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As filed with the Securities and Exchange Commission on September 19, 2000
Registration Statement No. 333-37684
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
UNDER
THE SECURITIES ACT OF 1933
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PINNACLE HOLDINGS INC.
(Exact name of Company as specified in its charter)
DELAWARE 65-0652634
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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301 NORTH CATTLEMEN ROAD
SUITE 300
SARASOTA, FLORIDA 34232
(941) 364-8886
(Address, including zip code, and telephone number, including area code,
of Company's principal executive offices)
JEFFREY J. CARD
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
PINNACLE HOLDINGS INC.
301 NORTH CATTLEMEN ROAD
SUITE 300
SARASOTA, FLORIDA 34232
(941) 364-8886
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of communications to:
CHESTER E. BACHELLER, ESQ.
HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602
PHONE: (813) 227-6431 FAX: (813) 229-0134
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered 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. [X]
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 Company hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company 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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PROSPECTUS
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.
PINNACLE HOLDINGS INC.
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$200,000,000
5.5% CONVERTIBLE SUBORDINATED NOTES DUE 2007
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This prospectus relates to:
- $200,000,000 aggregate principal amount of 5.5% convertible
subordinated notes due 2007, and
- the shares of common stock issuable upon conversion of the notes.
The notes and the common stock that are offered for resale in this prospectus
are offered for the accounts of their holders. The notes were initially
acquired from us in March 2000, in connection with a private offering, by a
group of investment banking firms who resold the notes pursuant to Rule 144A.
The notes are convertible into shares of common stock at a conversion price of
$78.375 per share at any time on or after 90 days following the last day of
original issuance through maturity, unless previously redeemed or repurchased.
This conversion price is subject to adjustment under the terms of the notes.
Our common stock is quoted on the Nasdaq National Market under the symbol
"BIGT." On September 14, 2000, the last reported sale price of our common stock
was $42.0625 per share.
We will pay interest on the notes on March 15 and September 15 of each year.
The first interest payment will be made on September 15, 2000. The notes will
mature on September 15, 2007 unless previously redeemed or repurchased.
We may redeem the notes on or after March 21, 2003 at the redemption prices set
forth in this prospectus, plus accrued and unpaid interest. Holders may require
us to repurchase the notes upon a change of control, as defined in the
indenture governing the notes, at 100% of the principal amount thereof, plus
accrued and unpaid interest.
The notes are our general unsecured obligations and will be subordinated in
right of payment to all of our existing and future senior indebtedness and
effectively subordinate in right of payment to all of the indebtedness of
Pinnacle Holdings Inc.'s subsidiaries. The indenture governing the notes will
not restrict the incurrence by us of senior indebtedness or other indebtedness.
As of June 30, 2000, we had approximately $883.6 million of indebtedness
outstanding, of which $683.6 million was effectively senior in right of payment
to the notes.
We will not receive any of the proceeds from the sale of the notes or the
shares of common stock issuable upon conversion of the notes by the holders
thereof.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
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.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER ___, 2000.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus and
the documents we incorporate by reference into 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
and documents that we incorporate by reference into 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;
- our history of operating losses;
- our outstanding indebtedness, our ability to pay interest and
principal on our debt and restrictions imposed by the terms of our
indebtedness;
- subordination of the notes;
- Pinnacle Holdings Inc.'s only source of cash is from distributions
from its subsidiaries;
- our ability to effect our business plan if we do not have the required
cash;
- the short operating history of the carrier neutral colocation facility
market;
- our ability to successfully identify, complete and integrate
acquisitions;
- our ability to protect our rights in our property, to insure against
losses from damage to our communications sites and the effect on our
business if we sustain losses in excess of our insurance coverage;
- risks associated with retaining our significant customers;
- the impact of competition and the effect of competing technologies on
our services;
- risks associated with construction of new towers;
- the demand for carrier neutral colocation facilities;
- we are the subject of a SEC informal inquiry;
- our potential divestment of our interest in colocation facilities could
result in a loss.
- our dependence on the wireless communications industry;
- the impact of service and other interruptions to colocation
facilities;
- the impact of delays in locating customers in colocation facilities
and the dependence upon third parties to provide network connections
to our colocation facilities;
- the impact of legislation, government regulation and any environmental
issues;
- the loss of key executives;
- risks associated with expanding our business into foreign countries
and the impact of foreign currency exchange rates;
- our ability to repurchase the notes if a change of control occurs;
- the ability to void the notes under federal and state law;
- risks concerning potential negative health effects of radio frequency
emissions;
- our ability to maintain our status as a Real Estate Investment Trust
(a "REIT") and the impact of federal, state and local tax laws on our
income and property;
- our ability to manage our rapid growth;
- volatility in our stock price;
- the absence of a public market for the notes; and
- anti-takeover provisions that could affect the sale of Pinnacle
Holdings Inc.
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 and in any
documents we incorporate by reference in this prospectus.
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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 notes and the common stock, and its subsidiaries. The
following summary contains basic information about us. It likely does not
contain all the information that is important to you. We encourage you to read
this entire prospectus and the documents we have referred you to.
PINNACLE
OUR BUSINESS
We are a leading independent provider of wireless communications site
space in the United States. We focus primarily on renting space on
communications sites to providers of wireless communications services such as
PCS, cellular, paging, SMR/ESMR, wireless data transmission and radio and
television broadcasting. We believe that focusing on the communications site
rental business allows us to achieve the highest cash flow margins with the
lowest level of risk on our invested capital in the communications site
business. Our growth strategy is focused on growing cash flow by increasing
tenancy on our existing sites and acquiring tall towers and other site
structures located in areas of high wireless rental site demand that can
accommodate multiple tenants. As a result of our extensive base of
communications sites and our acquisition strategy, we believe we are well
positioned to continue benefiting from the growth opportunities in the rapidly
consolidating tower industry and from the strong demand for communications site
rental space fueled by the growing demand for wireless services. While we
recently expanded into the colocation facility business, after additional
analysis we decided not to pursue that additional line of business and to fully
commit our efforts on the tower business.
Since our formation in May 1995, we have focused on creating a
portfolio of communications site clusters in high growth markets such as
Atlanta, Birmingham, Boston, Chicago, Houston, Los Angeles, New Orleans, New
York, Orlando and Tampa. As of August 2, 2000, we have completed 484
acquisitions, acquiring 4,303 communications sites, including 2,361 owned
sites, 979 "managed" sites and 858 "leased" sites, and we have constructed 105
towers. As of August 2, 2000, we also have agreements or letters of intent to
acquire 852 additional communications sites. Managed sites are tower or rooftop
communications sites owned by others where we have the exclusive right to
market antenna space. Leased sites are tower or rooftop communications sites
owned by others where we have a non-exclusive right to market antenna space.
We currently have over 3,900 customers renting space on one or more of
our communications sites. Our tenants include all forms of wireless
communications providers, operators of private wireless networks and government
agencies, including Arch Communications, BellSouth Mobility, the Federal Bureau
of Investigation, the Bureau of Alcohol, Tobacco & Firearms, Motorola, Nextel,
Pagemart, PageNet, Skytel, Southern Communications, Sprint PCS and Teletouch.
Our customers are generally responsible for the installation of their own
equipment and the incremental utilities costs associated with that equipment.
In addition, adding customers on a communications site does not increase our
monitoring, maintenance or insurance costs. Therefore, when new customers or
additional equipment are added to a communications site, we are able to
increase revenue with limited incremental costs, thereby increasing cash flow
margins. Furthermore, we experience minimal churn as our communications site
locations serve an essential function in our customers' wireless networks and
cannot easily be replaced.
We believe that "same site" revenue growth is a meaningful indicator
of the organic growth of our business. Same site 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, we
experienced same site revenue growth of approximately 18% for the 12 months
ended June 30, 2000 on our base of communications sites as of June 30, 1999.
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OUR GROWTH STRATEGY
Our objective is to create value by rapidly growing cash flow. We
believe we can do this by aggressively marketing existing communications sites,
as well as new site inventory we obtain primarily through acquisition, and also
by selectively constructing new towers.
- 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 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 to lease space on
additional communications sites;
-- using information obtained from our customers
concerning their future expansion plans to guide our
acquisition and new construction programs; and
-- premarketing communications site rental space to new
wireless communications service providers based on
the market intelligence we gain by tracking Federal
Communications Commission ("FCC") filings.
- ACQUISITION STRATEGY. We are focused on acquiring clusters of
communications sites in high growth markets. We target tall
communications sites that have existing tenants with capacity
for more. Our strategy allows us to choose site locations and
avoid potentially speculative "build-to-suit" mandates. The
key elements of our acquisition strategy include:
-- targeting population centers and key transportation
corridors in high growth wireless communications
markets;
-- acquiring tall communications site structures that
can accommodate a diversified customer base that
uses different types of wireless technologies with
different height requirements;
-- selecting communications sites that will allow us to
create or enhance a cluster of sites in a given
area;
-- employing a disciplined valuation process to acquire
communications sites that have existing cash flow
and identified 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 clusters. Tower construction is only
initiated after at least one anchor tenant is identified and
after we have determined, based on market research, that the
capital outlay for the construction project would exceed our
minimum required return on invested capital. We do not pursue
large build-to-suit mandates or engage in speculative
construction projects. During 1997, 1998, 1999 and during
2000 through August 2, 2000, we constructed 22, 47, 23 and 5
towers, respectively. We estimate that we will identify 40 to
50 new tower build opportunities during the second half of
this year.
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OUR STRENGTHS
We believe the following to be the strengths of our business:
- FOCUS WITHIN THE COMMUNICATIONS SITE RENTAL BUSINESS. We
focus on the rental of communications site space as opposed
to other lower margin segments of the communications site
industry, such as site acquisition services or construction
services. Furthermore, we do not engage in large scale
"build-to-suit" programs, preferring instead to focus on our
core acquisition strategy and complementary selective
construction strategy designed to enhance coverage in
targeted markets.
- COMMUNICATIONS SITE PORTFOLIO. We believe that the location,
size and capacity of our site portfolio creates significant
competitive advantages by enabling us to provide our diverse
wireless customers with sites in a given area.
- SUCCESSFUL ACQUISITION STRATEGY. Through our acquisition
process we identify 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.
- ABILITY TO INCREASE RENTAL REVENUE. Because of our aggressive
marketing efforts to all major wireless communication
providers we have signed 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.
RECENT DEVELOPMENTS
Colocation Facilities
We recently announced the acquisition of two carrier neutral
colocation facilities in St. Louis and our intent to acquire a colocation
facility and a planned colocation facility in Dallas for an aggregate cash
purchase price of $209.4 million. We also acquired two carrier neutral
colocation facilities and intended to acquire a third facility, all of which
are located in Texas, for an aggregate purchase price of $11.6 million.
Colocation facilities are buildings primarily used to house the equipment of
multiple communications carriers and to provide access to communications
networks. Carrier neutral colocation facilities are independently-owned
facilities that provide interconnectivity to multiple communications carriers
versus carrier-owned facilities that offer interconnectivity to their own
network. Similar to our communications site leasing business, tenants pay
according to the space they require. Colocation facility providers are required
to maintain the physical building and each tenant is required to maintain its
own equipment. The buildings include climate control, electrical power, access
risers and sufficient reinforcement to support the weight of tenants' equipment
and are generally located adjacent to wireline or wireless communications
networks. After further analysis we have decided not to pursue these colocation
facilities business opportunities and we are currently considering our options
with respect to the facilities we purchased and contracted to purchase. Such
options include transferring the properties and contracts to a new entity that
would have other equity holders in consideration for debt, equity, cash or a
combination thereof, or selling such assets outright.
The colocation facilities market came into existence after the passage
of the Telecommunications Act of 1996. The act forced incumbent local exchange
carriers (typically, regional Bell operating companies) to open their central
offices to competitive local exchange carriers' equipment and forced
interexchange carriers to open their long distance switching centers to both
long-haul fiber optic carriers and Internet backbone carriers. Competitive
local exchange carriers are the local phone companies that compete with the
incumbent local exchange carriers. Interexchange carriers are typically known
as long distance carriers. As existing central offices reached full capacity,
the market for colocation facilities emerged. More recently, carrier neutral
colocation facilities have evolved to house competitive local exchange
carriers, computer equipment for Internet backbone carriers, Internet-related
service providers, application service providers and other communications
related service providers.
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Wireless and wireline companies require colocation facilities to
connect to the central office of the incumbent local exchange carrier and
long-haul fiber optic network providers. Local exchange carriers operate
central offices which house equipment that connects calls to and from
customers. Generally, the incumbent local exchange carrier will operate one or
more primary central offices in a downtown hub site that connect to their
network of outlying central offices. Colocation facilities that are located
near these central office sites are more valuable than those that are not
because the cost of connections to and from these central office sites are
based on distance. In addition to connecting to incumbent local exchange
carriers' central offices, the tenants of colocation facilities need to connect
to the long-haul fiber providers and Internet backbone carriers. The value of a
colocation facility is driven by readily available access to all these
different types of required connections. The value of a colocation facility is
also affected by its ability to:
- attract strong anchor tenants who can attract other carriers
that want to connect to the anchor tenant's network;
- remain carrier neutral, which creates a competitive
environment where smaller customers can switch carriers
without physically relocating their equipment; and
- provide customers with the necessary space and power to house
their equipment and expand capacity as customers' needs grow.
The details of our larger colocation facility acquisitions are as
follows:
- St. Louis Carrier Neutral Colocation Facility Acquisitions.
In June 2000, we acquired two carrier neutral colocation
facilities in St. Louis, the Valley facility and the Tucker
facility, for a cash purchase price of $56.0 million plus
fees and expenses. Both facilities are located in the
downtown central business district of St. Louis close to
Southwestern Bell's Central Offices. The Valley facility is
approximately 120,000 square feet and commands a premium over
other comparable office and colocation facility buildings in
the St. Louis area as a result of having:
- a first-to-market advantage;
- presence of key anchor tenants, such as MCI
Worldcom, Williams Communications and Cable &
Wireless;
- network connectivity; and
- infrastructure to support telecommunications
customers.
The Valley facility is almost fully occupied, with
approximately 93% of its space leased to telecommunications
customers. Because of the Valley facility's limited capacity
for growth, we acquired the Tucker facility. The Tucker
facility is a 416,000 square foot carrier neutral colocation
facility which is connected to the Valley facility with fiber
optics. Consequently, the Tucker facility's customers have
access to the same network as the Valley facility's customers.
The Tucker facility is 40% occupied and does not currently
command premium rents, which we believe primarily results from
an inadequate marketing strategy.
- Dallas Carrier Neutral Colocation Facility & Site
Acquisitions. We recently signed a definitive agreement to
acquire a 464,000 square foot carrier neutral colocation
facility, the Univision facility, for approximately $136.0
million plus fees and expenses. We also executed a letter of
intent to acquire a 50% interest in a joint venture that
would be formed for the purpose of acquiring and constructing
a planned
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colocation facility site located adjacent to the Univision
facility. The Univision facility is located in the downtown
central business district of Dallas close to the Southwestern
Bell Central Offices. The Univision facility has a
first-to-market advantage and key anchor tenants, such as MCI
Worldcom and Cable & Wireless, which will allow us to charge
a higher than average rent rate as compared to our
competitors. Because the Univision facility is 93% occupied
and because we believe the Dallas market will have sufficient
demand, it would take capital expenditures of approximately
$15.0 to $30.0 million to develop the planned site adjacent
to the Univision facility, which may include up to 350,000
square feet of additional capacity. It would be possible to
connect the newly-built facility to the Univision facility
with fiber optics, which will provide customers of the new
facility with network connectivity to the Univision facility.
