As filed with the Securities and Exchange Commission on May 23, 2000
Registration Statement No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
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.)
------------------------
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)
STEVEN DAY
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
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)
--------------------
Copies of communications to:
CHESTER E. BACHELLER, ESQ.
HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602
(813) 227-8500
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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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------ ------------------ -------------------- ------------------- -------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit(1) Offering Price(1) Fee
- ------------------------------------------ ------------------ -------------------- ------------------- -------------------
- ------------------------------------------ ------------------ -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
5.5% Convertible Subordinated Notes due
2007 $200,000,000 100% $200,000,000 $ 52,800
- ------------------------------------------ ------------------ -------------------- ------------------- -------------------
- ------------------------------------------ ------------------ -------------------- ------------------- -------------------
Common stock, par value $.001 per share 2,551,840(2) N/A N/A N/A (3)
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</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended, and includes
shares that may be purchased by the Underwriters pursuant to an
over-allotment option.
(2) This number represents the number of shares of common stock, par value
$.001 per share, as are initially issuable upon conversion of the 5.5%
Convertible Subordinated Notes and, pursuant to Rule 416 under the
Securities Act of 1933, such additional indeterminate number of shares of
common stock as may become issuable upon conversion of the Notes being
registered hereunder by reason of adjustment of the conversion price.
(3) Pursuant to Rule 457(i) under the Securities Act of 1933, there is no
filing fee with respect to the shares of common stock issuable upon
conversion of the Notes because no additional consideration will be
received in connection with the exercise of the conversion privilege.
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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<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 22, 2000
PROSPECTUS
PINNACLE HOLDINGS INC.
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$200,000,000
5.5% CONVERTIBLE SUBORDINATED NOTES DUE 2007
- --------------------------------------------------------------------------------
This prospectus relates to:
o $200,000,000 aggregate principal amount of 5.5% convertible
subordinated notes due 2007, and
o 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
May 22, 2000, the last reported sale price of our common stock was $51.375 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 March 31, 2000, we had approximately $830.4 million of indebtedness
outstanding, of which $630.4 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 6 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 ___________, 2000.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
other similar statements), you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described (or that they will happen at all). You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these
forward-looking statements, even though our situation may change in the future.
Whether actual results will conform with our expectations and predictions is
subject to a number of risks and uncertainties, including:
o the significant considerations discussed in this prospectus;
o our history of operating losses;
o our outstanding indebtedness and our ability to pay interest and principal
on our debt;
o restrictions imposed by the terms of our indebtedness;
o subordination of the notes;
o Pinnacle Holdings Inc.'s only source of cash is from distributions from its
subsidiaries;
o risks associated with the acquisition of communications sites from
Motorola;
o our ability to effect our business plan if we do not have the required
cash;
o our ability to successfully identify, complete and integrate acquisitions;
o our ability to protect our rights in our property and to insure
against losses from damage to our communications sites;
o risks associated with retaining our significant customers;
o the impact of competition;
o risks associated with construction of new towers;
o our dependence on the wireless communications industry;
o the impact of legislation and regulation;
o the loss of key employees;
o the effect of competing technologies on the demand for our services;
o environmental regulation;
o the effect on our business if we sustain damage to our communications
sites in excess of our insurance coverage;
o our ability to repurchase the notes if a change of control occurs;
o the ability to void the notes under federal and state law;
o risks concerning potential negative health effects of radio frequency
emissions;
o our ability to maintain our status as a Real Estate Investment Trust (a
"REIT");
o volatility in our stock price;
o the absence of a public market for the notes; and
o 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 6. We assume no responsibility for updating
forward looking information contained in this prospectus.
<PAGE>
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.
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 March 31, 2000, we have completed 411 acquisitions, acquiring 3,767
communications sites, including 1,930 owned sites, 979 "managed" sites and 858
"leased" sites, and we have constructed 103 towers. As of March 31, 2000, we
also have agreements or letters of intent to acquire 676 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.
As of March 31, 2000, we had over 3,800 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 21.0% for the 12 months
ended March 31, 2000 on our base of communications sites as of March 31, 1999.
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OUR BUSINESS AND 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.
o 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.
o ACQUISITION STRATEGY. We are focused on acquiring clusters of
communications sites in high growth markets. We target tall towers
that have existing tenants with capacity for more. Our strategy allows
us to choose tower 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.
o 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 the three months ended March 31, 2000, we constructed
22, 47, 23 and 3 towers, respectively.
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OUR STRENGTHS
We believe the following to be the strengths of our business:
o FOCUS ON COMMUNICATIONS SITE RENTAL BUSINESS. We focus on the rental
of communications site space as opposed to other lower margin segments
of the tower industry such as site acquisition services or tower
construction services. Furthermore, we do not engage in large scale
"build-to-suit" programs, preferring instead to focus on our core
acquisition strategy and complementary selective construction strategy
designed to enhance coverage in targeted markets.
o 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.
o 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.
o 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. Taking into consideration leases for new tenants, we
experienced same site revenue growth of approximately 21.0% for the 12
months ended March 31, 2000 on our base of communications sites as of
March 31, 1999.
