Pinnacle Holdings Inc. Extension of Limited Forbearance On Senior Credit Facility

Pinnacle Holdings Inc. Announces It Is Pursuing Extension of Limited Forbearance On Senior Credit Facility

SARASOTA, Fla., April 15 /PRNewswire-FirstCall/ -- Pinnacle Holdings Inc. (Nasdaq: BIGT - news; ``Pinnacle Holdings'') today announced that the previously announced forbearance agreement that it and its subsidiaries (collectively, ``Pinnacle''), including Pinnacle Towers Inc. (``Pinnacle Towers''), entered into on November 16, 2001, as amended on December 12, 2001, February 6, 2002 and as amended and restated on March 8, 2002, with the lenders under their senior credit facility expired late Friday, April 12, 2002, without further extension.

Pinnacle is continuing discussions with its lenders today to try and secure a further extension. If such an extension is obtained, during any such extension period, the lenders would likely agree not to exercise remedies available to them as a result of Pinnacle's non- compliance with certain covenants under its senior credit facility. Without such an extension, the lenders would no longer be under an agreement to so forbear. The terms of the previously existing forbearance obtained by Pinnacle: (1) provided that the interest rate on our borrowing be LIBOR plus 3.75% and LIBOR plus 4.0%; (2) eliminate Pinnacle Towers' ability to make additional draws under the senior credit facility; (3) restricted the amount of money that can be invested in capital expenditures by Pinnacle Towers; (4) limited Pinnacle Towers' ability to incur additional debt; (5) limited Pinnacle Towers' current ability to distribute funds to Pinnacle Holdings in connection with Pinnacle Holdings 5.5% Convertible Subordinated Notes due 2007 (the ``Convertible Notes''); and (6) required Pinnacle to establish a $2.5 million cash escrow account to support outstanding letters of credit. As of March 15, 2002, Pinnacle Holdings stopped paying interest on all of its Convertible Notes, which resulted in a default under the Convertible Notes indenture.

Because of these defaults, or, in the case of Pinnacle's senior credit facility, if Pinnacle fails to obtain any further extension of its forbearance agreement, the holders of Pinnacle Holdings' 10% Senior Discount Notes due 2007 (the ``Senior Notes'') and the Convertible Notes or the lenders under Pinnacle's senior credit facility could declare a default and demand immediate repayment and, unless Pinnacle cures the defaults, they could seek a judgment and attempt to seize Pinnacle's assets to satisfy the debt to them. The security for Pinnacle's senior credit facility consists of substantially all of Pinnacle and Pinnacle Towers' assets, including the stock of direct and indirect subsidiaries. The defaults under these agreements could adversely affect Pinnacle's rights under other commercial agreements.

As previously disclosed, Pinnacle has been actively seeking additional capital and considering ways to deleverage its capital structure.

In December 2001, Pinnacle engaged Gordian Group, L.P. to assist it in further exploring a variety of investment and deleveraging alternatives, including stand-alone recapitalization and third-party investment scenarios, both in and out of bankruptcy.

A variety of potential investors and other third parties have been contacted as part of that process since mid-2001. While no definitive agreement has been reached with a specific party, based on discussions Pinnacle has had to date, Pinnacle currently anticipates that an investment in, and recapitalization of, Pinnacle could entail some or all of the following:

an investment in Pinnacle in exchange for substantially all of Pinnacle Holdings' equity interest in the recapitalized company; holders of our Senior Notes and Convertible Notes receiving consideration in the form of cash and/or equity interests in the recapitalized company in exchange for their current interests; provided that, because the Convertible Notes are subordinated to the Senior Notes, the holders of the Convertible Notes would likely receive substantially less consideration than the holders of the Senior Notes; and other secured claims and general unsecured claims of Pinnacle being paid substantially in full in accordance with their respective terms.

Pinnacle expects that in order to complete any proposed investment and recapitalization it will be necessary for Pinnacle to file a voluntary petition for relief under Chapter 11 of the Bankruptcy Code and that an investment and recapitalization would be implemented through the confirmation and consummation of a plan of reorganization approved by the bankruptcy court in the bankruptcy proceedings.

In such a case, Pinnacle currently anticipates that a plan of reorganization would provide that holders of claims and interests with respect to the equity securities or rights to acquire equity securities of Pinnacle would be entitled to little or no recovery and that those claims and interests would be cancelled for little or no consideration. Accordingly, and as indicated in Pinnacle's previous disclosures, Pinnacle anticipates that all, or substantially all, of the value of all investments in common stock of Pinnacle Holdings will be lost.