If these contracts or letters of intent are not closed, by
us or another party, the potentially non-refundable deposit
of $1.2 million may be lost and we may face claims for damages
from the seller.
Recent and Other Pending Acquisitions
From January 1, 2000 through August 2, 2000, we acquired 1,098
communications sites for an aggregate purchase price of approximately $287.5
million. At August 2, 2000, we have entered into letters of intent or purchase
agreements to acquire 852 communications sites for approximately $260.1
million.
Private Placement of the Notes
On March 22, 2000, we completed the private sale of the notes to a
group of investment banking firms (the "Initial Purchasers") who resold the
notes pursuant to Rule 144A under the Securities Act of 1933, as amended. Our
net proceeds were approximately $193.5 million, which were used to repay
existing debt under our credit facility.
REIT Status
On July 18, 2000, the Internal Revenue Service issued a private letter
ruling to Pinnacle Towers III, Inc. ("PT III") confirming that the ownership
of, and receipt of income from, its rooftop sites and related equipment will be
considered qualifying assets and income for REIT purposes. However, PT III will
not elect to be taxed as a REIT for the short period year of 1999. PT III does
anticipate making a REIT election for the 2000 calendar year, but there can be
no assurance that PT III will satisfy all of the requirements for qualification
as a REIT beyond those which were addressed by the private letter ruling. In
this regard, shortly before receiving the private letter ruling, PT III
discovered that it had been recognizing non-REIT qualifying income at an
annualized rate which, if allowed to continue, would result in PT III failing
one of the REIT income tests for 2000. PT III is studying steps that it may be
able to take for the remainder of the 2000 calendar year in order to satisfy
that income test for the 2000 calendar year, which may include the transfer of
certain assets to a non-controlled subsidiary of PT III in which PT III will
own notes and preferred and common stock constituting a substantial portion of
the overall investment therein, but in which certain executive officers of PT
III will own in excess of 90% of the voting stock.
On or about August 17, 2000 we invested $12 million in a combination
of convertible debt, non-voting convertible preferred stock, and approximately
9% of the voting stock of Pinnacle Towers IV Inc. ("PTIV"). PTIV used such
funds to acquire assets which generate non-REIT qualifying income consisting of
all of the stock of Broadcast Towers, Inc., a corporation which brokers and
manages building rooftops on behalf of building owners for use as
communications transmitting and receiving sites. The voting control of PTIV is
held by the same members of our management who hold the voting control of
PTIII. We expect that after December 31, 2000 we will convert our debt and
preferred stock of PTIV to voting common stock and that we and PTIV will
jointly elect to treat PTIV as a "taxable REIT subsidiary" as permitted under
recently enacted REIT tax laws which become effective on January 1, 2001. While
we have structured our current stock ownership in PTIV in a manner which we
believe satisfies the currently applicable percentage limitations on our
ownership of securities of a corporation which is neither a REIT nor a taxable
REIT subsidiary, due to the lack of relevant authority addressing certain
matters involving the interpretation or application of such percentage
limitations, there is a risk that future judicial or administrative
interpretations addressing such matters with respect to the REIT provisions of
the Code could adversely affect our compliance with those percentage
limitations, with possible retroactive effect.
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SEC Informal Inquiry
The Securities and Exchange Commission Staff recently requested
information from us and our independent accountants as part of a nonpublic
informal inquiry. We are fully cooperating (and intend to continue to
cooperate) with the Staff.
Initially the focus of the Staff's review was on certain accounting
issues associated with our acquisition of Motorola, Inc.'s North American
antenna site business. The Staff later expanded its inquiry to include a review
of the independence of our independent accountants in light of the scope of
non-audit services provided by them to us. We cannot be certain that the
Staff's focus will remain on these issues.
Our independent accountants have also represented to us in connection
with this prospectus that they are in fact independent and that they conducted
their audit consistent with their professional obligations. The Staff, however,
might not concur with that view. We cannot predict the outcome of the Staff's
inquiry and what effect, if any, it might have on us.
Our headquarters are located at 301 North Cattlemen Road, Suite 300,
Sarasota, Florida 34232, 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.
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THE NOTES
<TABLE>
<S> <C>
Securities Offered..................... Up to $200,000,000 aggregate principal amount of 5.5% convertible
subordinated notes due 2007, held by various selling security holders.
2,551,840 shares of common stock for resale by selling securityholders
after conversion of the notes), issuable by Pinnacle Holdings Inc.
upon conversion of the notes.
Maturity Date.......................... September 15, 2007
Interest Payment Dates................. March 15 and September 15 of each year, commencing September 15, 2000.
Conversion Rights...................... The notes are convertible into shares of common stock at any time
after 90 days following the last day of original issuance of the
notes and before the close of business on the business day immediately
preceding the maturity date at a conversion price of $78.375 per share.
The initial conversion price is equivalent to a conversion rate of
12.7592 shares per $1,000 principal amount of notes. The conversion
price is subject to adjustment in certain circumstances. See
"Description of Notes--Conversion Rights."
Sinking Fund........................... None.
Optional Redemption.................... We may redeem the notes at any time on or after March 21, 2003 at
specified prices plus accrued and unpaid interest.
Repurchase Right of Holders Upon
a Change in Control................. If a Change in Control (as defined herein) of Pinnacle occurs, we must
give holders the opportunity to sell their notes to us at a purchase
price equal to 100% of the principal amount, plus accrued and unpaid
interest to the date of repurchase. The purchase price is payable in
cash. The term "Change in Control" is defined in the "Description of
Notes--Right to Require Purchase of Notes Upon a Change in Control"
section of this prospectus.
Ranking................................ The notes are unsecured and rank junior to our existing and future
Senior Indebtedness. The term "Senior Indebtedness" is defined in the
"Description of Notes--Subordination" section of this prospectus. The
notes are effectively subordinated to all existing and future
indebtedness and other liabilities of Pinnacle Holdings Inc.'s
subsidiaries.
The Indenture governing these notes by and between us and The Bank of
New York, as trustee (the "Indenture") does not restrict our ability to
incur additional Senior Indebtedness, nor does it restrict the ability
of Pinnacle Holdings Inc.'s subsidiaries to incur additional
indebtedness. As of June 30, 2000, we had approximately $683.6 million
of indebtedness that was effectively senior in right of payment to the
notes, $624.1 million of which was Senior Indebtedness.
</TABLE>
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<TABLE>
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Registration Rights.................... On March 22, 2000, we entered into a Registration Rights Agreement
with the Initial Purchasers (the "Registration Rights Agreement")
pursuant to which we agreed to keep the shelf registration statement
that includes this prospectus effective until the earliest to occur of:
(1) the notes and the shares issuable upon the conversion of the notes
having been disposed of in accordance with the shelf registration
statement that includes this prospectus; (2) the notes and the shares
issuable upon conversion of the notes having been sold in compliance
with Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act") or any successor rule or regulation, or could be sold
in compliance with Rule 144(k); or (3) the notes and any shares
issuable upon conversion of the notes cease to be outstanding. The
interest rate on the notes will increase if we are not in compliance
with this requirement.
Ownership Limitation................... Due to our desire to maintain our REIT status, the notes (as well as
capital stock of Pinnacle Holdings Inc.) may not be owned by any
individual if such individual's ownership of the notes, common stock or
any combination thereof, in conjunction with the collective ownership
of the notes and common stock by four or fewer other individuals, would
exceed 50% of the aggregate value of all classes of capital stock. For
purposes of the foregoing limitation, notes owned by a holder shall be
deemed converted only if the effect thereof will be to cause the
ownership limitation to be violated.
Use of Proceeds........................ We will not receive any proceeds from the sale by the securityholders
of the notes or the shares of common stock issuable upon conversion
of the notes.
Trading................................ The notes are not listed and trade on the over-the-counter market.
The common stock issuable upon conversion of the notes is listed on
the Nasdaq National Market under the symbol "BIGT."
Common stock Outstanding............... 48,430,493 shares(1)
</TABLE>
-----------------------
(1) Excludes approximately 5,000,000 shares of common stock reserved for
issuance pursuant to our stock incentive plan, 3,419,891 of which are subject
to outstanding options as of September 1, 2000.
8
<PAGE> 12
RISK FACTORS
Before you invest in our securities, 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 securities. 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, 1998, 1999 and the six months ended June 30, 2000, our earnings were
insufficient to cover combined fixed charges and preferred dividends by
approximately $8.5 million, $39.7 million, $63.8 million and $42.4 million,
respectively. We expect to continue to experience net losses in the future,
principally due to interest charges on outstanding indebtedness 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
MAY INCUR SUBSTANTIALLY MORE DEBT.
We have a high level of indebtedness. As of June 30, 2000, we had
approximately $883.6 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, including the notes;
- 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 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 described above could intensify.
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 are, to a large
extent, 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 reducing, delaying or
eliminating
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<PAGE> 13
acquisitions, tower construction and other capital expenditures, selling
assets, restructuring or refinancing our indebtedness or seeking additional
equity capital. We cannot assure you 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 our
business. 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.
THE TERMS OF OUR INDEBTEDNESS IMPOSE SIGNIFICANT RESTRICTIONS ON US.
Certain provisions of the Indenture governing these notes, and the
indenture governing the 10% senior discount notes due 2008 (the "Existing
Notes") by and between us and The Bank of New York, as trustee (the "Existing
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 financial ratios and
tests may be affected by events beyond our control, and we cannot assure you
that they will be met. Our credit facility also restricts our ability to enter
into a new line of business. 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 both the Indenture and the Existing
Indenture. We cannot assure you that we will have sufficient assets to pay
indebtedness outstanding under our credit facility, the Existing Notes and
these notes. Any refinancing of our credit facility is likely to contain
similar restrictive covenants.
THE NOTES ARE SUBORDINATED TO ALL OTHER SENIOR INDEBTEDNESS.
The notes are unsecured and subordinated in right of payment to all of
our existing and future Senior Indebtedness, as defined in the "Description of
Notes--Subordination" section of this prospectus. As a result, in the event of
bankruptcy, liquidation or reorganization or upon acceleration of the notes due
to an event of default, as defined below and in specific other events, our
assets will be available to pay obligations on the notes only after all Senior
Indebtedness has been paid in full in cash or other payment satisfactory to the
holders of Senior Indebtedness. There may not be sufficient assets remaining to
pay amounts due on any or all of the notes then outstanding. The notes are also
effectively subordinated to the indebtedness and other liabilities, including
trade payables, of Pinnacle Holdings Inc.'s subsidiaries. The Indenture does
not prohibit or limit the incurrence of Senior Indebtedness or the incurrence
of other indebtedness and other liabilities by us. The incurrence of additional
indebtedness and other liabilities by us could adversely affect Pinnacle
Holdings Inc.'s ability to pay its obligations on the notes. As of June 30,
2000, we had approximately $683.6 million of indebtedness that was effectively
senior in right of payment to the notes, $624.1 million of which was Senior
Indebtedness. We anticipate that from time to time we will incur additional
indebtedness, including Senior Indebtedness.
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<PAGE> 14
PINNACLE HOLDINGS INC. IS A HOLDING COMPANY. ITS ONLY SOURCE OF CASH IS FROM
DISTRIBUTIONS FROM ITS SUBSIDIARIES.
Pinnacle Holdings Inc. is a holding company with no operations of its
own and conducts all of its business through its subsidiaries. The notes will
be obligations exclusively of Pinnacle Holdings Inc. Pinnacle Holdings Inc.'s
only significant asset is the outstanding capital stock of its subsidiaries.
Pinnacle Holdings Inc. is wholly dependent on the cash flow of its subsidiaries
and dividends and distributions to it from its subsidiaries in order to service
its current indebtedness, including payment of principal, premium, if any, and
interest on the notes, and any of its future obligations. Pinnacle Holdings
Inc.'s subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
notes or to make any funds available therefor. The ability of Pinnacle Holdings
Inc.'s subsidiaries to pay such dividends and distributions will be subject to,
among other things, the terms of any debt instruments of its subsidiaries then
in effect and applicable law. Pinnacle Holdings Inc. will need sufficient funds
available to pay cash interest on the notes beginning on September 15, 2000 and
on the Existing Notes beginning on March 15, 2003 and to repay the notes and
the Existing Notes when required. We cannot assure you that Pinnacle Holdings
Inc.'s subsidiaries will generate cash flow sufficient to pay dividends or
distributions to Pinnacle Holdings Inc. in order to pay interest or other
payments on the notes and the Existing Notes.
Pinnacle Holdings Inc.'s rights, and the rights of its creditors, to
participate in the distribution of assets of any of its subsidiaries upon such
subsidiary's liquidation or reorganization will by subject to the prior claims
of such subsidiary's creditors, except to the extent that Pinnacle Holdings
Inc. is itself reorganized 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 June 30, 2000, the aggregate amount of debt and other
obligations of Pinnacle Holdings Inc.'s subsidiaries (including long-term debt,
guarantees of Pinnacle Holdings Inc.'s debt, current liabilities and other
liabilities) was approximately $433.2 million.
In addition, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any of Pinnacle
Holdings Inc.'s subsidiaries, creditors of the subsidiary generally will have
the right to be paid in full before any distribution is made to Pinnacle
Holdings Inc. or the holders of the notes. Accordingly, holders of the notes
are effectively subordinated to the claims of Pinnacle Holdings Inc.'s
subsidiaries' creditors to the extent of the assets of the indebted subsidiary.
This subordination could adversely affect Pinnacle Holdings Inc.'s ability to
pay its obligations on the notes. We anticipate that Pinnacle Holdings Inc.'s
subsidiaries will incur additional Indebtedness, including indebtedness under
our credit facility, that could adversely affect Pinnacle Holdings Inc.'s
ability to pay its obligations on the notes. See "Description of Notes."
WE WILL NOT BE ABLE TO EFFECT OUR BUSINESS PLAN IF WE DO NOT HAVE THE REQUIRED
CASH.
Our business plan is largely dependent upon the acquisition of
additional suitable communications sites and the construction of new towers at
prices we consider reasonable in light of the revenue we believe we will be
able to generate from such sites when acquired or constructed. We will need
significant additional capital to finance future acquisitions as well as our
tower construction plan and other capital expenditures. During 1997, 1998, 1999
and the six months ended June 30, 2000, we made capital investments in the
aggregate of approximately $89.5 million, $373.6 million, $551.7 million and
$304.4 million, respectively, in communications site acquisitions, site
upgrades and new tower construction. We currently estimate that capital
investments will be at least $539.2 million in 2000. To the extent that we
commit to additional significant acquisition opportunities beyond those we have
identified and currently believe it is probable that we will complete, that
amount may materially increase. Accordingly, 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 debt 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. In addition, 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. Our access to necessary capital could also be affected by our recent
Securities and Exchange Commission informal inquiry. We cannot assure you that
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<PAGE> 15
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. 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.
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, the
Existing Notes and these notes may limit our ability to effect acquisitions.
See "--The terms of our indebtedness impose significant restrictions on us."
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.
