25, 1999
10.2 Agreement for Purchase and Sale of Assets between PTI and
Motorola, Inc., dated June 25, 1999.++
23.1 Consent of Holland & Knight LLP (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants
23.3 Consent of Arthur Andersen LLP, independent public accountants
23.4 Consent of Ernst & Young LLP, independent public accountants
23.5 Consent of KPMG LLP, independent public accountants
24.1 Powers of Attorney++
</TABLE>
- --------
++ Previously filed
* Incorporated by reference to the Company's Registration Statement on Form S-
4 (SEC file no. 333-49147), as amended, filed with the Securities and
Exchange Commission on April 1, 1998.
** Incorporated by reference to the Company's Registration Statement on Form S-
11 (SEC file no. 333-59297), as amended, filed with the Securities and
Exchange Commission on July 17, 1998.
II-2
<PAGE>
Item 17. Undertakings
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions described in Item 15, or otherwise, the
Company 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 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company 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 Company 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 and will be governed
by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 Company pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PINNACLE HOLDINGS INC., a Delaware corporation, has duly caused this Pre-
Effective Amendment No. 2 to 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 20, 1999.
Pinnacle Holdings Inc.
/s/ Steven Day
By: _________________________________
Steven Day
Vice President, Chief Financial
Officer, Secretary and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 2 to this Registration Statement has been signed by
the following persons in the capacities indicated on July 20, 1999.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* Chief Executive Officer, July 20, 1999
______________________________________ President, Chief Operating
Robert Wolsey Officer and Director
/s/ Steven Day Vice President, Chief July 20, 1999
______________________________________ Financial Officer,
Steven Day Secretary and Director
* Executive Vice President July 20, 1999
______________________________________ and Director
James Dell'Apa
* Director July 20, 1999
______________________________________
Andrew Banks
* Director July 20, 1999
______________________________________
Peni Garber
* Director July 20, 1999
______________________________________
Peggy Koenig
* Director July 20, 1999
______________________________________
Royce Yudkoff
</TABLE>
/s/ Steven Day
*By: _____________________________
Steven Day
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.0 U.S. Underwriting Agreement++
1.1 International Underwriting Agreement++
3.1.1 Amended and Restated Certificate of Incorporation of the Company**
3.1.2 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**
4.4 Registration Agreement**
4.5 Recapitalization Agreement**
5.1 Opinion of Holland & Knight LLP
8.1 Tax Opinion of Holland & Knight LLP
10.1 Fourth Amended and Restated Credit Agreement, dated June 25, 1999
10.2 Agreement for Purchase and Sale of Assets between PTI and
Motorola, Inc., dated June 25, 1999++
23.1 Consent of Holland & Knight LLP (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants
23.3 Consent of Arthur Andersen LLP, independent public accountants
23.4 Consent of Ernst & Young LLP, independent public accountants
23.5 Consent of KPMG LLP, independent public accountants
24.1 Powers of Attorney++
</TABLE>
- --------
++Previously filed.
* Incorporated by reference to the Company's Registration Statement on Form S-
4 (SEC file no. 333-49147), as amended, filed with the Securities and
Exchange Commission on April 1, 1998.
** Incorporated by reference to the Company's Registration Statement on Form
S-11 (SEC file no. 333-59297), as amended, filed with the Securities and
Exchange Commission on July 17, 1998.
<PAGE>
Exhibit 5.1
July ___, 1999
Pinnacle Holdings Inc.
1549 Ringling Boulevard
Third Floor
Sarasota, Florida 34236
Re: Registration Statement on Form S-3
(File No. 333-82273)
Gentlemen:
We refer to the Registration Statement on Form S-3 (File No. 333-82273)
(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 12,305,000
shares of common stock, par value $.001 per share (the "Common Stock"), of the
Company being offered to the public pursuant to a U.S. underwriting agreement
(the "U.S. Underwriting Agreement"), by and among the Company, the selling
stockholders named therein, and Deutsche Bank Securities Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Raymond James & Associates, Inc., Salomon
Smith Barney Inc., and Banc of America Securities LLC, as representatives of the
U.S. underwriters, and an international underwriting agreement (the
"International Underwriting Agreement" and, together with the U.S. Underwriting
Agreement, the "Underwriting Agreements"), by and among the Company, the selling
stockholders named therein, and Deutsche Bank AG London, Merrill Lynch
International, Raymond James & Associates, Inc., Salomon Brothers International
Limited and Bank of America International Limited, as representatives of the
international 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 Agreements, 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>
July _____, 1999
Pinnacle Holdings Inc.
1549 Ringling Boulevard, Third Floor
Sarasota, FL 34236
Re: Registration Statement on Form S-3
Registration No. 333-82273
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-3 (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.
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, policies and practices of the Internal Revenue
Service (the "Service") including its practices and policies indicated in
private letter rulings (which rulings are not binding on the Service except, in
the case of each such ruling, with respect to the specific 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 Certificate of Incorporation, as amended, Bylaws and stock ownership
information; (3) the quarterly and annual REIT qualification testing schedules
prepared by the Company with the assistance of the Company's accountants,
PricewaterhouseCoopers LLP through and including March 31, 1999; and (4) the
Stockholders Agreement, Lock-Up Agreements, Prior Lock-Up Agreements, and
Restrictive Legends. The opinions
<PAGE>
Pinnacle Holdings, Inc.
Page 2
July _____, 1999
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 ____, 1999
(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 Company's
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, 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 certificate of incorporation or other organizational
documents and in the Prospectus. 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. 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.
<PAGE>
Pinnacle Holdings, Inc.
Page 2
July _____, 1999
Based upon, subject to, and limited by the assumptions and qualifications
set forth herein, the discussion in the Prospectus under the caption "Certain
Federal Income Tax Considerations" (which is incorporated herein by reference),
and the discussion 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, December 31, 1997, and December 31,
1998, and the continued operation of the Company in a manner consistent with the
statements made in the Management Representation Certificate and the
requirements for REIT qualification as described in the Prospectus will 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. 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 distributions
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 nature of their stock ownership, and the level
of the Company's distributions to stockholders 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
<PAGE>
Pinnacle Holdings, Inc.
Page 2
July _____, 1999
becomes, inaccurate or if any of the representations made to us is, or later
becomes, inaccurate. In addition, as noted in the Prospectus, the Company may in
the future acquire assets or engage in business activities which may have the
effect of terminating the status of the Company as a REIT, with possible
retroactive effect to as early as January 1, 1999.
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 Service
or the courts. In certain instances with respect to matters for which there is
no relevant authority, including the effect of certain transfer restrictions
under the Lock-Up Agreements, the Prior Lock-Up Agreements, the Stockholders
Agreement and the Restrictive Legends on the ability of the Company to satisfy
the requirement for REIT qualification that its shares be transferable, our
opinion is based on authorities that we have considered to be analogous even
though certain such authorities have been rendered obsolete for unrelated
reasons by subsequent authorities. There can be no assurance that positions
contrary to our opinions will not be taken by the Service, or that a court
considering the issues would not hold contrary to our opinions.
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
<PAGE>
EXHIBIT 10.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$470,000,000
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
Among
PINNACLE TOWERS INC.
And
NATIONSBANK, N.A.
as Administrative Agent
and
LENDERS
as defined herein
Dated as of June 25, 1999
With
BANC OF AMERICA SECURITIES LLC
as Sole Lead Arranger and Sole Book Manager
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PINNACLE TOWERS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I. DEFINITIONS
<S> <C>
1.01. Definitions...................................................................................... 1
1.02. Accounting and Other Terms....................................................................... 26
ARTICLE II. THE LOAN FACILITIES
2.01. The Loans........................................................................................ 26
2.02. Making Advances.................................................................................. 27
2.03. Evidence of Debt for Borrowed Money.............................................................. 29
2.04. Optional Prepayments............................................................................. 29
2.05. Mandatory Prepayments............................................................................ 30
2.06. Repayment........................................................................................ 31
2.07. Interest......................................................................................... 33
2.08. Default Interest................................................................................. 33
2.09. Continuation and Conversion Elections............................................................ 33
2.10. Fees and the Fee Letter.......................................................................... 35
2.11. Reduction of Commitments......................................................................... 36
2.12. Funding Losses................................................................................... 37
2.13. Computations and Manner of Payments.............................................................. 38
2.14. Yield Protection; Changed Circumstances.......................................................... 39
2.15. Use of Proceeds.................................................................................. 42
2.16. Collateral and Collateral Call................................................................... 42
2.17. Replacement of a Lender.......................................................................... 43
2.18. Conditions Precedent to the Increase of the Revolver B Commitment................................ 43
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit.................................................................... 46
3.02. Letters of Credit Fee............................................................................ 47
3.03. Reimbursement Obligations........................................................................ 47
3.04. Lenders' Obligations............................................................................. 48
3.05. Administrative Agent's Obligations............................................................... 49
ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to Closing, Effectiveness of this Agreement and the Refunding Advance...... 49
4.02. Conditions Precedent to All Advances and Letters of Credit....................................... 51
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.03. Conditions Precedent to Advances for Permitted Acquisitions, Except the Motorola Acquisition..... 52
4.04. Conditions Precedent to Motorola Acquisition and the Making of any Advance with Respect Thereto.. 52
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties................................................................... 54
5.02. Survival of Representations and Warranties....................................................... 62
ARTICLE VI. GENERAL COVENANTS
6.01. Preservation of Existence and Similar Matters.................................................... 63
6.02. Business; Compliance with Law and Material Agreements............................................ 63
6.03. Maintenance of Properties........................................................................ 63
6.04. Accounting Methods and Financial Records......................................................... 63
6.05. Insurance........................................................................................ 63
6.06. Payment of Taxes and Claims...................................................................... 64
6.07. Visits and Inspections........................................................................... 64
6.08. Payment of Debt for Borrowed Money............................................................... 64
6.09. Use of Proceeds.................................................................................. 64
6.10. Indemnity........................................................................................ 64
6.11. Environmental Law Compliance..................................................................... 65
6.12. Interest Rate Protection Agreements.............................................................. 66
6.13. Issuance and Pledge of Capital Stock of the Borrower............................................. 66
6.14. Continued Status as a Real Estate Investment Trust; Prohibited Transactions...................... 66
6.15. Tenant Leases, Ground Leases and Fee Owned Property.............................................. 67
6.16. Acquisitions, Generally.......................................................................... 68
6.17. Year 2000........................................................................................ 69
6.18. Motorola Acquisition............................................................................. 69
6.19. Notice by the Borrower........................................................................... 70
6.20. Syndication of the Loans......................................................................... 70
6.21. Additional Equity and/or Subordinated Debt....................................................... 70
ARTICLE VII. INFORMATION COVENANTS
7.01. Quarterly Financial Statements and Information................................................... 70
7.02. Annual Financial Statements and Information; Certificate of No Default........................... 71
7.03. Compliance Certificates.......................................................................... 71
7.04. Copies of Other Reports and Notices.............................................................. 71
7.05. Notice of Litigation, Default and Other Matters.................................................. 72
7.06. ERISA Reporting Requirements..................................................................... 73
7.07. Fee Owned Property, Ground Leases and Tenant Leases.............................................. 74
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII. NEGATIVE COVENANTS
8.01. Financial Covenants.............................................................................. 75
8.02. Debt for Borrowed Money.......................................................................... 77
8.03. Liens............................................................................................ 79
8.04. Investments...................................................................................... 79
8.05. Amendment and Waiver............................................................................. 80
8.06. Liquidation, Disposition or Acquisition of Assets, Merger, New Subsidiaries...................... 81
8.07. Guaranties; Contingent Liabilities............................................................... 81
8.08. Restricted Payments.............................................................................. 82
8.09. Affiliate Transactions........................................................................... 83
8.10. Compliance with ERISA............................................................................ 83
8.11. Capital Stock.................................................................................... 84
8.12. Sale and Leaseback............................................................................... 84
8.13. Sale or Discount of Receivables.................................................................. 84
8.14. Limitation on Restrictive Agreements............................................................. 84
ARTICLE IX. EVENTS OF DEFAULT
9.01. Events of Default................................................................................ 84
9.02. Remedies upon Default............................................................................ 88
9.03. Cumulative Rights................................................................................ 89
9.04. Waivers.......................................................................................... 89
9.05. Performance by Administrative Agent or any Lender................................................ 89
9.06. Expenditures..................................................................................... 89
9.07. Control.......................................................................................... 89
ARTICLE X. THE ADMINISTRATIVE AGENT
10.01. Authorization and Action......................................................................... 90
10.02. Administrative Agent's Reliance, Etc............................................................. 90
10.03. NationsBank, N.A. and Affiliates................................................................. 90
10.04. Lender Credit Decision........................................................................... 91
10.05. Indemnification by Lenders....................................................................... 91
10.06. Successor Administrative Agent................................................................... 91
ARTICLE XI. MISCELLANEOUS
11.01. Amendments and Waivers........................................................................... 92
11.02. Notices.......................................................................................... 92
11.03. Parties in Interest.............................................................................. 94
11.04. Assignments and Participations................................................................... 94
11.05. Sharing of Payments.............................................................................. 95
11.06. Right of Set-off................................................................................. 96
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.07. Costs, Expenses, and Taxes....................................................................... 96
11.08. Rate Provision................................................................................... 97
11.09. Severability..................................................................................... 97
11.10. Exceptions to Covenants.......................................................................... 98
11.11. Counterparts..................................................................................... 98
11.12. GOVERNING LAW; WAIVER OF JURY TRIAL.............................................................. 98
11.13. ENTIRE AGREEMENT................................................................................. 98
11.14. Amendment, Restatement, Extension, Renewal and Increase.......................................... 98
</TABLE>
<PAGE>
Table of Schedules and Exhibits
-------------------------------
Schedules
---------
Schedule 2.16 - Items required with respect to Each Fee Owned Real
Property of the Borrower and its Subsidiaries
Schedule 5.01(a) - Jurisdictions of Qualification, Ownership and
Capital Structure - Borrower
Schedule 5.01(f) - FAA Non-Compliance as of the Closing Date
Schedule 5.01(h) - Existing Litigation
Schedule 5.01(w) - Tenant Leases in existence on the Closing Date
Schedule 5.01(x) - Ground Leases in existence on the Closing Date
Schedule 5.01(y) - Owned Real Property in existence on the Closing Date
Schedule 8.02 - Existing Debt and Liabilities
Schedule 8.03 - Existing Liens
Schedule 8.04 - Existing Investments
Schedule 8.09 - Existing Affiliate Transactions
Schedule 11.02 - Lender Addresses
Exhibits
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Exhibit A-1 - Form of Revolver A Note
Exhibit A-2 - Form of Revolver B Note
Exhibit A-3 - Form of Term Loan A Note
Exhibit A-4 - Form of Term Loan B Note
Exhibit B - Form of Security Agreement (Borrower)
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Borrowing Notice
Exhibit E - Form of Conversion/Continuation Notice
Exhibit F - Form of Assignment and Acceptance
Exhibit G - Form of Guaranty of Subsidiaries
Exhibit H - Form of Security Agreement (Subsidiary)
Exhibit I - Form of Subordination Agreement
Exhibit J - Form of Borrower Pledge Agreement
Exhibit K - Form of Certain Ground Lease Provisions
Exhibit L - Form of Guaranty of Parent
Exhibit M - Form of Parent Pledge Agreement
Exhibit N - Form of Estoppel and Attornment Language
<PAGE>
________________________________________________________________________________
$470,000,000
PINNACLE TOWERS INC.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 25,
1999, among Pinnacle Towers Inc., a Delaware corporation (the "Borrower"), the
Lenders (as defined below), NationsBank, N.A., as a Lender and Administrative
Agent (the "Administrative Agent"). Banc of America Securities LLC acted as
Sole Lead Arranger and Sole Book Manager.
BACKGROUND.
WHEREAS, Borrower entered into that certain Third Amended and Restated
Credit Agreement with Administrative Agent and Lenders, dated as of May 29, 1998
(the "Original Credit Agreement") which provided for loan facilities in the
initial amount of $250,000,000;
WHEREAS, Borrower and Administrative Agent have agreed to restructure,
extend, renew and restate such indebtedness under the Original Credit Agreement
as set forth herein to provide for three separate facilities 1) a seven year
reducing revolver facility in the initial amount of $75,000,000, 2) a seven year
reducing revolver acquisition facility in the initial amount of $95,000,000,
which may under certain circumstances (but the Lenders are under no commitment
to) increase to $145,000,000, 3) a seven year delayed draw acquisition term loan
in the amount of $125,00,000 (which must be drawn no later than six months after
closing), and 4) an eight year term loan in the amount of $175,00,000 (which
must be fully drawn on the date of closing), and to make certain other agreed to
changes to the existing credit facility among the parties thereto.
AGREEMENT.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I. DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms have
the respective meanings indicated below (such meanings to be applicable equally
to both the singular and plural forms of such terms):
"Acquisition Debt" shall have the meaning ascribed thereto in the
Indenture.
"Acquisition Agreement" means that certain Agreement For Purchase and Sale
of Assets by and between Motorola and the Borrower, in the form of the draft of
such agreement delivered to the Administrative Agent on June 24, 1999, and in
any executed copy of such Agreement For Purchase
1
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and Sale of Assets, so long as any such executed copy is in such form delivered,
with only minor and immaterial changes, or such form with material changes that
are consented to by the Majority Lenders.
"Advance" means an advance made by a Lender to the Borrower pursuant to
Section 2.01 hereof which may be a Revolver A Advance, a Revolver B Advance, a
Term Loan A Advance or a Term Loan B Advance (and may either be Base Advance or
a LIBOR Advance, and which such Advance may also be a Refinancing Advance.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled By or is Under Common Control with
another Person.
"Administrative Agent" means NationsBank, N.A. in its capacity as
Administrative Agent hereunder, or any successor Administrative Agent appointed
pursuant to Section 10.06 hereof.
"Agreement" means this Fourth Amended and Restated Credit Agreement, as
hereafter amended, modified, increased, extended, restated or supplemented from
time to time.
"Annualized EBITDA" means, (a) with respect to Compliance Certificates
delivered in connection with Section 7.03 hereof, the product of (i) EBITDA for
the Parent, the Borrower and its Subsidiaries on a consolidated basis, for the
most recently completed fiscal quarter immediately preceding the date of
determination times (ii) four and (b) with respect to pro-forma Compliance
Certificates delivered in connection with Permitted Acquisitions delivered
pursuant to Section 6.16 hereof, the product of (i) EBITDA for the Parent, the
Borrower and its Subsidiaries on a consolidated basis, for the most recently
completed fiscal quarter immediately preceding the date of determination with
respect to which the Borrower has financial statements prepared, times (ii)
four.
"Applicable Law" means (a) in respect of any Person, all provisions of Laws
applicable to such Person, and all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a party
and (b) in respect of contracts made or performed in the State of Texas,
"Applicable Law" shall also mean the laws of the United States of America,
including, without limiting the foregoing, 12 USC Sections 85 and 86, as amended
to the date hereof and as the same may be amended at any time and from time to
time hereafter, and any other statute of the United States of America now or at
any time hereafter prescribing the maximum rates of interest on loans and
extensions of credit, and the laws of the State of Texas, including, without
limitations, Articles 5069-1H, Title 79, Revised Civil Statutes of Texas, 1925,
as amended ("Art. 1H"), if applicable, and if Art. 1H is not applicable, Article
5069-1D, Title 79, Revised Civil Statutes of Texas, 1925 ("Art. 1D"), as
amended, and any other statute of the State of Texas now or at any time
hereafter prescribing maximum rates of interest on loans and extensions of
credit, provided however, that pursuant to Article 5069-15.10(b), Title 79,
Revised Civil Statutes of Texas, 1925, as amended, the Borrower agrees that the
provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as
amended, shall not apply to the Advances hereunder.
"Applicable Margin" means, (a) with respect to Advances outstanding under
the Term Loan A and the Revolving Loans, 2.75% per annum for LIBOR Advances and
1.50% per annum for Base
2
<PAGE>
Advances and (b) with respect to Advances under the Term Loan B, 3.000% per
annum for LIBOR Advances and 1.750% for Base Advances, provided that, after the
date which the Administrative Agent and the Lenders receive a Compliance
Certificate required to be delivered in accordance with the terms of Section
7.01 hereof for the fiscal quarter ended June 30, 2000, then, if there exists no
Default or Event of Default, the Applicable Margin will be the following per
annum percentages applicable in the following situations:
Term Loan A and
Revolving Loans Term Loan B
Applicability Percentage Percentage
- ------------- ---------------- ------------
(i) If the Leverage 2.750% 3.000%
Ratio is equal to or
greater than 6.00 to 1.00
(ii) If the Leverage 2.500% 3.000%
Ratio is equal to or
greater than 5.50 to 1.00
but is less than
6.00 to 1.00
(iii) If the Leverage 2.250% 3.000%
Ratio is equal to or
greater than 5.00 to 1.00
but is less than
5.50 to 1.00
(iv) If the Leverage 2.000% 3.000%
Ratio is equal to or
greater than 4.50 to 1.00
but is less than
5.00 to 1.00
(v) If the Leverage 1.750% 2.750%
Ratio is equal to or
greater than 4.00 to 1.00
but is less than
4.50 to 1.00
3
<PAGE>
(vi) If the Leverage 1.500% 2.750%
Ratio is equal to or
greater than 4.00 to 1.00
but is less than
3.50 to 1.00
(vii) If the Leverage 1.250% 2.750%
Ratio is less than
3.00 to 1.00
In each case in the above grid, the Applicable Margin for Base Advances shall be
a per annum rate equal to 1.25% less than the Applicable Margin for the
applicable LIBOR Advance. The Applicable Margin payable by the Borrower shall
be (a) after the Administrative Agent has received all financial information
required by Section 7.01 hereof for the fiscal quarter ended June 30, 2000,
reduced or increased as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Parent, Borrower and
Subsidiaries of Borrower as tested by the Leverage Ratio and (b) further
increased as set forth in Section 6.15(c) hereof. Except as set forth in the
last sentence hereof, any such increase or reduction in the Applicable Margin
provided for herein shall be effective three Business Days after receipt by
Administrative Agent of the applicable financial statements and corresponding
Compliance Certificate. If financial statements and a Compliance Certificate of
the Borrower setting forth the Leverage Ratio are not received by the
Administrative Agent by the date required pursuant to Article VII hereof, the
Applicable Margin shall be determined as if the Leverage Ratio exceeds 6.00 to
1.00, until such time as such financial statements and Compliance Certificate
are received. For the final quarter of any fiscal year of the Borrower, the
Borrower may provide the unaudited financial statements of the Borrower, subject
only to year-end adjustments, for the purpose of adjusting the Applicable
Margin.
"Applicable Specified Percentage" means with respect to any Lender, in the
case of the Revolver A Loan, such Lender's Revolver A Specified Percentage, in
the case of the Revolver B Loan, such Lender's Revolver B Specified Percentage,
in the case of the Term Loan A, such Lender's Term Loan A Specified Percentage
and in the case of the Term Loan B, such Lender's Term Loan B Specified
Percentage.
"Application" means any stand-by letter of credit application delivered to
Administrative Agent for or in connection with any stand-by Letter of Credit
pursuant to Article III hereof, in Administrative Agent's standard form for
stand-by letters of credit.
"Art. 1D" has the meaning specified in the definition herein of "Applicable
Law".
"Art. 1H" has the meaning specified in the definition herein of "Applicable
Law".
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in
the form of Exhibit F hereto.
---------
4
<PAGE>
"Auditor" means Price Waterhouse L.L.P., or other independent certified
public accountants selected by the Borrower and acceptable to Administrative
Agent.
"Authorized Officer" means, with respect to the Borrower and its
Subsidiaries, the President, Chief Executive Officer, Chief Financial Officer or
the Controller of the Borrower.
"Bank Affiliate" means the holding company of any Lender, or any wholly-
owned direct or indirect subsidiary of such holding company or of such Lender.
"BAS" means Banc of America Securities LLC.
"Base Advance" means an Advance bearing interest at the Base Rate.
"Base Rate" means a per annum interest rate equal to the lesser of (a) the
Highest Lawful Rate, and (b) the sum of the Applicable Margin plus the higher of
(i) a fluctuating rate per annum as shall be in effect from time to time
announced or published by NationsBank, N.A. as its prime rate, and which may not
necessarily be the lowest interest rate charged by NationsBank, N.A. and (ii)
the Federal Funds Rate in effect at such time plus .50%.
"Borrower Pledge Agreement" means the Pledge Agreement, executed by the
Borrower, granting a Lien on 100% of the Capital Stock of each of the Borrower's
Subsidiaries constituting Pledged Stock as security for the Obligations,
substantially in the form of Exhibit J hereto, as such agreement may be amended,
---------
modified, renewed or extended from time to time.
"Borrowing" means a borrowing of the same Type made on the same day.
"Borrowing Notice" has the meaning set forth in Section 2.02(a) hereof.
"Bridge Debt" has the meaning ascribed thereto in Section 8.02(c)(ii)
hereof.
"Business Day" means a day of the year on which banks are not required or
authorized to close in Dallas, Texas or Sarasota, Florida, or, if with respect
to any notice, payment or calculation related to a LIBOR Advance, in New York,
New York, Dallas, Texas, Sarasota, Florida or London, England.
"Capital Expenditures" means capital expenditures, as defined in accordance
with GAAP.
"Capital Leases" means capital leases and subleases, as defined in
accordance with GAAP.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation and each class of partnership interests
(including without limitation, general, limited and preference units) in any
Person that is a partnership.
5
<PAGE>
"Change of Control" means the occurrence of one of more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Parent and its Subsidiaries, taken as a whole, to any Person or group of
related Persons, as defined in Section 13(d) of the Securities Exchange Act of
1934 (a "Group"), other than Permitted Holders, (ii) any Person or Group (other
than Permitted Holders) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing 30% or more of the aggregate
voting power represented by the issued and outstanding voting stock of the
Parent or any successor to all or substantially all of its assets; or (iii) the
first day on which a majority of the members of the board of directors of the
Parent are not Continuing Directors.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
reference to any provision of the Code shall include all successor provisions
thereto.
"Collateral" has the meaning ascribed thereto in Section 2.16 hereof.
"Commitment Fee" means the fee described in Section 2.10(b) hereof.
"Commitment Letter" means that certain Commitment Letter, dated June 23,
1999, executed among the Borrower, the Administrative Agent and BAS.
"Commitments" means the Revolver A Commitment and the Revolver B
Commitment.
"Communications Act" means, collectively, the Communications Act of 1934
and the rules and regulations promulgated thereunder, as from time to time in
effect.
"Compliance Certificate" means a certificate of an Authorized Officer in
the form of Exhibit C hereto, (a) certifying that such individual has no
---------
knowledge that a Default or Event of Default has occurred and is continuing, or
if a Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof and the action being taken or proposed to be taken with
respect thereto, (b) setting forth detailed calculations with respect to the
covenants described in Section 8.01 hereof, (c) certifying to the appropriate
Applicable Margins and (d) setting forth a description of all acquisitions
consummated in the previous fiscal quarter with respect to which the Borrower
was not required to inform the Administrative Agent, describing the name of the
acquisition, the purchase price, whether such acquisition was an asset or
Capital Stock acquisition and the cash flow related to the towers acquired.
"Consequential Loss" with respect to (a) the Borrower's payment of all or
any portion of the then-outstanding principal amount of a LIBOR Advance on a day
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) subject to Administrative Agents' prior consent, a LIBOR Advance made
on a date other than the date on which the Advance is to be made according to
Section 2.02(a) or Section 2.09 hereof to the extent such Advance is made on
such other date at the request of the
6
<PAGE>
Borrower, or (c) any of the circumstances specified in Section 2.04 hereof on
which a Consequential Loss may be incurred, means any loss, cost or expense
incurred by any Lender as a result of the timing of the payment or Advance or in
liquidating, redepositing, redeploying or reinvesting the principal amount so
paid or affected by the timing of the Advance or the circumstances described in
Section 2.04 hereof, which amount shall be the sum of (i) the interest that, but
for the payment or timing of Advance, such Lender would have earned in respect
of that principal amount, reduced, if such Lender is able to redeposit,
redeploy, or reinvest the principal amount, by the interest earned by such
Lender as a result of redepositing, redeploying or reinvesting the principal
amount plus (ii) any expense or penalty incurred by such Lender by reason of
liquidating, redepositing, redeploying or reinvesting the principal amount. Each
determination by each Lender of any Consequential Loss is, in the absence of
manifest error, presumptive evidence of the validity of such claim.
"Consolidated Leverage Ratio" means the ratio, at the end of the accounting
period with respect to which such determination is made, of (a) Total Debt
(exclusive of Debt for Borrowed Money among the Parent, the Borrower and the
wholly owned Subsidiaries of the Borrower) minus the sum of Subordinated Debt
outstanding which is (i) permitted to be incurred under Section 8.02(g) hereof
and (ii) (without duplication) described in Schedule 8.02(g) as the "Tidewater"
debt guaranteed by ABRY in the aggregate principal amount not to exceed
$3,904,600, to (b) Annualized EBITDA, provided that, the calculation of
Consolidated Leverage Ratio shall exclude revenues or charges attributable to
Properties of the Borrower and its Subsidiaries sold during the calculation
period as if such sale occurred on the first day of such period and shall
include revenues and charges attributable to Properties of the Borrower and its
Subsidiaries purchased during such period as if such purchase occurred on the
first day of such period.
"Contingent Liability" means, as to any Person, any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt or obligation of any other Person in any manner, whether
directly or indirectly, including without limitation any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase Property or services for the purpose of assuring the owner of such
Debt of its payment, or (c) to maintain the solvency, working capital, equity,
cash flow, fixed charge or other coverage ratio, or any other financial
condition of the primary obligor so as to enable the primary obligor to pay any
Debt or to comply with any agreement relating to any Debt or obligation, but
excluding endorsement of checks, drafts and other instruments in the ordinary
course of business.
"Continue," "Continuation" and "Continued" each refer to the continuation
pursuant to Section 2.09 hereof of a LIBOR Advance from one Interest Period to
the next Interest Period.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Parent who (i) was a member of such board of
directors on the date hereof or (ii) was nominated for election or elected to
such board of directors by any of the Permitted Holders or with the approval of
a majority of the Continuing Directors who were members of such board at the
time of such nomination or election.
7
<PAGE>
"Control" or "Controlled By" or "Under Common Control" mean possession,
direct or indirect, of power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event (a) any Person which beneficially owns
--------
(i) 10% or more (in number of votes) of the securities having ordinary voting
power for the election of directors of a corporation shall be conclusively
presumed to control such corporation and (ii) 10% or more of the interest in
capital or profits of a partnership shall be conclusively presumed to control
such partnership, and (b) no Person shall be deemed to be an Affiliate of a
corporation solely by reason of his being an officer or director of such
corporation.
"Controlled Group" means, as to any Person, all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
which are under common control with such Person and which, together with such
Person, are treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.
"Conversion or Continuance Notice" has the meaning set forth in Section
2.09(b) hereof.
