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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2002

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____________ to ______________

Commission File Number 0-24773

PINNACLE HOLDINGS INC.

Incorporated in Delaware I.R.S. Employer Identification No. 65-0652634

301 North Cattlemen Road, Sarasota, Florida 34232-6427

Telephone: (941) 364-8886

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X   No









At May 13, 2002 Registrant had outstanding 48,589,444 shares of $.001 par value common stock.



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|              |                                                                                                                         |  |      |       | 
|------------- | ----------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|              |                                                                                                                         |  | Page
|              |                                                                                                                         |  |     
|PART I.       | FINANCIAL INFORMATION                                                                                                   |  |      |       | 
|Item 1.       | Financial Statements                                                                                                    |  |      |      
|              | Unaudited Condensed Consolidated Balance Sheets as of December 31, 2001 and March 31, 2002                              |  |      | 1     | 
|              | Unaudited Condensed Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2002            |  |      | 2     | 
|              | Unaudited Condensed Consolidated Statement of Changes in Stockholders Equity
for the three months ended March 31, 2002 |  |      | 3     | 
|              | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2002            |  |      | 4     | 
|              | Notes to Unaudited Condensed Consolidated Financial Statements                                                          |  |      | 5-13  | 
|             
|Item 2.       | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                   |  |      | 14-40 | 
|             
|Item 3.       | Quantitative and Qualitative Disclosures About Market Risk                                                              |  |      | 41    | 
|             
|PART II.      | OTHER INFORMATION                                                                                                       |  |      |      
|             
|Item 1.       | Legal Proceedings                                                                                                       |  |      | 43    | 
|             
|Item 2.       | Not Applicable                                                                                                          |  |      | 45    | 
|             
|Item 3.       | Defaults Under Senior Securities                                                                                        |  |      | 45    | 
|             
|Item 4.       | Not Applicable                                                                                                          |  |      | 45    | 
|             
|Item 5.       | Other Information                                                                                                       |  |      | 45    | 
|             
|Item 6.       | Exhibits and Reports on Form 8-K                                                                                        |  |      | 45    | 
|             
|SIGNATURES    |                                                                                                                         |  | 46   |      
|             
|EXHIBIT INDEX |                                                                                                                         |  | 47   |      





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##### 



PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements:

PINNACLE HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------------- | -------- | ------------------------------------- | ------- | ----------- | -------- | - | ------- | 
|                                        |                                                                                                                                                                          |   |                           |          | December 31,                          |         | March 31,  
|                                        |                                                                                                                                                                          |   |                           |          | 2001                                  |         | 2002       
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |            
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         | (unaudited)
|                                        |                                                                                                                                                                          |   |                           |          | (in thousands, except per share data)
|Assets                                  |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|Current assets:                         |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|                                        | Cash and cash equivalents                                                                                                                                                |   | $                         | 13,187   |                                       |         | $           | 7,825    |  
|                                        | Accounts receivable, net                                                                                                                                                 |   |                           | 10,441   |                                       |         |             | 11,163   |  
|                                        | Prepaid expenses and other current assets                                                                                                                                |   |                           | 11,498   |                                       |         |             | 12,165   |  
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          |   | Total current assets      |          |                                       | 35,126  |             |          |   | 31,153  | 
|Restricted cash                         |                                                                                                                                                                          |   | 7,091                     |          |                                       |         | 3,018       |         
|Fixed assets, net                       |                                                                                                                                                                          |   | 917,961                   |          |                                       |         | 907,293     |         
|Leasehold interests, net                |                                                                                                                                                                          |   | 25,693                    |          |                                       |         | 19,580      |         
|Assets held for sale                    |                                                                                                                                                                          |   | 18,982                    |          |                                       |         | 11,922      |         
|Deferred debt issue costs, net          |                                                                                                                                                                          |   | 18,113                    |          |                                       |         | 17,264      |         
|Other assets                            |                                                                                                                                                                          |   | 11,367                    |          |                                       |         | 12,445      |         
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          | $ | 1,034,333                 |          |                                       | $       | 1,002,675   |         
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|Liabilities and Stockholders Equity    |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|Current liabilities:                    |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|                                        | Accounts payable                                                                                                                                                         |   | $                         | 4,244    |                                       |         | $           | 1,663    |  
|                                        | Accrued expenses                                                                                                                                                         |   |                           | 22,401   |                                       |         |             | 22,697   |  
|                                        | Deferred revenue                                                                                                                                                         |   |                           | 16,286   |                                       |         |             | 12,257   |  
|                                        | Liabilities on assets held for sale                                                                                                                                      |   |                           |         |                                       |         |             | 1,953    |  
|                                        | Interest rate swap liability                                                                                                                                             |   |                           | 12,859   |                                       |         |             | 12,294   |  
|                                        | Current portion of long-term debt                                                                                                                                        |   |                           | 885,471  |                                       |         |             | 871,892  |  
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          |   | Total current liabilities |          |                                       | 941,261 |             |          |   | 922,756 | 
|Other liabilities                       |                                                                                                                                                                          |   | 9,274                     |          |                                       |         | 9,143       |         
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          |   | 950,535                   |          |                                       |         | 931,899     |         
|Commitments and contingencies (Note 10) |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|Stockholders equity:                   |                                                                                                                                                                          |   |                           |          |                                       |         |             |         
|                                        | Preferred stock, $.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding at December 31, 2001 and
March 31, 2002                                   |   |                           |         |                                       |         |             |         |  
|                                        | Common Stock, $.001 par value, 100,000,000 shares authorized;
48,430,593 shares issued and outstanding at
December 31, 2001 and 48,589,444 outstanding at March 31, 2002 |   |                           | 48       |                                       |         |             | 49       |  
|                                        | Additional paid-in capital                                                                                                                                               |   |                           | 773,231  |                                       |         |             | 785,681  |  
|                                        | Accumulated other comprehensive income loss                                                                                                                              |   |                           | (2,497   | )                                     |         |             | (2,554   | )
|                                        | Accumulated deficit                                                                                                                                                      |   |                           | (686,984 | )                                     |         |             | (712,400 | )
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          |   | 83,798                    |          |                                       |         | 70,776      |         
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 
|                                        |                                                                                                                                                                          | $ | 1,034,333                 |          |                                       | $       | 1,002,675   |         
|                                        |                                                                                                                                                                          |   |                           |          |                                       |         |             |          |   |         | 

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these condensed
financial statements.

1



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PINNACLE HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                |                                           |   |                                       |        |             |   |         |        | 
|--------------------------------------------------------------- | ----------------------------------------- | - | ------------------------------------- | ------ | ----------- | - | ------- | ------ | 
|                                                                |                                           |   | Three Months Ended                   
|                                                                |                                           |   | March 31,                            
|                                                                |                                           |   |                                      
|                                                                |                                           |   | 2001                                  |        | 2002       
|                                                                |                                           |   |                                       |        |            
|                                                                |                                           |   | (unaudited)                           |        | (unaudited)
|                                                                |                                           |   | (in thousands, except per share data)
|Revenues                                                        |                                           | $ | 48,275                                |        |             | $ | 46,903  |       
|Direct operating expenses                                       |                                           |   | 17,563                                |        |             |   | 16,616  |       
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|Gross margin                                                    |                                           |   | 30,712                                |        |             |   | 30,287  |       
|Other expenses:                                                 |                                           |   |                                       |        |             |   |         |       
|                                                                | Selling, general and administrative       |   |                                       | 10,157 |             |   |         | 8,197  | 
|                                                                | State franchise, excise and minimum taxes |   |                                       | 478    |             |   |         | 554    | 
|                                                                | Depreciation and amortization             |   |                                       | 32,900 |             |   |         | 24,930 | 
|                                                                | Loss on assets held for sale              |   |                                       |       |             |   |         | 17     | 
|                                                                | Loss on assets held for use               |   |                                       |       |             |   |         | 2,521  | 
|                                                                | Loss on disposal of assets                |   |                                       |       |             |   |         | 81     | 
|                                                                | Reorganization costs                      |   |                                       |       |             |   |         | 3,705  | 
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|                                                                |                                           |   | 43,535                                |        |             |   | 40,005  |       
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|Loss from operations                                            |                                           |   | (12,823                               | )      |             |   | (9,718  | )     
|Interest expense, net                                           |                                           |   | 17,570                                |        |             |   | 8,574   |       
|Amortization of original issue discount and debt issuance costs |                                           |   | 7,188                                 |        |             |   | 7,937   |       
|Foreign currency transaction loss                               |                                           |   | 366                                   |        |             |   | 7       |       
|Minority interest in net loss of subsidiary                     |                                           |   | (78                                   | )      |             |   | (1      | )     
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|Loss before income tax benefit                                  |                                           |   | (37,869                               | )      |             |   | (26,235 | )     
|Income tax benefit                                              |                                           |   | 306                                   |        |             |   | 819     |       
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|Net loss                                                        |                                           | $ | (37,563                               | )      |             | $ | (25,416 | )     
|                                                                |                                           |   |                                       |        |             |   |         |        | 
|Basic and diluted net loss per common share                     |                                           | $ | (0.78                                 | )      |             | $ | (0.52   | )     
|Weighted average number of common shares outstanding            |                                           |   | 48,431                                |        |             |   | 48,535  |       
|                                                                |                                           |   |                                       |        |             |   |         |        | 

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part
of these condensed financial statements.

2



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PINNACLE HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |         |  
|------------------------------- | --------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---------- | - | ----------------- | -- | ------------- | - | ------------- | -------------- | ------ | - | ------ | ------ | - | - | -------- | -------- | - | - | ------ | ------- | -
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               | (in thousands)
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |               
|                                |                                                                                                                 |  | Common Stock |        | Additional |   | Accumulated Other |    |               |   |               |                |        |   |       
|                                |                                                                                                                 |  |              |        | Paid-in    |   | Comprehensive     |    | Accumulated   |   | Stockholders'
|                                |                                                                                                                 |  | Shares       |        | Amount     |   | Capital           |    | Income (Loss) |   | Deficit       |                | Equity
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |       
|Balance at December 31, 2001    |                                                                                                                 |  | 48,431       |        |            | $ | 48                |    |               | $ | 773,231       |                |        | $ | (2,497 | )      |   | $ | (686,984 | )        |   | $ | 83,798 |        
|Unaudited:                      |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |        
|Comprehensive income (loss):    |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |        
|                                | Net loss                                                                                                        |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          | (25,416  | ) |   |        | (25,416 | )
|                                | Foreign currency translation gain                                                                               |  |              |        |            |   |                   |    |               |   |               |                |        |   |        | (389   | ) |   |          |          |   |   |        | (389    | )
|                                | Losses (gains) reclassified into earnings
from other comprehensive income (loss)
net of applicable income taxes |  |              |        |            |   |                   |    |               |   |               |                |        |   |        | 332    |   |   |          |          |   |   |        | 332     |  
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |         |  
|                                | Total comprehensive loss                                                                                        |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        | (25,473 | )
|Conversion of convertible notes |                                                                                                                 |  | 158          |        |            |   | 1                 |    |               |   | 12,450        |                |        |   |        |        |   |   |          |          |   |   | 12,451 |        
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |         |  
|                                | Balance at March 31, 2002                                                                                       |  |              | 48,589 |            |   | $                 | 49 |               |   | $             | 785,681        |        |   | $      | (2,554 | ) |   | $        | (712,400 | ) |   | $      | 70,776  |  
|                                |                                                                                                                 |  |              |        |            |   |                   |    |               |   |               |                |        |   |        |        |   |   |          |          |   |   |        |         |  

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part
of these condensed financial statements.

3



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PINNACLE HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------------- | ------- | ------------------ | ------- | ----------- | ------- | ------ | ------ | -
|                                                                                |                                                                     |                                                 |         | Three Months Ended
|                                                                                |                                                                     |                                                 |         | March 31,         
|                                                                                |                                                                     |                                                 |         |                   
|                                                                                |                                                                     |                                                 |         | 2001               |         | 2002       
|                                                                                |                                                                     |                                                 |         |                    |         |            
|                                                                                |                                                                     |                                                 |         | (unaudited)        |         | (unaudited)
|                                                                                |                                                                     |                                                 |         | (in thousands)    
|Cash flows from operating activities:                                           |                                                                     |                                                 |         |                    |         |             |         |       
|Net loss                                                                        |                                                                     | $                                               | (37,563 | )                  |         | $           | (25,416 | )     
|Adjustments to reconcile net loss to net cash provided
by operating activities: |                                                                     |                                                 |         |                    |         |             |         |       
|                                                                                | Depreciation and amortization                                       |                                                 |         | 32,900             |         |             |         | 24,930 |       
|                                                                                | Amortization of original issue discount and debt issuance costs     |                                                 |         | 7,188              |         |             |         | 7,937  |       
|                                                                                | Deferred tax benefit                                                |                                                 |         | (306               | )       |             |         |       |       
|                                                                                | Reserve for doubtful accounts                                       |                                                 |         | 78                 |         |             |         | 731    |       
|                                                                                | Write-off of aborted acquisitions and construction costs            |                                                 |         | 113                |         |             |         | 92     |       
|                                                                                | Loss on disposal of fixed assets                                    |                                                 |         |                   |         |             |         | 81     |       
|                                                                                | Loss on assets held for use and sale                                |                                                 |         |                   |         |             |         | 2,532  |       
|                                                                                | Minority share of net loss of subsidiary                            |                                                 |         | (78                | )       |             |         | (1     | )     
|                                                                                | Change in value of derivative financial instruments                 |                                                 |         | 5,538              |         |             |         | (232   | )     
|                                                                                | (Increase) decrease in:                                             |                                                 |         |                    |         |             |         |        |       
|                                                                                |                                                                     | Restricted cash                                 |         |                    |        |             |         |        | 4,073  |  
|                                                                                |                                                                     | Accounts receivable, gross                      |         |                    | (4,171  | )           |         |        | (1,470 | )
|                                                                                |                                                                     | Prepaid expenses and other current assets       |         |                    | (139    | )           |         |        | (624   | )
|                                                                                |                                                                     | Other assets                                    |         |                    | (1,191  | )           |         |        | (1,072 | )
|                                                                                | Increase (decrease) in:                                             |                                                 |         |                    |         |             |         |        |       
|                                                                                |                                                                     | Accounts payable                                |         |                    | 3,924   |             |         |        | (2,589 | )
|                                                                                |                                                                     | Accrued expenses                                |         |                    | 693     |             |         |        | 267    |  
|                                                                                |                                                                     | Deferred revenue                                |         |                    | 371     |             |         |        | (3,992 | )
|                                                                                |                                                                     | Other liabilities                               |         |                    | 48      |             |         |        | (131   | )
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|                                                                                |                                                                     |                                                 | 44,968  |                    |         |             | 30,532  |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Net cash provided by operating activities                                       |                                                                     |                                                 | 7,405   |                    |         |             | 5,116   |       
|                                                                               
|Cash flows from investing activities:                                           |                                                                     |                                                 |         |                    |         |             |         |       
|                                                                                | Payments made in connection with acquisitions:                      |                                                 |         |                    |         |             |         |        |       
|                                                                                |                                                                     | Fixed assets                                    |         |                    | (4,688  | )           |         |        | (120   | )
|                                                                                |                                                                     | Leasehold interests in telecommunications sites |         |                    | (363    | )           |         |        | (5     | )
|                                                                                | Capital expenditures:                                               |                                                 |         |                    |         |             |         |        |       
|                                                                                |                                                                     | Fixed assets                                    |         |                    | (10,933 | )           |         |        | (3,262 | )
|                                                                                | Proceeds from sale of assets                                        |                                                 |         |                   |         |             |         | 1,101  |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Net cash used in investing activities                                           |                                                                     |                                                 | (15,984 | )                  |         |             | (2,286  | )     
|                                                                               
|Cash flows from financing activities:                                           |                                                                     |                                                 |         |                    |         |             |         |       
|                                                                                | Borrowings under long-term debt, net                                |                                                 |         | (1,575             | )       |             |         | 31     |       
|                                                                                | Repayment of long-term debt                                         |                                                 |         | (662               | )       |             |         | (8,228 | )     
|                                                                                | Proceeds from issuance of common stock, net                         |                                                 |         | (9                 | )       |             |         |       |       
|                                                                                | Minority interest in subsidiary                                     |                                                 |         | 700                |         |             |         |       |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Net cash provided by (used in) financing activities                             |                                                                     |                                                 | (1,546  | )                  |         |             | (8,197  | )     
|                                                                               
|Effect of exchange rate changes on cash                                         |                                                                     |                                                 | 597     |                    |         |             | 5       |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Net increase (decrease) in cash and cash equivalents                            |                                                                     |                                                 | (9,528  | )                  |         |             | (5,362  | )     
|Cash and cash equivalents, beginning of period                                  |                                                                     |                                                 | 44,233  |                    |         |             | 13,187  |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Cash and cash equivalents, end of period                                        |                                                                     | $                                               | 34,705  |                    |         | $           | 7,825   |       
|                                                                                |                                                                     |                                                 |         |                    |         |             |         |        |        |  
|Supplemental disclosure of cash flows:                                          |                                                                     |                                                 |         |                    |         |             |         |       
|Cash paid for interest                                                          |                                                                     | $                                               | 7,441   |                    |         | $           | 6,372   |       
|Non-cash Transactions:                                                          |                                                                     |                                                 |         |                    |         |             |         |       
|                                                                                | Interest swap liability recorded to other comprehensive income, net |                                                 | $       | 3,502              |         |             | $       | (332   | )     
|                                                                                | Issuance of common stock for debt                                   |                                                 | $       |                   |         |             | $       | 12,450 |       

The accompanying notes to Unaudited Condensed Consolidated Financial Statements are an integral part
of these condensed financial statements.

4



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Pinnacle Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

As used in this Quarterly Report on Form 10-Q for the period ending March
31, 2002, unless the context otherwise requires, we, us, our, Company,
or Pinnacle refers to Pinnacle Holdings Inc. and its consolidated
subsidiaries, including Pinnacle Towers Inc., Pinnacle Towers III Inc. (PT
III), Pinnacle Towers IV Inc. (PT IV), Pinnacle Towers V Inc. (PT V), and
Pinnacle Towers, Ltd.