RECENT DEVELOPMENTS
RECENT AND OTHER PENDING ACQUISITIONS
From January 1, 2000 through March 31, 2000, we acquired 668 communications
sites for an aggregate purchase price of approximately $171.5 million. At March
31, 2000, we have entered into letters of intent or purchase agreements to
acquire 676 communications sites for approximately $131.4 million, all of which
are subject to completion of due diligence efforts and any further negotiations
that may result therefrom.
JANUARY OFFERING
On January 24, 2000, we completed a public offering where we sold
10,350,000 shares of our common stock (including 3,150,000 shares sold by
certain of our stockholders) at a price per share of $41.00 (the "January
Offering"), resulting in net proceeds to us of approximately $282.4 million
before deducting the costs of the January Offering. The proceeds from the
January Offering have initially been invested in short-term liquid securities
and will be used to reduce our debt or be used with borrowings made under our
credit facility to fund acquisitions, the construction of new communications
sites and improvements to existing communications sites.
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. Our net proceeds were approximately $193.5 million, which
were used to repay existing debt under our credit facility.
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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<PAGE>
THE NOTES
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 their 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 March 31, 2000, we had
approximately $630.4 million of
indebtedness that was effectively
senior in right of payment to the
notes, $571 million of which was
Senior Indebtedness.
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<PAGE>
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............... 48,340,923 shares (1)
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(1) Excludes approximately 5,000,000 shares of common stock reserved for
issuance pursuant to our stock incentive plan, 2,865,241 of which are
subject to outstanding options at April 30, 2000.
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<PAGE>
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 three months ended March 31, 2000, our earnings were
insufficient to cover combined fixed charges by approximately $8.5 million,
$39.7 million, $63.8 million and $22.2 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 March 31, 2000, we had
approximately $830.4 million of indebtedness outstanding.
Our high level of indebtedness could have important consequences to you.
For example, it could:
o make it more difficult for us to satisfy our obligations with respect
to our indebtedness, including the notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to obtain additional financing;
o 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;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
o 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
6
<PAGE>
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:
o incur additional indebtedness;
o incur liens;
o make investments;
o pay dividends or make certain other restricted payments;
o consummate certain asset sales;
o consolidate with any other person; and
o 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. 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 March 31,
2000, we had approximately $630.4 million of indebtedness that was effectively
senior in right of payment to the notes, $571 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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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 March 31, 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 $586.1 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."
THERE ARE CERTAIN RISKS ASSOCIATED WITH THE MOTOROLA ANTENNA SITE ACQUISITION.
On August 31, 1999, we acquired approximately 1,858 communications sites
from Motorola, Inc. ("Motorola"). We have never consummated a transaction as
large as the acquisition of 1,858 communications sites, including approximately
499 owned sites, 526 managed sites and 833 leased sites from Motorola for $255
million in cash and stock, plus fees and expenses (the "Motorola Antenna Site
Acquisition") and will likely face significant challenges in integrating the
1,858 acquired communications sites into our operations. In addition,
integration of these communications sites will require substantial attention
from our management team, which has had limited experience in integrating an
acquisition of this size. Diversion of management attention from our existing
business could have an adverse impact on our revenues and operating results.
Due to timing, logistical and other constraints, we did not have the
ability to access, analyze and verify all information regarding title and other
issues related to the Motorola communications sites prior to closing the
Motorola Antenna Site Acquisition. Our indemnification rights under the
definitive purchase agreement between us and Motorola and the related documents
are subject to various limitations. Therefore, our ability to obtain
compensation for defects of title or other site-related and other issues is
limited.
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WE WILL NOT BE ABLE TO EFFECT OUR BUSINESS PLAN IF WE DO NOT HAVE THE REQUIRED
CASH.
Our business plan is materially dependent upon the acquisition of
additional suitable communications sites 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 three months ended March 31, 2000, we made capital investments
aggregating approximately $89.5 million, $373.6 million, $551.7 million and
$176.2 million, respectively, in communications site acquisitions, site upgrades
and new tower construction. We currently estimate that they will be at least
$500 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. If our revenue and cash flow are not as
expected, or if our borrowing base is reduced as a result of operating
performance, we may have limited ability to access necessary capital. We cannot
assure you that adequate funding will be available as needed or, if available,
on terms acceptable to us or permitted under the terms of our existing
indebtedness. The terms of additional debt financing could have important
consequences to you. See "--The terms of our indebtedness impose significant
restrictions on us." In addition, to qualify and remain qualified as a REIT, we
must distribute to our stockholders 95% of our taxable income computed without
regard to net capital gains and deductions for distributions to our stockholders
and 95% of certain foreclosure income. If made, such distributions could reduce
the amount of cash available to us to effect our business plan. Insufficient
available funds may require us to scale back or eliminate some or all of our
planned expansion.
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 "--Our
substantial indebtedness could adversely affect our financial condition; we may
incur substantially more debt." 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
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title warranties from sellers. Our ability to protect our rights against persons
claiming superior rights in communications sites depends on our ability to:
o recover under title policies, the policy limits of which may be less
than the purchase price of the particular site;
o 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
o 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 March 31, 2000, Arch Communications (which acquired MobileMedia
Communications in 1999), Nextel and Motorola represented 7.6%, 14.4% and 4.2%,
respectively, of our revenue, on a run rate basis. 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.
