<PAGE>
As filed with the Securities and Exchange Commission on July 9, 1999
Registration Statement No. 333-82273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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.
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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. [_]
---------------
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.
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<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 7, 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 1, 1999, the last reported sale price of our common stock was
$23.75 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 999 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."
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>
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(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.
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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,
$10.8 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
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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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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
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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
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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
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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 pro forma 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
Pro forma 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 999 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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<PAGE>
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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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.
53
<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.
56
<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
57
<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.
58
<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 50,558 317,624 *
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 Putman............. 35,717 * 4,905 30,812 *
James Bokish............... 35,717 * 4,905 30,812 *
Slade Lindsay.............. 142,868 * 19,618 123,250 *
Royce Yudkoff(e)........... 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, 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) 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
60
<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.
61
<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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<PAGE>
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
Agreement"). 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 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, Pinnacle has not received and does not anticipate receiving any Rent
from a Related Party Tenant. Also, the Rent attributable to personal property
leased in connection with any lease (a "Lease") of real property by Pinnacle
does not exceed 15% of the total Rent received under the Lease. Finally,
subject to the 1% de minimis exception, Pinnacle provides no noncustomary
services to its tenants, other than through an independent contractor.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with
any Lease of real property exceeds 15% of the total Rent received under the
Lease for a taxable year, the portion of the Rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if the Rent attributable to personal property,
plus any other income received by 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
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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 7, 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 1, 1999, the last reported sale price of our common stock was
$23.75 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 Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 64,140
NASD filing fee................................................. $ +
Nasdaq listing fee.............................................. $ 17,500
Printing and engraving expenses................................. $ +
Accounting fees and expenses.................................... $ +
Legal fees and expenses......................................... $ +
Blue Sky fees and expenses...................................... $ +
Transfer Agent's fees and expenses.............................. $ +
Miscellaneous................................................... $ +
----------
Total......................................................... $1,000,000*
==========
</TABLE>
- --------
* Estimated
+ To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Pinnacle'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. Pinnacle'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 Opinion of Holland & Knight LLP+
10.1 Second Amended and Restated Credit Agreement dated February 26,
1998.*
10.2 First Amendment to Second Amended and Restated Credit Agreement
dated March 17, 1998*
10.3 Third Amended and Restated Credit Agreement dated May 29, 1998*
10.4 First Amendment to Third Amended and Restated Credit Agreement**
10.5 Second Amendment to Third Amended and Restated Credit Agreement**
10.6 Third Amendment to Third Amended and Restated Credit Agreement**
10.7 Fourth Amended and Restated Credit Agreement, dated June 25,
1999++
10.8 Form of Purchase and Sale Agreement dated January 9, 1998 by and
among PTI and Southern Communications*
10.9 Form of Southern Communications Master Site Lease Agreement by and
among PTI and Southern Communications*
10.10 Form of Option to Direct Construction or Acquisition of Additional
Tower Facilities by and among PTI and Southern Communications*
10.11 Form of Exchange Agreement by and among PTI and Southern
Communications**
10.12 Form of Lease Agreement--Non-Restricted Premises*
10.13 Form of Lease Agreement--Restricted Premises*
10.14 Form of Master Antenna Site Lease by and among PTI and Teletouch
Communications, Inc.*
10.15 Contract of Sale by and among PTI and Teletouch Communications,
Inc. and First Amendment to Contract of Sale*
10.16 Executive Employment Agreement between the Company and Robert
Wolsey dated May 3, 1995*
10.17 Executive Employment Agreement between the Company and Steven Day
dated February 17, 1997*
10.18 Executive Employment Agreement between the Company and James
Dell'Apa dated May 3, 1995*
10.19 Subscription Agreement dated December 31, 1995 by and among ABRY
II and PTI*
10.20 Second Amended and Restated Subscription and Stockholders
Agreement dated May 16, 1996 by and among PTI, the Company and
certain stockholders*
10.21 Capital Contribution Agreement dated February 26, 1998*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.22 Convertible Promissory Note due 1998 dated February 11, 1998 by
and among the Company and ABRY II*
10.23 Services and Agreement by and among PTI and PTI II*
10.24 Amended Capital Contribution Agreement dated May 29, 1998*
10.25 Purchase Agreement dated as of July 7, 1998 among MobileMedia, its
affiliates and the Company**
10.26 Amendment to Purchase Agreement dated September 2, 1998 between
PTI and MobileMedia and certain of its affiliates**
10.27 Form of Master Lease Transmitter Systems Space between the Company
and MobileMedia Communications, Inc.**
10.28 Form of Management and Consulting Services Agreement dated as of
April 1995 between Pinnacle Towers Inc. and ABRY**
10.29 Stock Incentive Plan**
10.30 First Amendment to Capital Contribution Agreement**
10.31 Agreement for Purchase and Sale of Assets between PTI and
Motorola, Inc., dated June 25, 1999.++
21.1 List of Subsidiaries*
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>
- --------
+ To be filed by amendment.