While Pinnacle attempts to implement a recapitalization, assuming its creditors do not take actions disruptive to Pinnacle's operations as a result of Pinnacle's aforementioned defaults, Pinnacle anticipates trying to generally continue to operate in the ordinary course of business. Pinnacle's plans with respect to a recapitalization would contemplate that its trade suppliers, unsecured trade creditors, employees and customers would not be materially adversely affected while Pinnacle is involved in the recapitalization process, even if that process involves Chapter 11 bankruptcy proceedings. During Pinnacle's pursuit of a recapitalization, Pinnacle has attempted to maintain normal and regular trade terms with its suppliers and customers. There can be no assurance that Pinnacle's suppliers will continue to provide normal trade credit or credit on terms acceptable to it, if at all, or that customers will continue to do business or enter into new business with Pinnacle.

Pinnacle is a leading provider of communication site rental space in the United States and Canada. At December 31, 2001, Pinnacle owned, managed, leased, or had rights to in excess of 4,400 sites. Pinnacle is headquartered in Sarasota, Florida. For more information on Pinnacle visit its web site at http://www.pinnacletowers.com. Information provided on our web-site is not incorporated into Pinnacle's SEC filings or this press release.

This press release may contain statements that are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. Such forward looking statements include those regarding Pinnacle's efforts to raise additional capital, enter into further extensions of its forbearance agreement, restructure its capital structure and enter into an amendment to its credit facility. Although Pinnacle believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Pinnacle to be different from any future results, performance and achievements expressed or implied by these statements.

(1) Pinnacle's commencement of proceedings under Chapter 11 of the Bankruptcy Code;

(2) Pinnacle's ability to obtain a further forbearance agreement form its senior lenders and, if such a forbearance is obtained, comply with the terms of any such forbearance agreement relating to its senior credit facility;

(3) Pinnacle may not be able to raise the capital required to fund its operations and required capital;

(4) Pinnacle's substantial level of indebtedness could adversely affect its ability to react to changes in its business;

(6) restrictive covenants on Pinnacle's debt agreements and in the forbearance agreement relating to its senior credit facility may limit its ability to take actions which may be in Pinnacle's best interests;

(8) a portion of Pinnacle's customer base is operating under bankruptcy protection;

(9) the success or failure of Pinnacle's efforts to implement its business strategy;

(10) trends in subscriber growth and minutes of use for wireless communications;

(11) access to capital for Pinnacle's customer base, which will affect their ability to deploy in the future further communications equipment installations that may require additional space on Pinnacle's sites;

(12) changes in the nature of wireless communications technology that could cause Pinnacle's customers to require less space on its sites;

(13) Pinnacle and one of its current Officers and two of its former Officers are involved in a consolidated class action lawsuit;

(14) the success or failure of Pinnacle's efforts to sell its remaining colocation facilities or other assets; and

(15) as uncertainties regarding Pinnacle's financial condition continue, prospective and existing customers, vendors and others may react negatively in manners adverse to Pinnacle;

(16) in connection with diligence being conducted by potential investors in Pinnacle and others regarding Pinnacle, additional potential areas of concern may be revealed (e.g., Pinnacle recently determined that certain elections were not made on certain tax returns; while Pinnacle believes it is likely that it will get appropriate relief from the IRS with respect to the elections, if it does not it will likely result in Pinnacle having a material income tax liability); and

(17) acts taken by Pinnacle's creditors in response to the defaults reverenced above. Information about potential factors which could affect Pinnacle's financial results is included in the Risk Factors section of Pinnacle Holding's 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission (``SEC'') on April 26, 2001, Pinnacle Holding's Quarterly Report on Form 10-Q filed with the SEC on November 19, 2001 and Pinnacle Holding's other filings with the SEC.

The forward-looking statements included in this press release are made only as of the date of this press release and Pinnacle does not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

This is old news but as Pinnacle Towers approaches bankruptcy I thought people at FR would be interested in Pinnacles background and events leading up to this Enron like company.

August 25, 2000

SEC Probes Andersen For Conflict of Interest

By MICHAEL SCHROEDER Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- Among companies rocked by accounting scandals, Waste Management Inc. stands out. After a board-led probe turned up years of questionable accounting, the company took a $3.5 billion charge in 1998, and since then the trash hauler and its outside auditor, Arthur Andersen LLP, agreed to pay $220 million to settle shareholder litigation in the matter.

Now, Waste Management's accounting headache may turn out to be notable in another way.