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. For various reasons, we may not always have the
ability to access, analyze and verify all information regarding title and other
issues prior to completing an acquisition of communications sites. 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. As of June 30, 2000, Arch Communications (which acquired
MobileMedia Communications in 1999) Nextel, PageNet, Inc. and Motorola
represented 9.5%, 6.2%, 4.1% and 3.7%, respectively, of our revenue, on a run
rate basis. In November 1999, Arch Communications and PageNet announced that
the companies had signed a definitive agreement to merge the two companies.
Subsequent to the merger the combined company would represent 13.6% of our
revenue, on run rate
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<PAGE> 16
basis, as of June 30, 2000. Because PageNet is currently seeking reorganization
if its business under bankruptcy laws, there is no assurance that the merger
will be consummated or that PageNet will be able to manage its operations
successfully upon emerging from bankruptcy. The loss of one or more of 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. In addition, Nextel recently received a
ruling from the Federal Communications Commission ("FCC") allowing Nextel to
accelerate the deconstruction of its analog network. We are currently
negotiating with Nextel to limit our loss of revenue on the related leases. Our
failure to reach such an agreement with Nextel could have a material adverse
effect on our business, results of operations and financial condition.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH CONSTRUCTION OF NEW TOWERS.
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, the demand for manpower and
equipment needed to erect towers has been increasing. 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.
COMPETITION FOR SITE LEASING AND COLOCATION FACILITY CUSTOMERS IS INTENSE.
We face competition for site leasing 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.
In addition to competing with other carrier neutral colocation
facility providers, we will compete for colocation facility customers with
traditional colocation service providers, including:
- local phone companies;
- long distance phone companies; and
- competitive local access providers.
Many of these competitors are substantially larger, have greater
financial resources, more customers, longer operating histories, greater brand
recognition and more established relationships 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.
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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 geographic market competing for subscribers. The demand
for rental space on our communications sites is dependent on a number of
factors that are, to a large extent, 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. In most cases, these arrangements are
intended to permit a provider's customers to obtain service in areas outside
the provider's license area or, in the case of resale arrangements, to permit a
provider that does not have any licenses to enter the wireless marketplace.
Current FCC rules, which are subject to sunset requirements that vary
from service to service and market to market, also give licensed wireless
service providers the right to enter into roaming and resale arrangements with
other providers licensed to serve overlapping service areas. Such roaming and
resale arrangements could be viewed by some wireless service providers as
superior alternatives to constructing their own facilities or leasing space on
communications sites 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.
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.
WE ARE THE SUBJECT OF A SEC INFORMAL INQUIRY.
The Securities and Exchange Commission Staff recently requested
information from us and our independent accountants as part of a nonpublic
information inquiry. We are fully cooperating (and intend to continue to
cooperate) with the Staff.
Initially the focus of the Staff's review was on certain accounting
issues associated with our acquisition of Motorola, Inc.'s North American
antenna site business. The Staff later expanded its inquiry to include a review
of the independence of our independent accountants in light of the scope of
non-audit services provided by them to us. We cannot be certain that the
Staff's focus will remain on these issues.
Our independent accountants have also represented to us in connection
with this prospectus that they are in fact independent and that they conducted
their audit consistent with their professional obligations. The Staff, however,
might not concur with that view. We cannot predict the outcome of the Staff's
inquiry and what effect, if any, it might have on us.
Regardless of the outcome of this informal inquiry, it is likely that
we will incur substantial costs and that such informal inquiry will cause a
diversion of our management's time and attention.
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<PAGE> 18
THE COLOCATION FACILITY BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OF ITS SHORT
OPERATING HISTORY; OUR POTENTIAL DIVESTMENT OF OUR INTEREST IN COLOCATION
FACILITIES COULD RESULT IN A LOSS.
The business of providing colocation facilities is a new industry.
Although a number of emerging companies are developing similar businesses, we
are not aware of any company that has successfully executed a business plan
that includes colocation facilities. Accordingly, neither we nor you have the
benefit of a comparable historical business model to analyze the colocation
facilities and its prospects.
We recently acquired certain carrier neutral colocation facilities,
and we have entered into contracts and letters of intent to acquire additional
existing or planned colocation facilities, under which we may have made
potentially nonrefundable deposits. As a result of our decision not to pursue
these colocation facility business opportunities, we are currently considering
our options with respect to these assets. If we decide to transfer or sell these
facilities, contracts or letters of intent, depending upon the consideration we
receive in return, we may recognize a loss. If the contracts or letters of
intent are not closed, by us or another party, the deposits may be lost and we
may face claims for damages from the sellers.
SERVICE AND OTHER INTERRUPTIONS COULD LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS
THAT COULD REDUCE OUR REVENUE AND HARM OUR BUSINESS REPUTATION AND FINANCIAL
RESULTS.
Because service interruptions are a very serious concern for our
prospective customers, a service interruption or breach of security could be
very costly to us and very damaging to our reputation. Our facilities and
customers' equipment are vulnerable to damage from human error, physical or
electronic security breaches, power loss, other facility failures, fire,
earthquake, water damage, sabotage, vandalism and similar events. In addition,
our customers would be adversely affected by the failure of carriers to provide
network access to our facilities as a result of any of these events. Any of
these events or other unanticipated problems at one or more of our facilities
could interrupt our customers' ability to provide their services from our
facilities. This could damage our reputation, make it difficult to attract new
customers and cause our existing customers to seek termination of their
contracts with us.
INCREASING REVENUES FROM THE COLOCATION FACILITIES WE ACQUIRED COULD BE
DIFFICULT.
The lack of available space in the colocation facilities we acquired
may limit the ability to grow their revenues. In addition, the lack of
non-telecommunications tenants in our colocation facilities will limit the
ability to increase our revenues through the replacement of
non-telecommunications customer leases with higher priced telecommunications
customers leases.
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 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. 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.
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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.
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 OR REQUIRE US TO INCUR ADDITIONAL COSTS.
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 or 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.
The demand for carrier neutral colocation facility sites will also be
affected by evolving industry standards and changes in customer demands. Future
advances in technology may be beneficial to, or compatible with, colocation
facilities, and technological advances may not be able to be incorporated on a
cost-effective and timely basis. For example the further development of
wireless communications capabilities could lead to a reduced need for
colocation facilities' products and services.
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
16
<PAGE> 20
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 that 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.
Our carrier neutral colocation facilities contain tanks for the
storage of diesel fuel and significant quantities of lead acid batteries to
provide back-up power generation and uninterrupted operation of our customers'
equipment. We cannot assure you that these systems will at all times remain
free from leaks or that the use of these systems will not result in spills. Any
leak or spill, depending on such factors as the material involved, quantity and
environmental setting could result in interruptions to our operations and
expenditures that could have a material adverse effect on our business,
financial condition and results of operations.
IF WE SUSTAIN DAMAGE TO OUR COMMUNICATIONS SITES IN EXCESS OF OUR INSURANCE
COVERAGE, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our communications sites and colocation facilities 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 colocation
facilities and general liability insurance to protect us in the event of an
accident involving a communications site or colocation facility, but we do not
maintain business interruption insurance. Accordingly, damage to a group of our
communications sites or colocation facilities 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 or
colocation facility accident for which we are uninsured or underinsured could
have a material adverse effect on our financial condition or results of
operations.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES OR THE EXISTING 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
the notes and the Existing Notes may require Pinnacle Holdings Inc. to offer to
repurchase all of their notes. Pinnacle Holdings Inc. 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 and the
Existing 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 Indentures.
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 the notes or the Existing 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.
FEDERAL AND STATE STATUTES MAY ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID THE NOTES AND REQUIRE YOU TO RETURN PAYMENTS RECEIVED FROM US.
If under relevant federal and state fraudulent conveyance statutes in
a bankruptcy, reorganization or rehabilitation case or similar proceeding or a
lawsuit by or on behalf of our unpaid creditors, a court were to find that, at
the time the notes were issued (1) we issued the notes with the intent of
hindering, delaying or defrauding
17
<PAGE> 21
current or future creditors or (2)(A) we received less than reasonably
equivalent value or fair consideration for issuing the notes and (B):
- we were insolvent or were rendered insolvent by reason of the
transactions contemplated in connection with the private
placement of the notes;
- we were engaged, or about to engage, in a business or
transaction for which our assets constituted unreasonably
small capital;
- we intended to incur, or believed that we would incur, debts
beyond our ability to pay as such debts matured (as all of
the foregoing terms are defined in or interpreted under such
fraudulent conveyance statutes); or
- we were a defendant in an action for money damages, or had a
judgment for money damages docketed against us (if, in either
case, after final judgment, the judgment is unsatisfied);
then such court could avoid or subordinate the notes to presently existing and
future indebtedness and take other action detrimental to you, including, under
certain circumstances, invalidating the notes.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the federal or local law that is being applied in any
such proceeding. Generally, however, we would be considered insolvent if, at
the time we incur the indebtedness constituting the notes, either (1) the fair
market value (or fair saleable value) of our assets is less than the amount
required to pay our total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute and
mature or (2) we are incurring debts beyond our ability to pay as such debts
mature.
We believe that at the time of the issuance of the notes, we (1) (A)
were neither insolvent nor rendered insolvent thereby, (B) had sufficient
capital to operate our business effectively and (C) were incurring debts within
our ability to pay as the same mature or become due and (2) had sufficient
resources to satisfy any probable money judgment against us in any pending
action. In reaching the foregoing conclusions, we have relied upon our analysis
of our internal cash flow projections and estimated values of assets and
liabilities. We cannot assure you, however, that such analysis will prove to be
correct or that a court passing on such questions would reach the same
conclusions.
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.
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 REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended (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,
we cannot assure you that we have operated or will operate in a manner so as to
qualify or
18
<PAGE> 22
remain qualified as a REIT. Any distributions made on the belief that we
qualify as a REIT would not be recoverable from our stockholders in the event
it is subsequently determined that we did not qualify as a REIT during the
taxable year of such distributions.
A number of the investments we have made and may consider making in
the future are of a nature for which special planning or structuring is
required to retain our qualification as a REIT. Consequently, we are likely to
encounter a greater number of interpretive issues under the REIT qualification
rules, and a greater number of issues which lack clear guidance, than other
REITs. While we currently intend to maintain our REIT qualification, because of
the restrictions imposed on our operations by the REIT qualification
requirements, we have evaluated whether to terminate our REIT qualification.
Nevertheless, 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 communications site or 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 have previously acquired certain assets before determining whether such
assets, and the income derived from such assets, would permit us to continue to
meet the qualification requirements for a REIT and may do so in the future.
Subsequent to making such commitment, we structured the ownership of the assets
so acquired in a manner that we have ensured and believe will continue to
ensure our qualification as a REIT. "See "Recent Developments - REIT Status."
With respect to taxable years for which we are qualified as 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.
If we cease to remain qualified as a REIT and we cannot utilize any of the
relief provisions that may be applicable, or if we terminate our REIT election
voluntarily, we will be subject to corporate level income tax at regular
corporate rates on our net income unreduced by distributions to stockholders,
together with interest and penalties to the extent applicable to prior periods.
However, because we have not reported any net taxable income (determined before
the deduction for dividends paid) in any of our corporate income tax returns
since our filing of an election to be taxed as a REIT, unless our reported net
taxable loss is adjusted, any corporate income tax liability attributable to a
retroactive determination by the Internal Revenue Service that we, to date,
failed to satisfy all of the requirements for REIT qualification during any
such year would likely be minimal. At the present time, we do not anticipate
that we will recognize net taxable income for the foreseeable future.
Nevertheless, with respect to any year in which we recognize positive net
taxable income, the loss of REIT status or a determination that we did not
qualify as a REIT may have a material adverse affect on our financial condition
or results from operations. In such circumstances, we may have made
distributions to our stockholders on the belief that such were necessary to
retain our REIT status, however, we would neither be entitled to receive such
distributions back from our stockholders nor be entitled to a tax deduction for
such distributions.
ALTHOUGH WE QUALIFY AS A REIT, WE ARE REQUIRED TO PAY SOME INCOME AND PROPERTY
TAXES.
Even if we qualify as a REIT, we are required to pay some federal,
state and local taxes on our income and property. In addition, any net taxable
income earned directly by our non-controlled subsidiaries, PT III and PT IV, in
which we own substantially all of the economic interests in the form of
non-voting, convertible preferred stock, as well as approximately 9% of the
voting common stock, and any other noncontrolled subsidiaries in which we may
make debt and or equity investments in the future, will be subject to federal,
state and local corporate tax unless each such noncontrolled subsidiary is
itself qualified as a REIT. We expect that one or both of our noncontrolled
subsidiaries will elect, under recently enacted REIT tax laws, to be treated as
"taxable REIT subsidiaries" after December 31, 2000. A taxable REIT subsidiary
will be a fully taxable corporation and will be limited in its ability to
deduct interest payments made to us. In addition, we will be subject to a 100%
penalty tax on some payments that we receive if the economic arrangements
between us, our tenants, and the taxable REIT subsidiary are not comparable to
similar arrangements between unrelated parties.
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<PAGE> 23
OUR RAPID GROWTH MAY BE DIFFICULT TO MANAGE.
Our wireless communications site business has grown rapidly. This
growth has placed and we expect will continue to place a significant strain on
operational, financial, management information and other systems and resources.
Our ability to manage growth effectively will require us to continue to
implement and improve our operational, financial and management information
systems; continue to develop the management skills of our managers and
supervisors and continue to train, motivate and manage our employees. Our
failure to effectively manage growth could have a material adverse effect on
our results of operations.
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 price 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.
BECAUSE THERE IS NO CURRENT MARKET FOR THE NOTES, YOU CANNOT BE SURE THAT AN
ACTIVE TRADING MARKET WILL DEVELOP.
There is no current established trading market for the notes. The
Initial Purchasers have informed us that they currently intend to make markets
in the notes. However, the Initial Purchasers may cease their market-making at
any time. Accordingly, we can not assure you that a market for the notes will
develop. Furthermore, if a market were to develop, the market price for the
notes may be adversely affected by changes in our financial performance,
changes in the overall market of similar securities and performance or
prospects for companies in our industry. We do not intend to list the notes on
any securities exchange or to seek approval for quotation through any automated
quotation system.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE SALE OF PINNACLE
HOLDINGS INC.
Provisions of Pinnacle Holdings Inc.'s certificate of incorporation,
its bylaws and Delaware law could make it more difficult for a third party to
acquire Pinnacle Holdings Inc., even if doing so would be beneficial to its
stockholders.
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<PAGE> 24
USE OF PROCEEDS
We will not receive any proceeds from the sale by the securityholders
of the notes or the shares issuable upon conversion of the notes.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Pinnacle's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
Six
Months
Ended
Fiscal Year Ended December 31, June 30,
-------------------------------------------------------- --------
1995 1996 1997 1998 1999 2000
------ ------- ------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Pre-tax loss from continuing operations before
adjustment for in-kind preferred stock dividends
and accretion .................................... $ (645) $(2,016) $(8,461) $(36,630) $(60,821) $(42,393)
Fixed charges:
Interest expense ................................. 181 1,155 6,925 12,300 22,953 16,311
Amortization of original issue discount and debt
issue costs ................................... 59 164 292 16,426 23,708 13,249
Rentals:
Office space (33%) ............................ 10 32 62 102 134 140
Telecommunications sites (33%) ................ 29 124 427 1,106 5,531 6,617
Preferred stock dividends and accretion .......... -- -- -- 3,094 2,930 --
------ ------- ------- -------- -------- --------
Total fixed charges ................................. 279 1,475 7,706 33,028 55,256 36,317
====== ======= ======= ======== ======== ========
Pre-tax loss from continuing operations before
adjustment for in-kind preferred stock
dividends and accretion plus fixed charges ....... $ (366) $ (541) $ (755) $ (6,696) $ (8,495) $ (6,076)
====== ======= ======= ======== ======== ========
Ratio of earnings to fixed charges .................. (a) (a) (a) (a) (a) (a)
====== ======= ======= ======== ======== ========
</TABLE>
(a) Due to Pinnacle's losses in 1995, 1996, 1997, 1998, 1999 and the six months
ended June 30, 2000, the ratio coverage was less than 1:1. Pinnacle must
generate additional earnings of $645, $2,016, $8,461, $39,724, $63,751 and
$42,393 in 1995, 1996, 1997, 1998, 1999 and the six months ended June 30, 2000,
respectively, to achieve a coverage ratio of 1:1.