"Debt" means all obligations, contingent or otherwise, which in accordance
with GAAP are required to be classified on the balance sheet as liabilities, and
in any event including (without duplication) (a) Capital Leases, (b) Contingent
Liabilities that are required to be disclosed and quantified in notes to
consolidated financial statements in accordance with GAAP, and (c) liabilities
secured by any Lien on any Property, regardless of whether such secured
liability is with or without recourse.
"Debt for Borrowed Money" means, as to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, letters of
credit (or applications for letters of credit) or other similar instruments, (b)
all obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, and, with respect to the Parent, the Borrower
and its Subsidiaries, including any accrued but unpaid Earn-Out Liability, but
excluding any unaccrued Earn-Out Liability, and (d) liabilities under Synthetic
Leases. For purposes of this Agreement, the principal amount of Debt of a Person
deemed to be outstanding under (a) Synthetic Leases to which a Person is a party
shall be the aggregate net present value (calculated at a discount rate of ten
percent of the future Rental Obligations which will become due and payable by
such Person over the remaining term of all Synthetic Leases) to which such
Person is a party.
"Debtor Relief Laws" means applicable bankruptcy, reorganization,
moratorium, or similar Laws, or principles of equity affecting the enforcement
of creditors' rights generally.
"Default" means any event specified in Section 9.01 hereof, whether or not
any requirement in connection with such event for the giving of notice, lapse of
time, or happening of any further condition has been satisfied.
8
<PAGE>
"Distribution" means, as to any Person, (a) any declaration or payment of
any distribution or dividend (other than a stock dividend) on, or the making of
any pro rata distribution, loan, advance, or investment to or in any holder of,
any partnership interest or shares of capital stock or other equity interest of
such Person (or the establishment of a sinking fund or otherwise setting aside
of funds for any such purpose), or (b) any purchase, redemption, or other
acquisition or retirement for value of any shares of partnership interest or
capital stock or other equity interest of such Person (or the establishment of a
sinking fund or otherwise setting aside of funds for any such purpose).
"Earn-Out Liability" means, with respect to the Borrower and its
Subsidiaries, any unsecured contingent liability of the Borrower or any
Subsidiary of the Borrower incurred in connection with any Permitted
Acquisition, which such contingent liability (a) constitutes a portion of the
purchase price for the property acquired but is not an amount certain, (b) is
only payable based on the performance of the acquired property and in an amount
based only on the performance of the acquired property and (c) is not subject
to any acceleration right.
"EBITDA" means, for the Parent, the Borrower and its Subsidiaries, for any
period of determination, the sum of (a) net income for such period, excluding
non-cash income, plus (b) amortization and depreciation for such period, plus
(c) non-cash charges (minus non-cash income) and other extraordinary items for
such period to the extent not included in net income, plus (d) Interest Expense
for such period, including Rental Obligations under Synthetic Leases (whether or
not treated as Interest Expense), plus (e) Income Tax Expense for the Parent,
the Borrower and its Subsidiaries for such period, plus (f) an adjustment to net
income (without duplication) for such period to account for the effect of
treating all acquisitions completed in such period as if such acquisitions had
been completed on the first day of such period, plus (g) an adjustment to net
income for such period to record (i) an increase in revenue related to all new
leases executed or acquired in the period as if such leases were effective as of
the beginning of such period and (ii) a decrease in revenue related to all
terminated or canceled leases during the period as if such leases were
terminated or canceled as of the beginning of such period, provided that,
determinations of adjustments to EBITDA with respect to the assets acquired by
the Borrower in connection with the Motorola Acquisition shall be calculated in
a manner reasonably acceptable to the Administrative Agent and Majority Lenders.
"Eligible Assignee" means any Bank Affiliate and any (a) commercial bank
organized under the laws of the United States, or any state thereof, and having
total assets in excess of $1,000,000,000; (b) savings and loan association or
savings bank organized under the laws of the United States, or any state
thereof, having total assets in excess of $1,000,000,000, and not in
receivership or conservatorship; (c) commercial bank organized under the laws of
any other country which is a member of the Organization for Economic Cooperation
and Development, or a political subdivision of any such country, and having
total assets in excess of $1,000,000,000, provided that such bank is acting
through a branch or agency located in the country in which it is organized or
another country which is described in this clause; (d) central bank of any
country which is a member of the Organization for Economic Cooperation and
Development; and (e) any other Person approved by the Administrative Agent,
which approval will not be unreasonably withheld.
9
<PAGE>
"Environmental Claim" means any written notice by any Tribunal alleging
liability for damage to the environment, or by any Person alleging liability for
personal injury (including sickness, disease or death), resulting from or based
upon (a) the presence or release (including sudden or non-sudden, accidental or
non-accidental, leaks or spills) of any Hazardous Material at, in or from
property, whether or not owned by the Parent, the Borrower or any of its
Subsidiaries, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S)9601 et seq.) ("CERCLA"), the
Hazardous Material Transportation Act (49 U.S.C. (S)1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C (S)6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. (S)1251 et seq.), the Clean Air Act (42 U.S.C.
(S)7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. (S)651 et seq.) ("OSHA"),
as such laws have been or hereafter may be amended or supplemented, and any and
all analogous future federal, or present or future state or local, Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of the Borrower or any Obligor, or is under
common control with 67 Borrower or any Obligor, within the meaning of Section
414(c) of the Code, and the regulations and rulings issued thereunder.
"ERISA Event" means (a) a reportable event, within the meaning of Section
4043 of ERISA, unless the 30-day notice requirement with respect thereto has
been waived by the PBGC, (b) the issuance by the administrator of any Plan of a
notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA), (c) the withdrawal by the Parent, the Borrower, any
Subsidiary of the Borrower, or an ERISA Affiliate from a Multiple Employer Plan
during a Plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA, (d) the failure by the Borrower, any Subsidiary of
the Borrower, or any ERISA Affiliate to make a payment to a Plan required under
Section 302 of ERISA, (e) the adoption of an amendment to a Plan requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA, or (f) the
institution by the PBGC of proceedings to terminate a Plan, pursuant to Section
4042 of ERISA, or the occurrence of any event or condition that constitutes
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, a Plan.
"Estoppel and Attornment Language" means estoppel and attornment language
substantially in the form of Exhibit N hereto, or such other language as may be
---------
approved in writing by Administrative Agent.
10
<PAGE>
"Event of Default" means any of the events specified in Section 9.01 of
this Agreement, provided there has been satisfied any requirement in connection
therewith for the giving of notice, lapse of time, or happening of any further
condition.
"Excess Cash Flow" means, for any fiscal year of the Borrower, EBITDA for
such year minus the sum of (a) Fixed Charges for such year (excluding interest
paid or payable, at the option of the Borrower, in-kind), plus (b) (without
duplication) all voluntary principal prepayments on the Obligations pursuant to
Section 2.04 hereof during such period.
"FAA" means the Federal Aviation Administration, or any governmental agency
succeeding to the functions thereof.
"FCC" means the Federal Communications Commission, or any governmental
agency succeeding to the functions thereof.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Agent from three federal funds brokers
of recognized standing selected by it.
"Fee Letter" means that certain Fee Letter and Agreement, dated June 23,
1999, between the Borrower and the Administrative Agent, as such letter may be
amended, modified, substituted, replaced, or increased from time to time, and
such other fee letters as may be executed among the parties from time to time,
as such letters may be amended, modified, substituted, replaced, or increased
from time to time.
"Final Maturity Date" means June 30, 2007, or such earlier date on which
all outstanding Advances under the Term Loan B and all other outstanding
Obligations are due and payable (including, without limitation, whether by
acceleration, installment payment, mandatory or voluntary commitment reduction
or mandatory or voluntary prepayment).
"First Maturity Date" means June 30, 2006, or such earlier date on which
all outstanding Advances under the Revolving Loans and the Term Loan A,
respectively, are due and payable (including, without limitation, whether by
acceleration, installment payment, scheduled reduction of either of the
Commitments to zero or mandatory or voluntary commitment reduction of either of
the Commitments to zero or mandatory or voluntary prepayment).
"Fixed Charges" means, for any specified period for the Parent, the
Borrower and its Subsidiaries on a consolidated basis, the sum of (a) required
or scheduled principal and interest payments with respect to Debt for Borrowed
Money for such period, plus (b) required or scheduled principal payments with
respect to seller notes executed by the Borrower in connection with
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<PAGE>
Permitted Acquisitions to the extent permitted by Section 8.02 hereof, plus (c)
accrued or paid Earn-Out Liabilities, plus (d) required or scheduled payments
with respect to Capital Leases for such period, plus (e) cash distributions made
by the Borrower and the Parent in accordance with the terms of Section
8.08(b)(iii) hereof during such period (without duplication), plus (f) Capital
Expenditures for such period, plus, (e) (without duplication), cash Income Tax
Expense of the Parent, the Borrower and its Subsidiaries with respect to such
period.
"GAAP" means generally accepted accounting principles applied on a
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board and other changes in accounting methods permitted by generally accepted
accounting principles.
"Ground Lease" means those certain leases for real property or rooftops
entered into or acquired by the Borrower or any Subsidiary of the Borrower, for
the lease of real property (including rooftops) which constitute a Tower or upon
which is located a Tower (or which will constitute a Tower or upon which will be
located a Tower) for the purpose of maintaining Tenant Leases, including,
without limitation, those Ground Leases described on Schedule 5.01(x) hereto.
----------------
"Guarantors" means the Parent and each Subsidiary of the Borrower existing
on the Closing Date or formed or acquired from time to time thereafter.
"Guaranty" means a guaranty executed by any Person of the obligations of
another Person, or any agreement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes liable upon, the obligation of any other Person, or agrees
to maintain the net worth or working capital or other financial condition of any
other Person, or otherwise assures any creditor or such other Person against
loss, including, without limitation, any comfort letter, or take-or-pay contract
and shall include without limitation, the contingent liability of such Person in
connection with any application for a letter of credit.
"Hazardous Materials" means all materials subject to any Environmental Law,
including without limitation materials listed in 49 C.F.R. ' 172.101, Hazardous
Substances, explosive or radioactive materials, hazardous or toxic wastes or
substances, petroleum or petroleum distillates, asbestos, or material containing
asbestos.
"Hazardous Substances" means hazardous waste as defined in the Clean Water
Act, 33 U.S.C. (S) 1251 et seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Resource Conservation
Recovery Act, 42 U.S.C. (S) 6901 et seq., and the Toxic Substances Control Act,
15 U.S.C. (S) 2601 et seq.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, Administrative Agent is then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, such Lender is permitted to charge
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<PAGE>
on the Obligations shall change after the date hereof, the Highest Lawful Rate
shall be automatically increased or decreased, as the case may be, from time to
time as of the effective time of each change in the Highest Lawful Rate without
notice to the Borrower. For purposes of determining the Highest Lawful Rate
under Applicable Law, the applicable rate ceiling shall be (a) the indicated
rate ceiling described in and computed in accordance with the provisions of Art.
lH; or (b) either the annualized ceiling or quarterly ceiling computed pursuant
to .008 of Art. 1D; provided, however, that at any time the indicated rate
-------- -------
ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall
be less than 18% per annum or more than 24% per annum, the provisions of
Sections .009(a) and .009(b) of said Art. lD shall control for purposes of such
determination, as applicable.
"Income Tax Expense" means the aggregate Taxes accrued by the Parent, the
Borrower and its Subsidiaries for the relevant period of determination, plus any
cash Distributions made by the Borrower for the purposes of satisfying any Tax
liabilities in accordance with Section 8.08 hereof.
"Indenture" means that certain Indenture, dated March 20, 1998, between the
Parent and The Bank of New York, as trustee, in connection with the Parent
Senior Notes.
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA.
"Interest Expense" means, for the Parent, the Borrower and its Subsidiaries
on a consolidated basis, all interest expense and commitment fees incurred with
respect to Total Debt whether accrued or paid, all fees or expenses with respect
to letters of credit, bankers' acceptances or similar facilities, excluding
interest actually paid-in-kind.
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date the Advance is made or continued as a LIBOR Advance and
ending one, two, three or six months thereafter (as the Borrower shall select),
provided, however, that:
- -------- -------
(a) the Borrower may not select any Interest Period that ends after
any principal repayment date unless, after giving effect to such selection,
the aggregate principal amount of LIBOR Advances having Interest Periods
that end on or prior to such principal repayment date, shall be at least
equal to the principal amount of Advances due and payable on and prior to
such date;
(b) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, provided,
--------
however, that if such extension would cause the last day of such Interest
-------
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day; and
(c) whenever the first day of any Interest Period occurs on a day of
an initial calendar month for which there is no numerically corresponding
day in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of
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<PAGE>
months in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Interest Rate Protection Agreement" means an interest rate swap, cap,
collar or similar interest rate protection agreement between the Borrower and
any Lender.
"Investment" means any acquisition of all or substantially all of the
assets of any Person, or any direct or indirect purchase or other acquisition
of, or a beneficial interest in, capital stock or other securities of any other
Person, or any direct or indirect loan, advance (other than (i) advances to
employees for moving and travel expenses, (ii) drawing accounts, (iii) deposits
and advances made to contractors, vendors and others in the ordinary course of
business, (iv) earnest money deposits, good faith deposits and similar deposits
made in connection with Permitted Acquisitions, and (v) similar expenditures in
the ordinary course of business), or capital contribution to or investment in
any other Person, including without limitation the incurrence or sufferance of
Debt or accounts receivable of any other Person that are not current assets or
do not arise from sales to that other Person in the ordinary course of business.
"Law" means any constitution, statute, law, ordinance, regulation, rule,
order, writ, injunction, or decree of any Tribunal.
"Lenders" means the lenders listed on the signature pages of this
Agreement, and each Eligible Assignee which hereafter becomes a party to this
Agreement pursuant to Section 11.04 hereof or pursuant to an amendment to this
Agreement or Section 2.18 hereof, for so long as each is owed any portion of the
Obligation or is obligated under any portion of the Commitments.
"Lending Office" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of each Lender, branch or affiliate
identified as such on Schedule 11.02 hereto, and (b) subsequently, such other
--------------
office of each Lender, branch or affiliate as each Lender may designate to the
Borrower and Administrative Agent as the office from which the Advances of each
Lender will be made and maintained and for the account of which all payments of
principal and interest on the Advances and the Commitment Fee will thereafter be
made. Lenders may have more than one Lending Office for the purpose of making
Base Advances and LIBOR Advances.
"Letter of Credit Commitment" means an amount equal to the lesser of (a)
(i) until the earlier of October 31, 1999 and the consummation of the Motorola
Acquisition, $60,000,000, and (ii) on and after the earlier of October 31, 1999
and the consummation of the Motorola Acquisition, $40,000,000 and (b) the
remainder of the Revolver B Commitment minus the sum of all outstanding Revolver
B Advances.
"Letters of Credit" means the irrevocable standby letters of credit issued
by Administrative Agent under and pursuant to Article III hereof, and under or
pursuant to Article III of the Original Credit Agreement, as each may be
amended, modified, substituted, increased, replaced, renewed or extended from
time to time.
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"Leverage Ratio" means the ratio, at the end of the accounting period with
respect to which such determination is made, of (a) Senior Debt of the Borrower
and its Subsidiaries (exclusive of Debt owed to each other), minus the sum of
Subordinated Debt outstanding which is (i) permitted to be incurred under
Section 8.02(g) hereof and (ii) (without duplication) described in Schedule
8.02(g) as the "Tidewater" debt guaranteed by ABRY in the aggregate principal
amount not to exceed $3,904,600, to (b) Annualized EBITDA (excluding EBITDA
attributable to the Parent), provided that, the calculation of the Leverage
Ratio shall exclude revenues or charges attributable to Properties of the
Borrower and its Subsidiaries sold during the calculation period as if such sale
occurred on the first day of such period and shall include revenues and charges
attributable to Properties of the Borrower and its Subsidiaries purchased during
such period as if such purchase occurred on the first day of such period.
"LIBOR Advance" means an Advance bearing interest at the LIBOR Rate.
"LIBOR Lending Office" means, with respect to each Lender, the office
designated as its "LIBOR Lending Office" below its name on Schedule 11.02
--------------
hereto, or such other office of Lender or any of its affiliates hereafter
designated by notice to the Borrower and Administrative Agent.
"LIBOR Rate" means a simple per annum interest rate equal to the lesser of
(a) the Highest Lawful Rate, and (b) sum of the Applicable Margin plus the LIBOR
Rate Basis. The LIBOR Rate shall, with respect to LIBOR Advances subject to
reserve or deposit requirements under any Law, be subject to premiums assessed
therefor by each Lender, which are payable directly to each Lender in an amount
sufficient to compensate such Lender for any increased cost or reduced rate of
return attributable to such reserve deposit requirements. Any calculation by a
Lender of such increased cost or reduced rate of return which is in reasonable
detail and submitted to Borrower shall, in the absence of manifest error, be
presumptive evidence of the validity of such claim. Once determined for any
LIBOR Advance, the LIBOR Rate shall remain unchanged during the applicable
Interest Period.
"LIBOR Rate Basis" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR Rate Basis" shall mean, for any LIBOR
Advance for any Interest Period therefor, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
--------
however, if more than one rate is specified on Reuters Screen LIBO Page, the
- -------
applicable rate shall be the arithmetic mean of all such rates.
"License" means, as to the Parent, the Borrower, or any Subsidiary of the
Borrower, any license, permit, consent, certificate of need, authorization,
certification, accreditation, franchise, approval, or grant of rights by, or any
filing or registration with, any Tribunal or third Person
15
<PAGE>
(including without limitation the FCC and the FAA) necessary for such Person to
own, build, maintain, or operate its business or Property.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including without limitation any agreement to give or not to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement or other similar form of public notice under the
Laws of any jurisdiction (except for the filing of a financing statement or
notice in connection with an (a) operating lease or (b) the true consignment of
goods to the Borrower or any Subsidiary of the Borrower as consignee).
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted by or before any Tribunal or arbitrator, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.
"Loan" means, as applicable in the context used, the Revolver A Loan, the
Revolver B Loan, the Term Loan A or the Term Loan B, and "Loans" means all or
any combination of the Revolver A Loan, the Revolver B Loan, the Term Loan A and
the Term Loan B, as applicable in the context used.
"Loan Papers" means this Agreement, the Notes, the Security Agreements,
Borrower Pledge Agreement, the Subsidiary Guaranties, the Parent Guaranty, the
Parent Pledge Agreement, the Fee Letters, the portions of the Commitment Letter
which specifically state that they shall survive the consummation of this credit
facility, financing statements, mortgages, deeds of trust, any Interest Rate
Protection Agreement and related documents entered into by the Borrower with any
Lender or Bank Affiliate, all Letters of Credit, all Applications and all other
agreements between the Borrower, the Parent or any Subsidiary of the Borrower
and the Administrative Agent related to any Letter of Credit, letter agreements,
assignment of leases, other fee letters, Assignment and Acceptances, post-
closing letters, and all other documents, instruments, agreements, or
certificates executed or delivered from time to time by any Person in connection
with this Agreement or as security for the Obligations hereunder, granting
Collateral or otherwise, as each such agreement may be amended, modified,
substituted, replaced or extended from time to time.
"Majority Lenders" means any combination of Lenders having at least 51.00%
of the aggregate amount of the sum of (a) outstanding Commitments plus (b)
outstanding Term Loan A Advances, plus (c) outstanding Term Loan B Advances,
provided, however, that (i) if either of the Commitments have been terminated,
then (a) above will be the amount of the outstanding Advances under the Revolver
A Loan and/or the Revolver B Loan, as appropriate.
"Material Adverse Change" means any circumstance or event that is or would
reasonably be expected to (a) be material and adverse to the financial
condition, business operations, prospects, or Properties of the Parent, the
Borrower and its Subsidiaries on a consolidated basis, (b) materially and
16
<PAGE>
adversely affect the validity or enforceability of (i) any Note, (ii) this
Agreement or (iii) any material Loan Paper or Loan Papers which in the aggregate
are material, or (c) cause a Default or Event of Default.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, a Lender is permitted to charge on the Obligations.
"Motorola" means Motorola, Inc., a Delaware corporation.
"Motorola Acquisition" means that certain acquisition by the Borrower of
certain tower assets of Motorola in accordance with the Acquisition Agreement.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any Subsidiary of the Borrower, or
any ERISA Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an obligation
to make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate and at least
one Person other than the Borrower, any Subsidiary of the Borrower, and any
ERISA Affiliate, or (b) was so maintained and in respect of which the Borrower,
any Subsidiary of the Borrower, or any ERISA Affiliate could have liability
under Section 4064 or 4069 of ERISA in the event such plan has been or were to
be terminated.
"Net Proceeds" means the gross cash proceeds received by the Parent, the
Borrower or any Subsidiary of the Borrower in connection with or as a result of
(a) any asset sale not in the ordinary course of business, minus (so long as
each of the following are estimated in good faith by the management of the
Borrower and certified to the Lenders in reasonable detail by an Authorized
Officer) (i) distributions to be made, if any, by the Borrower to the Parent and
by the Parent to the Shareholders, each as permitted by Section 8.08 hereof,
plus to the extent the Borrower or such Subsidiary has any actual Tax liability,
actual Taxes payable with respect to such asset sale in an amount equal to the
Tax liability of the Parent, the Borrower or any Subsidiary of the Borrower in
respect of such sale (taking into account the distribution to the Parent and by
the Parent to the Shareholders, and all Tax benefits of each of the parties),
(ii) reasonable and customary transaction costs payable by the Parent, the
Borrower or any Subsidiary of the Borrower related to such sale and (iii) Debt
secured by the assets sold that is immediately repaid as a consequence of such
sale, and (b) any additional equity or permitted Debt for Borrowed Money, except
such Debt for Borrowed Money that is specifically permitted to be incurred under
the terms of Section 8.02 hereof, minus (so long as it is estimated in good
faith by the management of the Borrower or such Subsidiary and certified to the
Lenders in reasonable detail by an Authorized Officer), reasonable and customary
transaction costs (including reasonable and customary broker's fees), payable by
the Parent, the Borrower or any Subsidiary of the Borrower related to such
transaction.
17
<PAGE>
"Note" means each Note of the Borrower evidencing Advances hereunder,
substantially in the forms of Exhibits A-1, A-2, A-3 and A-4 hereto, together
------------------------------
with any extension, renewal or amendment thereof, or substitution therefor.
"Obligations" means all present and future obligations, indebtedness and
liabilities, and all renewals and extensions of all or any part thereof, of the
Borrower and each Obligor to Lenders and Administrative Agent arising from, by
virtue of, or pursuant to this Agreement, any of the other Loan Papers and any
and all renewals and extensions thereof or any part thereof, or future
amendments thereto, all interest accruing on all or any part thereof and
reasonable attorneys' fees incurred by the Administrative Agent for the
preparation of this Agreement and consummation of this credit facility,
execution of waivers, amendments and consents, and in connection with the
enforcement or the collection of all or any part thereof, and reasonable
attorneys' fees incurred by the Lenders in connection with the enforcement or
the collection of all or any part of the Obligations during the continuance of
an Event of Default, in each case whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or joint and
several. Without limiting the generality of the foregoing, "Obligations"
includes all amounts which would be owed by the Borrower, each other Obligor and
any other Person (other than Administrative Agent or Lenders) to Administrative
Agent or Lenders under any Loan Paper, but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower, any other Obligor
or any other Person (including all such amounts which would become due or would
be secured but for the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding of the Borrower, any other
Obligor or any other Person under any Debtor Relief Law).
"Obligor" means (a) the Borrower, (b) the Parent, (c) each Subsidiary of
the Borrower, (d) each other Person liable for performance of any of the
Obligations and (e) each other Person the Property of which secures the
performance of any of the Obligations.
"Oral Tenant Leases" means those Tenant Leases which are oral and not
subject to any written agreement.
"Original Credit Agreement" has the meaning ascribed thereto in the
preamble hereof.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.
"Parent" means Pinnacle Holdings Inc., a Delaware corporation.
"Parent Guaranty" means any Guaranty executed by the Parent guarantying
payment and performance of the Obligations, substantially in the form of Exhibit
-------
L attached hereto, as such agreement may be amended, modified, renewed or
- -
extended from time to time.
"Parent Pledge Agreement" means the Pledge Agreement executed by the
Parent, granting a Lien on 100% of the Capital Stock of the Borrower owned by
the Parent which such Capital Stock
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<PAGE>
will constitute Pledged Stock securing the Obligations, substantially in the
form of Exhibit M hereto, as such agreement may be amended, modified, renewed or
---------
extended from time to time.
"Parent Senior Notes" means those certain 10% Senior Discount Notes due
2008 aggregating $325,000,000.00 amount in face value, unsecured, non cash
interest bearing (payment in kind only) for the first five years and issued by
the Parent pursuant to the Parent Senior Notes Documentation.
"Parent Senior Notes Documentation" means that certain Indenture and all
other written agreements and documentation relating to the Parent Senior Notes
in existence on the Closing Date or as permitted to be amended by Section 8.05
hereof.
"Permitted Acquisition" means any acquisition of assets related to the
communications tower or rooftop business, including, without limitation, (i) the
development, construction or acquisition of towers or rooftop space and related
real estate, ground leases, and tower, rooftop, access and/or guy wire
easements, or (ii) acquisitions of 100% of the Capital Stock of any Person
owning or leasing towers or rooftop space, or (iii) acquisitions of leasehold
rights on Towers for the purpose of subleasing, in each case by the Borrower or
any Subsidiary of the Borrower, which, after giving effect to the proposed
acquisition and any equity investments and borrowings related thereto, would not
cause a Default or Event of Default under Section 8.01(a) or 8.01(b) hereof or
any other term or provision of this Agreement and the Loan Papers.
"Permitted Holders" means as of the date of determination (i) Robert
Wolsey and his spouse, and any of his respective estates, lineal descendants
(including adoptive children), heirs, executors, personal representatives,
administrators and trusts for any of their benefit and (ii) any other Person,
the majority of which voting stock is directly or indirectly owned by any Person
described in clause (i) above.
"Permitted Liens" means, as applied to any Person:
(a) any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) (i) Liens on real estate for real estate Taxes not yet delinquent, (ii)
Liens created by lease agreements, statute or common law to secure the payments
of rental amounts and other sums not yet due thereunder, (iii) Liens on
leasehold interests created by the lessor in favor of any mortgagee of the
leased premises, and (iv) Liens for Taxes, assessments, governmental charges,
levies or claims that are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on such Person's books, but only so long as no foreclosure, restraint,
sale or similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
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<PAGE>
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere with the ordinary conduct of the
business of such Person;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured and
the insurer shall not have denied coverage, or (iii) such judgments or awards
shall have been bonded to the satisfaction of the Majority Lenders;
(g) Any Liens existing on the Closing Date which are described on Schedule
--------
8.03 hereto, and Liens resulting from the refinancing of the related Debt for
- ----
Borrowed Money, provided that the Debt for Borrowed Money secured thereby shall
not be increased and the Liens shall not cover additional assets of the
Borrower, the Parent or any such Subsidiary; and
(h) Any Liens which secure the Debt for Borrowed Money permitted under
Section 8.02(e) hereof.
"Person" means an individual, partnership, joint venture, corporation,
trust, Tribunal, unincorporated organization, and government, or any department,
agency, or political subdivision thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pledged Stock" means all of the Capital Stock of the Subsidiaries of the
Borrower and all of the Capital Stock of the Borrower.
"Pro Forma Debt Service" means, on any date of determination, for the
Parent, the Borrower and its Subsidiaries, the sum of (a) cash Interest Expense
plus (b) required or scheduled principal payments with respect to Debt for
Borrowed Money, each for the four fiscal quarters immediately succeeding any
date of determination, provided that, with respect to any Debt for Borrowed
Money subject to a floating interest rate, the rate of interest on such Debt for
Borrowed Money for the four fiscal quarters immediately succeeding any such date
of determination shall be deemed to be the weighted average interest rate
applicable to the Obligations on the date of calculation of Pro Forma Debt
Service.
"Prohibited Transaction" has the meaning specified in Section 4975 of the
Code or Section 406 of Title I of ERISA.
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"Property" means all types of real, personal, tangible, intangible, or
mixed property, whether owned or hereafter acquired in fee simple or leased by
the Parent, the Borrower and its Subsidiaries, including for the Borrower and
its Subsidiaries without limitation, the Tenant Leases.
"Pro Rata" means, as to any Lender, in accordance with its percentage of
the aggregate amount of outstanding Advances under the applicable Loan or all
the Loans; provided, however, that if no such Advances are outstanding, such
-------- -------
term means in accordance with such Lender's Applicable Specified Percentage or
Total Specified Percentage, as applicable.
"Qualified REIT Subsidiaries" means the Borrower and any Subsidiary of the
Borrower, so long as such entity meets the qualifications set forth in Section
856(i)(2) of the Code.
"Quarterly Date" means the last day of each March, June, September and
December during the term of this Agreement.
"Ratable" means, as to any Lender, in accordance with its Applicable
Specified Percentage or Total Specified Percentage, in each case applicable in
the context used.
"Refinancing Advance" means any Advance which is (a) used to pay the
principal amount (or any portion thereof) of an Advance at the end of its
Interest Period, or (b) a conversion of all or any portion of an outstanding
Base Advance to a LIBOR Advance, which, in each case after giving effect to such
application, does not result in an increase in the aggregate amount of
outstanding Advances.
"REIT Conversion" means the occurrence of any one of the following events:
(a) the election by the Parent to no longer maintain its REIT Status, (b) the
election by the Borrower or any Subsidiary of the Borrower to no longer maintain
its Qualified REIT Subsidiary status, (c) the occurrence of any event which
results in the Parent no longer having REIT Status, or (d) the occurrence of any
event which results in the Borrower or any Subsidiary of the Borrower no longer
qualifying as a Qualified REIT Subsidiary.
"REIT Status" means, with respect to any Person, such Person's status as a
real estate investment trust, as defined in Section 856(a) of the Code, that
satisfies the conditions and limitations set forth in Sections 856(b) and 856(c)
of the Code.
"Release Date" means the date on which the Notes have been paid, all other
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Rental Obligations" means amounts payable by a lessee under a lease
including, without limitation, amounts payable under any renewal or purchase
option in favor of the lessee which, if not paid, will result in a material
forfeiture of rights, interest or property available to such lessee (i.e. a
forfeiture of rights, interest or property with a fair market value materially
greater than the cost of exercising such renewal or purchase option.)
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"Restricted Payments" means (a) any direct or indirect Distribution,
dividend or other payment on account of any equity interest in, or shares of
capital stock or other securities of, the Borrower or the Parent (or the
establishment of any sinking fund or otherwise the setting aside of any funds
with respect thereto); (b) any management, consulting or other similar fees, or
any interest thereon, payable by the Parent, the Borrower or any of its
Subsidiaries to any Affiliate of the Parent, the Borrower, or to any other
Person other than an unrelated third party (or the establishment of any sinking
fund or otherwise the setting aside of any funds with respect thereto); and (c)
any cash payment of interest, principal, fees or penalties, on any Debt for
Borrowed Money or Subordinated Debt, or the establishment of any sinking fund or
otherwise the setting aside of any funds with respect thereto.
"Revolver Advances" means Advances made under the Revolver A Loan and the
Revolver B Loan.
"Revolver A Advances" means any advance made under the Revolver A Loan.