1.     Basis of Presentation

The accompanying consolidated financial statements reflect the financial
position, results of operations and cash flows of Pinnacle Holdings Inc. and
its wholly owned subsidiaries: Pinnacle Towers Inc., Pinnacle Towers Canada
Inc., Coverage Plus Antenna Systems, Inc., Pinnacle Towers III Inc. (PT III),
Pinnacle Towers IV Inc. (PT IV), Pinnacle Towers V Inc. (PT V) and Tower
Systems, Inc. Pinnacle Towers Inc. has established a 91% interest in Pinnacle
Towers Ltd., United Kingdom subsidiary. This investment is currently being
held for sale and consequently the assets and liabilities are presented as held
for sale on our March 31, 2002 balance sheet.

Results of operations for any interim period are not necessarily
indicative of results of any other periods or for the year. The accompanying
unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
for interim financial statements and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments), considered necessary for the fair presentation have
been included. These unaudited condensed consolidated financial statements
should be read in conjunction with Pinnacles consolidated financial statements
and notes thereto included in Pinnacles Annual Report on Form 10-K for the
year ended December 31, 2001.

2.     Liquidity and Solvency

We incurred losses from operations since our inception. These losses have
significantly weakened our financial position and ability to meet the required
financial covenants under our senior credit facility as further described in
Note 8.

Pinnacle Holdings did not have sufficient funds to make the March 15,
2002, interest payment on the 5.5% Convertible Subordinated Notes (the
Convertible Notes) to bondholders as of March 1, 2002. Since such payment
was not made on or before April 15, 2002, then, subject to the terms of the
governing indenture, the holders of 25% in principal amount of the Convertible
Notes may be able to declare the $187.5 million principal amount of the
Convertible Notes, together with accrued and unpaid interest, immediately due
and payable. If the Convertible Note holders were to accelerate the maturity
of amounts due under the Convertible Notes or the bank lenders, were to
accelerate the maturity of amounts due under the senior credit facility,
Pinnacles 10% Senior Notes due 2008 (the Senior Notes) may subsequently
become payable. If any of such debt becomes payable, Pinnacle Holdings and
Pinnacle Towers Inc. would not have sufficient funds to immediately repay the
indebtedness.

As a result of this situation, we believe that significant uncertainty
exists regarding our ability to continue normal operations and have been
actively pursuing a plan for recapitalization and restructuring of our debt. On
April 26, 2002, we announced a definitive Stock Purchase Agreement with
Fortress Investment Group (Fortress) and Greenhill Capital Partners LLP
(Greenhill) (collectively, the Investors), pursuant to which we will be
recapitalized through a pre-negotiated bankruptcy plan to be filed in Delaware
under Chapter 11 of the U.S. Bankruptcy Code (the Stock Purchase Agreement).
Holders of at least two-thirds of the aggregate principal amount of our Senior
Notes have agreed to vote in favor of the bankruptcy plan. We expect to file
the bankruptcy plan during the month of May. Immediately following confirmation
of the bankruptcy plan, Pinnacle Holdings will be merged into a newly formed
Delaware corporation formed by the Investors (New Pinnacle) with New Pinnacle
being the surviving corporation.

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The bankruptcy plan will be funded by two new sources of capital: (1) an
equity investment made by the Investors of up to approximately $205.0 million,
and (2) a new credit facility of up to $340.0 million to be led by a syndicate
arranged by Deutsche Bank Securities Inc. and Bank of America, N.A.

Under the terms of the Stock Purchase Agreement with the Investors,
Fortress will purchase up to 13,735,000 shares of common stock of New Pinnacle
(the Fortress Shares) and Greenhill will purchase up to 6,765,000 shares of
common stock of New Pinnacle (the Greenhill Shares and together with the
Fortress Shares, the Investor Shares). The Stock Purchase Agreement provides
for the cancellation of the Senior Notes in exchange for up to $114.0 million
(or $350.77 per $1,000 par value bond) in cash or, at the Senior Note holders
election, a combination of cash and up to 49% of New Pinnacles outstanding
common stock. The number of Investor Shares (and hence their cash investment)
will be proportionately decreased by the number of shares purchased by holders
of the Senior Notes.

The Stock Purchase Agreement also provides for the cancellation of our
Convertible Notes in exchange for up to $0.5 million in cash and five-year
warrants to purchase up to approximately 205,000 shares of New Pinnacles
common stock at approximately two times the price of the Investor Shares.
Convertible Note holders can double this amount to a total of $1.0 million in
cash and warrants to purchase 410,000 shares, representing approximately 2.0%
of New Pinnacles equity capitalization, if the Convertible Note holders agree
to give certain releases. The Stock Purchase Agreement further provides for
cancellation of the outstanding shares of Pinnacle common stock. Former
stockholders and plaintiffs in a stockholder class action shall receive
five-year warrants to purchase up to 102,500 shares of New Pinnacle common
stock (representing approximately 0.5% of New Pinnacles equity capitalization)
at approximately two times the price of the Investors Shares. This amount can
be doubled to 205,000 shares, representing approximately 1.0% of New Pinnacles
capitalization, if the stockholders agree to give certain releases. Trade and
other creditors will be paid in full in the ordinary course.

Under the terms of the transaction documents, holders of approximately
two-thirds of the aggregate principal amount of the Senior Notes have agreed,
for a period of 60 days from the date of the execution of the Agreement, not to
exercise any rights such holders may have against Pinnacle under the terms of
the indenture governing the Senior Notes, including the right to receive
principal of, and interest on, the Senior Notes.

The transaction is subject to a number of conditions, including customary
regulatory approvals, the requisite creditors approvals in bankruptcy and
confirmation of the bankruptcy plan. The Stock Purchase Agreement also
contains customary terms and conditions, including exclusivity rights, and a
termination fee of $12.0 million to be paid by Pinnacle to the Investors if the
Stock Purchase Agreement is terminated under certain circumstances and Pinnacle
consummates an alternative transaction.

On May 1, 2002, our senior lenders approved a second amendment,
reinstatement and extension of first amended and restated limited forbearance
agreement under which our senior lenders agreed to forgo certain rights they
have related to our noncompliance with certain covenants contained in the
senior credit facility until May 10, 2002. Our forbearance
agreement expired pursuant to its previously announced terms on
May 10, 2002, without further extension. We are continuing
discussions with our lenders to secure a new forbearance agreement.
However, we cannot provide any assurance that we will be able to
obtain a new forbearance agreement. During the bankruptcy process, we
anticipate operating in the ordinary course of business, subject to the
provisions of the U. S. Bankruptcy Code, and do not currently expect that our
trade suppliers, unsecured trade creditors, employees and customers will be
materially impacted.

Our financial statements have been prepared on a going concern basis. The
factors discussed above create substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is dependent
upon our ability to successfully implement this recapitalization plan. These
financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as a result of
the above uncertainty.

3.     Critical Accounting Policies

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We evaluate our estimates and judgments on

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an on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported results.
We believe the following accounting policies are the most critical to us, in
that they are important to the portrayal of our financial statements and they
require our most difficult, subjective or complex judgments in the preparation
of our financial statements:

Revenue Recognition

We recognize revenue from lease arrangements with tenants on our
communication sites on a straight-line basis over the life of the related lease
agreements in accordance with SFAS No. 13, Accounting for Leases and FASTB
85-3, Accounting for Operating Leases with Scheduled Rent Increases. Revenue
is recorded in the month in which it is earned.

We further evaluate our revenue recognition policy in accordance with SAB
101, Revenue Recognition and defer any revenue if the following criteria is
not met: persuasive evidence of an arrangement exists, payment is not
contingent upon other performance or other obligations, the price is fixed or
determinable or collectibility is not reasonably assured. We record a reserve
against revenue for estimated credit memos. Any rental amounts received in
advance of the month earned are recorded as deferred revenue.

Allowances for Doubtful Accounts

Allowances for uncollectible accounts receivable are maintained based on
historical payment patterns, aging of accounts receivable, write-off history
and industry trends.

Impairment of Long-Lived Assets

In assessing the recoverability of our long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets.

Reorganization Costs

We have incurred costs related to our recapitalization efforts and the
execution of our Stock Purchase Agreement. These nonrecurring costs include
additional legal fees, professional consultant fees, and the retention plan
bonus accrual incurred as part of the preparation for our bankruptcy filing.

Reclassifications

Certain amounts from prior years have been reclassified for consistency
with current presentation. These reclassifications were not material to the
consolidated financial statements.

4.     Adoption of New Accounting Pronouncements

We adopted the new rules under SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, January 1, 2002. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment testing in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. We do not have any recorded goodwill or
indefinite lived intangible assets. If warranted by future acquisitions, we
will comply with the requirements for non-amortization and for periodic
impairment tests as deemed necessary.

We adopted the new rules under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective January 1, 2002. The
new rules on asset impairment supercede SFAS No. 121, Accounting For The
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
and provide a single accounting method for long-lived assets to be disposed of.
Although retaining many of the fundamental recognition and measurement
provisions of SFAS No. 121, the new rules significantly change the criteria
that would have to be met to classify an asset as held for sale.

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As a result of our adoption of the new rules our March 31, 2002, balance
sheet includes classification of assets held for sale separate from liabilities held for sale. As a condition of our recently executed Stock Purchase
Agreement, the 88 parcels of land previously held for sale have been reclassified as held for use in accordance with SFAS No. 144. For
reclassification purposes the asset is measured at the lower of the carrying amount of the asset before it was classified as held for sale,
adjusted for any depreciation (amortization) expense that would have been recognized had the
asset been continuously classified as held and used, or the fair value of the asset at the date of the subsequent decision not to sell. We
reclassified $7.9 million, the current estimated fair market value, into assets held for use.

On September 30, 2001 we evaluated our entire asset portfolio for
impairment in accordance with the provisions of SFAS No. 121, the existing
standard at that time. In accordance with the adoption of SFAS No. 144, we are
still required to evaluate our assets for impairment when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets carrying value. Any impairment loss is measured by
comparing the fair value of the asset to its carrying value. We have
determined that no additional impairment exists as of March 31, 2002.

We continue to monitor our asset portfolio on a site-by-site basis for
potential adjustments. Due to the pending sale of a non-core asset, we
recognized a $2.5 million write-down in the three months ended March 31, 2002,
as a result of the execution of a letter of intent to sell this specific
property.

5.     Comprehensive Loss

Total comprehensive loss for the three months ended March 31, 2002, was
($25.5) million, composed of a net loss of ($25.4) million, a foreign currency
translation loss of approximately ($0.4) million and approximately $0.3 million
in losses reclassified into earnings from other comprehensive loss. Total
comprehensive loss was ($40.0) million for the three months ended March 31,
2001.

6.     Acquisitions

Historically, we actively acquired communications sites and related real
estate assets. However due to our inability to secure additional funding, we
have not actively pursued tower acquisitions since the fourth quarter of 2000
and during the three months ended March 31, 2002, we completed no acquisitions.

During the year ended December 31, 2001, we completed nine acquisitions of
communications sites and related assets for an aggregate purchase price of $0.8
million. We incurred an additional $6.2 million of costs associated with post
transaction expenditures consisting of contingent purchase price payments of
$5.5 million and additional acquisition costs of $0.7 million.

We account for our acquisitions using the purchase method of accounting.
The results of operations of the acquired assets are included from the dates of
the respective acquisitions. Since there were no significant acquisition in
2001 or the current quarter, the pro forma results of operations calculated to
reflect purchase accounting and pro forma adjustments as if the transactions
occurred as of January 1, 2001, do not differ materially from the unaudited
condensed consolidated financial statements presented in this report.

7.     Assets Held for Sale

Colocation Facilities

On June 7, 2001, we adopted a plan to dispose of certain non-core assets
pursuant to managements decision to dedicate resources to improving the
financial results of communications site operations. Of the original five
colocation properties held for sale, three were sold in 2001 and the Halingen,
Texas facility was sold on March 15, 2002, which leaves the San Antonio, Texas
facility as the only remaining colocation asset held for sale at March 31,
2002.

The historical carrying value of the San Antonio property, which was
acquired on October 13, 2000,

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prior to any write-down was approximately $8.7 million. During the year
ended December 31, 2001, we recognized a write-down adjustment of approximately
$3.8 million, which is included in operating expenses in loss on assets held
for sale for the year then ended. No additional substantive write-down was
recorded in the three months ended March 31, 2002. We estimated the fair
market value less costs to sell based upon a pending purchase and sale
agreement. Depreciation expense has not been recognized since the date the
colocation asset was classified as held for sale.

For the three months ended March 31, 2002, excluding the write-down
adjustment, the San Antonio colocation facility had net operating income of
$0.2 million. For the three months ended March 31, 2002, the property produced
revenues of $0.3 million and had operating expenses of $0.1 million.

Land

On September 27, 2001, we adopted a plan to dispose of additional non-core
assets. As a result of the adoption of this plan, our interest in 88 parcels
of owned land, principally located under towers currently owned by other tower
companies and telecommunications service providers, were deemed assets held for
sale. The carrying value of these land parcels is currently $7.9 million.

As a condition of our recently executed Stock Purchase Agreement, these
land parcels can no longer be sold. They have therefore been reclassified into
assets held for use in accordance with SFAS No. 144. For reclassification
purposes the asset is measured at the lower of the carrying amount of the asset
before it was classified as held for sale, adjusted for any depreciation
(amortization) expense that would have been recognized had the asset been
continuously classified as held and used, or the fair value of the asset at the
date of the subsequent decision not to sell.We reclassified $7.9 million, the
current estimated fair market value, into assets held for use.

Investment in Pinnacle Towers Ltd.

On September 27, 2001, we adopted a plan to dispose of our investment in a
majority owned subsidiary, Pinnacle Towers Ltd. As a result of the adoption of
this plan, our investment in this subsidiary has been deemed assets held for
sale.

The historical carrying value of our $12.4 million investment in Pinnacle
Towers Ltd. as of March 31, 2002, prior to any write-down, was approximately
$9.0 million. During the year ended December 31, 2001, we recognized a
write-down adjustment of approximately $4.0 million, which was included in
operating expenses in loss on assets held for sale for the year then ended.
During the three months ended March 31, 2002, no additional substantive
write-down was taken. We estimated the fair market value less costs to sell
based upon a proposal, which has subsequently expired, from an interested third
party. This estimate continues to be our best estimate of the fair value of
these assets. Depreciation expense has not been recognized since the date this
investment was classified as held for sale.

For the three months ended March 31, 2002, the investment produced
revenues of $0.2 million and had operating expenses of $0.2 million.

8.     Long-term Debt

Senior Credit Facility

Our current senior credit facility is with Bank of America, N.A., as
administrative agent. The senior credit facility is secured by a lien of
substantially all of our assets and a pledge of substantially all of the
capital stock of our subsidiaries. The senior credit facility contains
customary covenants such as limitations on our ability to incur indebtedness,
to incur liens or encumbrances on assets, to make certain investments, to make
distributions to stockholders, and prepay subordinated debt.

For the quarter ended March 31, 2002, we were out of compliance with
financial covenants contained in our senior credit facility, which
non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001
and February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and reinstated on May 1, 2002, pursuant
to which the lenders agreed not to exercise remedies available to them as a
result of this

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event of default under our senior credit facility through May 10, 2002.
Accordingly, we have classified the outstanding borrowings under our senior
credit facility as a current liability. The terms of the forbearance
agreement: (1) increase the interest rate on our borrowing by 1.0% to LIBOR
plus 3.75% and LIBOR plus 4.0%; (2) eliminate Pinnacle Towers ability to make
additional draws under the senior credit facility; (3) restrict the amount of
money that can be invested in capital expenditures by Pinnacle Towers; (4)
limit Pinnacle Towers ability to incur additional debt; (5) limit Pinnacle
Towers current ability to distribute funds to Pinnacle Holdings in connection
with Pinnacle Holdings Convertible Notes; (6) require us to establish a $2.5
million cash escrow account to support outstanding letters of credit; and (7)
expires on May 10, 2002. On May 1, 2002 we obtained a renewal of the
forbearance agreement until May 10, 2002, the date by which we are required
under the terms of the agreement to file the proposed pre-negotiated bankruptcy
plan discussed elsewhere herein. We did not file our pre-negotiated bankruptcy
plan by May 10, 2002, as was required under the terms of our forbearance
agreement. We are working to file our pre-negotiated bankruptcy plan and
anticipate filing it during May 2002. Our forbearance agreement expired
pursuant to its previously announced terms on May 10, 2002, without further
extension. We are continuing discussions with our lenders to secure a new
forbearance agreement. However, we cannot provide any assurance that we will
be able to obtain a new forbearance agreement.

Because of the event of default, amounts outstanding under the senior
credit facility have been classified as current liabilities in the accompanying
unaudited condensed consolidated balance sheet at March 31, 2002.

The following table summarizes the initial covenant requirements and the
amended requirements for the period ended March 31, 2002 and our actual ratios
at the respective dates:

|                                      |  |                |  |                |  |               |  |  |  |  |  | 
|------------------------------------- |  | -------------- |  | -------------- |  | ------------- |  |  |  |  |  | 
|                                      |  | Original       |  | Amended        |  |               |  | 
|Covenant                              |  | Requirement    |  | Requirement    |  | Actual       
|                                      |  |                |  |                |  |              
|Total Leverage Ratio                  |  | <=4.25 to 1.00 |  | <=3.75 to 1.00 |  | 4.87 to 1.00 
|Consolidated Leverage Ratio           |  | <=7.50 to 1.00 |  | <=7.75 to 1.00 |  | 11.78 to 1.00
|Consolidated Interest Coverage Ratio  |  | >=2.50 to 1.00 |  | >=2.25 to 1.00 |  | 1.49 to 1.00 
|Pro-Forma Debt Service Coverage Ratio |  | >=1.50 to 1.00 |  | >=1.50 to 1.00 |  | 1.25 to 1.00 
|Fixed Charge Coverage Ratio           |  | >=1.10 to 1.00 |  | >=1.10 to 1.00 |  | 0.83 to 1.00 

Prior to the forbearance agreement discussed above, our senior credit
facility provided $670.0 million of financing of which $393.0 million and
$400.5 million was committed and utilized at March 31, 2002, and December 31,
2001, respectively. In connection with our November 16, 2001, forbearance
agreement, the commitments under the facility were reduced to the amount of the
outstanding borrowings and the outstanding letters of credit.