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.
WE COMPETE WITH COMPANIES THAT HAVE GREATER FINANCIAL RESOURCES.
We face competition for customers from various sources, including:
o wireless communications providers and utility companies that own and
operate their own communications site networks and lease
communications site space to other carriers;
o site development companies that acquire space on existing
communications sites for wireless communications providers and manage
new tower construction;
o other independent communications site companies; and
o traditional local independent communications site operators.
Wireless communications providers that own and operate their own
communications site networks generally are substantially larger and have greater
financial resources than we have. We believe that site location and capacity,
price, quality of service, type of service and density within a geographic
market historically have been and will continue to be the most significant
competitive factors affecting communications site rental companies. We believe
that competition for communications site acquisitions will increase and that
additional competitors will enter the tower rental market, certain of whom may
have greater financial and other resources than we have.
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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:
o demand for wireless services;
o financial condition and access to capital of wireless communications
providers;
o strategy of wireless communications providers with respect to owning
or leasing communications sites;
o government licensing of broadcast rights;
o changes in telecommunications regulations; and
o 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.
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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.
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 EMPLOYEES.
Our success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance personnel, some of whom may be difficult to replace.
Although we maintain employment agreements with certain of our employees, we
cannot assure you that the services of such personnel will continue to be
available to us. We do not maintain key man life insurance policies on our
executives that would adequately compensate us for any loss of services of such
executives. The loss of the services of these executives could have a material
adverse effect on our business.
COMPETING TECHNOLOGIES AND OTHER ALTERNATIVES COULD REDUCE THE DEMAND FOR OUR
SERVICES.
Most types of wireless services currently require ground-based network
facilities, including communications sites, for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on a number of factors beyond our control, including the level of demand
for such wireless services, the financial condition and access to capital of
such providers, the strategy of providers with respect to owning or leasing
communications sites, government licensing of communications services, changes
in telecommunications regulations and general economic conditions. In addition,
wireless service providers frequently enter into agreements with competitors
allowing each other to utilize one another's wireless communications facilities
to accommodate customers who are out of range of their home provider's services.
Such agreements may be viewed by wireless service providers as a superior
alternative to leasing space for their own antenna on communications sites
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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.
WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT IMPOSE LIABILITY WITHOUT REGARD TO
FAULT AND ENVIRONMENTAL REGULATIONS THAT COULD ADVERSELY AFFECT OUR OPERATIONS.
Our operations are subject to federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and nonhazardous substances, materials or wastes. Under
certain of these laws, we could be held strictly, jointly and severally liable
for the remediation of hazardous substance contamination at its facilities or at
third-party waste disposal sites and also could be held liable for any personal
or property damage related to such contamination. Although we believe that we
are in substantial compliance with and have no material liability under all
applicable environmental laws, there can be no assurance that the costs of
compliance with existing or future environmental laws and liability related
thereto will not have a material adverse effect on our business, financial
condition or results of operations.
The FCC requires tower owners subject to the agency's antenna structure
registration program to comply at the time of registration with federal
environmental rules 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.
IF WE SUSTAIN DAMAGE TO OUR COMMUNICATIONS SITES IN EXCESS OF OUR INSURANCE
COVERAGE, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our communications sites are subject to risks from vandalism and risks
associated with natural disasters such as tornadoes, hurricanes, fires and
earthquakes. We maintain certain insurance to cover the cost of replacing
damaged communications sites and general liability insurance to protect us in
the event of an accident involving a communications site, but we do not maintain
business interruption insurance. Accordingly, damage to a group of our
communications sites could result in a significant loss of revenue and could
have a material adverse effect on our results of operations and financial
condition. In addition, a communications site accident for which we are
uninsured or underinsured could have a material adverse effect on our financial
condition or results of operations.
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
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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 current or future creditors or (2)(A) we
received less than reasonably equivalent value or fair consideration for issuing
the notes and (B):
o we were insolvent or were rendered insolvent by reason of the
transactions contemplated in connection with the private placement of
the notes;
o we were engaged, or about to engage, in a business or transaction for
which our assets constituted unreasonably small capital;
o 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
o 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
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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 remain qualified as a REIT. Furthermore, depending on our assessment
of the strategic importance of acquisitions which may become available to us in
our existing line of business or in complementary non-real estate based
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 recently acquired certain assets from
Motorola prior to determining whether such assets, and the income derived from
such assets, would permit us to continue to meet the qualification requirements
for a REIT. Subsequent to making such commitment, we structured the ownership of
the assets so acquired in a manner that we believe will ensure our continued
qualification as a REIT.
However, because of the restrictions imposed on our operations by seeking
to retain our qualification as a REIT, we have evaluated whether to terminate
our REIT qualification. 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 which may be applicable, or 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 from a retroactive
determination by the Internal Revenue Service (the "Service") that we, to date,
failed to satisfy all of the requirements for REIT qualification during any such
year would likely be minimal. 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 as required to
retain our REIT status but would neither be entitled to receive such
distributions back from our stockholders nor be entitled to a tax deduction for
such distributions. At the present time, we do not anticipate that we will
recognize net taxable income for the foreseeable future.
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.