"Revolver B Advances" means any advance made under the Revolver B Loan.
"Revolver A Commitment" means $75,000,000, as such amount may be reduced
from time to time or terminated pursuant to Sections 2.06, 2.11 or 9.02 hereof.
"Revolver B Commitment" means $95,000,000 minus the sum of (a) the undrawn
face amount of all Letters of Credit plus (b) the sum of all reimbursement
obligations under Article III hereof, in each case as such amount may be
increased prior to June 30, 2001 in accordance with the terms of Section 2.18
hereof, and as such amount may be reduced from time to time or terminated
pursuant to Sections 2.06, 2.11 or 9.02 hereof.
"Revolver A Loan" means the loan made by a Lender pursuant to Section
2.01(a) of this Agreement.
"Revolver B Loan" means the loan made by a Lender pursuant to Section
2.01(b) of this Agreement.
"Revolver A Note" means each Note of the Borrower evidencing Advances under
the Revolver A Loan hereunder, substantially in the form of Exhibit A-1 hereto,
-----------
together in each case, with any extension, renewal or amendment thereof, or
substitution therefor.
"Revolver B Note" means each Note of the Borrower evidencing Advances under
the Revolver B Loan hereunder, substantially in the form of Exhibit A-2 hereto,
-----------
together in each case, with any extension, renewal or amendment thereof, or
substitution therefor.
"Revolver A Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof designated as its
Revolver A Specified Percentage, or as
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adjusted or specified (i) in any Assignment and Acceptance or (ii) in any
amendment to this Agreement.
"Revolver B Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof designated as its
Revolver B Specified Percentage, or as adjusted or specified (i) in any
Assignment and Acceptance or (ii) in any amendment to this Agreement.
"Revolving Loans" means the Revolver A Loan and the Revolver B Loan.
"Rights" means rights, remedies, powers, and privileges.
"Second Parent Issuance" has the meaning ascribed thereto in Section
8.02(c)(i) hereof.
"Second Parent Issuance Documentation" means any indenture and all other
written agreements and documentation relating to the Second Parent Issuance to
be entered into in accordance with the terms of Section 8.02(c) hereof, as such
documentation is permitted to be amended by Section 8.05 hereof.
"Security Agreements" means (a) the Security Agreement, duly executed by
the Borrower and Parent in substantially the form of Exhibit B hereto,
---------
appropriately completed, and (b) each Security Agreement, duly executed by each
of the Borrower's Subsidiaries, in substantially the form of Exhibit H hereto,
---------
appropriately completed, in each case as amended, modified, substituted,
replaced or extended from time to time.
"Senior Debt" means, on any date of determination, the difference between
Total Debt minus Debt of the Parent included in the definition of Total Debt.
"Shareholder" or "Shareholders" means, on any date of determination, the
shareholders of the Parent.
"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, other than a Multiple Employer Plan of the Borrower.
"Solvent" means, with respect to any Person, that on such date (a) the fair
value of the Property of such Person is greater than the total amount of
liabilities, including without limitation Contingent Liabilities of such Person,
(b) the present fair salable value of the assets of such Person on a going
concern basis is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's Property would constitute an unreasonably small capital.
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"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
Dallas, Texas, or such other individual or firm acting as special counsel to
Administrative Agent, as designated by Administrative Agent from time to time.
"Subordinated Debt" means Debt for Borrowed Money of the Borrower, any
Subsidiary of the Borrower or the Parent, that is subordinated to the
Obligations hereunder in accordance with the terms and provisions of the
Subordination Agreement substantially in the form of Exhibit I attached hereto.
---------
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) 50% or more of:
(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),
(b) the interest in the capital or profits of such partnership or
joint venture, or
(c) the beneficial interest of such trust or estate,
is at the time directly or indirectly owned by such Person, by such Person
and one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries.
"Subsidiary Guaranty" means the Guaranty, executed by each Subsidiary of
the Borrower, guarantying payment and performance of the Obligations,
substantially in the form of Exhibit G attached hereto, as such agreement may be
---------
amended, modified, renewed or extended from time to time.
"Synthetic Lease" means any lease entered into in connection with the lease
or acquisition of fixed assets which is treated under GAAP as an operating lease
but for Tax purposes as a capital lease.
"Taxes" means all taxes, assessments, imposts, fees, or other charges at
any time imposed by any Laws or Tribunal.
"Tenant Lease Revenue" means, with respect to each Tenant Lease for the
most recently completed calendar month, all revenues generated by such Tenant
Lease for such month.
"Tenant Leases" means each of the leases of space on any Tower of the
Borrower or any Subsidiary of the Borrower now existing or hereafter created or
acquired, including, without limitation, those leases listed on Schedule 5.01(w)
----------------
hereto.
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"Term Loan A Advance" means the initial advance and any of the Refinancing
Advances made under the Term Loan A.
"Term Loan B Advance" means the initial advance and any of the Refinancing
Advances made under the Term Loan B.
"Term Loan A" means the term loan made by the Lenders pursuant to Section
2.01(c) of this Agreement.
"Term Loan B" means the term loan made by the Lenders pursuant to Section
2.01(d) of this Agreement.
"Term Loan A Initial Advance" has the meaning set forth in Section 2.01(c)
hereof.
"Term Loan B Initial Advance" has the meaning set forth in Section 2.01(d)
hereof.
"Term Loan A Note" means each Note of the Borrower evidencing Term Loan A
Advances hereunder, substantially in the form of Exhibit A-3 hereto with respect
-----------
to Term Loan A Advances made under the Term Loan A, together with any extension,
renewal or amendment thereof, or substitution therefor.
"Term Loan B Note" means each Note of the Borrower evidencing Term Loan B
Advances hereunder, substantially in the form of Exhibit A-4 hereto with respect
-----------
to Term Loan B Advances made under the Term Loan B, together with any extension,
renewal or amendment thereof, or substitution therefor.
"Term Loan A Specified Percentage" means, as to any Lender, (a) prior to
the initial Term Loan A Advance, the percentage indicated beside its name on the
signature pages hereof designated as its Term Loan A Specified Percentage, or as
adjusted or specified (i) in any Assignment and Acceptance or (ii) in any
amendment to this Agreement, and (b) after the initial Term Loan A Advance, the
percentage of the outstanding portion of the Term Loan A held by such Lender on
any date of determination (after giving effect to assignments in accordance with
the terms of Section 11.04 hereof).
"Term Loan B Specified Percentage" means, as to any Lender, (a) prior to
the initial Term Loan B Advance, the percentage indicated beside its name on the
signature pages hereof designated as its Term Loan B Specified Percentage, or as
adjusted or specified (i) in any Assignment and Acceptance or (ii) in any
amendment to this Agreement, and (b) after the initial Term Loan B Advance, the
percentage of the outstanding portion of the Term Loan B held by such Lender on
any date of determination (after giving effect to assignments in accordance with
the terms of Section 11.04 hereof).
"Total Debt" means all Debt for Borrowed Money of the Borrower, the Parent
and any Subsidiary of the Borrower which would be shown on a balance sheet in
accordance with GAAP,
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including, without limitation, (a) Capital Lease obligations, (b) obligations to
pay the deferred purchase price of property and services (but excluding trade
payables that are less than 90 days old and any thereof that are being contested
in good faith), (c) Debt of any other Person secured by a Lien on the property
of the Borrower and the Parent or any Subsidiary of the Borrower and the Parent,
(d) Contingent Liabilities, and (e) Withdrawal Liability.
"Tower" means each tower owned or managed by the Borrower or any Subsidiary
of the Borrower, and each rooftop or other site owned or managed by the Borrower
or any Subsidiary of the Borrower in the ordinary course of business.
"Tower Cash Flow" means, with respect to each Tower for the most recently
completed calendar month, the remainder of (a) the aggregate amount of all
Tenant Lease Revenues generated by all Tenant Leases relating to such Tower for
such month, plus (b) all newly executed or acquired leases as if such leases
were effective as of the beginning of such calendar month minus (c) Tower level
cash operating expenses for such Tower for such month.
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental body.
"Type" refers to the distinction between Advances bearing interest at the
Base Rate and LIBOR Rate.
"UCC" means the Uniform Commercial Code as adopted in the State of Texas on
the Closing Date.
"Unavailable Commitment" means (a) prior to June 30, 2001, $50,000,000 (as
such amount may be reduced from time to time as a result of the reallocation of
any portion of the Unavailable Commitment to the Revolver B Commitment in
accordance with the terms of Section 2.18 hereof), and (b) on and after June 30,
2001, $0.00.
"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
1.02. Accounting and Other Terms. All accounting terms used in this
Agreement which are not otherwise defined herein shall be construed in
accordance with GAAP on a consolidated basis for the Parent, the Borrower and
its Subsidiaries, unless otherwise expressly stated herein. References herein
to one gender shall be deemed to include all other genders. Except where the
context otherwise requires, (a) definitions imparting the singular shall include
the plural and vice versa and (b) all references to time are deemed to refer to
Dallas time.
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ARTICLE II. THE LOAN FACILITIES
2.01. The Loans.
(a) The Revolver A Loan. Each Lender severally agrees, on the terms
and subject to the conditions hereinafter set forth, to make Advances to
the Borrower on a Business Day during the period from the Closing Date to
the First Maturity Date, in an aggregate principal amount not to exceed at
any time outstanding such Lender's Revolver A Specified Percentage of the
Revolver A Commitment. Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow the Revolver A
Advances; provided, however, that at no time shall the sum of all
-------- -------
outstanding Revolver A Advances exceed the Revolver A Commitment.
(b) The Revolver B Loan. Each Lender severally agrees, on the terms
and subject to the conditions hereinafter set forth, to make Advances to
the Borrower on a Business Day during the period from the Closing Date to
the First Maturity Date, in an aggregate principal amount not to exceed at
any time outstanding such Lender's Revolver B Specified Percentage of the
Revolver B Commitment. Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow the Revolver B
Advances; provided, however, that at no time shall the sum of all
-------- -------
outstanding Revolver B Advances exceed the Revolver B Commitment.
(c) Term Loan A. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, to make a Term Loan A
available to the Borrower on the Closing Date in an aggregate principal
amount equal to such Lender's Term Loan A Specified Percentage of
$125,000,000. The Term Loan A must be borrowed in one initial Advance only
(the "Term Loan A Initial Advance"), which such Term Loan A Initial Advance
must be made on the Closing Date or at any time after the Closing Date but
prior to December 31, 1999. If the Borrower has not borrowed the Term
Loan A Initial Advance prior to December 31,1999, the obligations of the
Lenders to make the Term Loan A available under this Section 2.01(c) shall
terminate. Once borrowed and repaid, no Term Loan A Advance may be
reborrowed.
(d) Term Loan B. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, to make a Term Loan B
available to the Borrower on the Closing Date in an aggregate principal
amount equal to such Lender's Term Loan B Specified Percentage of
$175,000,000. The Term Loan B must be borrowed in one initial Advance only
(the "Term Loan B Initial Advance"), which such Term Loan B Initial Advance
must be made on the Closing Date. If the Borrower does not borrow the
Term Loan B Initial Advance on the Closing Date, the obligations of the
Lenders to make the Term Loan B available under this Section 2.01(d) shall
terminate. Once borrowed and repaid, no Term Loan B Advance may be
reborrowed.
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<PAGE>
2.02. Making Advances.
(a) Each Borrowing of Advances shall be made upon the written notice
of the Borrower, received by Administrative Agent not later than (i) 10:00
a.m. three Business Days prior to the date of the proposed Borrowing, in
the case of LIBOR Advances and (ii) 10:00 a.m. on the date of such
Borrowing, in the case of Base Advances. Each such notice of a Borrowing
(a "Borrowing Notice") shall be by telecopy or telephone, promptly
confirmed by letter, in substantially the form of Exhibit D hereto
---------
specifying therein:
(i) the date of such proposed Borrowing, which shall be a
Business Day;
(ii) the Type of Advances of which the Borrowing is to be
comprised, and whether such Borrowing is a Revolver A Advance, Revolver B
Advance, a Term Loan A Advance or a Term Loan B Advance (provided that,
other than with respect to the Term Loan A Initial Advance and the Term
Loan B Initial Advance, all such borrowings under the Term Loan A and the
Term Loan B shall be Refinancing Advances);
(iii) the amount of such proposed Borrowing which, (A) in the
case of Advances under the Revolver A Loan, shall not exceed the unused
portion of the Revolver A Commitment, in the case of Advances under the
Revolver B Loan, shall not exceed the unused portion of the Revolver B
Commitment, in the case of the Term Loan A Initial Advance, shall not
exceed the Term Loan A amount of $125,000,000, and in the case of the Term
Loan B Initial Advance, shall not exceed the Term Loan B amount of
$175,000,000, (B) shall, in the case of a Borrowing of Base Advances, be in
an amount of not less than $500,000 or an integral multiple of $100,000 in
excess thereof (or any lesser amount if such amount is the remaining
undrawn portion under either of the Commitments) and (C) shall, in the case
of a Borrowing of LIBOR Advances, be in an amount of not less than
$1,000,000 or an integral multiple of $1,000,000 in excess thereof; and
(iv) if the Borrowing is to be comprised of LIBOR Advances, the
duration of the initial Interest Period applicable to such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be three months. Administrative Agent shall promptly notify Lenders
of each such notice. Each Lender shall, before 1:00 p.m. on the date of each
Advance hereunder (other than a Refinancing Advance), make available to
Administrative Agent, at its office at Bank of America Plaza, 901 Main Street,
Dallas, Texas 75202, such Lender's Applicable Specified Percentage of the
aggregate Advances to be made on that day in immediately available funds.
(b) Unless any applicable condition specified in Article IV has not been
satisfied, Administrative Agent will make the funds promptly available to the
Borrower (other than with respect to a Refinancing Advance) by wiring such
amounts pursuant to any wiring instructions specified by the Borrower to the
Administrative Agent in writing.
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(c) After giving effect to any Borrowing, (i) there shall not be more than
five different Interest Periods in effect and (ii) the aggregate principal
amount of outstanding Revolver A Advances shall not exceed the Revolver A
Commitment and the aggregate principal amount of outstanding Revolver B Advances
shall not exceed the Revolver B Commitment.
(d) No Interest Period applicable to any Revolver Advance and Term Loan A
Advance shall extend beyond the First Maturity Date, and no Interest Period
applicable to any Term Loan B Advance shall extend beyond the Final Maturity
Date.
(e) Unless a Lender shall have notified Administrative Agent prior to the
date of any Advance that it will not make available its Applicable Specified
Percentage of any such Advance (that is not a Refinancing Advance), the
Administrative Agent may assume that such Lender has made the appropriate amount
available in accordance with Section 2.02(a) hereof, and Administrative Agent
may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent any Lender shall not have made such
amount available to Administrative Agent, such Lender and the Borrower severally
agree to repay to Administrative Agent immediately on demand such corresponding
amount together with interest thereon, from the date such amount is made
available to the Borrower until the date such amount is repaid to Administrative
Agent, at (i) in the case of the Borrower, the Base Rate, and (ii) in the case
of such Lender, the Federal Funds Rate.
(f) The failure by any Lender to make available its Applicable Specified
Percentage of any Advance hereunder shall not relieve any other Lender of its
obligation, if any, to make available its Applicable Specified Percentage of any
Advance. In no event, however, shall any Lender be responsible for the failure
of any other Lender to make available any portion of any Advance.
(g) The Borrower shall indemnify each Lender against any Consequential
Loss incurred by each Lender as a result of (i) any failure to fulfill, on or
before the date specified for the Advance, the conditions to the Advance set
forth herein or (ii) the Borrower's requesting that an Advance not be made on
the date specified in the Borrowing Notice.
2.03. Evidence of Debt for Borrowed Money.
(a) (i) The Revolver A Advances made by each Lender shall be evidenced
by a Note in the amount of such Lender's Revolver A Specified Percentage of
$75,000,000 (as the same may be modified pursuant to Section 11.04 hereof)
in the form of Exhibit A-1 hereto.
-----------
(ii) The Revolver B Advances made by each Lender shall be evidenced
by a Note in the amount of such Lender's Revolver B Specified Percentage of
$95,000,000 or such increased amount that may constitute the Revolver B
Commitment (as the same may be modified pursuant to Section 11.04 hereof)
in the form of Exhibit A-2 hereto.
-----------
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(iii) The Term Loan A Advances made by each Lender shall be evidenced
by a Note in the amount of such Lender's Term Loan A Specified Percentage
of $125,000,000 (as the same may be modified pursuant to Section 11.04
hereof) in the form of Exhibit A-3 hereto.
-----------
(iv) The Term Loan B Advances made by each Lender shall be evidenced
by a Note in the amount of such Lender's Term Loan B Specified Percentage
of $175,000,000 (as the same may be modified pursuant to Section 11.04
hereof) in the form of Exhibit A-4 hereto.
-----------
(b) Administrative Agent's and each Lender's records shall be presumptive
evidence as to amounts owed Administrative Agent and such Lender under the Notes
and this Agreement.
2.04. Optional Prepayments.
(a) The Borrower may, upon at least two Business Days prior written notice
to Administrative Agent stating the proposed date and aggregate principal amount
of the prepayment, prepay the outstanding principal amount of any Advances in
whole or in part, together with accrued interest to the date of such prepayment
on the principal amount prepaid without premium or penalty other than any
Consequential Loss; provided, however, that in the case of a prepayment of a
-------- -------
Base Advance, the notice of prepayment may be given by telephone by 10:00 a.m.
on the date of prepayment. Each partial prepayment shall, in the case of Base
Advances, be in an aggregate principal amount of not less than $500,000 or a
larger integral multiple of $100,000 in excess thereof and, in the case of LIBOR
Advances, be in an aggregate principal amount of not less than $1,000,000 or a
larger integral multiple of $1,000,000 in excess thereof. If any notice of
prepayment is given, the principal amount stated therein, together with accrued
interest on the amount prepaid and the amount, if any, due under Section 2.12
and Section 2.14 hereof, shall be due and payable on the date specified in such
notice unless the Borrower revokes its notice, provided that, if the Borrower
revokes its notice of prepayment prior to such date specified, the Borrower
shall reimburse the Administrative Agent for the account of all Lenders for all
Consequential Losses suffered by each Lender as a result of the Borrower's
failure to prepay. A certificate of each Lender claiming compensation under
this Section 2.04(a), setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to it hereunder shall be presumptive
evidence of the validity of such claim.
(b) No prepayments of Revolver A Advances and Revolver B Advances made
solely pursuant to this Section 2.04 shall cause the Revolver A Commitment and
the Revolver B Commitment, respectively, to be reduced. Prepayments of Term Loan
A Advances and Term Loan B Advances may not be reborrowed. All prepayments made
hereunder shall be allocated in accordance with the terms and conditions of
Section 2.13(f) hereof.
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2.05. Mandatory Prepayments.
(a) Excess Cash Flow. Commencing April 30, 2000 and continuing on each
April 30 thereafter, the Borrower shall pay to Administrative Agent for the
Ratable account of Lenders to repay the Obligations, an amount equal to (i) 50%
of Excess Cash Flow for the preceding fiscal year if the Leverage Ratio
calculated at the end of the same period is less than 4.00 to 1.00, or (b) 75%
of Excess Cash Flow for the preceding fiscal year if the Leverage Ratio
calculated at the end of the same period is greater than or equal to 4.00 to
1.00.
(b) Additional Equity and Allowed Debt. To the extent that the Parent,
the Borrower or any of its Subsidiaries issues any public or private
indebtedness, or equity securities (except equity permitted to be issued by the
Parent in Section 8.11 hereof and Debt permitted to be incurred by the Parent
under Section 8.02(c) hereof, but only to the extent in each case that such Debt
and equity when added together do not exceed $250,000,000 in the aggregate over
the term of this Agreement) (this provision shall not in and of itself permit
the Borrower to consummate any of the above described transactions), then,
unless the Net Proceeds therefrom are used, within 180 days thereafter, for
Permitted Acquisitions or for Capital Expenditures relating to Towers, the
Borrower and its Subsidiaries shall immediately after the expiration of such
180-day period use the Net Proceeds of any such transaction to repay Advances
hereunder. All prepayments made pursuant to this Section 2.05(b) shall be
applied to reduce outstanding Advances, and shall reduce the Commitments in
accordance with the terms of Section 2.11(c)(ii) hereof (if applied to either
Commitment by the terms of Section 2.13(f) hereof). Upon the occurrence of a
"Change of Control" as that term is defined in the Indenture, the Borrower will
repay all Advances and Obligations hereunder (and the Commitments shall
correspondingly reduce to zero in accordance with the terms of Section
2.11(c)(iv) hereof).
(c) Asset Sales. To the extent that the Parent, the Borrower or any of
its Subsidiaries consummates any sale of any asset or any of its Properties
other than in the ordinary course of business, then unless the Net Proceeds
therefrom are used, within 180 days thereafter, for Permitted Acquisitions or
for Capital Expenditures relating to Towers, the Borrower and its Subsidiaries
shall immediately after the expiration of the 180-day period use the Net
Proceeds of any such transaction to repay Advances hereunder. All prepayments
made pursuant to this Section 2.05(c) shall be applied to reduce outstanding
Advances and, such prepayment shall also reduce the Commitments in accordance
with the terms of Section 2.11(c)(iii) hereof (if applied to either Commitment
by the terms of Section 2.13(f) hereof).
(d) Mandatory Prepayments, Generally. Any prepayments made pursuant to
this Section 2.05 shall be first applied to Base Advances and then to LIBOR
Advances, without premium or penalty, except the Borrower must pay together with
any such prepayments, any Consequential Losses. Application of all payments and
prepayments shall be applied in accordance with the terms of Section 2.13(f)
hereof.
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2.06. Repayment.
(a) LIBOR Advances. The principal amount of each LIBOR Advance is due and
payable on the last day of the applicable Interest Period, which principal
payment may be made by means of a Refinancing Advance (subject to the other
provisions of this Agreement).
(b) Reduction of Commitments On the date of each reduction of either of
the Commitments pursuant to Section 2.11 hereof, the Borrower shall immediately
repay the Obligations in an amount equal to the difference by which the sum of
the amount of all Revolver A Advances and Revolver B Advances outstanding on the
date of reduction exceeds the Revolver A Commitment and the Revolver B
Commitment, respectively as reduced, which principal payment may not be made by
means of a Refinancing Advance.
(c) Maturity Dates. All outstanding Advances under the Revolving Loans and
the Term Loan A shall be due and payable in full on the First Maturity Date.
All outstanding Advances under the Term Loan B shall be due and payable in full
on the Final Maturity Date. All other outstanding Obligations shall be due and
payable in full on the Final Maturity Date.
(d) Installment Repayments of Term Loan A and Term Loan B. After June 30,
2001, each of the Term Loan A and Term Loan B shall be repaid by the Borrower on
each Quarterly Date, in an amount on each such date equal to the percentage set
forth below of the outstanding Term Loan A Advances and the outstanding Term
Loan B Advances, respectively, in effect on June 30, 2001, in each case opposite
each such Quarterly Date, until each of the Term Loan A and the Term Loan B has
been repaid in full. The first such installment repayment shall occur on
September 30, 2001, and continue thereafter as follows:
<TABLE>
<CAPTION>
Repayment Percentage is equal to the
Outstanding Amount of the Term Loan
Date of Installment Repayment A Advances and the outstanding
of the Term Loan A and the Term Loan B Advances, respectively,
Term Loan B in effect on June 30, 2001
- ----------------------------- -----------------------------------
Term Loan A Term Loan B
----------- -----------
<S> <C> <C>
September 30, 2001 5.00% 0.50%
December 31, 2001 5.00% 0.50%
March 31, 2002 3.75% 0.25%
June 30, 2002 3.75% 0.25%
September 30, 2002 3.75% 0.25%
December 31, 2002 3.75% 0.25%
March 31, 2003 4.50% 0.25%
June 30, 2003 4.50% 0.25%
September 30, 2003 4.50% 0.25%
December 31, 2003 4.50% 0.25%
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
March 31, 2004 5.50% 0.25%
June 30, 2004 5.50% 0.25%
September 30, 2004 5.50% 0.25%
December 31, 2004 5.50% 0.25%
March 31, 2005 6.25% 0.25%
June 30, 2005 6.25% 0.25%
September 30, 2005 6.25% 0.25%
December 31, 2005 6.25% 0.25%
March 31, 2006 5.00% 0.25%
June 30, 2006 5.00% 0.25%
September 30, 2006 0.00% 0.25%
December 31, 2006 0.00% 0.25%
March 31, 2007 0.00% 47.00%
June 30, 2007 0.00% 47.00%
</TABLE>
(e) Repayments, Generally. Any repayments made pursuant to this Section
2.06 shall be first applied to Base Advances and then to LIBOR Advances in the
order of maturity, without premium or penalty, except the Borrower must pay
together with any such prepayments, any Consequential Losses. All repayments
shall be allocated among the Loans in accordance with the terms of Section
2.13(f) hereof.
2.07. Interest. Subject to Section 2.08 and Section 11.08 hereof, the
Borrower shall pay interest on the unpaid principal amount of each Advance from
the date of such Advance until such principal shall be paid in full, at the
following rates per annum:
(a) Base Advances. Base Advances shall bear interest at a rate per
annum equal to the Base Rate as in effect from time to time. If the amount
of interest payable in respect of any interest computation period is
reduced to the Highest Lawful Rate and the amount of interest payable in
respect of any subsequent interest computation period would be less than
Maximum Amount, then the amount of interest payable in respect of such
subsequent interest computation period shall be automatically increased to
the Maximum Amount; provided that at no time shall the aggregate amount by
--------
which interest paid has been increased pursuant to this sentence exceed the
aggregate amount by which interest has been reduced pursuant to this
sentence.
(b) LIBOR Advances. LIBOR Advances shall bear interest at the rate
per annum equal to the LIBOR Rate applicable to such Advance.
(c) Payment Dates. Accrued and unpaid interest on Base Advances shall
be paid quarterly in arrears on each Quarterly Date and on the First
Maturity Date with respect to Advances under the Revolving Loans and the
Term Loan A and the Final Maturity Date with respect to Advances made under
the Term Loan B. Accrued and unpaid interest in respect of each LIBOR
Advance shall be paid on the last day of the appropriate Interest Period
and on the date of any prepayment or repayment of such Advance; provided,
--------
however, that if any
-------
33
<PAGE>
Interest Period for a LIBOR Advance exceeds three months, interest shall
also be paid on the date which falls three months after the beginning of
such Interest Period.
2.08. Default Interest. During the continuation of any Event of
Default, the Borrower shall pay, on demand, interest (after as well as before
judgment to the extent permitted by Law) on the principal amount of all Advances
outstanding and on all other Obligations due and unpaid hereunder at a per annum
rate equal to the lesser of the (a) the Highest Lawful Rate and (b) (i) to the
extent any such Advance outstanding at such time is bearing interest at the
LIBOR Rate, then the applicable LIBOR Rate plus 3.00% to the end of its Interest
Period, and (ii) for all other outstanding Advances, the Base Rate plus 2%.
LIBOR Advances shall not be available for selection by the Borrower during the
continuance of an Event of Default.
2.09. Continuation and Conversion Elections.
(a) The Borrower may upon irrevocable written notice to Administrative
Agent and subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any portion
of outstanding Base Advances (in an aggregate amount not less than $500,000
or an integral multiple of $100,000 in excess thereof) into LIBOR Advances;
or
(ii) elect to convert at the end of any Interest Period
therefor, all or any portion of outstanding LIBOR Advances comprised in the
same Borrowing (in an aggregate amount not less than $1,000,000 or an
integral multiple of $1,000,000 in excess thereof) into Base Advances; or
(iii) elect to continue, at the end of any Interest Period
therefor, any LIBOR Advances;
provided, however, that if the aggregate amount of outstanding LIBOR
-------- -------
Advances comprised in the same Borrowing shall have been reduced as a result of
any payment, prepayment or conversion of part thereof to an amount less than
$1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Advances at the end of each respective Interest Period.
(b) The Borrower shall deliver a notice of conversion or continuation (a
"Conversion or Continuation Notice"), in substantially the form of Exhibit E
---------
hereto, to Administrative Agent not later than 10:00 a.m. (i) three Business
Days prior to the proposed date of conversion or continuation, if the Advances
or any portion thereof are to be converted into or continued as LIBOR Advances;
and (ii) on the Business Day of the proposed conversion, if the Advances or any
portion thereof are to be converted into Base Advances.
Each such Conversion or Continuation Notice shall be by telecopy or
telephone, promptly confirmed by letter, specifying therein:
34
<PAGE>
(i) the proposed date of conversion or continuation and whether
such continuation or conversion is a Revolver A Advance, a Revolver B
Advance, a Term Loan A Advance or a Term Loan B Advance (or any combination
thereof);
(ii) the aggregate amount of Advances to be converted or
continued;
(iii) the nature of the proposed conversion or continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, the Borrower shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Advances effective as of the expiration
date of such current Interest Period.
(d) Notwithstanding any other provision contained in this Agreement,
after giving effect to any conversion or continuation of any Advances, there
shall not be outstanding Advances with more than five different Interest
Periods.
2.10. Fees and the Fee Letter.
(a) Facility Fee. Subject to Section 11.08 hereof, the Borrower shall pay
to Administrative Agent for the account of each of the Lenders such origination
and facility fees as are agreed to by the Borrower, the Administrative Agent and
the Lenders, including those set forth in the Fee Letter.
(b) Commitment Fee. Subject to Section 11.08 hereof, the Borrower shall
pay to Administrative Agent for the Ratable account of Lenders having Revolver A
Specified Percentages in excess of zero and Revolver B Specified Percentages in
excess of zero, a commitment fee on the average daily amount of the sum of (i)
the difference between the Revolver A Commitment and the sum of all Revolver A
Advances outstanding, plus (ii) the difference between the Revolver B Commitment
and the sum of all Revolver B Advances outstanding plus (iii) until December 31,
1999, the difference between $125,000,000 and the sum of all Term Loan A
Advances outstanding, in each case at a per annum rate based on usage equal to
the percentage set forth below, applicable in the following circumstances,
payable in each case in arrears on each Quarterly Date and on the First Maturity
Date, commencing with the first Quarterly Date after the Closing Date, and
continuing until the First Maturity Date:
35
<PAGE>
Percentage of Usage
of the Revolving Loans
and the Term Loan A Commitment Fee Percentage
------------------- -------------------------
If outstanding Revolver
Advances and Term Loan A
Advances are less than 25%
of the sum of the Commitments
plus $125,000,000 1.25%
If outstanding Revolver
Advances and Term Loan A
Advances are greater than 25%
of the sum of the Commitments
plus $125,000,000 but equal to
or less than 50% 0.75%
If outstanding Revolver
Advances and Term Loan A
Advances are greater than 50%
of the sum of the Commitments
plus $125,000,000 0.50%
(c) Other Fees and the Fee Letter. The Borrower shall pay such other fees
as are set forth in Article III hereof, in the Fee Letter and in any other Loan
Paper, in each case in accordance with the terms of such agreements. The
Borrower agrees to perform, over the term of this Agreement, all terms,
conditions and agreements of the Fee Letter in accordance with the terms
thereof.