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<PAGE> 25
DESCRIPTION OF NOTES
The notes have been issued under the Indenture dated as of March 22,
2000 between Pinnacle Holdings Inc. and The Bank of New York, as trustee (the
"Trustee"). The following description is only a summary of the material
provisions of the Indenture, the notes and the Registration Rights Agreement.
We urge you to read the Indenture, the notes and the Registration Rights
Agreement in their entirety because they, and not this description, define the
rights of holders of the notes. You may request copies of these documents at
our address shown under the caption "Where You Can Find More Information." The
terms of the notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended. For
purposes of this section, references to "we", "us", "ours" and "Pinnacle"
include only Pinnacle Holdings Inc. and not its subsidiaries.
GENERAL
The notes are unsecured, subordinated obligations of Pinnacle, limited
in aggregate principal amount to $200,000,000. The notes will mature on
September 15, 2007, unless earlier redeemed at our option as described under
"--Optional Redemption of the Notes" or repurchased by us at a holder's option
upon a change in control of Pinnacle as described under "--Right to Require
Purchase of Notes upon a Change in Control." Interest on the notes will accrue
at the rate per annum shown on the cover page of this prospectus and will be
payable semiannually in arrears on March 15 and September 15 of each year,
commencing on September 15, 2000. Interest on the notes will accrue from the
date of original issuance or, if interest has already been paid, from the date
it was most recently paid. We will make each interest payment to the holders of
record of the notes on the immediately preceding March 1 and September 1,
whether or not this day is a business day. Interest on the notes will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Indenture does not contain any restriction on:
- the payment of dividends;
- the issuance of Senior Indebtedness (as defined below) or
other indebtedness; or
- the repurchase of securities of Pinnacle
and does not contain any financial covenants. Other than as described under
"--Right to Require Purchase of Notes upon a Change in Control," the Indenture
contains no covenants or other provisions to afford protection to holders of
notes in the event of a highly leveraged transaction or a change in control of
Pinnacle.
We will pay the principal of, premium, if any, and interest on the
notes at the office or agency maintained by us in the Borough of Manhattan in
New York City. Holders may register the transfer of their notes at the same
location. We reserve the right to pay interest to holders of the notes by check
mailed to the holders at their registered addresses or by wire transfer to
holders of at least $5,000,000 aggregate principal amount of notes. Except
under the limited circumstances described below, The notes have been issued
only in fully-registered book-entry form, without coupons, and will be
represented by one or more global notes. There will be no service charge for
any registration of transfer or exchange of notes. We may, however, require
holders to pay a sum sufficient to cover any tax or other governmental charge
payable in connection with any transfer or exchange.
CONVERSION RIGHTS
A holder may, at any time after 90 days following the last day of
original issuance of the notes and before the close of business on the business
day immediately preceding the maturity date, convert a note or any portion of a
note (if the portions are $1,000 or whole multiples of $1,000) into shares of
common stock initially at the conversion price stated on the cover page of this
prospectus (which is equivalent to a conversion rate of 12.7592 shares per
$1,000 principal amount of notes), unless the note or a portion of the note has
been previously redeemed or repurchased. The right to convert a note called for
redemption will terminate at the close of business on the third business day
immediately preceding the date fixed for redemption, unless we default in
making the payment due on
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<PAGE> 26
the redemption date. If a holder of a note has delivered notice of its election
to have the note repurchased as a result of a Change in Control, the note may
be converted only if the notice of election is withdrawn as described under
"--Right to Require Purchase of Notes upon a Change in Control."
We will adjust the conversion price if (without duplication):
(1) we issue common stock as a dividend or distribution on our
common stock;
(2) we subdivide, combine or reclassify our common stock;
(3) we issue to substantially all holders of our common stock
rights, warrants or options entitling them to subscribe for or purchase common
stock at less than the then current market price;
(4) we distribute to substantially all holders of common stock
evidences of our indebtedness, shares of capital stock, securities, cash or
property, excluding:
- those rights, warrants or options referred to in clause (3)
above;
- any dividend or distribution paid exclusively in cash; and
- any dividend or distribution referred to in clause (1) above;
(5) we make a cash distribution to substantially all holders of
our common stock, that together with all other all-cash distributions and
consideration payable in respect of any tender or exchange offer by us or one
of our subsidiaries for our common stock made within the preceding 12 months
exceeds 15% of our aggregate market capitalization on the date of the
distribution;
(6) we complete a tender or exchange offer for our common stock
which involves an aggregate consideration that, together with:
- any cash and other consideration payable in respect of any
tender or exchange offer by us or one of our subsidiaries for
our common stock concluded within the preceding 12 months and
- the amount of any all-cash distributions to all holders of
our common stock made within the preceding 12 months;
exceeds 15% of our aggregate market capitalization on the expiration of the
tender or exchange offer; or
(7) prior to the earlier of March 21, 2003 or the date we cease
to maintain our status as a REIT for federal income tax purposes, we make a
cash or non-cash distribution to substantially all holders of common stock.
The conversion price will not be adjusted until adjustments amount to
1% or more of the conversion price as last adjusted. We will carry forward any
adjustment we do not make and will include it in any future adjustment.
If we distribute rights or warrants, other than those referred to in
clause (3) of the preceding paragraph, pro rata to holders of common stock, so
long as the rights or warrants have not expired or been redeemed by us, the
holder of any note surrendered for conversion will be entitled to receive, in
addition to the shares of common stock issuable upon conversion, the following
upon conversion:
- if conversion occurs on or prior to the date for the
distribution of certificates evidencing the rights or
warrants, the holder will be entitled to the same number of
rights or warrants to which a holder of a number of shares of
common stock equal to the number of conversion shares is
entitled; and
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<PAGE> 27
- if conversion occurs after the distribution date, the holder
will be entitled to the same number of rights or warrants to
which a holder of the number of shares of common stock into
which the note was convertible immediately prior to the
distribution date would have been entitled on the
distribution date in accordance with the terms and provisions
applicable to the rights or warrants.
- The conversion price of the notes will not be subject to
adjustment on account of any declaration, distribution or
exercise of any rights or warrants other than those referred
to in clause (3) of the preceding paragraph.
If our common stock is converted into the right to receive other
securities, cash or other property as a result of reclassifications,
consolidations, mergers, sales or transfers of assets or other transactions,
each note then outstanding would, without the consent of any holders of notes,
become convertible only into the kind and amount of securities, cash and other
property receivable upon the transaction by a holder of the number of shares of
common stock which would have been received by a holder immediately prior to
the transaction if the holder had converted the note.
We will not issue fractional shares of common stock to a holder who
converts a note. In lieu of issuing fractional shares, we will pay cash based
upon the market price.
Except as described in this paragraph, no holder of notes will be
entitled, upon conversion of the notes, to any actual payment or adjustment on
account of accrued and unpaid interest or on account of dividends on shares of
common stock issued in connection with the conversion. If any holder surrenders
a note for conversion between the close of business on any record date for the
payment of an installment of interest and the opening of business on the
related interest payment date the holder must deliver payment to us of an
amount equal to the interest payable on the interest payment date on the
principal amount converted together with the note being surrendered. The
foregoing sentence shall not apply to notes called for redemption on a
redemption date within the period between and including the record date and
interest payment date.
If we make a distribution of property to our stockholders which would
be taxable to them as a dividend for federal income tax purposes and the
conversion price of the notes is reduced, this reduction may be deemed to be
the receipt of taxable income to holders of the notes.
In addition, we may make any reductions in the conversion price that
our board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of
stock, or rights to acquire stock, or from any event treated as such for income
tax purposes or for any other reasons.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
notes will, to the extent described in the Indenture, be subordinated in right
of payment to the prior payment in full of all our Senior Indebtedness. The
holders of all Senior Indebtedness will first be entitled to receive payment in
full of all amounts due or to become due on the Senior Indebtedness, or
provision for payment in money or money's worth, before the holders of the
notes will be entitled to receive any payment in respect of the notes, when
there is a payment or distribution of assets to creditors upon our:
- liquidation;
- dissolution;
- winding up;
- reorganization;
- assignment for the benefit of creditors;
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<PAGE> 28
- marshaling of assets;
- bankruptcy;
- insolvency; or
- similar proceedings.
No payments on account of the notes or on account of the purchase or
acquisition of notes may be made if a default in any payment with respect to
Senior Indebtedness has occurred and is continuing. If (1) there is a default
on any Senior Indebtedness other than a payment default that occurs that
permits the holders of that Senior Indebtedness to accelerate its maturity and
(2) the Trustee and Pinnacle receive the notice required by the Indenture, no
payments may be made on the notes for up to 179 days in any 365-day period
unless the default is cured or waived. By reason of this subordination, in the
event of our insolvency, holders of the notes may recover less, ratably, than
holders of our Senior Indebtedness.
"Senior Indebtedness" means:
- the principal of and premium, if any, and interest on, and
fees, costs, enforcement expenses, collateral protection
expenses and other reimbursement or indemnity obligations in
respect of all of our indebtedness or obligations of us to
any person for money borrowed that is evidenced by a note,
bond, debenture, loan agreement, or similar instrument or
agreement;
- commitment or standby fees due and payable to lending
institutions with respect to credit facilities available to
us;
- all of our noncontingent obligations (1) for the
reimbursement of any obligor on any letter of credit,
banker's acceptance, or similar credit transaction, (2) under
interest rate swaps, caps, collars, options, and similar
arrangements, and (3) under any foreign exchange contract,
currency swap agreement, futures contract, currency option
contract, or other foreign currency hedge;
- all of our obligations for the payment of money relating to
capitalized lease obligations;
- any liabilities of others described in the preceding clauses
that we have guaranteed or which are otherwise our legal
liability; and
- renewals, extensions, refundings, refinancings,
restructurings, amendments, and modifications of any such
indebtedness or guarantee; other than any indebtedness or
other obligation of us that by its terms is not superior in
right of payment to the notes.
At June 30, 2000, our consolidated Senior Indebtedness was
approximately $624.1 million. We expect from time to time to incur additional
indebtedness. The Indenture does not limit or prohibit us from incurring
additional Senior Indebtedness or other indebtedness. See "Risk Factors--We may
not be able to repurchase the notes or the Existing Notes or repay debt under
our credit facility in the event of a change in control."
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<PAGE> 29
OPTIONAL REDEMPTION OF THE NOTES
At any time on or after March 21, 2003, we may redeem all or a portion
of the notes upon at least 20 and not more than 60 days' notice by mail to the
holders of the notes, by paying the applicable redemption price, plus accrued
and unpaid interest. The redemption price, expressed as a percentage of the
principal amount, is 103.00% if the notes are redeemed in the period beginning
March 21, 2003 and ending March 14, 2004, and is as follows for the 12-month
periods beginning March 15 shown below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2004 101.50%
2005 and thereafter 100.00%
</TABLE>
SELECTION
If we opt to redeem less than all of the notes at any time, the
Trustee will select or cause to be selected the notes to be redeemed by any
method that it deems fair and appropriate. In the event of a partial
redemption, the Trustee may provide for selection for redemption of portions of
the principal amount of any note of a denomination larger than $1,000.
MANDATORY REDEMPTION
Except as set forth below under "--Right to Require Purchase of Notes
upon a Change of Control," we are not required to make mandatory redemption or
sinking fund payments with respect to the notes.
RIGHT TO REQUIRE PURCHASE OF NOTES UPON A CHANGE IN CONTROL
If a Change in Control (as defined below) occurs, each holder of notes
may require that we repurchase the holder's notes on the date fixed by us that
is not less than 45 nor more than 60 days after we give notice of the Change in
Control. We will repurchase the notes for an amount of cash equal to 100% of
the principal amount of the notes on the date of purchase, plus accrued and
unpaid interest, if any, to the date of purchase.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of Pinnacle and its subsidiaries, taken as a whole, to any person or
group of related persons, as defined in Section 13(d) of the Exchange Act (a
"Group"), other than, as long as the Existing Notes are outstanding, to
Permitted Holders; (ii) the approval by the holders of capital stock of
Pinnacle of any plan or proposal for the liquidation or dissolution of Pinnacle
(whether or not otherwise in compliance with the provisions of the applicable
Indenture); (iii) any person or Group (other than Permitted Holders) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power represented
by Pinnacle's issued and outstanding voting stock of or any successor to all or
substantially all of Pinnacle's assets; or (iv) the first day on which a
majority of the members of Pinnacle's board of directors are not Continuing
Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of Pinnacle and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all", there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of notes to require Pinnacle to
repurchase such notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of Pinnacle and its
subsidiaries taken as a whole to another person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any
member of the board of directors of Pinnacle who (i) was a member of such board
of directors on the date of the original issuance of the notes or (ii) was
nominated for election or elected to such board of directors by any of the
Permitted Holders or with the approval of a majority of the Continuing
Directors who were members of such board at the time of such nomination or
election.
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"Permitted Holders" means as of the date of determination (i) Andrew
Banks, Royce Yudkoff or Robert Wolsey and any of their respective spouses,
estates, lineal descendants (including adoptive children), heirs, executors,
personal representatives, administrators and trusts for any of their benefit
and (ii) any other person, the majority of whose voting stock is directly or
indirectly owned by any person described in clause (i) above.
On or prior to the date of repurchase, we will deposit with a paying
agent an amount of money sufficient to pay the aggregate repurchase price of
the notes which is to be paid on the date of repurchase.
We may not repurchase any note at any time when the subordination
provisions of the Indenture otherwise would prohibit us from making payments of
principal in respect of the notes. If we fail to repurchase the notes when
required under the preceding paragraph, this failure will constitute an event
of default under the Indenture whether or not repurchase is permitted by the
subordination provisions of the Indenture.
On or before the 30th day after the Change in Control, we must mail to
the Trustee and all holders of the notes a notice of the occurrence of the
Change in Control, stating:
- the repurchase date;
- the date by which the repurchase right must be exercised;
- the repurchase price for the notes; and
- the procedures which a holder of notes must follow to
exercise the repurchase right.
To exercise the repurchase right, the holder of a note must deliver,
on or before the third business day before the repurchase date, a written
notice to us and the Trustee of the holder's exercise of the repurchase right.
This notice must be accompanied by certificates evidencing the note or notes
with respect to which the right is being exercised, duly endorsed for transfer.
This notice of exercise may be withdrawn by the holder at any time on or before
the close of business on the business day preceding the repurchase date.