During the three months ended March 31, 2002, at our option, the senior
credit facility indebtedness bore interest at LIBOR plus a margin of 3.75% to
4.0% or the banks Base Rate plus a margin of 3.75% to 4.0%. Advances under
our senior credit facility, as amended by the forbearance agreement, bear
interest payable in monthly installments. In addition, we are required to pay
commitment and customary facility fees on the total amount of commitments. As
of March 31, 2002, and December 31, 2001, the overall effective interest rate,
excluding amortization of discounts and issuance costs, on outstanding
borrowings was 6.15% and 8.05%, respectively.

Senior Discount Notes

In March 1998, we completed the offering of the Senior Notes. We received
net proceeds of approximately $192.8 million from that offering. The proceeds
were used to repay outstanding borrowings under our senior credit facility, to
repay in full and retire a $12.5 million bridge loan from our then largest
stockholder, ABRY Broadcast Partners II, L.P., and accrued interest thereon, to
repay a $20.0 million subordinated term loan and accrued interest thereon and
to pay a distribution preference to certain holders of our common stock. The
Senior Notes were issued under the Senior Notes indenture and will mature on
March 15, 2008. Cash interest is not payable on the Senior Notes prior to
March 13, 2003. Thereafter, the Senior Notes will require semi-annual cash
interest payments of $16.25 million.

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Convertible Subordinated Notes

On March 22, 2000, we completed a private placement of $200.0 million of
the 5.5% Convertible Subordinated Notes due 2007 to certain institutional
purchasers pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the Securities Act). We repaid
outstanding revolving debt under our senior credit facility with the net
proceeds of $193.5 million from this private placement. Interest is payable on
the notes on March 15 and September 15 of each year. The notes will mature on
September 15, 2007, unless previously redeemed or repurchased. The notes are
convertible into Pinnacles common stock at the option of the note holders at
an initial price of $78.375 per share, which conversion price is subject to
adjustment under the terms of the notes. We may redeem the notes on or after
March 21, 2003. The events of default related to our senior credit facility
caused a cross-default in the notes. As such, the outstanding amounts have
been reclassified as current liabilities in the accompanying unaudited
condensed consolidated balance sheet at March 31, 2002.

On January 22, 2002, $12.5 million of Convertible Notes were redeemed for
158,851 shares of Pinnacles common stock at the stated conversion price per
share of $78.375, reducing our outstanding obligation under the Convertible
Notes to $187.5 million at March 31, 2002.

Interest Rate Swap

As a condition of our senior credit facility we are required to enter into
and maintain at all times interest rate hedge contracts covering a minimum of
50% of the debt outstanding under the senior credit facility. We enter into
interest rate swap agreements to manage the interest rate risk associated with
certain of our variable rate debt. The swap agreements effectively convert the
credit agreement floating rate debt from LIBOR plus a margin, as defined in the
agreement, to a fixed rate debt plus the applicable margin under the credit
agreement on an amount equal to the notional value of the interest rate swap.
We are exposed to credit losses in the event of non-performance by
counter-parties on these agreements, which we do not believe are significant.

Prior to our adoption of SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, the interest rate swap agreement qualified
for hedge accounting treatment. As such and in accordance with the transition
provisions of SFAS No. 133, we recorded a derivative liability for the fair
value of the swap on January 1, 2001, for $4.0 million as a component of other
comprehensive income. Upon adoption of SFAS No. 133, the interest rate swap
agreement no longer qualified as hedge due to the embedded written option
exercisable at our option. Accordingly, the changes in the fair value of this
agreement are recorded in earnings immediately. The earnings impact recorded
during the three months ending March 31, 2002 and March 31, 2001 relating to
the interest rate swap amounted to $0.2 million and $5.5 million, respectively,
and is recorded as additional interest expense. For the three months ended
March 31, 2002, approximately $0.5 million represents an increase in the fair
value of the interest rate swap agreement since December 31, 2001, and
approximately $0.3 million represents the reversal into current year income of
the underlying exposure previously recognized in comprehensive loss. For the
three months ended March 31, 2001, approximately $5.0 million represents a
decrease in the fair value of the interest rate swap agreement since January 1,
2001, and approximately $0.5 million represents the reversal into current year
income of the underlying exposure previously recognized in comprehensive loss.

9.     Stockholders Equity

On January 22, 2002, $12.5 million of Convertible Notes were redeemed for
158,851 shares of Pinnacles common stock at the stated conversion price per
share of $78.375, reducing our outstanding obligation under the Convertible
Notes to $187.5 million at March 31, 2002.

10.     Commitments and Contingencies

Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief
Financial Officer, Jeffrey J. Card, and its former Chief Executive Officer,
Robert J. Wolsey, various current and former directors of Pinnacle, Pinnacles
former accountants, PricewaterhouseCoopers, LLP, and the underwriters of
Pinnacles

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January 18, 2000 secondary offering, were named as defendants in a
consolidated class action complaint styled In re Pinnacle Holdings Corp.
Securities Litigation, Case No.8:01-CV-624-T-27MSS filed on August 8, 2001, in
the United States District Court for the Middle District of Florida, in Tampa.
The consolidated amended complaint filed August 8, 2001, consolidates a number
of securities class action suits previously filed in the same court. The
plaintiffs named in the consolidated action claim to represent all persons who
purchased our common stock during the period between June 29, 1999 and March
17, 2001.

The plaintiffs allege that Pinnacle, the directors, the underwriters, and
Messrs. Day and Wolsey violated Section 11 of the Securities Act, by permitting
the publication and dissemination of the prospectus for the January 18, 2000
secondary offering. The plaintiffs allege that the prospectus contained
various misrepresentations concerning, among other things, the value of
Pinnacles towers, our due diligence investigation and financial statements
relating to the Motorola Antenna Site Acquisition.The plaintiffs have also
alleged that the directors, and Messrs. Day and Wolsey are vicariously liable
pursuant to Section 15 of the Securities Act for Pinnacles alleged violation
of Section 11 of the Securities Act. Section 15 of the Securities Act makes
those persons who control a primary violator vicariously liable for the
primary violators violation of Section 11 of the Securities Act.

The plaintiffs further allege that Pinnacle, Messrs. Day, Card and Wolsey,
and the other named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by making various
allegedly misleading statements relating to certain of our financial
statements, the Motorola Antenna Site Acquisition, the nature of the SECs
investigation concerning our accounting practices and our relationship with our
former accountants, and other matters, in various press releases and filings
with the SEC.The plaintiffs have also alleged that Messrs. Day, Card and Wolsey
violated Section 20 of the Exchange Act, which imposes vicarious liability on
those persons who control a primary violator of Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder.

Plaintiffs have requested compensatory damages, interest, their costs and
expenses incurred in the action including attorneys and experts fees, and
other relief. On October 31, 2001, the defendants filed their motions to
dismiss this complaint. An effect of this motion filing is to postpone any
discovery in this case until after the court rules on the motions.

We intend to respond appropriately and in the best interests of Pinnacle
to the consolidated action; however, we cannot assure you that we will prevail
in such litigation. Securities lawsuits may result in substantial costs,
divert managements attention and other resources, and have a material and
adverse effect on our financial condition and the results of our operations in
the future.

In January 2002, we became aware that four United Kingdom (U. K.)
entities, which we have owned a direct or indirect equity interest in since
2000, failed to file timely elections with the Internal Revenue Service to be
treated for U.S. tax purposes as pass-through entities rather than as
corporations, which is the default classification in the absence of a timely
election. Private letter ruling requests have been filed with the Internal
Revenue Service for extensions of time to file such elections retroactive to
2000, and we anticipate that such requests will be approved. However, if such
requests are not approved, then the equity interests which we own, directly or
indirectly, in such U. K. entities will constitute the ownership of securities
of corporations in excess of the REIT-qualification limitation, which will
result in the loss of our REIT status for 2000 and up to the four succeeding
years. We have not provided for this exposure as we believe the likelihood of
an unfavorable outcome is remote.

We also recently became aware that we failed to make elections in the
manner contemplated by Notice 88-19 or the temporary regulations related to
prior year acquisitions of C Corporations and have requested a private letter
ruling from the Internal Revenue Service so that we may do so on a retroactive
basis. If the Internal Revenue Service fails to rule favorably on our request,
we may owe tax, interest and penalties on the built-in gain required to be
recognized during the year in which we acquired one or more C corporations. We
estimate that the aggregate amount of tax, interest and penalties for all such
acquisitions is approximately $30.0 million. To the extent we are
required to recognize the built-in gain in the year of acquisition, the
built in gain would not be subject to federal income tax upon a sale by us of
the assets involved. We have not provided for this exposure as we believe the
likelihood of an unfavorable

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outcome is remote.

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Item 2.     Managements Discussion and Analysis of Financial Condition and Results of Operations:

This Quarterly Report on Form 10-Q contains forward-looking statements
that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Words such as anticipates, expects,
intends, plans, believes, seeks, estimates, variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed
or forecasted in any such forward-looking statements. In addition, we may from
time to time make oral forward-looking statements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Such statements appear
in a number of places in this report and include statements regarding the
intent, belief or current expectations of Pinnacle, its directors or its
officers with respect to, among other things: (1) trends affecting our
financial condition or results of operation; (2) the industry in which the
Company operates; (3) our business and growth strategies; and (4) other
matters. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. We refer
you to the subsection below entitled Factors That May Affect Future Results
for important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements as a result of various
factors. Readers are cautioned not to place undue reliance on these
forward-looking statements.

Our Financial Condition

Market conditions, including a significant decline in the stock markets
valuation of tower sector public companies, as well as wireless communication
service providers, over the past year, have effectively precluded us from
raising capital to fund our business operations. The Securities and Exchange
Commission (SEC) investigation and the fact that we restated our financial
statements have also had a significant impact on our ability to access capital.

In addition, beginning in the third quarter of 2001, we were out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001
and February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and reinstated on May 1, 2002, pursuant
to which the lenders agreed not to exercise remedies available to them as a
result of this event of default under our senior credit facility through May
10, 2002. Accordingly, we have classified the outstanding borrowings under our
senior credit facility as a current liability. The terms of the forbearance
agreement: (1) increase the interest rate on our borrowing by 1.0% to the
London Interbank Offered Rate (LIBOR) plus 3.75% and LIBOR plus 4.0%; (2)
eliminate Pinnacle Towers ability to make additional draws under the senior
credit facility; (3) restrict the amount of money that can be invested in
capital expenditures by Pinnacle Towers; (4) limit Pinnacle Towers ability to
incur additional debt; (5) limit Pinnacle Towers current ability to distribute
funds to Pinnacle Holdings in connection with Pinnacle Holdings 5.5%
Convertible Notes due 2007 (the Convertible Notes); (6) require us to
establish a $2.5 million cash escrow account to support outstanding letters of
credit; and (7) expires on May 10, 2002. On May 1, 2002 we obtained a renewal
of the forbearance agreement until May 10, 2002, the date by which we are
required under the terms of the forbearance agreement to file the proposed
pre-negotiated bankruptcy plan discussed elsewhere herein. We did not file our
pre-negotiated bankruptcy plan by May 10, 2002, as was required under the terms
of our forbearance agreement. We are working to file our pre-negotiated
bankruptcy plan and anticipate filing it during May 2002. Our forbearance
agreement expired pursuant to its previously announced terms on May 10, 2002,
without further extension. We are continuing discussions with our lenders to
secure a new forbearance agreement. However, we cannot provide any assurance
that we will be able to obtain a new forbearance agreement. During the
bankruptcy process, we anticipate operating in the ordinary course of business,
subject to the provisions of the U.S. Bankruptcy Code, and do not currently
expect that our trade suppliers, unsecured trade creditors, employees and
customers will be materially impacted.

As of March 15, 2002, we stopped paying interest on all of our Convertible
Notes, which resulted in a

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default under the Convertible Notes indenture and a cross default under
our senior credit facility. There can be no assurance that we will satisfy the
terms necessary in order for our lenders to continue forbearing from their
remedies available as a result of our noncompliance with our senior credit
facility.

Because of these defaults, or, in the case of our senior credit facility,
if we fail to satisfy the conditions under the forbearance agreement, the terms
of our indentures governing our 10% Senior Notes due 2008 (the Senior Notes)
and the Convertible Notes and our senior credit facility provide that the
holders of the Senior Notes and the Convertible Notes or the lenders under our
senior credit facility could declare a default and demand immediate repayment
and, unless we cure the defaults, they could seek a judgment and attempt to
seize our assets to satisfy the debt to them. The security for our senior
credit facility consists of substantially all of our assets including the stock
of our direct and indirect subsidiaries. The defaults under these agreements
could adversely affect our rights under commercial agreements.

As a result of this situation, we believe that significant uncertainty
exists regarding our ability to continue normal operations and have been
actively pursuing a plan for recapitalization and restructuring of our debt. On
April 26, 2002, we announced a definitive Stock Purchase Agreement with
Fortress Investment Group (Fortress) and Greenhill Capital Partners LLP
(Greenhill) (collectively, the Investors), pursuant to which we will be
recapitalized through a pre-negotiated bankruptcy plan to be filed in Delaware
under Chapter 11 of the U.S. Bankruptcy Code (the Stock Purchase Agreement).
Holders of at least two-thirds of the aggregate principal amount of our Senior
Notes have agreed to vote in favor of the bankruptcy plan. We expect to file
the bankruptcy plan during the month of May. Immediately following confirmation
of the bankruptcy plan, Pinnacle Holdings will be merged into a newly formed
Delaware corporation formed by the Investors (New Pinnacle) with New Pinnacle
being the surviving corporation.

The bankruptcy plan will be funded by two new sources of capital: (1) an
equity investment made by the Investors of up to approximately $205.0 million,
and (2) a new credit facility of up to $340.0 million to be led by a syndicate
arranged by Deutsche Bank Securities Inc. and Bank of America, N.A.

Under the terms of the Stock Purchase Agreement with the Investors,
Fortress will purchase up to 13,735,000 shares of common stock of New Pinnacle
(the Fortress Shares) and Greenhill will purchase up to 6,765,000 shares of
common stock of New Pinnacle (the Greenhill Shares and together with the
Fortress Shares, the Investor Shares). The Stock Purchase Agreement provides
for the cancellation of the Senior Notes in exchange for up to $114.0 million
(or $350.77 per $1,000 par value bond) in cash or, at the Senior Note holders
election, a combination of cash and up to 49% of New Pinnacles outstanding
common stock. The number of Investor Shares (and hence their cash investment)
will be proportionately decreased by the number of shares purchased by holders
of the Senior Notes.

The Stock Purchase Agreement also provides for the cancellation of our
Convertible Notes in exchange for up to $0.5 million in cash and five-year
warrants to purchase up to approximately 205,000 shares of New Pinnacles
common stock at approximately two times the price of the Investor Shares.
Convertible Note holders can double this amount to a total of $1.0 million in
cash and warrants to purchase 410,000 shares, representing approximately 2.0%
of New Pinnacles equity capitalization, if the Convertible Note holders agree
to give certain releases. The Stock Purchase Agreement further provides for
cancellation of the outstanding shares of Pinnacles common stock. Former
stockholders and plaintiffs in a stockholder class action shall receive
five-year warrants to purchase up to 102,500 shares of New Pinnacle common
stock (representing approximately 0.5% of New Pinnacles equity capitalization)
at approximately two times the price of the Investors Shares. This amount can
be doubled to 205,000 shares, representing approximately 1.0% of New Pinnacles
capitalization, if these stockholders agree to give certain releases. Trade and
other creditors will be paid in full in the ordinary course.

Under the terms of the transaction documents, holders of approximately
two-thirds of the aggregate principal amount of the Senior Notes have agreed,
for a period of 60 days from the date of the execution of the Stock Purchase
Agreement, not to exercise any rights such holders may have against Pinnacle
under the terms of the indenture governing the Senior Notes, including the
right to receive principal of, and interest on, the Senior Notes.

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The transaction is subject to a number of conditions, including customary
regulatory approvals, the requisite creditors approvals in bankruptcy and
confirmation of the bankruptcy plan. The Stock Purchase Agreement also
contains customary terms and conditions, including exclusivity rights, and a
termination fee of $12.0 million to be paid by Pinnacle to the Investors if the
Stock Purchase Agreement is terminated under certain circumstances and Pinnacle
consummates an alternative transaction.

Overview of Our Business

We lease space on a portfolio of owned, managed and leased communications
sites to a broad base of wireless communication service providers, operators of
private networks, government agencies and other customers. We also maintain
these sites for our tenants. These sites are primarily composed of towers and
rooftops where wireless communication providers can locate their antennas and
equipment. Since our formation in May 1995, we have created a portfolio of
wireless communications site clusters in high growth markets such as Atlanta,
Birmingham, Boston, Chicago, Dallas, Houston, Los Angeles, New Orleans, New
York, Orlando, and Tampa.

Our objective is to create value by growing cash flow. We believe we can
do this by aggressively marketing existing communications sites as well as by
selectively constructing new towers. Our prior business strategy was largely
based on making acquisitions of existing communication sites in areas of high
demand for wireless services. As a result of our inability to access
additional capital we have ceased our acquisition strategy and curtailed our
construction of new towers and have focused on aggressively marketing existing
communications sites.

We aggressively market rental space on our communications sites to
leverage our fixed costs over a broad base of customers. Our customers are
generally responsible for the installation of their own equipment and, in many
cases, the utility costs associated with operating their equipment. In
addition, adding customers to an existing communications site does not increase
our monitoring, maintenance or insurance costs. Accordingly, when customers are
added to an existing owned site, there is little additional expense and the
additional revenue increases our cash flow margins.

We were previously an active acquirer of communication sites with an
objective of acquiring or constructing clusters of rental communications sites
in areas where there is significant existing and expected growth in the demand
for rental communications sites by wireless communications providers. The
strategy focused on obtaining a significant ownership position of
communications site assets in our targeted markets in order to offer one-stop
shopping to wireless communications providers who are deploying or expanding
wireless communications networks. Should we be able to access capital in the
future on terms and conditions that are acceptable to us, we could restart our
acquisition strategy.

An additional element of our business strategy is to selectively construct
new towers in and around major markets where we already have a presence to
enhance our existing communications site clusters. However, a result of our
inability to access new capital, we have curtailed our new tower construction
program. Tower construction is generally 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 not exceed our
minimum required return on invested capital. We do not engage in speculative
construction projects or pursue large build-to-suit mandates.