At the same time that Arthur Andersen was conducting the audits that failed to halt the questionable accounting, the firm was pocketing big fees for consulting services it provided Waste Management. The Securities and Exchange Commission is currently probing whether the consulting fees may have compromised the independence of Arthur Andersen's auditing work, according to several people familiar with the case.

As a result, the case is shaping up as a possible centerpiece of a campaign by the SEC to demonstrate that conflicts of interest can be caused by the proliferation of consulting and other nonauditing services that numerous accounting firms routinely offer, the knowledgeable people said.

From 1991 to 1997, Arthur Andersen received about $50 million in fees for consulting services at Waste Management sites world-wide, dwarfing the $10 million in audit payments during the same period, according to the knowledgeable people. The SEC, which declines to comment, is trying to determine if auditors looked the other way to keep consulting fees flowing.

David Barrett, an outside attorney for Arthur Andersen, said in an interview, "We're outraged someone leaked highly confidential information. Apparently it's being done to influence the SEC's rule making." He said that gross fee numbers can be highly misleading, but declined to comment further. Waste Management didn't immediately have a comment Thursday.

The general existence of a probe into Arthur Andersen's handling of Waste Management's financial statements has been known since April 1998, when the trash hauler, fresh from adopting more conservative accounting practices that increased truck-depreciation and other income-statement expenses, revealed the inquiry in an SEC filing.

At the time, an Andersen official termed it routine, saying an auditor's work is usually reviewed after a client restates earnings. The SEC, meanwhile, termed it "standard operating procedure in cases of alleged improprieties in financial statements to examine the accounting treatment that the statements received."

But since then, the SEC and some of the nation's biggest accounting firms have locked horns over the potential conflicts of interest that have arisen as revenue from consulting has dramatically run ahead of audit fees for the nation's biggest accounting firms. To the SEC, the desire of accounting firms to keep the consulting fees flowing threatens auditor independence by possibly prompting the accountants to overlook worrisome and too-aggressive bookkeeping practices. In June, the SEC proposed rules to significantly limit consulting services that auditors can offer corporate clients.

But public accountants, led by the American Institute of Certified Public Accountants, Arthur Andersen, KPMG LLP and Deloitte & Touche LLP, have mounted an aggressive counter-attack, arguing that there is no justification for new limits and that the regulation would actually hurt audit quality by reducing an accounting firm's scope of knowledge about client companies.

"There's never been a case where an audit failure in any way related to nonaudit services," said Shaun O'Malley, retired chairman of the former Price Waterhouse LLP, citing a recent audit-effectiveness study sponsored by the Public Oversight Board, an accounting self-regulatory group.

Historically, however, the SEC has steered clear of the high-risk legal strategy of trying to prove an auditor was conflicted by the consulting side of the business. The goal generally has been to establish that the auditors acted recklessly in failing to uncover fraud. Between 1994 and late 1999, the SEC has brought 676 enforcement cases that included alleged accounting violations, ranging from bookkeeping problems to fraud.

"It's very difficult, if not impossible to prove" an independence violation in a blown audit, said SEC Chief Accountant Lynn Turner: "You'd have to get into the auditor's head."

In the Waste Management case, according to one of the knowledgeable people, the SEC believes that it may have "smoking-gun documents." Among particulars of the situation, a big chunk of Arthur Andersen's consulting work was on the trash hauler's centralized computer system, the people familiar with the matter said. Information technology is one of the areas that the SEC has proposed banning as a cross-sold service to audit clients.

While the SEC is assessing the link between the trash hauler's accounting woes and the consulting services, the regulators are pursuing other avenues as well.

Earlier this month, for instance, Pinnacle Holdings Inc., a fledgling real-estate investment trust that owns and operates antenna towers, revealed in an SEC filing that the agency is probing allegations that its auditor may have violated independence rules. In a recent conference call with Wall Street analysts, Steven Day, the company's chief operating officer, said the SEC was given a tip that it examine Pinnacle's accounting last year for its $254 million acquisition of an antenna business from Motorola Corp.

The inquiry is in preliminary stages and the SEC has alleged no wrongdoing; an SEC spokesman declined to comment. A spokesman for PricewaterhouseCoopers, the Pinnacle auditors, said: "Our independence with respect to Pinnacle has never been impaired. All of the services provided to Pinnacle were appropriate and allowable under existing SEC standards." Pinnacle's Mr. Day added: "We're no criminals here. There are no accounting issues. We've done our accounting appropriately."