The effect of these provisions granting the holders the right to
require us to repurchase the notes upon the occurrence of a change in control
may make it more difficult for any person or group to acquire control of us or
to effect a business combination with us. Moreover, under the Indenture, we
will not be permitted to pay principal of or interest on, or otherwise acquire
the notes, including any repurchase at the election of the holders of notes
upon the occurrence of a Change in Control, if a payment default on our Senior
Indebtedness has occurred and is continuing, or if our Senior Indebtedness is
not paid in full in the event of our insolvency, bankruptcy, reorganization,
dissolution or other winding up. Our ability to pay cash to holders of notes
following the occurrence of a Change in Control may be limited by our then
existing financial resources. We cannot assure you that sufficient funds will
be available when necessary to make any required repurchases. See "Risk
Factors--We may not be able to repurchase the notes or the Existing Notes or
repay debt under our credit facility in the event of a change in control."
If a Change in Control occurs and the holders exercise their rights to
require us to repurchase notes, we intend to comply with applicable tender
offer rules under the Exchange Act with respect to any repurchase.
The term "beneficial owner" shall be determined in accordance with
Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission
(the "Commission") under the Exchange Act or any successor provision, except
that a person shall be deemed to have "beneficial ownership" of all shares that
the person has the right to acquire, whether exercisable immediately or only
after the passage of time.
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OWNERSHIP LIMITATION
So that we can retain our status as a REIT, notes (as well as capital
stock of Pinnacle) may not be transferred if the transfer would result in
ownership by five or fewer individuals of more than 50% of the aggregate value
of all classes of our capital stock (the "Ownership Limitation"). For purposes
of the Ownership Limitation, the notes owned directly or indirectly by an
individual will be deemed converted only if the effect thereof will be to cause
the Ownership Limitation to be violated. If a person attempts to acquire notes
in violation of the Ownership Limitation, the putative transfer to such person
would be void and the intended transferee would acquire no rights to the notes.
For purposes of the Ownership Limitation, "transfer" will include any sale,
transfer, gift, assignment, devise or other disposition, whether voluntary or
involuntary, whether of record, constructively or beneficially, and whether by
operation of law or otherwise. Any putative transfer of notes in violation of
the Ownership Limitation will cause those notes, to the extent the Ownership
Limitation is violated, to be transferred to a person (unaffiliated with us or
the prohibited transferee) as trustee of a trust for the exclusive benefit of
one or more organizations described in Section 501(c)(3) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own those
notes for the benefit of the Charitable Beneficiary on the day prior to the
date of the putative violative transfer. Any interest paid prior to when we
discover that notes were held in trust will be repaid by the prohibited
transferee to us and any interest after the record date but before the
applicable payment date will be rescinded as void ab initio with respect to the
prohibited transferee. Any interest so disgorged or rescinded will be paid over
to the trustee and held in trust for the Charitable Beneficiary. The trustee of
the trust may transfer the notes held in trust to a person whose ownership of
the notes will not violate the Ownership Limitation. If such a transfer is
made, the interest of the Charitable Beneficiary would terminate and proceeds
of the sale would be payable to the prohibited transferee and the Charitable
Beneficiary. The prohibited transferee would receive the lesser of (i) the
price paid by the prohibited transferee for the notes or, if the prohibited
transferee did not give value for the notes, the market price of the notes on
the day of the event causing the notes to be held in trust or (ii) the price of
the notes received by the trustee for the sale or other disposition of the
notes held in trust. Any proceeds in excess of the amount payable to the
prohibited transferee will be payable to the Charitable Beneficiary. The notes
held in trust for the benefit of the Charitable Beneficiary will be offered for
sale to us at the prevailing market price before being offered for sale to
third parties.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of any of the notes,
consolidate with or merge into any other person or convey, transfer or lease
our properties and assets substantially as an entirety to, any other person,
if:
- we are the resulting or surviving corporation or the
successor, transferee or lessee, if other than us, is a
corporation organized under the laws of any U.S. jurisdiction
and expressly assumes our obligations under the Indenture and
the notes by means of a supplemental Indenture entered into
with the Trustee; and
- after giving effect to the transaction, no event of default
and no event which, with notice or lapse of time, or both,
would constitute an event of default, shall have occurred and
be continuing.
Under any consolidation, merger or any conveyance, transfer or lease
of our properties and assets as described in the preceding paragraph, the
successor company will be our successor and shall succeed to, and be
substituted for, and may exercise every right and power of, Pinnacle under the
Indenture. Except in the case of a lease, if the predecessor is still in
existence after the transaction, it will be released from its obligations and
covenants under the Indenture and the notes.
MODIFICATION AND WAIVER
We and the Trustee may enter into one or more supplemental indentures
that add, change or eliminate provisions of the Indenture or modify the rights
of the holders of the notes with the consent of the holders of at least a
majority in principal amount of the notes then outstanding. However, without
the consent of each holder of an outstanding note, no supplemental indenture
may, among other things:
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- change the stated maturity of the principal of or any
installment of interest on any note;
- reduce the principal amount of, or the premium or rate of
interest on, any note;
- change the currency in which the principal of any note or any
premium or interest is payable;
- impair the right to institute suit for the enforcement of any
payment on or with respect to any note when due;
- adversely affect the right provided in the Indenture to
convert any note;
- modify the subordination provisions of the Indenture in a
manner adverse to the holders of the notes;
- modify the provisions of the Indenture relating to our
requirement to offer to repurchase notes upon a Change in
Control in a manner adverse to the holders of the notes;
- reduce the percentage in principal amount of the outstanding
notes necessary to modify or amend the Indenture or to
consent to any waiver provided for in the Indenture; or
- waive a default in the payment of principal of or any premium
or interest on any note.
The holders of a majority in principal amount of the outstanding notes
may, on behalf of the holders of all notes:
- waive compliance by us with restrictive provisions of the
Indenture other than as provided in the preceding paragraph;
and
- waive any past default under the Indenture and its
consequences, except a default in the payment of the
principal of or any premium or interest on any note or in
respect of a provision which under the Indenture cannot be
modified or amended without the consent of the holder of each
outstanding note affected.
Without the consent of any holders of notes, we and the Trustee may
enter into one or more supplemental Indentures for any of the following
purposes:
- to cure any ambiguity, omission, defect or inconsistency in
the Indenture;
- to evidence a successor to us and the assumption by the
successor of our obligations under the Indenture and the
notes;
- to make any change that does not adversely affect the rights
of any holder of the notes; or
- to comply with any requirement in connection with the
qualification of the Indenture under the Trust Indenture Act.
EVENTS OF DEFAULT
Each of the following is an "event of default":
(1) a default in the payment of any interest upon any of the notes when
due and payable, continued for 30 days;
(2) a default in the payment of the principal of and premium, if any, on
any of the notes when due, including on a redemption date;
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(3) failure to pay when due the principal of or interest on indebtedness
for money borrowed by us or our subsidiaries in excess of $20.0
million, or the acceleration of that indebtedness that is not
withdrawn within 15 days after the date of written notice to us by the
Trustee or to us and the Trustee by the holders of at least 25% in
principal amount of the outstanding notes;
(4) a default by us in the performance, or breach, of any of our other
covenants in the Indenture which are not remedied by the end of a
period of 60 days after written notice to us by the Trustee or to us
and the Trustee by the holders of at least 25% in principal amount of
the outstanding notes; or
(5) events of bankruptcy, insolvency or reorganization of Pinnacle.
If an event of default described in clauses (1), (2), (3) or (4)
occurs and is continuing, either the Trustee or the holders of at least 25% in
principal amount of the outstanding notes may declare the principal amount of
and accrued interest on all notes to be immediately due and payable. This
declaration may be rescinded if the conditions described in the Indenture are
satisfied. If an event of default of the type referred to in clause (5) occurs,
the principal amount of and accrued interest on the outstanding notes will
automatically become immediately due and payable.
Within 90 days after a default, the Trustee must give to the
registered holders of notes notice of all uncured defaults known to it. The
Trustee will be protected in withholding the notice if it in good faith
determines that the withholding of the notice is in the best interests of the
registered holders, except in the case of a default in the payment of the
principal of, or premium, if any, or interest on, any of the notes when due or
in the payment of any redemption obligation.
The holders of not less than a majority in principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee. Subject to the provisions of the Indenture
relating to the duties of the Trustee, if an event of default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the notes unless the holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium, if any, or interest when
due or the right to convert a note in accordance with the Indenture, no holder
may institute any proceeding or pursue any remedy with respect to the Indenture
or the notes unless it complies with the conditions provided in the Indenture,
including:
- holders of at least 25% in principal amount of the
outstanding notes have requested the Trustee to pursue the
remedy; and
- holders have offered the Trustee security or indemnity
satisfactory to the Trustee against any loss, liability or
expense.
We are required to deliver to the Trustee annually a certificate
indicating whether the officers signing the certificate know of any default by
us in the performance or observance of any of the terms of the Indenture. If
the officers know of a default, the certificate must specify the status and
nature of all defaults.
BOOK-ENTRY, DELIVERY AND FORM
Notes currently held by "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act), are evidenced by a Global Note, which
was deposited on the date of closing of the sale of the notes (the "Closing
Date") with, or on behalf of, the clearing agency registered under the Exchange
Act that is designated to act as depositary for the notes and registered in the
name of the depositary or its nominee. The Depository Trust Company ("DTC")
will be the initial depositary directly through DTC if they are DTC
participants, or indirectly through organizations that are DTC participants.
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Notes currently held by investors who purchased notes in offshore
transactions in reliance on Regulation S under the Securities Act are evidenced
by their interests in a Global Note held directly through Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System and
Clearstream Banking, if they are participants in these systems, or indirectly
through organizations that are participants in these systems. Euroclear and/or
Clearstream Banking hold interests in a Global Note on behalf of their
participants through their respective depositaries, which in turn hold the
interests in a Global Note in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A., is acting initially as
depositary for Clearstream Banking, and The Chase Manhattan Bank is acting
initially as depositary for Euroclear.
Any purchaser (a "Public Holder") of notes pursuant to this prospectus will
receive a beneficial interest in an unrestricted global note (the "Registered
Global Note") which will be deposited with, or on behalf of, DTC and registered
in the name of DTC or its nominee. Except as set forth below, the Registered
Global Note may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
A Public Holder may hold its interest in the Registered Global Note
directly through DTC if such Public Holder is a participant in DTC, or
indirectly through organizations which are participants in DTC. Transfers
between participants will be effected in the ordinary way in accordance with
DTC's rules and will be settled in federal funds.
DTC has advised us that DTC is:
- a limited-purpose trust company organized under the laws of the State
of New York;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
DTC was created to hold securities of institutions that have accounts with
DTC and to facilitate the clearance and settlement of securities transactions
among its participants in securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include:
- securities brokers and dealers;
- banks;
- trust companies;
- clearing corporations; and
- certain other organizations
Access to DTC's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Public Holders who are not participants may beneficially own securities held by
or on behalf of DTC only through participants.
We expect that pursuant to the procedures established by DTC (1) upon
deposit of the Registered Global Note, DTC will credit, on its book-entry
registration and transfer system, the respective principal amount of the
individual beneficial interests represented by the Registered Global Note to the
accounts of participants and (2) ownership of beneficial interests in a
Registered Global Note will be shown on, and the transfer of those ownership
interests will
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be effected only through, records maintained by DTC (with respect to
participants' interests) and the participants (with respect to the owners of
beneficial interests in the Registered Global Note other than participants).
So long as DTC or its nominee is the registered holder and owner of a
Registered Global Note, DTC or its nominee, as the case may be, will be
considered the sole legal owner of the notes represented by the Registered
Global Note for all purposes under the Indenture and the notes. Except as set
forth below, owners of beneficial interests in a Registered Global Note will not
be entitled to receive definitive notes and will not be considered to be the
owners or holders of any notes under the Registered Global Note. We understand
that under existing industry practice, in the event an owner of a beneficial
interest in a Registered Global Note desires to take any action that DTC, as the
holder of the Registered Global Note, is entitled to take, DTC would authorize
the participants to take the action, and that participants would authorize
beneficial owners owning through the participants to take the action or would
otherwise act upon the instructions of beneficial owners owning through them. No
beneficial owner of an interest in a Registered Global Note will be able to
transfer the interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture and, if applicable, those of
Euroclear and Clearstream Banking.
We will make payments of the principal of, and interest on, the notes
represented by a Registered Global Note registered in the name of and held by
DTC or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the Registered Global Note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Registered Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Registered Global Note as shown on the
records of DTC or its nominee. We also expect that payments by participants and
indirect participants to owners of beneficial interests in a Registered Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for accounts of
customers registered in the names of nominees for these customers. The payments,
however, will be the responsibility of the participants and indirect
participants, and neither we, the Trustee nor any paying agent will have any
responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a Registered Global Note;
- maintaining, supervising or reviewing any records relating to the
beneficial ownership interests;
- any other aspect of the relationship between DTC and its participants;
or
- the relationship between the participants and indirect participants
and the owners of beneficial interests in a Registered Global Note.
Unless and until it is exchanged in whole or in part for definitive notes,
a Registered Global Note may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC.
Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. Participants in Euroclear and Clearstream Banking will effect transfers
with other participants in the ordinary way in accordance with the rules and
operating procedures of Euroclear and Clearstream Banking, as applicable. If a
holder requires physical delivery of a definitive note for any reason, including
to sell notes to persons in jurisdictions which require physical delivery or to
pledge notes, the holder must transfer its interest in a Registered Global Note
in accordance with the normal procedures of DTC and the procedures set forth in
the Indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream Banking participants, on the other,
will be effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depositary; however,
these cross-market
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transactions will require delivery of instructions to Euroclear or Clearstream
Banking, as the case may be, by the counterparty in the system in accordance
with its rules and procedures and within its established deadlines (Brussels
time). Euroclear or Clearstream Banking, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in a Registered Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream Banking
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream Banking.
Because of time zone differences, the securities account of a Euroclear or
Clearstream Banking participant purchasing an interest in a Registered Global
Note from a DTC participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Clearstream
Banking, as the case may be) immediately following the DTC settlement date, and
the credit of any transactions interests in a Registered Global Note settled
during the processing day will be reported to the relevant Euroclear or
Clearstream Banking participant on that day. Cash received in Euroclear or
Clearstream Banking as a result of sales of interests in a Registered Global
Note by or through a Euroclear or Clearstream Banking participant to a DTC
participant will be received with value on the DTC settlement date, but will be
available in the relevant Euroclear or Clearstream Banking cash account only as
of the business day following settlement in DTC.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose accounts at the DTC
interests in a Registered Global Note are credited and only in respect of the
portion of the aggregate principal amount of the notes as to which the
participant or participants has or have given direction. However, if there is an
event of default under the notes, DTC will exchange the Registered Global Notes
for definitive notes, which it will distribute to its participants. These
definitive notes are subject to certain restrictions on registration of
transfers and will bear appropriate legends restricting their transfer.
Although we expect that DTC, Euroclear and Clearstream Banking will agree
to the foregoing procedures in order to facilitate transfers of interests in
Registered Global Notes among participants of DTC, Euroclear, and Clearstream
Banking, DTC, Euroclear and Clearstream Banking are under no obligation to
perform or continue to perform these procedures, and these procedures may be
discontinued at any time. Neither we nor the trustee have any responsibility for
the performance by DTC, Euroclear or Clearstream Banking or their participants
or indirect participants of their obligations under the rules and procedures
governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
Registered Global Notes or ceases to be a clearing agency registered under the
Securities Exchange Act and we do not appoint a successor depositary within 90
days, we will issue definitive notes in exchange for the Registered Global
Notes. The definitive notes will be subject to certain restrictions on
registration of transfers and will bear appropriate legends concerning these
restrictions.