2.11. Reduction of Commitments.
(a) Mandatory Termination of the Commitments. The Revolver A Commitment
and the Revolver B Commitment shall reduce to zero and terminate on the First
Maturity Date.
(b) Mandatory Scheduled Reduction of the Commitments. After June 30,
2001, each of the Revolver A Commitment and the Revolver B Commitment shall each
automatically reduce on each Quarterly Date, in a reduction amount on each such
date equal to the percentage set forth below of the Revolver A Commitment and
the Revolver B Commitment, respectively, in effect on June 30, 2001, in each
case opposite each such Quarterly Date, until each of the Revolver A Commitment
and the Revolver B Commitment has been reduced to zero. The first such automatic
reduction in the Commitments shall occur on September 30, 2001, and continue
thereafter as follows:
36
<PAGE>
Reduction Percentage is equal to the
Percentage of the Revolver A
Date of Automatic Reduction Commitment and the Revolver B
of the Revolver A Commitment Commitment, respectively, in effect
and the Revolver B Commitment on June 30, 2001
----------------------------- ----------------
September 30, 2001 5.00%
December 31, 2001 5.00%
March 31, 2002 3.75%
June 30, 2002 3.75%
September 30, 2002 3.75%
December 31, 2002 3.75%
March 31, 2003 4.50%
June 30, 2003 4.50%
September 30, 2003 4.50%
December 31, 2003 4.50%
March 31, 2004 5.50%
June 30, 2004 5.50%
September 30, 2004 5.50%
December 31, 2004 5.50%
March 31, 2005 6.25%
June 30, 2005 6.25%
September 30, 2005 6.25%
December 31, 2005 6.25%
March 31, 2006 5.00%
June 30, 2006 5.00% and the Revolver A
Commitment and the Revolver
B Commitment shall each
be reduced to zero
(c) Reduction of the Commitments. The Commitments shall be permanently
reduced, pro rata between the Revolver A Commitment and the Revolver B
Commitment from time to time:
(i) on the date of, and by the amount of, each Excess Cash Flow mandatory
prepayment required by Section 2.05(a) hereof,
(ii) on the date of, and by the amount of, each mandatory prepayment made
from the issuance of equity or debt, in each case only as required to be
prepaid by Section 2.05(b) hereof,
(iii) on the date of, and by the amount of, each mandatory prepayment made
from the sale of assets, in each case only as required to be prepaid by
Section 2.05(c) hereof, and
(iv) on the date of any occurrence of a "Change of Control" as that term
is defined in the Indenture, the Commitments will each automatically be
reduced to zero and terminate.
37
<PAGE>
No reduction in the Commitments set forth in 2.11(c) above shall reduce or
relieve the automatic scheduled reduction of the Commitments required by Section
2.11(b) above.
(d) Voluntary Reduction of the Commitments. The Borrower may from time to
time, upon notice to Administrative Agent not later than 1:00 p.m., five
Business Days in advance, terminate in whole or reduce in part either of the
Commitments, as designated by the Borrower; provided, however, that the Borrower
-------- -------
shall pay the accrued interest and the applicable Commitment Fee on the amount
of such reduction and all amounts due, and any partial reduction shall be in an
aggregate amount which is an integral multiple of $5,000,000. No voluntary
reduction in the Commitments permitted by this Section 2.11(d) shall reduce or
relieve the automatic scheduled reduction of the Commitments required by Section
2.11(b) above.
(e) Commitment Reductions, Generally. No prepayment under Section 2.04
hereof, required prepayment under Section 2.05 hereof or commitment reductions
under Sections 2.11(c) and (d) above shall reduce or relieve the scheduled
reduction required by Section 2.11(b) above. To the extent the outstanding
Revolver A Advances exceed the Revolver A Commitment after any reduction
thereof, or the outstanding Revolver B Advances exceed the Revolver B Commitment
after any reduction thereof, , the Borrower shall repay, on the date of such
reduction, any such excess amount and all accrued interest thereon, the
applicable Commitment Fee on the amount of such reduction and all amounts due.
Once reduced or terminated, neither of the Commitments may be increased or
reinstated, except with respect to the Revolver B Commitment, and only in
accordance with Section 2.18 hereof. Application of all reductions in the
Commitments shall be in accordance with the terms of Section 2.13(f) hereof.
2.12. Funding Losses. The Borrower may prepay the outstanding principal
balance of any Advance, in full at any time or in part from time to time in
accordance with the terms of Section 2.04 hereof, provided, that as a condition
--------
precedent to the Borrower's right to make, and any Lender's obligation to
accept, any such prepayment, each such prepayment shall be in the amount of 100%
of the principal amount to be prepaid, plus accrued unpaid interest thereon to
the date of prepayment, plus any other sums which have become due to
Administrative Agent and Lenders under the Loan Papers on or before the
prepayment date but have not been paid, plus (subject to Section 11.08 hereof)
any Consequential Loss.
The Borrower agrees that each Lender is not obligated to actually reinvest
the amount prepaid in any specific obligation as a condition to receiving any
Consequential Loss, or otherwise.
2.13. Computations and Manner of Payments.
(a) The Borrower shall make each payment hereunder and under the other
Loan Papers not later than 1:00 p.m. on the day when due in same day funds to
Administrative Agent, for the Ratable account of Lenders unless otherwise
specifically provided herein, at Administrative Agent's office at Bank of
America Plaza, 901 Main Street, Dallas, Texas 75202, for further credit to the
account of Pinnacle Towers Inc. No later than the end of each day when each
payment hereunder
38
<PAGE>
is made, the Borrower shall notify Judy Schneidmiller, at (214) 209-2135, or
such other Person as Administrative Agent may from time to time specify.
(b) Unless Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Agent may assume that
such payment is so made on such date and may, in reliance upon such assumption,
make distributions to Lenders. If and to the extent the Borrower shall not have
made such payment in full, each Lender shall repay to Administrative Agent
forthwith on demand the applicable amount distributed, together with interest
thereon at the Federal Funds Rate, from the date of distribution until the date
of repayment. The Borrower hereby authorizes each Lender, if and to the extent
payment is not made when due hereunder, to charge the amount so due against any
account of the Borrower with such Lender.
(c) Subject to Section 11.08 hereof, interest on LIBOR Advances under the
Loan Papers shall be calculated on the basis of actual days elapsed but computed
as if each year consisted of 360 days. Subject to Section 11.08 hereof, interest
on Base Advances, the Commitment Fee, and other amounts due under the Loan
Papers shall be calculated on the basis of actual days elapsed but computed as
if each year consisted of 365 or 366 days, as applicable. Such computations
shall be made including the first day but excluding the last day occurring in
the period for which such interest, payment or Commitment Fee is payable. Each
determination by Administrative Agent or a Lender of an interest rate, fee or
commission hereunder shall be presumptive evidence of the validity of such
claim. All payments under the Loan Papers shall be made in United States
dollars, and without setoff, counterclaim, or other defense.
(d) Whenever any payment to be made hereunder or under any other Loan
Papers shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of interest or fees, if applicable;
provided, however, if such extension would cause payment of interest on or
- -------- -------
principal of LIBOR Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
(e) Reference to any particular index or reference rate for determining
any applicable interest rate under this Agreement is for purposes of calculating
the interest due and is not intended as and shall not be construed as requiring
any Lender to actually obtain funds for any Advance at any particular index or
reference rate.
(f) Notwithstanding anything to the contrary herein or in any Loan Paper,
to the extent the Borrower makes any voluntary prepayment, or voluntary
reduction of the Commitments under Sections 2.04 or 2.11 hereof, or any
mandatory prepayment, or mandatory reduction of the Commitments under Sections
2.05 and 2.11 hereof, then such reduction of Commitments or such prepayment
shall be applied as follows:
(i) so long as there exists no Default or Event of Default, all
voluntary Commitment reductions and all voluntary repayments and
prepayments shall be applied as
39
<PAGE>
directed by the Borrower, and in the absence of direction by the Borrower,
shall be deemed to prepay and reduce, respectively (1) pro rata between the
Revolver A Commitment and the Revolver B Commitment and the Revolving
Loans, until each of the Commitments have been reduced to zero and the
outstandings under the Revolving Loans have been repaid in full, then (2)
the Term Loan A and the Term Loan B, pro rata, until all outstanding Term
Loan A Advances and Term Loan B Advances have been repaid in full and (3)
to all remaining outstanding and unpaid Obligations; provided that, so long
as there exists no Default or Event of Default, each Lender having a Term
Loan B Specified Percentage in excess of zero may elect to decline all
voluntary and mandatory prepayments made or allocated to Term Loan B in
accordance with the terms of this Agreement, in which case such declined
prepayments shall be allocated to the Revolving Loans and the Term Loan A
pro rata;
(ii) if there exists a Default or Event of Default, all mandatory
and voluntary Commitment reductions and mandatory and voluntary repayments
and prepayments shall be applied pro rata among the Revolving Loans, the
Term Loan A and the Term Loan B, and then to all remaining outstanding
Obligations; and
(iii) all Term Loan A and Term Loan B repayments and prepayments
shall be applied to installments due thereunder in the inverse order of
maturity, and all repayments and prepayments, and reductions to the
Commitments shall not affect the mandatory commitment reduction schedule
set forth in Section 2.11(b) hereof.
2.14. Yield Protection; Changed Circumstances.
(a) If any Lender determines that either (i) the adoption, after the date
hereof, of any Applicable Law, rule, regulation or guideline regarding capital
adequacy and applicable to commercial banks or financial institutions generally
or any change therein, or any change, after the date hereof, in the
interpretation or administration thereof by any Tribunal, central bank or
comparable agency charged with the interpretation or administration thereof, or
(ii) compliance by any Lender (or Lending Office of any Lender) with any request
or directive made after the date hereof applicable to commercial banks or
financial institutions generally regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency has the effect of reducing the rate of return on such Lender's capital as
a consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount reasonably deemed by such Lender to be material, then from time to
time, within fifteen days after demand by such Lender, the Borrower shall pay to
such Lender such additional amount or amounts as will adequately compensate such
Lender for such reduction. Each Lender will notify the Borrower of any event
occurring after the date of this Agreement which will entitle such Lender to
compensation pursuant to this Section 2.14(a) as promptly as practicable after
such Lender obtains actual knowledge of such event; provided, no Lender shall be
--------
liable for its failure or the failure of any other Lender to provide such
notification. A certificate of such Lender claiming compensation under this
Section 2.14(a), setting forth in reasonable detail the calculation
40
<PAGE>
of the additional amount or amounts to be paid to it hereunder and certifying
that such claim is consistent with such Lender's treatment of similar customers
having similar provisions generally in their agreements with such Lender shall
be presumptive evidence of the validity of such claim. Each Lender shall use
reasonable efforts to mitigate the effect upon the Borrower of any such
increased costs payable to such Lender under this Section 2.14(a).
(b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes, or its obligation to make a LIBOR Advance, or imposes on any Lender
any other condition affecting a Letter of Credit; and the result of any of the
foregoing is to increase the cost to such Lender of making or maintaining its
Letter of Credit, LIBOR Advances, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under the Notes, the Letters
of Credit or reimbursement obligations by an amount deemed by such Lender, to be
material, then, within five days after demand by such Lender, the Borrower shall
----
pay to such Lender such additional amount or amounts as will compensate such
Lender for such increased cost or reduction. Each Lender will (i) notify the
Borrower of any event occurring after the date of this Agreement that entitles
such Lender to compensation pursuant to this Section 2.14(b), as promptly as
practicable after such Lender obtains actual knowledge of the event; provided,
--------
no Lender shall be liable for its failure or the failure of any other Lender to
provide such notification and (ii) use good faith and reasonable efforts to
designate a different Lending Office for LIBOR Advances, of such Lender if the
designation will avoid the need for, or reduce the amount of, the compensation
and will not, in the sole opinion of such Lender, be disadvantageous to such
Lender. A certificate of such Lender claiming compensation under this Section
2.14(b), setting forth in reasonable detail the computation of the additional
amount or amounts to be paid to it hereunder and certifying that such claim is
consistent with such Lender's treatment of similar customers having similar
provisions generally in their agreements with such Lender shall be presumptive
evidence of the validity of such claim. If such Lender demands compensation
under this Section 2.14(b), the Borrower may at any time, on at least five
Business Days' prior notice to such Lender (i) repay in full the then
outstanding principal amount of LIBOR Advances, of such Lender, together with
accrued interest thereon, or (ii) convert the LIBOR Advances to Base Advances in
accordance with the provisions of this Agreement; provided, however, that the
-------- -------
Borrower shall be liable for the Consequential Loss arising pursuant to those
actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
issue or maintain Letters of Credit, make LIBOR Advances or to continue to fund
or maintain LIBOR Advances hereunder, then, on notice thereof and demand
therefor by such Lender to the Borrower, (i) each LIBOR Advance will
automatically, upon such demand, convert into a Base Advance, (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Agent and the
Borrower that such
41
<PAGE>
Lender has determined that the circumstances causing such suspension no longer
exist, and (iii) the obligation of such Lender to make or maintain Letters of
Credit shall be suspended until such Lender notifies Administrative Agent and
the Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist.
(d) Upon the occurrence and during the continuance of any Default or Event
of Default, (i) each LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of each Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended.
(e) If any Lender notifies Administrative Agent that the LIBOR Rate for
any Interest Period for any LIBOR Advances will not adequately reflect the cost
to such Lender of making, funding or maintaining LIBOR Advances for such
Interest Period, Administrative Agent shall promptly so notify the Borrower,
whereupon (i) each such LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Agent that such
Lender has determined that the circumstances causing such suspension no longer
exist and Administrative Agent notifies the Borrower of such fact.
(f) Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.14 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.14.
(g) The obligations of the Borrower under this Section 2.14 shall survive
any termination of this Agreement, provided that, in no event shall the Borrower
be required to make a payment under this Section 2.14 with respect to any event
of which the Lender making such claim had knowledge more than twelve months
prior to demand for such payment.
(h) Determinations by Lenders for purposes of this Section 2.14 shall be
presumptively correct. Any certificate delivered to the Borrower by a Lender
pursuant to this Section 2.14 shall include in reasonable detail the basis for
such Lender's demand for additional compensation and a certification that the
claim for compensation is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender.
(i) Notwithstanding any other provision of this Agreement, no Lender not
organized under the Laws of the United States or any State (or which has a Bank
Affiliate not organized under the Laws of the United States or any State) shall
be entitled to compensation pursuant to this Section 2.14 with respect to any
amount which would otherwise be due under this Section 2.14 but which is the
result of an act of a Tribunal of the country in which such Lender or Bank
Affiliate is organized.
42
<PAGE>
2.15. Use of Proceeds. The proceeds of the Revolver A Advances and the Term
Loan B Advances shall be available (and the Borrower shall use such proceeds)
solely (a) on the Closing Date, to refinance existing indebtedness of the
Borrower, (b) for Permitted Acquisitions, (c) for Capital Expenditures permitted
under the terms of this Agreement, (d) for working capital and (e) for other
lawful corporate purposes. The proceeds of the Revolver B Advances and the Term
Loan A Advances shall be solely used in connection with the acquisition of
assets in accordance with the terms of Section 1008(v) of the Indenture, such
that all Revolver B Advances and all Term Loan A Advances constitute in each
case, Acquisition Debt in accordance with the terms of the Indenture, the other
Parent Senior Notes Documentation and permitted fully secured indebtedness under
all Second Parent Issuance Documentation.
2.16. Collateral and Collateral Call.
(a) Collateral. Payment of the Obligations will be secured by (i) a first
----------
perfected security interest in 100% of the Capital Stock of the Subsidiaries of
the Borrower and 100% of the Capital Stock of the Borrower, (ii) subject to
Permitted Liens and Section 6.15 hereof, a first perfected security interest in
all of the existing and future accounts (including without limitation, the
Tenant Leases), equipment, inventory and general intangibles (including all
existing and future Tenant Leases, and excluding any Interest Rate Protection
Agreement to which any Lender is a party, motor vehicles, bank accounts,
intellectual property and chattel paper) of the Borrower and its Subsidiaries,
(iii) Guaranties of the Obligations by each Guarantor, (iv) in accordance with
Section 6.15 hereof, deeds of trust and/or mortgages on all real property owned
by the Borrower and each Subsidiary of the Borrower and (v) certain pre-existing
leasehold deeds of trust and/or mortgages on Borrower's leasehold interest under
certain Ground Leases (collectively, together with all other Properties or
assets of the Borrower, Subsidiaries and other Persons securing the Obligations
from time to time, the "Collateral"). The Borrower agrees that it will, and will
cause its Subsidiaries and the Parent to, execute and deliver, or cause to be
executed and delivered, such documents as the Administrative Agent may from time
to time reasonably request to create and perfect a first Lien for the benefit of
the Administrative Agent and the Lenders in the Collateral, provided that,
notwithstanding the foregoing, the Borrower is not obligated to grant or perfect
any leasehold deed of trust or leasehold mortgage.
(b) Collateral Call. The Borrower agrees: (i) upon the creation,
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formation or acquisition of any direct or indirect Subsidiary of the Borrower,
to immediately pledge 100% of the Capital Stock of any such Subsidiary to secure
the Obligations, pursuant to a pledge agreement substantially in the form of
Exhibit J hereto, and to promptly deliver to the Administrative Agent all
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certificates or other documentation evidencing 100% of such Capital Stock and,
if such Capital Stock is stock of a corporation, together with stock powers
executed in blank and (ii) to, and agrees to cause the Subsidiaries of the
Borrower to, grant the Administrative Agent and the Lenders from time to time at
the request of the Lenders a Lien on any of the Property of the Borrower or any
Subsidiary of the Borrower that is not already subject to a perfected Lien,
excluding all real estate. The Borrower shall comply with Section 6.15(a), (b)
and (d) hereof with respect to all owned or acquired real estate by the Borrower
or any Subsidiary from time to time. The Borrower shall, and shall cause the
Subsidiaries of the Borrower to, provide for the benefit of Administrative Agent
and Lenders
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securing the Obligations in any other Property of the Borrower and its
Subsidiaries, all items to fully effect the foregoing, including, without
limitation, providing the Administrative Agent with UCC-1's, new security
agreements, appraisals, hazard insurance, UCC-11 searches, Tax and Lien
searches, intellectual property documentation and registration and other similar
types of documents, consents, authorizations, Licenses, instruments and
agreements relating to all Property of the Borrower and its Subsidiaries as
reasonably requested by the Administrative Agent from time to time.
Notwithstanding the foregoing, in no event shall the Borrower be obligated to
grant, or perfect, any leasehold mortgage or leasehold deed of trust.
2.17. Replacement of a Lender. If any Lender has requested compensation or
reimbursement in accordance with the terms of Section 2.14 hereof or in
accordance with the terms of Section 11.07 hereof and (a) such request is not
the result of any uniform changes in the statutes or regulations for capital
adequacy, (b) there exists no Default or Event of Default hereunder, and (c) the
Borrower and such Lender are unable to reach a written agreement regarding such
request within 30 days following written notice by such Lender to the Borrower
and the Administrative Agent of such request, then after the expiration of 30
days following the delivery of the notice under Section 2.14 or Section 11.07
hereof, the Borrower may replace such Lender in whole with another Eligible
Assignee reasonably acceptable to Administrative Agent pursuant to an Assignment
and Acceptance and in accordance with Section 11.04 hereof. Until such time as
any Lender is replaced by the Borrower, the Borrower shall reimburse or
compensate such Lender in accordance with the terms of Section 2.14 hereof and
Section 11.07 hereof.
2.18. Conditions Precedent to the Increase of the Revolver B Commitment.
Prior to June 30, 2001, upon written request by the Borrower to the
Administrative Agent and any other existing Lenders of its choice not less than
five Business Days prior to the proposed effective date of the proposed
increase, the Revolver B Commitment shall, subject to the further terms and
conditions set forth below, increase to a maximum of $145,000,000 in the manner
set forth below:
(a) On any date of proposed increase, the representations and
warranties contained in Article V hereof are true and correct on such date,
as though made on and as of such date, except to the extent expressly made
only as of a prior date; and
(b) On any date of proposed increase, no Default or Event of Default
shall exist on any such date, and no Default or Event of Default would
result from the such increase in the Revolver B Commitment and the
subsequent Revolver B Advance to the Borrower up to the amount of the
Revolver B Commitment; and
(c) On any date of proposed increase, there shall have occurred no
material adverse change in the Borrower's business, assets or financial
condition since December 31, 1998; and
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(d) On any date of proposed increase, the sum of all Revolver B
Advances outstanding (after giving effect to any proposed Revolver B
Advance to be made on such date) shall not exceed the Revolver B
Commitment; and
(e) The proposed increase shall occur prior to June 30, 2001 and the
Revolver B Commitment as increased shall not be in excess of the sum of the
Revolver B Commitment prior to such increase plus the Unavailable
Commitment prior to such increase; and
(f) Upon satisfaction of each of the conditions precedent in this
Section 2.18, the Borrower shall be entitled to increase the Revolver B
Commitment not more than five times, in an aggregate amount for such
increases not to exceed the Unavailable Commitment. Each Lender specified
by the Borrower shall have received not less than 5 Business Days' prior
written notice from the Borrower requesting such Revolver B Commitment
increase. Each such Lender electing to participate in such Revolver B
Commitment increase shall commit to an amount not less than $5,000,000, but
shall accept any allocation amount designated by the Borrower and the
Administrative Agent that is equal to or less than its proposed portion of
the Revolver B Commitment increase; and
(g) Notwithstanding anything herein or in any other Loan Paper to
the contrary, (i) the Borrower is not obligated to notify each Lender of,
or to allocate to any existing Lender any portion of, the proposed
increase, and the Borrower and the Administrative Agent may agree to add
other creditors in connection with any such proposed increase. Each
existing Lender agrees and acknowledges that new creditors may be allocated
all or any portion of the proposed increase upon the determination of the
Borrower and the Administrative Agent; and
(h) Each of the proposed increases shall be in an aggregate minimum
amount of $10,000,000 and $5,000,000 multiples thereof; and
(i) The Administrative Agent shall have received a certificate from
the Borrower to the effect that (i) such increase has received all required
regulatory approvals, if necessary, and is in compliance with all
applicable Laws, and (ii) no other approvals or consents from any Person
are required by any such Person except to the extent they have been
received; and
(j) Each new Lender (including any new Lenders party hereto) shall
have received a promissory Note evidencing its new Revolver B Specified
Percentage of the Revolver B Commitment, and the Borrower and each new
Lender agrees to execute any and all such documents deemed necessary by the
Administrative Agent in order to effectuate this Section 2.18 (whether UCC-
1s, new documentation relating to any Collateral, Guaranty or otherwise);
and
(k) On the date of increase, the Administrative Agent shall deliver
to each Lender evidence of new Revolver B Specified Percentages adjusted to
give effect to the increase in the Revolver B Commitment; and
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(l) On or prior to the date of increase, each new lender being added
to the credit facility shall deliver to the Borrower and the Administrative
Agent documentation acceptable to the Administrative Agent evidencing such
new Lender's acceptance of this Agreement and all the other Loan Papers in
form and substance reasonably acceptable to the Administrative Agent (and
making such lender a party to this Agreement and the other Loan Papers);
and
(m) The Administrative Agent shall have received a pro-forma
Compliance Certificate in form and substance acceptable to the Lenders and
demonstrating compliance with the terms of this Agreement and the Loan
Papers for one full year after the date of such proposed increase; and
(n) The Administrative Agent shall have received financial
projections in form and substance acceptable to the Lenders and
demonstrating compliance with the financial covenants set forth in Section
8.01 hereof throughout the term of this Agreement; and
(o) The Revolver B Commitment shall (i) never exceed the sum of the
Revolver B Commitment plus the Unavailable Commitment, as each is reduced
in accordance with Section 2.11 hereof, this Section 2.18 and the other
terms of this Agreement, and (ii) never increase except to the extent, and
not to exceed such amount, that the Unavailable Commitment is in excess of
zero; and
(p) The Unavailable Commitment shall be reduced in accordance with
this Section 2.18 dollar for dollar for each increase in the Revolver B
Commitment; and
(q) The Administrative Agent on behalf of each Lender shall have
received all amendments to security agreements, deeds of trust and
mortgages as the Administrative Agent shall deem necessary to maintain its
valid and perfected Lien.
No Lender shall be obligated to increase the dollar amount of its share of
the Revolver B Commitment without its written consent in its sole discretion. In
connection with any increase to the Revolver B Commitment in accordance with the
terms of this Section 2.18, each existing Lender (regardless of whether such
Lender is participating in such increase) agrees to execute any and all
agreements requested by the Administrative Agent to effectuate the intent of
this Section 2.18. Notwithstanding anything contained herein to the contrary,
the limitations placed upon assignments set forth in Section 11.04 hereof shall
not apply to proposed increases pursuant to this Section.
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit. Letters of Credit issued under the
Original Credit Agreement shall be deemed, for the purposes of this Agreement,
to be issued hereunder, and each such Letter of Credit shall be treated
accordingly. The Borrower shall give the Administrative Agent not less than five
Business Days prior written notice of a request for the issuance of a Letter of
Credit, and the Administrative Agent shall promptly notify each Lender of such
request. Upon
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receipt of the Borrower's properly completed and duly executed Applications, and
subject to the terms of such Applications and to the terms of this Agreement,
the Administrative Agent agrees to issue Letters of Credit on behalf of the
Borrower in an aggregate face amount not in excess of the Letter of Credit
Commitment. No Letter of Credit shall have a maturity extending beyond the
earliest of (i) the First Maturity Date, or (ii) one year from the date of its
issuance, or (iii) such earlier date as may be required to enable the Borrower
to satisfy its repayment obligations under Section 2.06 hereof (including,
without limitation, such repayment obligations resulting from a decrease in the
Revolver B Commitment required by Section 2.11 hereof). Subject to such maturity
limitations and so long as no Default or Event of Default has occurred and is
continuing or would result from the renewal of a Letter of Credit, the Letters
of Credit may be renewed by the Administrative Agent in its discretion. The
Lenders shall participate ratably in any liability under the Letters of Credit
and in any unpaid reimbursement obligations of the Borrower with respect to any
Letter of Credit in their Revolver B Specified Percentages. The amount of the
Letters of Credit issued and outstanding and the unpaid reimbursement
obligations of the Borrower for such Letters of Credit shall reduce the amount
of Revolver B Commitment available, so that at no time shall the sum of (i) all
outstanding Advances in the aggregate, plus (ii) the aggregate face amount of
all outstanding Letters of Credit, plus (iii) (without duplication) all
outstanding reimbursement obligations related to Letters of Credit, exceed
$95,000,000 (as may be increased by Section 2.18 hereof, and as may be reduced
by Section 2.11 hereof), and at no time shall the sum of all Revolver B Advances
by any Lender made plus its ratable share of amounts available to be drawn under
the Letters of Credit and the unpaid reimbursement obligations of the Borrower
in respect of such Letters of Credit exceed its Revolver B Specified Percentage
of the Revolver B Commitment.
3.02. Letters of Credit Fee. In consideration for the issuance of each
Letter of Credit, the Borrower shall pay to (a) the Administrative Agent for its
own account, an application and processing fee in the amount of $350.00 on each
Letter of Credit, due and payable on the date of issuance of each Letter of
Credit, and (b) the Administrative Agent for the account of the Administrative
Agent and the Lenders in accordance with their Revolver B Specified Percentages,
a per annum fee for each Letter of Credit equal to (i) the product of 1/8 of 1
percent multiplied by the face amount of each such Letter of Credit, plus (ii)
the product of the Applicable Margin for LIBOR Advances on the date of issuance
multiplied by the face amount of each such Letter of Credit. Each fee for each
Letter of Credit under subsection (b) above shall be due and payable to the
Administrative Agent quarterly as it accrues on each Quarterly Date during the
term of the Letter of Credit and on the expiration or renewal and/or extension
of each such Letter of Credit, beginning with the first such Quarterly Date
after the issuance of each Letter of Credit and ending on the expiration date of
each such Letter of Credit or the renewal and/or extension of each such Letter
of Credit.
3.03. Reimbursement Obligations.
(a) The Borrower hereby agrees to reimburse Administrative Agent
immediately upon demand by Administrative Agent, and in immediately available
funds, for any payment or disbursement made by Administrative Agent under any
Letter of Credit. Payment shall be made by the Borrower with interest on the
amount so paid or disbursed by Administrative Agent from and
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including the date payment is made under any Letter of Credit to and including
the date of payment, at the lesser of (i) the Highest Lawful Rate, and (ii) the
sum of the Base Rate in effect from time to time plus two percent (2%) per
annum; provided, however, that if the Borrower would be permitted under the
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terms of Section 2.01, Section 2.02 and Section 4.02 hereof to borrow Advances
in amounts at least equal to their reimbursement obligation for a drawing under
any Letter of Credit, a Base Advance by each Lender, in an amount equal to such
Lender's Revolver B Specified Percentage, shall automatically be deemed made on
the date of any such payment or disbursement made by Administrative Agent in the
amount of such obligation and subject to the terms of this Agreement.
(b) The Borrower hereby also agrees to pay to Administrative Agent
immediately upon demand by Administrative Agent and in immediately available
funds, as security for their reimbursement obligations in respect of the Letters
of Credit under Section 3.03(a) hereof and any other amounts payable hereunder
and under the Notes, an amount equal to the aggregate amount available to be
drawn under Letters of Credit then outstanding, irrespective of whether the
Letters of Credit have been drawn upon, upon an Event of Default. Any such
payments shall be deposited in a separate account designated "Pinnacle Special
Account" or such other designation as Administrative Agent shall elect. All such
amounts deposited with Administrative Agent shall be and shall remain funds of
the Borrower on deposit with Administrative Agent and may be invested by
Administrative Agent as Administrative Agent shall determine. Such amounts may
not be used by Administrative Agent to pay the drawings under the Letters of
Credit; however, such amounts may be used by Administrative Agent as
reimbursement for Letter of Credit drawings which Administrative Agent has paid.
If any amounts in the Pinnacle Special Account shall have been deposited upon
the occurrence of an Event of Default only and such Event of Default shall have
been subsequently cured or waived and no other Event of Default exists, the
Borrower shall be relieved of its obligations under this Section 3.03(b) until
an Event of Default once again occurs. During the existence of an Event of
Default but after the expiration of any Letter of Credit that was not drawn
upon, the Borrower may direct the Administrative Agent to use any cash
collateral for any such expired Letter of Credit, if any, to reduce the amount
of the Obligations. Any amounts remaining in the Pinnacle Special Account, after
the date of the expiration of all Letters of Credit and after all Obligations
have been paid in full, shall be repaid to the Borrower promptly after such
expiration and such payment in full.
(c) The obligations of the Borrower under this Section 3.03 will continue
until all Letters of Credit have expired and all reimbursement obligations with
respect thereto have been paid in full by the Borrower and until all other
Obligations shall have been paid in full.
(d) The Borrower shall be obligated to reimburse Administrative Agent upon
demand for all amounts paid under the Letters of Credit as set forth in Section
3.03(a) hereof; provided, however, if the Borrower for any reason fails to
reimburse Administrative Agent in full upon demand, whether by borrowing
Advances to pay such reimbursement obligations or otherwise, the Lenders shall
reimburse Administrative Agent in accordance with each Lender's Revolver B
Specified Percentage for amounts due and unpaid from the Borrower as set forth
in Section 3.04
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hereof; provided, however, that no such reimbursement made by the Lenders shall
discharge the Borrower's obligations to reimburse Administrative Agent.