In Pinnacle's case, the SEC is looking at whether Pinnacle can justify how it valued the Motorola assets, as well as how it tallied acquisition-related expenses, according to a person with knowledge of the probe. According to an SEC filing, Pinnacle recorded the unit's current assets at $271.7 million. The SEC also is examining Pinnacle's $28 million in acquisition expenses: such things as legal, consulting and accounting fees, the person familiar with the probe said. If some of the figures of that type are on the high side, they could work to increase earnings going forward, accounting experts said.

In addition to auditing, PricewaterhouseCoopers has advised Pinnacle on possible deals, including "due diligence" work on possible targets -- about $3.7 million alone in consulting fees for work on the Motorola deal -- and it has consulted for the board on executive compensation, according to company executives. "We pay a lot of fees to our auditor's consulting side," Mr. Day said in the conference call, but declined to provide details.

The SEC, he said, "looked at that relationship and said, 'If you're paying a lot of fees, maybe [the auditors] let you have your way on accounting and maybe you can do whatever you want do.' That's their position and their fear."

Pinnacle has other close ties to its auditor. Mr. Day was a PricewaterhouseCoopers partner in the mergers-and-acquisitions group from 1986 until he joined Pinnacle as chief financial officer in 1997. When Mr. Day became Pinnacle's chief operating officer in July, he was replaced by Jeffrey Card, who had worked as a PricewaterhouseCoopers acquisitions partner since 1991.

The SEC's aggressiveness on the auditor-independence front follows years in which it spotted disturbing circumstantial evidence of fraudulent financials that might have been approved by a conflicted auditor. An example: the $500 million accounting fraud at Phar-Mor Inc., Youngstown, Ohio, which led the drugstore chain to seek bankruptcy-court protection in 1992. (It emerged from the bankruptcy proceedings in 1995.) In 1996, a federal jury in Pittsburgh hearing a shareholder suit found Coopers & Lybrand LLP liable under a fraud claim for signing off on financials recklessly without regard to whether they were true or false.

The audit partner viewed Phar-Mor as a "constant source of new business," plaintiff's attorneys argued in the case.

For their part, the accounting firms say the AICPA is an effective regulatory body. In addition to a policy-making role, it has a disciplinary panel and a full-time staff of 14 to investigate alleged violations. The SEC is "scratching in the mud everywhere they can to find an example, as if a single case would prove there's a significant risk to the economy," said Robert Elliott, AICPA chairman.

But the panel doesn't have the tools or authority to police the industry aggressively. It probes allegations made in SEC cases and in civil-shareholder lawsuits. But the panel has authority to investigate only its own members and doesn't have subpoena power to demand documents.

The AICPA has or is investigating 117 of the 676 SEC cases, so far resulting in 31 violations. Penalties range from public-auditing suspensions to reprimand letters. The big accounting firms note that board audit committees also exist to identify and handle potential problems.

Write to Michael Schroeder at mike.schroeder@wsj.com1

Sounds like Waste Management has a regular sales pitch.

It really irritates me because this letter always looks like a bill. Garbage pickup is not very high on my radar screen, and I have lived many places and employed many garbage services. I always unwittingly open the danged thing, thinking I owe this company money, and then I'm hit with this slanderous attack on my current garbage service and pitch to switch to their lesser service.

I am generally quite pleased with my garbage service and have no intention of changing. However, the previous owners of the service had to sell out to the larger Swiss company because of all the harrassment they received from WM and BFI. I don't want to lose this firm because I don't want to be forced to move an enormous dumpster to the road each week. I wouldn't have anyplace to put it even if I could get it down there because there are large trees and a deep ditch on both sides of the driveway and minimal shoulder on the road.

Our town requires that each property owner contract separately for garbage service, so we have several companies picking up on different days. Somebody always wants to "streamline" things and force us under the umbrella of one company, but property owners have always resisted for the reasons I list. As this formerly rural community becomes more and more suburban, the city folks who move out here will finally have their say and I will be looking at WM or BFI as my garbage contractor. When that day comes, I'll have to move and let someone else figure out how to move a dumpster 200 yards to the road in the SNOW! And back to the house again within a certain number of hours of the pick up. In the mean time, I appreciate my guy who comes in his golf-cart-like vehicle and takes away all my stuff without any hassles! My husband is out of town today, and I just put out the garbage this morning. I'd have to look at it another week, if I had to wrestle one of those big dumpsters they supply.

My 89 year old mother has this same problem in CA, except that she lives on a small city lot. She has to wrestle the large cans to the curb and place them just so or they won't take the stuff and will leave her a citation. Her solution is to never throw anything away because the cans get too heavy for her to move!

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