REGISTRATION RIGHTS
On March 22, 2000, we entered into the Registration Rights Agreement with
the Initial Purchasers for the benefit of the holders of the notes and the
common stock issuable upon the conversion of the notes. Pursuant to the
Registration Rights Agreement, we filed with the Commission a shelf registration
statement on Form S-3 of which this prospectus is a part to cover resales of the
notes and the shares of common stock issuable upon the conversion thereof by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement. We will use all
reasonable efforts to keep the shelf registration statement effective until the
earliest to occur of: (1) the notes and the shares issuable upon the conversion
of the notes having been disposed of in accordance with the shelf registration
statement; (2) the notes and the shares issuable upon conversion of the notes
having been sold in compliance with Rule 144 under the Securities Act or any
successor rule or regulation, or could be sold in compliance with Rule 144(k);
or (3) the notes and any shares issuable upon conversion of the notes cease to
be outstanding.
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We have the right to suspend use of the shelf registration statement during
specified periods of time relating to pending corporate developments and public
filings with the Commission and similar events.
If after the shelf registration statement has been declared effective, we
fail to keep the shelf registration statement effective or usable in accordance
with and during the periods specified in the Registration Rights Agreement,
then, in each case, we will pay liquidated damages to all holders of notes and
all holders of common stock issued on conversion of the notes equal to 0.5% per
annum until such failure is cured.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
- will be required to be named as selling securityholder;
- will be required to deliver a prospectus to purchasers;
- will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
- will be bound by the provisions of the Registration Rights Agreement
which are applicable, including indemnification obligations.
We refer to the notes and the common stock issuable on conversion of the
notes as "registrable securities." Promptly upon request from any holder of
registrable securities, we will provide a form of notice and questionnaire to be
completed and delivered by that holder to us at least three business days before
any intended distribution of registrable securities under the shelf registration
statement. To be named as a selling securityholder in the shelf registration
statement when it first becomes effective, holders must complete and deliver the
questionnaire before the effectiveness of the shelf registration statement. If
we receive from a holder of registrable securities a completed questionnaire,
together with such other information as may be reasonably requested by us, after
the effectiveness of the shelf registration statement, we will file an amendment
to the shelf registration statement or supplement to the related prospectus to
permit the holder to deliver a prospectus to purchasers of registrable
securities. Any holder that does not complete and deliver a questionnaire or
provide such other information will not be named as a selling securityholder in
the prospectus and therefore will not be permitted to sell any registrable
securities under the shelf registration statement.
GOVERNING LAW
The Indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax considerations relevant to the holders of the notes. This
discussion is based on currently existing provisions of the Code, existing
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect.
This discussion does not deal with all aspects of United States federal
income taxation that may be important to holders of the notes or shares of
common stock received upon conversion thereof, and it does not include any
description of the tax laws of any state, local or foreign government. This
discussion does not address the tax consequences to subsequent beneficial owners
of the notes, and is limited to beneficial owners who hold the notes and the
shares of common stock received upon conversion thereof as capital assets within
the meaning of Section 1221 of the Code. Moreover, this discussion provides
general information only and does not purport to address all of the United
States federal income tax consequences that may be relevant to particular
purchasers (such as certain financial institutions, insurance companies,
pass-through entities, tax-exempt entities, dealers in securities or persons who
have hedged the risk of owning a note or a share of common stock) that may be
subject to special rules.
For the purpose of this discussion, a "United States Holder" refers to a
beneficial owner of notes or common stock who or which for United States federal
income tax purposes is:
- a citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or any political subdivision thereof;
- an estate the income of which is subject to United States federal
income taxation regardless of its source; or
- a trust if (A) a United States court is able to exercise primary
supervision over the administration of the trust and one or more
United States fiduciaries have authority to control all substantial
decisions of the trust or (B) it has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a United States
person.
The term "Non-United States Holder" refers to any beneficial owner of a
note or common stock who or which is not a United States Holder.
We urge you to consult with your tax adviser as to the particular federal,
state, local and foreign tax consequences of the acquisition, ownership and
disposition of the notes, including the conversion of the notes into shares of
common stock, and the effect that your particular circumstances may have on such
tax consequences.
CERTAIN FEDERAL TAX CONSIDERATIONS APPLICABLE TO UNITED STATES HOLDERS
Interest on Notes. Interest paid on the notes will be taxable to a United
States Holder as ordinary interest income in accordance with such holder's
method of tax accounting. We expect that the notes will not be issued with
original issue discount within the meaning of the Code.
Amortizable Bond Premium on the Notes. A purchase of a note for an amount
which, when reduced by the value of the conversion feature, is greater than its
principal amount, will be treated as having been purchased with "bond premium"
equal to the excess. A United States Holder generally may elect to amortize this
bond premium over the remaining term of the note on a constant yield method. The
amount amortized in any year will be treated as a reduction of the interest
income from the note for that year. If such election is not made, the bond
premium on a note will increase the loss that would otherwise be recognized on
the disposition of the note. Any election to amortize bond premium applies to
all debt obligations, other than debt obligations the interest on which is
excludable from gross income, that are held at the beginning of the first
taxable year to which the election applies
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and any that are thereafter acquired. Such election to amortize bond premium may
not be revoked without the consent of the Internal Revenue Service. We urge you
to consult with your tax advisor regarding this election.
Market Discount on the Notes. If a note is purchased for an amount less
than its principal amount, then a United States Holder will be treated as having
purchased that note at a "market discount" equal to the difference, unless the
amount of the market discount is less than the de minimis amount specified under
the Code. Under the market discount rules, any gain on the sale, exchange,
redemption, retirement, or other taxable disposition of a note, or any
appreciation in a note in the case of a nontaxable disposition such as a gift,
will be required to be treated as ordinary income to the extent of the market
discount that has not previously been included in income and that is treated as
having accrued on the note through the date of disposition. In addition, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the note may be required to be
deferred until the maturity of the note or earlier taxable disposition.
Any market discount will be considered to accrue evenly during the period
from the date of acquisition to the maturity date of the note, unless an
election is made to accrue the market discount on a constant yield method. A
United States Holder may also elect to include market discount in income
currently as it accrues, on either an even or constant yield method. If such an
election is made, the basis in the note will increase by the amounts included in
income, and the rules described above regarding ordinary income on dispositions
and deferral of interest deductions will not apply. This election to include
market discount in income currently, once made, applies to all years after the
first taxable year to which the election applies and may not be revoked without
the consent of the Internal Revenue Service. We urge you to consult with your
tax advisor regarding these market discount elections.
Constructive Dividend. Certain corporate transactions, such as cash and
non-cash distributions to holders of common stock, may cause a deemed
distribution to the holders of the notes if the conversion price or conversion
ratio of the notes is adjusted to reflect such corporate transactions. Such
deemed distributions generally will be taxable in the manner discussed below
under "Taxation of Distributions on Common Stock."
Conversion of Notes. A United States Holder of notes generally will not
recognize gain or loss on the conversion of the notes solely into shares of
common stock (except with respect to cash received in lieu of fractional shares
and common stock treated as attributable to the accrued interest on the notes).
The United States Holder's tax basis in the shares of common stock received upon
conversion of the notes (not including shares of common stock attributable to
accrued interest) will be equal to the holder's aggregate tax basis in the notes
exchanged therefor (less any portion allocable to cash received in lieu of a
fractional share). The holding period of the shares of common stock received by
the holder upon a conversion of the notes generally will include the period
during which the holder held the notes prior to the conversion. However, shares
of common stock attributable to accrued interest will be taxed to the holder as
ordinary income, the holder's tax basis in those shares will equal the amount so
taxed and the holding period for those shares will generally begin the day
following their receipt. Any accrued market discount not previously included in
income as of the date of the conversion of the notes will carry over to the
Common Stock received on conversion and will give rise to ordinary income on the
subsequent disposition thereof. See-Market Discount on the Notes.
Cash received in lieu of a fractional share of common stock should be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional shares generally will equal the difference between the amount of cash
received and the amount of tax basis allocable to the fractional shares
exchanged therefor. Any gain would be ordinary income to the extent of any
accrued market discount on the notes that has not previously been included in
income and otherwise would be capital gain. See-Market Discount on the Notes.
Taxation of Distributions on Common Stock. As long as we qualify as a REIT,
distributions made to taxable United States Holders with respect to common stock
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 United States Holders 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
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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 our net long-term capital gains. In
that case, our stockholders would include in income as long-term capital gain
their proportionate share of our 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 we incur. 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 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.
Sale or Exchange of Notes or Shares of Common Stock. In general, a United
States Holder of notes will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the notes measured by the difference between:
- the amount of cash and the fair market value of any property received
(except to the extent attributable to the payment of accrued interest
which will be taxable as such) and
- the United States Holder's tax basis in the notes.
A United States Holder's tax basis in the notes generally will equal the
cost of the notes to the holder increased by any market discount included in the
holder's income and reduced by any bond premium amortized and principal payments
received. Subject to the market discount rules described above, such gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
the holding period in the notes exceeds one year, except that any accrued market
discount not previously included in income as of the date of any sale or other
disposition will be taxable as ordinary income. In general, each United States
Holder of common stock into which the notes have been converted will recognize
gain or loss upon the sale, exchange, redemption, or other disposition of the
common stock under rules similar to those applicable to the notes, except that
any accrued market discount not previously included in income as of the date of
the conversion of the notes will be taxable as ordinary income on the
disposition. Special rules may apply to redemptions of the common stock which
may result in the amount paid being treated as a dividend. Subject to the
preceding sentence, and except that any accrued market discount not previously
included in income as of the date of the conversion of the notes will be taxable
as ordinary income on the disposition thereof, gain or loss on the disposition
of the notes or shares of common stock will be capital gain or loss and will be
long-
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term capital gain or loss if the holding period of the notes or the common stock
disposed of exceeds one year. However, any loss upon a sale or exchange by a
United States Holder of common stock 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 United States Holder 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 stock are purchased
within 30 days before or after the disposition.
Taxation of Tax-Exempt United States Holders of Common Stock. 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 Internal Revenue 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 Section
501(c) of the Code 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 our shares 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.
CERTAIN FEDERAL TAX CONSIDERATIONS APPLICABLE TO NON-UNITED STATES HOLDERS
Interest on Notes. Generally, interest paid on the notes to a Non-United
States Holder will not be subject to United States federal income tax if:
- such interest is not effectively connected with the conduct of a trade
or business within the United States by such Non-United States Holder;
- the Non-United States Holder does not actually or constructively own
10% or more of the total voting power of all classes of our stock
entitled to vote and is not a controlled foreign corporation with
respect to which we are a "related person" within the meaning of the
Code (for this purpose, the holder of the notes is deemed to own
constructively the common stock into which the notes could be
converted); and
- the beneficial owner, under penalty of perjury, certifies that the
owner is not a United States person and provides the owner's name and
address.
If certain requirements are satisfied, the certification described in the
last clause above may be provided by a securities clearing organization, a bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business. Under recently adopted United States Treasury
regulations, which generally are effective for payments made after December 31,
2000, subject to certain transition rules, the certification described in the
last clause above also may be provided by a qualified intermediary on behalf of
one or more beneficial owners (or other intermediaries), provided that such
intermediary has entered into a withholding agreement with the Internal Revenue
Service and certain other conditions are met. A holder that is not exempt from
tax under these rules will be
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subject to United States federal income tax withholding at a rate of 30% unless
the interest is effectively connected with the conduct of a United States trade
or business, in which case the interest as well as any bond premium or market
discount applicable to the notes will be subject to the United States federal
income tax in the same manner as United States Holders are taxed with respect to
such items. Corporate Non-United States Holders that receive interest income
that is effectively connected with the conduct of a trade or business within the
United States may also be subject to an additional "branch profits" tax on such
income. Non-United States Holders should consult applicable income tax treaties,
which may provide different rules.
Constructive Dividend. Certain corporate transactions, such as cash and
non-cash distributions of assets to holders of common stock, may cause a deemed
distribution to the holders of the notes if the conversion price or conversion
ratio of the notes is adjusted to reflect such corporate transactions. Such
deemed distributions generally will be taxable in the manner discussed below
under "Taxation of Distributions on Common Stock." Unless such constructive
dividend is effectively connected with the conduct of a United Stated trade on
business, constructive dividends which do not qualify for exemption from
taxation under the rules described above under "Interest on Notes" will be
subject to federal income tax and withholding at a rate of 30% unless such rate
is reduced or eliminated by an applicable treaty.
Conversion of Notes. A Non-United States Holder generally will not be
subject to United States federal income tax on the conversion of a note into
shares of common stock. To the extent a Non-United States Holder receives shares
of common stock attributable to accrued interest, such amounts will be taxed as
described above under "Certain Federal Tax Considerations Applicable to
Non-United States Holders--Interest on Notes." To the extent a Non-United States
Holder receives cash in lieu of a fractional share on conversion, such cash may
give rise to gain that would be subject to the rules described below with
respect to the sale or exchange of a note or common stock.
Taxation of Distributions on Common Stock. Distributions to Non-United
States Holders of common stock 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-United States Holder's conduct of a U.S. trade or business, the Non-United
States Holder generally will be subject to federal income tax in the same manner
as United States Holders are taxed with respect to such distributions (and also
may be subject to the 30% branch profits tax in the case of a Non-United States
Holder 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-United States Holder 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-United States Holder files an IRS Form 4224 or its successor form with us
claiming that the distribution is effectively connected income. The Internal
Revenue Service has issued regulations that modify the manner in which we 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 Non-United States Holder to the extent that such
distributions do not exceed the adjusted basis of the Non-United States Holder'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-United States Holder's common stock,
such distributions will give rise to tax liability if the Non-United States
Holder 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 amounts of any distribution normally will be subject to
withholding at the same rate applicable to dividend distributions. However,
amounts so withheld may be refundable to the extent it is determined
subsequently that such distribution was, in fact, in excess of our current and
accumulated earnings and profits.
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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-United States Holder
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-United States Holder 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-United States Holders
thus would generally be taxed in the same manner as United States Holders on
such distributions. 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 us as a capital gains
dividend. The amount withheld is creditable against the Non-United States
Holder's FIRPTA tax liability.
Sale or Exchange of Notes or Common Stock. Subject to the discussion of
FIRPTA below, a Non-United States Holder generally will not be subject to United
States federal income tax on gain recognized upon the sale or other disposition
of the notes or shares of common stock unless:
- the gain is (or is treated as) effectively connected with the conduct
of a trade or business within the United States by the Non-United
States Holder; or
- in the case of a Non-United States Holder who is a nonresident alien
individual and holds the common stock as a capital asset, such holder
is present in the United States for 183 or more days in the taxable
year and certain other circumstances are present.
Gain recognized by a Non-United States Holder upon a sale of notes or
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 notes or 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." If we were
not a "domestically controlled REIT," gain recognized upon the sale of notes or
common stock by a Non-United States Holder generally would not be subject to tax
under FIRPTA provided that (a) the notes or common stock are regularly traded,
as defined in applicable Treasury Regulations, on an established securities
market and (b) the Non-United States Holder held 5% or less of our notes or
common stock at all times within a specified testing period. If the gain on the
sale of notes or common stock were to be subject to taxation under FIRPTA, the
Non-United States Holders would be subject to the same treatment as United
States Holders with respect to such gain. In addition, the purchaser would be
required to withhold 10% of the purchase price and remit such amount to the
Internal Revenue Service.