The table below outlines the number of acquisitions and dispositions we
have completed and the corresponding wireless communications sites and carrier
neutral colocation facilities held as of March 31, 2002. Dispositions include
managed and leased sites, which generated negative cash flow and that we have
terminated our rights and obligations with respect to such sites in an effort
to improve overall profitability as well as managed and leased sites where the
landlord terminated our obligations. Non-revenue producing sites are those
sites that are not generating revenue; were acquired as part of a larger, more
profitable acquisition of sites; and do not have an active tenant. Once a
non-revenue producing site begins producing revenue it is reclassified into the
appropriate category of revenue producing sites. No value is assigned to
non-revenue producing sites.

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|      |  |                         |       |             |  |        |     |       |  |              |      |          |  |       |     |       |  |           |    |   |  |  |       |   |  |  |      |   |  |  |       |   |  |  |     | 
|----- |  | ----------------------- | ----- | ----------- |  | ------ | --- | ----- |  | ------------ | ---- | -------- |  | ----- | --- | ----- |  | --------- | -- | - |  |  | ----- | - |  |  | ---- | - |  |  | ----- | - |  |  | --- | 
|      |  | Revenue Producing Sites |       |             |  |        |     |       |  |             
|      |  |                         |       | Non-Revenue |  |        |     |       |  | Acquisitions
|      |  | Owned                   |       | Managed     |  | Leased |     | Built |  | CoLocation   |      | Subtotal |  | Sites |     | Total |  | Completed
|      |  |                         |       |             |  |        |     |       |  |              |      |          |  |       |     |       |  |          
|1995  |  |                         | 29    |             |  |        |    |       |  |              |     |          |  |       | 4   |       |  |           |   |   |  |  | 33    |   |  |  |     |   |  |  | 33    |   |  |  | 13  | 
|1996  |  |                         | 119   |             |  |        |    |       |  |              |     |          |  |       | 4   |       |  |           |   |   |  |  | 123   |   |  |  |     |   |  |  | 123   |   |  |  | 49  | 
|1997  |  |                         | 134   |             |  |        |    |       |  |              |     |          |  |       | 22  |       |  |           |   |   |  |  | 156   |   |  |  |     |   |  |  | 156   |   |  |  | 72  | 
|1998  |  |                         | 517   |             |  |        |    |       |  |              |     |          |  |       | 47  |       |  |           |   |   |  |  | 564   |   |  |  |     |   |  |  | 564   |   |  |  | 82  | 
|1999  |  |                         | 858   |             |  |        | 584 |       |  |              | 858  |          |  |       | 23  |       |  |           |   |   |  |  | 2,323 |   |  |  | 722  |   |  |  | 3,045 |   |  |  | 130 | 
|2000  |  |                         | 699   |             |  |        | (19 | )     |  |              | 78   |          |  |       | 5   |       |  |           | 5  |   |  |  | 768   |   |  |  | 434  |   |  |  | 1,202 |   |  |  | 226 | 
|2001  |  |                         | 42    |             |  |        | 12  |       |  |              | (173 | )        |  |       | 2   |       |  |           | (2 | ) |  |  | (119  | ) |  |  | (532 | ) |  |  | (651  | ) |  |  | 9   | 
|2002  |  |                         | (21   | )           |  |        | (19 | )     |  |              | (25  | )        |  |       |    |       |  |           | (1 | ) |  |  | (66   | ) |  |  | 6    |   |  |  | (60   | ) |  |  |    | 
|      |  |                         |       |             |  |        |     |       |  |              |      |          |  |       |     |       |  |           |    |   |  |  |       |   |  |  |      |   |  |  |       |   |  |  |     | 
|Total |  |                         | 2,377 |             |  |        | 558 |       |  |              | 738  |          |  |       | 107 |       |  |           | 2  |   |  |  | 3,782 |   |  |  | 630  |   |  |  | 4,412 |   |  |  | 581 | 
|      |  |                         |       |             |  |        |     |       |  |              |      |          |  |       |     |       |  |           |    |   |  |  |       |   |  |  |      |   |  |  |       |   |  |  |     | 

Subsequent to March 31, 2002, we have not completed any acquisitions.

We believe that opportunities for growth exist by leasing additional space
to wireless communication service providers on our existing communications
sites. Because the costs of operating a communications site are primarily fixed
on owned sites, increasing tower utilization significantly improves tower level
operating margins on these sites.

Owned sites as depicted in the table above are those where we own either
the land, the tower or both on a tower site, or have a permanent easement on a
rooftop. This would contrast to other sites in our portfolio where we have: 1)
contractual rights to manage towers or rooftops, either exclusively or
non-exclusively; 2) have a non-permanent easement right on a rooftop site; or,
3) lease a space on a tower owned by another tower owner for the purpose of
sub-leasing to one of our tenants who needed space on a site in an area where
we had no site inventory in existence.

Because of our financial condition we have experienced lower than normal
new lease activity with respect to our telephony customers. We expect our
telephony customers will continue to expand their networks and that we will
continue to add new telephony customers as they continue their systems
build-outs. We also look for our new technology customers to grow over time as
they find additional capital to fund their business plans. These new
technology customers are attracted to most of our communications sites because
they deploy at higher elevations and our portfolio of sites generally
accommodates these elevations. However, many of our new technology customers
have experienced financial difficulties. As of March 31, 2002 approximately 40
of our customers have or are in the process of filing for bankruptcy. There
can be no assurance that our new technology customers will be able to access
additional capital to fund their business plans. In addition there can be no
assurance that the rate of new leases we sign with telephony customers will
return to a level consistent with our past experience.

We have also experienced higher than anticipated levels of tenant churn
throughout 2001 and during the first quarter of 2002. During 2001, primarily
in the third and fourth quarters, we experienced significant churn from paging
customers with a large portion of this churn coming from paging customers who
filed for bankruptcy and rejected certain of our leases during the bankruptcy
case proceedings. In addition, during the third quarter of 2001, we experienced
churn related to our customers located on the World Trade Center. During the
first quarter of 2002, South Carolina Telephone executed a buyout agreement and
canceled approximately 90 leases representing an annual revenue run rate of
$1.2 million.

We have generated net losses since inception and at March 31, 2002, had an
accumulated deficit totaling approximately $712.4 million. It is expected that
continuing charges relating to depreciation of existing assets and interest
expense associated with our debt will be substantial. Accordingly, we expect
to continue to generate losses for the foreseeable future.

On August 31, 1999, we completed the acquisition of approximately 1,858
communications sites, including 499 owned sites, 526 managed sites, and 833
leased sites from Motorola, Inc. (Motorola) for $254.0 million in cash and
stock, plus fees and expenses (the Motorola Antenna Site Acquisition). The

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Motorola communications sites that we acquired are largely clustered in urban
areas throughout the United States and Canada with over 50% of the owned sites overlapping with our
existing communications site portfolio. We believe that the Motorola Antenna
Site Acquisition greatly enhances our ability to offer our customers attractive
tower clusters in high growth markets and transportation corridors. In
addition, the Motorola managed sites that we acquired enable us to provide our
customers with urban rooftop sites. These sites have enabled us to further
diversify our customer base by providing us with an inventory of high altitude
sites in urban areas. Since we closed this acquisition, we have expended
considerable effort and cost to properly identify the specific details of the
assets and liabilities we acquired in connection with the sites we purchased.
Additionally, our employees have spent a significant amount of time integrating
these assets and the data related to the individual assets into our business
operations.

Prior to the Motorola Antenna Site Acquisition, we did not have a
significant number of managed or leased sites in our portfolio. Generally,
managed and leased sites have higher operating costs relative to their revenues
than do owned towers, primarily as a result of higher rental costs related to
revenue sharing with the site owners. In addition, on leased sites we
generally have a right to lease only a limited portion of a site, which limits
total revenue potential. Higher relative operating costs and limited revenue
growth results in substantially lower tower cash flow and Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) margin performance on
managed and leased sites. Accordingly, the acquisition of managed and leased
sites in the Motorola Antenna Site Acquisition has decreased, and any potential
future acquisitions will decrease, our site level operating margins.

Pinnacle Towers Inc. contributed $12.4 million in capital to a United
Kingdom (UK) entity, Pinnacle Towers, Ltd., to establish a 91% interest in
the entity. Pinnacle Towers Ltd. used the capital to purchase
telecommunication sites throughout the United Kingdom and continental Europe.
On September 27, 2001, a decision was made to divest this investment and we
have reclassified the assets and liabilities of Pinnacle Towers Ltd. to assets
held for sale in our March 31, 2002, unaudited condensed consolidated balance
sheet.

Results of Operations

The following table sets forth, for the periods indicated, each statement
of operations item as a percentage of revenue. The results of operations are
not necessarily indicative of results for any future period. The following data
should be read in conjunction with our consolidated financial statements and
notes thereto included elsewhere herein.

|                                                                |                                           |  |                     |      |                |  |       |      |  
|--------------------------------------------------------------- | ----------------------------------------- |  | ------------------- | ---- | -------------- |  | ----- | ---- | -
|                                                                |                                           |  | Three months ended:
|                                                                |                                           |  |                    
|                                                                |                                           |  | March 31, 2001      |      | March 31, 2002
|                                                                |                                           |  | (unaudited)         |      | (unaudited)   
|                                                                |                                           |  |                     |      |               
|Statement of Operations Data:                                   |                                           |  |                     |      |                |  |       |     
|Revenue                                                         |                                           |  | 100.0               | %    |                |  | 100.0 | %   
|Direct operating expenses                                       |                                           |  | 36.4                | %    |                |  | 35.4  | %   
|                                                                |                                           |  |                     |      |                |  |       |      |  
|Gross margin                                                    |                                           |  | 63.6                | %    |                |  | 64.6  | %   
|Other expenses                                                  |                                           |  |                     |      |                |  |       |     
|                                                                | General and administrative                |  |                     | 21.0 | %              |  |       | 17.5 | %
|                                                                | State franchise, excise and minimum taxes |  |                     | 1.0  | %              |  |       | 1.2  | %
|                                                                | Depreciation and amortizaton              |  |                     | 68.2 | %              |  |       | 53.2 | %
|                                                                | Loss on assets held for sale              |  |                     | 0.0  | %              |  |       | 5.4  | %
|                                                                | Loss on disposal of assets                |  |                     | 0.0  | %              |  |       | 0.2  | %
|                                                                | Reorganization costs                      |  |                     | 0.0  | %              |  |       | 7.9  | %
|                                                                |                                           |  |                     |      |                |  |       |      |  
|Loss from operations                                            |                                           |  | -26.6               | %    |                |  | -20.8 | %   
|Interest expense, net                                           |                                           |  | 36.4                | %    |                |  | 18.3  | %   
|Amortization of original issue discount and debt issuance costs |                                           |  | 14.9                | %    |                |  | 16.9  | %   
|Foreign currency translation gain(loss)                         |                                           |  | 0.8                 | %    |                |  | 0.0   | %   
|Minority interest in net loss of subsidiary                     |                                           |  | -0.2                | %    |                |  | 0.0   | %   
|Income tax benefit                                              |                                           |  | -0.6                | %    |                |  | -1.7  | %   
|                                                                |                                           |  |                     |      |                |  |       |      |  
|Net loss                                                        |                                           |  | -77.9               | %    |                |  | -54.3 | %   
|                                                                |                                           |  |                     |      |                |  |       |      |  

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Three months Ended March 31, 2002 Compared to Three months Ended March 31, 2001

Revenues for the three month period ended March 31, 2002 declined by $1.4
million or 2.8% to $46.9 million from $48.3 million in the three month period
ended March 31, 2001. The quarter ended March 31, 2002 included in revenue a
$1.3 million cancellation fee from South Carolina Telephones buyout of their
remaining leases and the three months ended March 31, 2001 included
approximately $1.3 million of revenue from the colocation facilities no longer
owned in 2002. In addition, other decreases in revenue are attributable to a
$0.5 million loss of revenue from our site on the World Trade Center and a $0.2
million decline in revenue due to the loss of two large agency management
agreements.

Direct operating expenses, excluding depreciation and amortization,
decreased by $0.9 million or 5.4% to $16.6 million for the three month period
ended March 31, 2002 from $17.5 million for the three month period ended March
31, 2001. This decrease is attributable to; (i) a $0.2 million decrease in
property taxes; (ii) a $0.3 million decrease in utility costs; (iii) a $0.1
million decrease in professional services; (iv) a $0.5 million decrease in site
management; all offset by (v) a $0.2 million increase in rent expense. The
improvement in site management is attributable to our decision to eliminate
outsourcing contracts and perform all site management functions internally.
The site management program is still in the implementation phase. As of March
31, 2002, a total of twelve employees were part of the portfolio support team
with a projected total of 20 by June 30, 2002, and full staffing of 24 by the
end of the third quarter.

Selling, general and administrative expenses (SG&A) decreased for the
three month period ended March 31, 2002 by $2.0 million to $8.2 million from
$10.2 million for the three month period ended March 31, 2001. The improvement
in this area is attributable to an overall company objective to closely monitor
our SG&A expenses and make concerted efforts to reduce or eliminate costs.
Salary and related benefits decreased by $1.6 million. There was an additional
$0.6 million reduction in temporary help costs. General operating costs such
as professional services, customer site management, and travel make up the
remaining $0.4 million decrease. Professional fees increased by $0.6 million
due to the write-off of certain legal costs related to our SEC investigation
and shareholder lawsuit, which we no longer anticipate will be reimbursed by
our insurance carrier. As of February 2002 our new directors and officers
insurance policy took effect. We paid approximately $2.5 million for this years coverage,
which represents an annual increase of $2.3 million which we anticipate will
affect our trend of future earnings.

State franchise, excise and minimum taxes, which represent taxes assessed
in connection with our operations in various state jurisdictions, increased to
$0.6 million for the three month period ended March 31, 2002, from $0.5 for the
three month period ended March 31, 2001. Such taxes are calculated using
various methods such as a portion of our property within a given state, our
capital structure or based upon a minimum tax in lieu of income taxes. This
account remained relatively unchanged due to the cessation of our acquisition
strategy in late 2000.

As a result of our reorganization efforts, we have incurred $3.7 million
in nonrecurring costs related to the recapitalization efforts discussed
elsewhere herein. These costs include additional legal fees, consultant fees,
the reimbursement of due diligence fees to two parties that performed
confirmatory due diligence and a retention plan bonus accrual.

Interest expense, net of amortization of original issue discount and
interest income, decreased 51.2% to $8.6 million for the three month period
ended March 31, 2002, from $17.6 million for the three month period ended March
31, 2001. The interest expense decrease of $9.0 million is comprised of four
major components. The fluctuation of actual swap performance, mark to market
adjustment, makes up approximate $5.5 million of the decrease. There is also a
decrease of $0.1 million in the amortization of the original swap liability due
to a correction of the amortization period from two years to three that
occurred in the fourth quarter of 2001. There is an additional decrease of
$2.9 million in the interest on the senior credit facility, due in part to a
decrease in the principal outstanding as well as to overall lower LIBOR rates.
The final component is a $0.5 million decline in the interest on the
Convertible Notes, which represents the penalty interest that was accruing
while the registration statement was pending with the SEC.

SFAS No. 144, Accounting For The Impairment or Disposal of Long-Lived
Assets, requires

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impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets carrying value. Any impairment
loss is measured by comparing the fair value of the asset to its carrying
value. For the three months ended March 31, 2002, we recorded a $2.5 million
write-down on a non-core property we are negotiating to sell.

Liquidity and Capital Resources

Our liquidity needs arise from our acquisition related activities
including earn-out payments, debt service obligations, working capital needs
and capital expenditures. We have historically funded our liquidity needs with
proceeds from public equity offerings, bank borrowings, debt offerings, and
cash flow from operations. We have been unable to access additional capital
through public equity or debt offerings since August 2000. In addition, as a
result of our entering into a forbearance agreement with our bank group under
our senior credit facility discussed in more detail below, we are unable to
borrow additional capital under our senior credit facility. As a result, until
such time as additional sources of capital become available to us, our primary
source of liquidity will be cash flows from operations as well as capital
generated from asset sales to the extent such sales are approved by our bank
group and then only to the extent such proceeds are not required to be applied
to reduce our outstanding borrowings under our senior credit facility. As a
result of our noncompliance with the financial covenants contained in our
senior credit facility and the related forbearance agreement we entered into
with our lenders we have reclassified the outstanding borrowings to current
liabilities. Excluding amounts related to long-term debt classified as a
current liability due to events of default, we had a net working capital
deficit of $44.3 million and $40.6 million as of March 31, 2002, and December
31, 2001, respectively. Our ratio of total debt to stockholders equity was
12.3 to 1.0 at March 31, 2002 and 10.6 to 1.0 at December 31, 2001.

Liquidity Assessment

In conjunction with our efforts to recapitalize our balance sheet, we
ceased making interest payments due under the Convertible Notes. Assuming that
we do not pay cash interest on the Convertible Notes, we estimate that our cash
and marketable securities on hand as of March 31, 2002, totaling $10.8 million
would be sufficient to fund our operations and debt service on our senior
credit facility through June 2002. No assurance can be given that our creditors
will support the recapitalization as structured in the Stock Purchase
Agreement, or that, if the recapitalization is implemented through the
consummation of a plan of reorganization pursuant to a bankruptcy proceeding,
parties entitled to vote will vote in favor of the proposed plan of
reorganization or that the plan of reorganization will be confirmed by the
bankruptcy court, or will not be subsequently modified. If our recapitalization
is not completed, and if we are not able to develop and implement a feasible
alternative recapitalization transaction, we may be forced to liquidate under
applicable provisions of the U.S. Bankruptcy Code. There can be no assurance of
the level of recovery to which our secured and unsecured creditors would be
entitled to receive in such a liquidation.

Senior Credit Facility

Our current senior credit facility is with Bank of America, N.A., as
administrative agent. The senior credit facility is secured by a lien of
substantially all of our assets and a pledge of substantially all of the
capital stock of our subsidiaries. The senior credit facility contains
customary covenants such as limitations on our ability to incur indebtedness,
to incur liens or encumbrances on assets, to make certain investments, to make
distributions to stockholders, and prepay subordinated debt.