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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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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
Pinnacle's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three
Months
Ended
Fiscal Year Ended December 31, March 31,
--------------------------------------------------------- -----------
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) $ (22,158)
Fixed charges:
Interest expense.............................. 205 1,252 6,925 12,300 22,953 8,776
Amortization of original issue discount and debt
issue costs................................ - - 292 16,426 23,708 6,426
Rentals:
Office space (33%)......................... 10 32 62 102 134 71
Telecommunications sites (33%)............. 29 124 427 1,106 5,531 3,270
Preferred stock dividends and accretion....... -- -- -- 3,094 2,930 -
-------- -------- --------- --------- --------- ----------
Total fixed charges.............................. 244 1,408 7,706 33,028 55,256 18,543
======== ======== ========= ========= ========= ==========
Pre-tax loss from continuing operations before
adjustment for in-kind preferred stock
dividends and accretion....................... $ (401) $ (608) $ (755) $ (6,696) $ (8,495) $ (3,615)
======== ======== ========= ========= ========= ==========
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 three
months ended March 31, 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
$22,158 in 1995, 1996, 1997, 1998, 1999 and the three months ended March 31,
2000, respectively, to achieve a coverage ratio of 1:1.
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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:
o the payment of dividends;
o the issuance of Senior Indebtedness (as defined below) or other
indebtedness; or
o 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>
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:
o those rights, warrants or options referred to in clause (3) above;
o any dividend or distribution paid exclusively in cash; and
o 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:
o 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
o 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:
o 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>
o 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.
o 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:
o liquidation;
o dissolution;
o winding up;
o reorganization;
o assignment for the benefit of creditors;
20
<PAGE>
o marshaling of assets;
o bankruptcy;
o insolvency; or
o 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:
o 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;
o commitment or standby fees due and payable to lending institutions
with respect to credit facilities available to us;
o 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;
o all of our obligations for the payment of money relating to
capitalized lease obligations;
o any liabilities of others described in the preceding clauses that we
have guaranteed or which are otherwise our legal liability; and
o 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 March 31, 2000, our consolidated Senior Indebtedness was approximately
$571 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."
21
<PAGE>
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:
REDEMPTION
YEAR PRICE
---- ---------
2004 101.50%
2005 and thereafter 100.00%
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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<PAGE>
"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:
o the repurchase date;
o the date by which the repurchase right must be exercised;
o the repurchase price for the notes; and
o 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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<PAGE>
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:
o 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
o 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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<PAGE>
o change the stated maturity of the principal of or any installment of
interest on any note;
o reduce the principal amount of, or the premium or rate of interest on,
any note;
o change the currency in which the principal of any note or any premium
or interest is payable;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any note when due;
o adversely affect the right provided in the Indenture to convert any
note;
o modify the subordination provisions of the Indenture in a manner
adverse to the holders of the notes;
o 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;
o 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
o 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:
o waive compliance by us with restrictive provisions of the Indenture
other than as provided in the preceding paragraph; and
o 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:
o to cure any ambiguity, omission, defect or inconsistency in the
Indenture;
o to evidence a successor to us and the assumption by the successor of
our obligations under the Indenture and the notes;
o to make any change that does not adversely affect the rights of any
holder of the notes; or
o 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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<PAGE>
(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:
o holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee to pursue the remedy; and
o 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:
o a limited-purpose trust company organized under the laws of the State
of New York;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
o 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:
o securities brokers and dealers;
o banks;
o trust companies;
o clearing corporations; and
o 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:
o any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a Registered Global Note;
o maintaining, supervising or reviewing any records relating to the
beneficial ownership interests;
o any other aspect of the relationship between DTC and its participants;
or
o 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:
o will be required to be named as selling securityholder;
o will be required to deliver a prospectus to purchasers;
o will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
o 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:
o a citizen or resident of the United States;
o a corporation created or organized in or under the laws of the United
States or any political subdivision thereof;
o an estate the income of which is subject to United States federal
income taxation regardless of its source; or
o 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 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 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:
o 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
o 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 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:
o such interest is not effectively connected with the conduct of a trade
or business within the United States by such Non-United States Holder;
o 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
o 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 Service and
certain other conditions are met. A holder that is not exempt from tax under
these rules will be subject to United
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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 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:
o 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
o 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
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:
o 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
o 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 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:
o directly by the Non-United States Holder;
o 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
o 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. 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 that we will
qualify or remain qualified as a REIT. Depending on our assessment of the
strategic importance of acquisitions which may become available to us in our
existing line of business or in complementary non-real estate based
communication 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 which we believe satisfied then applicable and currently
applicable REIT qualification requirements. However, REIT qualification
requirements which 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 which may have the effect
of terminating our REIT qualification. Prospective investors also should be
aware that an opinion of counsel is not binding on the Service or any court, but
merely represents counsel's best judgment with respect to the probable outcome
on the merits if our REIT qualification is challenged by the Service 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 Service as indicated in existing private letter rulings (which
rulings are not binding on the Service) or authority considered by counsel to be
analogous. There can be no assurance that a position contrary to the opinion of
counsel will not be taken by the Service, or that any court considering the
issues would not hold contrary to such opinion.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex, and only limited judicial or administrative
interpretations are available. The following discussion sets forth the material
aspects of the Code sections that govern the federal income tax treatment of a
REIT and its stockholders. The discussion is qualified in its entirety by the
applicable Code provisions, Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retroactively.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income tax on our net income that is distributed currently to
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 foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be
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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. The results described above with respect to the
recognition of "built-in-gain" are based on our having made an election pursuant
to IRS Notice 88-19 to be so taxed with respect to such acquisitions occurring
prior to 2000 and assume that we will make such an election pursuant to the
recently promulgated temporary regulations as to any such acquisition occurring
subsequent to 1999.