++ 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.
*** Incorporated by reference to the Company's Report on Form 8-K filed with
the Securities and Exchange Commission on July 17, 1998.
II-3
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described in Item 34, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PINNACLE HOLDINGS INC., a Delaware corporation, has duly caused this Amendment
No. 1 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 9, 1999.
Pinnacle Holdings Inc.
/s/ Robert Wolsey
By: _________________________________
Robert Wolsey
Chief Executive Officer, Chief
Operating Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to this Regulation Statement has been signed by the following
persons in the capacities indicated on July 9, 1999.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Robert Wolsey Chief Executive Officer, July 9, 1999
______________________________________ President, Chief Operating
Robert Wolsey Officer and Director
* Vice President, Chief July 9, 1999
______________________________________ Financial Officer,
Steven Day Secretary and Director
* Executive Vice President July 9, 1999
______________________________________ and Director
James Dell'Apa
* Director July 9, 1999
______________________________________
Andrew Banks
* Director July 9, 1999
______________________________________
Peni Garber
* Director July 9, 1999
______________________________________
Peggy Koenig
* Director July 9, 1999
______________________________________
Royce Yudkoff
</TABLE>
/s/ Robert Wolsey
*By: ________________________
Robert Wolsey
Attorney-in-Fact
II-5
<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 Opinion of Holland & Knight LLP+
10.1 Second Amended and Restated Credit Agreement dated February 26,
1998*
10.2 First Amendment to Second Amended and Restated Credit Agreement
dated March 17, 1998*
10.3 Third Amended and Restated Credit Agreement dated May 29, 1998*
10.4 First Amendment to Third Amended and Restated Credit Agreement**
10.5 Second Amendment to Third Amended and Restated Credit Agreement**
10.6 Third Amendment to Third Amended and Restated Credit Agreement**
10.7 Fourth Amended and Restated Credit Agreement, dated June 25,
1999++
10.8 Form of Purchase and Sale Agreement dated January 9, 1998 by and
among PTI and Southern Communications*
10.9 Form of Southern Communications Master Site Lease Agreement by and
among PTI and Southern Communications*
10.10 Form of Option to Direct Construction or Acquisition of Additional
Tower Facilities by and among PTI and Southern Communications*
10.11 Form of Exchange Agreement by and among PTI and Southern
Communications**
10.12 Form of Lease Agreement--Non-Restricted Premises*
10.13 Form of Lease Agreement--Restricted Premises*
10.14 Form of Master Antenna Site Lease by and among PTI and Teletouch
Communications, Inc.*
10.15 Contract of Sale by and among PTI and Teletouch Communications,
Inc. and First Amendment to Contract of Sale*
10.16 Executive Employment Agreement between the Company and Robert
Wolsey dated May 3, 1995*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.17 Executive Employment Agreement between the Company and Steven Day
dated February 17, 1997*
10.18 Executive Employment Agreement between the Company and James
Dell'Apa dated May 3, 1995*
10.19 Subscription Agreement dated December 31, 1995 by and among ABRY
II and PTI*
10.20 Second Amended and Restated Subscription and Stockholders
Agreement dated May 16, 1996 by and among PTI, the Company and
certain stockholders*
10.21 Capital Contribution Agreement dated February 26, 1998*
10.22 Convertible Promissory Note due 1998 dated February 11, 1998 by
and among the Company and ABRY II*
10.23 Services and Agreement by and among PTI and PTI II*
10.24 Amended Capital Contribution Agreement dated May 29, 1998*
10.25 Purchase Agreement dated as of July 7, 1998 among MobileMedia, its
affiliates and the Company**
10.26 Amendment to Purchase Agreement dated September 2, 1998 between
PTI and MobileMedia and certain of its affiliates**
10.27 Form of Master Lease Transmitter Systems Space between the Company
and MobileMedia Communications, Inc.**
10.28 Form of Management and Consulting Services Agreement dated as of
April 1995 between Pinnacle Towers Inc. and ABRY**
10.29 Stock Incentive Plan**
10.30 First Amendment to Capital Contribution Agreement**
10.31 Agreement for Purchase and Sale of Assets between PTI and
Motorola, Inc., dated June 25, 1999++
21.1 List of Subsidiaries*
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>
- --------
+ To be filed by amendment.
++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.
*** Incorporated by reference to the Company's Report on Form 8-K filed with
the Securities and Exchange Commission on July 17, 1998.
2
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-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 9, 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 7, 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 the Registration Statement (Form S-3 No. 333-xxxxx)
and related Prospectus of Pinnacle Holdings Inc. dated July 2, 1999 for the
registration of shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
July 8, 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 9, 1999