For the quarter ended March 31, 2002, we were out of compliance with
financial covenants contained in our senior credit facility, which
non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001
and February 6, 2002, and as amended and restated on March 8, 2002 and further
amended on April 11, 2002, and amended and reinstated on May 1, 2002, pursuant
to which the lenders agreed not to exercise remedies available to them as a
result of this event of default under our senior credit facility through May
10, 2002. Accordingly, we have classified the outstanding borrowings under our
senior credit facility as a current liability. The terms of the forbearance
agreement: (1) increase the interest rate on our borrowing by 1.0% to LIBOR
plus 3.75% and LIBOR plus 4.0%; (2) eliminate Pinnacle Towers ability to make
additional draws under the senior credit facility; (3)

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restrict the amount of money that can be invested in capital expenditures
by Pinnacle Towers; (4) limit Pinnacle Towers ability to incur additional
debt; (5) limit Pinnacle Towers current ability to distribute funds to
Pinnacle Holdings in connection with Pinnacle Holdings Convertible Notes; (6)
require us to establish a $2.5 million cash escrow account to support
outstanding letters of credit; and (7) expires on May 10, 2002. On May 1,
2002, we obtained a renewal of the forbearance agreement until May 10, 2002,
the date by which we are required under the terms of the forbearance agreement
to file the proposed pre-negotiated bankruptcy plan discussed elsewhere herein.
We did not file our pre-negotiated bankruptcy plan by May 10, 2002, as was
required under the terms of our forbearance agreement. We are working to file
our pre-negotiated bankruptcy plan and anticipate filing it during May 2002.
Our forbearance agreement expired pursuant to its previously announced terms on
May 10, 2002, without further extension. We are continuing discussions with
our lenders to secure a new forbearance agreement. However, we cannot provide
any assurance that we will be able to obtain a new forbearance agreement.

Because of the event of default, amounts outstanding under the senior
credit facility have been classified as current liabilities in the accompanying
unaudited condensed consolidated balance sheet at March 31, 2002.

The following table summarizes the initial covenant requirements and the
amended requirements for the period ended March 31, 2002, and our actual ratios
at the respective dates:

|                                      |  |                |  |                |  |               |  |  |  |  |  | 
|------------------------------------- |  | -------------- |  | -------------- |  | ------------- |  |  |  |  |  | 
|                                      |  | Original       |  | Amended        |  |               |  | 
|Covenant                              |  | Requirement    |  | Requirement    |  | Actual       
|                                      |  |                |  |                |  |              
|Total Leverage Ratio                  |  | <=4.25 to 1.00 |  | <=3.75 to 1.00 |  | 4.87 to 1.00 
|Consolidated Leverage Ratio           |  | <=7.50 to 1.00 |  | <=7.75 to 1.00 |  | 11.78 to 1.00
|Consolidated Interest Coverage Ratio  |  | >=2.50 to 1.00 |  | >=2.25 to 1.00 |  | 1.49 to 1.00 
|Pro-Forma Debt Service Coverage Ratio |  | >=1.50 to 1.00 |  | >=1.50 to 1.00 |  | 1.25 to 1.00 
|Fixed Charge Coverage Ratio           |  | >=1.10 to 1.00 |  | >=1.10 to 1.00 |  | 0.83 to 1.00 

Prior to the forbearance agreement discussed above, our senior credit
facility provided $670.0 million of financing of which $393.0 million and
$400.5 million was committed and utilized at March 31, 2002, and December 31,
2001, respectively. In connection with our November 16, 2001, forbearance
agreement, the commitments under the facility were reduced to the amount of the
outstanding borrowings and the outstanding letters of credit.

During the three months ended March 31, 2002, at our option, the senior
credit facility indebtedness bore interest at LIBOR plus a margin of 3.75% to
4.0% or the banks Base Rate plus a margin of 3.75% to 4.0%. Advances under
our senior credit facility, as amended by the forbearance agreement, bear
interest payable in monthly installments. In addition, we are required to pay
commitment and customary facility fees on the total amount of commitments. As
of March 31, 2002, and December 31, 2001, the overall effective interest rate,
excluding amortization of discount and issuance costs, on outstanding
borrowings was 6.15% and 8.05%, respectively.

Senior Discount Notes

In March 1998, we completed the offering of the Senior Notes. We received
net proceeds of approximately $192.8 million from that offering. The proceeds
were used to repay outstanding borrowings under our senior credit facility, to
repay in full and retire a $12.5 million bridge loan from our then largest
stockholder, ABRY Broadcast Partners II, L.P., and accrued interest thereon, to
repay a $20.0 million subordinated term loan and accrued interest thereon and
to pay a distribution preference to certain holders of our common stock. The
Senior Notes were issued under the Senior Notes indenture and will mature on
March 15, 2008. Cash interest is not payable on the Senior Notes prior to
March 13, 2003. Thereafter, the Senior Notes will require semi-annual cash
interest payments of $16.25 million.

Convertible Subordinated Notes

On March 22, 2000, we completed a private placement of $200.0 million of
the Convertible Notes to certain institutional purchasers pursuant to the
exemption from registration provided by Section 4(2) of the

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Securities Act of
1933, as amended (the Securities Act). We repaid outstanding revolving debt
under our senior credit facility with the net proceeds of $193.5 million from
this private placement. Interest is payable on the notes on March 15 and
September 15 of each year. The notes will mature on September 15, 2007, unless
previously redeemed or repurchased. The notes are convertible into Pinnacles
common stock at the option of the note holders at an initial price of $78.375
per share, which conversion price is subject to adjustment under the terms of
the notes. We may redeem the notes on or after March 21, 2003. The events of
default related to our senior credit facility caused a cross-default in the
Convertible Notes. As such, the outstanding amounts have been reclassified as
current liabilities in the accompanying unaudited condensed consolidated
balance sheet at March 31, 2002.

On January 22, 2002, $12.5 million of Convertible Notes were redeemed for
158,851 shares of Pinnacles common stock at the stated conversion price per
share of $78.375, reducing our outstanding obligation under the Convertible
Notes to $187.5 million at March 31, 2002.

Interest Rate Swap

As a condition of our senior credit facility we are required to enter into
and maintain at all times interest rate hedge contracts covering a minimum of
50% of the debt outstanding under the senior credit facility. We enter into
interest rate swap agreements to manage the interest rate risk associated with
certain of our variable rate debt. The swap agreements effectively convert the
credit agreement floating rate debt from LIBOR plus a margin, as defined in the
agreement, to a fixed rate debt plus the applicable margin under the credit
agreement on an amount equal to the notional value of the interest rate swap.
We are exposed to credit losses in the event of non-performance by
counter-parties on these agreements, which we do not believe are significant.

Prior to our adoption of SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, the interest rate swap agreement qualified
for hedge accounting treatment. As such and in accordance with the transition
provisions of SFAS No. 133, we recorded a derivative liability for the fair
value of the swap on January 1, 2001, for $4.0 million as a component of other
comprehensive income. Upon adoption of SFAS No. 133, the interest rate swap
agreement no longer qualified as hedge due to the embedded written option
exercisable at our option. Accordingly, the changes in the fair value of this
agreement are recorded in earnings immediately. The earnings impact recorded
during the three months ending March 31, 2002 and March 31, 2001 relating to
the interest rate swap amounted to $0.2 million and $5.5 million, respectively,
and is recorded as additional interest expense. For the three months ended
March 31, 2002, approximately $0.5 million represents an increase in the fair
value of the interest rate swap agreement since December 31, 2001, and
approximately $0.3 million represents the reversal into current year income of
the underlying exposure previously recognized in comprehensive loss. For the
three months ended March 31, 2001, approximately $5.0 million represents a
decrease in the fair value of the interest rate swap agreement since January 1,
2001, and approximately $0.5 million represents the reversal into current year
income of the underlying exposure previously recognized in comprehensive loss.

Other Indebtedness

We also use seller financing to fund certain of our communications site
acquisitions. As of March 31, 2002, we had approximately $25.0 million of
seller notes outstanding, bearing interest at rates ranging from 8.0% to 13.0%
per annum. These amounts are supported by letters of credit issued by our
agent bank.

Capital Investments

Capital investments, including acquisitions and earn-out payments for the
three month period ended March 31, 2002, were $3.3 million, compared to $17.2
million in the comparable 2001 period. A portion of our historical and ongoing
capital expenditures relates to expenditures required to maintain our
communication sites and generally cannot be curtailed. Due to our inability to
access additional capital and to certain capital expenditure restrictions
imposed by our senior credit facility and the forbearance agreement we entered
into with our bank group, we expect to make limited additional capital
investments
for acquisitions, construction and upgrading of additional towers until
such time as we may have access to additional capital. Limitations on our
ability to upgrade or replace towers could impact our ability to add new
customers to certain of our towers, and eventually our ability to retain
existing customers on our sites.

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Colocation Facilities

On June 7, 2001, we adopted a plan to dispose of certain non-core assets
pursuant to our management's decision to dedicate resources to improving the financial
results of communications site operations. Of the original five colocation
properties held for sale, three were sold in 2001, the Halingen, Texas facility
was sold on March 15, 2002, leaving the San Antonio, Texas facility as the only
remaining colocation asset held for sale at March 31, 2002.

The historical carrying value of the San Antonio property, which was
acquired on October 13, 2000, prior to any write-down was approximately $8.7
million. During the year ended December 31, 2001, we recognized a write-down
adjustment of approximately $3.8 million, which is included in operating
expenses in loss on assets held for sale for the year then ended. No additional
substantive write down was recorded in the three months ended March 31, 2002.
We estimated the fair market value less costs to sell the San Antonio property
based upon a pending purchase and sale agreement. Depreciation expense has not
been recognized since the date the colocation asset was classified as held for
sale.

For the three months ended March 31, 2002, excluding the write-down
adjustment, the San Antonio colocation facility had net operating income of
$0.2 million. For the three months ended March 31, 2002, the property produced
revenues of $0.3 million and had operating expenses of $0.1 million.

Land

On September 27, 2001, we adopted a plan to dispose of additional non-core
assets. As a result of the adoption of this plan, our interest in 88 parcels
of owned land, principally located under towers currently owned by other tower
companies and telecommunications service providers, were deemed assets held for
sale. The carrying value of these land parcels is currently $7.9 million.

As a condition of our recently executed Stock Purchase Agreement, these
land parcels can no longer be held for sale. They have therefore been
reclassified into assets held for use in accordance with SFAS No. 144. For
reclassification purposes the asset is measured at the lower of the carrying
amount of the asset before it was classified as held for sale, adjusted for any
depreciation (amortization) expense that would have been recognized had the
asset been continuously classified as held and used, or the fair value of the
asset at the date of the subsequent decision not to sell. We reclassified $7.9
million, the current fair market value, into assets held for use.

Investment in Pinnacle Towers Ltd.

On September 27, 2001, we adopted a plan to dispose of our investment in a
majority owned subsidiary, Pinnacle Towers Ltd. As a result of the adoption of
this plan, our investment in this subsidiary has been deemed assets held for
sale.

The historical carrying value of our $12.4 million investment in Pinnacle
Towers Ltd. as of March 31, 2002, prior to any write-down, was approximately
$9.0 million. During the year ended December 31, 2001, we recognized a
write-down adjustment of approximately $4.0 million, which was included in
operating expenses in loss on assets held for sale for the year then ended.
During the three months ended March 31, 2002, no additional substantive
write-down was taken. We estimated the fair market value less costs to sell
based upon a proposal, which has subsequently expired, from an interested third
party. This estimate continues to be our best estimate of the fair value of
these assets. Depreciation expense has not been recognized since the date this
investment was classified as held for sale.

For the three months ended March 31, 2002, the investment produced
revenues of $0.2 million and had operating expenses of $0.2 million.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We evaluate our estimates and judgments on
an on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be

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reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported results.
We believe the following accounting policies are the most critical to us, in
that they are important to the portrayal of our financial statements and they
require our most difficult, subjective or complex judgments in the preparation
of our financial statements:

Revenue Recognition

We recognize revenue from lease arrangements with tenants on our
communication sites on a straight-line basis over the life of the related lease
agreements in accordance with SFAS No. 13, Accounting for Leases and FASTB
85-3, Accounting for Operating Leases with Scheduled Rent Increases. Revenue
is recorded in the month in which it is earned.

We further evaluate our revenue recognition policy in accordance with SAB
101, Revenue Recognition and defer any revenue if the following criteria are
not met: persuasive evidence of an arrangement exists, payment is not
contingent upon other performance or other obligations, the price is fixed or
determinable or collectibility is not reasonably assured. We record a reserve
against revenue for estimated credit memos. Any rental amounts received in
advance of the month earned are recorded as deferred revenue.

Allowances for Doubtful Accounts

Allowances for uncollectible accounts receivable are maintained based on
historical payment patterns, aging of accounts receivable, write-off history
and industry trends.

Impairment of Long-Lived Assets

In assessing the recoverability of our long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets.

Reorganization Costs

We have incurred costs related to our recapitalization efforts and the
execution of our Stock Purchase Agreement. These nonrecurring costs include
additional legal fees, professional consultant fees, and the retention plan
bonus accruals incurred as part of the preparation for our bankruptcy filing.

Reclassifications

Certain amounts from prior years have been reclassified for consistency
with current presentation. These reclassifications were not material to the
consolidated financial statements.

Adoption of New Accounting Pronouncement

We adopted the news rules under SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, January 1, 2002. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment testing in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. We do not have any recorded goodwill or
indefinite lived intangible assets. If warranted by future acquisitions, we
will comply with the requirements for non-amortization and for periodic
impairment tests as deemed necessary.

We adopted the news rules under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective January 1, 2002. The
new rules on asset impairment supercede SFAS No. 121, and provide a single
accounting method for long-lived assets to be disposed of. Although retaining
many of the fundamental recognition and measurement provisions of SFAS No. 121,
the new rules significantly change the criteria that would have to be met to
classify an asset as held for sale.

As a result of our adoption of the new rules our March 31, 2002, balance
sheet includes

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classifications for assets held for sale separate from
liabilities held for sale. As a condition of our recently executed Stock
Purchase Agreement, the 88 parcels of land previously held for sale have been
reclassified as held for use in accordance with SFAS No. 144. For
reclassification purposes the asset is measured at the lower of the carrying
amount of the asset before it was classified as held for sale, adjusted for any
depreciation (amortization) expense that would have been recognized had the
asset been continuously classified as held and used, or the fair value of the
asset at the date of the subsequent decision not to sell.We reclassified $7.9
million, the current estimated fair market value, into assets held for use.

On September 30, 2001, we evaluated our entire asset portfolio for
impairment in accordance with the provisions of Statement of Financial
Accounting Standard No. 121, Accounting For The Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the existing standard at
that time. In accordance with the adoption of, SFAS No. 144, we are still
required to evaluate our assets for impairment when indicators of impairment
are present and the undiscounted cash flows are not sufficient to recover the
assets carrying value. Any impairment loss is measured by comparing the fair
value of the asset to its carrying value. We have determined that no
additional impairment exists as of March 31, 2002.

We continue to monitor our asset portfolio on a site by site basis for
potential adjustments. Due to the pending sale of a non-core asset, we
recognized a $2.5 million write-down in the three months ended March 31, 2002
as a result of the execution of a letter of intent to sell this specific
property.

Factors That May Affect Future Results

We operate in a rapidly changing environment that involves a number of
risks and uncertainties, some of which are beyond our control. The following
discussion highlights some of the risks and uncertainties that may affect our
future operating results.

Our ability to continue as a going concern may be adversely affected by our
failure to implement a recapitalization or our filing of a Chapter 11
bankruptcy case.

Our consolidated financial statements included elsewhere in this report
have been prepared assuming we will continue as a going concern. Our ability
to continue as a going concern may be adversely affected by our failure to
implement a recapitalization of Pinnacle or our filing of a Chapter 11 case
under the U.S. Bankruptcy Code, and is dependent upon, among other things,
confirmation of a plan of reorganization, our ability to comply with the terms
of any debtor-in-possession facility agreement entered into in connection with
the bankruptcy case and our ability to generate sufficient cash from operations
and financing arrangements to meet our obligations. If the going concern
basis was not appropriate for our consolidated financial statements, then
significant adjustments would be necessary in the carrying value of assets and
liabilities, the revenues and expenses reported, and the balance sheet
classifications used.

There are significant uncertainties relating to bankruptcy proceedings.

Our future results are dependent upon our receipt of additional capital
and a successful recapitalization of Pinnacle. As previously discussed, we
currently anticipate that in order to complete any investment and
recapitalization, it will be necessary for us to file a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code, and the investment and
recapitalization will likely be implemented through the confirmation and
consummation of a plan of reorganization confirmed by the Bankruptcy Court in
the bankruptcy proceedings. We have not yet commenced any bankruptcy
proceedings or submitted any plan of reorganization to a Bankruptcy Court for
approval and cannot make any assurances that we will be able to successfully
obtain any such approval in a timely manner. Failure to obtain any such
approval sought in a timely manner could adversely affect our operating
results, as our ability to obtain financing to fund our operations and our
relations with our customers and suppliers may be harmed by protracted
bankruptcy proceedings. If a plan of reorganization is submitted to a
Bankruptcy
Court, confirmed and implemented, our operating results may be adversely
affected by the possible reluctance of prospective lenders, customers and
suppliers to do business with a company that recently emerged from bankruptcy
proceedings. Other negative consequences that could arise as a result of the
bankruptcy proceedings include, but are not limited to:

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| |  |  | limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the incurrence of significant costs associated with the
reorganization;                                                                                               
|
| |  |  | impacts on our relationship with suppliers and customers,
including loss of confidence in our ability to fulfill contractual
obligations due to financial uncertainty;
|
| |  |  | placing us at a competitive disadvantage compared to our
competitors;                                                                                                 
|
| |  |  | making us more vulnerable to a continued downturn in our
industry or a downturn in the economy in general;                                                            
|
| |  |  | limiting our ability to borrow additional funds; and                                                                                                                  
|
| |  |  | employee attrition.                                                                                                                                                   

Upon the commencement of any bankruptcy proceedings, we would likely seek
the Bankruptcy Courts authorization to pay all accrued pre-petition salaries,
wages and commissions and applicable taxes thereon, as well as medical and
other benefits and other payroll-related liabilities, on an uninterrupted
basis. While we expect that a Bankruptcy Court will likely grant these
authorizations, there can be no assurance that these authorizations will be
obtained.

The terms of our indebtedness impose significant restrictions on us.