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 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 prior to such transfer or (2) a violation of the
percentage ownership limit would occur. Under the percentage ownership limit
test, no share of any series of our capital stock may be sold or otherwise
transferred to any individual if such transfer would result in the ownership of
such individual in combination with four or fewer other 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 ownership of the notes which are intended to assist
us in continuing to satisfy the share ownership requirements
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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 Service or the courts, and there can be no
assurance that the Service will not assert successfully a contrary position. If
any of the Lock-Up Agreements, 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. 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." However, an adjustment of our earnings and
profits for a prior year, resulting from an audit adjustment of the Service or
otherwise, could cause us to fail to satisfy such requirement effective for the
year of such adjustment and subsequent years.
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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 noncustomary 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, 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
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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 property, and an option to acquire
real property (or a leasehold of real property). The 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 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.
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Second, of the investments not included in the 75% asset class, the value
of any one issuer's securities owned by us may not exceed 5% of the value of our
total assets and we may not own more than 10% of any one issuer's outstanding
voting securities (except for an interest in any qualified REIT subsidiary).
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 PT III which owns and derives income from rooftop
communication sites and related equipment. PT III currently intends to submit a
private letter ruling request to the 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. If a favorable ruling is
received, 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, and projects that the amount of such non-REIT
assets and income will be sufficiently small so as to permit PT III to satisfy
the asset and income tests for REIT qualification, there can be no assurance
that, by virtue of such January 14, 2000 acquisition or future acquisitions by
PT III of stock or assets, PT III will satisfy the requirements for
qualification as a REIT, even if the Service rules favorably with respect to PT
III's ownership of, and receipt of income from, the rooftop sites and related
equipment. 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
which 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 any 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 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 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 noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before we timely file our federal income tax return for such year and if paid on
or before the first regular dividend payment date after such declaration. To the
extent that we do not make such minimum distributions, we will be subject to tax
on the amounts undistributed 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%
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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 will 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. To
the extent that we are required to include items in "REIT taxable income" in
advance of the receipt of cash payments associated with such income or are
required to expend cash for the repayment of debt or in any other manner for
which no current deduction is available in computing our "REIT taxable income,"
we may find it necessary to arrange for short-term (or possibly long-term)
borrowings, raise funds through the issuance of additional shares of Common or
Preferred Stock, or pay dividends in the form of taxable share dividends in
order to meet the 95% distribution requirement necessary to maintain our REIT
qualification.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirements for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in 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 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 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 to then current
value for federal income tax purposes, the consideration offered in such a
transaction to us or our stockholders would likely be less in a purchase of
assets described in the preceding sentence.
RECENT REIT LEGISLATION
Legislation was enacted on December 17, 1999 which made several changes to
the REIT provisions of the Code effective January 1, 2001. A REIT's ownership of
securities in another corporation which 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
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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 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.
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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. Although none of the selling securityholders has
advised us that it currently intends to sell all or any of the notes or shares
of common stock issuable upon conversion of the notes pursuant to this
prospectus, the selling securityholders 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."
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.
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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:
o 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;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o an exchange distribution in accordance with the rules of such
exchange;
o face-to-face transactions between sellers and purchasers without a
broker-dealer;
o through the writing of options; and
o 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
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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.
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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 by reference 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 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 auditors.
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:
o 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);
o our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
o our Current Report on Form 8-K filed January 4, 2000;
o our Current Report on Form 8-K filed September 14, 1999, as amended on
November 15, 1999;
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o the description of our common stock contained in our registration
statement on Form 8-A filed under the Exchange Act on August 11, 1998.
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
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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
PAGE
Summary...............................................1
Risk Factors..........................................6
Use of Proceeds......................................17
Ratio of Earnings to Fixed Charges...................17
Description of Notes.................................18
Certain United States Federal Income
Tax Considerations................................31
Selling Securityholders..............................46
Plan of Distribution.................................47
Legal Matters........................................49
Experts..............................................49
Where You Can Find More Information..................49
Incorporation By Reference...........................49
- -----------------------------------------------------------
PINNACLE HOLDINGS INC.
$200,000,000
5.5% CONVERTIBLE SUBORDINATED NOTES DUE 2007
Prospectus
__________________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All such
fees and expenses shall be borne by the undersigned Company (the "Company").
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*
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Total .................................................. $ 110,000*
==========
- --------------
* 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
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. Description
- ----------- -----------
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
8.1 Tax Opinion of Holland & Knight LLP
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges
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
- ----------
(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.
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>
(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>
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 May 22, 2000.
Pinnacle Holdings Inc.
By: /s/ Steven Day
----------------------------
Steven Day
Chief Financial Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Pinnacle Holdings Inc.