Federal Estate Taxes. A note beneficially owned by an individual who is a
Non-United States Holder at the time of his or her death generally will not be
subject to U.S. federal estate tax as a result of such individual's death,
provided that:
- such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of our stock entitled
to vote within the meaning of Section 871(h)(3) of the Code; and
- interest payments with respect to such note would not have been, if
received at the time of such individual's death, effectively connected
with the conduct of a U.S. trade or business by such individual.
Common stock owned or treated as owned by an individual who is a Non-United
States Holder at the time of his or her death will be included in such
individual's estate for United States federal estate tax purposes and thus will
be subject to United States federal estate tax, unless an applicable estate tax
treaty provides otherwise.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
United States Holders. Information reporting and backup withholding may
apply to payments of interest or dividends on, or the proceeds of the sale or
other disposition of, the notes or shares of common stock made by us with
respect to certain non-corporate United States Holders. Such United States
Holders generally will be subject to backup withholding at a rate of 31% unless
the recipient of such payment supplies a taxpayer identification number,
certified under penalties of perjury, as well as certain other information, or
otherwise establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the United States Holder's federal income tax, upon furnishing
the required information to the Internal Revenue Service.
Non-United States Holders. Generally, information reporting and backup
withholding of United States federal income tax at a rate of 31% may apply to
the payment of principal, interest and premium (if any) to Non-United States
Holders if the payee fails to certify that the holder is a Non-United States
person or if we or our paying agent have actual knowledge that the payee is a
United States person.
The payment of the proceeds on the disposition of notes or shares of common
stock to or through the United States office of a United States or foreign
broker will be subject to information reporting and backup withholding unless
the owner provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-United States Holder of
notes or shares of common stock to or through a foreign office of a broker will
not be subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, a
foreign person 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a United States
trade or business, or, with respect to payments made after December 31, 2000, a
foreign partnership in which United States persons hold more than 50% of the
income or capital interests or which is engaged in a United States trade or
business at any time during its tax year, information reporting will apply
unless such broker has documentary evidence of the owner's foreign status and
has no actual knowledge to the contrary or unless the owner otherwise
establishes an exemption. Both backup withholding and information reporting will
apply to the proceeds from such disposition if the broker has actual knowledge
that the payee is a United States Holder.
Recently adopted United States Treasury regulations, which generally are
effective for payments made after December 31, 2000, subject to certain
transition rules, alter the foregoing rules in certain respects. Among other
things, such regulations provide presumptions under which a Non-United States
Holder is subject to information reporting and backup withholding at the rate of
31% unless we receive certification from the holder of non-U.S. status.
Depending on the circumstances, this certificate will need to be provided:
- directly by the Non-United States Holder;
- in the case of a Non-United States Holder that is treated as a
partnership or other fiscally transparent entity, by the partners,
shareholders or other beneficiaries of such entity; or
- by certain qualified financial institutions or other qualified
entities on behalf of the Non-United States Holder.
The new regulations require, in general, that a new series of Forms W-8 be
properly executed earlier than otherwise necessary. For example, a Non-United
States Holder must properly execute the appropriate new version of Form W-8, or
substantially similar form, no later than December 31, 2000 if still a
Non-United States Holder of notes or common stock on that date. The new
regulations may also require Non-United States Holders claiming benefits under
an income tax treaty to obtain a taxpayer identification number and certify as
to eligibility under the applicable treaty.
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TAXATION OF PINNACLE
We currently have in effect an election to be taxed as a REIT under
Sections 856 through 860 of the Code, and 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. We cannot assure you, however, that
we currently qualify or will remain qualified as a REIT. Depending on our
assessment of the strategic importance of acquisitions that may become available
to us in our existing line of business or in complementary non-real estate based
communication site or 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 have previously committed to acquire
certain assets before determining whether such assets, and the income derived
from such assets, would permit us to continue to meet the qualification
requirements for a REIT, but subsequently structured our ownership of the assets
so acquired in a manner that we believe satisfied then applicable and currently
applicable REIT qualification requirements. However, REIT qualification
requirements that will become applicable on January 1, 2001 by virtue of
legislation enacted on December 17, 1999 may require that we restructure or
dispose of our investment in order to continue to satisfy such then applicable
REIT qualification requirements. See "--Recent REIT Legislation."
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, 1999. 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 our stock, the
nature of our assets, the conduct of our business, the sources of our revenues,
the amounts distributed by us 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 that 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 Internal Revenue 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 based on administrative policies and practices of the
Internal Revenue Service as indicated in existing private letter rulings (which
rulings are not binding on the Internal Revenue Service with respect to us
regardless of the degree of similarity between the facts which are the subject
of such rulings and the facts that pertain to us) 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 Internal Revenue 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
our 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
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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 our profitability. Sixth, if we should fail to
distribute during each calendar year at least the sum of (i) 95% (90% beginning
January 1, 2001) of our REIT ordinary income for such year, (ii) 95% (90%
beginning January 1, 2001) 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 pursuant to IRS Notice 88-19 prior to February 4, 2000 and pursuant
to recently promulgated temporary regulations on and after February 4, 2000. 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 make such an election pursuant to the recent temporary
regulations as to any future such acquisition.
REQUIREMENTS FOR REIT QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue Service 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
Section 401(a) of the Code, 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 our shares that are intended to assist us in continuing to satisfy the share
ownership requirements described in clauses (v) and (vi) above. No holder of
common stock may transfer any such share or interest therein 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 before 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. The
Indenture to which the notes are subject also contains restrictions regarding
the transfer and
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ownership of the notes which are intended to assist us in continuing to satisfy
the share ownership requirements described in clauses (v) and (vi) above. Such
transfer restrictions and ownership limitations are described in "Description of
Notes--Ownership Limitation."
In connection with the original issuance of the notes, certain of our
executive officers entered into agreements (the "Lock-Up Agreements") not to,
without prior written consent of the Initial Purchasers, sell, offer, contract
to sell, pledge, grant any option to purchase, or otherwise transfer or dispose
of any shares of common stock for a period after the offering. Certain of our
executive officers, directors and stockholders were also subject to the same
restrictions in connection with each of our three prior public offerings of
common stock (the "Prior Lock-Up Agreements"). In addition, since the time we
were organized, an agreement among us and our major stockholders has imposed
certain restrictions on the transfers of shares of our stock under certain
circumstances (the "Stockholders Agreement"). Furthermore, in connection with
the issuance of certain classes of our stock, we have imposed certain
restrictions on the transferability of such shares (the "Restrictive Legends").
As described above, one of the REIT qualification requirements is that the
shares of a REIT be transferable. The opinion of Holland & Knight LLP is based
in part on the conclusion that none of the Lock-Up Agreements, the Prior Lock-Up
Agreements, the Stockholders Agreement or the Restrictive Legends will render
the shares of stock restricted thereby to be deemed other than transferable for
purposes of such REIT qualification requirement. Investors should be aware that
there is no relevant authority involving transfer restrictions similar to those
contained in any of the Lock-Up Agreements, the Prior Lock-Up Agreements, the
Stockholders Agreement or the Restrictive Legends or that discuss whether such
restrictions may violate such transferability requirement. Therefore, the
opinion of Holland & Knight LLP with respect to the transferability requirement
is based upon the plain language of the REIT provisions of the Code and
authorities addressing transferability in situations that are considered to be
analogous, certain of which authorities have been rendered obsolete for
unrelated reasons by more recent administrative pronouncements. Opinions of
counsel are not binding upon the Internal Revenue Service or the courts, and
there can be no assurance that the Internal Revenue Service will not assert
successfully a contrary position. If any of the Lock-Up Agreements, the 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 private placement of the notes, 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."
We currently have wholly-owned corporate subsidiaries (the "Corporate
Subsidiaries"). We may have additional corporate subsidiaries in the future.
Section 856(i) of the Code 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. Except in the case of one stock
acquisition completed during 2000, we believe that we neither have, nor any
acquisition by us of a C corporation has resulted in our having, any such
accumulated "earnings and profits." In the case of that one acquisition, we are
currently determining whether the C corporation we acquired had any "earnings
and profits" when we acquired all of its stock, and if so, we intend to
distribute such amount to our shareholders on
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or before December 31, 2000. Nevertheless, an adjustment of our earnings and
profits for a prior year or the earnings and profits of any C corporation that
we acquired, resulting from an audit adjustment by the Internal Revenue 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 our 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 our 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 ours 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 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 our
total receipts from the property. For that purpose, the amount attributable to
such services will be deemed to be at least equal to 150% of our direct cost of
providing the services.
We do not charge Rent for any portion of any property that is based, in
whole or in part, on the sales, receipts, income or profits of any person. In
addition, we have not received and do not anticipate receiving any Rent from a
Related Party Tenant. Also, the Rent attributable to personal property leased in
connection with any lease (a "Lease") of real property by us does not exceed 15%
of the total Rent received under the Lease. Finally, subject to the 1% de
minimis exception, we provide no non-customary services to our 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,
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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 our
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 us during the taxable year that is not
qualifying income for purposes of the 95% gross income test, exceeds 5% of our
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 us during the
taxable year that is not qualifying income for purposes of the 95% gross income
test, exceeds 5% of our 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 charges 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 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 by us 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 for 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 United States
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
our 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 we
raise 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 our 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
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property, and an option to acquire real property (or a leasehold of real
property). The Internal Revenue Service has ruled in a published 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 and related land and improvements 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 the issuer's securities owned by us issued by any single issuer that is not a
qualified REIT subsidiary may not exceed 5% of the value of our total assets,
10% of such issuer's outstanding voting securities and, with respect to taxable
years beginning after 2000, 10% of the value of all classes of such issuer's
securities. However, securities owned by us in another REIT are not subject to
the limitations of the preceding sentence. We currently own a significant
investment in non-voting convertible preferred stock, 9% of the voting common
stock, and convertible debt issued by Pinnacle Towers III, Inc. ("PT III"),
which owns and derives income from rooftop communication sites and related
equipment. PT III recently received a private letter ruling from the Internal
Revenue Service that the ownership of, and income received from, such rooftop
sites and related equipment will be considered qualifying income and assets for
REIT purposes. Provided that it will be otherwise qualified to do so, PT III
currently intends to make a REIT election, but such election will not be made
for the initial short taxable year of PT III ending in 1999. On January 14,
2000, PT III acquired all of the stock of a C-corporation having accumulated
earnings and profits and which owns and receives income from certain assets
which are non- REIT qualifying. Although PT III plans to distribute all such
earnings and profits to its shareholders before the last day of its taxable year
which began January 1, 2000, in order that PT III may qualify as a REIT for
2000, there can be no assurance that PT III will satisfy the requirements for
qualification as a REIT, even though the Internal Revenue Service has ruled
favorably with respect to PT III's ownership of, and receipt of income from, the
rooftop sites and related equipment acquired from Motorola. In this regard, PT
III recently discovered that its non-REIT qualifying income was at an annualized
rate that, if allowed to continue, would result in PT III failing one of the
REIT income tests for 2000. Consequently, PT III will remain a non-controlled
subsidiary or in an effort to qualify as a REIT, will transfer certain assets
which generate income which is non-REIT qualifying to its own "non-controlled
subsidiary" in which it will own notes and nonvoting preferred and common stock
constituting a substantial portion of the overall investment therein, but in
which management of PT III will own in excess of 90% of the voting stock. Under
law currently in effect, except for securities of another REIT, a REIT may not
own securities constituting more than ten percent of the voting securities of
another corporation or more than five percent of the value of the assets of the
REIT, and the aggregate value of all securities owned by a REIT must not exceed
25% of the value of the total assets of the REIT. We believe that our ownership
of securities in PT III satisfies the percentage limitations currently
applicable to investments by a REIT in the securities of corporations that are
neither a REIT nor a qualified REIT subsidiary. However, recent legislative
changes enacted on December 17, 1999 and effective on January 1, 2001 will
require that, in order to maintain our REIT status, either we and PT III jointly
elect to treat PT III as a "taxable REIT subsidiary" or we otherwise restructure
or dispose of our investment in PT III if PT III has not made or does not then
have in effect a REIT election for 2001 and subsequent taxable years or is
unable to satisfy or continue to satisfy the REIT qualification requirements. In
addition, due to a lack of relevant authority addressing certain matters
involving the interpretation or application of the percentage limitations
currently applicable, there is a risk that future judicial or administrative
interpretations addressing such matters with respect to the REIT provisions of
the Code could negatively impact our compliance with those percentage
limitations, with possible retroactive effect. If as a result of the ownership
structure of PT III we fail to satisfy such currently applicable percentage
limitations as of the end of calendar quarter in 1999 or any subsequent year,
then our REIT election will terminate for such year, and unless such failure is
established to the satisfaction of the Internal Revenue Service as due to
reasonable cause and not willful neglect, we will be unable to be treated as a
REIT for the four succeeding taxable years as well.
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, but instead arose from changes in the market values of our assets. If
the
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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.
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% (90% beginning January 1, 2001) of our "REIT taxable income"
(computed without regard to the dividends paid deduction and our net capital
gain) and (B) 95% (90% beginning January 1, 2001) of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of certain items of
non-cash 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 distribute at least 95%, (90%
beginning January 1, 2001) 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) 95% (90%
beginning January 1, 2001) of our REIT ordinary income for such year, (ii) 95%
(90% beginning January 1, 2001) 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 our 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. We
are further required to distribute the full amount of any C corporation
"earnings and profits" no later than the last day of our taxable year in which
we acquire any C corporation from which such "earnings and profits" are
attributed or deemed attributed to us by virtue of our acquisition of such
C corporation. 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" (including, without limitation, distributing any C corporation
"earnings and profits"), 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 our 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 Internal Revenue 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 our stockholders designed
to disclose the actual ownership of our 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 we
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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 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 for federal income tax purposes to current appreciated
values, the consideration offered in such a transaction to us or our
stockholders would likely be less than the consideration offered in a purchase
of assets described in the preceding sentence.
RECENT REIT LEGISLATION
Legislation was enacted on December 17, 1999 that made several changes to
the REIT provisions of the Code effective January 1, 2001. A REIT's ownership of
securities in another corporation that is not a REIT will be subject to the
additional percentage limitation that the value of such securities must not
represent more than 10% of the value of all of the outstanding securities of
such corporation. Certain debt securities issued by individuals, a partnership
in which the REIT owns at least a 20% profits interest, and nonconvertible
"straight debt" securities are exempt from such additional percentage
limitation.
Also effective on January 1, 2001, a REIT may own up to 100% of the
securities of a "taxable REIT subsidiary" subject only to the limitations that
the securities of all "taxable REIT subsidiaries" owned by the REIT do not
represent an amount in excess of 20% of the value of the assets of the REIT, and
the value of all securities of the REIT (including the securities of all taxable
REIT subsidiaries) do not represent an amount in excess of 25% of the value of
the assets of the REIT. A "taxable REIT subsidiary" is any corporation (other
than another REIT and corporations involved in certain lodging, healthcare and
franchising activities) owned by a REIT with respect to which the REIT and such
corporation jointly elect that such corporation shall be treated as a taxable
REIT subsidiary. The amount of deductions for interest paid by a "taxable REIT
subsidiary" to its affiliated REIT will be subject to limitations. In addition,
a 100% excise tax will be imposed to the extent that certain transactions
between a "taxable REIT subsidiary" and its affiliated REIT or the tenants of
that REIT are not conducted on an arm's length basis. Under the new legislation,
a corporation may convert tax-free into a "taxable REIT subsidiary" prior to
January 1, 2004.