The indentures under which the Senior Notes and Convertible Notes have
been issued and our senior credit facility contain covenants that restrict,
among other things, our ability to borrow money, grant additional liens on our
assets, make particular types of investments or other restricted payments, sell
assets or merge or consolidate. Our senior credit facility requires us to
comply with certain financial ratios and tests, under which we are required to
achieve certain financial and operating results. Since September 30, 2001, we
have been out of compliance with financial covenants contained in our senior
credit facility, which non-compliance represented an event of default under our
senior credit facility. We entered into a forbearance agreement with the
lenders under our senior credit facility on November 16, 2001, as amended on
December 12, 2001 and February 6, 2002, and as amended and restated on March 8,
2002 and further amended on April 11, 2002, and amended and reinstated on May
1, 2002, pursuant to which the lenders agreed not to exercise remedies
available to them as a result of this event of default under our senior credit
facility through May 10, 2002. Accordingly, we have classified the outstanding
borrowings under our senior credit facility as a current liability. The terms
of the forbearance agreement: (1) increase the interest rate on our borrowing
by 1.0% to LIBOR plus 3.75% and LIBOR plus 4.0%; (2) eliminate Pinnacle Towers
ability to make additional draws under the senior credit facility; (3) restrict
the amount of money that can be invested in capital expenditures by Pinnacle
Towers; (4) limit Pinnacle Towers ability to incur additional debt; (5) limit
Pinnacle Towers current ability to distribute funds to Pinnacle Holdings in
connection with Pinnacle Holdings Convertible Notes; (6) require us to
establish a $2.5 million cash escrow account to support outstanding letters of
credit; and (7) expires on May 10, 2002. On May 1, 2002, we obtained a renewal
of the forbearance agreement until May 10, 2002, the date by which we are
required under the terms of the forbearance agreement to file the proposed
pre-negotiated bankruptcy plan discussed elsewhere herein. We did not file our
pre-negotiated bankruptcy plan by May 10, 2002, as was required under the terms
of our forbearance agreement. We are working to file our pre-negotiated
bankruptcy plan and anticipate filing it during May 2002. Our forbearance
agreement expired pursuant to its previously announced terms on May 10, 2002,
without further extension. We are continuing discussions with our
lenders to secure a new forbearance agreement. However, we cannot provide
any assurance that we will be able to obtain a new forbearance agreement.

Because of these defaults, the terms of the indentures governing the
Senior Notes and the Convertible Notes and our senior credit facility provide
that the holders of the Senior Notes and the Convertible Notes or the lenders
under our senior credit facility could declare a default and demand

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immediate
repayment and, unless we cure the defaults, they could seek a judgment and
attempt to seize our assets to satisfy the debt to them. The security for our
senior credit facility consists of substantially all of our assets including
the stock of our direct and indirect subsidiaries. The defaults under these
agreements could adversely affect our rights under commercial agreements.

Our existing debt obligations also could affect our financial and operational flexibility, as follows:



| |  |  | they may impair our ability to obtain additional financing in the future;                                                                                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | they will require that a substantial portion of our cash
flow from operations and financing activities be dedicated to the
payment of interest on debt, which will reduce the funds available
for other purposes;
|
| |  |  | they may limit our flexibility in planning for or
reacting to changes in market conditions; and                                                                                                                  
|
| |  |  | they may cause us to be more vulnerable in the event of a
further downturn in our business.                                                                                                                      

Even if our senior credit facility is amended in connection with the
implementation of a recapitalization, we will be subject to covenants that
restrict our operational flexibility and require us to maintain certain
financial ratios, and the lenders under the senior credit facility will have a
security interest in substantially all of our assets and the assets of our
subsidiaries.

The loss of any significant customer or multiple customers totaling a
significant amount could adversely affect our business.

We have certain customers that account for a significant portion of our
revenue. As of March 31, 2002, Arch Wireless Holdings, Nextel, Verizon,
Cingular Wireless, and Sprint represented 13.9%, 10.5%, 4.5%, 4.3% and 3.5%,
respectively, of our revenue, on a run rate basis. On December 6, 2001, Arch
Wireless Holdings filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy
Code. 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
inability or unwillingness to pay, could have a material adverse effect on our
business, results of operations and financial condition. We also had
approximately forty customers file for Chapter 11 protection under the U.S.
Bankruptcy Code and have other customers that are having financial difficulties
due to their inability to access additional capital.

Our senior managements ability to manage our day-to-day business operations
may be adversely impacted by any restructuring and any resulting bankruptcy
proceedings.

Our senior management may be required to expend a substantial amount of
time and effort effecting any restructuring of Pinnacle and any resulting
bankruptcy proceedings, which could have a disruptive impact on managements
ability to focus on the day-to-day operation of our business.

We cannot assure you of the continued listing of our common stock on the Nasdaq
National Market or other exchanges and associations.

Although our common stock is currently listed on the Nasdaq National
Market, we have been notified by Nasdaq that we are not in compliance with the
minimum listing requirements, and that, unless prior to May 15, 2002, the
minimum closing bid price of our common stock is at or above $1.00 for 10
consecutive trading days, our common stock will be delisted from the Nasdaq
National Market. As of May 13, 2002, we have not met the Nasdaq
minimum listing requirements and expect that shortly after
May 15, 2002 we will receive notification from Nasdaq that our
shares will be shortly thereafter delisted unless we appeal the
delisting to Nasdaq's Listing Qualifications Panel. We have not yet
made a final decision as to whether we would appeal Nasdaq's
delisting of our common stock, however, it is not likely that we will
file an appeal. If our common
stock is delisted from the Nasdaq National Market it may be quoted in the
non-Nasdaq over-the-counter market on either Nasdaqs OTC Bulletin Board or the
Pink Sheets and we would be subject to an SEC rule regarding penny stocks
where broker-dealers who sell relevant securities to persons who are not
established customers or accredited investors must make specified suitability
determinations and must

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receive the purchasers written consent to the
transaction prior to the sale. No assurance can be given that we will be able
to maintain eligibility for listing our common stock on the Nasdaq National
Market or any alternative exchange or association. Delisting could make trading
shares of our common stock difficult, potentially leading to a further decline
in our stock price. In addition, it would make it difficult for investors to
sell our common stock or to obtain accurate quotations of the share price of
our common stock.

The change of control provisions contained in the Convertible Notes, the Senior
Notes and our senior credit facility may restrict our ability to attract
additional capital.

Upon the occurrence of certain change of control events, holders of the
Convertible Notes and the Senior Notes may require us to offer to repurchase
all of their notes. Additionally, a change of control (as defined in the
indentures governing the Convertible Notes and the Senior Notes) is an event of
default under our senior credit facility, which would permit the lenders to
accelerate the debt, which also would cause an event of default under the
indenture governing the Senior Notes. Based on our current market
capitalization any significant equity investment in Pinnacle could trigger a
change of control. As a result, new equity investors are likely to be unwilling
to make an investment in Pinnacle outside of Chapter 11 bankruptcy.

Our business depends on demand for wireless communications.

Substantially all of our revenue is derived from leases of communications
site space. Most of these leases are with wireless communications providers,
with approximately 31% being with companies in the paging and wireless data
industries. Accordingly, our future growth depends, to a considerable extent,
upon the continued growth and increased availability of cellular, personal
communications services (PCS) and other wireless communications services. The
paging and wireless data industry in general is currently experiencing
financial difficulties. Our largest customer, Arch Wireless Holdings,
announced on December 6, 2001, their filing for protection under Chapter 11 of
the U.S. Bankruptcy Code. In addition, several other smaller paging and data
customers have filed for bankruptcy and rejected certain of their site leases
with us during the bankruptcy proceedings. We cannot assure you that
additional paging and wireless data customers will not do the same.If they do,
it could have a material adverse effect on our results of operations.

We also 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, PCS, fixed
microwave, specialized mobile radio (SMR), enhanced specialized mobile radio
(ESMR) and other wireless communications providers, has undergone significant
growth in recent years and remains highly competitive, with service providers
in a variety of technologies and two or more providers of the same service (up
to seven for PCS) within a geographic market competing for subscribers. The
demand for rental space on our communications sites is dependent on a number of
factors that are, to a large extent, beyond our control, including the
following:



| |  |  | demand for wireless services;                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | financial condition and access to capital of wireless communications providers;                      
|
| |  |  | strategy of wireless communications providers with
respect to owning or leasing communications sites;
|
| |  |  | government licensing of broadcast rights;                                                            
|
| |  |  | changes in telecommunications regulations; and                                                       
|
| |  |  | general economic conditions.                                                                         

The demand for space on our communications sites is primarily dependent on
the demand for

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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 service 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.

The occurrence of any of these factors could have a material adverse
effect on our business, financial condition or results of operations.

If we are not successful in raising additional capital, we may have to
drastically alter our business plan or liquidate.

Historically, our business plan has been materially dependent upon the
acquisition of additional communications sites. Due to our current inability to
access additional capital, we are unable to fund any material amount of
acquisitions. We historically have financed our capital expenditures, including
acquisitions, and serviced our debt through a combination of borrowings under
bank credit facilities, public debt offerings, bridge financing, equity
issuances, seller financing and cash flow from operations. We currently have no
borrowing capacity under our senior credit facility. In addition, we have
effectively been precluded from accessing necessary capital in light of the
investigation of us by the SEC, the stigma associated with the restatement of
our financial statements and as a result of market conditions, including a
significant decline in the stock valuation of tower sector public companies
over the last year. As a result of these factors, we have been actively seeking
additional capital and considering ways to deleverage our capital structure
with the assistance of our advisors. If our recapitalization is not
implemented or, as a result of these existing market conditions or other
factors, we fail or are unable to raise sufficient capital when needed, we may
have to drastically alter our business plan so as to conserve cash, or sell all
or a portion of our assets, possibly pursuant to liquidation proceedings in
bankruptcy court, or both.

We face substantial barriers to implementing an acquisition strategy.

If we are able to raise additional capital and thereafter refocus our
business on acquiring additional communications sites, our strategy, consistent
with our strategy in the past, will be to acquire additional communications
sites at prices we consider reasonable in light of the operating cash flow we
believe we will be able to generate from these sites when acquired and our
ability to finance such acquisitions. Until last year, 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.
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, and 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.

We have a history of operating losses, anticipate future losses and may never
be profitable.

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, 2000
and 2001, and the three months ended March 31, 2002

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our earnings were
insufficient to cover combined fixed charges and preferred dividends by
approximately $44.5 million, $262.8 million and $5.2 million, respectively. We
expect that losses from operations will continue over the next several years.

Our existing operations do not currently, and are not expected in the near
future to generate cash flows from operations sufficient to pay interest and
principle payments on our currently outstanding indebtedness, and fund
continuing operations and planned capital expenditures.We cannot know when, if
ever, net cash generated by our operations will support our current debt
services, growth and continued operations.

There are certain risks associated with the Motorola Antenna Site Acquisition.

The Motorola Antenna Site Acquisition involved the acquisition of
approximately 1,858 communications sites. We have never completed a
transaction as large as the Motorola Antenna Site Acquisition. Due to the
magnitude, timing, logistical and other constraints of the Motorola Antenna
Site Acquisition, we were unable prior to closing the transaction to access,
analyze and verify all information needed to (1) ascertain the physical
inventory and condition of the assets acquired (including through engineering
surveys of the assets); (2) estimate the fair value of the assets acquired and
liabilities assumed for purposes of purchase price allocation in our financial
statements; (3) identify, evaluate and record the assets acquired and
liabilities assumed for purposes of determining the final purchase price; (4)
assign certain associated Federal Communications Commission (FCC) licenses
from Motorola or other entities to Pinnacle Towers, and (5) properly evaluate
all recorded title and mortgage documents for acquired real estate assets. The
total of our Motorola Antenna Site Acquisition pre- and post-closing
transaction related due diligence and related efforts cost approximately $19.0
million, approximately $17.3 of which was incurred post-closing.

Motorolas representations and warranties in the definitive purchase
agreement between Motorola and us (the Motorola Purchase Agreement) did not
survive the closing of the acquisition. Therefore, our ability to obtain
compensation from Motorola for defects in title, the need for third party and
FCC consents (and the need to make payments to obtain such consents) or other
site-related and other unanticipated issues is limited. We may be able to seek
redress under certain other provisions of the Motorola Purchase Agreement,
including through the purchase price adjustment based on changes in working
capital and the covenant requiring Motorola to provide further assurances as
needed to convey the acquired assets. While we have substantially completed
our post-closing investigation, the future discovery of such issues could have
an impact on our operations and liquidity, which impact could be significant.

In addition, we cannot assure you that tenants on the sites obtained in
the Motorola Antenna Site Acquisition will not cancel their leases. We have
experienced a reduction in the number of communications sites leased by Nextel
for its analog SMR business. We anticipate that Nextel will continue to phase
out its analog SMR business for the foreseeable future.

Pinnacle and one of its current officers and two of its former officers are
defendants in several stockholder class action lawsuits.

Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief
Financial Officer, Jeffrey J. Card, and its former Chief Executive Officer,
Robert J. Wolsey, various current and former directors of Pinnacle, Pinnacles
former accountants, PricewaterhouseCoopers, LLP, and the underwriters of
Pinnacles January 18, 2000 secondary offering, were named as defendants in a
consolidated class action complaint styled In re Pinnacle Holdings Corp.
Securities Litigation, Case No.8:01-CV-624-T-27MSS filed on August 8, 2001, in
the United States District Court for the Middle District of Florida, in Tampa.
The consolidated amended complaint filed August 8, 2001, consolidates a number
of securities class action suits previously filed in the same court. The
plaintiffs named in the consolidated action claim to represent all persons who
purchased our common stock during the period between June 29, 1999 and
March 17, 2001.

The plaintiffs allege that Pinnacle, the directors, the underwriters, and
Messrs. Day and Wolsey violated Section 11 of the Securities Act, by permitting
the publication and dissemination of the prospectus

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for the January 18, 2000,
public offering. The plaintiffs allege that the prospectus contained various
misrepresentations concerning, among other things, the value of Pinnacles
towers, our due diligence investigation and financial statements relating to
the Motorola Antenna Site Acquisition.The plaintiffs have also alleged that the
directors, and Messrs. Day and Wolsey are vicariously liable pursuant to
Section 15 of the Securities Act for Pinnacles alleged violation of Section 11
of the Securities Act. Section 15 of the Securities Act makes those persons
who control a primary violator vicariously liable for the primary violators
violation of Section 11 of the Securities Act.

The plaintiffs further allege that Pinnacle, Messrs. Day, Card and Wolsey,
and the other named defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the Exchange Act) and Rule 10b-5 promulgated
thereunder, by making various allegedly misleading statements relating to
certain of our financial statements, the Motorola Antenna Site Acquisition, the
nature of the SECs investigation concerning our accounting practices and our
relationship with our former accountants, and other matters, in various press
releases and filings with the SEC.The plaintiffs have also alleged that Messrs.
Day, Card and Wolsey violated Section 20 of the Exchange Act, which imposes
vicarious liability on those persons who control a primary violator of Section
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

Plaintiffs have requested compensatory damages, interest, their costs and
expenses incurred in the action including attorneys and experts fees, and
other relief. On October 31, 2001, the defendants filed their motions to
dismiss this complaint. An effect of this motion filing is to postpone any
discovery in this case until after the court rules on the motions.

We intend to respond appropriately and in the best interests of Pinnacle
to the consolidated action; however, we cannot assure you that we will prevail
in such litigation. Securities lawsuits may result in substantial costs,
divert managements attention and other resources, and have a material and
adverse effect on our financial condition and the results of our operations in
the future.

Pinnacle Holdings Inc. is a holding company. Its only source of cash is from
distributions from its subsidiaries and interest earnings of cash invested.

Pinnacle Holdings Inc. is a holding company with essentially no operations
of its own and conducts all of its business through its subsidiaries. The
Senior Notes and the Convertible Notes are 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 Senior
Notes and Convertible Notes, and any of its future obligations.

Pinnacle Holdings Inc.s subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due pursuant to its 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.

Beginning in the quarter ended September 30, 2001, we were out of
compliance with financial covenants contained in our senior credit facility,
which non-compliance represented an event of default under our senior credit
facility. We entered into a forbearance agreement with the lenders under our
senior credit facility on November 16, 2001, as amended on December 12, 2001
and February 6, 2002, and as amended and restated on March 8, 2002 and further
amended as of April 11, 2002, and amended and restated on May 1, 2002, pursuant
to which the lenders agreed not to exercise remedies available to them as a
result of this event of default under our senior credit facility through May
10, 2002. Accordingly, we have classified the outstanding borrowings under our
senior credit facility as a current liability. The terms of the
forbearance agreement: (1) increase the interest rate on our borrowing by
1.0% to LIBOR plus 3.75% and LIBOR plus 4.0%; (2) eliminate Pinnacle Towers
ability to make additional draws under the senior credit facility; (3) restrict
the amount of money that can be invested in capital expenditures by Pinnacle
Towers; (4) limit Pinnacle Towers ability to incur additional debt; (5) limit
Pinnacle Towers current ability to

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distribute funds to Pinnacle Holdings in
connection with the Convertible Notes; (6) require us to establish a $2.5
million cash escrow account to support outstanding letters of credit; and (7)
expires on May 10, 2002. On May 1, 2002, we obtained a renewal of the
forbearance agreement until may 10, 2002, the date by which we are required
under the terms of the forbearance agreement to file the proposed
pre-negotiated bankruptcy plan discussed elsewhere herein. We did not file our
pre-negotiated bankruptcy plan by May 10, 2002, as was required under the terms
of our forbearance agreement. We are working to file our pre-negotiated
bankruptcy plan and anticipate filing it during May 2002. Our forbearance
agreement expired pursuant to its previously announced terms on May 10, 2002,
without further extension. We are continuing discussions with our lenders to
secure a new forbearance agreement. However, we cannot provide any assurance
that we will be able to obtain a new forbearance agreement.

As of March 15, 2002, we stopped paying interest on all of our Convertible
Notes, which resulted in a default under the Convertible Notes indenture and a
cross default under our senior credit facility. There can be no assurance that
we will satisfy the terms necessary in order for our lenders to continue
forbearing from their remedies available as a result of our noncompliance with
our senior credit facility.