(the "Company"), a Delaware corporation, for himself and not for one another,
does hereby constitute and appoint Robert Wolsey and Steven Day, and each and
any of them and their substitutes, a true and lawful attorney in their name,
place and stead, in any and all capacities, to sign their name to any and all
amendments to this registration statement, including post-effective amendments,
and any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) of the Securities Act of 1933, as amended, and to cause the same to be
filed with the Commission, granting unto said attorneys and each of them full
power of substitution and full power and authority to do and perform any act and
thing necessary and proper to be done in the premises, as fully to all intents
and purposes as the undersigned could do if personally present, and each of the
undersigned for himself hereby ratifies and confirms all that said attorneys or
any one of them shall lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Robert Wolsey Chief Executive Officer, May 22, 2000
- ---------------------------------------------------- President, Chief Operating
Robert Wolsey Officer and Director
/s/ Steven Day May 22, 2000
- ---------------------------------------------------- Vice President, Chief Financial
Steven Day Officer, Secretary and Director
/s/ G. Peter O'Brien Director May 22, 2000
- ----------------------------------------------------
G. Peter O'Brien
/s/ Andrew Banks Director May 22, 2000
- ----------------------------------------------------
Andrew Banks
/s/ J. Clarke Smith Director May 22, 2000
- ----------------------------------------------------
J. Clarke Smith
/s/ Royce Yudkoff Director May 22, 2000
- ----------------------------------------------------
Royce Yudkoff
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
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
8.1 Tax Opinion of Holland & Knight LLP
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges
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
- ----------
(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.
Exhibit 5.1
May , 2000
---
Pinnacle Holdings Inc.
301 North Cattlemen Road
Suite 300
Sarasota, Florida 34232
Re: Registration Statement on Form S-3
Gentlemen:
We are acting as counsel for Pinnacle Holdings Inc. , a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of $200,000,000 aggregate principal amount
of 5.5% Convertible Subordinated Notes due 2007 (the "Notes"), and the shares of
common stock, $.001 par value (the "Common Stock"), of the Company as may be
required for issuance upon conversion of the Notes (the "Conversion Shares").
The Notes and the Conversion Shares are to be offered and sold by certain
securityholders of the Company (the "Selling Securityholders"). In this regard
we have participated in the preparation of a Registration Statement on Form S-3
relating to the Notes and the Conversion Shares. (Such Registration Statement,
as amended, is herein referred to as the "Registration Statement.")
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
Subject to the foregoing exceptions, qualifications and limitations, we are
of the opinion that the Notes have been duly authorized and are binding
obligations of the Company entitled to the benefits of the Indenture dated as of
March 22, 2000 between the Company and The Bank of New York, as Trustee. We are
of the further opinion that the Conversion Shares have been duly authorized and,
when issued by the Company upon conversion of the Notes in accordance with the
Indenture, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
In giving such consent, we do not believe or admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
HOLLAND & KNIGHT LLP
Exhibit 8.1
May ___, 2000
Pinnacle Holdings Inc.
301 North Cattlemen Road, Suite 300
Sarasota, FL 34232
Re: Registration Statement on Form S-3
Registration No. 333-_____
Ladies and Gentlemen:
We have acted as counsel to Pinnacle Holdings Inc., a Delaware
corporation (the "Company"), in connection with the registration and resale of
the Notes, as more fully described in the Company's Registration Statement on
Form S-3 (the "Registration Statement," which includes the "Prospectus"), filed
with the Securities and Exchange Commission on or about the date hereof. In
connection therewith, we have been asked to provide an opinion regarding certain
federal income tax matters related to the Company. Capitalized terms used in
this letter and not otherwise defined herein have the meaning set forth in the
Prospectus.
The opinions set forth in this letter are based on relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations thereunder (including proposed and temporary Regulations), and
interpretations of the foregoing as expressed in court decisions, legislative
history, and existing administrative rulings, policies and practices of the
Internal Revenue Service (the "Service") including its practices and policies
indicated in private letter rulings (which rulings are not binding on the
Service except, in the case of each such ruling, with respect to the specific
taxpayer that receives such ruling), all as of the date hereof. These provisions
and interpretations are subject to changes, which may or may not be retroactive
in effect, which changes could adversely affect the opinions rendered herein and
the tax consequences to the Company and the investors in the Notes and the
common stock of the Company issued upon conversion of Notes.
<PAGE>
Pinnacle Holdings Inc.
Page 2
May __, 2000
In rendering this opinion, we have examined the following documents:
(1) the Registration Statement and the facts and descriptions set forth therein
of the Company and its investments, activities, operations and governance; (2)
the Company's Certificate of Incorporation, as amended, Bylaws and stock
ownership information; (3) the quarterly and annual REIT qualification testing
schedules prepared by the Company with the assistance of the Company's
accountants, PricewaterhouseCoopers LLP, through and including December 31,
1999; and (4) the Stockholders Agreement, Lock-Up Agreements, Prior Lock-Up
Agreements, and Restrictive Legends. The opinions set forth in this letter also
are premised on certain additional information and representations obtained
through consultation with officers of the Company and the Company's accountants,
PricewaterhouseCoopers LLP, including those contained in the Company's
management representation certificate to us dated May __, 2000 (the "Management
Representation Certificate") regarding certain facts and other matters
(including among other things, the Company's stock ownership, assets,
acquisitions, revenues, and distributions) as are germane to the Company's
qualification as a REIT under the Code.