(e) The Borrower shall indemnify and hold Administrative Agent or any
Lender, its officers, directors, representatives and employees harmless from
loss for any claim, demand or liability which may be asserted against
Administrative Agent or such indemnified party in connection with actions taken
under the Letters of Credit or in connection therewith (including losses
resulting from the negligence of Administrative Agent or such indemnified
party), and shall pay Administrative Agent for reasonable fees of attorneys (who
may be employees of Administrative Agent) and legal costs paid or incurred by
Administrative Agent in connection with any matter related to the Letters of
Credit, except for losses and liabilities incurred as a direct result of the
gross negligence or wilful misconduct of Administrative Agent or such
indemnified party. If the Borrower for any reason fails to indemnify or pay
Administrative Agent or such indemnified party as set forth herein in full, the
Lenders shall indemnify and pay Administrative Agent upon demand, in accordance
with each Lender's Revolver B Specified Percentage of such amounts due and
unpaid from the Borrower. The provisions of this Section 3.03(e) shall survive
the termination of this Agreement.
3.04. Lenders' Obligations. Each Lender agrees, unconditionally and
irrevocably to reimburse Administrative Agent (to the extent Administrative
Agent is not otherwise reimbursed by the Borrower in accordance with Section
3.03(a) hereof) on demand for such Lender's Revolver B Specified Percentage of
each draw paid by Administrative Agent under any Letter of Credit. All amounts
payable by any Lender under this subsection shall include interest thereon at
the Federal Funds Rate, from the date of the applicable draw to the date of
reimbursement by such Lender. No Lender shall be liable for the performance or
nonperformance of the obligations of any other Lender under this Section. The
obligations of the Lenders under this Section shall continue after the First
Maturity Date and shall survive termination of any Loan Papers.
3.05. Administrative Agent's Obligations.
(a) Administrative Agent makes no representation or warranty, and assumes
no responsibility with respect to the validity, legality, sufficiency or
enforceability of any Application or any document relative thereto or to the
collectibility thereunder. Administrative Agent assumes no responsibility for
the financial condition of the Borrower and its Subsidiaries or for the
performance of any obligation of the Borrower. Administrative Agent may use its
discretion with respect to exercising or refraining from exercising any rights,
or taking or refraining from taking any action which may be vested in it or
which it may be entitled to take or assert with respect to any Letter of Credit
or any Application.
(b) Except as set forth in subsection (c) below, Administrative Agent
shall be under no liability to any Lender, with respect to anything the
Administrative Agent may do or refrain from doing in the exercise of its
judgment, the sole liability and responsibility of Administrative Agent being to
handle each Lender's share on as favorable a basis as Administrative Agent
handles its own share and to promptly remit to each Lender its share of any sums
received by Administrative Agent
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under any Application. Administrative Agent shall have no duties or
responsibilities except those expressly set forth herein and those duties and
liabilities shall be subject to the limitations and qualifications set forth
herein.
(c) Neither Administrative Agent nor any of its directors, officers, or
employees shall be liable for any action taken or omitted (whether or not such
action taken or omitted is expressly set forth herein) under or in connection
herewith or any other instrument or document in connection herewith, except for
gross negligence or willful misconduct, and no Lender waives its right to
institute legal action against Administrative Agent for wrongful payment of any
Letter of Credit due to Administrative Agent's gross negligence or willful
misconduct. Administrative Agent shall incur no liability to any Lender, the
Borrower or any Affiliate of the Borrower or Lender in acting upon any notice,
document, order, consent, certificate, warrant or other instrument reasonably
believed by Administrative Agent to be genuine or authentic and to be signed by
the proper party.
ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to Closing, Effectiveness of this Agreement and
the Refunding Advance. The effectiveness of this Agreement and to make the
initial refunding Advance to refinance the existing indebtedness, or issue the
first Letter of Credit is subject to receipt by the Administrative Agent of each
of the following, in form and substance satisfactory to the Administrative
Agent, with a copy (except for the Notes) for each Lender:
(a) A loan certificate of the Borrower, the Parent and each Subsidiary
of the Borrower certifying as to the accuracy of their representations and
warranties in the Loan Papers, certifying that no Default has occurred, and
including a certificate of incumbency with respect to each Authorized Officer,
and including (i) a copy of the Articles of Incorporation of the Borrower, the
Parent and each Subsidiary of the Borrower, certified to be true, complete and
correct by the secretary of state of its state of incorporation, (ii) a copy of
the By-Laws of the Borrower, the Parent and each Subsidiary of the Borrower, as
in effect on the Closing Date, (iii) a copy of the resolutions of the Borrower,
the Parent and each Subsidiary of the Borrower authorizing them to execute,
deliver and perform this Agreement, the Notes and the other Loan Papers to which
each of them is a party, and (iv) a copy of a certificate of good standing and a
certificate of existence for the Borrower's, the Parent's, and each of the
Borrower's Subsidiaries' state of incorporation and each state in which they are
conducting material business;
(b) duly executed Notes, payable to the order of each Lender in an
amount for each Lender (i) equal to its Revolver A Specified Percentage of the
Revolver A Commitment, (ii) equal to its Revolver B Specified Percentage of the
Revolver B Commitment, (iii) equal to its Term Loan A Specified Percentage of
$125,000,000 and (iv) equal to its Term Loan B Specified Percentage of
$175,000,000;
(c) duly executed and completed confirmation agreement confirming
obligations under (i) pledge agreements by the Parent and the Borrower; (ii) the
Guaranty of the Obligations executed
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by the Parent and the Subsidiaries of the Borrower; (iii) Security Agreement by
the Borrower, the Parent and the Subsidiaries of the Borrower granting the
Lenders a lien and security interest in all assets owned by the Borrower, the
Parent and the Subsidiaries of the Borrower; and (iv) all other Loan Papers,
including without limitation, all mortgages, deeds of trust, and deeds to secure
debt duly filed in all required locations and each item required to be delivered
on Schedule 2.16 hereto, except those Loan Papers specifically agreed to in
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Section 6.15 hereof;
(d) copies of all financing statements filed against the Borrower, the
Parent and each Subsidiary of the Borrower, as debtor;
(e) opinions of counsel to the Borrower, the Parent and each Subsidiary of
the Borrower addressed to the Lenders and in form and substance satisfactory to
the Lenders, dated the Closing Date, including, without limitation, an opinion
of counsel to the Borrower that this Agreement does not violate or conflict with
any term or condition of the Indenture of any of the other Parent Senior Notes
Documentation;
(f) copies of insurance binders or certificates covering the assets of the
Borrower, the Parent and the Subsidiaries of the Borrower, and meeting the
requirements of Section 6.05 hereof;
(g) payment of all fees due to the Administrative Agent in accordance with
the terms of the Fee Letter to be paid on the Closing Date and reimbursement for
Administrative Agent of its reasonable fees and expenses and for Special
Counsel's reasonable fees and expenses rendered through the date hereof;
(h) evidence that all corporate proceedings of the Borrower, the Parent
and the Subsidiaries of the Borrower taken in connection with the transactions
contemplated by this Agreement and the other Loan Papers shall be reasonably
satisfactory in form and substance to the Lenders and Special Counsel; and the
Lenders shall have received copies of all documents or other evidence which the
Administrative Agent, Special Counsel or any Lender may reasonably request in
connection with such transactions;
(i) copies of the following audited financial statements for the Borrower
(and as applicable, the Parent), as of and for the period ended December 31,
1998; (i) balance sheets of the Borrower, the Parent and the Subsidiaries of the
Borrower as of the end of such period, and (ii) statements of income and changes
in cash for such period; all in reasonable detail and certified by an Authorized
Officer to the best of his knowledge to present fairly in all material respects
the consolidated financial position of the Borrower and the results of
operations for the period then ended and, except as noted therein, to be in
accordance with GAAP (other than footnotes thereto);
(j) a duly completed Compliance Certificate evidencing no Default or Event
of Default as of the Closing Date; and
(k) in form and substance satisfactory to the Lenders and Special Counsel,
such other documents, instruments and certificates as the Administrative Agent
or any Lender may reasonably
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require in connection with the transactions contemplated hereby, including
without limitation the status, organization or authority of the Borrower, the
Parent and the Subsidiaries of the Borrower, and the enforceability of and
security for the Obligations.
4.02. Conditions Precedent to All Advances and Letters of Credit. The
obligation of each Lender to make each Advance hereunder and the obligation of
the Administrative Agent to issue any Letter of Credit shall be subject to the
further conditions precedent that on the date of such Advance or such issuance
of such Letter of Credit:
(a) All of the representations and warranties of the Borrower under this
Agreement shall be true and correct at such time in all material respects, both
before and after giving effect to the application of the proceeds of the Advance
or the issuance of the Letter of Credit, except those representations and
warranties that specifically speak as of a particular date;
(b) The incumbency of the Authorized Officers shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 4.01(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Agent. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance or the issuance of such Letter of Credit, is
received by the Administrative Agent from the Borrower prior to the making of
such Advance or such Letter of Credit;
(c) There shall not exist a Default hereunder or an Event of Default
hereunder and none shall exist as a result of making any such Advance or such
Letter of Credit, and the Administrative Agent shall have received written or
telephonic certification thereof by an Authorized Officer (which certification,
if telephonic, shall be followed promptly by written certification);
(d) There shall have occurred no Material Adverse Change since December
31, 1998;
(e) In the case of each Letter of Credit, Borrower shall have delivered
to the Administrative Agent a duly executed and complete Application acceptable
to Administrative Agent;
(f) In the case of any Advance under the Revolving Loan, the aggregate
outstanding Revolver A Advances, after giving effect to any such proposed
Revolver A Advance, shall not exceed the Revolver A Commitment, and the
aggregate outstanding Revolver B Advances, after giving effect to any such
proposed Revolver B Advance, shall not exceed the Revolver B Commitment,
(g) In the case of any Advance under the Revolving B Loan and/or the
Term Loan A Initial Advance, and/or the issuance of any Letter of Credit, the
Borrower, by making its borrowing request under such Revolving B Loan and/or the
Term Loan A, or requesting the issuance of any Letter of Credit, represents and
warrants to the Administrative Agent and each Lender that the proceeds of such
Advance shall be used in accordance with the terms of Section 2.15 hereof, and
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(h) Notwithstanding anything to the contrary herein or in any other Loan
Paper, until the earlier of (i) the consummation of the Motorola Acquisition in
accordance with the terms of Section 4.04 hereof or (ii) the date upon which the
Total Specified Percentage of the Administrative Agent is equal to or less than
11.11% due to assignments to Lenders in accordance with the terms of Section
11.04 hereof, and only after the Administrative Agent has received written
notice from the Borrower in accordance with the terms of Section 6.19 hereof,
the sum of (A) the aggregate amount of all outstanding Advances under the Loans,
plus (B) the aggregate face amount of all outstanding and undrawn Letters of
Credit, plus (C) the aggregate amount of all outstanding reimbursement
obligations with respect to draws on Letters of Credit may not, at any time,
exceed $270,000,000.
4.03. Conditions Precedent to Advances for Permitted Acquisitions, Except
the Motorola Acquisition. The obligation of each Lender to make each Advance
(including the initial Advance) where any proceeds of such Advance will be used
for a Permitted Acquisition except the Motorola Acquisition, shall be subject to
the further conditions precedent that the Borrower has complied with all terms
and provisions of Sections 6.15 and 6.16 hereof.
4.04. Conditions Precedent to Motorola Acquisition and the Making of any
Advance with Respect Thereto. The obligation of each Lender to make any Advance
in connection with Motorola Acquisition and the consummation by the Borrower of
the Motorola Acquisition shall each be subject to the further conditions
precedent that:
(a) the Borrower has complied with all terms and provisions of Sections
4.02, 4.03, 6.15, 6.16, 6.18 and 6.19 hereof and all other terms and conditions
of this Agreement and the Loan Papers,
(b) the Borrower shall have delivered to the Administrative Agent (i)
audited financial statements for the fiscal year ended December 31, 1998, (ii)
any later audited financial statements of the assets, (iii) financial statements
for the fiscal quarters ending March 31, 1999 and June 30, 1999 (to the extent
the June 30, 1999 financial statements are available and in the possession of
the Borrower), in each case in connection with the towers and other assets being
acquired by the Borrower from Motorola and financial statements, and (iv) such
other financial information regarding Motorola, the Motorola Acquisition and the
towers and other assets being acquired by the Borrower from Motorola as the
Administrative Agent or any other Lender shall reasonably request,
(c) the Borrower shall have entered into the Acquisition Agreement and
shall have delivered an executed copy of the Acquisition Agreement to the
Administrative Agent together with all exhibits and schedules thereto,
(d) consummation of the Motorola Acquisition concurrently with the
application of Advances under this Section 4.04, on terms and conditions as set
forth in the Acquisition Agreement, and pursuant to such other documentation
contemplated by the Acquisition Agreement that is reasonably acceptable to the
Administrative Agent and the Lenders in their reasonable discretion,
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(e) the absence of a material adverse change in the financial condition,
business operations, properties or prospects of the towers and other assets
being acquired by Borrower from Motorola,
(f) the Administrative Agent shall have not discovered that any
information or other matter disclosed to the Administrative Agent and BAS by the
Borrower, the Parent or Motorola, prior to the date hereof and regarding
Motorola and the Motorola Acquisition, and/or the assets being acquired by the
Borrower in connection with the Motorola Acquisition, is incorrect, or
inconsistent with current information, in each case, in both a material and
adverse manner, when taken as a whole as it relates to the assets being
purchased,
(g) evidence that the Borrower has received not less than $30,000,000 in
gross proceeds (or such greater amount that is raised by the Parent) as an
equity contribution from the Parent which issued unsecured public Debt for
Borrowed Money of the Parent or Bridge Debt of the Parent or equity of the
Parent and downstreamed the proceeds to the Borrower, any such Debt for Borrowed
Money and Bridge Debt to be incurred by the Parent in accordance with the terms
of Section 8.02(c) hereof and upon other terms and conditions acceptable to the
Administrative Agent and the Majority Lenders,
(h) executed copies of all material agreements, certificates,
instruments and other documents, together with schedules thereto, in each case
executed or delivered by any Person in connection with the Motorola Acquisition,
each in form and substance satisfactory to the Lenders and Special Counsel,
including, without limitation, opinions of counsel (if any) with respect to the
Parent, the Borrower and Motorola (which such opinions of counsel to the
Borrower and the Parent and their subsidiaries (if any) shall state that the
Lenders are entitled to rely thereon), and
(i) in form and substance satisfactory to the Lenders and Special
Counsel, such other documents, instruments and certificates as the
Administrative Agent or any Lender may reasonably require from the Borrower, the
Parent and their Subsidiaries in connection with the Motorola Acquisition,
including without limitation, and all such documents, instruments, certificates
and other items reasonably requested by the Lenders in connection with the
enforceability of, and security in, the assets and towers being acquired from
Motorola as collateral for the Obligations.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties. The Borrower hereby represents
and warrants to each Lender as follows:
(a) The respective jurisdictions of incorporation and percentage
ownership of the Subsidiaries of the Parent by the Parent and the Borrower on
the Closing Date and listed on Schedule 5.01(a) hereto are true and correct.
----------------
Each of the Parent, the Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization. Each of the Parent, the Borrower and its Subsidiaries has the
corporate power and
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authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted. Each of the Parent, the Borrower and its
Subsidiaries is duly qualified, in good standing and authorized to do business
in each jurisdiction in which the character of its Properties or the nature of
its business requires such qualification or authorization, except where the
failure to so qualify would not cause a Material Adverse Change.
(b) The Borrower has corporate power and has taken all necessary
corporate action to authorize it to borrow hereunder. Each of the Parent, the
Borrower and its Subsidiaries has corporate power and has taken all necessary
corporate action to execute, deliver and perform the Loan Papers to which it is
party in accordance with the terms thereof, and to consummate the transactions
contemplated thereby. Each Loan Paper has been duly executed and delivered by
the Parent, the Borrower or such Subsidiary executing it. Each of the Loan
Papers to which the Parent, the Borrower, and its Subsidiaries are party is a
legal, valid and binding respective obligation of the Parent, the Borrower or
such Subsidiary, as applicable, enforceable in accordance with its terms,
subject, to enforcement of remedies, to the following qualifications: (i)
equitable principles generally, and (ii) bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Parent, the Borrower or any Subsidiary of the
Borrower).
(c) The execution, delivery and performance by the Parent, the Borrower
and its Subsidiaries of the other Loan Papers to which they are respectively a
party, and the consummation of the transactions contemplated thereby, do not and
will not (i) require any consent or approval not already obtained, (ii) violate
any Applicable Law, (iii) conflict with, result in a breach of, or constitute a
default under the articles of incorporation or by-laws of the Parent, the
Borrower or any Subsidiary of the Borrower, or under any material License,
indenture, agreement or other instrument, to which the Parent, the Borrower or
any Subsidiary of the Borrower is a party or beneficiary of, or by which they or
their respective Properties may be bound, or (iv) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Parent, the Borrower or any Subsidiary of the
Borrower, except Permitted Liens.
(d) The Parent, the Borrower and its Subsidiaries are primarily engaged
in the operation of leasing and subleasing towers and tower sites, and pursuing
activities related thereto.
(e) All material Licenses have been duly authorized and obtained, and
are in full force and effect. The Parent, the Borrower and its Subsidiaries are
and will continue to be in compliance in all material respects with all
provisions thereof. On the Closing Date, no material License is the subject of
any pending or, to the best of the Borrower's knowledge, threatened challenge or
revocation. After the Closing Date, no material License is the subject of any
pending or, to the best of the Borrower's knowledge, threatened challenge or
revocation, which such event could cause a Material Adverse Change. The Parent,
the Borrower and its Subsidiaries are not required to obtain any material
License that has not already been obtained from, or effect any material filing
or registration that has not already been effected with, the FCC, the FAA or any
other federal, state or local regulatory authority in connection with the
execution and delivery of this Agreement or any
55
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other Loan Paper, or the performance thereof (other than any enforcement of
remedies by the Administrative Agent on behalf of the Lenders), in accordance
with their respective terms, including any borrowings hereunder.
(f) The Parent, the Borrower and its Subsidiaries are in compliance in
all material respects with all Applicable Laws. The Parent, the Borrower and its
Subsidiaries have duly and timely filed all reports, statements and filings that
are required to be filed by any of them under the Communications Act, and are in
all material respects in compliance therewith, including without limitation the
rules and regulations of the FCC and FAA. Except as set forth on Schedule
--------
5.01(f) hereto, as of the Closing Date, the Borrower is not aware of any event
- ------
or circumstance constituting noncompliance (or any Person alleging
noncompliance) with any rule or regulation of the FAA. After the Closing Date,
the Borrower is not aware of any event or circumstance constituting
noncompliance (or any Person alleging noncompliance) with any rule or regulation
of the FAA, which such event or circumstance could cause a Material Adverse
Change.
(g) The Parent, the Borrower and its Subsidiaries have good and
indefeasible title to, or a valid leasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
As of the Closing Date, no financing statement or other Lien filing authorized
by the Parent, the Borrower or any Subsidiary of the Borrower (except relating
to Permitted Liens) is on file in any state or jurisdiction that names the
Parent, the Borrower or any of its Subsidiaries as debtor or covers (or purports
to cover) any assets of the Parent, the Borrower or any of its Subsidiaries.
After the Closing Date, no financing statement or other Lien filing authorized
by the Parent, the Borrower or any Subsidiary of the Borrower (except relating
to Permitted Liens) is on file in any state or jurisdiction that names the
Parent, the Borrower or any of its Subsidiaries as debtor or covers (or purports
to cover) any assets of the Parent, the Borrower or any of its Subsidiaries,
which such financing statement or other Lien filing could cause a Material
Adverse Change. The Parent, the Borrower and its Subsidiaries have not signed
any such financing statement or filing, nor any security agreement authorizing
any Person to file any such financing statement or filing.
(h) On the Closing Date, except as reflected on Schedule 5.01(h) hereto,
----------------
there is no action, suit, proceeding or any other Litigation pending against,
or, to the best of the Borrower's knowledge, threatened against the Parent, the
Borrower or any of its Subsidiaries, or in any other manner relating directly
and materially adversely to the Parent, the Borrower, any of its Subsidiaries,
or any of their material Properties, in any court or before any arbitrator of
any kind or before or by any governmental body. On each date after the Closing
Date on which this representation is deemed to be made, there is no action,
suit, proceeding or any other Litigation pending against, or, to the best of the
Borrower's knowledge, threatened against the Parent, the Borrower or any of its
Subsidiaries, or in any other manner relating to the Parent, the Borrower, any
of its Subsidiaries, or any of their Properties, in any court or before any
arbitrator of any kind or before or by any governmental body, which could
reasonably be expected to cause a Material Adverse Change.
(i) All federal, state and other Tax returns of the Parent, the Borrower
and its Subsidiaries required by law to be filed have been duly filed and all
federal, state and other Taxes,
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assessments and other governmental charges or levies upon the Parent, the
Borrower, its Subsidiaries or any of their Properties, income, profits and
assets, which are due and payable, have been paid, except those that are
diligently contested in good faith by the Borrower and for which a reserve has
been established in accordance with GAAP, and no Lien (other than a Permitted
Lien) has attached and no foreclosure, distraint, sale or similar proceedings
have been commenced.
(j) The Borrower has furnished or caused to be furnished to the Lenders
copies of its audited financial statements at December 31, 1998, which are
prepared in good faith and complete in all material respects and present fairly
in all material respects and in accordance with GAAP (except, with respect to
the financial statements delivered prior to the Closing Date, as noted therein),
the financial position of the Parent, the Borrower and its Subsidiaries as at
such dates and the results of operations for the periods then ended. The Parent,
the Borrower and its Subsidiaries have no material liabilities, contingent or
otherwise, nor material losses, except as disclosed in writing to the Lenders
prior to the Closing Date or as disclosed on any subsequent financial
statements. On the Closing Date after giving effect to the Advances made on such
date, each of the Parent, the Borrower and its Subsidiaries is Solvent.
(k) Since the date of the most recent financial statements delivered to
the Lenders, no event or circumstances have occurred or arisen that could
constitute a Material Adverse Change.
(l) None of the Borrower or its Controlled Group maintains or
contributes to any Plan other than those disclosed to the Administrative Agent
in writing. Each such Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Federal or
state law, rule or regulation. With respect to each Plan of the Borrower and
each member of its Controlled Group (other than a Multiemployer Plan), all
reports required under ERISA or any other Applicable Law to be filed with any
governmental authority, the failure of which to file could reasonably result in
liability of the Borrower or any member of its Controlled Group in excess of
$100,000, have been duly filed. All such reports are true and correct in all
material respects as of the date given. No such Plan of the Borrower or any
member of its Controlled Group has any accumulated funding deficiency (as
defined in Section 412(a) of the Code) (without regard to any waiver granted
under Section 412 of the Code), nor has any funding waiver from the Internal
Revenue Service been received or requested. None of the Borrower or any member
of its Controlled Group has failed to make any contribution or pay any amount
due or owing as required by Section 412 of the Code or Section 302 of ERISA or
the terms of any such Plan prior to the due date under Section 412 of the Code
and Section 302 of ERISA. There has been no ERISA Event or any event requiring
disclosure under Section 4041(c)(3)(C), 4068(f), 4063(a) or 4043(b) of ERISA
with respect to any Plan or trust of the Borrower or any member of its
Controlled Group since the effective date of ERISA. The value of the assets of
each Plan (other than a Multiemployer Plan) of the Borrower and each member of
its Controlled Group equaled or exceeded the present value of the benefit
liabilities, as defined in Title IV of ERISA, of each such Plan as of the most
recent valuation date using Plan actuarial assumptions at such date. There are
no pending or, to the best of the Borrower's knowledge, threatened claims,
lawsuits or actions (other than routine claims for benefits in the ordinary
course) asserted or instituted against, and neither the Borrower nor any member
of its Controlled Group has knowledge of any threatened Litigation or claims
against, (i) the assets of any
57
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Plan or trust or against any fiduciary of a Plan with respect to the operation
of such Plan, or (ii) the assets of any employee welfare benefit plan within the
meaning of Section 3(1) or ERISA, or against any fiduciary thereof with respect
to the operation of any such plan. None of the Borrower or any member of its
Controlled Group has engaged in any prohibited transactions, within the meaning
of Section 406 of ERISA or Section 4975 of the Code, in connection with any
Plan. None of the Borrower or any member of its Controlled Group, nor has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any
withdrawal liability (and no event has occurred which with the giving of notice
under Section 4219 of ERISA would result in such liability) under Section 4201
of ERISA as a result of a complete or partial withdrawal (within the meaning of
Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability
under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section
4042 of ERISA. None of the Borrower, any member of its Controlled Group, or any
organization to which the Borrower or any member of its Controlled Group is a
successor or parent corporation within the meaning of ERISA Section 4069(b), has
engaged in a transaction within the meaning of ERISA Section 4069. None of the
Borrower or any member of its Controlled Group maintains or has established any
welfare benefit plan within the meaning of Section 3(1) of ERISA which provides
for continuing benefits or coverage for any participant or any beneficiary of
any participant after such participant's termination of employment except as may
be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder, and at the expense of the
participant or the beneficiary of the participant, or retiree medical
liabilities. Each of the Borrower and its Controlled Group which maintains a
welfare benefit plan within the meaning of Section 3(1) of ERISA has complied in
all material respects with any applicable notice and continuation requirements
of COBRA and the regulations thereunder.
(m) The Borrower is not engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System, and no part of the proceeds of
the Advances will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock. No
assets of the Parent, the Borrower and its Subsidiaries are margin stock, and
none of the Pledged Stock is margin stock. None of the Parent, the Borrower and
its Subsidiaries, nor any agent acting on their behalf, have taken or will
knowingly take any action which might cause this Agreement or any Loan Papers to
violate any regulation of the Board of Governors of the Federal Reserve System
or to violate the Securities Exchange Act of 1934, in each case as in effect now
or as the same may hereafter be in effect.
(n) As of the Closing Date, the Parent, the Borrower and its
Subsidiaries are in compliance in all material respects with all of the
provisions of their articles of incorporation and by-laws, and no event has
occurred or failed to occur, which has not been remedied or waived, the
occurrence or non-occurrence of which constitutes, or which with the passage of
time or giving of notice or both would constitute, (i) an Event of Default or
(ii) a default by the Parent, the Borrower or any of its Subsidiaries under any
material indenture, agreement or other instrument, or any judgment, decree or
order to which the Parent, the Borrower or any of its Subsidiaries is a party or
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by which they or any of their material Properties is bound. After the Closing
Date, the Parent, the Borrower and its Subsidiaries are in compliance in all
material respects with all of the provisions of their articles of incorporation
and by-laws, and no event has occurred or failed to occur, which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes, or
which with the passage of time or giving of notice or both would constitute, (i)
an Event of Default or (ii) a default by the Parent, the Borrower or any of its
Subsidiaries under any material indenture, agreement or other instrument, or any
judgment, decree or order to which the Parent, the Borrower or any of its
Subsidiaries is a party or by which they or any of their material Properties is
bound, that could reasonably be expected to cause a Material Adverse Change.
(o) The Borrower is not required to register under the provisions of the
Investment Company Act of 1940, as amended. Neither the entering into or
performance by the Borrower of this Agreement nor the issuance of the Notes
violates any provision of such act or requires any consent, approval, or
authorization of, or registration with, the Securities and Exchange Commission
or any other governmental or public body of authority pursuant to any provisions
of such act.
(p) On the Closing Date, none of the Borrower nor any Subsidiary of the
Borrower has any actual knowledge or reason to believe that any substance deemed
hazardous by any applicable Environmental Law, has been installed on any real
property now owned by the Parent, the Borrower or any of its Subsidiaries,
except (i) for hazardous substances the presence of which is not in violation of
law and (ii) as disclosed to the Lenders. After the Closing Date, none of the
Parent, the Borrower nor any Subsidiary of the Borrower has any actual knowledge
or reason to believe that any substance deemed hazardous by any applicable
Environmental Law, has been installed in violation of law on any real property
now owned by the Parent, the Borrower or any of its Subsidiaries except as
disclosed to the Lenders and which would not, in the reasonable judgment of the
Borrower, cause a Material Adverse Change. As of the Closing Date, the Borrower
and its Subsidiaries are not in violation of or subject to any existing, pending
or, to the best of the Borrower's knowledge, threatened investigation or inquiry
by any governmental authority or to any material remedial obligations under any
applicable Environmental Laws, and this representation and warranty would
continue to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to any real property of the Parent, the Borrower and its
Subsidiaries. After the Closing Date, the Parent, the Borrower and its
Subsidiaries are not in violation of or subject to any existing, pending or, to
the best of the Borrower's knowledge, threatened investigation or inquiry by any
governmental authority or to any material remedial obligations under any
applicable Environmental Laws which could cause a Material Adverse Change, and
this representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to any real property of the
Parent, the Borrower and its Subsidiaries. The Parent, the Borrower and its
Subsidiaries are not required to obtain any permits, Licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures, and equipment forming a part of any real property of the Parent, the
Borrower or any Subsidiary of the Borrower by reason of any applicable
Environmental Laws, except those that have been obtained. As of the Closing
Date, the Borrower and its Subsidiaries have no actual knowledge or reason to
believe, after reasonable investigation, that any hazardous substances or solid
wastes have been
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disposed of or otherwise released on or to the real property of the Parent, the
Borrower or any of its Subsidiaries in violation of any applicable Environmental
Law. After the Closing Date, the Parent, the Borrower and its Subsidiaries have
no actual knowledge or reason to believe, that any hazardous substances or solid
wastes have been disposed of or otherwise released on or to the real property of
the Parent, the Borrower or any of its Subsidiaries, within the meaning of the
applicable Environmental Laws, except as disclosed to the Lenders and which such
disposal or release would not cause a Material Adverse Change.
(q) The agreements evidencing obligations with respect to Capital Leases
have been duly authorized, executed and delivered by the Parent, Borrower or its
Subsidiaries, as applicable, and (to the best of the Borrower's knowledge) the
other parties thereto. Except as disclosed to each Lender, there is no
Litigation, or, to the best of the Borrower's knowledge, threatened Litigation
or pending or threatened claim of breach or default, with respect to any such
Capital Lease obligations that could be expected to adversely affect any such
lease or contract. There is no Litigation, or, to the best of the Borrower's
knowledge, threatened Litigation or pending or threatened claim of breach or
default, with respect to any loan agreement or document evidencing any Debt for
Borrowed Money of the Parent, the Borrower, or their Subsidiaries that has not
been disclosed to Lenders. The Borrower has no knowledge of any default by any
tenant or tenants under any Tenant Leases which aggregate five percent or more
of the revenues of the Borrower and its Subsidiaries, except as disclosed to the
Lenders. The Borrower has no notice of or belief that any party to any material
Capital Lease is contemplating a breach, default or termination for any reason
of such contract or lease, except as disclosed to the Lenders. As of the Closing
Date, the Borrower has provided, or caused to be provided, to the Administrative
Agent complete and correct copies of or access to the Capital Leases, all as
amended, together with all exhibits and schedules thereto.