Because of these defaults, or, in the case of our senior credit facility,
if we fail to satisfy the conditions under the forbearance agreement, the terms
of our indentures governing the Senior Notes and the Convertible Notes and our
senior credit facility provide that the holders of the Senior Notes and the
Convertible Notes or the lenders under our senior credit facility could declare
a default and demand immediate repayment and, unless we cure the defaults, they
could seek a judgment and attempt to seize our assets to satisfy the debt owed
to them. The security for our senior credit facility consists substantially of
all of our assets including the stock of our direct and indirect subsidiaries.
The defaults under these agreements could adversely affect our rights under
commercial agreements.

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 be 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, 2002, 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 $446.6 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 Convertible Notes or Senior Notes.
Accordingly, holders of the Convertible Notes and Senior Notes are effectively
subordinated to the claims of Pinnacle Holdings Inc.s subsidiaries creditors
to the extent of the assets of the indebted subsidiary.

As is currently contemplated, of the Stock Purchase Agreement provides for
the cancellation of the Senior Notes in exchange for up to $114.0 million (or
$350.77 per $1,000 par value bond) in cash or, at the Senior Note holders
election, a combination of cash and up to 49.0% of New Pinnacles outstanding
common stock. The number of Investor Shares (and hence their cash investment)
will be proportionately decreased by the number of shares purchased by holders
of the Senior Notes. The Stock Purchase Agreement also provides for the
cancellation of our Convertible Notes in exchange for up to $0.5 million in
cash and five year warrants to purchase up to approximately 205,000 shares of
New Pinnacles common stock at approximately two times the price of the
Investor Shares. Convertible Note holders can double this amount to a total of
$1.0 million in cash and warrants to purchase 410,000 shares, representing
approximately 2.0% of New Pinnacles equity capitalization, if the Convertible
Note holders agree to give certain releases.

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

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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 and leasehold interests we acquire and
rely on title warranties from sellers and landlords. Our ability to protect our
rights against persons claiming superior rights in communications sites depends
on the following factors:



| |  |  | our ability to recover under title policies, the policy
limits of which may be less than the purchase price of the
particular site;                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | in the absence of insurance coverage, we rely on title
warranties given by the sellers, which warranties often terminate
after the expiration of a specific period, typically one to three
years;
|
| |  |  | we rely on title covenants from landlords contained in leases; and                                                                                                                               
|
| |  |  | there are significant risks associated with the construction of new towers.                                                                                                                      

The success of our business strategy is dependent in part on our ability
to construct new towers, which has been significantly curtailed due to our
inability to access capital markets. 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
limited amount of 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
projected construction could have a material adverse effect on our business,
financial condition and results of operations.

Competition for site leasing customers is intense and we compete with companies
that have greater financial resources.

We face competition for site leasing customers from various sources,
including:



| |  |  | wireless communications providers and utility companies
that own and operate their own communications site networks and
lease communications site space to other carriers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | site development companies that acquire space on existing
communications sites for wireless communications providers and
manage new tower construction;                   
|
| |  |  | other independent communications site companies; and                                                                                                                      
|
| |  |  | traditional local independent communications site operators.                                                                                                              

Many of these competitors are substantially larger, have greater financial
resources, more customers, longer operating histories, greater brand
recognition and more established relationships than we have. We believe that
site location and capacity, price, quality of service, type of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting communications site
rental companies. We believe that competition for communications site
acquisitions will increase and that additional competitors will enter the tower
rental market, certain of whom may have greater financial and other resources
than we have.

The colocation facility business is difficult to evaluate because of its short
operating history; the divestment of our remaining interest in colocation
facilities could result in an additional loss.

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During 2000, we acquired five carrier neutral colocation facilities. The
business of providing colocation facilities is a new industry. Although a
number of emerging companies are developing similar businesses, we are not
aware of any company that has successfully executed a business plan that
includes colocation facilities. Accordingly, neither you nor we have the
benefit of a comparable historical business model to analyze the colocation
facilities business and its prospects. As a result of our decision to stop
pursuing these colocation facility business opportunities, we have recorded a
loss based on a decline in the fair market value of these assets as compared to
the purchase price we paid for the assets. As of March 31, 2002, we have
divested four of these facilities and are currently attempting to divest the
remaining asset, which could result in an additional loss.

Service and other interruptions could lead to significant costs and disruptions
that could reduce our revenue and harm our business reputation and financial
results.

Because service interruptions are a very serious concern for our
prospective customers, a service interruption or breach of security could be
very costly to us and very damaging to our reputation. Our facilities and
customers equipment are vulnerable to damage from human error, physical or
electronic security breaches, power loss, other facility failures, fire,
earthquake, water damage, sabotage, vandalism and similar events. In addition,
our customers would be adversely affected by the failure of carriers to provide
network access to our facilities as a result of any of these events. Any of
these events or other unanticipated problems at one or more of our facilities
could interrupt our customers ability to provide their services from our
facilities. This could damage our reputation, make it difficult to attract new
customers and cause our existing customers to seek termination of their
contracts with us.

Our business requires compliance and approval with regulatory authorities.

The FCC and Federal Aviation Administration (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.

We hold FCC licenses for our own communications needs in connection with
our tower operations. Those licenses must be renewed periodically and are
subject to revocation in the event of non-compliance with FCC regulations. The
revocation or non-renewal of any of such licenses could have a material adverse
effect on our operations.

Local regulations, including municipal or local ordinances, zoning
restrictions and restrictive covenants imposed by community developers, vary
greatly, but typically require tower owners to obtain approval from local
officials or community standards organizations prior to tower construction.
Local regulations can delay or prevent new tower construction or site upgrade
projects, thereby limiting our ability to respond to customer demand. In
addition, such regulations increase costs associated with new tower
construction. We cannot assure you that existing regulatory policies will not
adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted that increase such delays or result
in additional costs to us. Such factors could have a material adverse effect on
our future growth. Our customers may also become subject to new regulations or
regulatory policies that adversely affect the demand for tower sites. We cannot
assure you that existing regulatory policies will not adversely affect the
timing or cost of new tower construction or that additional regulations will
not be
adopted that increase such delays or result in additional costs to us.
Such factors could have a material adverse effect on our future growth. Our
customers may also become subject to new regulations or regulatory policies
that adversely affect the demand for tower sites.

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Our business strategy will be affected by, among other things, our ability
to obtain the permits, licenses and zoning relief necessary to build new
towers. The tower rental industry often encounters significant public
resistance when attempting to obtain the necessary permits, licenses and zoning
relief for construction or improvements of towers. We cannot assure you that we
can obtain the permits, licenses and zoning relief necessary to continue the
expansion of our communications site rental business. The failure to obtain
such permits, licenses and zoning relief would have a material adverse effect
on our business, financial condition and results of operations.

Our success depends upon our retaining key executives.

Our success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance personnel, some of whom may be difficult to replace.
Although we maintain employment agreements and retention and other plans with
certain of our employees, we cannot assure you that the services of such
personnel will continue to be available to us. Uncertainties associated with
our current financial condition decrease the likelihood that they will remain
with us. We do not maintain key man life insurance policies on our executives
that would adequately compensate us for any loss of services of such
executives. The loss of the services of these executives could have a material
adverse effect on our business.

Competing technologies and other alternatives could reduce the demand for our
services or require us to incur additional costs.

Most types of wireless services currently require ground-based network
facilities, including communications sites, for transmission and reception. The
extent to which wireless service providers lease such communications sites
depends on a number of factors beyond our control, including the level of
demand for such wireless services, the financial condition and access to
capital of such providers, the strategy of providers with respect to owning or
leasing communications sites, government licensing of communications services,
changes in telecommunications regulations and general economic conditions. In
addition, wireless service providers frequently enter into agreements with
competitors allowing each other to utilize one anothers wireless
communications facilities to accommodate customers who are out of range of
their home providers services. Wireless service providers may view such
agreements as a superior alternative to leasing space for their own antenna on
communications sites we own. The proliferation of such agreements could have a
material adverse effect on our business, financial condition or results of
operations.

The emergence of new technologies that do not require terrestrial antenna
sites and can be substituted for those that do also could have a negative
impact on our operations. For example, the FCC has granted license applications
for four low-earth orbiting satellite systems that are intended to provide
mobile voice or data services. In addition, the FCC has issued licenses for
several low-earth orbiting satellite systems that are intended to provide
solely data services. Although such systems are currently highly
capital-intensive and technologically untested, mobile satellite systems could
compete with land-based wireless communications systems, thereby reducing the
demand for the infrastructure services we provide. The occurrence of any of
these factors could have a material adverse effect on our business, financial
condition or results of operations.

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 our
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, we cannot assure you 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.

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The FCC requires tower owners subject to the agencys antenna structure
registration program to comply at the time of registration with federal
environmental rules that may restrict the siting of towers. Under these rules,
tower owners are required initially to identify whether proposed sites are in
environmentally sensitive locations. If so, the tower owners must prepare and
file environmental assessments, which must be reviewed by the FCC staff prior
to registration and construction of the particular towers.

Our carrier neutral colocation facility contains tanks for the storage of
diesel fuel and significant quantities of lead acid batteries to provide
back-up power generation and uninterrupted operation of our customers
equipment. We cannot assure you that these systems will at all times remain
free from leaks or that the use of these systems will not result in spills. Any
leak or spill, depending on such factors as the material involved, quantity and
environmental setting could result in interruptions to our operations and
expenditures that could have a material adverse effect on our business,
financial condition and results of operations.

If we sustain damage to our communications sites in excess of our insurance
coverage, our business could be adversely affected.

Our communications sites 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 could be subject to claims relating to risks concerning potential negative
health effects of radio frequency emissions.

Along with wireless communications providers that utilize our
communications sites, we are subject to government requirements and other
guidelines relating to radio frequency emissions. The potential connection
between radio frequency emissions and certain negative health effects,
including some forms of cancer, has been the subject of substantial study by
the scientific community in recent years. To date, the results of these studies
have been inconclusive. Although we have not been subject to any claims
relating to radio frequency emissions, we cannot assure you that we will not be
subject to such claims in the future, which could have a material adverse
effect on our results of operations and financial condition.

If we fail to qualify as a REIT, we will be subject to a variety of taxes and
penalties.

We have elected to be taxed as a REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended (the Code). As a REIT, we and our
qualified REIT subsidiaries (other corporations wholly owned by us which are
not taxable REIT subsidiaries) are not generally subject to Federal income
tax. We believe that from our inception through 1999, we have been organized
and operated in such a manner as to qualify for taxation as a REIT. For 2000
and subsequent years, we believe that our qualification for taxation as a REIT
is dependent on the approval by the Internal Revenue Service of an application
for an extension of time for each of the four United Kingdom (UK) entities in
which we own a direct or indirect equity interest to each file an election to
be treated for U.S. income tax purposes as a pass-through entity rather than a
corporation.

To qualify and remain qualified as a REIT, we are required on a continuing
basis to satisfy
numerous, detailed requirements pertaining to our organization, sources
and amounts of income, level of distributions, assets owned, and diversity of
stock ownership, among others. Among the numerous requirements that must be
satisfied with respect to each taxable year in order to qualify and remain
qualified as such, a REIT generally must:

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| |  |  | distribute to stockholders 90% (95% prior to January 1, 2001)
of its taxable income computed without regard to net capital gains
and deductions for distributions to stockholders and 90% (95% prior
to January 1, 2001) of certain foreclosure income;                                                                                                                                                                                                                                                                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | maintain at least 75% of the value of its total assets in real
estate assets (generally real property and interests therein, cash,
cash items and government securities);                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | derive at least 75% of its gross income from investments in
real property or mortgages on real property;                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | derive at least 95% of its gross income from real property
investments described above and from dividends, interest and gain
from the sale or disposition of stock and securities and certain
other types of gross income;                                                                                                                                                                                                                                                                                                                      
|
| |  |  | have transferable shares of ownership or beneficial interest;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | not have any accumulated earnings and profits attributable to
a non-REIT year as of the close of any taxable year, including for
this purpose any such accumulated earnings and profits carried over
or deemed carried over from a C corporation;                                                                                                                                                                                                                                                                                           
|
| |  |  | as of the end of each calendar quarter, not own securities of
any single issuer which possess greater than ten percent of the total
voting power of the outstanding securities of such issuer and,
effective on or after January 1, 2001, which have a value of greater
than ten percent of the total value of all outstanding securities of
any single issuer as well, unless such other issuer is itself a REIT
or is either a qualified REIT subsidiary or a taxable REIT
subsidiary with respect to the REIT owning such securities; and
|
| |  |  | as of the end of each calendar quarter, not own securities of
taxable REIT subsidiaries which collectively constitute in excess
of twenty percent of the total assets of the REIT and not own
securities of any single issuer other than a qualified REIT
subsidiary or a taxable REIT subsidiary which have an aggregate
value in excess of five percent of the value of the total assets of
such REIT.                                                                                                                                  

In January 2002, we became aware that four UK entities, in which we have
owned since 2000 a direct or indirect equity interest, each failed to file a
timely election with the Internal Revenue Services to be treated for U.S. tax
purposes as a pass-through entity rather than as a corporation, which is the
default classification in the absence of a timely election. An application has
been filed with the Internal Revenue Service for an extension of time to file
such election retroactive to 2000, and we anticipate that such application will
be approved. However, if such application is not approved, then the equity
interests which we own, directly or indirectly, in such UK entities will
constitute the ownership of securities of a corporation in excess of the
REIT-qualification limitation described above which could result in the loss of
our REIT status for 2000 and up to the four succeeding years. We have not
provided for this exposure in our financial statements presented elsewhere as
we believe the likelihood of an unfavorable outcome is unlikely. The loss of
our REIT status may adversely affect our ability to consummate a
recapitalization with potential investors and other third parties.

The Federal tax rules and regulations relating to REITs are highly
technical and complex, and our qualification as a REIT during each taxable year
(including prior years) will depend on our continuing ability to meet these
requirements, through actual annual operating results, income distribution
levels, stock ownership, and assets owned and sources of income received.
Certain of these requirements involve factors that are not entirely within our
control. Therefore, we cannot be certain that we have operated or
will operate in a manner so as to qualify or remain qualified as a REIT
even if the application described in the preceding paragraph is approved. Any
distributions made on the belief that we qualify as a REIT would not be
recoverable from our stockholders in the event it is subsequently determined
that we did not qualify as a REIT during the taxable year of such
distributions.

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Income tax regulations provide that real estate assets, which are
required to constitute at least 75% of the value of our total assets, means
land or improvements thereon, such as buildings or other inherently permanent
structures thereon, including items that are structural components of such
buildings or structures. The Internal Revenue Service has ruled in a revenue
ruling that transmitting and receiving communications towers built upon pilings
or foundations similar to our towers, as well as ancillary buildings, heating
and air conditioning systems and fencing constitute inherently permanent
structures and are therefore real estate assets for purposes of the foregoing
requirement. However, a number of our acquisitions have involved, and our
future acquisitions may involve, assets different than the towers and related
structures that were the subject of such favorable revenue ruling and for which
there is no clear guidance concerning the potential impact that such assets may
have on our continued ability to satisfy the REIT qualification requirements.
Consequently, we are likely to encounter a greater number of interpretive
issues under the REIT qualification rules than other REITs. In addition, our
acquisitions will in many instances require special planning or structuring in
order to retain our qualification as a REIT, including, for example, acquiring
such assets through subsidiaries to the extent permissible under the REIT
qualification requirements. Although we have previously considered whether to
voluntarily terminate our REIT election because of the substantial limitations
imposed on our operations by the REIT qualification requirements, we currently
intend to maintain our REIT qualification. However, we may again in the future
consider whether to voluntarily terminate our REIT election. Moreover,
depending on our assessment of the strategic importance of acquisitions that
may become available to us in our existing line of business or in complementary
non-real estate based communications site or services activities, we may
acquire, operate and derive income from assets, businesses or entities that
result in an involuntary termination of our REIT election for failure to
satisfy one or more of the REIT qualification requirements. In this regard, we
have previously contractually committed to acquire, and in certain instances
have acquired, certain assets before confirming that such assets, and the
income derived from such assets, would permit us to continue to meet the
qualification requirements for a REIT, and we may do so again in the future.
To date, subsequent to making each such commitment or acquisition of non-REIT
or potentially non-REIT assets, we structured the ownership of the assets so
acquired in a manner that we believe ensured and will continue to ensure our
qualification as a REIT.

If we cease to remain qualified as a REIT and we cannot utilize any of the
relief provisions that may be applicable, or if we terminate our REIT election
voluntarily, we will remain disqualified as a REIT for that year and the next
four years, and will be subject to corporate level income tax at regular
corporate rates on our net income unreduced by distributions to stockholders,
together with interest and penalties to the extent applicable to prior periods.
However, because we have not reported any net taxable income (determined before
the deduction for dividends paid) in any of our corporate income tax returns
since our filing of an election to be taxed as a REIT, unless our reported net
taxable loss is adjusted, any corporate income tax liability attributable to a
retroactive determination by the Internal Revenue Service that we, to date,
failed to satisfy all of the requirements for REIT qualification during any
such year would likely be minimal. At the present time, we do not anticipate
that we will recognize net taxable income for the foreseeable future.
Nevertheless, with respect to any year in which we recognize positive net
taxable income, the loss of REIT status or a determination that we did not
qualify as a REIT may have a material adverse affect on our financial condition
or results from operations. In such circumstances, we may have made
distributions to our stockholders on the belief that such distributions were
necessary to retain our REIT status; however, we would neither be entitled to
receive such distributions back from our stockholders nor be entitled to a tax
deduction for such distributions.

Even if we qualify as a REIT, we are required to pay some income and property
taxes.

Even if we qualify as a REIT, we are required to pay some Federal, state
and local taxes on our income and property. As a REIT, we will be subject to
Federal income tax under 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 of foreclosure property that is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying
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

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general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if we should fail to satisfy the gross income test, 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 based on the extent to which
we failed such test. Sixth, if we should fail to distribute during each
calendar year at least the sum of (i) 90% (95% prior to January 1, 2001) of our
REIT ordinary income for such year, (ii) 90% (95% prior to 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. Seventh, we will be subject to
a 100% excise tax to the extent that certain transactions between us or our
tenants and a taxable REIT subsidiary of ours are not conducted on an arms
length basis. Eighth, 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.