We have made such factual and legal inquiries, including the procedures
described above and examination of the documents set forth above, as we have
deemed necessary or appropriate for purposes of our opinion. For purposes of
rendering our opinion, however, we have not made an independent investigation or
audit of the facts set forth in the above-referenced documents, including the
Registration Statement and the Management Representation Certificate. We
consequently have relied upon the representations in the Management
Representation Certificate and the information presented therein and in such
documents or otherwise furnished to us, and we have assumed that the information
presented in such documents or otherwise furnished to us is accurate and
complete with respect to all material facts relevant to our opinion.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents that we reviewed
(including, without limitation, the Management Representation Certificate) are
true and correct, and each of the obligations imposed by any such document on
the parties thereto, including obligations imposed under the Certificate of
Incorporation of the Company, have been and will be performed or satisfied in
accordance with their terms. Moreover, we have assumed that the Company and each
"qualified REIT subsidiary" corporation ("QRS Corporation") has been and
<PAGE>
Pinnacle Holdings Inc.
Page 3
May __, 2000
will continue to be operated in the manner described in the relevant certificate
of incorporation or other organizational documents and in the Prospectus. We
assume for the purposes of this opinion that the Company and each QRS
Corporation is validly organized and duly incorporated under the laws of the
jurisdiction of its incorporation. We also have assumed the genuineness of all
signatures, the proper execution of all documents, the authenticity of all
documents submitted to us as originals, the conformity to originals of documents
submitted to us as copies, and the authenticity of the originals from which any
copies were made.
Based upon, subject to, and limited by the assumptions and
qualifications set forth herein, in the discussion in the Prospectus under the
caption "Certain United States Federal Income Tax Considerations" (which is
incorporated herein by reference), and the discussion herein, we are of the
opinion that:
(a) the Company was organized and has operated in conformity with the
requirements for qualification and taxation as a real estate investment trust
("REIT") pursuant to Sections 856 through 860 of the Code for its taxable years
ended December 31, 1995, December 31, 1996, December 31, 1997, December 31, 1998
and December 31, 1999, and the continued operation of the Company in years
subsequent to the foregoing in a manner consistent with the statements made in
the Management Representation Certificate and the requirements for REIT
qualification as described in the Prospectus will enable it to continue to meet
the requirements for qualification and taxation as a REIT; and
(b) the descriptions of the law and the legal conclusions contained in
the Prospectus under the caption "Certain United States Federal Income Tax
Considerations" are correct in all material respects and the discussion
thereunder fairly summarizes the federal income tax considerations that are
likely to be material to a holder of Notes or common stock issued upon
conversion of Notes.
We assume no obligation to advise you of any changes in our opinion
subsequent to the delivery of this opinion letter, and we do not undertake to
update the opinion letter. The Company's qualification and taxation as a REIT
depends upon the Company's ability to meet on a continuing basis, through actual
annual operating and other results, the various requirements under the Code and
described in the Prospectus with regard to, among other things, the sources of
its gross income, the composition of its assets, the level of its distributions
to
<PAGE>
Pinnacle Holdings Inc.
Page 4
May __, 2000
stockholders, and the diversity of its stock ownership. Holland & Knight LLP
will not review the Company's compliance with these requirements on a continuing
basis. Accordingly, no assurance can be given that the actual results of the
operations of the Company and the QRS Corporations, including without limitation
the sources of their income, the nature of their assets, the nature of their
stock ownership, and the level of the Company's distributions to stockholders,
for any given taxable year will satisfy the requirements under the Code for
qualification and taxation as a REIT. In addition, as noted above, our opinions
are based solely on the documents that we have examined, the additional
information that we have obtained, and the representations that have been made
to us, and cannot be relied upon if any of the facts contained in such documents
or in such additional information is, or later becomes, inaccurate, or if any of
the representations made to us is, or later becomes, inaccurate. In addition, as
noted in the Prospectus, the Company may voluntarily revoke its REIT election or
may acquire assets or engage in business activities which may have the effect of
terminating the tax status of the Company as a REIT, with possible retroactive
effect.
An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits if certain tax matters are
contested by the Service, and it is not binding on the Service or any courts. In
certain instances with respect to matters for which there is no relevant
authority, including but not limited to the effect of certain transfer
restrictions under the Lock-Up Agreements, the Prior Lock-Up Agreements, the
Stockholders Agreement and the Restrictive Legends on the ability of the Company
to satisfy the requirement for REIT qualification that its shares be
transferable, our opinion is based on authorities which we have considered to be
analogous even though certain such authorities have been rendered obsolete for
unrelated reasons by subsequent authorities. There can be no assurance that
positions contrary to our opinions will not be taken by the Service, or that a
court considering the issues would not hold contrary to our opinions.
This opinion letter has been prepared solely for your use in connection
with the filing of the Registration Statement on or about the date of this
opinion letter and should not be quoted in whole or in part or otherwise
referred to, nor filed with or furnished to any governmental agency or other
person or entity, without the prior written consent of this firm.
<PAGE>
Pinnacle Holdings Inc.