(r) All Pledged Stock has been duly authorized and validly issued, and
is fully paid and nonassessable. The Capital Stock described on Exhibit A to
Borrower Pledge Agreement constitutes all the issued and outstanding Capital
Stock of the Subsidiaries of the Borrower or the Subsidiaries of another
Subsidiary, except such shares that have been issued after the Closing Date,
pledged to the Administrative Agent to secure the Obligations and delivered to
the Administrative Agent together with stock powers executed in blank. All
Capital Stock of the Borrower is pledged to the Administrative Agent on behalf
of Lenders to secure the Obligations. No Person has conversion rights with
respect to, or any subscription rights, calls, commitments or claims of any
character for, or any repurchase or redemption options relating to, the Pledged
Stock, other than those that have waived. The Pledged Stock, when issued or
sold, was either (i) registered or qualified under applicable federal or state
securities laws, or (ii) exempt therefrom.
(s) No broker's, finder's or other fee or commission will be payable by
the Borrower (other than to the Lenders hereunder) with respect to the making of
the Commitments or the Advances hereunder. The Borrower agrees to indemnify and
hold harmless the Administrative Agent and each Lender from and against any
claims, demand, liability, proceedings, costs or expenses asserted with respect
to or arising in connection with any such fees or commissions.
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(t) No event has occurred which permits (or with the passage of time
would permit) the revocation or termination of any material License, or which
could result in the imposition of any restriction thereon of such a nature that
could reasonably be expected to constitute a Material Adverse Change.
(u) The Parent, the Borrower and its Subsidiaries have obtained all
material patents, trademarks, service-marks, trade names, copyrights, Licenses
and other rights, free from burdensome restrictions, that are necessary for the
operation of their business as presently conducted and as proposed to be
conducted. Nothing has come to the attention of the Borrower or any of its
Subsidiaries to the effect that (i) any process, method, part or other material
presently contemplated to be employed by the Parent, Borrower or any Subsidiary
of the Borrower may infringe any patent, trademark, service-mark, trade name,
copyright, License or other right owned by any other Person, or (ii) there is
pending or overtly threatened any claim or Litigation against or affecting the
Borrower or any Subsidiary of the Borrower contesting its right to sell or use
any such process, method, part or other material, which could reasonably be
expected to cause a Material Adverse Change.
(v) Neither this Agreement nor any other document, certificate or
statement which has been furnished to any Lender by or on behalf of the Parent,
the Borrower or any Subsidiary of the Borrower in connection herewith contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statement contained herein and therein not
misleading at the time it was furnished. On the Closing Date, there is no fact
known to the Borrower and not known to the public generally that could
reasonably be expected to cause a Material Adverse Change, which has not been
set forth in this Agreement or in the documents, certificates and statements
furnished to the Lenders by or on behalf of the Borrower prior to the date
hereof in connection with the transaction contemplated hereby. On each date
after the Closing Date on which this representation is deemed to be made, there
is no fact known to the Borrower and not known to the public generally that
could reasonably be expected to cause a Material Adverse Change, which has not
been disclosed to the Lenders in writing.
(w) There exists no breach or default by any party under any Tenant
Lease, except (i) those disclosed to the Administrative Agent in writing, and
(ii) breaches of any Tenant Lease, or all breaches of Tenant Leases in the
aggregate, that could not cause a Material Adverse Change. All Tenant Leases in
existence on the Closing Date are listed on Schedule 5.01(w) hereto, together
----------------
with the lease rate for each such Tenant Lease, the date of termination of each
such Tenant Lease, and whether such Tenant Lease is a Oral Lease. No Tenant
Lease is a Oral Lease, except, if the Borrower is in compliance with Section
6.15(c) below, the Borrower may have Oral Leases that are disclosed to the
Lenders in connection with Section 7.07 below and accurately included in all
calculations pursuant to Sections 6.15(a) and (c) below.
(x) All Ground Leases are in full force and effect, and, as of the
Closing Date, there exists no breach or default by any party under any Ground
Lease, except those disclosed to the Administrative Agent in writing. All Ground
Leases in existence on the Closing Date are listed on Schedule 5.01(x) hereto,
----------------
together with the lease rate for each such Ground Lease, the date of
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termination of each such Ground Lease and the Tower Cash Flow generated from the
Tower on each such Ground Lease, in each case, as of the Closing Date.
(y) Each piece of owned real property in existence on the Closing Date
is listed on Schedule 5.01(y) hereto, together with the Tower Cash Flow related
----------------
to such piece of real property. After the expiration of 90 days after the
Closing Date, all real property owned by the Borrower or any Subsidiary for more
than 90 days is subject to a mortgage and/or deed of trust and otherwise
complies with all requirements set forth with respect to owned real property in
Section 6.15 hereof.
(z) Either (i) Parent (A) qualifies as a real estate investment trust,
as defined in Section 856(a) of the Code, and satisfies the conditions and
limitations set forth in Sections 856(b) and 856(c) of the Code, (B) has not
engaged in any "prohibited transactions" as defined in Section 857(b)(6)(B)(iii)
and (C) of the Code and (C) for its current "tax year" (as defined in the Code)
is and for all prior tax years subsequent to its election to be a real estate
investment trust has been entitled to a dividends paid deduction under the
requirements of Section 857 of the Code. Borrower and each of the Subsidiaries
of Borrower is a Qualified REIT Subsidiary, or (ii) the Borrower has delivered
written notice to the Administrative Agent in accordance with the terms of
Section 7.04(e) hereof, that a REIT Conversion has occurred.
(aa) On each date after the Closing Date on which this representation is
deemed to be made, no event has occurred and no circumstance exists, which by
itself or aggregated together with all other such events or circumstances is
likely to (i) reduce Tower Cash Flow in the aggregate for all Towers by five
percent or more for a period in excess of three months, or (ii) otherwise cause
a Material Adverse Change.
(bb) The Motorola Acquisition is in compliance in all material respects
with all Applicable Laws. The Parent, the Borrower and its Subsidiaries have
duly and timely filed all reports, statements and filings that are required to
be filed by any of them under any Applicable Law in connection with the Motorola
Acquisition and have received all necessary or required approvals and consents
with respect to the Motorola Acquisition, which such consents and approvals are
final, and are in all material respects in compliance therewith. The Borrower is
not aware of any event or circumstance constituting noncompliance (or any Person
alleging noncompliance) with any rule or regulation of the FAA by Motorola or
its Subsidiaries or the Parent, the Borrower and its Subsidiaries. The Parent,
the Borrower and its Subsidiaries have or will have good and indefeasible title
to, or a valid leasehold interest in, all assets being purchased from Motorola
in connection with the Motorola Acquisition, free and clear of all Liens and
security interests, except Permitted Liens and Liens permitted under Section
8.03 hereof . There is no action, suit, proceeding or any other Litigation
pending against, or, to the best of the Borrower's knowledge, threatened against
the Parent, the Borrower or any of its Subsidiaries, or Motorola or any of its
Subsidiaries regarding or relating to the Motorola Acquisition or the assets of
Motorola being purchased by the Borrower, or in any other manner relating
directly and materially adversely to the Parent, the Borrower, any of its
Subsidiaries, or Motorola or any of its Subsidiaries in connection with the
assets being sold by Motorola, in any court or before any arbitrator of any kind
or before or by any governmental body. The Borrower has furnished or caused to
be furnished to the Lenders copies of audited financial
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statements of Motorola at December 31, 1998, which are prepared in good faith
and complete in all material respects and present fairly in all material
respects and in accordance with GAAP, the financial position of the Motorola as
at such dates and the results of operations for the periods then ended. Motorola
has no material liabilities, contingent or otherwise, nor material losses,
except as disclosed on such financial statements.
5.02. Survival of Representations and Warranties . All representations
and warranties made under this Agreement and the other Loan Papers shall be
deemed to be made at and as of the Closing Date and at and as of the date of
each Advance, and each shall be true and correct in all material respects when
made. All such representations and warranties shall survive, and not be waived
by, the execution hereof by any Lender, any investigation or inquiry by any
Lender, or by the making of any Advance under this Agreement.
ARTICLE VI. GENERAL COVENANTS
So long as any of the Obligations are outstanding and unpaid or any portion
of either of the Commitments or any Letter of Credit is outstanding (whether or
not the conditions to borrowing have been or can be fulfilled):
6.01. Preservation of Existence and Similar Matters. The Borrower shall,
and shall cause each Subsidiary of the Borrower and the Parent to:
(a) preserve and maintain, or timely obtain and thereafter preserve and
maintain, its existence and material rights, franchises, authorizations,
consents, privileges and all other material Licenses from federal, state and
local governmental bodies and any Tribunal (regulatory or otherwise); and
(b) qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its Properties or the nature of its
business requires such qualification or authorization, except where the failure
to do so would not cause a Material Adverse Change.
6.02. Business; Compliance with Law and Material Agreements. The Parent,
the Borrower and its Subsidiaries shall (a) engage primarily in the acquisition
and operation of towers, and leasing and subleasing towers and tower sites, and
activities related thereto, and (b) comply in all material respects with the
requirements of all Applicable Law and all material agreements to which each is
a party.
6.03. Maintenance of Properties. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, maintain or cause to be
maintained all its material Properties necessary to the conduct of its business
(whether owned or held under lease) in reasonably good repair, working order and
condition, taken as a whole, and from time to time make or cause to be made all
appropriate repairs, renewals, replacements, additions, betterments and
improvements thereto.
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6.04. Accounting Methods and Financial Records. The Borrower shall, and
shall cause the Parent and each Subsidiary of the Borrower to, maintain a system
of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made and
all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. The Borrower and each of its
Subsidiaries shall maintain a fiscal year ending on December 31.
6.05. Insurance. The Borrower shall, and shall cause the Parent and each
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability, but in no event less than
the amount and types insured as of the Closing Date, provided that, the Borrower
is permitted to self insure the replacement value of Towers having in the
aggregate at any one time insurable values not more than 5% of the aggregate
insurable values for all Towers. Each insurance policy shall provide for at
least 30 days' prior notice to the Administrative Agent of any proposed
termination or cancellation of such policy, whether on account of default or
otherwise and all property insurance shall name the Administrative Agent as loss
payee or additional insured, as appropriate.
6.06. Payment of Taxes and Claims. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, pay and discharge all Taxes,
assessments and governmental charges or levies imposed upon it or its income or
Properties prior to the date on which penalties attach thereto, and all lawful
material claims for labor, materials and supplies which, if unpaid, might become
a Lien upon any of their Properties, except those Taxes, assessments and charges
contested by the Borrower diligently in good faith, and for which adequate
reserves have been established in accordance with GAAP. The Borrower shall, and
shall cause the Parent and each Subsidiary of the Borrower to, timely file all
information returns required by federal, state or local Tax authorities.
6.07. Visits and Inspections. The Borrower shall, and shall cause each
Subsidiary of the Borrower and the Parent to, promptly permit representatives of
the Administrative Agent or any Lender from time to time to (a) visit and
inspect the Properties of the Parent, the Borrower and each Subsidiary of the
Borrower as often as the Administrative Agent or any Lender shall deem
advisable, (b) inspect and make extracts from and copies of the Borrower's, the
Parent's and each Subsidiary of the Borrower's books and records, and (c)
discuss with the Parent's, the Borrower's and each Subsidiary's directors,
officers, employees and, after notice to the Borrower, the auditors of Borrower
and the Parent, its business, assets, liabilities, financial positions, results
of operations and business prospects.
6.08. Payment of Debt for Borrowed Money. The Borrower shall, and shall
cause the Parent and each Subsidiary of the Borrower to, pay its Debt for
Borrowed Money when and as the same becomes due.
6.09. Use of Proceeds. The Borrower shall use the proceeds of Advances
solely as set forth in Section 2.15 hereof.
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6.10. Indemnity.
(a) The Borrower agrees to defend, protect, indemnify and hold harmless
the Administrative Agent, each Lender, each of their respective Affiliates, and
each of their respective (including such Affiliates') officers, directors,
employees, agents, attorneys, shareholders and consultants (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth herein) of each of the foregoing
(collectively, "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees (whether
direct, indirect or consequential and whether based on any federal, state, or
local laws and regulations, under common law or at equitable cause, or on
contract, tort or otherwise, arising from or connected with the past, present or
future operations of the Borrower or its predecessors in interest, in any manner
relating to or arising out of this Agreement, the Loan Papers, or any act, event
or transaction or alleged act, event or transaction relating or attendant
thereto, the making of any participations in the Advances and the management of
the Advances, including in connection with, or as a result, in whole or in part,
of any negligence of Administrative Agent or any Lender (other than those
matters raised exclusively by a participant against the Administrative Agent or
any Lender and not the Borrower), or the use or intended use of the proceeds of
the Advances hereunder, or in connection with any investigation of any potential
matter covered hereby, but excluding any claim or liability that arises as the
result of the gross negligence or willful misconduct of any Indemnitee, as
finally judicially determined by a court of competent jurisdiction
(collectively, the "Indemnified Matters").
(b) In addition, the Borrower shall periodically, upon request,
reimburse each Indemnitee for its reasonable legal and other actual expenses
(including the cost of any investigation and preparation) incurred in connection
with any Indemnified Matter. If for any reason the foregoing indemnification is
unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless
with respect to Indemnified Matters, then the Borrower shall contribute to the
amount paid or payable by such Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Borrower and the Borrower's stockholders on
the one hand and such Indemnitee on the other hand but also the relative fault
of the Borrower and such Indemnitee, as well as any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations under
this Section shall be in addition to any liability which the Borrower may
otherwise have, shall extend upon the same terms and conditions to each
Indemnitee, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Borrower, the
Administrative Agent, the Lenders and all other Indemnitees. This Section shall
survive any termination of this Agreement and payment of the Obligations.
6.11. Environmental Law Compliance. The use which the Parent, the Borrower
or any Subsidiary of the Borrower intends to make of any real Property owned by
it will not result in the
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disposal or other release of any hazardous substance or solid waste on or to
such real Property in violation of any Environmental Law. As used herein, the
terms "hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment; and provided further,
to the extent that any other law applicable to the Parent, the Borrower, any
Subsidiary of the Borrower or any of their Properties establishes a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
The Borrower agrees to indemnify and hold the Administrative Agent and each
Lender harmless from and against, and to reimburse them with respect to, any and
all claims, demands, causes of action, loss, damage, liabilities, costs and
expenses (including attorneys' fees and courts costs) of any kind or character,
known or unknown, fixed or contingent, asserted against or incurred by any of
them at any time and from time to time by reason of or arising out of (a) the
failure of the Parent, the Borrower or any Subsidiary of the Borrower to perform
any obligation hereunder regarding asbestos or applicable Environmental Laws,
(b) any violation on or before the Release Date of any applicable Environmental
Law in effect on or before the Release Date, and (c) any act, omission, event or
circumstance existing or occurring on or prior to the Release Date (including
without limitation the presence on such real Property or release from such real
Property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real Property, regardless of whether the act, omission,
event or circumstance constituted a violation of any applicable Environmental
Law at the time of its existence or occurrence, or whether the act, omission,
event or circumstance is caused by or relates to the negligence of any
indemnified Person; provided that, the Borrower shall not be under any
obligation to indemnify the Administrative Agent or any Lender to the extent
that any such liability arises as the result of the gross negligence or willful
misconduct of such Person, as finally judicially determined by a court of
competent jurisdiction, or for any event which is both not caused by the Parent,
the Borrower or any Subsidiary of the Borrower and occurs after any foreclosure
by the Lenders on any specific Property. The provisions of this paragraph shall
survive the Release Date and shall continue thereafter in full force and effect.
6.12. Interest Rate Protection Agreements. By no later than September 30,
1999, the Borrower will enter into an Interest Rate Protection Agreement on
terms acceptable to the Administrative Agent providing for interest rate
protection for one year for 50% of the principal of the Obligations outstanding
on September 30, 1999, and the Borrower shall thereafter, until the third
anniversary of the Closing Date, maintain an Interest Rate Protection Agreement
in effect at all times on terms acceptable to the Administrative Agent and
providing for an interest rate protection for not less than 50% of the entire
principal of the Obligations.
6.13. Issuance and Pledge of Capital Stock of the Borrower. Prior to or
simultaneous with the issuance by the Borrower of any Capital Stock to any
Person, the Borrower shall, and shall cause the Parent to, cause such Capital
Stock to be pledged to the Administrative Agent on behalf of
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Lenders to secure the Obligations in accordance with documentation substantially
in the form of Exhibit M hereto.
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6.14. Continued Status as a Real Estate Investment Trust; Prohibited
Transactions. Parent will either (a) (i) continue to be qualified as a real
estate investment trust as defined in Section 856 of the Code, (ii) not engage
in any "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) or (C)
of the Code, (iii) continue to satisfy the conditions and limitations set forth
in Sections 856(b) and 856(c) of the Code and (iv) will do all acts necessary to
continue to be entitled to a dividend paid deduction under Section 857 of the
Code, or (b) elect to not maintain its REIT Status and notify the Administrative
Agent and each Lender of its decision in writing in accordance with the
provisions of Section 7.04(e) hereof. The Borrower and each of its Subsidiaries
will either (a) continue to be a Qualified REIT Subsidiary so long as the Parent
remains a REIT, or (b) elect not to qualify as a Qualified REIT Subsidiary and
notify the Administrative Agent and each Lender of its decision in writing in
accordance with the provisions of Section 7.04(e) hereof.
6.15. Tenant Leases, Ground Leases and Fee Owned Property.
(a) Tenant Leases and Fee Owned Properties. The Borrower and each
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Subsidiary of the Borrower shall, after the Closing Date, only enter into new
Tenant Leases, acquire new Tenant Leases or become party to any Tenant Leases
which are not Oral Leases provided that, the Borrower is permitted to have Oral
Leases so long as the sum of the aggregate Tenant Lease Revenues from all Oral
Leases, at no time after the 90th day after the Closing Date exceeds 10% of the
total revenues of the Borrower and its Subsidiaries for the most recently
completed calendar month during the term of this Agreement. The Borrower
covenants that it will use commercially reasonable efforts to insure that each
Tenant Lease (a) is not oral and is subject to written agreement, (b) does not
prohibit or render unenforceable or void any Lien of the Administrative Agent or
any foreclosure and/or operation of the Tower on which such Tenant Lease is
located by the Lenders, whether by contractual provision, operation of law or
otherwise, and (c) does not have any provision preventing, hindering or
prohibiting the Administrative Agent from directly receiving the rents,
receivables or other Tenant Lease Revenues from the lessee (or the effect of
which prevents, hinders or prohibits such action by the operation of Law). The
Borrower shall use commercially reasonable efforts to immediately provide the
Lenders with each item for each piece of real fee owned real Property required
on Schedule 2.16 hereto in accordance with the terms thereon prior to and
-------------
immediately after the Closing Date, and prior to and immediately after each
Permitted Acquisition or other creation or acquisition of any real Property by
the Borrower or any Subsidiary of the Borrower.
(b) Ground Leases. The Borrower and each Subsidiary of the Borrower
-------------
shall, after the Closing Date, use its best efforts to only enter into new
Ground Leases which are substantially in the form set forth on Exhibit K hereto,
---------
or with such other provisions as are approved by the Administrative Agent in
writing. The Borrower shall use commercially reasonable efforts to immediately
provide the Lenders with respect to each Ground Lease, Estoppel and Attornment
Language immediately after each Permitted Acquisition including the Motorola
Acquisition or other creation or acquisition of any real Property by the
Borrower or any Subsidiary of the Borrower.
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(c) Breach of Section 6.15(a) above. In the event any provision of
-------------------------------
Section 6.15(a) above is breached, subject to the last sentence of this Section
6.15(c), the Applicable Margin shall increase by .25% per annum, effective the
date of such breach under Section 6.15(a) above, and shall increase every 30
days thereafter (effective each 31st date following the preceding increase) by
.25% per annum (but in no event shall the interest rate increase under this
Section 6.15(c) by more than .25% per annum per 30 day period) until the earlier
of (i) compliance with this Section 6.15, or (ii) such time as the per annum
interest rate is equal to the Highest Lawful Rate (where the interest rate will
remain until the Borrower is in compliance). If, on the date six months after
the date of any breach, such breach is still in effect, then all Tenant Lease
Revenues from any Oral Lease in excess of the fifteen percent limitation, will
be excluded from revenues for the purpose of determining EBITDA in connection
with any determination of (I) the Leverage Ratio (with respect to the
determination of Section 8.01(a) hereof and the Applicable Margin), the
Consolidated Leverage Ratio in Section 8.01(b) hereof, the consolidated interest
coverage ratio set forth in Section 8.01(c) hereof, the pro forma debt service
coverage ratio set forth in Section 8.01(d) hereof and the fixed charge coverage
ratio set forth in Section 8.01(e) hereof, and such exclusion from EBITDA for
such purposes will continue until five Business Days after the date the Borrower
delivers to the Administrative Agent a certificate of an Authorized Officer
certifying that there exists no breach under Section 6.15(a) above, in detail
satisfactory to the Administrative Agent. If there exists no Default or Event of
Default upon giving effect to any exclusion from EBITDA in accordance with the
provisions set forth above, the interest rate shall be calculated without giving
effect to any increase in the Applicable Margin set forth in this Section
6.15(c).
(d) Real Estate Collateral.
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(i) Fee Owned Property. The Borrower shall, within 60 days after the
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acquisition by the Borrower or any of its Subsidiaries of any owned real
property, provide or cause to be provided to the Administrative Agent on
behalf of itself and the Lenders with a first and prior mortgage or deed of
trust for each such property securing the Obligations in form and substance
substantially similar to the previously filed mortgages/deeds of trust.
The Borrower also agrees to provide (or to cause to be provided) all such
documents and instruments required by the Administrative Agent to fully
effect the foregoing, including, without limitation, providing the
Administrative Agent with UCC-1's, new security agreements, mortgages,
deeds of trust, appraisals, surveys, hazard insurance, UCC-11 searches, Tax
and Lien searches, intellectual property documentation and registration and
other similar types of documents, consents, authorizations, Licenses,
instruments and agreements relating to all Property of the Borrower and its
Subsidiaries as reasonably requested by the Administrative Agent from time
to time.
(ii) Leasehold Property. The Borrower shall use commercially reasonable
------------------
efforts to deliver to the Administrative Agent, within 60 days after each
Permitted Acquisition, a list of each leasehold site acquired by the
Borrower, the purpose each such leased site serves and Estoppel and
Attornment Language for each such site.
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(iii) Fee Owned Property Existing on the Closing Date. With respect to
-----------------------------------------------
fee owned property of the Borrower and its Subsidiaries in existence on the
Closing Date and not subject to a mortgage or deed of trust on the Closing
Date, all such property shall be treated as if such property were acquired
on the Closing Date in order to determine compliance with Section
6.15(d)(i) above.
6.16. Acquisitions, Generally. In connection with any acquisition made
by the Borrower during the term of this Agreement, the Borrower shall, in
addition to the requirements set forth in Sections 4.04, 6.15 and 6.18 (to the
extent applicable) hereof, with respect to individual Permitted Acquisitions in
excess of $20,000,000 and any series of related Permitted Acquisitions which in
the aggregate exceed $20,000,000, (a) deliver notice to Administrative Agent at
such time prior to the proposed acquisition date as is reasonable under the
circumstances, together with (or, the following may be delivered later than the
notice (but still prior to the proposed acquisition), so long as such delivery
is reasonable under the circumstances, and copies of agreements are delivered
promptly upon execution of each such agreement: (i) a detailed description of
the proposed Permitted Acquisition in form reasonably acceptable to the
Administrative Agent, a description and location of all fee owned real property,
all Towers and all other assets (together with all legal descriptions of all
real property (fee owned) available at such time), (ii) the address of any
office acquired, (iii) the most recent financial statements with respect to the
acquired assets and/or Person, and to the extent available, the most recent
audited financial statements, and (iv) a copy of the purchase agreement,
schedules thereto and all related documentation (unless such schedules or
documentation are to be delivered by the seller, in which case the Borrower
shall deliver drafts and originals of such schedules and documentation promptly
upon receipt by the Borrower if later than ten days prior to closing), and (b)
prior to the consummation of the acquisition a statement certified by an
Authorized Officer that (i) the proposed transaction complies with the
definition of Permitted Acquisition set forth in Article I hereof, and (ii) no
Default or Event of Default exists prior to or after giving effect to any
requested Advance or the consummation of such acquisition, or will exist upon
consummation of the proposed acquisition and related borrowings and
transactions, together with a pro forma Compliance Certificate computed after
giving effect to such acquisition and borrowings (A) for acquisitions having
purchases prices in excess of $20,000,000 but less than $50,000,000, evidencing
compliance with the terms of this Agreement for the lesser of two years after
the consummation of the proposed acquisition or the remainder of the term of
this Agreement, together with all projections of the Parent, the Borrower and
any acquired assets and/or Person used to compute the Compliance Certificate and
(B) for acquisitions having purchases prices in excess of $50,000,000,
evidencing compliance with the terms of this Agreement for the remainder of the
term of this Agreement, together with all projections of the Parent, the
Borrower and any acquired assets and/or Person used to compute the Compliance
Certificate.
6.17. Year 2000. The Borrower has (a) undertaken a detailed review and
assessment of all areas within its business and operations that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower may be unable to recognize and perform
property date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (b) developed a detailed plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented
that plan in accordance with that timetable.
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The Borrower reasonably anticipates that all computer applications that are
material to its business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 Compliant").
6.18. Motorola Acquisition. The Borrower shall consummate the Motorola
Acquisition not later than October 31, 1999 and such Motorola Acquisition shall
(a) have a total purchase price not in excess of $255,000,000 plus normal
prorated adjustments, and (b) be consummated in accordance with the terms and
provisions of the Acquisition Agreement and upon other terms and conditions
proposed by Motorola and the Borrower as are reasonably acceptable to the
Administrative Agent and the Majority Lenders in their reasonable discretion.
Prior to or concurrent with, as applicable, the consummation of the Motorola
Acquisition, the Borrower shall comply with all provisions of Section 4.04
hereof, Section 6.16 hereof and Section 2.16(b) hereof, and the Administrative
Agent shall have a Lien to secure the Obligations on all such assets acquired in
connection with the Motorola Acquisition contemplated by Section 2.16 hereof to
be granted to the Administrative Agent. Notwithstanding anything in this
Agreement or in any other Loan Paper to the contrary, in the event that the
Motorola Acquisition is not consummated in accordance with the terms of the
Acquisition Agreement by October 31, 1999, then, the Borrower and the Parent
agree that, not later than November 30, 1999, Section 2.06(d) and Section
2.11(b) of this Agreement and the Loan Papers shall have been renegotiated by
the Parent, the Borrower, the Administrative Agent and BAS, to the reasonable
satisfaction of the Administrative Agent and BAS.
6.19. Notice by the Borrower. The Borrower shall immediately notify the
Administrative Agent in writing of the consummation of the Motorola Acquisition
in accordance with the terms of Section 6.18 hereof.
6.20. Syndication of the Loans. The Borrower agrees to enter into any
amendment of this Agreement and any Loan Paper in connection with any
syndication of the Loans as requested by the Administrative Agent to (a) add
Lenders with titles as agreed to by the Administrative Agent and (b) make any
other reasonably requested changes to this Agreement and the Loan Papers by any
proposed or new Lender or the Administrative Agent. The Borrower further agrees
to comply over the term of this Agreement with all provisions of the Commitment
Letter which specifically state that they shall survive the closing and
consummation of the Loans..
6.21. Additional Equity and/or Subordinated Debt. The Borrower agrees
that, by December 31, 1999 (a) the Borrower shall have received proceeds
contributed by the Parent to the Borrower as equity in an aggregate amount after
the date hereof (including the $30,000,000 the Borrower is required to receive
prior to the Motorola Acquisition in accordance with the terms of Section
4.04(g) hereof) not less than $100,000,000, and (b) the Parent shall have
received not less than $100,000,000 in net proceeds from the issuance of
unsecured public Debt of the Parent, Bridge Debt of the Parent or equity of the
Parent prior to December 31, 1999, in each case issued in accordance with the
provisions of Section 8.02(c) hereof and Section 8.11 hereof, as applicable.
ARTICLE VII. INFORMATION COVENANTS
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So long as any of the Obligations are outstanding and unpaid or any portion
of either of the Commitments or any Letter of Credit is outstanding (whether or
not the conditions to borrowing have been or can be fulfilled), the Borrower
shall furnish or cause to be furnished to each Lender:
7.01. Quarterly Financial Statements and Information. Within 45 days
after the end of each fiscal quarter, consolidated and consolidating balance
sheets of Parent, the Borrower and its Subsidiaries as at the end of such
quarter and the related consolidated and consolidating statements of income and
consolidated statements of changes in cash for such quarter and for the elapsed
portion of the year ended with the last day of such quarter, all of which shall
be certified by an Authorized Officer, to, in his or her opinion, present fairly
in all material respects, in accordance with GAAP, the financial position and
results of operations of the Parent, the Borrower and its Subsidiaries as at the
end of and for such period, and for the elapsed portion of the year ended with
the last day of such period.
7.02. Annual Financial Statements and Information; Certificate of No
Default.
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated balance sheet of the Parent, the Borrower and its Subsidiaries, as
of the end of the current and prior fiscal years and (ii) consolidated
statements of earnings, statements of changes in shareholders' equity, and
statements of changes in cash as of and through the end of such fiscal year, all
of which are prepared in accordance with GAAP, and certified by independent
certified public accountants acceptable to the Lenders, whose opinion shall be
in scope and substance in accordance with generally accepted auditing standards
and shall be unqualified.
(b) As soon as available, but in any event within 60 days following the
end of each fiscal year, a copy of the annual consolidated operating budget of
the Borrower, the Parent, and its Subsidiaries for the succeeding fiscal year.
7.03. Compliance Certificates. At the time financial statements are
furnished pursuant to Section 7.01 hereof and Section 7.02 hereof, a Compliance
Certificate.