The results described in the last sentence of the preceding paragraph with
respect to the recognition of built-in gain assume that we have timely and
validly made the requisite election pursuant to IRS Notice 88-19 or the
temporary regulations as to such acquisitions and will do so in the future as
to past and future acquisitions. If we have not timely and validly made such
election in the manner described in such notice or temporary regulations, then
we are required to recognize on a current basis the built-in-gain with
respect to all of the assets so acquired for that year unless the IRS grants us
relief from such failures. We recently became aware that we failed to make
elections on a timely basis in the manner contemplated by Notice 88-19 and the
temporary regulations, and have requested a private letter ruling from the
Internal Revenue Service that we may do so on a retroactive basis with respect
to all of our acquisitions of C corporations. If the Internal Revenue
Service fails to rule favorably on our request, we may owe tax, interest and
penalties on the built-in gain required to be recognized during the year in
which we acquired one or more of such C corporations. In addition, if the Internal
Revenue Service fails to rule favorably on our request, the potential liability
for tax, interest and penalties may adversely affect our ability to consummate
a recapitalization with potential investors and other third parties. We
estimate that the aggregate amount of tax, interest and penalties for all such
acquisitions is approximately $30.0 million. To the extent we are required to
recognize the built-in gain in the year of acquisition, the built-in gain
would not be subject to Federal income tax upon a sale by us of the assets
involved.

In addition, any net taxable income earned directly by our non-controlled
subsidiaries and our taxable REIT subsidiaries will be subject to Federal,
state and local corporate tax. In addition, the REIT tax law limits each
taxable REIT subsidiary of ours in its ability to deduct interest payments
made to us to ensure that each is subject to any appropriate level of corporate
income tax. In addition, we will be subject to a 100% penalty tax on some
payments that we receive if the economic arrangements between us or our
tenants, and any taxable REIT subsidiary, are not comparable to similar
arrangements between unrelated parties.

We expect to experience volatility in our stock price and the trading price of
the Senior Notes and the Convertible Notes that could affect your investment in
them.

The securities markets have from time to time experienced significant
price and volume fluctuations that have affected the market price for the
securities 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 further material decline in the market price of our
securities. 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 are currently involved in this type of
litigation. We have incurred substantial expense and diversion of managements
attention and

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resources associated with this litigation, which could have a
material adverse effect upon our business and operating results.

We have adopted anti-takeover provisions that could affect the sale of Pinnacle
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. We adopted a stockholder rights agreement, which could make it
considerably more difficult or costly for a person or group to acquire control
of Pinnacle in a transaction that our board of directors opposes. These
provisions, alone or in combination with each other, may discourage
transactions involving actual or potential changes of control, including
transactions that otherwise could involve payment of a premium over prevailing
market prices to holders of common stock, or could limit the ability of our
stockholders to approve transactions that they may deem to be in their best
interests.

Terrorist attacks in the United States could negatively affect our operations
and the general economy.

Some of our communications sites are located on the rooftops of landmark
or other tall or significant buildings located throughout the United States. On
September 11, 2001, the United States was the target of terrorist attacks at
the World Trade Center buildings in New York City and the Pentagon in
Washington, D.C. One of our communications sites was located on the rooftop of
the World Trade Center. These terrorist attacks have caused instability in the
global economy and have led to military action by the United States against
suspected terrorists. Such military action may lead to further acts of
terrorism, including terrorist attacks at locations where we have
communications sites, and/or civil disturbances in the United States or
elsewhere, which may have a material adverse effect on our business, financial
condition and operating results.

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Item 3.     Quantitative and Qualitative Disclosures About Market Risk:

We are exposed to market risks from changes in interest rates earned on
our long-term debt. The impact on earnings and value of our long-term debt is
subject to change as a result of movements in market rates and prices. As of
March 31, 2002, and December 30, 2001, pursuant to the requirements of our
senior credit facility, we had $361.5 million and $367.8 million, respectively,
in long-term debt subject to variable interest rates of which $260.0 million
was effectively hedged using interest rate swap agreements for both periods.
The remaining $510.4 million and $517.7 million of long term debt as of March
31, 2002 and December 30, 2001, respectively, is subject to fixed rates of
interest. Our variable rate debt, net of hedged amounts, exposed to changes in
market interest rates was $101.5 million and $107.8 million as of March 31,
2002 and December 31, 2001, respectively.

The following table presents the future principal payment obligations and
weighted-average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term indebtedness of $325.0
million under the Senior Notes and $187.5 million under our Convertible Notes,
$25.0 million under our seller financed notes and $361.5 million under our
senior credit facility as of March 31, 2002:

|                                                        |  |                                       |         |      |  |      |   |      |  |      |   |            |  |  |   |  |  |  |   |  |  |  |   | 
|------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | - | ---- |  | ---- | - | ---------- |  |  | - |  |  |  | - |  |  |  | - | 
|                                                        |  | Expected Maturity Date (in thousands)
|                                                        |  |                                      
|                                                        |  | 2002                                  |         | 2003 |  | 2004 |   | 2005 |  | 2006 |   | Thereafter
|                                                        |  |                                       |         |      |  |      |   |      |  |      |   |           
|Liabilities                                             |  |                                       |         |      |  |      |   |      |  |      |   |            |  |  |   |  |  |  |   |  |  |  |   | 
|Long-term Debt, in default                              |  |                                       |         |      |  |      |   |      |  |      |   |            |  |  |   |  |  |  |   |  |  |  |   | 
|Fixed Rate (10.0% and 5.5%)                             |  |                                       | 512,550 |      |  |      |  |      |  |      |  |            |  |  |  |  |  |  |  |  |  |  |  | 
|Variable Rate (Weighted Average Interest Rate of 8.93%) |  |                                       | 386,591 |      |  |      |  |      |  |      |  |            |  |  |  |  |  |  |  |  |  |  |  | 

Our primary market risk exposure relates to the following:



| |  |  | the interest rate risk on long-term and short-term borrowings;                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to refinance the Senior Notes and the Convertible Notes at maturity at market rates;                              
|
| |  |  | the impact of interest rate movements on our ability to meet
interest expense requirements and exceed financial covenants; and
|
| |  |  | the impact of interest rate movements on our ability to
obtain adequate financing to fund future acquisitions.                

We manage interest rate risk on our outstanding long-term and short-term
debt through our use of fixed and variable rate debt and through the use of
interest rate swaps. The swap agreements convert the credit agreement floating
rate debt from LIBOR plus a margin, as defined in the agreement, to fixed rate
debt plus the applicable margin under the credit agreement on an amount equal
to the notional value of the interest rate swap. As of March 31, 2002, and
December 31, 2001, we had one interest rate swap agreement for a notional
amount of $260.0 million which requires us to pay interest at a fixed rate of
6.37% versus LIBOR and matures on December 31, 2002, and includes an option
whereby the counterparty may extend the maturity to December 31, 2003, with all
other terms remaining unchanged with the exception of the notional amount,
which will decrease to $130.0 million effective December 31, 2002.

While we cannot predict or manage our ability to refinance existing debt
or the impact interest rate movements will have on our existing debt, we
continue to evaluate our financial position on an ongoing
basis.

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Inflation

Because of the relatively low levels of inflation experienced in 2001 and
the three months ended March 31, 2002, inflation did not have a significant
effect on our results in such periods.

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PART II.     OTHER INFORMATION

Item 1.     Legal Proceedings.

Stockholder Class Actions

Pinnacle, its Chief Executive Officer, Steven R. Day, its former Chief
Financial Officer, Jeffrey J. Card, and its former Chief Executive Officer,
Robert J. Wolsey, various current and former directors of Pinnacle, Pinnacles
former accountants, PricewaterhouseCoopers, LLP, and the underwriters of
Pinnacles January 18, 2000 secondary offering, were named as defendants in a
consolidated class action complaint styled In re Pinnacle Holdings Corp.
Securities Litigation, Case No.8:01-CV-624-T-27MSS filed on August 8, 2001, in
the United States District Court for the Middle District of Florida, in Tampa.
The consolidated amended complaint filed August 8, 2001, consolidates a number
of securities class action suits previously filed in the same court. The
plaintiffs named in the consolidated action claim to represent all persons who
purchased our common stock during the period between June 29, 1999 and March
17, 2001.

The plaintiffs allege that Pinnacle, the directors, the underwriters, and
Messrs. Day and Wolsey violated Section 11 of the Securities Act, by permitting
the publication and dissemination of the prospectus for the January 18, 2000
secondary offering. The plaintiffs allege that the prospectus contained
various misrepresentations concerning, among other things, the value of
Pinnacles towers, our due diligence investigation and financial statements
relating to the Motorola Antenna Site Acquisition.The plaintiffs have also
alleged that the directors, and Messrs. Day and Wolsey are vicariously liable
pursuant to Section 15 of the Securities Act for Pinnacles alleged violation
of Section 11 of the Securities Act. Section 15 of the Securities Act makes
those persons who control a primary violator vicariously liable for the
primary violators violation of Section 11 of the Securities Act.

The plaintiffs further allege that Pinnacle, Messrs. Day, Card and Wolsey,
and the other named defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder, by making various allegedly misleading
statements relating to certain of our financial statements, the Motorola
Antenna Site Acquisition, the nature of the SECs investigation concerning our
accounting practices and our relationship with our former accountants, and
other matters, in various press releases and filings with the SEC.The
plaintiffs have also alleged that Messrs. Day, Card and Wolsey violated Section
20 of the Exchange Act, which imposes vicarious liability on those persons who
control a primary violator of Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder.

Plaintiffs have requested compensatory damages, interest, their costs and
expenses incurred in the action including attorneys and experts fees, and
other relief. On October 31, 2001, the defendants filed their motions to
dismiss this complaint. An effect of this motion filing is to postpone any
discovery in this case until after the court rules on the motions.

We intend to respond appropriately and in the best interests of Pinnacle
to the consolidated action; however, we cannot assure you that we will prevail
in such litigation. Securities lawsuits may result in substantial costs,
divert managements attention and other resources, and have a material and
adverse effect on our financial condition and the results of our operations in
the future.

Claims Related to Acquisitions

We entered into a jointly structured transaction involving Pinnacles
purchase of approximately 320 communications towers from Corban Communications,
Inc. (Corban) and their agreement to lease the towers for the purpose of
operating a microwave transmission business. In the first transaction, Pinnacle
acquired from Corban the stock of QTI, Inc. (QTI), which owned approximately
170 such tower facilities, pursuant to a Stock Purchase Agreement dated
February 24, 2000 (the QTI Stock Purchase Agreement). Pursuant to this
agreement, Pinnacle and Corban agreed to enter into a Master Lease Agreement
for Corbans lease of the sites (the Master Lease Agreement) acquired by
Pinnacle from QTI and those sites to be acquired by Pinnacle from Western
Tele-Communications, Inc. (WTCI). Notwithstanding the parties agreement, the
Master Lease Agreement was never executed. Pursuant to an Asset Purchase
Agreement dated June 2, 2000, between Pinnacle and WTCI (The WTCI Asset
Purchase Agreement), Pinnacle acquired 150 tower sites from WTCI with the
intent of leasing those sites to Corban per the jointly

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structured transaction. Although the parties never executed the Master
Lease Agreement, Corban has occupied the sites acquired by Pinnacle in both
transactions and until the middle of 2001, paid the gross amount of rent due
per the QTI Stock Purchase Agreement and WTCI Asset Purchase Agreement.
Disputes regarding which party owned the equipment shelters and buildings at
the sites and expenses to be paid by the respective parties in operating the
sites arose between the parties while finalizing the terms of the Master Lease
Agreement. Corban unilaterally started to offset the rents due Pinnacle by
certain amounts it had purportedly paid for expenses that were allegedly due by
Pinnacle and Pinnacle forwarded to Corban a notice of default for
rent due. In November 2001, Corban filed a complaint in the 193rd
District Court, Dallas, Texas. Corban is
seeking the courts declaration as to which party is responsible for the
expenses it claims to have paid, for injunctive relief preventing Pinnacle from
terminating Corbans occupancy rights at the sites and for damages arising from
Pinnacles breach in performance under the QTI Stock Purchase Agreement, WTCI
Asset Purchase Agreement and the unexecuted Master Lease Agreement. Initially,
the parties agreed to defer any action on the injunctive relief because
Pinnacle was willing to forego any termination rights in expectation that the
parties could reconcile their differences in the amount of rent due and expense
offset rights; however, Corban has recently sought that relief arising from
continued disputes over access to the equipment shelters and buildings.
Pinnacle intends to actively defend the claims asserted by Corban and to seek
recovery of the unpaid rent, which totals in excess of $0.5 million.

We executed a Master Lease Agreement with 210 N. Tucker, LLC (210 N.
Tucker) at the time of our purchase of a building in St. Louis from 210 N.
Tucker (the 210 Master Lease Agreement). Under the terms of the 210 Master
Lease Agreement, 210 N. Tucker promised to pay monthly rent with the amount of
rent to be reduced by the amount of rent paid by new tenants after July 1,
2000. In September 2001, we filed a Second Amended Complaint against 210 N.
Tucker and Jerome and Judith Glick in the United States District
Court for the Eastern District of Missouri. Essentially, we assert
three claims in several counts: (1) claims under the 210 Master Lease Agreement
for rent due for the period July 1, 2000 until the termination as of October 1,
2001 and for the present value of the remainder of the lease period, (2) a
claim for rent that Jerome Glick received from a tenant that should have been
paid over to us, and (3) an alternative claim of unjust enrichment on the
theory that if the defendants position is correct, 210 N. Tucker was unjustly
enriched because we did not receive our full value at the time of purchase.
The defendants have asserted numerous defenses and deny any liability. The
final resolution of these claims cannot be determined at this time but we
intend to vigorously assert our claims, which total in excess of $3.6 million.

Service Provider Agreement

During 2000, we entered into a tower services agreement with a service
provider to provide site audit, site maintenance, and program management
services regarding site improvement and capacity upgrades for an initial 204
sites and additional sites that may be added by mutual agreement. The tower
services agreement provided for us to purchase a minimum level of tower
services at $10.0 million per annum and a penalty payment of 40% of any
shortfall in the minimum purchase levels. Based on what we considered to be
substandard performance and the service providers inability to respond to
several of our project requests, we did not fulfill our minimum purchase
requirement and terminated the services contract. The service provider made an
original claim for $4.1 million. In addition, in November 2001, the service
provider obtained a lien on $4.1 million of cash, which effectively restricted
our use of such cash. On January 25, 2002, we agreed to pay the service
provider $2.0 million for termination of the services contract. The amount was
accrued by us as a charge to current operations in the third quarter of fiscal
year 2001. As a result, the lien on the $4.1 million was released. In addition,
as part of the settlement, the service provider agreed to pay us $2.0 million
as full payment of its obligations under a separate master lease agreement with
us.

Others

We are also from time to time involved in ordinary litigation incidental
to the conduct of our business. We believe that none of such pending
litigation will have a material adverse effect on our business, financial
condition or results of operations.

44



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##### 



Item 2.     Changes in Securities and Use of Proceeds.

Not applicable.

Item 3.     Defaults Upon Senior Securities.

As part of our plan for recapitalization and restructuring of our debt,
described in the section of this report titled Managements Discussion and
Analysis of Financial Condition and Results of Operations, beginning in the
first quarter of 2002 we stopped paying interest payments on all of our
Convertible Notes. The following table lists the affected series of debt
securities, sets forth the scheduled debt payments that were not made during
the first quarter of 2002 and shows the payment arrearage as of May 15, 2002:

|                                    |  |                         |  |                  |           |                    |  |   |           |  |  | 
|----------------------------------- |  | ----------------------- |  | ---------------- | --------- | ------------------ |  | - | --------- |  |  | 
|Debt Series and                     |  |                         |  |                  |           |                    |  |   |           |  |  | 
|Aggregate Principal                 |  | Type and Date           |  | Amount Unpaid    |           | Total Arrearage at
|Amount Outstanding                  |  | of Defaulted Payment    |  | in First Quarter |           | May 15, 2002      
|                                    |  |                         |  |                  |           |                   
|5.5 % Convertible
Subordinate Notes |  | Interest March 15, 2002 |  | $                | 5,157,625 |                    |  | $ | 5,157,625 | 
|Due 2007 ($187.5 million)           |  |                         |  |                  |           |                    |  |   |           |  |  | 

Item 4.     Submission of Matters to a Vote of Security Holders.

Not applicable

Item 5.     Other Information.

Not applicable

Item 6.     Exhibits and Reports on Form 8-K.



| | (a) |  | The Exhibits listed in the Exhibit Index are filed as part of this
report.                  
| | --- |  | ----------------------------------------------------------------------------------------------
|
| | (b) |  | During the quarter ended March 31, 2002, we filed no Current Reports
on Form 8-K with the SEC.

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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                          |                                                         
|------------------ |  | -------------------------------------------------------- | --------------------------------------------------------
|                   |  | Pinnacle Holdings Inc.                                  
|                  
|Date: May 13, 2002 |  | By:                                                      | /s/ William T. Freeman                                  
|                  
|                   |  |                                                          | William T. Freeman
Chief Financial Officer
and Secretary
|                  
|                   |  | Duly Authorized Officer and Principal Financial Officer.

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##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                             
|3.1         |  | Amended and Restated Certificate of Incorporation of Pinnacle
Holdings Inc. (1)                                                                                                                                                                                                                                                                                                             
|3.2         |  | Bylaws of Pinnacle Holdings Inc. (1)                                                                                                                                                                                                                                                                                                                                                        
|10.1        |  | Second Amendment, Reinstatement and Extension of First Amended
and Restated Limited Forbearance Agreement dated May 1, 2002.                                                                                                                                                                                                                                                                
|10.2        |  | Securities Purchase Agreement by and among Pinnacle Holdings
Inc., a Delaware corporation and Pinnacle Towers Inc., a
Delaware corporation, on the one hand, and Fortress Registered
Investment Trust, a Delaware business trust, and Greenhill
Partners, L.P., a Delaware limited partnership, and its
related partnerships identified on the signature pages of the
Purchase Agreement (2)
|10.3        |  | Form of Lock-up, Forbearance, and Voting Agreement (2)                                                                                                                                                                                                                                                                                                                                      



|(1) |  | Incorporated by reference to Pinnacle Holdings Inc.s Registration
Statement on Form S-4 filed with the Securities and Exchange Commission
on April 1, 1998 (File No. 333-49147).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Incorporated by reference to Pinnacle Holdings Inc.s Form 8-K filed
with the Securities and Exchange Commission on April 29, 2002 (File No.
000-24773).                         

47