Page 5
May __, 2000
We hereby consent to the filing of our opinion as Exhibit 8.1 to the
Registration Statement and to the use of the name of our firm in the
Registration Statement. In giving this consent, however, we do not thereby admit
that we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
HOLLAND & KNIGHT LLP
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Pinnacle's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three
Months
Ended
Fiscal Year Ended December 31, March 31,
------------------------------
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) $ (22,158)
Fixed charges:
Interest expense................................... 205 1,252 6,925 12,300 22,953 8,776
Amortization of original issue discount and debt
Issue costs..................................... - - 292 16,426 23,708 6,426
Rentals:
Office space (33%).............................. 10 32 62 102 134 71
Telecommunications sites (33%).................. 29 124 427 1,106 5,531 3,270
Preferred stock dividends and accretion............... - - - 3,094 2,930 -
---------- ---------- ---------- --------- --------- ---------
Total fixed charges................................... 244 1,408 7,706 33,028 55,256 18,543
========= ========= ========= ========= ========= ========
Pre-tax loss from continuing operations before
Adjustment for in-kind preferred stock
Dividends and accretion............................ $ (401) $ (608) $ (755) $ (6,696) $ (8,495) $ (3,615)
========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges.................... (a) (a) (a) (a) (a) (a)
========= ========= ========= ========= ========= ========
</TABLE>
(a) Due to the registrant's losses in 1995, 1996, 1997, 1998, 1999 and the three
months ended March 31, 2000, respectively, the Company must generate additional
earnings of $645, $2,016, $8,461, $39,724, $63,751 and $22,158 in 1995, 1996,
1997, 1998, 1999 and the three months ended March 31, 2000, respectively, to
achieve a coverage ratio of 1:1.
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 27, 2000 relating to the
financial statements and financial statement schedules, which appears in
Pinnacle Holdings Inc.'s Annual Report on Form 10-K for the year ended December
31, 1999. We also consent to the reference to us under the headings "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, FL
May 22, 2000
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report dated June 16, 1999, with respect to the financial
statements of The North American Antenna Sites Business of Motorola, Inc. which
appears in Pinnacle Holdings Inc.'s Form 8-K/A dated November 15, 1999 and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Chicago, Illinois
May 22, 2000
Exhibit 25.1
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------------
PINNACLE HOLDINGS INC.
(Exact name of obligor as specified in its charter)
Delaware 65-0652634
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
301 North Cattlemen Road
Suite 300
Sarasota, Florida 34232
(Address of principal executive offices) (Zip code)
---------------------------
5.5% Convertible Subordinated Notes due 2007
(Title of the indenture securities)
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
<PAGE>
<TABLE>
<CAPTION>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
- ------------------------------------------------------------------ ------------------------------------------------
Name Address
- ------------------------------------------------------------------ ------------------------------------------------
<S> <C> <C>
Superintendent of Banks of the State of New York 2 Rector Street, New York, N.Y. 10006, and
Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a
corporation organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of May, 2000.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
3
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS In Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.. $3,247,576
Interest-bearing balances........................... 6,207,543
Securities:
Held-to-maturity securities......................... 827,248
Available-for-sale securities....................... 5,092,464
Federal funds sold and Securities purchased under
agreements to resell................................ 5,306,926
Loans and lease financing receivables:
Loans and leases, net of unearned
income............................................ 37,734,000
LESS: Allowance for loan and
lease losses...................................... 575,224
LESS: Allocated transfer risk
reserve........................................... 13,278
Loans and leases, net of unearned income,
allowance, and reserve............................ 37,145,498
Trading Assets......................................... 8,573,870
Premises and fixed assets (including capitalized
leases)............................................. 723,214
Other real estate owned................................ 10,962
Investments in unconsolidated subsidiaries and
associated companies................................ 215,006
Customers' liability to this bank on acceptances
outstanding......................................... 682,590
Intangible assets...................................... 1,219,736
Other assets........................................... 2,542,157
-----------
<PAGE>
Total assets........................................... $71,794,790
===========
LIABILITIES
Deposits:
In domestic offices................................. $27,551,017
Noninterest-bearing................................. 11,354,172
Interest-bearing.................................... 16,196,845
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 27,950,004
Noninterest-bearing................................. 639,410
Interest-bearing.................................... 27,310,594
Federal funds purchased and Securities sold under
agreements to repurchase............................ 1,349,708
Demand notes issued to the U.S.Treasury................ 300,000
Trading liabilities.................................... 2,339,554
Other borrowed money:
With remaining maturity of one year or less......... 638,106
With remaining maturity of more than one year
through three years............................... 449
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 684,185
Subordinated notes and debentures...................... 1,552,000
Other liabilities...................................... 3,704,252
-----------
Total liabilities...................................... 66,100,355
===========
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 866,947
Undivided profits and capital reserves................. 3,765,900
Net unrealized holding gains (losses) on
available-for-sale securities....................... (44,599)
Cumulative foreign currency translation adjustments....
(29,097)
-----------
Total equity capital................................... 5,694,435
-----------
Total liabilities and equity capital................... $71,794,790
===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the
<PAGE>
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
----
Thomas A. Renyi |
Alan R. Griffith | Directors
Gerald L. Hassell |
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