7.04. Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Parent, the Borrower or any Subsidiary of
the Borrower by accountants in connection with any annual, interim or special
audit, including without limitation any report prepared in connection with the
annual audit referred to in Section 7.03 hereof, and any other comment letter
submitted to management in connection with any such audit, (ii) each financial
statement, report, notice or proxy statement sent by the Parent, the Borrower or
any Subsidiary of the Borrower to stockholders generally, (iii) each regular or
periodic report and any registration statement or prospectus (or material
written communication in respect of any thereof) filed by the Parent, the
Borrower or any Subsidiary of the Borrower with any securities exchange, with
the Securities and
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Exchange Commission or any successor agency, and (iv) all press releases
concerning material financial aspects of the Parent, the Borrower or any
Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s)
or other evidence of indebtedness or other security of the Parent, the Borrower
or any Subsidiary of the Borrower in excess of $250,000 in the aggregate has
given notice or taken any action with respect to a breach, failure to perform,
claimed default or event of default thereunder, (ii) any party to any material
Capital Lease of the Borrower or any Subsidiary of the Borrower has given notice
or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (iii) any occurrence or non-occurrence
of any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Parent, the Borrower or
any Subsidiary of the Borrower under any material agreement or instrument other
than this Agreement to which the Parent, the Borrower or any Subsidiary of the
Borrower is a party or by which any of their Properties may be bound, or (iv)
any event, circumstance or condition which could reasonably be expected to
constitute a Material Adverse Change, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(c) Promptly upon receipt thereof, information with respect to and
copies of any notices received from the FCC, the FAA or any other federal, state
or local regulatory agencies or any tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with the
Communications Act, or might result in the payment of money by the Parent, the
Borrower or any Subsidiary of the Borrower in an amount of $250,000 or more in
the aggregate, or otherwise constitute a Material Adverse Change, or result in
the loss or suspension of any material License;
(d) Promptly upon receipt from any governmental agency, or any
government, political subdivision or other entity, any material notice,
correspondence, hearing, proceeding or order regarding or affecting the Parent,
the Borrower, any Subsidiary of the Borrower, or any of their Properties or
businesses not in the ordinary course of business, a copy of such notice,
correspondence, hearing, proceeding or order;
(e) Promptly upon and in any event within forty-eight hours after the
Borrower first has knowledge of (i) the Parent failing to or electing to, as
appropriate, (A) continue to qualify as a real estate investment trust as
defined in Section 856 of the Code or (B) maintain its REIT Status, (ii) any act
by the Parent causing the election by the Parent or the Borrower, as applicable,
to be taxed as a real estate investment trust to be terminated, (iii) any act
causing the Parent to be subject to the taxes imposed by Section 857(b)(6) of
the Code, (iv) the Parent failing to be entitled to a dividends paid deduction
under Section 857 of the Code, (v) the Parent failing to satisfy any condition
or limitation set forth in Section 856(b) or 856(c) of the Code, (vi) any
challenge by the Internal Revenue Service to the Parent's REIT Status, (vii) the
Borrower or any Subsidiary of Borrower failing to be a Qualified REIT
Subsidiary, (viii) any challenge by the Internal Revenue Service to the status
of Borrower or any Subsidiary of Borrower as a Qualified REIT Subsidiary, or
(ix) any other REIT
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Conversion, immediate telephonic and subsequent written notice within forty-
eight hours of any such occurrence or circumstance; and
(f) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Parent, the Borrower and its
Subsidiaries that is within the Borrower's control, as the Administrative Agent
or any Lender may reasonably request.
7.05. Notice of Litigation, Default and Other Matters. Prompt notice of
the following events after the Borrower has knowledge or notice thereof:
(a) The commencement of all proceedings and investigations by or before
the FCC, the FAA or any other governmental body, and all other actions and
proceedings in any court or before any arbitrator involving claims for damages
(including punitive damages) in excess of $250,000 in the aggregate (after
deducting the amount with respect to the Parent, the Borrower or any Subsidiary
of the Borrower is insured), against or in any other way relating directly to
the Parent, the Borrower, any Subsidiary of the Borrower, or any of their
Properties or businesses;
(b) Promptly upon the happening of any condition or event which
constitutes a Default, a written notice specifying the nature and period of
existence thereof and what action is being taken or is proposed to be taken with
respect thereto; and
(c) Any Material Adverse Change with respect to the business, assets,
liabilities, financial position, results of operations or prospective business
of the Parent, the Borrower or any Subsidiary of the Borrower.
7.06. ERISA Reporting Requirements.
(a) Promptly and in any event (i) within 30 days after the Borrower or
any member of its Controlled Group knows or has reason to know that any ERISA
Event described in clause (a) of the definition of ERISA Event or any event
described in Section 4063(a) of ERISA with respect to any Plan of the Borrower
or any member of its Controlled Group has occurred, and (ii) within 10 days
after the Borrower or any member of its Controlled Group knows or has reason to
know that any other ERISA Event with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred or a request for a minimum funding
waiver under Section 412 of the Code with respect to any Plan of the Borrower or
any member of its Controlled Group, a written notice describing such event and
describing what action is being taken or is proposed to be taken with respect
thereto, together with a copy of any notice of event that is given to the PBGC;
(b) Promptly and in any event within two Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its Controlled
Group of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
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(c) Promptly and in any event within 30 days after the filing thereof by
the Borrower or any member of its Controlled Group with the United States
Department of Labor, the Internal Revenue Service or the PBGC, copies of each
annual and other report (including Schedule B thereto) with respect to each
Plan;
(d) Promptly and in any event within 30 days after receipt thereof, a
copy of any notice, determination letter, ruling or opinion the Borrower or any
member of its Controlled Group receives from the PBGC, the United States
Department of Labor or the Internal Revenue Service with respect to any Plan;
(e) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group setting
forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;
(f) Notification within 30 days of any material increases in the
benefits of any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which the Borrower or any member of its Controlled Group was not previously
contributing;
(g) Notification within three Business Days after the Borrower or any
member of its Controlled Group knows or has reason to know that the Borrower or
any such member of its Controlled Group has or intends to file a notice of
intent to terminate any Plan under a distress termination within the meaning of
Section 4041(c) of ERISA and a copy of such notice; and
(h) Promptly after receipt of written notice of commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower or any member of its Controlled Group with
respect to any Plan.
7.07. Fee Owned Property, Ground Leases and Tenant Leases.
(a) Quarterly Information Regarding Fee Owned Real Property, Ground
---------------------------------------------------------------
Leases and Tenant Leases. The Borrower shall provide the Administrative Agent
- ------------------------
and each Lender, with quarterly updates delivered with the Compliance
Certificate as required in Section 7.03 hereof, certifying as to (i) all
existing Ground Leases and fee owned real property of the Borrower and the
Subsidiaries of the Borrower, (ii) the annual charges paid in connection with
fee owned real Property (if any) and Ground Leases of the Borrower and the
Subsidiaries of the Borrower, and the annual revenues generated by each Tower on
each Ground Lease and each fee owned real property, (iii) the termination date
for each such Ground Lease, (iv) whether there exists a material breach or
default by any party to any such Ground Lease (or alleged breach or default),
and (v) a list of all Oral Leases
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(detailing the reason for non-compliance) and all Tenant Lease Revenues
generated by such Oral Leases, all in form and substance acceptable to the
Administrative Agent. Each such quarterly update certificate shall be certified
by an Authorized Officer that there exists no breach of Section 6.15 hereof and
that there exists no Default or Event of Default under Section 9.01(s) hereof.
(b) Annual Information Regarding Tenant Leases. The Borrower shall
------------------------------------------
provide the Administrative Agent and each Lender, with annual updates as to all
existing Tenant Leases delivered with the annual information required by Section
7.02 hereof, such information to show the Tenant Lease Revenues with respect to
each Tenant Lease, the termination date for each such Tenant Lease, whether such
Tenant Lease is a Oral Lease (and the reason therefor), and whether there exists
a material breach or default by any party to a (i) material Tenant Lease or (ii)
group of Tenant Leases which is material, all in form and substance acceptable
to the Administrative Agent.
ARTICLE VIII. NEGATIVE COVENANTS
So long as any of the Obligations are outstanding and unpaid or any portion
of either of the Commitments or any Letter of Credit is outstanding (whether or
not the conditions to borrowing have been or can be fulfilled):
8.01. Financial Covenants.
(a) Leverage Ratio. The Borrower shall not permit the Leverage Ratio to
be more than the following ratios at the end of any fiscal quarter during the
time during the following time periods:
Period Ratio
------ -----
From the Closing Date
through September 30, 1999 6.75 to 1.00**
From October 1, 1999
through June 29, 2000 6.50 to 1.00**
From June 30, 2000
through September 29, 2000 6.00 to 1.00**
From September 30, 2000
through December 30, 2000 5.25 to 1.00**
From December 31, 2000
through March 30, 2001 4.75 to 1.00**
From March 31, 2001
through June 29, 2001 4.50 to 1.00**
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From June 30, 2001
through December 30, 2001 4.25 to 1.00**
From December 31, 2001
through December 30, 2002 3.50 to 1.00**
From December 31, 2002
and thereafter 3.00 to 1.00**
**If the Motorola Acquisition has not been consummated by October 31, 1999 in
accordance with the terms of the Acquisition Agreement and this Agreement, in
each case set forth above, the maximum ratio shall be decreased by 0.25.
(b) Consolidated Leverage Ratio. Commencing December 31, 2001, the
Borrower shall not permit the Consolidated Leverage Ratio to be more than the
following ratios at the end of any fiscal quarter during the time during the
following time periods:
Period Ratio**
------ -----
From December 31, 2001
through December 30, 2002 7.50 to 1.00**
From December 1, 2002
through December 30, 2003 6.50 to 1.00**
From December 31, 2003
and thereafter 5.50 to 1.00**
**If the Motorola Acquisition has not been consummated by October 31, 1999 in
accordance with the terms of the Acquisition Agreement and this Agreement, in
each case set forth above, the maximum ratio shall be decreased by 0.25.
(c) Consolidated Interest Coverage Ratio. The Borrower shall not permit,
at the end of any fiscal quarter, the ratio of (i) EBITDA for the preceding
twelve month period to (ii) cash Interest Expense for the preceding twelve month
period, to be less than the following ratios during the following time periods:
Period Ratio
------ -----
From the Closing Date
through June 29, 2000 1.75 to 1.00
From June 30, 2000
through December 30, 2000 2.00 to 1.00
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From December 31, 2000
through March 30, 2001 2.25 to 1.00
From March 31, 2001
and thereafter 2.50 to 1.00
(d) Consolidated Pro Forma Debt Service Coverage Ratio. The Borrower
shall not permit at the end of any fiscal quarter the ratio of (a) Annualized
EBITDA to (b) Pro Forma Debt Service to be less than 1.50 to 1.00.
(e) Consolidated Fixed Charge Coverage Ratio. On March 31, 2001 and for
each fiscal quarter thereafter, the Borrower shall not permit at the end of any
fiscal quarter the ratio of (a) EBITDA for the most recently completed twelve
month period to (b) Fixed Charges paid in cash during the most recently
completed twelve month period, to be less than 1.25 to 1.00.
(f) Capital Expenditures. The Borrower shall not permit Capital
Expenditures made by the Parent, the Borrower and its Subsidiaries in the fiscal
year 2000 to exceed $61,000,000.
8.02. Debt for Borrowed Money. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, create, assume, incur or
otherwise become or remain obligated in respect of, or permit to be outstanding,
or suffer to exist any Debt for Borrowed Money or any preferred Capital Stock,
except:
(a) with respect to the Borrower and its Subsidiaries, Debt for Borrowed
Money under the Loan Papers;
(b) with respect to the Borrower, Debt for Borrowed Money described on
Schedule 8.02 hereto attached hereto in the principal amounts and as such Debt
- -------------
for Borrowed Money exists as of the Closing Date;
(c) provided that no Default or Event of Default exists or would result
from the incurrence thereof and that the net proceeds of any such Debt or
preferred Capital Stock issuance be downstreamed by the Parent to the Borrower
as equity, the Parent may, so long as the aggregate amount of Second Parent
Issuance and the Bridge Debt incurred pursuant to subsections (i) and (ii) below
in the aggregate over the term of this Agreement do not exceed $250,000,000 AND
at no time shall the aggregate amount of outstanding Debt and preferred Capital
Stock under subsections (i) and (ii) below exceed $200,000,000 (except in
connection with any accretion), elect to:
(i) issue unsecured public Debt for Borrowed Money up to the
maximum aggregate amount at any one time outstanding of $200,000,000,
except with respect to any accretion (the "Second Parent Issuance"), and
which such Debt, notwithstanding the foregoing, (i) must be on terms and
conditions substantially similar to the Parent Senior Notes and the Parent
Senior Notes Documentation, (ii) may not be subject to an interest rate in
excess of 13.5% per annum, (iii) must have a scheduled maturity date not
earlier than the Final Maturity Date,
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and must not be subject to any mandatory repurchase, redemption, defeasance
or any similar provision prior to the Final Maturity Date, except to the
extent there exists a Change of Control, and in such event such Debt must
provide for the repayment in full of the Obligations prior to such
redemption, repurchase, repayment or other provision, (iv) may not contain
covenants or other provisions more restrictive than this Agreement and the
other Loan Papers (including the definitions), and may not prohibit any
action or omission with respect to this Agreement and the Loan Papers, and
(v) shall provide for no principal payments until the Obligations have been
paid in full, and in-kind interest payments only for a period of not less
than the first five years after its issuance; and
(ii) incur unsecured Debt for Borrowed Money and/or preferred Capital
Stock up to the maximum aggregate amount for both Debt for Borrowed Money
and preferred Capital Stock at any one time outstanding of $50,000,000,
except with respect to any accretion (such Debt for Borrowed Money or
preferred Capital Stock herein referred to as the "Bridge Debt"), and which
such Bridge Debt, notwithstanding the foregoing (i) must be payment in kind
only, and not subject to any cash interest payments, principal payments,
fees or otherwise, (ii) must have a scheduled maturity date not earlier
than the Final Maturity Date, (iii) must not be subject to any mandatory
repurchase, redemption, defeasance or any similar provision prior to the
Final Maturity Date and (iv) may not contain covenants or other provisions
more restrictive than this Agreement and the other Loan Papers (including
the definitions), and may not prohibit any action or omission with respect
to this Agreement and the Loan Papers;
(d) provided that no Default or Event of Default exists or would result
from the incurrence thereof, with respect to the Borrower and the Parent,
unsecured Debt for Borrowed Money not to exceed $5,000,000 in the aggregate for
the Borrower and the Parent throughout the term of this Agreement;
(e) provided that no Default or Event of Default exists or would result
from the incurrence thereof, with respect to the Borrower and the Parent,
secured Debt for Borrowed Money not to exceed $5,000,000 in the aggregate for
the Borrower and the Parent throughout the term of this Agreement;
(f) provided that no Default or Event of Default exists or would result
from the incurrence thereof, with respect to the Borrower, accrued but unpaid
Earn-Out Liabilities;
(g) provided that no Default or Event of Default exists or would result
from the incurrence thereof, in addition to the Subordinated Debt the Parent is
entitled to incur in accordance with the terms of Section 8.02(c) above, if
there has not occurred a REIT Conversion, the Parent may incur Subordinated Debt
to the Shareholders, such Subordinated Debt not to exceed in principal face
amount in the aggregate for any taxable year, the amount necessary to enable the
Borrower to obtain the maximum possible deduction for dividends paid, as defined
in Section 561 of the Code and further described in Section 857 of the Code for
such year, taking into account the sum of all distributions previously made to
Shareholders permitted by Section 8.08(b)(iii) hereof for such fiscal
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year, provided that, any determination under Section 857 of the Code shall take
into consideration for such purpose the necessity of increasing the aggregate
amounts distributed to reflect the fact that distributions in redemption of any
preferred return on any class of stock will be treated as being made partly from
earnings and profits and partly from capital; and
(h) provided that no Default or Event of Default exists or would result
from the incurrence thereof, Debt for Borrowed Money incurred by the Borrower to
sellers in connection with Permitted Acquisitions, provided that (i) the amount
of such Debt shall not exceed, together with the amount of seller Debt described
on Schedule 8.02 hereto, $40,000,000, and (ii) in connection with the incurrence
-------------
of such Debt, a Letter of Credit shall be issued in the amount of such seller
Debt.
8.03. Liens. The Borrower shall not, and shall not permit the Parent or
any Subsidiary of the Borrower to, create, assume, incur, permit or suffer to
exist, directly or indirectly, any Lien on any of its assets or Properties,
whether now owned or hereafter acquired, except Permitted Liens. The Borrower
shall not, and shall not permit Parent or any Subsidiary of the Borrower to,
agree with any other Person that it shall not create, assume, incur, permit or
suffer to exist or to be created, assumed, incurred or permitted to exist,
directly or indirectly, any Lien on any of its assets or Properties.
8.04. Investments. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to, make any Investment, except that
the Borrower may purchase or otherwise acquire and own:
(a) Marketable, direct obligations of, or guaranteed by, the United
States of America and maturing within 365 days of the date of purchase;
(b) Commercial paper issued by U.S. corporations that have a rating of A-
1/P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group, a Division of McGraw-Hill, Inc.;
(c) Certificates of deposit of domestic banks maturing within 365 days of
the date of purchase, which banks' debt obligations have one of the two highest
ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc.;
(d) Securities issued by U.S. corporations that have one of the two
highest ratings obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group, a Division of McGraw-Hill, Inc.;
(e) Investments in newly-formed or existing, wholly-owned Subsidiaries of
the Borrower (i) that are subject to the provisions hereof, (ii) that are or
immediately become party to the Subsidiary Guaranty and any security documents
required by the Administrative Agent, (iii) whose stock is pledged to the
Lenders to secure the Obligations pursuant to a pledge agreement substantially
identical in form and substance to the Borrower Pledge Agreement and (iv) if the
Parent
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has not notified the Administrative Agent and each Lender of a REIT Conversion,
such Subsidiaries must be Qualified REIT Subsidiaries;
(f) Accounts receivable that arise in the ordinary course of business and
are payable on standard terms;
(g) Investments in existence on the Closing Date which are described on
Schedule 8.04 hereto;
- -------------
(h) Investments constituting Permitted Acquisitions permitted by Section
8.06(b) hereof; and
(i) Certificates of deposit and Eurodollar time deposits with maturities
of one year or less from the date of acquisition, overnight bank deposits and
repurchase obligations having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States government
or any agency thereof, in each case, of either an Eligible Assignee or Brown
Brothers Harriman & Co., provided that such Investments do not exceed
$20,000,000 in the aggregate at any time outstanding.
8.05. Amendment and Waiver. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, enter into any amendment
of any term or provision, or accept any consent or waiver with respect to any
such provision, of (a) its articles of incorporation or by-laws in any manner
material and adverse to the Lenders, (b) any material provision of any material
Capital Lease in any manner material and adverse to the Lenders or (c) any
provision in any Ground Lease provision that is set forth on Exhibit K hereto.
---------
The Borrower shall not, nor shall it permit the Parent or any Subsidiary of the
Borrower to, amend or change (or take any action or fail to take any action the
result of which is an effective amendment or change) or accept any waiver or
consent with respect to, the Subordinated Debt or the Parent Senior Notes, the
Indenture or any other Parent Senior Notes Documentation, or any Second Parent
Issuance Documentation or any Bridge Debt, that would result in (a) an increase
in any principal, interest, fees, or other amounts payable under the
Subordinated Debt, the Parent Senior Notes Documentation, the Second Parent
Issuance Documentation or the Bridge Debt (including without limitation a waiver
or action that results in the waiver of any payment default under the
Subordinated Debt, the Bridge Debt, the Parent Senior Notes Documentation or the
Second Parent Issuance Documentation), (b) a change in any date fixed for any
payment of principal, interest, fees, or other amounts payable under the
Subordinated Debt, the Bridge Debt, the Parent Senior Notes Documentation or the
Second Parent Issuance Documentation (including, without limitation, as a result
of any redemption) to a date earlier than January 31, 2005, (c) a change in any
financial covenant in the Subordinated Debt, the Parent Senior Notes
Documentation, the Bridge Debt or the Second Parent Issuance Documentation to a
more restrictive provision for the Borrower, the Parent or any Subsidiary of the
Borrower, (d) an increase in any remedy or right (or any change that broadens
the rights or remedies) of the holders of the Subordinated Debt, the Bridge
Debt, the Parent Senior Notes Documentation or the Second Parent Issuance
Documentation, (e) a change in any covenant, term or provision in the
Subordinated Debt, the Bridge Debt, the Parent Senior Notes Documentation or the
Second Parent Issuance
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Documentation which would result in such term or provision being more
restrictive than the terms of this Agreement and the Loan Papers, (f) a change
in any term or provision of the Parent Senior Notes Documentation that would
alter the definition of Acquisition Debt or Section 1008 of the Indenture in a
manner that would make it more restrictive or effect the usage of the Revolver B
Loan or the Term Loan A, or (g) a change in any term or provision of the
Subordinated Debt, the Parent Senior Notes Documentation or the Second Parent
Issuance Documentation, or other document or instrument in connection therewith
that could have, in any material respect, an adverse effect on the interests of
the Lenders.
8.06. Liquidation, Disposition or Acquisition of Assets, Merger, New
Subsidiaries. The Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up; or sell, lease, abandon, transfer or
otherwise dispose of all or any part of its assets, Properties or business
(other than in the ordinary course of business and other than assets that are
damaged or obsolete), provided that, (i) any Subsidiary of the Borrower can be
dissolved so long as the Borrower or a wholly-owned Subsidiary of the Borrower
acquires all such Subsidiary's assets; and (ii) so long as there exists no
Default or Event of Default both before and after giving effect to such sale and
the Borrower complies fully with Section 2.05(c) hereof, Borrower may consummate
the sale of Towers (but not all or any substantial portion of Towers);
(b) acquire any assets, Property or business of any other Person except
(i) the Borrower and the Subsidiaries of the Borrower may acquire assets and
Property acquired in the ordinary course of business and (ii) provided no
Default or Event of Default exists or would result therefrom, the Borrower may
consummate transactions constituting Permitted Acquisitions;
(c) enter into any merger or consolidation, except that, so long as
there exists no Default or Event of Default and none is caused thereby, (i) any
Subsidiary of the Borrower can merge or consolidate into any other Subsidiary of
the Borrower, or so long as such transaction is in connection with a Permitted
Acquisition, into another Person, so long as a Subsidiary of the Borrower is a
survivor, or into the Borrower so long as the Borrower is the surviving
corporation, and (ii) another Person may be merged into the Borrower or any
Subsidiary of the Borrower in connection with a Permitted Acquisition, so long
as the Borrower or such Subsidiary is the surviving corporation; or
(d) create or acquire any Subsidiary, except as permitted by Section
8.04(e) hereof.
In connection with any asset sale permitted by this Section 8.06, Section 11.01
hereof or otherwise consented to by the Lenders in accordance with the terms of
this Agreement, the Administrative Agent is hereby authorized by each Lender to
(i) execute any and all releases deemed appropriate by it to release such assets
of the Borrower and the Subsidiaries of the Borrower constituting Collateral
from all Liens and security interests securing all or any portion of the
Obligations, (ii) return to the Borrower any such Collateral in the possession
of the Administrative Agent, and (iii) take such other action as the
Administrative Agent deems necessary or appropriate in connection with such
transaction and in furtherance of the effectuation thereof.
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8.07. Guaranties; Contingent Liabilities. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to, at any time
make or issue any Guaranty, or assume, be obligated with respect to, or permit
to be outstanding any Contingent Liabilities, except pursuant to the Loan
Papers.
8.08. Restricted Payments. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, directly or indirectly declare,
make or pay any Restricted Payment; provided, however
(a) any Subsidiary of the Borrower may declare and pay a Distribution to
the Borrower, and
(b) so long as there exists no Default or Event of Default immediately
before and after giving effect to any such transaction or payment,
(i) commencing April 30, 2000, the Borrower may make an annual
Restricted Payment in an aggregate amount not to exceed in any fiscal year,
the difference between Excess Cash Flow for the preceding calendar year and
the amount required by Section 2.05(a) hereof to repay the Obligations,
provided that, no such Restricted Payment may be made in any fiscal year of
the Borrower until the Borrower has fully complied with Section 2.05(a)
hereof with respect to such year,
(ii) the Borrower and the Parent may each make payments in kind on
its Subordinated Debt (but only in kind payments and no cash payments),
(iii) so long as there has not been a REIT Conversion, the Borrower
may annually make not more than two cash distributions to the Parent, who
must use such cash distributions to make distributions to the Shareholders,
each such distribution in an aggregate amount per taxable year equal to (A)
the amount of gross income actually includible by the Shareholders on their
Tax returns with respect to such taxable year solely as a result of the
operations of the Parent, the Borrower and its Subsidiaries, multiplied by
(B) the sum of the highest marginal Federal and highest marginal State
income tax rates applicable to one or more of the Shareholders,
(iv) so long as there has not been a REIT Conversion, the Borrower
may make one or more distributions with respect to any taxable year
constituting Subordinated Debt to the Parent, who, to the extent such
distribution is made by the Borrower may make one or more distributions
with respect to any taxable year constituting Subordinated Debt to the
Shareholders, each such distribution constituting Subordinated Debt not to
exceed in the aggregate an amount necessary to enable the Parent to obtain
the maximum possible deduction for dividends paid, as defined in Section
561 of the Code and further described in Section 857 of the Code for such
year, taking into account the sum of all distributions previously paid to
Shareholders in accordance with the terms of Section 8.08(b)(iii) above,
provided that, in connection with any such distribution, the Parent shall
take into
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consideration for such purpose the necessity of increasing the aggregate
amounts distributed to reflect the fact that distributions in redemption of
any preferred return on any class of stock will be treated as being made
partly from earnings and profits and partly from capital,
(v) the Borrower may make an annual distribution to Parent in an
amount not to exceed $25,000 to reimburse the Parent for its miscellaneous
expenses,
(vi) until September 1, 2003, the Parent may make (A) payments in
kind only on the Parent Senior Notes (but only in kind payments and no cash
payments), in accordance with the terms of the Parent Senior Notes
Documentation, and (B) payments in kind only on the Second Parent Issuance
(but only in kind payments and no cash payments), in accordance with the
terms of the Second Parent Issuance Documentation,
(vii) the Parent may repay in its entirety the Bridge Debt, but
only so long as the Parent uses the proceeds of (i) Debt issued in
accordance with the terms of Section 8.02(c)(i) hereof to repay such Bridge
Debt or (ii) equity issued in accordance with the terms of Section 8.11
hereof to repay such Bridge Debt, and
(viii) the Borrower may repay seller debt permitted to be incurred
in accordance with the terms of Section 8.02(h) hereof, so long as such
repayments are in accordance with the terms thereof.
8.09. Affiliate Transactions. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, at any time engage in
any transaction with an Affiliate, nor make an assignment or other transfer of
any of its assets or Properties to any Affiliate, on terms materially less
advantageous to the Parent, the Borrower or any Subsidiary of the Borrower than
would be the case if such transaction had been effected with a non-Affiliate,
except the agreements listed on Schedule 8.09 hereto and except for Restricted
-------------
Payments permitted to be paid under Section 8.08 hereof, and as expressly
permitted in Sections 8.02 and 8.04 hereof.
8.10. Compliance with ERISA. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower to, directly or indirectly,
or permit any member of its Controlled Group to directly or indirectly, (a)
terminate any Plan so as to result in any material (in the opinion of the
Majority Lenders) liability to the Borrower or any member of its Controlled
Group, (b) permit to exist any ERISA Event, or any other event or condition
which presents the risk of liability of the Borrower or any member of its
Controlled Group, (c) make a complete or partial withdrawal (within the meaning
of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any
liability to the Borrower or any member of its Controlled Group, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder except in the ordinary course of business consistent with past
practice which could result in any liability to the Borrower or any member of
its Controlled Group, or (e) permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, under each Plan of the Borrower or
any member of its Controlled Group (using the actuarial assumptions utilized by
the PBGC upon termination of a plan) to exceed the fair market
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value of Plan assets allocable to such benefits all determined as of the most
recent valuation date for each such Plan.
8.11. Capital Stock. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to (a) make or permit any transfer,
assignment, distribution, mortgage, pledge or gift of any shares of Pledged
Stock, and (b) issue any Capital Stock, provided that, (i) if there exists no
Default or Event of Default before and immediately after giving effect to such
issuance and (ii) the net proceeds of each such issuance of Capital Stock are
contributed to the Borrower as equity (except to the extent all or any portion
of any such issuance is used to repay Debt permitted to be repaid in accordance
with the terms of Section 8.08 hereof), the Parent may issue (A) common Capital
Stock of the Parent to any Person, and (B) preferred Capital Stock of the Parent
in accordance with the terms of Section 8.02(c)(ii) hereof.
8.12. Sale and Leaseback. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents or leases
such assets, except that the Borrower may sell real estate that it owns and
thereafter lease it subject to a Ground Lease, provided that the Borrower
complies with the provisions of Sections 6.15 and 7.07 hereof as if the Borrower
had acquired such leased property.
8.13. Sale or Discount of Receivables. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to, directly or
indirectly sell, with or without recourse, for discount or otherwise, any notes
or accounts receivable.
8.14. Limitation on Restrictive Agreements. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to, enter into any
indenture, agreement, instrument, financing document or other arrangement which,
directly or indirectly, prohibits or restrains, or has the effect of prohibiting
or restraining, or imposes materially adverse conditions upon (a) any amendment
of, or waiver or consent to, any provision of this Agreement or any other Loan
Paper and (b) the granting of any Liens to secure the Obligations, and, except
with respect to the Parent Senior Notes, the Second Parent Issuance and the
Bridge Debt: (i) the incurrence of indebtedness, (ii) the granting of Liens,
(iii) the making or granting of Guarantees, (iv) the payment of dividends or
Distributions, (v) the purchase, redemption or retirement of any Capital Stock,
(vi) the making of loans or advances, (vii) transfers or sales of property or
assets (including Capital Stock) by the Parent, the Borrower or any of its
Subsidiaries, (viii) the making of Investments and (ix) any change of control or
management.