Such legislation also changes the income distribution requirement so that
beginning in 2001, a REIT will be required to distribute 90% (rather than 95%)
of its "REIT taxable income" and 90% (rather than 95%) of its net income (after
tax), if any, from foreclosure property. Such legislation also makes technical
changes in the manner of computing pre-REIT accumulated C-corporation earnings
and profits that must be distributed to shareholders in order to retain REIT
status.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective holders of notes or 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 Internal Revenue 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.
49
<PAGE> 53
SELLING SECURITYHOLDERS
The notes were originally acquired from us by the Initial Purchasers on
March 22, 2000. The Initial Purchasers have advised us that the notes were
resold in transactions exempt from the registration requirements of the
Securities Act to "qualified institutional buyers" (as defined in Rule 144A of
the Securities Act). These subsequent purchasers, or their transferees,
pledgees, donees or successors, may from time to time offer and sell any or all
of the notes and/or shares of common stock issuable upon conversion of the notes
pursuant to this prospectus provided that they are named herein as selling
securityholders.
The notes and the shares of common stock issuable upon conversion of the
notes are being registered pursuant to the Registration Rights Agreement, which
provides that we file the shelf registration statement with regard to the notes
and the shares of common stock issuable upon conversion of the notes within 90
days of the date of original issuance of the notes and to keep such shelf
registration statement continuously effective until the earliest to occur of:
(1) the notes and the shares of common stock issuable upon the conversion of the
notes having been disposed of in accordance with the shelf registration
statement; (2) the notes and the shares of common stock issuable upon conversion
of the notes having been sold in compliance with Rule 144 under the Securities
Act or any successor rule or regulation, or could be sold in compliance with
Rule 144(k); or (3) the notes and any shares issuable upon conversion of the
notes cease to be outstanding. The following selling securityholders have
advised us that they currently intend to sell all or some of the notes or shares
of common stock issuable upon conversion of the notes pursuant to this
prospectus, however, those selling securityholders that have not notified us may
choose to sell the notes and/or shares of common stock issuable upon conversion
of the notes from time to time upon notice to us. See "Plan of Distribution."
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY SHARES OF RELATIONSHIPS
NAME OF BENEFICIAL OWNER OWNED COMMON STOCK WITH PINNACLE
------------------------ ------------ ------------ -------------
<S> <C> <C> <C>
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P. 4,000,000 51,036 No
Banc of America Securities LLC 14,800,000 188,836 (1)
KBC Financial Products 2,000,000 25,518 No
CIBC Word Markets 16,582,000 211,573 No
Any other holder of Notes or future
transfers from any holder (2) 162,618,000 2,074,875
</TABLE>
-----------------
(1) In March 2000, Banc of America Securities served as a Co-Manager who
initially purchased the notes via a private sale and then resold the notes
pursuant to Rule 144A under the Securities Act of 1933, as amended.
(2) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
Prior to any use of this prospectus in connection with an offering of the
notes and/or shares of common stock issuable upon conversion of the notes, this
prospectus will be supplemented to set forth the name and number of shares
beneficially owned by the selling securityholder intending to sell such notes
and/or shares of common stock issuable upon conversion of the notes and the
number of notes and/or shares of common stock issuable upon conversion of the
notes to be offered. The prospectus supplement will also disclose whether any
selling securityholder selling in connection with such prospectus supplement has
held any position or office with, been employed by or otherwise has had a
material relationship with, us or any of our affiliates during the three years
prior to the date of the prospectus supplement.
50
<PAGE> 54
PLAN OF DISTRIBUTION
The notes and the shares of common stock issuable upon conversion of the
notes are being registered to permit public secondary trading of such securities
by the holders thereof from time to time after the date of this prospectus. The
notes and the shares of common stock issuable upon conversion of the notes may
be sold from time to time to purchasers directly by the selling securityholders.
Alternatively, the selling securityholders may from time to time offer the notes
with discounts, concessions or commissions from the selling securityholders
and/or the purchasers of the notes and stock for whom they may act as agent. The
selling securityholders and any such brokers, dealers or agents who participate
in the distribution of the notes and common stock may be deemed to be
"underwriters," and any profits on the sale of the notes and common stock by
them and any discounts, commissions or concessions received by any such brokers,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. To the extent the selling securityholders may be
deemed to be underwriters, the selling securityholders may be subject to certain
statutory liabilities, including, but not limited to, Section 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Exchange Act.
The notes and underlying common stock may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The notes and common stock may be sold by one or more of the following methods:
- a block trade in which the broker or dealer so engaged will attempt to
sell the notes and common stock issuable upon conversion thereof as
agent but may position and resell a portion of the block as principal
to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- an exchange distribution in accordance with the rules of such
exchange;
- face-to-face transactions between sellers and purchasers without a
broker-dealer;
- through the writing of options; and
- other transactions.
At any time a particular offer of the notes and common stock is made, a
revised prospectus or prospectus supplement, if required, will be distributed
which will set forth the aggregate amount and type of securities being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions, concessions and other items
constituting compensation from the selling securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. The
prospectus supplement and, if necessary, a post-effective amendment to the
registration statement of which this prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the notes and common stock. In addition, the notes and
common stock covered by this prospectus may be sold in private transactions or
under Rule 144 rather than pursuant to this prospectus.
We have agreed in the Registration Rights Agreement to keep this prospectus
effective until the earliest to occur of: (1) the notes and the shares of common
stock issuable upon the conversion of the notes having been disposed of in
accordance with the shelf registration statement that includes this prospectus;
(2) the notes and the shares of common stock issuable upon conversion of the
notes having been sold in compliance with Rule 144 under the Securities Act or
any successor rule or regulation or could be sold in compliance with Rule
144(k); or (3) the notes and any shares of common stock issuable upon conversion
of the notes cease to be outstanding. To our knowledge, currently no plans,
arrangements or understandings exist between any selling securityholder and any
broker, dealer, agent or underwriter regarding the sale of the securities by the
selling securityholder. We cannot
51
<PAGE> 55
assure you that any selling securityholder will sell any or all of the
securities offered by it under this prospectus or that any selling
securityholder will not transfer, devise or gift such securities by other means
not described in this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M. That regulation may limit the timing of purchases and sales of any of the
notes and common stock by the selling securityholders and any other
participating person. Furthermore, Regulation M of the Exchange Act may restrict
the ability of any person engaged in the distribution of the notes and common
stock to engage in market-making activities with respect to the particular notes
and common stock being distributed for a period of up to five business days
prior to the commencement of the distribution. All of the foregoing may affect
the marketability of the notes and common stock and the ability of any person or
entity to engage in market-making activities with respect to the notes and
common stock.
Pursuant to the Registration Rights Agreement entered into in
connection with the private placement of the notes, we and each of the selling
securityholders will be indemnified by the other against certain liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection with these matters.
We have agreed to pay substantially all of the expenses incidental to
the registration, offering and resale by the selling securityholders of the
notes to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
We will not receive any of the proceeds of the sale of the notes and
underlying common stock covered by this prospectus.
52
<PAGE> 56
LEGAL MATTERS
Certain legal matters with respect to the validity of the notes and the
common stock issuable upon conversion of the notes are being passed upon for
Pinnacle by Holland & Knight LLP, Tampa, Florida.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Pinnacle Holdings Inc. for the
year ended December 31, 1999, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The Audited Historical Financial Statements of Microcell Management, Inc.,
Tucker-Valley Communications, Tower Ventures II, LLC, and Beverly Hills Center,
LLC included in Pinnacle Holdings Inc.'s Form 8-K dated August 4, 2000, as
amended September 19, 2000, have been so incorporated by reference in this
Prospectus in reliance on the reports of Pricewaterhousecoopers LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
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 incorporated herein by
reference in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated herein by reference, and said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements, and other
information with the Commission. You may read and copy any materials we file
with the Commission at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for more information on its public reference rooms. The
Commission also maintains an Internet Website at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
Pinnacle filed a registration statement on Form S-3 to register with the
Commission the notes and the shares of common stock issuable upon conversion of
the notes. This prospectus is a part of that registration statement and
constitutes a prospectus of Pinnacle. As allowed by Commission rules, this
prospectus does not contain all the information that can be found in the
Registration Statement or the exhibits to the Registration Statement.
INCORPORATION BY REFERENCE
The Commission 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
considered to be a part of this prospectus, and later information that we file
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the Commission under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this initial registration
statement and before the effectiveness of this registration statement. The
documents incorporated by reference are:
- our Annual Report on Form 10-K for the year ended December 31, 1999
(including information specifically incorporated by reference into our
Form 10-K from our definitive Proxy Statement for our 2000 Annual
Meeting of Stockholders);
- our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
53
<PAGE> 57
- our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- our Current Report on Form 8-K filed August 4, 2000, as amended
September 19, 2000;
- our Current Report on Form 8-K filed January 4, 2000;
- our Current Report on Form 8-K filed September 14, 1999, as amended on
November 15, 1999;
- the description of our common stock contained in our registration
statement on Form 8-A filed under the Exchange Act on August 11, 1998;
- all documents subsequently filed by Pinnacle pursuant to Sections
13(a), 13(c), and 14 and 15(d) of the Securities Exchange Act of 1934
shall be deemed to be incorporated by reference in this prospectus and
to be part hereof from the date of filing of such documents; and
- all documents filed by Pinnacle after the date of filing the initial
registration statement on Form S-3 of which this prospectus forms a
part and before the effectiveness of such registration statement
pursuant to Sections 13(a), 13(c), and 14 and 14(d) of the Securities
Exchange Act of 1934 shall be deemed to be incorporated by reference
into this prospectus and to be part hereof from the date of filing
such documents.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and number:
Investor Relations
Pinnacle Holdings Inc.
301 North Cattlemen Road
Suite 300
Sarasota, Florida 34232
Telephone (941) 364-8886
54
<PAGE> 58
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR SALE OF THESE SECURITIES MEANS THAT INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS
UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.................................................... 1
Risk Factors............................................... 9
Use of Proceeds............................................ 21
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.................................................. 21
Description of Notes....................................... 22
Certain United States Federal Income Tax Considerations.... 35
Selling Securityholders.................................... 50
Plan of Distribution....................................... 51
Legal Matters.............................................. 53
Experts.................................................... 53
Where You Can Find More Information........................ 53
Incorporation By Reference................................. 53
</TABLE>
PINNACLE HOLDINGS INC.
$200,000,000
5.5% CONVERTIBLE SUBORDINATED NOTES
DUE 2007
Prospectus
September __, 2000
55
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All such
fees and expenses shall be borne by the undersigned Company (the "Company").
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 52,800
Nasdaq Additional Share listing fee............................................ $ 17,500
Printing and engraving expenses................................................ $ 5,000*
Accounting fees and expenses................................................... $ 15,000*
Legal fees and expenses........................................................ $ 15,000*
Trustee fees and expenses...................................................... $ 2,500*
Miscellaneous.................................................................. $ 2,200*
-----------
Total .................................................................... $ 110,000*
===========
</TABLE>
------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws contain provisions
limiting the personal liability of its directors for monetary damages resulting
from breaches of their duty of care to the extent permitted by Section 102(b)(7)
of the Delaware General Corporation Law. The Company's Certificate of
Incorporation and Bylaws also contain provisions making indemnification of its
directors and officers mandatory to the fullest extent permitted by the Delaware
General Corporation Law, including circumstances in which indemnification is
otherwise discretionary.
The Delaware General Corporation Law permits the indemnification by a
Delaware corporation of its directors, officers, employees and other agents
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than derivative
actions which are by or in the right of the corporation) if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was illegal. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action and require
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The Company has
obtained directors' and officers' liability insurance, consistent with the
provisions of the Delaware General Corporation Law, to protect directors and
officers from liabilities under various laws, including the Securities Act of
1933, as amended (the "Securities Act").
II-1
<PAGE> 60
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Form of 5.5% Note (included in Exhibit 4.2)
4.2 Indenture dated as of March 22, 2000 among the Company and The
Bank of New York, as Trustee, including the form of 5.5% Note.
(1)
4.3 Registration Rights Agreement dated as of March 22, 2000 by and
among the Company and each of the Purchasers referred to therein.
(1)
4.4 Specimen Stock Certificate (2)
5.1 Opinion of Holland & Knight LLP(3)
8.1 Tax Opinion of Holland & Knight LLP(3)
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges and Preferred Stock Dividends
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 KPMG LLP, independent public accountants
24.1 Powers of Attorney (set forth on the signature page of this
registration statement)
25.1 Statement of Eligibility of Trustee on Form T-1(3)
</TABLE>
-----------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on May 15, 2000.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-11 (Commission file no. 333-59297), as amended, filed with the Commission
on July 17, 1998.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-3 (Commission file no. 333-37684), filed with the Commission on May 23,
2000.
ITEM 17. UNDERTAKINGS
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement.
II-2
<PAGE> 61
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by such clauses is contained in periodic
reports filed with or furnished to the Commission by the Company
pursuant to Section 13 or Section 15(d) of the Exchange Act of
1934 that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to its Certificate of
Incorporation, Bylaws, by agreement or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
(d) The Company hereby undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PINNACLE HOLDINGS INC., a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Sarasota, State of Florida, on September 19,
2000.
Pinnacle Holdings Inc.
By: /s/ Steven Day
---------------------------------------------
Steven Day
Vice President, Chief Operating Officer
and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 1 to the registration statement has been signed by the following
persons in the capacities indicated on September 19, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Chief Executive Officer, September 19, 2000
---------------------------------------------------- President and Director
Robert Wolsey
/s/ Steven Day September 19, 2000
---------------------------------------------------- Vice President, Chief Operating
Steven Day Officer, Secretary and Director
/s/ Jeffrey J. Card Chief Financial Officer September 19, 2000
----------------------------------------------------
Jeffrey J. Card
* Director September 19, 2000
----------------------------------------------------
G. Peter O'Brien
* Director September 19, 2000
----------------------------------------------------
J. Clarke Smith
Director
----------------------------------------------------
Paula Boggs
*By: /s/ Steven Day
---------------------------------------
Steven Day
Attorney-in-fact
</TABLE>
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Form of 5.5% Note (included in Exhibit 4.2)
4.2 Indenture dated as of March 22, 2000 among the Company and
The Bank of New York, as Trustee, including the form of
5.5% Note. (1)
4.3 Registration Rights Agreement dated as of March 22, 2000 by
and among the Company and each of the Purchasers referred
to therein. (1)
4.4 Specimen Stock Certificate (2)
5.1 Opinion of Holland & Knight LLP(3)
8.1 Tax Opinion of Holland & Knight LLP(3)
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges and Preferred Stock Dividends
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 KPMG LLP, independent public accountants
24.1 Powers of Attorney (set forth on the signature page of this
registration statement)
25.1 Statement of Eligibility of Trustee on Form T-1(3)
</TABLE>
--------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on May 15, 2000.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-11 (Commission file no. 333-59297), as amended, filed with the Commission
on July 17, 1998.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-3 (Commission file no. 333-37684), filed with the Commission on May 23,
2000.