ARTICLE IX. EVENTS OF DEFAULT
9.01. Events of Default. Any one or more of the following shall be an
"Event of Default" hereunder, if the same shall occur for any reason whatsoever,
whether voluntary or involuntary, by operation of Law, or otherwise:
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(a) The Borrower shall fail to pay any (i) principal payable under any Loan
Paper on the date due; or (ii) any interest, fees or other amounts payable
within three days of the date due;
(b) Any representation or warranty made or deemed made by any Obligor (or
any of its officers or representatives) under or in connection with any Loan
Paper shall prove to have been incorrect or misleading in any material respect
when made or deemed made;
(c) The Borrower shall fail to perform or observe any term or covenant
contained in Article VIII hereof or in Section 7.04(e) hereof;
(d) Any Obligor shall fail to perform or observe any other term or covenant
contained in any Loan Paper, other than those described in Sections 9.01(a), (b)
and (c) above or in Section 6.15(a) hereof, and such failure shall not be
remedied within thirty days following the earlier of the Borrower's knowledge of
such failure or notice from any Lender of the occurrence of such failure;
(e) Any of the following shall occur: (i) Any Loan Paper or material
provision thereof shall, for any reason, not be valid and binding on the Obligor
signatory thereto, or not be in full force and effect, or shall be declared to
be null and void; or (ii) the validity or enforceability of any Loan Paper shall
be contested by any Obligor; or (iii) any Obligor shall deny in writing that it
has any or further liability or obligation under its respective Loan Papers; or
(iv) any default or breach under any provision of any Loan Papers shall continue
after the applicable grace period, if any, specified in such Loan Paper;
(f) Any of the following shall occur: (i) any Obligor shall make an
assignment for the benefit of creditors or be unable to pay its debts generally
as they become due; (ii) any Obligor shall petition or apply to any Tribunal for
the appointment of a trustee, receiver, or liquidator of it, or of any
substantial part of its assets, or shall commence any proceedings relating to
any Obligor under any Debtor Relief Laws; (iii) any such petition or application
shall be filed, or any such proceedings shall be commenced, against any Obligor,
or an order, judgment or decree shall be entered appointing any such trustee,
receiver, or liquidator, or approving the petition in any such proceedings, and
such petition or application shall be consented to or uncontested by such
Obligor, or if contested by such Obligor, shall not be dismissed within 60 days
following the filing of such petition or application; (iv) any final order,
judgment, or decree shall be entered in any proceedings against any Obligor
decreeing its dissolution; or (v) any final order, judgment, or decree shall be
entered in any proceedings against any Obligor decreeing its split-up which
requires the divestiture of a substantial part of its assets;
(g) Any of the following shall occur: (i) The Borrower or any other
Obligor shall fail to pay any Subordinated Debt, Debt evidenced by the Parent
Senior Notes, Debt evidenced by any Second Parent Issuance Documentation, Bridge
Debt or any other Debt, or obligations in respect of Capital Leases (other than
Debt under the Loan Papers) in an aggregate amount of $1,000,000 or more when
due (whether by scheduled maturity, required prepayment, acceleration, demand,
or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or (ii) the Borrower or any other Obligor shall fail
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to perform or observe any term or covenant contained in any agreement or
instrument relating to any such Debt, when required to be performed or observed,
and such failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument, and can result in acceleration of the
maturity of such Debt; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid, mandatorily redeemed or repurchased (other
than by a regularly scheduled required prepayment), prior to the stated maturity
thereof;
(h) Any Obligor shall have any final judgment(s) outstanding against it for
the payment of $1,000,000 or more, and such judgment(s) shall remain unstayed,
in effect, and unpaid for the period of time after which the judgment holder may
and may cause the creation of Liens against or seizure of any of its Property;
(i) Any of the following shall have occurred: (i) Any ERISA Event shall
have occurred with respect to a Plan of the Borrower, and the sum of the
Insufficiency of such Plan and liabilities relating thereto is equal to or
greater than $1,000,000 or (ii) the Borrower or any ERISA Affiliate of the
Borrower shall have committed a failure described in Section 302(f)(l) of ERISA,
and the amount determined under Section 302(f)(3) of ERISA is equal to or
greater than $1,000,000;
(j) The Borrower or any ERISA Affiliate of the Borrower shall have been
notified by the sponsor of a Multiemployer Plan that (A) it has incurred
Withdrawal Liability to such Plan in an amount that, exceeds $1,000,000 or
requires payments exceeding $1,000,000 per annum, or (B) such Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result thereof the aggregate annual contributions to all Multiemployer
Plans in reorganization or being terminated is increased over the amounts
contributed to such Plans for the preceding Plan year by an amount exceeding
$1,000,000;
(k) Any Obligor shall be required under any Environmental Law (i) to
implement any remedial, neutralization, or stabilization process or program, the
cost of which would constitute a Material Adverse Change, or (ii) to pay any
penalty, fine, or damages in an aggregate amount which would constitute a
Material Adverse Change;
(l) Any of the following shall have occurred: (i) Any Property (whether
leased or owned), or the operations conducted thereon by any Obligor or any
current or prior owner or operator thereof (in the case of real Property), shall
violate or have violated any applicable Environmental Law, if such violation
would constitute a Material Adverse Change; or (ii) such Obligor shall not
obtain or maintain any License required to be obtained or filed under any
Environmental Law in connection with the use of such Property and assets,
including without limitation past or present treatment, storage, disposal, or
release of Hazardous Materials into the environment, if the failure to obtain or
maintain the same would constitute a Material Adverse Change;
(m) Any of the following shall have occurred: (i) Any Loan Paper shall for
any reason (other than pursuant to the terms thereof) cease to create a valid
and perfected first priority Lien in the Collateral purported to be covered
thereby (except as permitted by the terms of this Agreement
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or consented to by the Lenders); or (ii) less than 100% of the Capital Stock of
the Borrower shall be pledged to secure the Obligations;
(n) Any of the following shall have occurred: (i) A final non-appealable
order is issued by any Tribunal, including, but not limited to, the FCC, the FAA
or the United States Justice Department, requiring Borrower to divest a
substantial portion of its assets pursuant to any antitrust, restraint of trade,
unfair competition, industry regulation, or similar Laws, or (ii) any Tribunal
shall condemn, seize, or otherwise appropriate, or take custody or control of
all or any substantial portion of the assets of Borrower;
(o) Any of the following shall have occurred if the effect thereof is to
cause a Material Adverse Change: (i) Any License whether presently existing or
hereafter granted to or obtained by Borrower or any Subsidiary of the Borrower
shall expire without renewal on or before payment in full of the Notes and all
Obligations hereunder, or be suspended or revoked, or (ii) Borrower or any
Subsidiary of the Borrower shall become subject to any injunction or other order
affecting or which may affect Borrower's or a Subsidiary of the Borrower's
present or proposed operations under any such License;
(p) The occurrence of one of more of the following events: (i) the
occurrence of a Change of Control, or (ii) the Parent shall own less than 100%
of the Capital Stock of the Borrower, or the Borrower shall own less than 100%
of its Subsidiaries; or (iii) any one of the President, Chief Executive Officer,
Chief Financial Officer or Chief Operating Officer of the Borrower shall, for
any reason, fail to perform the primary roles and functions of such position on
behalf of the Borrower (whether pursuant to death, extended disability,
termination, resignation or otherwise) AND the Borrower shall not have replaced
such senior executive with a new employee reasonably acceptable to the Majority
Lenders within 60 days after such failure;
(q) For any taxable year, the Borrower shall have made any Restricted
Payment to the Parent, or the Parent shall have made any Restricted Payment to
any Shareholder in accordance with the terms of Section 8.08(b)(iii) hereof for
the tax liability of any Shareholder for such taxable year, and the Borrower or
the Parent shall also have paid or be subject to any Federal income tax on any
amount in excess of five percent of the Borrower's real estate investment trust
taxable income for such taxable year;
(r) Any civil action, suit or proceeding shall be commenced against
Borrower, the Parent, or any Subsidiary of the Borrower under any federal or
state racketeering statute (including, without limitation, the Racketeer
Influenced and Corrupt Organization Act of 1970) ("RICO") and such suit shall be
adversely determined by a court of applicable jurisdiction and forfeiture shall
commence against assets in the aggregate having fair market value of $1,000,000
or more, or any criminal action or proceeding shall be commenced against the
Borrower, the Parent, or any Subsidiary of the Borrower under any federal or
state racketeering statute (including, without limitation, RICO);
(s) With respect to Parent, Borrower or any Subsidiary of the Borrower,
if the Parent and the Borrower have not notified the Administrative Agent in
accordance with the terms of Section
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7.04(e) hereof of a REIT Conversion, (i) any such entity fails to pay dividends
in the amount of taxable income necessary to maintain Parent's REIT Status, or
(ii) Parent shall fail to maintain its REIT Status or (iii) Borrower or any
Subsidiary of Borrower shall fail to maintain its status as a Qualified REIT
Subsidiary;
(t) A "Change of Control" as that term is defined in the Parent Senior
Notes Documentation or any Second Parent Issuance Documentation shall occur;
(u) The Borrower shall not have received an equity contribution within
five days after the payment by the Borrower of cash dividends in accordance with
the terms of Sections 8.08(b)(iii) and (iv) hereof ("Tax Dividends"), in an
amount not less than the difference between (i) the aggregate amount of such Tax
Dividends and (ii) the Shareholder's maximum tax liability as a result of the
operations of the Borrower (after giving effect to all tax benefits), or
(v) The Motorola Acquisition has not been consummated in accordance with
the terms of the Acquisition Agreement by October 31, 1999, AND the Borrower and
the Parent shall not have reached an agreement with the Administrative Agent and
BAS by November 30, 1999 regarding a restructuring of the amortization of the
Loans in Sections 2.06(d) and 2.11(b) hereof to the reasonable satisfaction of
the Administrative Agent and BAS.
9.02. Remedies upon Default. If an Event of Default described in Section
9.01(f) shall occur with respect to any Obligor, the aggregate unpaid principal
balance of and accrued interest on all Advances shall, to the extent permitted
by applicable Law, thereupon become due and payable concurrently therewith,
without any action by Administrative Agent or any Lender, and without diligence,
presentment, demand, protest, notice of protest or intent to accelerate, or
notice of any other kind, all of which are hereby expressly waived. Subject to
the foregoing sentence, if any Event of Default shall occur and be continuing,
Administrative Agent may at its election, do any one or more of the following:
(a) Declare the entire unpaid balance of all Advances immediately due and
payable, whereupon it shall be due and payable without diligence, presentment,
demand, protest, notice of protest or intent to accelerate, or notice of any
other kind (except notices specifically provided for under Section 9.01 hereof),
all of which are hereby expressly waived (except to the extent waiver of the
foregoing is not permitted by applicable Law);
(b) Terminate either the Revolver A Commitment or the Revolver B
Commitment or both of the Commitments;
(c) Reduce any claim of Administrative Agent and Lenders to judgment;
(d) Demand (and the Borrower shall pay to Administrative Agent)
immediately upon demand and in immediately available funds, the amount equal to
the aggregate amount of the Letters of Credit then outstanding, irrespective of
whether such Letters of Credit have been drawn upon, all as set forth and in
accordance with the terms of provisions of Article III hereof. The
Administrative
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Agent shall promptly advise the Borrower of any such declaration or demand but
failure to do so shall not impair the effect of such declaration or demand; and
(e) Exercise any Rights afforded under any Loan Papers, by Law, including
but not limited to the UCC, at equity, or otherwise.
9.03. Cumulative Rights. All Rights available to Administrative Agent
and Lenders under the Loan Papers shall be cumulative of and in addition to all
other Rights granted thereto at Law or in equity, whether or not amounts owing
thereunder shall be due and payable, and whether or not Administrative Agent or
any Lender shall have instituted any suit for collection or other action in
connection with the Loan Papers.
9.04. Waivers. The acceptance by Administrative Agent or any Lender at
any time and from time to time of partial payment of any amount owing under any
Loan Papers shall not be deemed to be a waiver of any Default or Event of
Default then existing. No waiver by Administrative Agent or any Lender of any
Default or Event of Default shall be deemed to be a waiver of any Default or
Event of Default other than such Default or Event of Default. No delay or
omission by Administrative Agent or any Lender in exercising any Right under the
Loan Papers shall impair such Right or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof, or the exercise of any other Right
under the Loan Papers or otherwise.
9.05. Performance by Administrative Agent or any Lender. Should any
covenant of any Obligor fail to be performed in accordance with the terms of the
Loan Papers, Administrative Agent may, at its option, perform or attempt to
perform such covenant on behalf of such Obligor. Notwithstanding the foregoing,
it is expressly understood that neither Administrative Agent nor any Lender
assumes, and shall not ever have, except by express written consent of
Administrative Agent or such Lender, any liability or responsibility for the
performance of any duties or covenants of any Obligor.
9.06. Expenditures. The Borrower shall reimburse Administrative Agent
and each Lender for any reasonable sums spent by it in connection with the
exercise of any Right under Section 9.05 hereof. Such sums shall bear interest
at the lesser of (a) the Base Rate (whether or not in effect), plus 2.00% per
annum and (b) the Highest Lawful Rate, from five days after the date any Lender
makes demand to the Borrower for reimbursement of such amount until the date of
repayment by the Borrower.
9.07. Control. None of the covenants or other provisions contained in
this Agreement shall, or shall be deemed to, give Administrative Agent or any
Lender any Rights to exercise control over the affairs and/or management of any
Obligor, the power of Administrative Agent and each Lender being limited to the
Rights to exercise the remedies provided in this Article; provided, however,
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that if Administrative Agent or any Lender becomes the owner of any partnership,
stock or other equity interest in any Person, whether through foreclosure or
otherwise, it shall be entitled
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to exercise such legal Rights as it may have by being an owner of such stock or
other equity interest in such Person.
ARTICLE X. THE ADMINISTRATIVE AGENT
10.01. Authorization and Action. Each Lender hereby appoints and
authorizes Administrative Agent to take such action as Administrative Agent on
its behalf and to exercise such powers under this Agreement and the other Loan
Papers as are delegated to the Administrative Agent by the terms of the Loan
Papers, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement and the other Loan
Papers (including without limitation enforcement or collection of the Notes),
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
Majority Lenders (or all Lenders, if required under Section 11.01 hereof), and
such instructions shall be binding upon all Lenders; provided, however, that
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Administrative Agent shall not be required to take any action which exposes
Administrative Agent to personal liability or which is contrary to any Loan
Papers or applicable Law. Administrative Agent agrees to give to each Lender
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement, and to distribute to each applicable Lender in like funds all amounts
delivered to Administrative Agent by the Borrower for the Ratable or individual
account of any Lender. Functions of the Administrative Agent are administerial
in nature and in no event shall the Administrative Agent have a fiduciary or
trustee relationship in respect of any Lender by reason of this Agreement or any
Loan Paper.
10.02. Administrative Agent's Reliance, Etc. Neither Administrative
Agent, nor any of its directors, officers, agents, employees, or representatives
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Paper, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, Administrative Agent (a) may treat the payee of any
Note as the holder thereof until Administrative Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form satisfactory
to Administrative Agent; (b) may consult with legal counsel (including counsel
for the Borrower or any of its Subsidiaries), independent public accountants,
and other experts selected by it, and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants, or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements,
warranties, or representations made in or in connection with this Agreement or
any other Loan Papers; (d) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants, or conditions
of this Agreement or any other Loan Papers on the part of any Obligor or its
Subsidiaries or to inspect the Property (including the books and records) of any
Obligor or its Subsidiaries; (e) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement, any other Loan Papers, or any other instrument or
document furnished pursuant hereto; and (f) shall incur no liability under or in
respect of this Agreement or any other Loan Papers by acting upon any notice,
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consent, certificate, or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties.
10.03. NationsBank, N.A. and Affiliates. With respect to its portion of
the Commitments, its Advances, and any Loan Papers, NationsBank, N.A. has the
same Rights under this Agreement as any other Lender and may exercise the same
as though it were not Administrative Agent. NationsBank, N.A. and its Affiliates
may accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, any Obligor, any Affiliate
thereof, and any Person who may do business therewith, all as if NationsBank,
N.A. were not Administrative Agent and without any duty to account therefor to
any Lender.
10.04. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other
Lender, and based on the financial statements referred to in Section 5.01(j),
Article VII hereof and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Papers.
10.05. Indemnification by Lenders. Lenders shall indemnify Administrative
Agent, Pro Rata, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Administrative Agent in any way relating to or arising out of
any Loan Papers or any action taken or omitted by Administrative Agent
thereunder, including any negligence of Administrative Agent; provided, however,
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that no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements resulting from Administrative Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, Lenders shall reimburse
Administrative Agent, Pro Rata, promptly upon demand for any out-of-pocket
expenses (including reasonable attorneys' fees) incurred by Administrative Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiation, legal
proceedings or otherwise) of, or legal and other advice in respect of rights or
responsibilities under, the Loan Papers. The indemnity provided in this Section
10.05 shall survive the termination of this Agreement.
10.06. Successor Administrative Agent. Administrative Agent may resign
at any time by giving written notice thereof to Lenders and the Borrower, and
may be removed at any time with or without cause by the action of all Lenders
(other than Administrative Agent, if it is a Lender). Upon any such
resignation, Majority Lenders shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed and shall have accepted such appointment within thirty days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the Laws
of the United
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States of America or of any State thereof and having a combined capital and
surplus of at least $50,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the Rights and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
the Loan Papers, provided that if the retiring or removed Administrative Agent
is unable to appoint a successor Administrative Agent, Administrative Agent
shall, after the expiration of a sixty day period from the date of notice, be
relieved of all obligations as Administrative Agent hereunder. Notwithstanding
any Administrative Agent's resignation or removal hereunder, the provisions of
this Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement.
ARTICLE XI. MISCELLANEOUS
11.01. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Papers, nor consent to any departure by the
Borrower or any Obligor therefrom, shall be effective unless the same shall be
in writing and signed by the Borrower and the Administrative Agent with the
consent of the Majority Lenders, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver, or consent shall (and the
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result of action or failure to take action shall not) unless in writing and
signed by all of Lenders and Administrative Agent, (a) increase either of the
Commitments (except as specifically permitted by Section 2.18 hereof), (b)
reduce any principal, interest, fees, or other amounts payable hereunder, or
waive or result in the waiver of any Event of Default under Section 9.01(a)
hereof, (c) postpone any date fixed for any payment of principal, interest,
fees, or other amounts payable hereunder, (d) release any Collateral or
guaranties securing any Obligor's obligations hereunder, other than (i) releases
contemplated by the provisions of this Agreement or by the other Loan Papers and
(ii) releases of assets that (A) are being sold by the Borrower in its ordinary
course of business and (B) are obsolete or immaterial to the business of the
Borrower, (C) are immaterial and were acquired by the Borrower in connection
with a Permitted Acquisition but never contemplated to be used in the operations
of the Borrower, (which such releases do not require the consent of any Lender
except the Administrative Agent), (e) change the meaning of "Revolver A
Specified Percentage", "Revolver B Specified Percentage"(except in accordance
with the terms of Section 2.18 hereof), "Term Loan A Specified Percentage",
"Term Loan B Specified Percentage" or "Total Specified Percentage" (except in
accordance with the terms of Section 2.18 hereof), or the number of Lenders
required to take any action hereunder, (f) change the definitions of "Revolver A
Commitment", "Revolver B Commitment", "Commitments", "Unavailable Commitment",
"First Maturity Date", "Final Maturity Date", "Majority Lenders", or "Letter of
Credit Commitment", (g) or amend any provision of Section 2.18 hereof which
would affect any of the items listed in Section 11.01(a) through (f) above, or
(h) amend this Section 11.01. No amendment, waiver, or consent shall affect the
Rights or duties of Administrative Agent under any Loan Papers, unless it is in
writing and signed by Administrative Agent in addition to the requisite number
of Lenders.
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11.02. Notices.
(a) Manner of Delivery. All notices communications and other materials
to be given or delivered under the Loan Papers shall, except in those cases
where giving notice by telephone is expressly permitted, be given or delivered
in writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Agent, any Lender or the Borrower has acted in reliance on such
telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) If to the Borrower:
Pinnacle Towers Inc.
1549 Ringling Boulevard
3rd Floor
Sarasota, Florida 34236
Telephone No.: (941) 364-8886
Telecopier No.: (941) 364-8761
Attention: Mr. Steve Day
(ii) If to Administrative Agent:
NationsBank, N.A.
Bank of America Plaza
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214) 209-0988
Telecopier No.: (214) 209-9390
Attention: Ms. Roselyn M. Drake
Principal
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With a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone No.: (214) 698-3814
Telecopier No.: (214) 744-0231
Attention: Melissa Ruman Stewart
(iii) If to any Lender, to its address shown on Schedule 11.02 hereto or on
--------------
any Assignment and Acceptance.
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(d) Effectiveness. Each notice, communication and any material to be
given or delivered to any party pursuant to this Agreement shall be effective or
deemed delivered or furnished (i) if sent by mail, on the fifth day after such
notice, communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number determined as above provided
in this Section 11.02 and the appropriate receipt is received or otherwise
acknowledged, (iii) if sent by hand delivery or overnight courier, when left at
the address of the addressee addressed as above provided, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received; provided, however, that notices
-------- -------
to Administrative Agent pursuant to Article II shall be effective when received.
The Borrower agrees that Administrative Agent shall have no duty or obligation
to verify or otherwise confirm telephonic notices given pursuant to Article II,
and agrees to indemnify and hold harmless Administrative Agent and Lenders for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, and expenses resulting, directly or indirectly,
from acting upon any such notice.
11.03. Parties in Interest. All covenants and agreements contained in
this Agreement and all other Loan Papers shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto. Each Lender may
from time to time assign or transfer its interests hereunder pursuant to Section
11.04 hereof. The Borrower may not assign or transfer its Rights or obligations
hereunder without the prior written consent of Administrative Agent.
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11.04. Assignments and Participations.
(a) Each Lender (an "Assignor") may assign its Rights and obligations as
a Lender under the Loan Papers to one or more Eligible Assignees pursuant to an
Assignment and Acceptance, so long as (i) each assignment shall be of a
constant, and not a varying percentage of all Rights and obligations thereunder,
(ii) each Assignor shall obtain in each case the prior written consent of
Administrative Agent and the Borrower, in each case such consent not to be
unreasonably withheld or delayed, provided that, in the event there exists a
Default or Event of Default, any such consent of the Borrower shall not be
required, (iii) each Assignor shall in each case pay a $3,500 processing fee to
Administrative Agent and (iv) no such assignment is for an amount less than
$3,000,000 (and, if such assignment is a partial assignment, no Lender shall
hold less than $3,000,000 immediately after giving effect to any assignment).
Assignments and other transfers (except participations) with respect to each
Lender's participation in a given Letter of Credit may only be made with the
prior written consent of the Administrative Agent. Within five Business Days
after Administrative Agent receives notice of any such assignment, the Borrower
shall execute and deliver to Administrative Agent, in exchange for the Notes
issued to Assignor, new Notes to the order of such Assignor and its assignee in
amounts equal to their respective Revolver A Specified Percentages of the
Revolver A Commitment, the Revolver B Specified Percentages of the Revolver B
Commitment, their respective Term Loan A Specified Percentages of $125,000,000
and their respective Term Loan B Specified Percentages of $175,000,000. Such new
Notes shall be dated the effective date of the assignment. It is specifically
acknowledged and agreed that on and after the effective date of each assignment,
the assignee shall be a party hereto and shall have the Rights and obligations
of a Lender under the Loan Papers.
(b) Each Lender may sell participations to one or more Persons in all or
any of its Rights and obligations under the Loan Papers; provided, however, that
-------- -------
(i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
its Notes for all purposes of the Loan Papers, (iv) the participant shall be
granted the Right to vote on or consent to only those matters described in
Sections 11.01(a), (b), (c) and (d) hereof, (v) Obligor, Administrative Agent,
and other Lenders shall continue to deal solely and directly with such Lender in
connection with its Rights and obligations under the Loan Papers and (vi) no
such participation is for an amount less than $5,000,000.
(c) Any Lender may, in connection with any assignment or participation,
or proposed assignment or participation, disclose to the assignee or
participant, or proposed assignee or participant, any information relating to
any Obligor furnished to such Lender by or on behalf of any Obligor.
(d) Notwithstanding any other provision set forth in this Agreement, (i)
any Lender may at any time create a security interest in all or any portion of
its Rights under this Agreement (including, without limitation, the Advances
owing to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System, (ii) no participant of any Lender may further assign or participate any
of its interest
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in the Loan Papers to any Person (except as may be required by Law or a Tribunal
having authority over such participant), and (iii) no Lender (other than
NationsBank, N.A.) may assign any of its interest in the Loan Papers to any
Person (except as may be required by Law or a Tribunal having authority over
NationsBank, N.A.) except as specifically provided in Section 11.04 hereof.
11.05. Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any Right of set-off,
or otherwise) on account of its Advances in excess of its Pro Rata share of
payments made by the Borrower, such Lender shall forthwith purchase
participations in Advances made by the other Lenders as shall be necessary to
share the excess payment Pro Rata with each of them; provided, however, that if
-------- -------
any of such excess payment is thereafter recovered from the purchasing Lender,
its purchase from each Lender shall be rescinded and each Lender shall repay the
purchase price to the extent of such recovery together with a Pro Rata share of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 11.05
may, to the fullest extent permitted by Law, exercise all its Rights of payment
(including the Right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
11.06. Right of Set-off. Upon the occurrence and during the continuance
of any Event of Default, each Lender is hereby authorized at any time and from
time to time, to the fullest extent permitted by Law, to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of the Borrower against any and all of the obligations
of the Borrower now or hereafter existing under this Agreement and the other
Loan Papers, whether or not Administrative Agent or any Lender shall have made
any demand under this Agreement or the other Loan Papers, and even if such
obligations are unmatured. Each Lender shall promptly notify the Borrower after
any such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The Rights of
each Lender under this Section 11.06 are in addition to other Rights (including,
without limitation, other Rights of set-off) which such Lender may have.
11.07. Costs, Expenses, and Taxes.
(a) The Borrower agrees to pay on demand (i) all costs and expenses of
Administrative Agent and BAS in connection with the preparation and negotiation
of all Loan Papers, including without limitation the reasonable fees and out-of-
pocket expenses of Special Counsel, (ii) all costs and expenses of
Administrative Agent and BAS in connection with any syndication of the Loans,
including without limitation the costs of all amendments to this Agreement and
the Loan Papers and the reasonable fees and out-of-pocket expenses of Special
Counsel, (iii) all costs and expenses (including reasonable attorneys' fees and
expenses) of Administrative Agent in connection with any interpretation, grant
and perfection of any Lien, modification, amendment, waiver, release of any Loan
Papers, restructuring or work-out and (iv) all costs and expenses (including
reasonable attorneys' fees and expenses) of Administrative Agent and each Lender
in connection with any
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collection of any portion of the Obligations or the enforcement of any Loan
Papers during the continuance of an Event of Default.
(b) In addition, the Borrower shall pay any and all stamp, debt, and
other Taxes payable or determined to be payable in connection with any payment
hereunder (other than Taxes on the overall net income of Administrative Agent or
any Lender or franchise Taxes or Taxes on capital or capital receipts of
Administrative Agent or any Lender), or the execution, delivery, or recordation
of any Loan Papers, and agrees to save Administrative Agent and each Lender
harmless from and against any and all liabilities with respect to, or resulting
from any delay in paying or omission to pay any Taxes in accordance with this
Section 11.07, including any penalty, interest, and expenses relating thereto.
All payments by the Borrower or any Subsidiary of the Borrower under any Loan
Papers shall be made free and clear of and without deduction for any present or
future Taxes (other than Taxes on the overall net income of Administrative Agent
or any Lender of any nature now or hereafter existing, levied, or withheld, or
franchise Taxes or Taxes on capital or capital receipts of Administrative Agent
or any Lender), including all interest, penalties, or similar liabilities
relating thereto. If the Borrower shall be required by Law to deduct or to
withhold any Taxes from or in respect of any amount payable hereunder (i) the
amount so payable shall be increased to the extent necessary so that, after
making all required deductions and withholdings (including Taxes on amounts
payable to Administrative Agent or any Lender pursuant to this sentence),
Administrative Agent or any Lender receives an amount equal to the sum it would
have received had no such deductions or withholdings been made, (ii) the
Borrower shall make such deductions or withholdings, and (iii) the Borrower
shall pay the full amount deducted or withheld to the relevant taxing authority
in accordance with applicable Law. Without prejudice to the survival of any
other agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 11.07 shall survive the execution of this
Agreement, termination of the Commitments, repayment of the Obligations,
satisfaction of each agreement securing or assuring the Obligations and
termination of this Agreement and each other Loan Paper.
11.08. Rate Provision. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall any Obligor or any other Person be
obligated to pay any amount in excess of the Maximum Amount. If Administrative
Agent or any Lender ever receives, collects or applies, as interest, any such
excess, such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to the Borrower or the other Person
entitled thereto. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Amount, each Obligor,
Administrative Agent and each Lender shall, to the maximum extent permitted
under Applicable Laws, (a) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (b) exclude voluntary prepayments and
the effect thereof, and (c) amortize, prorate, allocate and spread in equal
parts, the total amount of interest throughout the entire contemplated term of
the Obligations so that the interest rate is uniform throughout the entire term
of the Obligations; provided that if the Obligations are paid and performed in
--------
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Amount,
Administrative Agent or Lenders, as appropriate, shall refund to the
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Borrower the amount of such excess or credit the amount of such excess against
the total principal amount owing, and, in such event, neither Administrative
Agent nor any Lender shall be subject to any penalties provided by any Laws for
contracting for, charging or receiving interest in excess of the Maximum Amount.
This Section 11.08 shall control every other provision of all agreements among
the parties to the Loan Papers pertaining to the transactions contemplated by or
contained in the Loan Papers.
11.09. Severability. If any provision of any Loan Papers is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
11.10. Exceptions to Covenants. No Obligor shall be deemed to be
permitted to take any action or to fail to take any action that is permitted as
an exception to any covenant in any Loan Papers, or that is within the
permissible limits of any covenant, if such action or omission would result in a
violation of any other covenant in any Loan Papers.
11.11. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
11.12. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION
HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY
RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN
TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS
AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
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(b) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON
IT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS
ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL.
NOTHING IN THIS SECTION 11.12 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR
ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
11.13. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
11.14. Amendment, Restatement, Extension, Renewal and Increase. This
Agreement is a renewal and amendment and restatement of the Original Credit
Agreement, and, as such, except for the "Obligation" as defined in the Original
Credit Agreement (which shall survive, be renewed and restated by the terms of
this Agreement), all other terms and provisions supersede in their entirety the
Original Credit Agreement. All subordination agreements, security agreements,
pledge agreements, mortgages, deeds of trust and other documents and instruments
granting any security interest or assigning any interest in any assets of the
Borrower or any Subsidiary to secure the Obligation executed and delivered in
connection with this Agreement that restate any previously granted interest
shall supersede any subordination agreements, security agreements, pledge
agreements, mortgages, deeds of trust and other documents and instruments
granting any security interest or assigning any interest in any assets of the
Borrower or any Subsidiary that were executed and delivered in connection with
the Original Credit Agreement (the "Original Security Documents"), except for
the Liens created under the Original Security Documents which shall remain
valid, binding and enforceable Liens against the Borrower, the Subsidiaries and
each of the other Persons granting any such Liens. All other Original Security
Documents shall continue to secure the Obligations as herein defined, and shall
be in full force and effect.
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, this Fourth Amended and Restated Credit Agreement is
executed as of the date first set forth above.
THE BORROWER:
PINNACLE TOWERS INC.
__________________________________________
By:_______________________________________
Its:______________________________________
Administrative Agent:
NATIONSBANK, N.A., as Administrative Agent
__________________________________________
By: Roselyn M. Drake
Its: Principal
LENDERS:
Term Loan A
Specified Percentage: 100.00% NATIONSBANK, N.A., individually as a Lender
Term Loan B
Specified Percentage: 100.00% __________________________________________
By: Roselyn M. Drake
Revolver A Its: Principal
Specified Percentage: 100.00%
Revolver B
Specified Percentage: 100.00%
Total
Specified Percentage: 100.00%
Address:
Bank of America Plaza
901 Main Street, 64th Floor
Dallas, Texas 75202
Attn.: Roselyn M. Drake
Telephone: (214) 209-0988
Telecopy: (214) 209-9390
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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-3 of Pinnacle Holdings Inc. of our report
dated January 11, 1999 relating to the consolidated financial statements of
Pinnacle Holdings Inc., which appear in such Prospectus. We also consent to the
reference to us under the heading "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that PricewaterhouseCoopers LLP
has not prepared or certified such "Selected Financial Data."
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
July 20, 1999
<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 20, 1999
<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 Amendment No. 2 to the Registration Statement, (Form
S-3 No. 333-82273) and related Prospectus of Pinnacle Holdings Inc. dated July
20, 1999 for the registration of 12,305,000 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 19, 1999
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated June 16, 1999, with respect to the
financial statements of The North American Antenna Sites Business of Motorola,
Inc. included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG LLP
Chicago, Illinois
July 20, 1999
